Real breakout vs fakeout, possible to identify them? | Forex Factory

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Real breakout vs fakeout, possible to identify them?

  • #1
  • First Post: Jan 13, 2024 2:46am Jan 13, 2024 2:46am
So it has been discussed many times before in this forum. But infos shared on those threads are just bits and pieces and got me nowhere. so i'm starting this thread to discuss it and to get an idea about it further. It has been discussed here that Real breakouts and fakeouts look similar in chart, but they are significantly different by the way they are formed in real time. what could be the denominator that make them different from each other? What is that that we can't "See" on charts but can be recognized in real time? Momentum or volume or something else?
  • #2
  • Jan 13, 2024 4:00am Jan 13, 2024 4:00am
Quoting Glaucus
So it has been discussed many times before in this forum. But infos shared on those threads are just bits and pieces and got me nowhere. so i'm starting this thread to discuss it and to get an idea about it further. It has been discussed here that Real breakouts and fakeouts look similar in chart, but they are significantly different by the way they are formed in real time. what could be the denominator that make them different from each other? What is that that we can't "See" on charts but can be recognized in real time? Momentum or volume or something...
If you follow range analysis through trendlines, you will see the range squeezes before real breakout whereas fake breakouts can’t be presumed through trendline range.
  • #3
  • Jan 15, 2024 4:51am Jan 15, 2024 4:51am
This is a great thread title, i was hoping it would draw out the lurkers to drop those nuggets that we all get excited about...

Finding good trading knowledge is just as difficult as trading, so good luck.

As an example, i would say determining a real breakout as opposed to a fake out might be the essence of trading. After that its all about scale and time frames. Time frames are made up of candles which are made up of ticks, pips and time. There are infinite ways to mix these into a candle. But we aren't trading time. So that leaves two variables... Is a candle which spans 2 pips in 100 ticks the same as a candle which spans 2 pips in 1000 ticks?

The purpose of this forum is to create white noise which will create a space for the 0.1% of true wisdom to be revealed. Keep driveling for the greater good!
Why is a Raven like a Writing Desk?
  • #4
  • Jan 15, 2024 7:10am Jan 15, 2024 7:10am
You can't predict a fake breakout until after the event. This is how the market works to fill large orders.

What you do know is where they are likely to happen and the timing of them.
It never gets easier, you just get better
  • #5
  • Jan 15, 2024 9:57am Jan 15, 2024 9:57am
To start my answer/input, as anything in trading, it's easiest to spot them in hindsight and there is no definite way to know if a breakout will be continued or reverse. That being said Auction Market Theory (a trading philosophy) educational material goes into depth on how to spot a market that's in balance (ranging/equilibrium) and a market that's unbalanced (breakout/trending) and how to spot transitions between market transitions. Market Profile is almost always used for this.

That aside, my personal input would be using futures markets to get a better idea of what's going on in terms of order flow/volume! Futures are regulated and centralized, everyone on the planet sees the same volumes and price, this allows us to see what large/aggressive market participants are doing when price breaks out and if it confirms our trade direction/idea etc. Using these tools opens up a whole other avenue of trading and is far too complex for the length of this reply but in case anyone here is familiar with order flow/volume analysis, ill give a really good confirmation of a successful breakout:

When/if price breaks out of a range, you want to see a strong positive delta for a bullish break and vice versa. This confirms that aggressive buyers or sellers respectively are trading in your direction and as such there's a very good probability that price continues trending! Having this this information is invaluable no only for added trade confluence, but to warn you against fake breakouts. If there is no strong positive/negative delta we can assume no one is continuing (trading aggressively) on this aggressive breakout scenario and as such fading the move (with extra confirmations of course) would likely have a decent expected value.

Using Auction Market Theory and Order Flow / Volume analysis together can give you all the clues you need to distinguish between a real breakout and a fake one, most of the time of course...

Hope this helps or sparks some new ideas,

MM
Seeking Fair Value
  • #6
  • Jan 15, 2024 11:05am Jan 15, 2024 11:05am
I guess I'd be asking what even is a "fakeout"?

