Rule 1: Don’t enter the trade when there is parabolic movement or strong one side movement
False breakout of parabolic
Live chart example for parabolic:
Such parabolic momentum often causes heavy loss, therefore its not recommended. Lets suppose looking at the recent most long green candle we would have taken buying positions, it would have caused us losses due to our stop loss being crossed immediately.
Rule 2: Always buy breakout after consolidation
In the above image you can see market is consolidating after getting rejected multiple times from the current resistance level. Success rate of entering into such trades will be highly profitable. Most of the time this type of breakout can help you gain 1:2, 1:3, 1:4 reward ratio. Trading in these type of setups will help you increase your success rates and also help you achieve your targets more quicker.
If you open any market or stocks including bitcoins you will notice price movements following this principle:
- stock will be in trend
- after a trend stock will trade within a range, we call this consolidation
- after consolidation again the stock will start moving towards the upside or downside
- when ever you enter the trade after you get breakout your success rate will be very high
Rule 3: Always trade with volume confirmation
Volume plays a vital role in the price action trading. Whenever you get a breakout with good volume clearly shows lot of people are interested to trade with a stock at this particular level after the breakout. So next time when ever you are entering the trade make sure the volume is at least 30% more than the normal trade volume. This will significantly increase your success rates.
Rule 4: After the breakout enter only when next candle breaks the high of the breakout candle
Always enter into the trade after the breakout candle closes. Lets look at the following chart:
As you can see in the above image there is false breakout formed, if any one takes position before breakout candle closes, he would have suffered loss. Many beginners face this type of issue, technically this is termed as FOMO – fear of missing out.
Rule 5: Try entering the trade at retest to increase your odds of winning.
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