A false breakout of the level

A false breakout of the level

A false breakout of the level

Surely in your practice it happened when you opened an order with great confidence that the price will go in one direction, but in reality it went in the opposite direction.

Or, the price touched the stop loss order and the deal was considered unprofitable. If this has happened to You, then it is vital that you learn about a false level breakdown. After all, it is he who likes to spoil good statistics on Forex trading. The information below will help you understand how to trade a false breakout on the currency market.
What is a false breakout of the level?

The fact is that a false breakout on Forex is quite common. It occurs because of the crowd's decision to buy a currency pair at the highest point or sell it at the lowest value.

Professional Forex traders always use a false breakout to their advantage to make money. After all, the social thinking of newcomers is quite predictable. If you learn to see unusual entries, fakes and false breakouts, you can earn where many lose. It is not sad to say, but on Forex, the majority of traders merge their deposits. And only the smallest part, having knowledge, earns.

This is why you always need to recognize a false breakout in the market in order to make money on it.

If the level is broken, but further movement returns beyond the broken level, then this is nothing more than a false breakout of the level.

Here is an example of a false resistance breakdown:

false level breakdown

Figure 1. False breakdown of the main market level.

A false breakout can often be formed at global support / resistance levels.

Important: you must wait for the price movement to continue (see several bodies of Japanese candlesticks pinned, not their shadows) behind the broken level. Then it will be considered that there was no false breakdown.

In most cases, traders lose deposits because they trade on emotions. They think that the entrance is absolutely safe, but this is what the big player is counting on. Some think you need to go in quickly to grab your piece of "pie". But you should not jump into the outgoing train.

You always need to think several times before opening a Forex order in one direction or another.
Types of false breakouts

Here we come to the most interesting thing – the types of false breakouts. They are:

Bearish or bullish breakout (Forex trap).
False breakout in the consolidation zone.
False breakdown of the internal bar (fakes).

Now let's look at all types of false breakouts in more detail.
Bearish or bullish breakout (trap)

This is usually a graphical model of several candlesticks (no more than four), which shows a false breakdown of a key level.

A bullish or bearish breakout occurs after a strong price movement. A large number of traders are hoping for a breakout of a strong level, as the price is rapidly approaching it. As a result, you can see the following picture:

false breakout zone

Figure 2. Example of a bearish or bullish breakout (trap).

Traders see that a strong level has been broken and enter for a continuation of the movement, but the market turns and moves against their expectations, as a major market maker needs to collect all the stop losses. At the same time, it is important to know how to determine a false level breakdown.
False breakout in the consolidation zone

how to trade a false breakout

Figure 3. Example of a false breakout of a consolidation zone.

A trader observing a false breakout zone may think that it is necessary to enter, but the price will return, completely absorbing the previous candle, which confirms the false breakout.

Important: in such cases, it is very important that after closing the candle behind the consolidation zone, at least a few more candles are formed, only then can you enter. You can also see a false breakout of consolidation using Price Action patterns.

False breakdown of the internal bar (fake)

A false breakout of the internal bar or fake, as traders in their circles used to call it, is a Price Action setup. In other words, this is a pattern that is observed in the area of the appearance of the inner bar.

types of false breakouts

Figure 4. Example of a fake (false breakdown of the internal bar).

The trader fixes the formation of an internal bar, then the price should show a false breakout of the level. A false Forex breakout can affect the long-term trend line and even reverse it.

False breakouts can be used to your advantage, but you will need to be able to apply Price Action. Near the main levels, it is important to watch the shadows of Japanese candles.

Prices always tend to test the nearest level. On the daily timeframe, the daily Japanese candle rolls back from the level before closing and shows a long shadow (tail). This indicates a false breakout or level testing.

When the price failed to gain a foothold above the main level, but only broke through it with its tail, this signals a change in the trend or a strong pullback. Therefore, it is important to wait for the daily candle to close.

how to detect a false breakdown

Figure 5. Example of a false breakout of the main resistance.

The Forex chart shows an example of a false breakdown of the strong resistance of the daily chart of the EUR/USD currency pair. As you can see, the candle broke through the level, but strongly rolled back and showed a price reversal.

If you use Price Action in the area of the main levels on the D1 timeframe, you can easily detect false breakouts on Forex.

An important tip is to throw out everything you know and start learning about false breakouts as well as trading from the reverse. The older the working timeframe, the more accurate the signals are.

If you thoroughly study how to trade a false breakout, you can earn good money in those places where the majority of traders drain their deposits. In other words, this is the basis of all the basics, without understanding which, profitable trading on the market is simply not possible.

To better understand the psychology of false breakouts, you need to understand that the task of the market is to wash out all the Amateurs who decided to sell at the bottom or buy at the peak of the price. After the bait, the price will necessarily go in the opposite direction, in order to collect all the stops that were set by traders. This is the nature of all false breakouts.
How to trade with false breakouts?

First of all, you need to wait for the price to reach a strong level, preferably on the daily chart.
We are waiting for the price to touch the level.
Touched, well, we observe further, and do nothing (we do not open positions).
It is good if there is a reversal (for this, the price must break through the level, but after 3-4 candles go in the opposite direction).
The price tested the lower level and immediately went sharply in the opposite direction, without showing consolidation. This means a false breakout – the strongest pattern.

Conclusion

You need to understand for yourself, as a trader, simple truths: you should not trade on emotions or intuition. There must always be a specific reason for entering the market, for example, the Price Action setup.

It is always necessary to determine the types of false breakouts in the market. You also need to understand how to detect a false level breakdown in time. Real pros will never buy at the very top or bottom. After all, it is never clear whether the price will bounce 100% or not. But you don't need to be sure that trading pros never lose money. Even they have bad trading days. However, real pros will always make a profit on the misconceptions of the majority, because their emotional threshold is much higher than it seems.

A professional in trading will not enter the market anywhere. It will enter in the middle of an uptrend or downtrend only if it sees a specific graphic figure or pattern. At the same time, its risks will be minimal, and the laws of money management will be observed. You can not open an order at random without a clear signal when something seemed.

A false breakout in the market is nothing but emotions. And they occur during the formation of such strong signals as a false breakdown of a strong price level. After all, the task of the minority is to deceive the majority in order to get their money. Therefore, think a hundred times before opening an order in any direction. Perhaps a trap has been set for You?

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