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Secret 22

Watch for breakouts from consolidation

I've discussed this before, but this secret is powerful and cannot be overemphasized. You need to know what kind of market you are in. In a consolidating market, you can make money by scalping small moves back and forth. However, you won't make the big money in this kind of market, and you never should attempt to pyramid in this kind of market. Big profits are made in the runs between accumulation and distribution. I've found you can make more money by waiting until a commodity plainly declares its trend than by getting in before the move starts. Too many traders are fixated on picking the top or bottom, and as a result, they miss the big picture. What difference does it make if you buy 10, 20, or 30 ticks off the lows as long as you make money? Get the idea of price out of your head and concentrate on market action. Just forget about picking tops and bottoms!

The longer the consolidation, the better. When a market has remained in a narrow range for a long time, a breakout out of that range becomes more significant. The market is telling you that a major shift in the supply and demand fundamentals is taking place. Because it has taken a long time to form, there is more fuel available for the coming move, and this is the best type of market to play to the hilt!


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