This is an educational example of how we approach a potential breakout from a bearish channel using confirmation, structure, and risk management.
1) Identify the Structure
We begin by defining the bearish channel, where price consistently forms lower highs and lower lows.
This structure represents a controlled downtrend.
2) Wait for Momentum Shift
Before considering any breakout, we look for early signs of strength:
- SMIIO turned upward → suggests momentum is shifting
- This alone is not enough, but it gives us the first indication that selling pressure may be fading
3) Look for Volume Confirmation
A valid move often requires participation:
- We wait for a volume spike stronger than the previous sessions
- This shows increased interest and supports the possibility of a structural change
4) Monitor Key Moving Averages
Price behaviour around moving averages helps confirm strength:
- Price holding above the 20-hour moving average
- This suggests short-term control may be shifting from sellers to buyers
5) Confirm the Breakout
We avoid reacting to the first move and instead wait for confirmation:
- At least two consecutive higher closes
- Price must break and hold outside the bearish channel
This step is critical, it reduces the risk of false breakouts.
6) Define the Risk (Most Important Step)
Even with confirmation, no setup is guaranteed.
- The invalidation point is defined by structure
- In this case, if price drops below the lower boundary of the emerging bullish structure (~85 level), the setup is considered failed
7) Position Sizing & Risk Management
This is where consistency is built:
- Position size must be calculated based on the distance to invalidation
- Always ensure your capital can withstand a loss without affecting future opportunities
Think of trading like running a business:
Not every trade will work, but proper risk management ensures you stay in the game.
Key Takeaway
We are not predicting the market, but we are waiting for confirmation.
Structure + Momentum + Volume + Risk Management
→ This is the framework we follow.
Disclaimer
This content is provided for educational and informational purposes only and does not constitute investment advice. Markets involve risk, and past performance is not indicative of future results. Always manage your risk and position sizing accordingly.
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