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(False) Breakout & Trend Reversal Strategies??

  • Post #1
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  • First Post: Jun 24, 2005 3:03pm Jun 24, 2005 3:03pm
Hello, everyone!

I was wondering what strategies/systems/tips everyone uses to determine if a breakout is valid or if it's a false breakout? Also, what strategies/systems/tips do you use to determine a trend reversal?

I'm able to draw trendlines and have gotten very good at finding support & resistence levels on charts. But I'm still having problems when it comes to breakouts & reversals. I can't seem to determine if the breakout or reversal will take place on support line 1 or if it will continue to my support line 2.

For example, I will see a trend that keeps on bouncing off my support line. So I set up a trade if it breaks the support line by certain number of pips short and if it bounces off a certain number of pips go long. But once I'm in a trade everytime I see a bearish/bullish candlestick depending if I went short/long. I think the move is over and about to reverse; so I close my position. Instead the move continues in the same direction it went, and sometimes continues to another breakout line.

Thank you for your help, I appreciate it.
olimits7
Quoting olimits7
I was wondering what strategies/systems/tips everyone uses to determine if a breakout is valid or if it's a false breakout?
here is a little secret, and it will be very usefull if you know what to do with it...

dont take a breakout unless it follows a false breakout.
Relax and be happy.
Quoting olimits7
Hello, everyone!

1. I was wondering what strategies/systems/tips everyone uses to determine if a breakout is valid or if it's a false breakout?

2. Also, what strategies/systems/tips do you use to determine a trend reversal?

1. It is false if it does not continue in the direction of the B/O.

2. If I'm long and the market reverses to short I get out of the long position before I lose more than the amount I've determined to risk. I do the opposite when I'm short and the market reverses to long.

FT
Quoting merlin
here is a little secret, and it will be very usefull if you know what to do with it...

dont take a breakout unless it follows a false breakout.
great tip, i have been burned many times on false breakouts.
how do you spot a false breakout. is it a good break out that has been tested at least once. thanks
Hi Bachirlulu,

what I believe Merlin wanted to say is:

look for a range, where price moves in a "box"
then spot for a breakout ---> don't take that trade
when price reverses after some time and goes to the other side of the determined box ---> take it.

How much time? I don't have a clue, you should observe, especially the London opening. The guys in London play this almost every day... Look for the "big ben strategy", you can find it somewhere here at FF.
And of course it depends on which currency pair you want to risk a trade.

If price does not reverse ---> so what
Tomorrow's another day, and you have tons of other pairs.

Greetings
42
i personally think you really cant predict 100% of the time when a break is a false one. but generally when you trade a longer time frame there is less of a chance of one happening. The best way to avoid being burned badly by a false break out is to scale in you position, take a fraction of your intended position and if the trade goes your way add the rest, if not the worst is you take a small loss and look for the next trade. hope this helps!

G-dogg
Egyptian and proud of it!
Try to understand what is taking place for a false breakout to occur. What type of orders may begin to stack around a breakout and how would this look on your chart/ticker? I believe understand the dynamics behind your trading, helps clear the picture up.

And IMO the best way to play a breakout is to wait for a pullback and a retest of the former breakout area. There are advantages and disadvantages to all different types of breakout plays, but the advantages far outweigh the disadvantages by waiting for a pullback.

And Remember one mans false breakout is another mans profit.


Just my views

Mike
This is on the thread entitled, Worlds Simplest System by TEB63 . It is very effective to avoid false breakouts, IMO. 123system.pdf
"Loss and failure are inevitable but misery is optional"
Try this for a confirmation of a breakout.

If the breakout is to the long side go long 15 pips higher than the high of the breakout bar. ie if the high of the breakout bar is 210.3 , go long at 210.45. This will confirm the trend direction.

For shorts use the opposite.


I have used this technique very successfully on breakouts of thw 50 sma on a 15 min chart on the GBPJPY trades.

It really is that simple.

Here is an example from todays gbpjpy chart. The purple line is the 50 sma

Attached Image (click to enlarge)
Click to Enlarge Name: gtbpjpy.jpg Size: 134 KB
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Quoting merlin
here is a little secret, and it will be very usefull if you know what to do with it...

dont take a breakout unless it follows a false breakout.

at first i thought you meant it as a joke...........by the way, the 'real' breakout should be in the same direction as the 'fake' one ?
After reading everyone's replies I have nothing to add other than well said!

Cheers
  • Post #13
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  • Last Post: Sep 12, 2011 4:06pm Sep 12, 2011 4:06pm
Maximum TL can conform breakout
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