Continue reading...Many traders will rather play a pullback than a breakout of the highs. In fact some research by Larry Connors in the US showed that on the
S&P in a ten year period from 1993 if you had bought 10-day-high breakouts and exited when prices crossed the 10 day moving average you would have lost over 312 points.
However, during the same time if you had bought every 10-day-low and exited when price crossed its 10 period moving average then you would have made over 830 points. Many trade the breakout of the highs but as Connors says ?In reality it appears to be very wrong.?
Although playing breakouts can be said by others to be a valid tool in a trader?s tool kit, many often find that what they perceive as a breakout is actually a swing high or low and they have entered at the extreme of a move, just before it goes in the opposite direction. Playing pullbacks allows the trader to be in profit before any potential breakout thus giving some kind of profit if it turns out to be a false...
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