Do you think it’s right to buy at the breakout of any high and sell at the breakout of any low? Moreover, do you know the difference between a top and a bottom, a high and a low? I will show you exactly the situations where you should not buy at the breakout of a high and sell at the breakout of a low. All this and much more in today’s lesson. So, give it a like and let’s get started!
I am here with the Taurus stock charts open on the weekly timeframe, a stock listed on the Brazilian Stock Exchange. By the way, BTG Pactual is the recommended broker for day trading or long-term investments. At the end of this article, there will be a link for you to open your account for free and start trading.
Identifying Highs and Lows on the Chart
In the weekly chart, we see a sequence of higher highs and higher lows, where each candle has a higher high and a higher low than the previous candle. In my trading strategy, I cannot click the buy or sell button in such a situation because I need a pullback candle. The pullback candle, which I will highlight in red, is what will create a top and a bottom. However, we don’t know if this will happen while the candle is forming, and even after it closes, we still don’t know if it will be a bottom because there could be another red candle.
Assuming we have a corrective candle, we need it to enter the trade with a good technical stop and a good risk-reward ratio. Without this corrective candle, we have a sequence of higher highs and higher lows. The common mistake is to trade breakouts of highs on the long side and breakouts of lows on the short side. This leads to overtrading and often losses.
Trading Breakouts Safely
To trade safely, it is important to wait for the corrective candle that creates a return point. A return point is confirmed only when the price breaks the high of the previous candle, indicating a bottom. For example, if we have a corrective candle with an upper shadow that surpasses the high of the previous candle, the top becomes the high of that candle. If there is no shadow, the high of the green candle will be the top.
Technical Entries and Risk Management
The exact moment to click the buy button is when we break the previous top. We do not buy at the breakout of any high or sell at the breakout of any low. It is crucial to identify impulse movements and wait for the corrective candle that creates a top and a bottom.
For trend traders, the entry occurs at the breakout of the previous top, with the stop positioned at the previous bottom. Entering at the breakout of any high or low will result in many stops and could even take you out of the game due to constant losses.
Confluences and Entry Strategies
Confluences are essential to validate an entry. When a candle breaks the high of the previous candle, we build a bottom. A bottom is confirmed only after breaking the high of the corrective candle. This way, we ensure that we are entering a position technically and safely.
Conclusion
Now you know the difference between a high and a top, a low and a bottom, and how to trade breakouts technically and safely. Remember, the recommended broker to trade on the Brazilian Stock Exchange is BTG Pactual. Open your BTG account through the link below and start trading safely and efficiently.
We’re in this together, success, and best regards!
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