BREAKOUT CANDLE TAKEN OUT BY SHARP REVERSAL
Last week, the EURO USD provided another example of how Consolidation Breakouts with Large Candles lead to False Breakouts -another "trap" set by the market.
In the Daily Chart below taken from the Daily Market Update of Monday August 24, you can see the Large Candle that attempted to start the breakout above the Resistance of the Consolidation...
However, as you can see in the note below the graph, I expected it to at least pause here before either moving sideways or reversing. A few days later, a sharp reversal took out that Bull Candle to start a False Breakout Reversal, taking us back inside of the Pennant...
This reversal is due to the fact that these Large Candles- as attractive as they are -hardly lead to successful breakouts. Across the Currency Market these signals, as well as what are known as Weak Candles, are notorious for either leading to sideways, erratic moves or pullbacks. Traders who are not aware of this can get caught by these reversals that appear to be strong enough to justify breakouts.
They key is to distinguish between these candles and what are called Normal Candles. These are the ones that actually lead to successful breakouts and once you know their characteristics, breakouts become a lot easier to trade. After years of struggling with these trade setups, figuring this out was what I had to do...
Taken from " Successful Currency Trading With the Daily & 4 Hour Charts"
I can't tell you how much money was lost and time spent in identifying the right signals to trade, but it was worth it. This has made a big difference in my results and of those who now use it in their trading.
Although this has example with the EURO USD has taken place on the Daily Chart, these Large Candles are seen across all time frames as well. It is not so much the size in terms of Pips but rather their appearance relative to the other Candles on the time frame being traded. So whether you are a Day or Swing Trader, they will appear on your charts.
Find out how to identify these Normal Candles and start trading profitably today!