Swing Trading With Momentum On Your Side by Ken Calhoun
Candles, Cups, Gaps, And Pivots
Seeing a simple breakout may convince you to place a trade, but how do you know if a breakout is really a breakout? Heres one way you can jump into a trade and not get caught off-guard.
Developing a consistent approach to identifying and trading breakouts that continue in an uptrend after a trade has been placed is a common challenge faced by active traders. Traders may often enter a position based on a simple breakout above new highs, which subsequently consolidates or pulls back, causing stop losses.
Trading breakouts based on simple price action or candle-stick patterns alone runs the risk of buying near a pivot or exhaustion area. Similarly, relying too heavily on complex lagging indicators like moving average convergence/divergence (MACD) crossovers, relative strength index (RSI), or stochastics can generate false positive entry signals and lead to overtrading weak signals.