Forex Secrets - The True And False Breakouts Of The Resistance And Support Levels on Forex (Part II)

See beginning of this article under name "Forexrespect to the above-described one.
Secrets - The True And False Breakouts Of TheChart 2.11 S&P 500. (For view the picture see
Resistance And Support Levels on Forex. (Part I)"notes in end of article)
In "Stock exchange secrets", L. Connors and L. RushkyFirst, one has to determine the difference between the
state the following. In trading on the deviationsprice of closing and the price minimal on the eve of the
(oscillations), the most appropriate model is the tradingsupply line breakout upwards (A-B). Further, the price
on the trial of the previous peaks (maximums orof closing in the same very day must be added to this
minimums). Such tests enable us to indicate the doubledifference. As one can see, the resulting value is
breakpoint (rest-point, salient point). Thus, one can findsmaller than the price at the breakout point. This
a perfect position for opening a deal. Under suchconfirms that the breakout is true.
conditions, the risk of losses is minimal. The detectionChart 2.12 Soybeans Oil. (For view the picture see
(test, probe) of a minimum, where the long-termnotes in end of article)
position must be opened, can take place slightly higherThe principal drawbacks of the "classical" theory of
or lower. All the same, the support cannot bedistinguishing the true and false breakouts of technical
established before the realization of the detection (test,levels at Forex from the viewpoint of Masterforex-V
probe). The majority of our models has becomeTS.
formed exactly after the successful detection (test,Such drawbacks are the following.
probe) - i.e., after the previous maximum/minimum1. The "classical" theory of the true and false
approbation by the market and returning to this valuebreakouts of technical levels was developed not
again.issuing from conditions of Forex money-market
Chart 2.9. An example of the double breakpoint(where the trading volume was not taken into
(rest-point, salient point). (For view the picture seeaccount). Some other markets were considered.
notes in end of article)2. Even T. DeMarque has recognized that this
T. DeMarque has examined the difference betweenapproach is incorrect in total. This classicist has
the true and false breakouts through the technicaladmitted the following. As far as he is concerned, he
levels. He has emphasized the importance ofstill doesn't know any technique that could permit
estimating whether the intra-day price breakouts aretraders to see whether the price breakout is true or
true. TD-points must be chosen correctly. TD-line mustfalse.
be plotted from the right to the left. The priceOne can judge by oneself.
guideposts must be calculated. After this, the threeReally, it is evident that the deal opening directly after
way-outs must be considered:the previous day technical level breakout must be
1. There can appear the signs of the tendencyspecified much more exactly. E. Neiman doesn't write
reversal.about this aspect directly. However, his approach to
2. A substantial shift in the correlation between thethe order opening is based on the conviction that a
demand and proposal is possible.given breakout must happen along the trend
3. The price guidepost realization is important as well.development direction. This approach must be
Besides, there is another factor, to which the attentionscrutinized much more closely. The reason is that the
should be paid. One must consider whether theone of the keystone figures of reversal (such as either
intra-day price breakout is true. This is especially"the head and shoulders", or "the head and shoulders
important. I regard my investigations in this area as areversed") is purely the result of (exactly indicates) a
substantial contribution into improving of the techniquelocal peak breakout of the previous day.
of choice of a moment of entering the market - andSome traders try "to play safe". Avoiding not getting
leaving it. What is more, the given principles areinto the "head and shoulders" figure, they open deals
applicable in other methods of the technical analysis asafter 5 (!) days to start from the technical level
well. The following situation is rather typical. Tradersbreakout. In this connection, there arise the following
take a position at points of the trend line breakoutquestions.
to-be. Than they with horror watch that prices stopSurely, one could give analysis to broad markets post
and start to move in the opposite direction. This resultsfactum. In this case, one can choose heavy trends of
in substantial losses. However, those very tradersthe duration within 30-70 days or longer (as Swagger
keep on doing the same mistake, not thinking about thedid it). Thus, one can recommend traders to open their
origins of it. False breakouts are always ratherdeals in the 6th day to start from the technical level
frequent. It is trader's stumbling block, because ofbreakout.
which some of traders totally refuse to use the trendHowever, what's about the real trading? Under such
line. A techniques of developing TD-lines hasconditions, a trader does not know the trend actual
somewhat improved this situation. Nevertheless, falseduration. For instance, see Chart 2.12 GBP/USD pair
breakouts do happen. As far as I know, a technique ofmovement on June 30, 2006 can serve as an
estimating whether the breakout is false or true is notexample. The support at 1.8000 has been broken
developed yet.through. After waiting for 5 days, one could open a
We now dwell on the breakout qualifiers.deal in the vicinity to 1.7560 at the 6th day - i.e., after
TD-qualifier of the breakout #1.the currency has already advanced more than the
The signal of "buy" is true if the price of closing hashalf-way in its movement (by 440 points!). Now one
decreased the day before the signal arrival.could expect a local minimum at 1.7310 - to be more
The signal of "sell" is true if the price of closing hasprecise, at 1.7435. Exactly at this point, after the
increased the day before the signal arrivalbreakout thorough the previous day maximum, the
TD-qualifier of the breakout #2.currency has reversed.
