easy · Volume Price Analysis wyckoff-laws
An equity index has consolidated in a tight 40-point range on the 5-minute chart for two hours. A retail trader enters on a breakout, expecting a 400-point sustained move over the next two days.
Why is this expectation likely flawed according to the Law of Cause and Effect?
- The duration and height of the cause are insufficient to produce such a large effect.
- The trader should have waited for the higher timeframe to show the same 40-point range.
- Breakouts from 5-minute charts are always manufactured traps by market makers.
- Intraday trends never last longer than the consolidation period itself.
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