Remember when I said that Blips don’t always conform? In other words, they don’t do what you expect them to do. I call these Blip Reversals, and once you understand what’s happening, you can learn to trade them too.
Let’s look at the following diagram to see what a Blip Reversal day looks like, and then we can look at how to trade them.
As you can see, Example A confirmed and did what we thought it would. If we had placed our Buy-Stop order above the high of Day3, we would have been filled on Day4. But what happens if Day4 reverses, and does not go above Day3? Well, this is the Blip Reversal, as I call it, and is shown in Example B.
In Example C, what was previously a Bottom Blip has now changed and become a new Top Blip! Now in Example C, if you had entered the market using a Buy-Stop order, you would not have been filled and would have stayed out of a bad trade, since the price did not exceed the high of Day3 and your Buy-Stop order was above Day3. This is why you should not use Limit Orders or Open Orders on Blips.
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