Home Breakout and False Breakout (II)

Breakout and False Breakout (II)

  Measurement of Breakout Strength Youve learned before cashback forex when prices go through a longer trend forexrebateclubg market forex rebate club begin to move sideways, there are two scenarios that can occur: 1. Prices may run in the direction of the previous trend (sustained cashbackforexexness) 2. Prices may reverse in the opposite direction (reversal breakout)  nbsp;Wouldnt it be wonderful if there was a way to confirm that a breakout has occurred?  In fact, there are numerous ways to tell us that the trend will be near the end, or reverse breakout market cashbackforexbroker about to open MACD indicator MACD indicator is one of the most widely used technical indicators by traders, it is easy to use, but help you observe the price momentum movement is very effective, and in our judgment of the market breakout market, we need to determine The MACD indicator can be displayed in a variety of ways, but a histogram is one of the most interesting ways to display it. The histogram actually shows the difference between the MACD fast and slow lines. price reversal, how do we use the indicator? Good question!  Remember, the appearance of divergence sends a more effective trading signal, and when divergence occurs, price and momentum indicators usually move in opposite directions Given that MACD shows the movement of price momentum, then, when the market trend opens, momentum is usually enhanced However, if there is a situation where even though the trend continues, MACD momentum begins to decline, you can launch that momentum is decreasing, and The current trend may be coming to an end  From the chart above, you can see that the MACD momentum column continues to contract despite the price moving further higher This means that although the price is still running in continuation of the previous trend, the momentum is starting to fade From this information, we can conclude that the possibility of the trend turning is very high RSI indicator The MACD indicator is the most important indicator in the market. nbsp;The MACD indicator is another effective momentum indicator that confirms a reversal breakout In general, this indicator tells us the movement between higher and lower closing prices over time The RSI indicator can be used in the same way as the MACD indicator, i.e. it can also signal a divergence Once you have identified this divergence, then you can find a possible However, the RSI indicator can also effectively indicate how long a trend has been overbought or oversold If the RSI indicator is over 70, it usually means the market is overbought, and if the RSI indicator is below 30, it usually means the market is oversold As prices move along the previous trend over a longer period of time, you will usually see the RSI indicator moving in the same direction as the MACD indicator. Fluctuating, you will usually see the RSI indicator running into overbought or oversold territory, whether it is overbought or oversold is usually determined by the direction of the trend If the RSI indicator shows that a trend has been overbought for a longer period of time and then starts to move out of overbought territory, then this is likely to suggest that the trend is about to turn  As the chart above shows, the The RSI indicator shows that the market is overbought for several trading days Once the RSI indicator falls back below 70, it indicates that the trend is likely to turn Trading False Breakouts Traders are generally concerned about breakouts This makes sense to them When price finally breaks through support or resistance, we generally expect price to continue in the direction of the breakout FluctuationIn order for price to break through support or resistance, you first need to make sure that price has enough momentum, right?  Now its time to get on board the train, the trip will be enjoyable, all you have to do is wait yes, just wait  we just have to wait and we see that the price moves slowly in one direction and then, all of a sudden, it reverses dramatically  one thing that you need to remember is that support and resistance levels are The price may turn after touching the above price area Support levels are areas where the buying power is strong enough to overcome the selling power and stop the market decline, or prompt a reversal of the decline Strong support levels are likely to remain stable, even though the price may once fall below the level, which will provide traders with good buying opportunities  Resistance is similar to support, but it plays the role of the opposite of support Resistance tends to stop price gains or cause prices to reverse lower Strong resistance is likely to remain stable, even though prices may break through it at one point, which will provide traders with good selling opportunities In the next lesson, we will discuss false breakouts in more depth, such as why we should trade them We need to know exactly what to do when there is a false breakout This is an essential lesson for you to become a Jedi in Forex trading, and in order to become a Jedi you must be well versed in how to trade false breakouts Ready? How do you do it?  Reverse Breakout Trading If you believe that a price breakout of a support or resistance level is a false breakout and that it is difficult to move in the previous direction, you can trade a reverse breakout trade. It may end in failure when testing support or resistance levels at the beginning of the price, but it can still end in success To repeat: reverse breakout trading is a very effective short-term trading strategy that is not quite suitable for long term traders By learning about false breakout trading, you can avoid becoming overwhelmed Reverse breakout trading is quite attractive to many independent traders, why? Why?  