When Buyers Unite ≈
A breakout occurs when prices breach support or resistance. With the market in such a powerful uptrend, bullish breakouts, or those that take out resistance, are the most prevalent. Their appeal comes down to two factors: the favorable reward to risk ratio and the higher probability.
Let’s focus on the second variable.
Market participants are divided into four groups.
-Those who buy to go long (new bulls)
-Those who buy to cover shorts (old bears)
-Those who sell to go short (new bears)
-Those who sell to exit longs (old bulls)
The best bull trades occur when both groups of buyers are present and both groups of sellers are absent. The bullish breakout pattern provides just such a situation. When prices breach resistance, new bulls jump on while old bears depart to minimize losses. At the same time, the strength warns off new bears wanting to go short. And why would existing bulls wish to exit their position if the stock just blasted through a resistance zone?
When you think through the disposition of each group, you discover why breakout patterns are so compelling.
Chart of the Day
Apple Breaks Out
Video of the Day
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