All language subtitles for 5. Breakouts And Retracements In The Stock Market

One thing for technical analysis and technical analysis, traders are really concerned about breakouts

and retracement and understand the difference between the two.

And so we look at that in this lesson.

You know, normally you have a trading range or price range where you have a low price range or low

price and you have a high price.

And in the security trade within that range over a period of time and again, that period of time can

be hours, days, months, whatever that period, time.

But price will tend to stay in that range.

And you might have some general trends within that range where it might be flat or kind of going sideways,

or you might have a general uptrend or you might have a general, let's say, downtrend kind of within

that range of stocks or securities constantly changed, you know, throughout that time frame.

But then things can happen, you know, where he can break those those general trends and start reversing

or going into a different trend.

And is it truly happening or is it more kind of like a fate?

And it's not really happening?

And that's very important for us as technical traders to know when to help us, when to buy and when

to sell.

So if we think about that conceptually, you know, trends will continue until the pattern breaks,

right.

So something's got to break the pattern.

And a lot of times what happens with breaking the pattern is something happens.

There's some type of thing in the news.

For example, an earnings announcement, something on a global scale, whatever it might be, or even

just a rumor might, you know, break the pattern.

And that's what you would what might be a breakout rate's going to break the pattern or might be a retracement

where it's really not a true breakout.

And that's the idea is something happens, there's some news or a rumor, and then something's going

to happen.

Right.

So traders are either going to do nothing, but they might, let's say, you know, start to really

panic based on that news and sell real quickly and really panic.

Oh, my gosh, this is terrible news.

I got to get out fast.

And so the kind of selling maybe quickly, the same thing.

If the news is great and there's some great announcements, they might have that fear of missing out.

Right.

Flomo right there, like, wow, this is really taken off.

I always thought it was really good security, but now it's really going.

I got to get in fast and buy, buy, buy.

Right.

So you have sellers and yet buyers.

Right.

So that disruption is actually called a breakout.

Right.

So that means something has changed and you've broken out of the new pattern and there's either going

to be a new uptrend, you know, going up or maybe going to be a new downtrend.

And you might also have like a false breakout where breaks out, but it's not really due to supply and

demand or market sentiment or anything.

There's something that's causing a short term disruption into it.

And that could be something like really to like position squaring by big players.

Right.

Real big holders of things that might be adjusting their holdings in a particular security that's causing

some disruption in the market versus some more legitimate news.

So if you think about what some examples of this kind of like big players doing and disruption, that

might be a false thing, not a true breakout.

Let me share a couple of examples of something that things that are like that.

So let's say you're a fund manager, a mutual fund manager.

You own all the all the stuff in this mutual fund.

You know, millions, millions, tens, hundreds of millions of stuff, let's say, for an S&P 500 fund.

And it's an index fund.

And and you have to buy more Tesla because they were just added to the index, you know, which that

happened not too long ago.

So they're added to the index.

They weren't in the index before.

So now you just have to buy the stock because they were just added to the index that because you think

they're great, it's just you have to do it.

So that's going to cause an unusual amount of buying and that's going to change that breakout, because

all of a sudden there's a buying for reasons beyond just, let's say, market sentiment or let's say

Apple announces that it's going to buy its own stock back.

And a big purchase is part of a company's stock buyback program.

You know, they're going to, you know, buy their own stock back.

So that means they're coming in and they're actually buying stock on the open market.

So if you think Apple is coming in to buy a whole bunch of stock, you know, that's going to drive

the price up.

Right.

So that's, again, nothing to do with individual traders.

It's a big player coming and being disruptive or let's say a fund manager of a big technology mutual

fund wants to lock in gains before the end of the year because that's how they're evaluated.

I mean, that's how they get their bonus rate.

So they want to lock in a nice bonus.

And they just had a big run up in Zoome stock, for example.

So they want to sell a ton of their Zoome stock so they can lock in their gains for their annual performance

and get a nice bonus.

Does that say having to do with her Xoom is a good company or bad company?

Or whether technical analysis says that we should buy or sell it?

No, it's a fund manager has a big player who wants to get a bonus.

So sometimes those things can happen.

It's not often, by the way, it's not something you have to really worry about, but just understand

that it's out there.

And sometimes when you see movement and you see something like there's a big announcement that might

be related to it, you want to say, OK, is this really happening or is this just going to be a short

term type thing and it's going to come back and pull back?

In fact, we call that bull, that pullback retracement.

And that's the you know, the breakout is where it breaks down now is forming a new type of trend.

Retracement is where the breaks out a little bit, but it's a minor move that's going against the trend.

And it's going to come back, you know, like that big player repositioning.

So if a traders think a current move has gone too far, they might have a little course correction.

Or a little pullback, but then the trend might come back up again as we learn through the indicators,

we're going to learn how to spot breakouts in their retracement and how to kind of use confirming things

to see whether we're seeing a breakout or retracement.

Is it a true move or is it kind of a temporary type of false move?

And sometimes we might see retracement, for example, where everyone has either bought or sold.

Right.

There's an overbought situation where, you know, everybody wanted to buy has already bought so extended.

So it's kind of a natural kind of come back.

Same thing.

If something's oversold and we have these these these tools that can help us with that one is the classic

isolator, which is a fun thing to say and also help us to identify things.

And there's other tools and things are going to be learning about.

They'll do us too in a lot of times.

Another good way to look at it, too, just early on, if you see volume rising, you know the bottom

part of the chart, you see volume rising.

Well, there's a lot of that trading activity, but there's hardly any price movement, hardly any price

increase.

Then the move is whichever is happening is probably ending.

It's starting to stall out.

So we think someone's been rising uptrend, for example.

It's been going great.

But now there's hardly anybody doing it.

Now it's really starting to slow down.

Still, it might might be a time either for a temporary pullback or retracement or maybe we might even

have a breakout in the opposite direction where it might go backwards.

So retracement they can turn out to be actual trend reversals.

I mean, it could be looks like a retrace retracement, but really it actually is a breakout and you

have a new trend or it might be truly an actual retracement, which is just temporary.

And then it'll kind of go back to where it was trending again, to all of this very normal.

And with the technical analysis we're going to using and using our indicators, we're going to be able

to handle and deal with both breakouts in their basements and identify great opportunities to purchase

and also identify times when we might need to sell and get out as well.

It works both ways.