All language subtitles for 4. The importance of context

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.