Simple Combination of Price Action and Oscillator for Breakouts.

10 февр.

👉Introduction

Breakouts are crucial in trading because they offer opportunities for quick gains through momentum. However, trading breakouts can be challenging. Around 80% of breakouts fail due to market inertia—where markets tend to continue their existing behavior. When a range attempts to break a comfort zone, some participants defend their positions, causing temporary failure. But remember the fundamental nature: a range will eventually convert into a trend, and a trend will eventually revert to a range.

The Problem:- How Does A Breakout Fail?

If you know how a breakout fails then there may be some chance that you can avoid trading those setups.

🗯Let's look at the first chart of BECTORFOOD on a daily time frame, A two-month-long ascending triangle range has been formed With a horizontal resistance of 1250.

1. There are good reasons to trade the breakout.
a. An ascending triangle is an inherently bullish pattern.
b. The resistance is strong and very good to trade its breakout.
c. Volume was high before the breakout candle a good confirmation.
Still the breakout field why?

2.Volume Action Factor

👉Let's look at an hourly time frame, On 7th of February Price opened slightly gap up on good volume but the candle was not able to sustain the high, and then the price attempted to break the resistance again at the closing of the session but again bears pushed price down with high volume.

👉The next day Price went above resistance On dry volume and then the sell-off started.

3. Oscillator confirmation Factor

👉Oscillators work well in the range bound market it shows the upper and lower range movement.
👉If you look at the chart the price was making a new high but the RSI was forming a bearish divergence (marked by a red dashed line ), and it hit the overbought zone before the breakout.

👉The stochastic was also in the upper zone before the breakout indicating a peak of price movement.

4. Broader Market Factor.

👉Let's compare the movement with the broader market direction, On the 7th of February the NIFT50 index started to sell off there was pressure building from all-time high resistance.
👉So the BECTORFOOD also followed that move and fell more than the index.

One More Example:-

👉DHANI SERVICES chart, A clear resistance zone formed at 44.70 but if you see on the chart the oscillators got overbought On daily and hourly timeframes.

👉The volume action on the hourly timeframe also not good because when the price approached the resistance bearish volume increased and then the price went into consolidation and stochastic stayed in the higher zone and RSI started to decline from the overbought zone potential signal for weakness

The Solution


👉IBREALEST Hourly chart, Volume spiked before the breakout a good sign and the RSI and stochastics are approaching the overbought zone but they had not become overbought before the breakout, when the breakout occurred the volume was supporting and even on the small range candle the volume is equal to its previous candle.
Finally The Breakout Succeded.

👉By keeping these small and simple factors in mind while planning your trades you can minimize the wrong entries and also use price filtering methods like taking a trade on only closing basis of a particular candle above the resistance zone, And applying it with the concept of interpretation of chart pattern according to market phase idea published earlier https://in.tradingview.com/chart/BANKNIFTY/rwRYVfx4-Interpretation-Of-Chart-Patterns-According-To-Market-Phase/rwRYVfx4

Thanks For Reading so far, I hope this idea added Some value.
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Keep Learning,
Happy Trading.