1.Low-volume periods:--> Breakouts tend to have higher reliability and follow-through when accompanied by significant trading volume.
During low-volume periods, such as holidays or market closures, the potential for false breakouts increases. It is advisable to wait for higher trading activity before considering breakout trades.
2.Weak or indecisive signals:--> Breakouts should ideally be supported by strong technical signals and confirmation indicators.
If the breakout signal is weak, lacks clear confirmation, or conflicts with other technical analysis tools, it may be wise to avoid trading that particular breakout. Waiting for stronger and more convincing signals can help improve the probability of success.
It's very Important 👇👇👇
3.Overextended move prior to the breakout:-->When the move proceeds without any significant pullbacks for a while, we may call it overextended.
Primarily it’s the case if the candles are bigger than usual.
Check this out.
Consider a bullish move.
The odds aren’t high that the market will continue grinding higher above the resistance right away after the breakout.
The resistance is the density of sell orders, where many bulls would want to take some profits.
That’s why it’s dangerous to buy the breakout right after an overextended move – you’d buy where many are getting out!
Below are two factors that make such moves a bad companion for breakouts.
1. Market gets thinner:-->
Usually, the order book gets less saturated with pending orders as prices keep going in the same direction.
Why?
As the market keeps going further from “normal,” fewer new participants are ready to transact at extreme prices.
It’s easier to move the prices in the thin market, as it takes less capital to fill all the available orders at each price.
In such an environment, the pullbacks tend to be sharp due to a lack of big players to support (or resist) the market.
2. Traders get tempted:-->
The further the market goes without pause, the more eager to get out would be those entered at the beginning of the move.
-->It is always crucial to assess the overall market conditions, apply proper risk management techniques, and exercise discretion when deciding whether or not to trade breakouts. Adaptability and flexibility are key in recognizing situations when it may be more appropriate to avoid or adjust your trading strategy.