04/29/2023
What is false breakout in forex ?
Ideally, if you spot a breakout in a shorter timeframe chart like four-hours, you can extend it to daily or weekly chart and see the overall trend. If the price breaks down in a smaller timeframe chart but not in a longer timeframe chart, you can call this a false breakout.
False Breakout Patterns
False breakout patterns are one of the most important price action trading patterns to learn, because a false-break is often a very strong clue that price might be changing direction or that a trend might be resuming soon. A false-break of a level can be thought of as a ‘deception’ by the market, because it looks like price will breakout but then it quickly reverses, deceiving all those who took the ‘bait’ of the breakout. It’s often the case that amateurs will enter what looks like an ‘obvious’ breakout and then the professional’s will push the market back the other way
As a price action trader, you want to learn how to use false breakouts to your advantage, rather than falling victim to them.
Note that false breakouts can take different forms. Sometimes a false break will occur with a pin bar pattern or a fakey pattern as the false break, and sometime not:
How to trade false breakout patterns in forex
False breaks occur in all market conditions; trending, consolidating, counter-trend, but perhaps the best way to trade them is in-line with a dominant daily chart trend, like we see in the chart below.
Note, in the chart below, we had a clear downtrend in place and multiple false breakouts to the upside within that trend. When you see a false breakout that is against a dominant trend like this, it’s usually a very good signal that the trend is ready to resume. Amateur traders love to try and pick the bottom in a downtrend or the top in an uptrend, and this can cause false breakouts against the trend .
