How to Trade False Breakout

As a forex trader, we we must know how to determine a false breakout. Many forex participants force trend entries position if a breakout formed even though the Forex market has no intention of respecting that breakout pattern. Any trend trader sometimes entering into worse trade if they prematurely traded into a market.     

In this article you will learn about how to see if a breakout is fake or if you should trade the breakout market and take advantage. This post will assist you to take benefit of false breakouts. And here are the indicators we will use to trade with false breakout.

-          ATR Indicator (14 periods)

-          Candlestick pattern analysis

-          Support and resistance levels 

This article will help you to take advantage of false breakouts that experienced traders love to trade and that trap new traders.

Here are the tools we'll use to protect ourselves against getting trapped into a false breakout.

Average True Range (14 periods)

Support & Resistance

Candlestick Analysis

ATR Indicator 14 Periods

The ATR indicator shows you the volatility by calculating daily fluctuations. We can apply Average True Range indicator to check the reality of a breakout if market price trades support and resistance. Average true range is use to identify the number of points the range must be broken by before we trade into the market or choose to not trade the breakout.

For instance, the Average True Range 14 periods for pair is 114.6 pips. This shows us that the currency is 2x more volatile in pip terms than AUD USD. We would find for a breakout pattern from a range above 68 points and 114.5 points before we trade with the market trend. If this does not form we find to take a trade back into the newly expanded range with a better money management strategy.

If market price does not break the range by the average true range, the breakout is fake and we should leave. If the currency trades trough by more than the Average True Range then we are searching at a main trend to trade that should now be on our concern.

Support and resistance

Resistance level is the ceiling that market price reaches before going back to the range. Support is the floor that price reaches before reversing back up. Forex traders should focus on support and resistance because the forex market focuses on support and resistance too. If a new market trend breaks out to the upside range, then what was resistance now becomes support level.

Trading with support and resistance do not need an forex technical indicator but an experience to see at the graph and see when buyers stop buying in a bullish trend and vice versa.

How to use support and resistance level in false breakout trade? if we identified a false breakout below support level, we can open long position near support. Many experience traders know that trading ranges is a low risk and even though that following trends is tempting but has bigger risk trade out.

Candlestick Analysis

Candlestick pattern can shows you real time forex market sentiment so that we can determine trading bias as they're developing. Market sentiment is necessary for us to know so we can see when sellers are heading for the exits when a supposed downside breakout occurs. And you can find at candlestick around resistance to see if buyers have lost strength and aren't willing to keep on their trading position.

The candlestick signals here are bearish and bullish engulfing candlestick patterns which are these very significant reversal signals on the graph. Candlestick formations take on a significant around resistance and support levels or against pivot point lines or Moving Average indicator levels because this is where sentiment of Foreign exchange traders are key.

Understanding of fake breakouts and how to ride them with Average True Range, candlestick analysis and support or resistance levels can add a lot of benefits to your trading system. You should be patient and when we look market price signaling you to a false breakout or a new market trend, we will understand how to face it with confidence.