BRCM Follow Up

BRCM was a short trade idea on Feb 28 This was a pretty big post, you may want to check it out. BRCM is now down about 14%.

Continuing the concepts I started with this trade idea, I want to touch on several things that have been market trends.

 The white arrow is the trade idea date.

 Here's a trend and a false breakout above the chanel. These false breakouts that occur before reversals are so common now they are predictable. They come in different forms, but the one thing they have in common is that they must convince traders that the trend has seen a breakout change, whether it's breaking out from a triangle, breaking a major resistance level or a channel like this. The point is, traders will see this as a change and a chance to buy. Their losses when the breakout fails is what kick starts the reversal down. 

 In BRCM's case, we can see the breakout did to things that are often seen in a false breakout, 1) a lateral trend 2) distribution into that lateral trend.

While I've tested many automated trading system, it's hard to find one that beats the market consistently, however, when it comes to stops, I have relied on my trend channel for years. There could be many reasons that I choose in a discretionary way to close the trade, maybe I feel it's not going to make further gains, perhaps even the breakout, but the trend channel takes me out of the trade and lets the channel make the choice. Following the channel, even with the false breakout, the channel kept you in the trade.

In the short term, BRCM has hit the bottom channel and has a good chance of finding some support there. Look for very high volume and a stronger close, that increases the chances of a dead cat bounce.