Is this the Big Beautiful Bullish Breakout for Baidu BIDU

Jul 24, 2017: 10:34 AM CST

Is THIS the actual Big Bullish Breakout for BIDU?

After a nasty Bull Trap tricked traders in May, price held support in the lower rising triangle trendline, keeping the pattern in play.

After three weeks (so far) in a row above the falling triangle trendline, is THIS a valid break?

Let’s take a look:

Baidu BIDU Bullish Breakout Trade

If you’re new to technical analysis and want to study a Symmetrical Triangle Price Pattern, Baidu (BID) gives you a textbook example.

At this point traders are buying the breakout, expecting a larger bullish swing to give them profits if the breakout extends.

Breakouts tend to occur (to the upside) when buyers put on new positions, or add to existing ones, while bears (short-sellers) cover their losses with their stops.

Also, price alternates between contraction (sideways action – often seen as a triangle or rectangle) and expansion or trending action.

Note your levels as you zoom down to the Daily Chart for additional clarity:

Baidu BIDU Bullish Daily Chart Breakout Trade

I’m often asked “how can we know a breakout is valid?”

There’s no 100% accurate way – I wish there were – but one major clue comes from volume.

In this case (the May breakout above the trendline), we had HIGHER spikes on BEARISH or sell-days than on bullish (buy) days as indicated by our red/green volume indicator.

The breakout failed in part because buyers DID NOT step up their game (also seen with the negative momentum divergence) and bears WERE NOT compelled to take their stops.  Bears won and buyers rushed for the exits as price collapsed back inside the triangle trendline pattern back to the lower trendline (target).

That is actually a good trade – a failed outcome or trap – to study for another day.

Back to the current breakout…

We did see a spike of green volume on July 5th but since then, buyers have been relatively weak in terms of volume.

Price action remained strong – in fact very strong – yet volume just isn’t impressive.

This suggests traders take caution and monitor any open positions – if not in a position, wait to see how price behaves on the first pullback.

Either way, study this example and follow-along what happens next with these levels.

 

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Corey Rosenbloom, CMT

Afraid to Trade.com

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