(False) Breakout & Trend Reversal Strategies??

Discussion in 'Strategy Development' started by olimits7, Jun 24, 2005.

  1. olimits7


    Hello, everyone!

    I was wondering what strategies/systems/tips everyone uses to determine if a breakout is valid or if it's a false breakout? Also, what strategies/systems/tips do you use to determine a trend reversal?

    I'm able to draw trendlines and have gotten very good at finding support & resistence levels on charts. But I'm still having problems when it comes to breakouts & reversals. I can't seem to determine if the breakout or reversal will take place on support line 1 or if it will continue to my support line 2.

    For example, I will see a trend that keeps on bouncing off my support line. So I set up a trade if it breaks the support line by certain number of pips short and if it bounces off a certain number of pips go long. But once I'm in a trade everytime I see a bearish/bullish candlestick depending if I went short/long. I think the move is over and about to reverse; so I close my position. Instead the move continues in the same direction it went, and sometimes continues to another breakout line.

    Thank you for your help, I appreciate it.
  2. This is currently being discussed in the "Do Trendlines Work" Thread.

    - Spydertrader
  3. Most false breakouts (not all) are usually in a bearish divergence price action.

  4. And what is that?
  5. You mean with some indicator?

  6. I mean with anything.

    You may have to dig deep into google to find anything interesting for you to spark further research into its merits.

    If your into indicators...start there.

    If your into volume...start there.

    If your into market breadth...start there.

    Lots of different stuff online about Bearish Divergence.

  7. i never found price/indicator divergences to be of any use. that are just not indicative enough of a reversal to trade.
  8. It's somewhat akin to comprehensive trend spotting!
  9. In terms of a triangle, a breakout that occurs BEFORE the price reaches the apex tends to be more valid. A good filter would be IF the intra-day range of the breakout represents an expansion from a narrow range day.
    #10     Jun 27, 2005