Original subtitles

OK, so we talked a little bit about how do I define that false breakup may or may not be occurring.

So was there some strategies we can use to help us become better traders along that as well when we

think of false breakup might be occurring?

So that's what this lesson is about, is your strategic approach to these types of things, these false

trend line breaks are potentially false trimline breaks and once again, hard fast rule.

Once the trend line is broken, no matter how it's broken, you know, the trend is over.

That is the hard, fast rule.

Again, you're well, you're following that rule takes emotion, hope out of it, takes a lot of extra

analysis out of it.

So nothing wrong with that.

As far as once that trend line is broken, the trend is over.

However, false brakes do happen, frequently happen.

So there might be ways that we can use a strategic approach to really kind of deal with them and help

us be better traders.

And we're going to talk about how we can use support and resistance lines in terms of our strategy,

but also how to apply filters around this, too, in this lesson.

So let's let's get to that how we be able to deal with these potential false breakouts in terms of strategy.

So here's an old friend here.

Let's say we saw this this happening, right?

We saw this image here on the left there.

As far as you've got this nice uptrend that you bought into this nice uptrend.

And before you see the definite turnaround there, but let's say you're seeing this uptrend and you

first see the support line is broken and you're thinking, you know what, the support line's broken,

but maybe that's just temporary.

Profit-taking you can see we had this nice long trend before that.

And we bought in on the in this example, on the third touch.

But let's say if you bottom sooner even and you'd have a nice long trend that you've been make a nice

profit and maybe there's just some temporary profit taking.

Maybe it's just going to go down or sideways a little bit and then resume that trend.

So if the closes below the trend line, you're thinking, well, maybe it might be OK to hang in there

a little bit, just hang in there a little bit more.

So if you were to use this as a strategy around that, well, you could do is adjust your stop loss

order to kind of lock in profits.

Right.

We saw when we bought you.

Can you put a look at the lesson around stop loss orders and how to use these orders?

But basically, you're going to set a stop loss at a certain point in this case would be moving above

what you bought it at.

So if it if you're wrong and it's not a false breakout and it keeps going down, you'll be able to automatically

sell because of the order you placed in lock and lock in some profits there.

The other thing you can do, like in this example, is adjust the total amount of the money committed

to the trade.

Right.

So let's say we bought in here at a certain amount and we could say, OK, we're seeing some bearish

signs, we're seeing support line breaks instead of selling everything.

Maybe we do as we sell some, but not all of it to reduce the risk and lock in some profit.

And then we can sell all of it later on if we get a more definite sell signal as it starts to make that

turn.

So the idea is I've made a profit, I'm going to lock in some of those profits.

I think I might have a false breakout, maybe some temporary profit taking.

I'm going to hang in there a little bit, but with a smaller position, a smaller amount committed because

I've already taken some of it out.

And if it looks like it, go south and it's really just it is a definite breakage and it's keeps going

down in this example.

It does.

Well, then I'll I'll sell at that.

I'll sell and still make a profit, but I'll sell, I'll get out of it completely at that point and

then I'll sell it all later on and say that more definite sell signal.

So you see in this example here where we have buy and then you can see where cross that line.

Maybe you're saying I might sell here, but I might not really hang in there.

And then it starts to see where we're definitely having a closed all the way below the brake line.

Now we're really selling at that point.

And maybe we already took out some profits of sell maybe.

And then we took the rest out of the cell.

Definitely.

But if I turn and go in the other direction, then we still have some money in that we could keep writing

that trend.

And again, with all this, you don't have to be perfect, right?

You want to start using strategies to help.

You'll lock in profits and things so you don't have to be perfect on all this.

You just have to be, you know, kind of smart about it.

Another way of things could happen is let's say a resistant line breaks, right?

So the buyers or the bulls have broken through there.

We're on a deep downward trend and has been broken through.

The trend is well established.

You can see the downtrend here on this image has established.

You could have you know, you could see that on the second touch of the third touch.

That is definitely a downturn established with the fourth touch.

You could say, well, it's still part of a downtrend.

And the question is, will it become a new uptrend once it's broken through?

Right.

We're looking at is this a false signal?

It's already broken through.

This whole idea is it's broken through.

So the strategy around this and a resistance line break, you know, it's been in a downtrend.

It's broken through.

Will this become a new uptrend?

So the strategy wait for the second or third touch to buy into the new uptrend.

That's our orange line there.

You could see we got a second touch there, especially since we're coming out of a real steep downtrend

in this particular example.

This might be a case where it might be safer to wait for a third confirming real establishing a third

touch, just to be sure, just because it just.

Out of a big downtrend in this example, if, for example, and that's the orange line there, other

thing to do is called selling short and basically you're buying the price will continue to go down at

number two or number three toucher of the resistance line, sir, back in the blue numbers there.

And you're you're seeing you could be selling short at those periods and then you close your short position

once it breaks through in that a resistance line breakout you.

So you're booking your profits at that point.

So you're you're kind of betting this in terms of that way or investing it that way when we get the

order taking about how to sell short and how to cover your shorts, you know, though, we'll get into

that how it works.

But the idea is you think it's going to go down.

You're investing in a way that you're betting on it to go down.

It does go down.

And then once it breaks that line, you're getting out.

So, again, you don't have to be perfect with any of this.

And really, for most people who aren't selling short, they're really doing that first strategy of

like I see us breaking through, I'm waiting for the second or third touch to buy a new truck turn.

And if that doesn't form, then I'm still staying out.

I'm still staying on the sidelines.

That's what I'm watching for.

New trends or new indicators do confirmations to come along with a resistance line break.

There's also some interesting rules out there or different ways you can approach it to beyond this.

That's the core part.

