breakout

[AMITBE]

AMIT,
for the three phases of breakout, does it all happen in 1 day or in 2 separate days?

Hi cmlee...great that you started this thread.
There is no time frame for the three phases. It can happen all in a day, or two or three or four depending on the wider market conditions...except it normally would not go over an extended period, obviously.
Thanks!

 

[4candles]

nice detailed analysis there Amit, was short & good.Liked reading it

regards,
murali

 

[karthikmarar]

Hi Satya...really glad for your profit on Garden Silk!
I'm afraid since I don't have any software, I'll attempt an explanation seeing my data along with the charting at BSE...you could follow the same on your charts.
Mid '03 at 35 levels the scrip had made a high and fallen off to 30 in about two weeks, which was a previous high/resistance and now giving support. A couple of weeks later 35 was again tested, and this time a breakout there was confirmed which put the scrip into an intermediate uptrend. Thereafter, following a series of moves to the up, by Dec end 68-72 was the peak. It hung there a few days, and made a double top of sorts and started an intermediate downtrend where the price action downward quite resembles the previous uptrend...meaning, there were similar key support/resistance levels on either side. If you see your chart, it will clearly show you how the trend reversal to the down violated all the support levels, pushing the price down to the 35 levels again by March '04. From here on, there was a move to the up again which took the price up to 53 by mid April. 53 was also the head of an elongated head&shoulder pattern and again the price slipped to 35 by mid June. So now 35 is a vital key support.
End of June, there is an interesting intermediary 5 ascending wave pattern where in the first wave, the price moves from 35 to 52-55 again. In the second wave, it slips to 45-47. The third wave pushes it back up to 70 again.(70-72 by now is key resistance point) The fourth corrective wave to the down stops at 52-55 by early Jan '05.(52-55 is by now is a key support/resistance). The fifth ascending wave doesn't quite materialise just yet. Now at 60 levels, there is a sidewards movement for three months, followed by a downward slide to 50 which lends support again. Then back to 60-65 in May, and down at 52 again in June. At this point 52 acts as a trigger and there is a steep climb to 72-75-79, which can be seen as a delayed fifth wave. This is where it's at currently and this where it had peaked in Jan '04.
(Usually after the fifth wave, there are three waves to the down which may or may not materialise, and in any case, as there are waves within waves, putting a time frame on this is not possible. This can expand over a long period of time.)
From all this, key levels are very visible and their recurrence is fascinating to say the least. It's always at these points that all the drama takes place, whether uptrend or down. Throughout the above, there would be several false breakouts too, at all the key levels. To analyse each would be quite tedious, so I decided to walk through this two plus years of price action to understand patterns that are vital in analysis.

I know your point was about breakouts, and I rambled on to wider thingsbut thats me!
Garden Silk is at an important juncture now. Currently the volume is gone and if it goes down, we know what to look for. In the mid term, it may well begin to trace out a new course to the up...
Hope it helped!
Regards.

Hi Amit

All this without a charting program and just based on database. Amazing. Is your real name Harry Potter
I am enclosing chart so that other can easily correlate your fantastic description. I have tried to mark the various event ( to my best of my understanding). It was good that you posted your writeup on breakout in your thread , obvisouly the most visted thread.

regards

karthik

 

[AMITBE]

Hi Amit
All this without a charting program and just based on database. Amazing. Is your real name Harry Potter
I am enclosing chart so that other can easily correlate your fantastic description. I have tried to mark the various event ( to my best of my understanding). It was good that you posted your writeup on breakout in your thread , obvisouly the most visted thread. regards karthik

Hi Karthik...very valuable input, my friend...thanks ever so much. Yes, now my description has been well illuminated thanks to your chart.
If one has worked long enough within a system, a lot becomes visible. But I did look in at BSE to confirm what I'd written before posting.
Looks like it's time I got myself some software...better to study charts as pure graphics too. It's amazing how much the basic character of a scrip is revealed by a mere quick glance, without getting into the nitty gritty of things.
Thanks again!
Regards.

 

[Anupama Singh]

The price dropping and remaining below the support line itself is considered a false breakout. There is no "how much below". It may even go down to the next support line. Also volume is not a consideration, the drop may be on small volumes.( I have noticed that normally volume decreases)

I am enclosing the chart of Alok Textile showing a false breakout in September 2004. Please note that it is not an ideal example. But this is the only one I could get hold of now. It does present some idea of a false breakout.

Normally in a break out after the penetration of the resistance line, the traders are reluctant to accept the new higher price level and there will be selling pressure. The price will then return to earlier resistance / present support level. This is called the TRADERS REMORSE. The action of the price after the Traders Remorse is very crucial. The price may rise to higher level from the support line signaling the breakout. If the general feeling is still that the new price is not warranted then selling persists and price goes down further. This results in a Bull trap (refer Saint's post) or False breakouts.

Iam enclosing the Chart of Alok Textile showing the recent breakout. The Traders Remorse is quite visible in this.

