Original subtitles

The importance of context.

The false breakout is the most important trading event.

But what is more important?

The false breakout itself or where it occurs?

What should we prioritize? The most recent action that happens in the market

we saw in the previous section or the general context?

In this case, the false breakout would be the tree while the context would be

the forest.

So the answer is clear. We must always prioritize the context.

This is one of the main advantages of the Wyckoff method.

In this section, we will see that we shouldn't necessarily trade at every

breakout, and we will develop the idea that the general context is always more

important than a particular false breakout action.

Let's imagine we are facing the possible development of a distribution pattern,

like the one in the example.

If we look closely, it's practically textbook.

It's behaving in exactly the way we would expect of a distribution

high and constant volume during its development and with unusual volume

powerful false breakout on top, and a good subsequent show of bearish intent.

As we already know, the roadmap we are expecting after seeing the upthrust and

the first signs of the weakness is a movement that takes the price at least

the bottom of the structure.

And it almost develops it. But before reaching the low, it leaves us with the

following, a potential spring.

What do we do now? Do we buy?

As you may remember, we previously commented that we must always prioritize

directional bias indicated by the most recent action.

So for this example, and based on that assumption, we should expect the

development of a bearish false breakout and wait for the subsequent bullish

movement, right?

Well, no.

Because the context is the most important thing, and the location where

potential spring is being developed will determine the final interpretation of

the current market sentiment.

And again, The general context suggests that we might be looking at the

development of a distribution structure.

So, we should only be looking for potential trades that are aligned with a

bearish sentiment, that is, taking up short positions, not long ones.

If the false breakout had appeared at an earlier stage in the development of the

structure, we could have taken this into account even as an opportunity to buy,

as we can see in those examples I have marked.

All these examples could have been viewed as possible opportunities.

since when they occurred, there had, at no time previously, been a false

breakout of the total limits of the structure, which would have alerted us

the possibility that we were entering Phase C and that the market was being

tipped in favor of one side or the other.

Which is exactly what happens when the upthrust appears.

The sentiment ends up being confirmed in favor of the short side, and from that

point on, we should only think about looking for entry points to sell.

Exactly what we had right there.

An opportunity aligned with the context.

A minor upthrust in line with the major bearish context.

This is exactly what we should be looking for. And when the time comes, we

should not hesitate.

Therefore, the appearance of a bearish false breakout in the middle of such a

movement should in principle be treated as a false signal and ignored.

And why should it be so regardless of context?

Isn't it a false breakout just like the others?

Well, regardless of the context, which is no small thing.

Since the implications of false breakouts at the extremes are more

any other, as they are based on the principle of the counterparty, we will

always expect there to be more liquidity located at the extremes which are

considered strong supports and resistances, over and above any

may exist at any other lower trading level.

This is why the context is more important than simple false breakouts,

regardless of where they occur.

because the next context will also be generally accompanied by more

false breakouts, by those that occur in more important areas of liquidity.

But we have to be careful, because in this example there was another scare.

What do we do here? Do we buy?

It could be that the spring unbalances the entire structure again and sends the

price upwards.

What would you do?

I would have no doubts, and we have seen this situation before.

If it really were a spring, it would continue upwards almost immediately,

good bullish candlesticks showing strong intent and it should, of course, re

-enter the range.

Sure, but if I want to buy, it might be too late if it really is the spring and

it's about to reverse and send the whole structure upwards.

Buying at these levels is much more attractive from the point of view of the

risk -reward ratio.

On this we agree, but don't forget the most important thing.

that the context continues to suggest a bearish imbalance.

Once again, let's remember that we are looking at a pattern that meets all the

characteristics of a distribution structure, that we have a strong

a significant sign of weakness that has taken the price below even the lowest

limit of the range, and we are currently trying to confirm the possibility that

we are seeing the successful bearish breakout test.

Based on this, wouldn't it be more sensible to continue looking for short

trades?

If you really want to buy at this point, remember that we are very far from the

low of the structure.

What do I mean by this?

That the distance traveled down from the broken limit of the range has been

quite significant.

Doesn't this sign indicate that maybe there is more evidence of bearish

pressure? I don't know, but personally, I would only be looking to enter short

in a trading zone.

