Fibonacci Traders

Trading Fibonacci, fractals, RSI and CCI

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Breakout Trading Tips

Bullish traders love breakout financial instruments.  Those financial instruments as they break above a key level may continue to rise for days or weeks even months if the bullish momentum is strong and there is more demand to buy the financial instrument.  Sometimes, a financial instrument may breakout, but will quickly fall below the key level.  In that instance, there is a breakout failure.  Due to those breakout failures,  one must learn how to identify
valid breakout stocks or currencies and filter out false breakout trading signals.

Truly, it is quite challenging to find ready made valid breakout financial instruments.

How to find valid breakout financial instruments?

The first group of breakout financial instruments are often confined in a narrow range (either in a normal horizontal or rising (dynamic trend line consolidation) consolidation or triangle).  See Charts.

Many times, after a bullish move , there is a consolidation that precede a valid breakout.  In that instance the consolidation is called a continuation pattern. 

The second group of breakout financial instruments are those that gap up and continue to rise for sometime.  In that case, it is a continuation gap.
Moreover, the best continuation gaps often occur during the third Elliott wave.  In reality, continuation gaps are the outcome of an intense buying pressure when bullish traders take a complete control of the  price-action.  One may find breakout financial instruments if one screen for those financial instruments that gap up.  One will then select the securities that exhibit a continuation gap as the breakout securities.

The third group of breakout financial instruments are those that find a support above the 138.2% Fibonacci extensions level.

Usually, when a financial instrument breaks above a prior high in an uptrend, the first resistance ahead is the 138.2% Fibonacci extensions of the prior bullish price action.  Therefore, stocks that validate that Fibonacci key level as a support are breakout securities.

Warning: One should always trade breakout above 138.2% Fibonacci extensions level with a great attention to avoid getting into a false breakout trade.  Note that sometimes, a stock may break above that Fib level only to quickly fall below it.

The fourth group of breakout financial instruments are financial instruments that engender valid breakouts above the 161.8% Fibonacci extensions level.  In my experience the best breakout trading signals take place above the 161.8% Fibonacci extensions level.  Therefore, one can scan for breakout stocks by using the 161.8% Fibonacci extensions criteria.  Another reason why best breakout signals occur above the 161.8 Fibonacci is because of an Elliott wave rule relating to the third Elliott wave.
It is known that an extended third Elliott wave will break above the 161.8% Fibonacci extensions of the first wave.  However, a normal third wave will stay below it.
As the third wave is often the strongest phase of a trend, valid breakout trading signals are frequent above the 161.8% Fibonacci extensions level.

Other Breakout One Must Know

Many times, it is common to see breakouts as the price is heading to a profit target level.  In that instance, the big financial institutions may become impatient with retail traders that are delaying further  price progress towards the target.  So as retail traders are busy selling the asset, the big financial market players continue to buy it until there is an imbalance that will cause a breakout or gap. In effect, it is not easy to trade that breakout.
However, if one ascertain that there is a high chance that a breakout is more likely, one can use a limit order to buy above the price target level where others are selling.  I will be posting a video at dayprotraders channel to explain how to handle that complex breakout.  For now, it is better for new traders to leave the complex breakout trading setup alone.

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