The crux of currency trading lies in the fact that currency prices fluctuate beyond intervention. The aim is, therefore, to find out a possible trend line that will depict a rough overview of price changes over a stipulated time. But often, as price action traders comment, prices hover around the permissible support and resistance levels. False breakout Forex allows prices to make sudden movements into the support-resistance zone, thereby trading the breakout.
Experts consider it as a sort of deception because the trend price was following with the breakout breaks suddenly. This may allow a previously well-behaved trend to follow as before. Price action traders, therefore, put stress on putting breakouts to good use instead of getting harmed.
2 ways to identify False breakout Forex:
Breakouts are price movements outside support/resistance levels. So it is safe to conclude that it is the strength of these breakouts that determine whether it will turn out to be false. The objective of a trader is to go for high probability trade.
1. Pre-breakout stress:
If the lowest troughs of price lines appear to be rising, traders can safely assume that a breakout will take place. But before that, one needs to see if there are pre breakout tensions that cause pressure. As this pressure swells up, traders lag behind and buy/sell.
This implies that market is improving, so buyers will start coming in. This hampers the support and resistance levels and a price action squeeze occurs.
2. Well behaving support/resistance:
Support and resistance levels are barriers within which traders should take their decisions. In case of an uptrend, support/resistance levels should have at least 2 convergences. Smoother the resultant trend line more is the strength. This allows buyers to recognize a sticky point where traders hoard this position.
Critical Timeframe choices:
For trading false breakouts Forex, traders should make their choice of time frames very carefully. Ideally, it takes time for the market to come to a compromising point. Often buyers mistake this basic requirement and end up missing out false breakout points.
Choice of time frames leads traders to identify the strength of support/resistance levels. Some observe that using a shorter time frame it is easier to understand the minute price changes.
• Traders always look for the most obvious conclusion from price action trading. It is better to stay away from any occurrences that pose a potential threat to your pin bars. Sometimes price movements enter into the support/resistance channels but fall in the same trend. If you are looking for breakouts, it is important to take closer look to closing prices.
• If you are trade in a bullish market, make sure that you are not buying/selling against the trend. Trend is your friend only if you manage to identify its quirks and act accordingly.
Utilizing any False breakout Forex strategy to good use involves a fairly good idea of price action trading. Learning the basic technical analysis is important since false breakouts are not common and they do occur and offer trading prospects.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.