When there is a breakout from a trading range, the point of breakout is also the point of maximum risk. This is because of the risk that the breakout may be a failure. If it is a failure then the trader has probably purchased the security right at the highest price. As prices continue to move in favor, the risk of a false breakout comes down, but the entry level has gone up!
It is possible to qualify breakouts by volume, overhead resistance, length of the trading range.
Volume: this breakout has moved up on relatively high volumes.
Overhead resistance: there is no immediate resistance beyond 3250. Thus the breakout is not likely to meet with quick resistance.
Length of trading range: This is a problem. The breakout has come from a trading range that developed from October 08 to March 09. So far so good. But, it is also true that the current rally has moved up from 2540 to 3200+ almost non-stop. A better scenario may have seen the Nifty consolidate in the 2900 - 3100 zone for maybe a month and then breaking out.
So, this breakout gets two out of three. Which means, like most trading setups, there is a risk. If you understand the risk of a failed breakout, then go ahead and buy on dips. markets can surprise us on the upside.
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4 comments:
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OVERHEAD RESISTENCE = PREVIOUS SIGNIFICANT BOTTOM
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Hello Sukhani ji,
I suspect of this breakout and probably want to sell my longs at this breakout since Dow Jones is at its 8000 levels which is a major resistance and if Dow will go down then whole world markets has to go down. so what i feel is to wait for DOW to reach 8100-8200 then only i will be hopeful of nifty breakout. Because as u see the nifty came from 2550 to 3200 so fast that there could be chances to fall as quickly. And since now all the shorts are squeezed already, there wont be any support immediately by the short covering rather all the new longs will create extra pressure if there is a fall.
Sir
How do we re-enter in this market if someone missed out getting in earliar or got out very early .
I made a very good entry in JPASS and ICICI calls some time back and made some money also in it . But after i got out from it , i saw that I have made only 5-10% of money which was possible with the trade .
Please understand that it is not GREED , its not able to let your profits run because of getting scared from volatility and fear of leaving money on the table . :)
I am able to cut my losses short and enter at good points , but Not able to let my profits run , because of which i make small losses or break even or some times small profits ..
Can you share your thoughts on this subject ?
Manish
http://ww.jagoinvestor.com
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