2009.05.30 RULE OF THUMB: DO NOT REVERSE ON BREAKOUT CANDLES

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TheRumpledOne
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2009.05.30 RULE OF THUMB: DO NOT REVERSE ON BREAKOUT CANDLES

Postby TheRumpledOne » Sat May 30, 2009 6:20 pm

2009.05.30 RULE OF THUMB: DO NOT REVERSE ON BREAKOUT CANDLES

The pirates were discussing trading after the market closed. One topic was trading reversals. The general consensus was NOT to enter a reversal on a breakout candle. It's better to let the candle close and then wait to see if price is reversing.

Image

In the first example, you can see price broke through dynamic resistance and pushed the red dot up. A reversal trade would have been a loser.

Image

In the next example, you can see price broke through the upper Bollinger band and reversing on a breakout candle would have been a loser.

RULE OF THUMB: DO NOT ENTER A REVERSE TRADE ON A BREAKOUT CANDLE.
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!

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Postby flossnhoss » Sun May 31, 2009 5:46 am

While I understand the convention, how far do you consider this rule of thumb? That is, down to what timeframe? I typically hold off on M15 breaks, but find myself continually breaking the rule of DTB to go against the H1 candle if I sense the price action is slowing/reversing and other surrounding circumstances support (ie approaching S/R etc). Perhaps I've just been lucky, but the first 3 months of trading this have worked quite well for me.

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Postby darmawan9672 » Sun May 31, 2009 1:39 pm

do you mean that we should use the base theory of open price on candle i mean open long when price open above close price on previous candles? or we just wait until the price open below?javascript:emoticon(':?:')

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Postby TheRumpledOne » Sun May 31, 2009 2:04 pm

Look at the time frame you are trading.

Breakout is based on support/resistance however you define it.
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!



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Postby lukx » Sun May 31, 2009 5:19 pm

I don;t see a way to see if candle will be breakout one or not... like Mark Douglas said, anything can happen and it's all random.

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Postby TheRumpledOne » Mon Jun 01, 2009 4:49 am

Do you traders remember the other rule of thumb?

DON'T TRADE AGAINST THE H1 CANDLE COLOR.

Hard for price to reverse AGAINST the H1 candle color.
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!



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Postby newark18 » Sun Mar 14, 2010 10:53 pm

forgive my naivity, but does H1 = 1 hour candle chart?
Failure is an opportunity to learn.

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Postby tmanbone » Sun Mar 14, 2010 11:20 pm

newark18 wrote:forgive my naivity, but does H1 = 1 hour candle chart?


yes
"The simplicity of the markets is it's greatest disguise"

T

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Postby firstpip » Mon Mar 15, 2010 4:13 pm

Great info!! Could you please advise which time frame is best for 3 to 5 pip profits on reversal?

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Postby TheRumpledOne » Mon Mar 15, 2010 9:36 pm

Reversing off the daily high/low is best for 3 - 5 pip reversal.

Time frame does not matter.
IT'S NOT WHAT YOU TRADE, IT'S HOW YOU TRADE IT!



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