Especulador96
Newbie
- Messages
- 4
- Likes
- 1
"When both bulls and bears temporarily align on the same side of the market, though not with the same enthusiasm, we can say we have a double pressure situation."
This is how the renowned investor and author, Bob Volman, defines the phenomenon that arises from price compressions in ranges, trend lines, accumulations, and distributions.
The best opportunities arise from a visible struggle around the breakout level in question, that is, a series of alternating candles (or bars) in which bulls and bears clash within a relatively narrow vertical range. These battles can materialize in many forms, but it is not uncommon for only a few candles (or bars) to be needed to recognize the sweet spot on the chart and, with it, the potential for a significant move. These clustering progressions are known as "pre-breakout tension."
It is an advantage to understand the logic behind bullish and bearish positions when they compress, as for prices to continue advancing substantially, we need the support of both sides of the market.
Figure 1: BTC/USDT (Daily Chart)
Three examples of "pre-breakout tension" with a blue line representing a 20-period exponential moving average (EMA).
Understanding Double Pressure
If we aim to take a position on the bullish side, it may not be enough to find support solely from buying forces. Preferably, we would like to see a decent number of bears quickly abandon their positions to protect themselves from the bullish market we are trying to capitalize on. The more bears are forced to capitulate, the higher the chances that our trade will reach its target before the situation has a chance to reverse, as the buying force from the sellers’ liquidations will add to the prevailing buying force, creating an explosion of volatility.
Conversely, if we aim to take a bearish position, it may be advantageous to trade compression situations where a large number of trapped bulls are forced to capitulate. Undoubtedly, the selling force from demoralized bulls capitulating, combined with the prevailing selling force, would lead to strong explosions of bearish volatility in most cases. Another determining factor when choosing price compressions as entry points is the risk-reward ratio.
A pre-breakout tension acts as an order block that generally allows us to tighten the SL (Stop-Loss) to target larger objectives. This undoubtedly attracts a large number of investors, increasing the likelihood of strong volatility explosions resulting from double pressure.
Is Breakout Trading Easy?
Trading breakouts in formations without pre-breakout tension has a high probability of failure, as there are also investors in the market specialized in trading false breakouts. These false breakouts are commonly referred to as traps for bulls (bullish) or bears (bearish). Studying the following parameters can reduce the likelihood of getting trapped:
• Prior Trend
If the formation we are studying is created in the context of a strong bullish trend, the probabilities of success are higher if we trade the breakout in the direction of the prevailing force. The opposite applies to strong bearish trends.
• Dominance within the Range or Formation
If the formation we are studying is created in the context of a strong bullish trend, the probabilities of success are higher if we trade the breakout in the direction of the prevailing force. The opposite applies to strong bearish trends.
If the formation we are studying shows the price making higher lows, we should understand that the bulls are showing dominance, which increases the likelihood that a price compression in the resistance zone will generate an explosion of volatility favoring buyers.
Conversely, if the formation we are studying shows the price making lower highs, we should likely pay attention to the dominance of the selling forces, as a price compression in the support zone of the range will probably generate an explosion of volatility that favors them.
• Candlestick Patterns
If the bullish candles within a formation are larger than the bearish candles, we are likely in a situation where buyers are showing dominance, so an upward breakout has a higher probability of favoring them.
• Volume
The presence of high volume in a formation increases the likelihood of success, as it signals significant investor participation or institutional presence.
• EMA 20
The 20-period EMA is a technical indicator that can reveal at a glance the strength and sentiment of investors. A pre-breakout tension "trapped" between the boundaries of a range and the EMA 20 should give us a clear picture of the side most favored by a potential breakout.
The combination of these elements, together with pre-breakout tension, will undoubtedly make readers excellent breakout traders.
In Figure 1.2, you can observe some of these elements working together:
Figure 2: Tesla (Weekly Chart)
Conclusions
I cannot conceive of the existence of robust systems or methods detached from interpreting the market as a psychological phenomenon.
Understanding logical concepts such as double pressure gives us the advantage of understanding how market participants think in specific contexts, undoubtedly strengthening us as investors.
References
Volman, Bob. Understanding Price Action: Practical Analysis of the5-Minute Time Frame. Light Tower Publishing, 2014.
