Monday, October 28, 2013

Remember Break Test Enter?

A few months ago I spoke about a trade setup called break test and enter that I execute on frequently.  The sequence is as follows:

Break - Pre-defined level of support and resistance (S/R) has been broken
Test - The broken level of S/R is tested confirming previous support as resistance or vice versus
Enter - Enter the trade only after the price bar closes above/below the high/low of the test bar. 

Today we saw another intraday example of the break test enter trade setup.   Below is the SPX 15min PnF that we have been using for the past little while to determine the area of demand and supply at these nose bleed levels highlighting the 1757.8 level.

Below is the SPX 15min candlestick chart demonstrating the trade set up.  Price broke above the resistance level of 1757.8 yesterday to close on the highs. That is the break in our 3 step trade set up.   Today we tested the breakout level of 1757.8. That is our test step.  Then we broke higher crossing the high of the day.  That would have been the safest place to enter a long position although buying at support with a tight stop could also be an alternative but may lead to higher incidents of getting stopped out if you are not careful.  That is the enter step.  Simple no?  Again we are using a 15min chart with a 1.7 point box size.  A step on the daily PnF with a 15 point box size would obviously lead to bigger gains (and losses too).  That will be all today.  Watch for this reliable setup in your trading.

Thanks for reading.

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