Friday, April 14, 2006

Trading Failed Breaks

You've been told time and time again to trade breakouts and breakdowns. Countless chart patterns exist to help you pinpoint exact entries and place effective stops. Knowledge of these patterns and strategies is commonplace among retail traders. And indeed, the strategies work in most situations - if they didn't, then technical analysis would not work. However, this type of predictable behavior begs the question: why doesn't someone take the other end of the trade? Why wouldn't someone purposely break through the predictable stops, knowing that it would crash the price?

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