Volman, Bob. Forex Price Action Scalping: An In-Depth Look intothe Field of Professional Scalping. Light Tower Publishing, 2011.
This is how the renowned investor and author, Bob Volman, defines the phenomenon that arises from price compressions in ranges, trend lines, accumulations, and distributions.
The best opportunities arise from a visible struggle around the breakout level in question, that is, a series of alternating candles (or bars) in which bulls and bears clash within a relatively narrow vertical range. These battles can materialize in many forms, but it is not uncommon for only a few candles (or bars) to be needed to recognize the sweet spot on the chart and, with it, the potential for a significant move. These clustering progressions are known as "pre-breakout tension."
It is an advantage to understand the logic behind bullish and bearish positions when they compress, as for prices to continue advancing substantially, we need the support of both sides of the market.
Figure 1: BTC/USDT (Daily Chart)
Three examples of "pre-breakout tension" with a blue line representing a 20-period exponential moving average (EMA).
Understanding Double Pressure
If we aim to take a position on the bullish side, it may not be enough to find support solely from buying forces. Preferably, we would like to see a decent number of bears quickly abandon their positions to protect themselves from the bullish market we are trying to capitalize on. The more bears are forced to capitulate, the higher the chances that our trade will reach its target before the situation has a chance to reverse, as the buying force from the sellers’ liquidations will add to the prevailing buying force, creating an explosion of volatility.
Conversely, if we aim to take a bearish position, it may be advantageous to trade compression situations where a large number of trapped bulls are forced to capitulate. Undoubtedly, the selling force from demoralized bulls capitulating, combined with the prevailing selling force, would lead to strong explosions of bearish volatility in most cases. Another determining factor when choosing price compressions as entry points is the risk-reward ratio.
A pre-breakout tension acts as an order block that generally allows us to tighten the SL (Stop-Loss) to target larger objectives. This undoubtedly attracts a large number of investors, increasing the likelihood of strong volatility explosions resulting from double pressure.
Is Breakout Trading Easy?
Trading breakouts in formations without pre-breakout tension has a high probability of failure, as there are also investors in the market specialized in trading false breakouts. These false breakouts are commonly referred to as traps for bulls (bullish) or bears (bearish). Studying the following parameters can reduce the likelihood of getting trapped:
• Prior Trend
If the formation we are studying is created in the context of a strong bullish trend, the probabilities of success are higher if we trade the breakout in the direction of the prevailing force. The opposite applies to strong bearish trends.
• Dominance within the Range or Formation
If the formation we are studying is created in the context of a strong bullish trend, the probabilities of success are higher if we trade the breakout in the direction of the prevailing force. The opposite applies to strong bearish trends.
If the formation we are studying shows the price making higher lows, we should understand that the bulls are showing dominance, which increases the likelihood that a price compression in the resistance zone will generate an explosion of volatility favoring buyers.
Conversely, if the formation we are studying shows the price making lower highs, we should likely pay attention to the dominance of the selling forces, as a price compression in the support zone of the range will probably generate an explosion of volatility that favors them.
• Candlestick Patterns
If the bullish candles within a formation are larger than the bearish candles, we are likely in a situation where buyers are showing dominance, so an upward breakout has a higher probability of favoring them.
• Volume
The presence of high volume in a formation increases the likelihood of success, as it signals significant investor participation or institutional presence.
• EMA 20
The 20-period EMA is a technical indicator that can reveal at a glance the strength and sentiment of investors. A pre-breakout tension "trapped" between the boundaries of a range and the EMA 20 should give us a clear picture of the side most favored by a potential breakout.
The combination of these elements, together with pre-breakout tension, will undoubtedly make readers excellent breakout traders.
In Figure 1.2, you can observe some of these elements working together:
Figure 2: Tesla (Weekly Chart)
Conclusions
I cannot conceive of the existence of robust systems or methods detached from interpreting the market as a psychological phenomenon.
Understanding logical concepts such as double pressure gives us the advantage of understanding how market participants think in specific contexts, undoubtedly strengthening us as investors.
References
Volman, Bob. Understanding Price Action: Practical Analysis of the5-Minute Time Frame. Light Tower Publishing, 2014.
Volman, Bob. Forex Price Action Scalping: An In-Depth Look intothe Field of Professional Scalping. Light Tower Publishing, 2011.