One interesting one is the one, two, three rule as created by trader Vic, now famous trader, trader

Vic author as well.

And in the whole part of this and all of this is the goal is to manage the big challenge or at least

temporary pullbacks in this case of an established uptrend.

So the one, two, three one rule is regarded related to definite established uptrends and trying to

sell out of a temporary pullback.

You want to try to run that.

You want to keep running with that trend helps you to not get out too early.

So if you were bought early in the trend, you had this nice run up, then it pulls back.

It's the idea of the one, two, three rules that you're not selling till the pullback you have across

a trend line that's selling during the pullback.

You're trying to work through this temporary challenge as far as a pull, a temporary pullback so you

can keep your money on and let that profit keep running.

So how's one, two or three rule?

Look, let's let's take a look at that.

So let's walk through this in steps.

So first off, let's say on this particular one here, you can see we have a nice uptrend.

We bought on the second touch on this example, could have been on the third touch, but we bought in

there.

And you can see we have a nice price run up, nice profit up there.

And then we see across the trend line, that's our sell signal.

And so that's the first time we tell us, oh, we got to sell it.

Susan breaks that line we're selling.

Or if you want to wait till fully it's a full close across, you could sell them to.

So but you're looking at this line.

You're saying, I don't know if I really want to sell.

And there might be some really good logistical reasons behind this are tactical reasons, not hoping

and praying, but really some things that happen.

If you look right before that sell, you know, going back from the sell thing, you see there's a a

gap up, right?

There's a big there's a jump between the two two white candlesticks where there's where the prices don't

overlap or the price range doesn't overlap.

A gap is always a good, you know, bullish sign.

Right.

It doesn't mean it's literally going to happen that way.

They'll keep going up, but it definitely is a good sign that something good is happening.

So you had a gap up.

And then also you see there we have all these higher highs and we have these high closes all row, you

know, seven of them since you brought one, two, three, four, five, six, seven, since you bought

it, kept going up seven straight times.

So that's good, too.

But then now there's this temporary pullback or maybe it's a temporary pullback.

You don't know.

But you reach that peak and then you start seeing that the prices now start going red and the cattle

go red is starting to go down and it crosses that trend line.

So with that good stuff, all those high close to zero and the gap up, do I do I really sell because

across that trend line or people just taking some profits and they're just doing that, what how do

I apply my one, two, three rule to this is the idea.

So there's how you do it.

So let's put on some lines on this.

And this is how the one, two, three wheel works.

So first thing you do is in order for the one, two, three rule to be activated, you have to have

the support line broken.

Right.

That's the whole idea.

You're trying to see if this is a false signal.

So first step, it's got to be broken.

Right.

And you can sell right there.

You know, it's always the established rule.

You can just sell there.

But if you want to try one, two, three to see if it's more of a false type of false type of breakage,

then the second step you would do after the sparling's broken is you're watching for it to test of higher

highs.

You might go down a little bit more, might go sideways, but you're then you're looking for a turnaround

and for it to go back up and test the higher highs.

That's that.

Number two, they're drawn a line.

Whatever was the highest point of that trend before it was broken.

That's where I'm going to draw my line for my number two of the one, two, three rule.

And you can see it was actually a red candlestick.

It was a down day.

But the the bulls, the buyers tried to push that price higher.

They tried to keep going with that uptrend, tried to turn that into an update.

But the.

The bears, the sellers won out on that day and then pushed it down and then kept pushing it down past

the trend line, but that's where we look at that highest high end number two.

And then number three is where you look at where the previous significant low was.

And this could have been higher up in the trend line, but not in this example.

The previous significant low that approach the the trend line is where you draw a line straight across

that year, number three.

And once that's broken, then you have real definite confirmation that this is not just a not just a

temporary thing.

It's a definite thing as far as a turnaround.

So if we look at the one, two, three in this in this example, you can see, of course, the support

line was broken and the highs they had lost, they had a little pullback, had a little turnaround,

but it never really tested that higher.

Hi.

See how the highest point after the support line, after the trend line never got up to number two,

never broke through.

No.

Two is really where we're looking for.

We're looking forward to for this to have worked in this case, it didn't.

It should have.

If we if it worked, it would have been breaking through a number two at this point and then establishing

or re-establishing that strong ten trend after a temporary pullback.

That's what we would look for, is that breakthrough of the number two of the higher highs.

And it didn't.

Instead, it went down and maybe this went down a couple more days, a couple more red bars.

And we're seeing well, maybe we're just seeing a little pullback, a little narrow trading range that's

going to go back on trend, going to try to come back to that number two and go higher high.

But it never did.

In this particular example, it went down to the number three line, the test of the previous significant

low, and then broke right through it.

Right.

It broke through.

And that's your confirmation.

As soon as it breaks through, that's enough confirmation and you're selling at that point, you know,

to get out once it breaks through that.

So as you can see on this example, I would have made more profit in this example if I would have sold

at number one, if I were to follow the rule not, you know, tried to test for a pullback.

You know, if it would have broke through a number two, then I would have been rewarded on that.

Right.

So the idea is you're looking at other confirming factors.

You're looking at things to see how temporary this pullback is or if it really is a reversal like in

this case.

But even by setting my three out, the previous significant low between when I bought in that previous

significant low, I made profit.

I did not make as much profit as I would do from the Green Arrow up to the number one where I sold in

this example.

But I would have still made some profit and tested out the the pullback there.

So this isn't a case where it didn't fully work out as far as it worked out in terms of still getting

profits but didn't work out as far as hanging in there through a pullback and then breaking through

number two.

And that's the idea of the one, two, three rule.

You're looking for it to break through a number two and then your downside.

You're protecting yourself with the number three as far as your significant low confirmation.