a my friend welcome to this forex trading training today treading breakout
strategy patterns and this is based on within Top Dog trading we call the
rule of three so here we go and I should mention that this will also work with
futures and with stocks as well but today were going to show you on Forex so
it's a simple pattern but it has a very profound psychological logic behind it
so here's how it goes so we look at a level such as this high
so we're looking basically for a level that really stands out that a lot of
people are going to see they'll say oh okay this is a daily chart by the way so
therefore they're going to see a big move up here okay big move down there
and this is important because this is why it works it's the mass psychology of
it that a lot of people are going to see that is a major swing high again
especially since it's on a daily chart and lots of people look at daily charts
so you've got masses of masses of masses of people seeing that high now where the
psychology comes into that is as the market comes back to approach that same
level you're going to have all three types of reactions but they're all based
around the same issue that people are looking at that last high and saying
well that's as high as the market would go in other words that's the most people
were willing to pay for this particular market this is the Euro at that time and
so now that we're a few months out in the future here the market remembers it
has a memory as people say and it really does this is probably the best
illustration of the market having a memory is people looking at that and
saying oh well gosh back then we couldn't get enough people to buy at a
higher price think of it like going to buy a car and the car lot has 50 of a
particular model and they want a Mel they want to move those cars
course but nobody's willing to pay more than what they're asking no one's
willing to pay what they're asking so everybody's trying to get a deal or heck
nobody's just interested at that price at all zero so once what do they have to
do well the car dealerships gonna lower the price lower the price lower the play
price that supply demand basic economics the people are watching that level and
they're going to say hmm I wonder what the other people in the market are going
to do want to get back to that price will sentiment change will there be
people willing to pay more but the doubt is there that's the key doubt hesitation
lack of confidence lack of certainty in the masses and so therefore it is most
likely to fail that is the one that first attempt here's the point so this
is the well this is the first time that we got up to this price level and then
this is the second time and you'll see that yes it did get above it but then it
came right back below it and so it technically failed you couldn't get a
large number of people across the globe of this planet we lovingly call earth to
go ahead and pay more money could get enough buying traction for a price to go
up so conversely of course price goes down and that's the psychology of it now
three things happen as I mentioned know those three things are number one some
people are going to look at this price level and they're going to say hmm yeah
I'm just not gonna do anything right it's coming up there I'm thinking
of buying these would be your potential breakout traders and some people will
buy I mean we did get some prices above there and so some people say no I'm
gonna buy and then the other hand the same breakout traders will say I'll buy
because it literally technically you're gonna count pips it broke above that
high so you're gonna get some buyers they get stopped out they get screwed
all right hate that nobody likes that false breakout number two thing that
happens is that some people will short that and so they're looking for this
kind of pattern they're looking specifically for false
breakouts I think this is actually a better higher probability pattern to
trade and they're going to take it short and then you've got people who perhaps
bought down here this is group number three and group number three bought down
here and they're gonna take profits into this level because they say oh this is
as high as we could go before therefore I'm going to lock in some profits there
all right so now let's move forward on the chart and see what happens again
this is called the top trading rule of three and won't even move forward a
little bit more will squish up the chart a little bit so you can see the big
picture okay now so whoops we're not totally on the screen here it looked
like we are but no there we go and this is where the top dog trading rule of
three comes in so this again was the first oh that was a good Barry OK ROCK
drawing tool up there after we wanted my arrow let's get the arrow going here
alright so this was the first time it reached that price level one this is the
second time for the reasons I mentioned less likely to continue could it
continue could it go above that resistance level yeah sometimes it does
but your highest probability is the third the rule of three and the reason
again goes back to mass psychology because now people are saying wait a
minute here is this price level that has lasted
this entire time and what happens here we gap above it and this will be what
happens sometimes when the market really wants to move it just will gap right
above that resistance level and not deal with it so now the people that we're
gonna take profits at it well we're already above so now they're thinking oh
maybe I'll stay here because maybe this thing is going to go the breakout
traders who are buying will they're in and the people are going to go short
well there's an I don't know this doesn't look good because we just gapped
up above that resistance so the energy is sentiment the dynamic of what traders
are doing now is completely different then you'll also get people who wait for
which we call the throwback and this the throwback goes up and retraces back
down to that resistance level and then they're going to be buying there the
rule of three basically means this when a price when market goes to a price
level once ok great that sets the stage that's basically just planting a flag
then number two the second time a little less likely because you've got a lot of
traders who have mixed emotions about it so it's less likely to break through
could depends on rumor news and gossip all kinds of stuff right economic
situation but it's far as pure technical analysis goes and by the way you can't I
got to be really clear about this this is really important you can't just
depend on support resistance and the rule of three by itself in fact there's
no one thing in trading no one thing in trading that'll make you profitable what
makes us profitable in trading is putting together a number of non
correlated variables and waiting for the multiple line so this would be
considered one variable right then you put this together with the other things
that's used in your trading so this would be another thing to add to your
trading methodology one more little piece of evidence if you will so then as
we break above it okay the third time now when we get above it again sentiment
is changed we retrace this is the third time that we've come to this price level
and let's make sure I get the right one so that's one that's two now the third
time is the most likely it is to go in fact you know what let me clear this off
here getting kind of messy there we go so now I can make this more clear so
there's the first time it reaches that price level there's the second time now
the third time is key this is a real decision point and this time in this
case we said yes it went up and we said why if we did not get this gap if the
market just went up here stopped and then held resistance came down a little
bit odds are that market is not going to continue to go up
odds are the markets going come down and again it's man psychology
where people are saying you know what this whole time we've been watching this
level and no we could not get enough buyers after three times it's kind of
like three-strikes-you're-out but it's really just a mentality of
people saying yeah the global markets have tried to break above this price
level three times and the markets have not been willing to do it meaning the
people in the institution's trading it and therefore people just aren't gonna
pay more they're not gonna pay more for that so now it becomes a bearish
situation everyone's sentiment switches to bearish so that's the rule of three
works really good encourage you to look for that pattern and add it to your
trading methodology now if you like this video please understand that of course
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videos coming and I'm going to give you one of my favorite to trade strategies
it's called the rubberband trade I'm gonna give you all the rules the filters
everything and this trade has a very very high win-loss ratio I love this
thing I still trade it myself to this day it's a pretty simple trade I can
teach it to you in 26 minutes so get that rubberband trade strategy
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you