Support and resistance levels are like floors and ceilings respectively If these levels are broken, we would expect that prices are likely to continue to move in the direction of the breakout If a support level is broken, this means that overall prices will move in a downward direction and people are more likely to sell than buy Conversely, if a resistance level is broken, then most people would believe that prices are more likely to move further higher and people will be more inclined to buy than to sell Independent Forex retail investors have a greedy mindset they believe that trading in the direction of a breakout will yield huge returns they believe that huge swings come with huge gains they always want to catch the big fish in the pool and forget about the small fish near the big fish In a perfect world, this In fact, the vast majority of breakouts end in failure The simple reason breakouts fail is that a small percentage of traders have to win money from the majority of traders Remember, the savvy small percentage of traders are the big players in the market, with huge accounts, and the buy or sell orders they place are astronomical Buy or sell orders are astronomical What we are going to sell presupposes the presence of buyers However, if everyone is going to buy above resistance or sell below support, the market will tip to the other side of the scales Let us warn you: the market is not that stupid!   Forex retail traders like to trade breakout quotes A small group of savvy traders, such as institutional investors, more seasoned traders, like to trade reverse breakouts Savvy traders will take advantage of the thoughts of most retail or inexperienced traders to make a play and get the upper hand in the game with them This is why, trading next to a savvy Traders can also make very substantial gains when trading next to savvy traders You should remember: the savvy few traders trade reverse breakouts, while the vast majority of traders lose a lot of money in false breakout quotes How to Trade False Breakouts In order to trade reverse breakouts, you need to know where potential reverse breakouts can occur Potential false Breakouts are usually seen at support or resistance levels consisting of trendlines, technical patterns or previous daily high or daily low levels trendlines In reverse breakout trading, we need to always remember that there should be some space between the trendline and the price If there is a gap between the trendline and the price, this means that the price has moved somewhat along the current trend and away from the trendline As shown in the chart below, the space that exists between the price and the trend line, which drives the price back towards the trend line target and even below the trend line support, provides a very good opportunity for a reverse breakout  The speed of the price movement is also very important If the price moves like a caterpillar towards the trend line, a false breakout is likely to occur however, the price moving quickly along the trend line direction may prove the breakout The rapid movement of prices in the direction of the trend line may prove the validity of the breakout Because of the speed of price movement, momentum can drive prices to break the trend line quickly In this case, it is best not to attempt a reverse breakout trade  How do we trade a reverse breakout?  Its actually very simple to just pull back below the trend line (here we picked the downward trend line) This will be safer and prevent you from making an error in judgment You dont want to see the price run below or above the trend line to sell, only to find that the breakout is real and valid Borrowing from the first graphical example, lets Lets look at possible entry points to set it up  Graphical patterns Graphical patterns are price patterns that you can identify with just your own two eyes They are an important part of technical analysis and can help you make the right trading decisions False breakouts tend to occur in two common graphical patterns: ☉ Head and Shoulders☉ Double Top/Double Bottom Head and Shoulders The identification of the pattern is the most difficult for novice traders, but with experience, this pattern can become a powerful weapon in your trading toolbox The head and shoulders pattern is a reversal pattern that forms at the end of an uptrend, which can mean that the price action will reverse and go lower, and conversely, if it forms at the end of a downtrend, it can signal a bullish reversalThe head and shoulders pattern False breakouts are prone to occur, which also provides a very good opportunity for reverse breakout trades False breakouts are often seen in head and shoulders patterns because most traders notice the pattern and in turn place their stop loss very close to the neckline  When a false breakout occurs, the price usually rallies Those who choose to go short after the price falls below the neckline or go long after the neckline is broken Traders who choose to go long after a price break below the neckline or after a neckline break are at risk of being hit with a stop loss when the price moves in the opposite direction of their position This is usually caused by large institutional traders who aim to profit from the majority of retail investors  In