Look Below /Above And Fail

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In trading, "look above or look below and fail" is a specific market behavior observed on candlestick charts. This term describes a situation where the price of an asset moves beyond a certain level (either a high or a low) but fails to sustain that movement and retreats back to the original range. Here’s a breakdown of the concept:

Look Above or Look Below: This phrase refers to the price action of an asset either pushing above a resistance level or dropping below a support level. These levels are often watched by traders as significant indicators of potential price movement continuation or reversal.

And Fail: The “and fail” part of the phrase occurs when, after breaking a key level (above or below), the price does not maintain its new trajectory. Instead, it returns back into its prior trading range. This is a failure to establish new ground, suggesting the breakout or breakdown was not supported by enough market conviction.

Implications in Trading:
False Breakout/Breakdown: This scenario is often referred to as a false breakout or breakdown. It can be a trap for traders who may enter positions expecting the price to continue in the direction of the break, only to find themselves in adverse positions when the price reverses.

Market Sentiment: Such price actions can be indicative of the underlying market sentiment and can lead to significant price moves once the failure is recognized. If many traders acted on the initial break, the reversal could be rapid and sharp due to a rush of traders exiting positions.

Strategy Formulation: Traders might use this behavior to formulate strategies, such as entering trades on a pullback into the range after a failed breakout, anticipating that the price will continue within the range.

Understanding these dynamics helps traders manage risks and set more precise entry and exit points based on the validation or failure of breakouts and breakdowns.