And if I really wanted to assess the possibility of buying, I would at least

wait to see the buyer send the price back within the range.

Those are my conditions.

That is my checklist.

Those are the filters that would make me feel more comfortable with my decision.

There are always viable alternatives, such as entering with a similar amount

setting a tighter stop loss. But never forget, as long as the price does not re

-enter the range, the roadmap at this point is bearish.

And the following happens.

As you can see, even if you had bought at that point, you might have carried

a successful trade.

This is a good example of the importance of false breakouts in the market, which

shows that even when they are in the wrong location, they can offer up an

opportunity to turn a profit.

Assuming we had closed our position after seeing that new upthrust, of

Because once again, entering the market in the direction of the prevailing

context is exactly what we were looking for.

And it happens in a very authentic way.

The non -entry into the range occurs in the trading zone. We even see how the

movement that will develop the potential break and retest is also accompanied by

a decrease in volume, suggesting a lack of participation.

And below the structure, a minor redistribution scheme with an upthrust

a bearish breakout test that establishes the beginning of the continuation of

the bearish slide outside the range in favor of the entire distribution

structure. Simply wonderful.

But this concept does not simply end here in the behaviors that can occur

we are inside a structure or interacting with it.

We can also continue to apply this same idea to other environments, where the

general context and the roadmap point us in a particular direction.

At this point, it should be quite clear to everyone, but just to be sure, let me

repeat it once more.

Trades should not be executed at false breakouts that are not aligned with the

general context.

The general context is more important than any single false breakout.

In summary, in a bearish context, once a distribution appears, trades should

only be executed on the upthrust.

In a bullish context, once an accumulation appears, trades should only

executed on the spring.

In a neutral context, where the market has not yet become unbalanced, Trades

be executed after false breakouts at both edges until the potential phase C

false breakout appears.

Let's work with the following example. A situation in which we find ourselves in

the middle of an uptrend that is developing an accumulation, giving us a

that takes us only in a bullish direction.

A context which, as we have seen, should only compel us to look for false

breakouts in said direction, or, in other words, springs.

And suddenly... an upgross can appear contrary to the general market

like the one highlighted on the chart.

What do we do then? Should we go short?

Of course not.

The market balance has been tipped upwards, so it makes no sense to believe

the market is reversing just because we have observed a certain presence on the

part of sellers.

We have to let the cause that has been previously built exert its effect on the

market. Once again, we come across another potential bullish -false

What should we do?

Well, once again, you shouldn't do anything.

At least, you shouldn't consider going short here.

Absolutely nothing has changed to make us believe that the market might turn

that control has changed sides.

As we can see, the market continued upwards with more bullish false

against the main direction.

The market loves to continually give off false signals. You can observe a

behavior that is conducive to executing a trade and still not earn any money

because you didn't execute in the right location.

understanding the context and the importance should have on our decision

essential.

Even so, as you can see, the behavior itself is so powerful that even when it

appears in the wrong location, it often leaves potentially favorable movements

before turning around.

When we talk about incorrect location, what we really mean is that it is

incorrect for the trader that is operating in this time frame.

However, things might be different if we trade in lower time frames.

It would be more complicated to manage since the long -term context would

continue to be bullish but in the very short term. And if we have properly

identified the trading zones and the objectives we are aiming for, these

behaviors could also offer opportunities for executing trades.

But let's not complicate things.

We need to keep our trading approach as simple as possible until we have gained

the necessary experience.

Therefore, in this time frame, the rule of thumb is simple.

Since the roadmap and context point upwards, we should not accept any

false breakout until we see the development of a potential structure

cause a change in the control of the market.

Look how different things appear from another perspective.

In a bullish context, is it not more sensible to only look for trades in the

direction of the roadmap?

This is the simplest and yet most powerful idea that we can use to trade

markets. Trade springs in an uptrend and upthrusts in a downtrend.

Based on everything that we have just seen, it is crucial that we understand

current market context in order to look only for opportunities in the same

direction.

Obviously, this does not mean that it will always happen like this.

There will be occasions in which a small false shakeout seen in what we have

determined to be a wrong location will succeed and reverse the entire market,

changing control of it.

However, this does not usually happen.

it is more likely that the market will continue to move in the direction of

least resistance.