Today, the markets experienced an abnormal price movement called Shakeout. This abnormal event can be caused by any global events, news announcements, etc. Today’s event was caused by Europe. However, it can be any global affecting event.
A shakeout bar can be easily seen from the higher timeframes i.e. 120m or higher. It is hard to recognize on lower timeframes. Attached is a 120m chart of the GBP/CAD. On a shakeout, a major trend is occurring. All of sudden, you see a movement the opposite of the trend. The opposite movement is so strong that it goes all the way to everyone’s stops and gets everyone out of the trade. After everyone is stopped out of the trade, it then goes back to where it started. You can easily see this on the 120m chart attached.
Normally, the stop on the 120m can cover the shakeout but in today’s event it didn’t. However, a 4hr chart did cover the event perfectly. The higher time frames filter out a lot of the noise but of course you have a lot more risk when you trade the higher timeframe. If you trade the lower time frame and want the lower risk, you are subject to these abnormal events.
If you would like to learn more about Shakeout bar’s i.e. how to avoid them, how to trade them, and what to do after the event, go to www.ichimokutrade.com.
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