Breakouts are risky and despite it being popular strategy, it does carry a high failure rate. One however has to realize that not all breakouts are created equally (a story for another day). There are however instances where a breakout has a good chance of upside follow-through. For example, the current chart of the JSE Top 40 sees the price below a resistance level that has been in place for several weeks and where sellers have stepped in on multiple occasions. The candle structure is strong, with a large green candle having developed. In addition, most of the trading action has been taking place at or around the resistance level, which reflects buyers continuing to remain interested at the highs. While a pullback is possible, a close above the horizontal trend line, combined with continued strong candle structure opens up a new trading range and potentially a new leg higher.
Lester Davids
Analyst: Unum Capital
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