Lecture Notes on Breaker Trading Strategy

Introduction

• Focus on using breaker as a form of mitigation to highlight a trade setup.
• Assumption: Watching price trade lower, creating a short-term low.
• Key concept: False break or total sweep long.

Understanding Market Movements

• Short-term lows: Sell stops exist below these levels.
• Market Structure Shift: Indicated by significant price moves higher.

Identifying Key Levels

• Short-term high: Formed between two lower lows.
  • Becomes a focus; used as a resistance level.
• Bullish breaker: When price breaks through and returns to this high, it acts as new support.
• Bearish breaker: When market trades higher, takes out an old high, and then breaks below the low that made the new high.

Bearish Breaker Detailed Explanation

• Bearish range: Down-close candle in recent swing low before an old high is violated.
• Mitigation: Buyers at this low will attempt to mitigate losses when price returns to the swing low.
• Focus shifts to the swing low between two highs after a market structure break.

Bullish Breaker Detailed Explanation

• Bullish range: Up-close candle on recent swing high before an old low is violated.
• Mitigation: Sellers at this low will attempt to mitigate losses when price returns to the swing high.
• Focus shifts to the swing high for a bullish breaker.

Confirmation of Breakers

• Buy stops & repricing: Buy stops indicate trapped buyers; repricing lower confirms new breaker.
• Sell stops & market structure shift: Trapped sellers below the old low; repricing higher confirms market structure shift.

Price Action Analysis

• Look for examples of market creating a low, trading lower, and then rallying.
• Support ideas: Horizontal lines can be drawn but need underlying story.
• Short-term highs/lows: Key in identifying support/resistance levels.

Practical Application

• Chart study: Analyze examples of formations with price trading down, taking out sell stops, and rallying.
• Support Level: Identified by the range of the last up candle before a drop.
• Trader behavior: Larger traders wait for price to mitigate shorts and add longs leading to explosive price action.

Conclusion

• Emphasize understanding the breaker for identifying support/resistance.
• Future discussions will elaborate more on these concepts.
• Encouragement for practical application and good trading practices.