Price Action: Breakout Trading (Part 1)

When you see the market rallying like this and nervously say,
"I know it's going up, but I don't want to take that much risk,"
at that point you should buy a small position — even just a little — but you must get in.

A bull trend —
observe how strong this trend is.
Large or very large bodies,
closing near the high, or with only a very small tail at the top of the bar —
this shows bulls are aggressively buying with good buying pressure.
When you see this, then look at the left-side structure.
The context favors the bulls, suggesting price is more likely to go up.
Once the thought "I want to wait for a pullback" appears in your mind,
that means you should enter long.
Do not wait for a pullback.

A trend can continue for quite a long time without any pullback.
If you don't buy and keep waiting for a pullback,
you may not get that pullback until the market has already risen very high,
and by then you may have missed an entire strong bull trend.
Even if you do get the pullback,
you have still missed most of the trend.
There is no reason to miss such a strong trend.
The market is clearly bullish,
clearly more likely to continue up than down,
so you must buy.
When you look at the chart, you know where the stop loss must go —
it must be placed below the entire move.

Usually you need to see 3 or 4 consecutive bull bars
before you can determine this is a "buy-the-close bull trend."
Once you confirm a "buy-the-close bull trend" has appeared,
keep buying at each close
until it is no longer a "buy-the-close trend."

Beginners always want the "perfect trade."
They are unwilling to take any risk unless they are absolutely certain they will profit.
But this is simply impossible.
You should always assume: you can never have more than 60% certainty.
You cannot do nothing just because "there's a 40% chance of losing."
A 60% win rate is already the best-case scenario.

Trading ranges usually begin with a "wedge" (three pushes).
First push, second push, third push.
The market often enters a trading range after the third push.
In a trading range, price oscillates up and down with no clear direction.
You will see alternating bull and bear bars, many inside bars, many doji bars, many symmetrical tails.

Many traders use the moving average as dynamic support.
They look for signal bars to trade when price approaches the moving average.
For example, in a bull trend, when price pulls back near the moving average and a small bull bar with a lower tail appears,
or a small doji bar, they will consider buying.

In the channel phase, one of the best buy points is the H2 buy point at the end of the first pullback.
That is, one downward push occurs, then bulls attempt to resume but fail, another downward push occurs,
then price forms a small platform and breaks upward.
This breakout point is typically a high-probability buy point.

If you buy successfully at the H2 and price rises again,
the rally may not be as strong as the breakout phase — it may move more slowly with more chop.
We can use a swing stop to continue holding this long,
with the stop placed below the starting point of this rally, until the market tells you the trend is over.

And the market typically tells you by:
price breaking below the most recent major high or low, or a very strong bear reversal appearing.
If you see bear bars getting larger, consecutively closing at their lowest points,
or a large bear bar closing at its low and breaking below the prior move's low,
this may be the signal that the trend has ended.

Once the trend ends, the market enters a trading range.
Within the trading range, you no longer use swing stops
but instead trade more actively in and out,
scalping at the upper and lower boundaries of the range.

Summary:
Breakout phase: consecutive large bull bars, closing near highs, with gaps or strong body bars; the strongest trend form;
Channel phase: the rally continues but with diminishing strength, deeper and more frequent pullbacks, flags appearing, slope decreasing;
Trading range phase: alternating bulls and bears, both pullbacks and breakouts failing, price beginning to consolidate sideways.