We are familiar with breakouts. If correct, a breakout provides large profits because it enters at the start of a trend, up or down. But, breakouts are often wrong. In fact, less than 30% of breakouts will give the desired profits. The pattern makes money because breakouts that are successful make far more money than breakouts that fail.
Let us ask ourselves: why do breakouts succeed? When prices cross resistance or support, to move further requires a huge mood swing. Quickly, traders / investors should agree that the breakout is likely to succeed. Once that happens, they jump on the bandwagon, thus pushing prices further which gets even more traders to feel that the breakout will succeed....
So, a breakout actually requires a mood shift. Now, we come back to the real world. We have a breakout from 5550 in the Nifty. If we have a mood shift meaning that traders feel that the market will go up, then we may well find that the market will go up.
What do you say?