If there is a sudden range expansion in a market that has been trading narrowly, human nature is to try and fade that price move. When you get range expansion, the market is sending you a very loud, clear signal that the market is getting ready to move in the direction of that expansion. – Paul Tudor Jones If you notice the price has been ranging for a long time, you’re not alone. Traders all around the world will be seeing the same charts as you. Some will be queuing to short the resistance, and some will be trading the breakout. If the price does trade above the resistance, shorts will get squeezed, and breakout traders will hop on the bandwagon. That’s why price trend for a sustained period of time, due to the imbalance of buying/selling pressure.
...Basically, the Trend is your Friend -- and i agree. Trading is kind of like just following the mountain backdrop lines. -- but of course, it's slightly more complicated then that.
I'm eager to hear from those who disagree with the hypothesis. I lean toward agreement but am curious about the counter arguments.
The Range expansion concept on all time-frames is the basis for break-out continuation moves.....with opening range break-out being one of these. These break-outs are usually 60% profitable depending on your exit technique. The best traders know when to fade them.....as well as go with them.
I see both sides occurring. Thus, I can't really agree or disagree and I don't think it really matters unless someone is fixated on one instead of the other because it correlates with their trading style (e.g. trade with the direction of the expansion, fade the expansion).
sounds good in theory but so many failed breakouts, the whole idea of breakout after consolidation makes me sick
And the longer it trends, the harder it reverts ? That's what livermore told the world. And Tudor Jones is a big fan of him. Livermore said : There will always be guys selling at 120 because it looked so cheap. There will always be guys buying at 130 because it looked so dear. For the one waitin' for the price to break the limits to go nowhere. Guys closing their wrong positions will help him see the way, They will help to define the path of least resistance. But Break Out per se I don't really like. At least, I get to many false signals. And I don't like to buy it dears, Or to sell something cheap.
His commet is too general, therefore making it useless, for instance, define above resistance, could mean many things to different traders