The Rally on Xcite Energy is a Classical Example of a False Breakout…

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The recent strong bullish engulfing candle in Xcite Energy market (LSE:XEL) is a classic example of a false breakout which traps buyers as it appears the price is going towards the sky. The price may later retrace downwards.

One strong bullish candle does not make a bullish trend, but having a series of candles with higher highs and lower highs would confirm a bullish trend and make the speculator approach the market with confidence.

In order to be on a safe side of the market, one needs to consider the dominant bias and consider only the long-term to medium-term outlook. Exponential breakouts tend to be false unless they are confirmed after several days. These false breakouts can make money occasionally, but only seasoned speculators can handle that, for the market tends to be volatile, especially if a breakout is based on some fundamental reason.

On the chart, the ADX period 14 is at the level 30 (strong trend), and the DM+ just crossed the DM- to the upside (a bullish indication). The MACD default parameters, has its histogram above the zero line, but the signal lines are yet to cross the zero line upwards. The signal line needs to cross the zero line upwards before there can a Bullish Confirmation Pattern in the chart: otherwise one needs to be careful.

Unless the price crosses the resistance line at 90.00 to the upside and closes above it, the current price action proffers an opportunity to sell when the price rallies and in a context of a downtrend.

This forecast is ended with the quote below:

“New traders should expect to lose money. It’s part of the initiation process. They should understand that they can make money if they do it the right way, but the excitement of getting started often causes them to rush into trading.” – Perry Kaufman

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