The signal of "buy" is true if the price of opening isChart 2. 12 GBP/USD pair movement (For view the
higher than the price of breakout.picture see notes in end of article)
The signal of "sell" is true if the price of opening isThus, making use of the technique by Swagger one
lower than the price of breakout.can gain just 125 points under the conditions of a
TD-qualifier of the breakout #3.strong trend (690 points). However, one must keep in
The signal of "buy" is true if the price of closing on themind that the reversal could happen earlier. That is, one
eve of the breakout, summed up with the differencelosed 500 point in order to dogmatically stick to the rule
between the price of closing and the minimum price in"not to open a deal during the first 5 days after the
the same day (or the price of closing the two dayslevel breakout". As the result, a deal will be opened at
before the breakout if it is lower) is lower than thethe end of the currency movement or before the
price of breakout.recoil. When a dogma does not correspond to the
The signal of "sell" is true if the difference between thepractice any more, it would be better to decline (reject)
price of closing on the eve of breakout and theit, would not it?
difference between the maximal prices of closing inWe now dwell on the recoil system according to T.
the same day (or the price of closing the two daysChand in his book "On the other side of the technical
before the breakout if it is higher) exceeds the price ofanalysis). Notwithstanding all the positive aspects of
breakout.this system, a very serious drawback is inherent in it.
I have discovered three TD Breakout Qualifiers. ThereThat is, within the framework of this system one
are two price models, formed the day before thecannot detect a point at which the recoil turns into the
probable breakout. In addition, there is one model, whichreversal.
is formed in the day of breakout. In particular, I haveThe theory of the level breakout, developed by D.
drawn the following conclusion. If a market is in theCats and D. McCormick in "Encyclopedia of trading
state of oversell (overbuy) the day before thestrategies", must be revised (specified) from the
breakout, there increases the possibility that theviewpoint of (with respect to) the price of closing in the
amount (pressure) of buyers (sellers) all the same willprevious day. That is, one can give hundreds of
not become diminished after the breakout. This makesexamples when the work according to the given
just illusion of the market strength (weakness).technique is profitable at Forex. At the same time,
Giving analysis to the price behavior on the eve ofthere are also hundreds of disadvantageous situations
breakout, I have discovered the following. If the price of- e.g., the breakout through a local peak in the previous
closing on the eve of breakout upwards is lower thanday can result either in the reversal or in a very heavy
in the previous day, the probability of the true intra-dayrecoil towards the direction, opposite to the level
breakout increases.breakout.
In this case, it can be recommended to open a positionIn the framework of the classical analysis given to
in the intra-day intersection (crossing) of the trend line. IForex, the notions of technical levels of resistance
determine this as TD Breakout Qualifier #1 (see Chartsupport of tilted (slant) and horizontal channels are not
1.37 ??).clearly defined - they are just "piled up". Hence, how
In a way, TD Breakout Qualifier #3 is similar to TDcan one tell the difference between these
Breakout Qualifier #1. Really, it also takes into accountcharacteristics from those the features in common?
the price movement on the eve of the trend lineElder was the first who attracted attention to the
breakout. However, in the case of TD Breakoutfollowing problem. How to elaborate one's position in all
Qualifier #3 one determines the difference betweenthe mess of true and false breakouts, trends and flats
the maximum price and the price of closing on the evein different time frames?
of the trend line breakout downwards. Further thisThe currency pair movement may be divided as
difference is subtracted from that very price of closing.following.a) trend waves;b) trend recoils;c) a flat.
It is the method of calculating the supply value. TheAfter this, all possible combinations of these three
demand value is calculated in the following way. Thecharacteristics must be put on trial in various
difference between the price of closing and thetime-frames at least at 3 screens - as A. Elder has
minimum price on the eve of the trend line breakoutrecommended.
upwards is added tothat very price of closing (seeIt is necessary to calculate the number of
Charts 2.10, 2.11 (143 and 144)).combinations. For instance, there is the combination #1.
Chart 2.10 S T Bonds. (For view the picture see notesThat is, the trend is in the minimal timeframe, whereas
in end of article)the flat is in the large-scale timeframe.
The true breakout can be detected in the followingAt what points it must be determined whereas level
way. One must find the difference between the pricebreakouts are false or true?
of closing on the eve the breakout upwards and theIs it enough to use three screens (displays) according
minimum price in that very day (or the price of closingto Elder? Maybe more screens would be preferable.
in the previous day - if it is lower). Further it isAs far as I'm concerned, I work with 4 screens. What
necessary to add this difference to the price of closingare the drawbacks and advantages of the given
in the day before the breakout. If the value obtained istechnique?
lower than the price at the point of breakout, theHow different timeframes are correlated with one
breakout is considered true. If the value obtained isanother under the following condition. That is, at one's
larger than the price at the point of breakout - mostpoint-of-sale terminal, there are 4 screens. However,
probably, the breakout is falseone must take into account the quantity of timeframes
In the given example (see Chart ??), the differencemuch larger.
between the price of closing and the minimum price onWhat is the correlation between the technical levels of
the eve of the breakout of TD-line of supply (A-B) isresistance and those of support, all of them being
added to the price of closing in that very day. Theexposed at 4 screens?
value obtained is smaller than the price at the point ofIn what way do the fundamental and technical
breakout. Consequently, the trend line breakout is true.analyses supplement each other? How can a trader
In this chart TD-line of demand (A'-B') is also drawnmake use of the fundamental analysis from the
(plotted).viewpoint of its applying in the branch of the technical
In Chart (145??), for determining whether the trend lineanalysis, the problems of which are enumerated
breakout downwards is true, the use is made of theabove?
procedure, the sense of which is reversed with