India Markets

Momentum Breakouts

Brandon Wendell
Instructor, CMT

This email was recently sent to me:

“Hello Mr. Wendell,

Could you kindly write an article or email on how to identify momentum breakouts and the extent to which the prices can follow a breakout? Currently the Indian markets, and more precisely the Nifty and leading Bank nifty stocks are seeing SZs after SZs broken on the upside. This is really diminishing my faith in Core OTA Strategy, which leaves its students to being stopped out of well planned trades wherein several odd enhancers were applied.”

I would be happy to answer this question.  You must realize that I cannot go into too many specifics in this article as it is viewable by non-Online Trading Academy graduates.   But I can explain why the zones may be breaking and how you should use the Momentum Breakout Strategy (MBO) that we teach in our courses.

One thing that you must remember about the core strategy is that you want to trade in the direction of the dominant trend and enter and exit at supply and demand zones.  You can time the reversals of the trend for entries and exits.  You must simply look for larger timeframe supply and demand to end the trends of the smaller timeframes.

If you are experiencing a strong uptrend in the daily timeframe, supply zones intraday are less likely to hold even if they rate high.  This is the nature of the impulses of a trend.  In this strong uptrend, you should buy corrections to areas of demand when price corrects and NOT short at supply as it is risky.  The trend should end when the daily supply is reached by price, not intraday supply zones.

The MBO strategy identifies additional entry opportunities for when you are in a strong trend but price is not correcting back to supply (in a downtrend) or demand zones (in an uptrend).  There are certain patterns that we teach in our courses that offer high reward and low risk opportunities for the trader.

For the MBO pattern to work, there must be a strong trend intact and price should not be nearing supply or demand from a larger timeframe.  You should also see that the larger timeframe trend is in the same direction that you intend to trade.  If it isn’t, your trade is less likely to work.

I also do not trade the MBO on the breakout itself but rather wait for a retest to shake out weak novice traders before entering.  This causes me to miss opportunities from time to time but overall keeps me safe.  In order to trade we must have money.  If we do not protect our money we will not have it to trade.

If you are unsure of the trend, it may be better to wait until you have a clearer picture in the markets.  If you are unsure of your trading strategy, come see us at Online Trading Academy and learn to trade the professional way.

Brandon Wendell

This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.