In markets, breakouts often occur for VERY simple reasons. Price ranges contract and force more traders into tighter confines. Eventually the point is reached where the forces containing the pressure can no longer hold it. The price structure suddenly and violently erupts beyond the previous limits that contained it.
It should be easy to recognize the pressure building as more inmates are crowded into the available space between the fences. But, the guards on watch are sometimes too inexperienced to do so.
The decision to push just one more group into the exercise yard can be the last straw. Suddenly an overcrowded prison yard explodes in violence. Inmates storm the fence and break through the containment.
Guards that stand in their path are overwhelmed. Some get seriously injured. Some even murdered by the escaping mob.
Breakouts occur in the futures market the same way. Suddenly and violently. If your trading accounts are standing in the way, they will end up like a prison guard. Seriously injured or dead.
Is Your Trading Account Protected From Violent Market Breakouts?
Breakouts in prisons sometimes occur through execution of a carefully planned escape, and involve secrecy and stealth. More often however, they result from increasing pressure inside the prison as more and more inmates are crammed into a finite space.
In markets, breakouts often occur for VERY similar reasons. Price ranges contract and force more traders into tighter confines. Eventually the point is reached where the forces containing the pressure can no longer hold it. The price structure suddenly and violently erupts beyond the previous limits that contained it.
What Are The Danger Signs?
In the exercise yard at the penitentiary, experienced guards know the signs. As the yard becomes more crowded with inmates, their movements become more rapid and aggressive. The activity becomes concentrated in a smaller area.
To a seasoned futures trader, the danger signs are much the same. They use charting technology to track the compression of the trading range in the market. As the price range becomes more and more compressed, they can see the pressure building for a breakout.
How Do We Know When This Is Happening?
Experience tells the guards a violent breakout is near. The first smoke from a fire in the yard, or cry for help from a guard, produces the first tangible evidence. It might even be the first inmate attempting to breach the fence.
In the futures market. seasoned traders know to watch for an assault on the upper or lower established point of price containment.
In prison and in futures market breakouts, the first attempt will often fail. Seasoned guards and traders know to maintain a heightened state of alert. One failed attempt to break through the fence does not mean there will not be more.
It is actually common.
Prisons have fences and walls. Does your trading account?
During the most dangerous situations related to prison and investment breakouts, preservation of life or capital is the top concern.
Almost every prison in existence has multiple fences in place to contain the population in the event one is penetrated. This second level of containment gives the guards an opportunity to move to safety.
But how do traders construct this second level of protection for their trading capital?
In the futures market, this is accomplished by placing orders just beyond the established support and resistance lines of the price movement. These are called “stop loss market orders”.
The purpose of these orders is to automatically take you out of a position and protect your capital when the breakout occurs.
Live to fight another day
If we don’t know how to see the danger building, it is hard to understand the need to protect ourselves and our investments.
Crowding more violent prisoners into a confined space is a pretty obvious sign of danger. Crowding more futures contract orders into a confined and shrinking price range should be just as obvious… once we know how to see it.
Experienced prison guards can look down from the towers and see the increasingly agitated actions of prisoners as more and more are crowded into the exercise yard. This skilled observation allows them to see the risk building.
Experienced traders use technical analysis and available analytical programs, such as NOFT, that allows them to view the increasingly frenzied activity in the futures market. They are able to view the nervousness building before the breakout occurs.
The experienced guards see the danger and get out of the way. The inexperienced ones are injured or killed.
The results for investment accounts of futures traders are exactly the same. The experienced traders who know how to see the risk get out of the way. Those who fail to anticipate the impending danger, see their accounts maimed or killed.
Learn to use the technical indicator tools available so you become one of the traders who knows when to escape with your portfolio in tact.
Noft Traders offers a Funded Trader Program. To learn more, visit their informational page at NOFT-Traders.com.