Why do markets rally further after breaking to all-time-highs?
1. A significant resistance is broken.
All time highs or lows are a significant psychological level that people use as an anchor to base price action off. When the market breaks convincingly above this level, we see a lot of new buyers stepping in and short holders closing out. This adds to the buying power and pushes the move further. For details on support and resistance learn here
2. It suggests a significant shift in the supply and demand (or at least the market’s perception of it).
3. Finally, we see a large number of stop losses and new orders get triggered.
How to capture this momentum? You can buy the raw breakout (so just buy the market when it makes a new high) but I personally prefer to use Bollinger bands as the signal. A break to an all-time-high usually corresponds to extreme market moves, which gives a buy signal on the breakout. Other indicators do similar things – Donchian channels work well. Learn how to use them here
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