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WEEKLY TECHNICAL NOTE

AUGUST 25 - 29, 2014


BREAKOUT & ENTRY SIGNALS ON THE DAILY
CHARTS
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Identifying the correct Entry and Breakout Candle to use on the Daily Chart is the
cornerstone of this Price Action Methodology. Unfortunately this can be a very
difficult task because of the possibility of False Breakouts and signals that lead to
unexpected volatility. Candles can appear to be strong enough at a glance to justify
immediate entry, but many of these are often traps that only serve to benefit the
broker and bestow unnecessary losses on the trader.
There are generally three types of signals;
I. NORMAL CANDLES
II. WEAK CANDLES
III. LARGE CANDLES

The best way to confidently identify the correct signal is to use the examples of
Normal Candles that led to successful breakouts and trends as our benchmark. When
there is any doubt about a potential trade setup, we can easily go back to those
examples and compare them with the trade signal that we are contemplating.

I. NORMAL CANDLES
These are the types of candles that lead to the breakouts and trends that are profitable
with minimal volatility. They can be anywhere between 70 and 100 Pips. However,
since the actual pip size varies among Currency Pairs, they require more of a visual
recognition.

CAD CHF - JANUARY 2014

USD CAD - JUNE 2014

CHF JPY - MAY 2014

II. WEAK CANDLES


These appear to be strong enough at first glance, but they are usually just a bit shy of
the optimal, Normal Candles. They can lead to breakouts in the indicated direction,
but can do so with more volatility that takes out our Stop Losses, or reach their targets
in a time that is beyond the 7-Day Holding Period rule.

EURO JPY - MAY 2014

This was identical to that of the correlated CHF JPY pair. However, the weaker
candle here led to a pullback that would have taken a Stop Loss.

GBP NZD - NOVEMBER 2013

III. LARGE CANDLES


These are extremely tempting to trade because of the unequivocal signal that they
appear to provide when they break Consolidation and Candlestick setups. However, in
the majority of cases, they are the first step in a setup that leads to a False Breakout or
the start of the formation of a Consolidation. They may lead to temporary movements
and provide small gains, but this is usually short-lived.

USD CHF - FEBRUARY 2014

NZD CAD - AUGUST 2014

GBP USD - JUNE 2014

USD JPY - AUGUST 2014

This candle was given last week and it is highly probably that we get a pullback or a
very weak, volatile breakout.
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As with all aspects of this dynamic market, one has to constantly go over several
examples to become familiar with the Normal Candles that give us the breakouts we
want. In addition to the size of the candles, the distance beyond the barrier being
broken must also be significant. At least 70% of the body of the candle must breach
this barrier for it to be considered a true breakout.
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