I have always had this question in the back of my mind when trading. How do traders "confirm" a price breakout when trading.
I am talking about filtering out fake breakouts, because many times you enter a trade thinking that price has finally broken out, only to watch it go in your favour a few pips then reverse and go against you. I am speaking about break of the trendline break of the support/resistance, break of the neck line on a head and shoulders formation, etc.
Most of us watch certain level (price points) where if price action goes beyond it, we trigger a stop order trade.
Methods that I have seen and used are below:
1- As soon as price breaks the line by few pips, I enter
2- As soon as a candle closes beyond that level, I enter
3- After the candle closes beyond, I wait for the price to go beyond (hi/lo)the closed candle by a few pips then enter on that (to confirm the break)
4- Wait for the price break to happen and candle (1) to close beyond the level. Price move in the direction of the break for a couple of candles (call this candlex), wait for the price to pull back to the original broken level and reverse again and go to (hi/lo) of candlex, then enter on the break of that.
I find in all of these there is a chance of the price reversing and going against me and the best way to protect myself is to use stoploss.
HOW DO YOU CONFIRM PRICE BREAK-OUT ??
I am talking about filtering out fake breakouts, because many times you enter a trade thinking that price has finally broken out, only to watch it go in your favour a few pips then reverse and go against you. I am speaking about break of the trendline break of the support/resistance, break of the neck line on a head and shoulders formation, etc.
Most of us watch certain level (price points) where if price action goes beyond it, we trigger a stop order trade.
Methods that I have seen and used are below:
1- As soon as price breaks the line by few pips, I enter
2- As soon as a candle closes beyond that level, I enter
3- After the candle closes beyond, I wait for the price to go beyond (hi/lo)the closed candle by a few pips then enter on that (to confirm the break)
4- Wait for the price break to happen and candle (1) to close beyond the level. Price move in the direction of the break for a couple of candles (call this candlex), wait for the price to pull back to the original broken level and reverse again and go to (hi/lo) of candlex, then enter on the break of that.
I find in all of these there is a chance of the price reversing and going against me and the best way to protect myself is to use stoploss.
HOW DO YOU CONFIRM PRICE BREAK-OUT ??