12 - breakout and range plays

8/7/2019 12 - Breakout and Range Plays

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FOREX:LESSON FIVE

Breakout and Range Bound Plays

The Trading Pitt 2010 1


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V olatility Defined technically as theStandard Deviation of Returns or in thecase of implied volatility is a function of option pricesAverage True Range An indicator thattakes the true range (a set of possiblevalues)LowV ol leads to High V ol An oldsaying that means small moves usuallycome before much larger moves, as wewould define consolidation

T ERMS T OKNOW:

The Trading Pitt 2010 2


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F ollowing a largebreakout you will oftensee a tight consolidationrangeThis sometimes can be

traded if the ranges arewide enoughDo not trade wholeposition, just workaround your core holding This will be the most

difficult to recognize as anew trader, especiallywhen the patterns aretextbook

3The Trading Pitt 2010

H OW T ORECOGNIZE TH ERANGES


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Below/Above Key

LevelsUse as a positionof strength, if stops are runmark level as apossible inflection

point for a retestTaking partialprofits at the firstresistance level iscriticalWatch out for

Bear/Bull Trapsand slownessthrough levels


B REAKOU T!


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In any trade you want to find places to add that professional traders will bealso placing their orders.Much better to miss a trade than develop a position of weakness that willcompromise your biasesDon t overleverage to a point where you can t let the position have some

room


IMPOR TANCEOF RISK VSREWARD


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SIMULA T ION 1

JULY 1S T

, 2010USD/JPY

USD/JPY Breakdown below long termsupport.Small Bull Trap to shake out the weak hands



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KEY POIN T SFROM

SIMULA T ION 1

Level broke and consolidated near the lowsof that session.USD/JPY does not move a lot of pips normally.



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F rom Inside the House of Money BookChristian Siva-Jothy :

Markets can be unbelievably slow to figure out the consequencesof big events

Dr. John Porter on the importance of disciplined trading andavoiding biases:

There s a great story about a famous local trader at the ChicagoBoard of Trade. One day, he was on the floor of the CBOT and a U.S.inflation number came out that was totally unexpected. Pure

pandemonium ensued. When all the noise died down he walked outof the pit having made $10 million and said, By the way, what wasthe number? That, to me captures it all.


T RADERSPSYC H OLOGY


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SECONDSIMULA T ION

7/1 7/6/2010USD/CAD

F inding Range Trades using daily chartsThese are not your best trades thoughstill pose some opportunity



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KEY POIN T SSIMULA T ION 2

USD/CAD is has been relatively weekover a period of time

A month later



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WEEK A H EADANDSIMULA

TION

Try this weak only look for strong breakout trades


Week Ahead


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Paying attention to fundamental andinstitutional research


ANALYSIS , COMMEN T S , QUES T IONS?

12 - breakout and range plays

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