Forex eBook Trading The Breakout
Filed Under (Forex eBook) by ForexDigg on 28-07-2008
Tagged Under : new trend, probability, profits, stock
The Guppy Multiple Moving Average (GMMA) indicator was first mentioned in Trading Tactics in 1997. Since then the use and application of the indicator has been refined. In response to requests from readers, this series of notes brings together these modifications and improvements.
Aggressive traders attempt to identify a change in the downtrend – an up trend breakout – as soon as it happens, or even before it happens. This is aggressive trading because it carries a higher level of failure. Unless the trader has excellent trading discipline there is the danger of holding onto a stock as it continues to go down in the hope that it will eventually rebound.
A more common, and in some ways, safer approach, is to trade the trend breakout in the days or weeks after it has happened. This does reduce profits when compared with an earlier entry, but this reduction is counterbalanced by the increased probability that the trend break will develop into a sustainable new trend. Few traders are content with joining these trends at any price point. Most try to get the best entry possible, based on a pullback in price. If we understand the nature of the trend and the breakout using the techniques discussed last week, then we can take advantage of these points of price weakness because we are confident in our analysis of the developing trend.
The GMMA is applied in real time to assess the best entry opportunities after the breakout is confirmed. It gives us an answer to the question: Is this price collapse part of a general new trend collapse, or an entry opportunity? This is a significant question because young trends are weak. There is a higher probability of trend collapse.
Breakouts come in two important formats. The most common is the “V” shaped breakout where a clear downtrend develops into a clear up trend. This is clear retrospectively, although at the time the process can be frightening and many traders delay the entry because they are worried about a trend collapse.
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