How do you differentiate a true breakout from a false one? The answer is in Volume. Volume shows the intensity of buyers and sellers behind a stock. You can think of it as "Energy". A breakout must be accompanied by strong volume (or excitement) to push through the resistance (i.e. supply line). So how "excited" must the volume be for one to conclude the breakout is valid? For me, I will compare the current breakout volume from past volume trend when price approach the same level? If current volume is greater or equal than previous volume, chances that the breakout is valid will be greater... So nothing is absolute, because trading is a probability game.
This is the STI index for yesterday where price close 3241, just right under the critical 3250 resistance line. Eyes are now on the European countries where both Portugal and Spain will auction their bond today and tomorrow respectively. Stay tune...
In life or anything, we seek balance. Extreme excitement is the recipe for bubble formation... Don't get trapped at the top.
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