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Monday, 11 March 2013

Will you trade spikes or Consolidation - Breakout ?

Dear Readers

While you day trade, it is extremely important to understand the difference between consolidation and breakout vs spikes with/without volume. Consolidation is stock moving in a narrow band for several minutes. The longer the conslidation, the stronger will be the breakout. Again breakout is not rapid single candle of several points. (Search for consolidation in the sight to see real life examples).

Spikes represent a sudden upmove or downmove in price , but without any follow up buy or sell. For eg. SBI was whipsawing today for several hours and suddenly one upmove candle was seen with volume. This was immediately followed by selling. Anybody who entered here would have ended in loss.

I request you to go through consolidation examples in this site and understand the difference between spikes which will never yield you money. On the other hand if you are long / short and spike happens in your favor book profits immediately (may be at the end of 2 min candle).

Please click on today's SBI chart to see an example. Another point to highlight here is , the spike gives a false impression to new traders that the previous resistance during the day points B and C are taken out. But these are false or minor resistances. The true major resistance is the same days previous high which is point A.



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