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Tuesday, May 8, 2007


The breakouts I like are the ones that are volatility spikes occurring after a period of declining volatility. These types of breakouts via volatility spikes tend to have a better chance at more follow-through. Further, these types of breakouts tend to be wide range bodies or expansion bars depending upon if your using candlestick charts (wide range bodies) or bar charts (expansion bars).

As to your comment about doji's and spinning tops. If they are small (small bodies or small ranges) in comparison to the WRB volatility spike...They are key clues that volatility has declined and is preparing for a volatility spike (up or down).

Personally, I like to see a minimum of three back to back (consecutive) small real bodies to indicate suitable declining volatility just prior to a volatility spike.

Other key clues involve key economic events and that's the easy part because there are many online sites with free economic calendars.
That's the basic to how I pick breakouts:
* Declining Volatility ---> Volatility Spikes
* Key Economic Events

Once you learn how to analyze volatility and understand its relationship with breakouts...You'll no longer be dependent upon indicators nor volume for breakout signals.

Next...the hard part is to determine if you enter upon the close of the breakout interval or wait for some quick pullback (usually no more than 2 intervals later) to enter the trade. Of course there's more to it but you'll have to figure that out in your chart analysis on how to enter a breakout...

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