False break, re-test sequence a highly recurring chart pattern
Bank of East Asia (ticker: 0023.hk) has a lesson-perfect chart pattern: one that has proven time and again high recurring. The sequence goes like this 1. push price to key level such as 52-week high 2. generate a breakout 3. fade the breakout 4. come back to re-test former resistance.
Bank of East Asia (0023.hk) weekly chart June 2010 – present
Concepts to note:
- 52-week highs and lows are ‘hard’ levels that will not re-print once the year is over. Therefore they are invaluable levels for reference.
- Price is constantly testing resistance, support levels to find direction. The longer the level has been around, the more valid they are, the higher likelihood of coming back.
- Be mindful of breakouts. False breaks are highly recurring phenomenon in the market. Should they fail, they mark turning points that could lead to big corrections.
- Fading breakouts is a time-tested trading strategy that can deliver big profits in stocks and forex.
- Traders should always remember key events especially crashes e.g. Shanghai-Hong Kong Connect, August 24 2015 Black Monday, 24 June ‘Brexit’ for example. These are high impact events where the market psychology and associated levels can impact the market for a long time.
Forex trading display same behaviour such as this USDJPY example; Weekly chart December 2013 – present
The following two tabs change content below.
Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
Soh's Twitter account @sohtionghum
was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015
"I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."