Thus it may be a better idea to enter the stock after the upturn from the pullback (trader remorse ). see chart.

Hope I was able to clarify your doubt.

reagrds

karthik

Hi Karthik,
Excellent write-up,Karthik.......also great writes by Saint and Amit.Thanks all!

Regards,
Anu

 

[Saint]

The price dropping and remaining below the support line itself is considered a false breakout. There is no "how much below". It may even go down to the next support line. Also volume is not a consideration, the drop may be on small volumes.( I have noticed that normally volume decreases)

I am enclosing the chart of Alok Textile showing a false breakout in September 2004. Please note that it is not an ideal example. But this is the only one I could get hold of now. It does present some idea of a false breakout.

Normally in a break out after the penetration of the resistance line, the traders are reluctant to accept the new higher price level and there will be selling pressure. The price will then return to earlier resistance / present support level. This is called the TRADERS REMORSE. The action of the price after the Traders Remorse is very crucial. The price may rise to higher level from the support line signaling the breakout. If the general feeling is still that the new price is not warranted then selling persists and price goes down further. This results in a Bull trap (refer Saint's post) or False breakouts.

Iam enclosing the Chart of Alok Textile showing the recent breakout. The Traders Remorse is quite visible in this.

Thus it may be a better idea to enter the stock after the upturn from the pullback (trader remorse ). see chart.

Hope I was able to clarify your doubt.

reagrds

karthik

Nice write-up,Karthik........great going and as always,keep em coming!

 

[Saint]

Hi cmlee, Karthik, Ajay and Murali...
Below I am adding a supplement to the issue of breakouts and false breakouts. This is from my research and notes of the past. It's always difficult to remember everything one has read, so this was a good opportunity for me to open some books again! Thanks!

Breakouts almost always occur at points of discord and divergence: levels of support and resistance. On either side of these levels, a lot of price action is generated, but no one is quite sure just how much force is required to carry price into a sustainable trend. Any position one takes near a breakout level comes with a fair deal of risk, regardless of how perfect a pattern may appear.
Price action responds in different ways to a breakout. First, it may carry through successfully to higher levels. Second, it may generate whipsaws (volatile and choppy price swings through support or resistance levels), resulting in losses on both sides of the market. Third, it may trap buyers in a false move and start a trend in the opposite direction.
It is believed by some technical analysts that a successful breakout occurs in three phases.
It begins when price breaks through resistance on increased volume. This is called the Action Phase. Price increases by a few points, and then reverses as soon as buying interest fades.
From here begins the Reaction Phase. The market will sell off, and propagate the first pullback, where fresh buyers see a chance to get in close to the breakout price. If everything goes well, a second rally kicks in and raises the price above the initial breakout high.
This marks the Resolution Phase where the price creates new highs.
For the three phases of a breakout to succeed, much depends on certain volume action:
Demand must exceed supply during the initial breakout. Volume should drop sharply during the pullback of the Reaction Phase. And finally, fresh buyers should come in to successfully trigger the Resolution Phase.

A false breakouts occurs when these forces fall out of balance.
Whipsaws will prevail when a breakout can't generate an efficient reaction phase. This failure need not necessarily trigger any major reversal, though the pullback will purge out weak hands and push the price back into resistance.

If there is a good number of buyers in the scrip throughout the choppy price action, they will repeatedly support the price, and as soon as the whipsaw fades out, the price stablises resulting in a loss of volatility.
A voluminous sideways movement in a tight price-band will then come into play, which itself acts as a trigger for a buy signal for the experienced traders. This would then start a bounce up in price to carry it beyond the last high.

Mainly then, once the first lot of buyers enter at the initial breakout point, much depends on the behaviour of the successive hoards of buyers.
A false breakout occurs when this second crowd fails to appear for any reason, whether its a failure to spot the breakout, or a disagreement with the price pattern. Without the support of fresh buyers, the scrip gets stranded in an overbought zone and falls from its own weight.
To extend this further, every new low will trigger s/l points, building momentum to the down, drawing with it new short-sell traders as more key supports are broken. Here a sharp reversal is now under way.

Hope this will add to the wider understanding of the subject...
Regards.

As always,excellent article,my friend......always a pleasure to read your contributions.Great stuff!!

Saint

 

[AMITBE]

As always,excellent article,my friend......always a pleasure to read your contributions.Great stuff!!Saint

Hey saint...thanks so kindly...and thanks to you too for some great material posted!

 

[Saint]

Hey saint...thanks so kindly...and thanks to you too for some great material posted!

 

[karthikmarar]

Hi Karthik,
Excellent write-up,Karthik.......also great writes by Saint and Amit.Thanks all!

Regards,
Anu

Nice write-up,Karthik........great going and as always,keep em coming!

Hi Anu and Saint

Thanks a lot. Learning and sharingthats what makes this forum unique.

Regards

karthik