BO Probability x Open Reversal Probability

Posted by: @leonardoguelfihotmail-com

Hello!

I can't solve a question about the probability on the open. I ask you please for help, because it seems there is something I am missing.

Let me put the principles:

1. Breakouts with follow through have great probability of a measured move (60%-70%)

2. There is 80% chance of a reversal on the open, no matter how strong the move is. 

So, if I have a Breakout with follow through on the open, should I enter at the close, even knowing that 80% of the time there will be at least a minor reversal and, worse, 50% of the time a major reversal?

 

Thank you in advance. 

What Al is saying is that breakouts on the open have a higher probability of failing (80% of the time the first reversal will be major). This is because breakouts on the open are often vacuum tests of support/resistance, and the market quickly reverses. 

An example is 3/21/22 bar 1-2. 

The context here was a bull breakout following several buy climax days so the odds favor sideways. 

Another Example:  today 3/22/22 Bar 1-2

Bar 2 was a strong breakout bar that led to a rally. The context was bar 1-2 today was a breakout above a trading range. 

Remember context is most important. Hope this provides a little bit of clarity. 

Thank you very much, Brad. I appreciate a lot your post. It is another piece of the puzzle that meets its right place.