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.
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.
Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.
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