Part I
Breakouts: Transitioning into a New Trend
The market is always trying to break out, and then the market tries to make every breakout fail. This is the most fundamental aspect of all trading and is at the heart of everything that we do. One of the most important skills that a trader can acquire is the ability to reliably determine when a breakout will succeed or fail (creating a reversal). Remember, every trend bar is a breakout, and there are buyers and sellers at the top and bottom of every bull and bear trend bar, no matter how strong the bar appears. Since every trend bar is a breakout and trend bars are common, traders must understand that they have to be assessing every few bars all day long whether a breakout will continue or fail and then reverse. This is the most fundamental concept in trading, and it is crucial to a trader's financial success to understand it. A breakout of anything is the same. Even a climactic reversal like a V bottom is simply a breakout and then a failed breakout. There are traders placing trades based on the belief that the breakout will succeed, and other traders placing trades in the opposite direction, betting it will fail. The better traders become at assessing whether a breakout will succeed or fail, the better positioned they are to make a living as a trader. Will the breakout succeed? If yes, then look to trade in that direction. If no (and become a failed breakout, which is a reversal), then look to trade in the opposite direction. ...
