Recognizing Market Breakout Potential
Large capital flows are what move markets. Simply, if there are more buyers than sellers, prices rise. And when offers outweigh bids, prices fall. One of the goals of a trader is to recognize when a shift in capital flow occurs. Better still, it is important to identify when odds favor a shift, before it happens.
Before markets begin to trend, they frequently go through a period of choppy trendless trade or neutral price action. Just before a breakout it is common to see a few days of severe overlapping prices with ranges that are below average.
The crude oil chart shows daily profiles. Profiles display time at price. The fairest or high-volume price sticks out the furthest to the right. When high volume prices are similar over a few sessions and the ranges are below average, odds favor a breakout. This pattern occurred twice over the past few weeks in crude oil futures and the correlating ETF, USO.
The optimal time to make a directional trade is elusive. This method of tracking time at price along with range length will increase your odds of catching breakouts early.
John Seguin, Market Taker Mentoring
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- Butterfly Spreads: Part C
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- How to Get Your Wife to Support Your Trading
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