Now all I have, accompanied by rising volume, is what earns you so far: a warm-up. Step 1 built the shortlist. Step 2 confirmed the industry. Step 3 marked the trendline. Step 4 confirmed the breakout with a genuine volume spike. By now, the stock has already gone through four different filters.
And I still am not positioned yet.
I have one more condition before I invest, and it’s the one I’m least willing to compromise on. I need to see the price form a genuine higher high, confirmed by volume, after the trendline breakout.
Why the Breakout Alone Still Isn’t My Entry Signal
A confirmed breakout accompanied by strong volume indicates that buyers have entered the market with genuine conviction. But conviction at the moment of a breakout doesn’t guarantee the move continues. Prices often break out, run up sharply, and then retrace, pulling back to test whether the breakout was real or whether it was just an initial burst that fades.
I want to see the stock survive that test before I commit. The higher high pattern is designed to confirm whether the breakout was real or just an initial burst that has faded.
What I’m Actually Looking For: The Three-Part Sequence
I break this step into three parts, and all three must occur in order before I will even consider entering.
| Stage | What Happens | What It Tells Me |
| 1. Initial High | The price rallies after the trendline breakout and marks a peak | The breakout has real short-term momentum |
| 2. Retracement | The price pulls back from that peak | The market is testing the strength of the move; healthy if it holds above prior support |
| 3. Higher High | The price rallies again and closes above the initial high | The uptrend is confirmed; buyers have overpowered the retracement |
Simply watching the price punch through that previous high isn’t enough on its own, either. Just like the trendline break in Step 4, this higher high needs the same volume confirmation: the volume on the candle that breaks above the previous high must be greater than the volume on the candle before it. If not, I treat it like any other unconfirmed move, real on the price chart but not yet trustworthy.
A Real Example: Higher High and Entry
Here’s the continuation of the same Maruti setup I’ve used throughout this series.
After the initial trendline breakout, Maruti’s price reached a high and then pulled back in a retracement, just the kind of pause I want to see, not fear. From there, the price rallied again and closed above that earlier high, and on that candle, volume was visibly higher than the one before it.
This combination includes an initial high, a retracement that held, and a volume-backed break above the prior high; these factors shifted this stock from the “watching” phase to the “entering” phase in my process. That’s what I’ve marked as my entry on this chart. I’d want to place a stop-loss below the retracement low, so I know exactly how much risk I’m taking before I put a single rupee to work.
Why I Insist on All Three Conditions Together
It would be faster to act on just one of these signals, including a breakout, or a bounce, or a volume spike in isolation. I don’t trade on any single condition, as they all have a pretty high failure rate when taken by themselves. Combined, they filter out almost everything except the setups with genuine strength behind them.
| Condition Present | Missing | My Decision |
| Trendline break only | Volume, higher high | Wait, too early |
| Trendline break + volume | Higher high not yet formed | Watchlist, no entry yet |
| Higher high, but on weak volume | Volume confirmation | Skip, likely a weak continuation |
| Trendline break + volume + confirmed higher high on rising volume | Nothing | Enter the position |
That last row has only a green light. Everything else is just homework.
Where the Stop-Loss Comes From
Once I get in, the retracement low from Stage 2 becomes my natural stop-loss reference point. If the price falls back below that level after I’ve entered, it tells me the higher high failed and the setup I trusted is no longer valid, at which point I’d rather exit and preserve capital than hope the trend reasserts itself.
Final Thought
But taking a position is not the end of the process. In fact, it’s the beginning of managing a position. In the next article I will go through how I manage a position after entry. Where I look to book partial profits, how I move my stop-loss as the trend develops, and what tells me it’s time to exit entirely.
If you get nothing else from this step, get patient. A breakout stands out. It is the higher high on increased volume that earns your capital.
Find out here: How I Scale Into a Full Position, Livermore-Style
Disclaimer: This column reflects the author’s personal trading experience and analysis. It is not financial advice. Please consult a registered advisor before making any investment decisions.
Satyajit Baidya
An option writer who came to the markets through curiosity and stayed through conviction. He studies price action through the lens of Elliott Wave theory and draws his trading philosophy from Jesse Livermore—the belief that discipline, timing, and patience matter more than predictions do. A student of history by training, he sees the market as just another chapter in a very long story: the details change, the patterns don’t.
