Playbook setup: break and hold below

Break and hold setup is after 1-2-3ACU my most favourite setup. What is the story behind it? In this bearish scenario a stronger support is established. Bears are slowly accumulating short positions above this (soon to be breakout) level leaving hints like lower higher creation. Then the level is broken strongly. Some of the bears are taking profits, some bullish stops are triggered some bearish limit orders are triggered. This escalates in a strong bearish move. After the price reaches a new extreme it starts to retraces back to its break out level. This means that market participants are bit tired, some already accomplished their targets and some are waiting for best opportunities. Where are the best opportunities? Well, again at the breakout level. If in FX would be one centralized exchange and you could see the order book, you would find most of the sell limit orders at the breakout level. 

So market is slowly retracing towards the breakout level and the SHORT orders are triggered. Bull are not able to surpass the breakout level and are attacking the previous extreme low. They cant make it to the low since there is more BUY orders on the way down or there is not enough of BEARS present in the market yet. On the way back to the breakout level new BEARS are getting on board. The level held again for the second time. This is a so called “held below” scenario and since it was confirmed (holding twice below an important price) I am ready to go short. This is usually a moment when another strong move should unfold in the market. Market created a new extreme then retraced again unable to surpass previous HIGH. My target is at +3R and as long as market is creating new lower highs (LH) I am holding my position.

You should play this setup whenever there is a possibility of hitting +3R or more (no super significant S/R is ahead until min. +2R is reached). With reading the price correctly you can easily find out when the market is not doing what you want and EXIT before your stop-loss is hit (cutting your losses quick). And as long as you are playing this setup with the current trend, there might be a higher probability that your target would be reached quicker than if you are trading against the trade.

JK.