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2009.05.30 RULE OF THUMB: DO NOT REVERSE ON BREAKOUT CANDLES

Posted: Sat May 30, 2009 6:20 pm
by TheRumpledOne
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.

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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.

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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.

Posted: Sun May 31, 2009 5:46 am
by flossnhoss
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.

Posted: Sun May 31, 2009 1:39 pm
by darmawan9672
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(':?:')

Posted: Sun May 31, 2009 2:04 pm
by TheRumpledOne
Look at the time frame you are trading.

Breakout is based on support/resistance however you define it.

Posted: Sun May 31, 2009 5:19 pm
by lukx
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.

Posted: Mon Jun 01, 2009 4:49 am
by TheRumpledOne
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.

Posted: Sun Mar 14, 2010 10:53 pm
by newark18
forgive my naivity, but does H1 = 1 hour candle chart?

Posted: Sun Mar 14, 2010 11:20 pm
by tmanbone
newark18 wrote:forgive my naivity, but does H1 = 1 hour candle chart?


yes

Posted: Mon Mar 15, 2010 4:13 pm
by firstpip
Great info!! Could you please advise which time frame is best for 3 to 5 pip profits on reversal?

Posted: Mon Mar 15, 2010 9:36 pm
by TheRumpledOne
Reversing off the daily high/low is best for 3 - 5 pip reversal.

Time frame does not matter.