Once prices have broken out, look for a retracement. Successful retracement trading can lead to very nice short-term profits.
When prices finally do overcome resistance or support, penetrate a psychological barrier. or break out of a formation or trading range, it tends to do so boldly at first. But after their initial thrust, prices often seem to need reassurance. It's as if prices need to reconfirm their new-found freedom. Prices may even return to, and penetrate somewhat, the very area from which they just broke out.
When traders who are on the wrong side of the trade exit, and new participants eagerly enter in the direction of the breakout, the retracement to retest succeeds in reenergizing, reinforcing, and resuming the new trend. At that point, be prepared to go with the trend and not against it. That is why we trade breakouts of ledges in the direction of the former trend. A similar truth applies to breakouts from trading ranges. We trade the breakout of a trading range in the direction of the breakout, but we also anticipate a reaction to the breakout. Once the reaction is over, we use the Traders Trick Entry to pursue the trade in the direction of the breakout.
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