a head and shoulders pattern, you can assume that the first breakout is a false breakout You can trade the reverse breakout by placing limit orders at levels below the neckline and stop losses at the highest point of the breakout neckline candles you are also able to place profit taking targets below the high of the right shoulder of the head and shoulders, or above the low of the right shoulder of the inverted head and shoulders pattern the next pattern is a double top or double bottom traders really like double top or double bottom patterns, why? Simply because they are easy to identify when price falls below the neckline, it signals a possible reversal of the trend With this in mind, many traders place their entry orders very close to the neckline with a view to a price reversal  The problem with this pattern is also that too many traders are able to identify the pattern and place their entry orders in similar positions This This also provides an opportunity for institutional traders to profit from the majority of retail investors  Similar to the head and shoulders pattern, you are able to set entry orders after a price reversal to take advantage of a price rally You simply need to set your stop loss at or below the level where the false breakout candle line appears to be at its lowest point You may be asking, what kind of market should I trade the reverse breakout in?  The ideal answer is in range-bound markets however, you cant ignore market sentiment, major news events, common sense, and other methods of market analysis Financial markets are most of the time kept within ranges for back-and-forth movement and usually dont stray too far from the highs and lows Trading ranges are bounded by support and resistance levels, in which buyers and sellers play each other. In the game between buyers and sellers, the price stays within the trading range made up of resistance and support levels to do the back and forth movement in this market environment to do reverse breakout trading can provide traders with very substantial gains However, at a certain point, the unilateral market sentiment may eventually replace the sawing market and a new trend may form Summary: Trading breakouts and false breakouts PS: Breakouts Trading and reverse breakout trading are great trading strategies Breakout trading Breakout trading, the purpose of which is to enter a breakout market when it occurs and follow the price action for maximum profitability until the price volatility is gone A breakout market means that price volatility will be very significant because it means that there is a change in the supply and demand structure of the currency pair you are trading  nbsp;Youll notice that unlike trading stocks and futures, you cant know the volume of trading in the forex market Given this, we need to rely on volatility When were looking for good breakout trading opportunities, we can use volatility Volatility measures the overall price movement over time, and this information can be used to detect potential Breakout quotes There are a number of indicators that can help us to measure the current volatility of the exchange rate When we are looking for breakout opportunities, using these indicators will help us to a great extent ☉Moving averages☉Bollinger bands☉ATR indicator There are two types of breakout patterns: ☉Continued patterns☉Reversal patterns To identify breakout quotes, you can Observe the patterns: ☉Graphic patterns☉Trendlines☉Channels☉Triangles You are able to measure the strength of a breakout using the following indicators: ☉MACD indicator☉RSI indicator Finally, it should be noted that with the release of relevant major economic data or a major event, the appearance of a breakout is usually very effective in our decision whether to make a Before we decide whether or not to trade a breakout, always check the financial calendar beforehand Reverse breakout trading Institutional traders like to trade reverse breakouts so we must learn to trade reverse breakouts as well Do you want to follow the direction of the vast majority or the flow of money?  The majority of people think alike, eat the same food, go to bed at about the same time, and watch the same movies If we can take the same trading approach as institutional investors, success will not be far away Reverse breakout trading means trading in the opposite direction of the breakout trade If you think that a breakout of price from a support or resistance level is a false breakout, and it is difficult to run further in the direction of the breakout If you believe that the price breakout from a support or resistance level is a false breakout and that it is difficult to run further in the direction of the breakout, you can trade the reverse breakout A small group of savvy traders, such as institutional investors, more sophisticated traders, prefer to trade the reverse breakout A potential false breakout is usually seen at a support or resistance level made up of trend lines, technical patterns or previous daily high or daily low levels The ideal answer is that In range-bound markets however, you cant ignore market sentiment, major news events, common sense, and other methods of market analysis financial markets are most of the time maintained within a range doing back and forth movement, usually not straying too far from the highs and lows the group then needs to emphasize that when the market has no major economic indicators or events, the chances of a false breakout occurring higher 

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