Shockingly to me and many traders, US Steel (X) violated a breakout pattern in a strong uptrend to create a reversal and strong plunge, suddenly invalidating the pattern and shattering support in a short period of time.

US Steel broke a potential triple top and horizontal resistance pattern at the $185 per share level, drawing in anxious buyers and forcing shorts to cover their positions.

Shortly after the break, price retested the breakout zone, which actually set up a higher probability trade because it prevented the need to ‘chase’ price, and it also gave a clear stop-loss level just under the breakout zone, or in this case also beneath the rising 20 period moving average.

All bullishness evaporated as the stock plunged over the last two sessions to take out both the breakout zone support, 20 and 50 period daily EMA support, and the lows of the consolidation pattern (resembling a rectangle) support.

Also, yesterday’s sell-off was accompanied by the highest volume level the chart recorded saw so far - not a good sign for the bulls, as today’s action is showing us.

The intraday chart shows two bear flag patterns and a strong down-trend for educational purposes:

This stock ’scorched’ the buyers by reversing after a valid buy signal (resistance break) and shows us that we as traders deal in probabilities - never certainties.  Even if we perceive the odds of a successful trade at being 75%, there is still a 25% chance the trade will fail and take out our stop.

This is where money and risk management come in to help make a trader have a higher chance at success than not.

Study valid trades that fail, and try not to be upset when a valid set-up results in a stop-loss.

You cannot win every trade, unfortunately.