Big Profit With False Breakout Strategy

In fact, many new traders find it difficult when a false breakout appears. When the currency pair bought seems to be moving up until a breakout occurs, what actually happens is the opposite, which is against the direction. This pattern is called the false breakout. The problem, you may have already opened a trade and then lost because prices suddenly dropped.

A situation like this must be very detrimental, especially if you are trading big. But if you can use false breakout, the situation can be changed to profit. Change your way of looking as if you were a victim of this situation. Think that this situation is a big opportunity because a false breakout can show the best opportunity, low risk, and high profit.

Psychology of Traders and False Breakout

When you start trading for the first time in the market, one of the strategies you must learn is breakout. There are many instruments that can be used to find out breakouts, for example with ranges, price calculations, or certain patterns such as triangle. The reason behind the use of the breakout strategy is to capture large movements that move according to the pattern.

Trading with breakouts sometimes brings big profits, but you have to be careful because there is always the possibility of a false breakout appearing. This is compared with prices that move wildly outside the pattern, and sometimes move in the opposite direction. If the false breakout that appears makes you annoyed, why not try to think otherwise?

Try thinking in a reverse way, trading with a false breakout instead of continuing to use a breakout. For example, you want to really use the false breakout for profit, what you need is exercise, focus, and deep understanding.

Not all False Breakouts are the same

False breakout can appear regularly in the timeframe at any time. All you have to note, not all false breakouts provide good trading opportunities. False breakout will only be useful if it moves in the direction of the current trend.

For example, a trend is experiencing growth and a triangle pattern appears. The price will drop quickly below the triangle, then suddenly move quickly back to its original position. If this situation occurs, you must immediately open long trading because the trend can control prices which seem to be going up higher.

Prices will not move in a straight line. Prices can sometimes go up, go down, then go up again. Like you buy when prices are rising, you still cannot be sure that prices will continue to rise after falling down. Likewise when you determine that you will survive in a long-term market, this can also affect the profit opportunities that can be obtained.

False Breakout Strategy

The implementation of the false breakout strategy is quite easy, it only requires focus and practice to get used to it. False breakout occurs very quickly and can trigger you to make the wrong decision. If this happens, be patient and always remember this:

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  • In what direction does the trend occur? This is the trading direction you must follow.
  • What makes a false breakout occur?
  • To what extent will you follow a false breakout?
  • Will you use a limit order?
  • The extent to which prices move and when will they return?
  • Where will you place a stop-loss order?
  • When will you exit trading?
  • By answering all these questions, you have made a false breakout strategy. If a trading scenario like this happens, you already know what to do and without any doubt. This strategy should be noted in the trading plan that you made, even though you can remember it.

Considerations for Using False Breakout

Knowing how far the price will return in the initial pattern can be said as one of the breakout strategies, but this also depends on how the market goes and the context of the trading that is carried out. In markets that have high volatility, the number of price movements returning to the initial pattern must be greater than when the market experiences low volatility.

It is also important for you to always observe breakouts quickly and deeply. If the price moves away from the pattern (more than a quarter of the pattern size) and then returns to the initial pattern quickly, do not trade using the false breakout strategy. A false breakout is generally relatively small and lasts a little. This is the best pattern for trading.

The risks generated from trading with this strategy are quite low (depending on the entry point and stop-loss order used), and don't be too greedy when making a target. Maintain trading positions until momentum comes, such as near the opposite direction of the pattern, or by waiting for a breakout to occur in the direction of the trend. Immediately out when a false breakout occurs in a different direction from the trading position.

This strategy will succeed because you only trade false breakouts which will lead you to follow the dominant trend. However, you can still apply trading strategies with breakout standards that are in line with the trend. The guide above will help you to find a formulation that is right when you enter the market and there is a false breakout.