Differences between a strong breakout vs a fakeout

Hello all. Haven’t been on here in years. Anyways I’ve always been a fan of breakout trading so I wanted to get your input on breakouts. Obviously the best thing to do is to backtest it against historical data(which I will) but, was just wondering what the general consensus is on breakouts in regards to RETESTING the S/R level. Do most real breakouts come back to retest the resistance now turned to support before going higher? Do the strongest breakouts break support or resistance and don’t bother retesting the S/R level? I would think it’s the latter but again that’s just my hypothesis. We can’t predict the future but if we can find patterns or edges in the market ie. differences between real breakouts vs fakeouts, we can potentially minimize the size of our losses by observing price action around the S/R zone and bailing early if the S/R zone is indicating that it is holding(at least for now). So in a way the question is are we able to look at trading as if we were playing poker. Looking at price action before we enter = looking for good cards. Looking at price action after we enter = looking which community cards are coming up on the board. Food for thought. Cheers.

Usd/jpy strong breakout on the D1. No pullback retest… Maybe on the lower time frame?

“Zoomed in”. H1 chart…No pullback retest…Food for thought.

It is actually very difficult to understand such technical parameters, because such things can encourage you to take action, after which you realize that you have made a mistake and that you urgently need to find some solution to this complexity.
I would recommend just probably sticking to certain rules and always leaving a sufficient capital reserve so that you can insure yourself at any time if you do make a mistake and if something does not go according to a pre-planned plan.
Although it's probably worth looking into this a little more, because some time ago I read that many people face such problems and it is better to be able to cope with it.

Biggest factor is liquidity and not many people, even the gurus even talk or know about it. Simply, are committed traders behind the move?...and not to get overly cynical, is it a liquidity pull(larger traders spike the market to hit stops or any orders) only to breakout to the other side.

Over 95% of the moves in FX are random hollow moves caused by the market, similar to the stock market.

For ex: Look at today's AUDCHF move off a bottom after the US inflation numbers. Trough to peak, there's a pin that formed just beyond the break out point @ .66057. Most of that was the market just searching for the next and strongest liquidity point. Just about till now if you entered into a position you would've gotten pretty choppy results and stopped out almost immediately. It's an empty move and your buy order will reverse the market's move easily...when this happens stop and assess the state of the market. Wait till liquidity comes back and price pauses, creating a possible entry point.

The market is designed to do that in low liquidity, high volatility times. ---- A great way to gauge this is by using ATR set at the proper sample range, I prefer 5 days since I'm predominantly an intraday trader and it gives a truer feedback. Use this with Relative strength in the 15 min and the 1hr for reference. Add a good sense of where the market is and you have a very effective way to pick entries. I should add a good sense also involves whether or not you are buying currency strength or weakness...preferably that has shown over the course of the week/five days and tighter - Yes I do have an outside -> in approach when I do my analysis before the trade.

Getting back to breakouts....It's not easy to know if it's the real thing without getting involved...simply put, but even then you have to be ready for a retrace of sorts and you can also use ATR (when the value is tapering off or is in a trough) as a reference as well. Learn to really observe price action - watching the bar/candle. If you want to be mechanical as possible set your hard stop a few pips back in the area of liquidity - the grouping where price bounced back and forth forming a chunk of bars/candles that consolidated - this is where all the decisions are made and where the markets are calmer...perfect for entry. They're all just breakouts of varying sorts in all TF's.

Note: you need to be entering a position in anticipation of movement afterwards. It wont be as ideal the later you get for example, 2:00 pm NY session. So be mindful of this, it's not the hard and fast rule, but most likely. I've seen trends continue all the way to the close...breakouts - not really.

Having that "sense" of where the market is, is like being in a dance or flow. You are in rhythm with the market. Develop "feel"..but be careful not to lose sight of the forest from the trees. Feel isn't something obtained overnight, best way to describe it is all performance athletes have it.

That's pretty much all you can do, but you have to get involved and keep control of your emotions under wraps...no FOMO or self talk. You execute based on trader intuition and what you practiced before hand in mind. It's practiced after you've traded so many of them of which many do fail. If they do, don't immediately get back in...regroup and most likely, it's the algo looking for liquidity.

I wish there was an easier way, but there isn't unless you consider using an AI or your the type to set your orders with stops before hand. This is trading, you're a risk analyst

All this stuff works in any time frame. That's the great thing about strategy that works.

A perfect example of breakout; actually market sequence plays a vital role on this of time scenario; usually I try to use those setups where market sequence is very clear!

I often encounter false breakouts as key levels are essential to me during analysis. In order to minimize the chance of getting caught on a false breakout, I receive signals from several MACD, RSI, EMA indicators. they all have levels in their concept, which are markers. In addition, I pay attention to the historical levels on the chart.
Also, I often use the rule of closing the candle after breaking through the level (I trade on 4 hour and 1 hour charts often). If I open a trade after the level is broken, then I set a stop loss in case the price returns and a false breakout occurs. In addition, the situation on the market will also influence the decision, since there are different situations when a breakout was preceded by a narrowing correction, for example, or when a level breakout is an extension of the trend channel, etc.

Not as simple an answer as one might think as there are a multitude of reasons for successful and false breakouts . A better understanding of order flow and being able to spot clues would give you a better hit rate on trading breakouts . I actually don't trade breakouts that often these days as I like to be positioned pre- breakout .

For example ; a higher time frame that has exhausted and the order flow reversed will have a stronger breakout on the smaller timeframes and isn't likely to re-test . However ; if you're trading the bo with the higher tf exhaustion (not understanding orderflow) and are entering on the retest , you have a failed re-test and a losing trade and you've also missed the successful breakout . See what I mean ?

I wouldn't worry about a re-test as you can often miss trades . Best to be pre-positioned on the smaller tf's around the smaller tf supports and anticipating a bo as it's trend continuation higher you're expecting at some point . You also need to have tp targets as in multiple positions in case price reverses off the res on the smaller tf's .

Hello. I like your thought process. And I agree that the market definitely has its own patterns, which repeat sooner or later.
But distinguishing a real strong breakout from a fakeout can sometimes be very difficult. They are really similar in their habits. But the real breakout is longer in time, as for me. The fake bursts very quickly and shows its true movement.

The difference is one is strong the other one is fake
That's all