Can there be failure at a breakout point?

SEE3772's Avatar
Interesting topping pattern on the Dollar Index in the near term 30 minute chart, see left hand side chart. This is a complex bearish "Head and Shoulders" reversal pattern. All of the right shoulders off the head have held their stop losses so far.

The big issue is really the Weekly chart, see right hand side. There is a very bullish "Cup with a Handle" pattern. Weekly charts are "numero uno" when it comes to understanding order flow from the larger degree timeframe traders. Since the breakout there has been a few profit taking "Throwbacks" to the breakout area. This cup with a handle is the dominant pattern and should be watched closely for confirmations and failure.

I wouldn't "date" any short trades on the smaller degree timeframes, meaning take profits at the targets, until having enough of them to potentially leave a "trailer" with as little risk as possible. However, holding onto a short is definitely "low probability" and "high risk" in my opinion. Position sizing and risk management are critical with this strategy. Why even consider a trailer then? Because of the structure of the strong hands on the short side of the "COT report" and the changes to "Open Interest". If this keeps up, there will come a time to hammer away on the short side. I can always wait for increasing probabilities.

What is interesting is the Legacy Commitments of Traders reports in the Dollar Index have been trending bearish from the commercial traders. The commercial traders are as of the most recent report greater than 9-1 NET short. I find it rare that commercial traders get 10-1 net long or short any futures contract.

Also, notice the Open Interest on the weekly chart is as high as it has been in years, but has been mostly in decline since breaking out to the upside off the weekly pattern. In order for open interest to decline at the highs it has to be net long liquidation (profit taking) and short covering combined.

My eyes are on Gold and I expect there to be increasing probabilities for a near term trend to develop. It's all noise on the short term charts until then. Day trading with my methodology would be extremely difficult. I would keep an eye on the blue triangle of the daily chart in the meantime, see right hand side. Can there be failure at a breakout point? Of course. That is why risk management, money management, trade management, and position sizing are always more important than any trade "signal". The perfect motto is to "always trade for tomorrow".