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There is something i really don't understand about Breakouts and when they are likely to succeed or not.
In the example below , i circled in red a Long entry which was marked by Al as a good swing buy.
But i don't understand because what i see is that would be buying a Strong BO bar in a 3rd leg at the top of a Trading Range, isn't buying a BO which is a 3rd leg at the top of a Trading range supposed to be bad probabability ?
Can someone explain what I am missing please.
Understand the hesitancy and if there is ever a trade that doesn't feel comfortable, you don't have to take it.
That being said, you need to see the transition in strength from bear -> bull. Through the bottom of the pattern note the shift in size of bars for each side. They change. Then see the Failed Low 2 marking. That sets up a trap and the stop should go towards the bottom of the larger bull bar 4 bars earlier or the bottom of the pattern if that is taken.
However, the next bar after the F2ES, It closes on its high and above the stronger bear bar earlier. Because of this, there is a 60% chance that prices are going higher and additionally 2 very good bars in sequence with one being larger and closing on its high. The market is now always in long.
Hopefully helpful and good trades to you!
I tend to agree that particular trade is tough to take. I personally would rather have bought closer to the bottom of that range. Entering above the hammer bull bar right before the bar you have circled is more ideal since it has room to run to the top of the range. I would have at least a 2R target. Once it gets to the top of that range, you can decide if there's strong enough momentum for a breakout or you can exit there with a small profit/loss if it starts to reverse back down into the range.
In this case the momentum up was strong and there never was a reversal pattern. That being said, if I'm taking that trade at the top of the range, I'm looking for at least a 2R target since there is a decent possibility of a reversal back down to the bottom of the range. The probability isn't high enough at that point for a 1R target. But like I said before, I'd personally rather take that major trend reversal trade closer to the bottom of that range.