If price moves more than the spread over your perceived breakout line, then someone somewhere has won something and therefore it isn't a "fakeout" at all but a successful breakout?
  • #7
  • Jan 15, 2024 12:07pm Jan 15, 2024 12:07pm
Quoting Glaucus
So it has been discussed many times before in this forum. But infos shared on those threads are just bits and pieces and got me nowhere. so i'm starting this thread to discuss it and to get an idea about it further. It has been discussed here that Real breakouts and fakeouts look similar in chart, but they are significantly different by the way they are formed in real time. what could be the denominator that make them different from each other? What is that that we can't "See" on charts but can be recognized in real time? Momentum or volume or something...
Hi Glaucus
The best approach I have found to check it is volume and imbalance of buys and sells.
For example here we have this:
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Attached Image (click to enlarge)
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As you see first pic is charts (1min). Second is imbalance of volume.
When it cross the zero then there will be a breakout. Of course there are also many factors, but in general only volume is good to figure that out.
For example you can draw "support or resistance" line on the chart. But if price came to it with no volume delta imbalance, then it will not be broken (you call it fakeout as I understand).
Observer effect
  • #8
  • Jan 16, 2024 1:12am Jan 16, 2024 1:12am
IMHO, The reason behind a real breakout and a fakeout is simply the opposite side liquidity lies above/below the strong sell/buy areas. As per my little knowledge in this matter, we can not actually predict how strong/weak the opposite side liquidity unless those levels are taken out. I think the momentum/volume of the prior move before the breakout is not enough to decide whether it's going to be a breakout or a fakeout cause we dont know how strong the opposite side above these levels.

What im currently looking for on chart is, instead of entering right away as the breakout happens, I let the price cross the level and looking for a swift rejection from the opposite traders first before looking for a breakout.

For a sell, I look for a strong demand level, let the price cross it little bit and looking for a swift rejection from the buyers. It confirms that there is enough buyer liquidity to hold the sellers. But if sellers still overcome that rejection, managed to push the price down further, and sellers couldnt hold it no more means sellers are exhausted and it will make sellers to close their trades which causes the momentum downwards. Hence the Real breakout(at least as per my understanding). If sellers failed to overcome buyers it might be a fakeout.

I just look supply/demand levels on chart just to put a system in place. But when i looking for a trade i look at real time data. I think which is important. I think we should be able to read sellers overcome buyers in these areas in real time instead of relying on candlestick formations. This is what believe in and working on currently with my limited knowledge. I would greatly appreciate your input.
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  • #9
  • Jan 18, 2024 11:53pm Jan 18, 2024 11:53pm
Quoting Ramjay
IMHO, The reason behind a real breakout and a fakeout is simply the opposite side liquidity lies above/below the strong sell/buy areas. As per my little knowledge in this matter, we can not actually predict how strong/weak the opposite side liquidity unless those levels are taken out. I think the {image}
Im just sharing here a picture from a Crucialpoint that spark this thought in me. i think it's somehow relevant to this topic.
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  • #10
  • Jan 20, 2024 12:51pm Jan 20, 2024 12:51pm
Quoting Ramjay
{quote} Im just sharing here a picture from a Crucialpoint that spark this thought in me. i think it's somehow relevant to this topic. {image}
This pic make no sense. There are stops higher the last trade price and lower. The market will move in the direction where the orderbook is thinner and where are more stops.
There are no "support" and "resistance" levels. There are no levels at all. There are no trend. There are no candles. There are no timeframes. This all is total bullshit. Fairy tales.
Only money.
Forget all the shit you read on every shitty broker website.
Money. Read by lips: M O N E Y.
The market moves beacuse of money, not because some see "bart head cnadlestick pattern" or some draw colored line and call it sup/res.
Observer effect
  • #11
  • Jan 20, 2024 5:51pm Jan 20, 2024 5:51pm
Quoting Ramjay
{quote} Im just sharing here a picture from a Crucialpoint that spark this thought in me. i think it's somehow relevant to this topic. {image}
Yep, you're right. It's about measuring the duration, strength and direction of a trend from birth to death which leads to prediction of same - exactly how Honma did it
  • #12
  • Jan 20, 2024 5:53pm Jan 20, 2024 5:53pm
Quoting ryuryu
{quote} The market will move in the direction where the orderbook is thinner and where are more stops. .
not generally in FX, happens once or twice daily I grant you usually news releases, but the general direction isn't determined by depth of orders, otherwise an EBS order book would see you millions in no time. It won't btw.
  • #13
  • Jan 21, 2024 5:19am Jan 21, 2024 5:19am
Quoting triphop
{quote} not generally in FX, happens once or twice daily I grant you usually news releases, but the general direction isn't determined by depth of orders, otherwise an EBS order book would see you millions in no time. It won't btw.
Ok, on FX market moves because of magic. And sucessfull traders are successful because they have correct trading mood and philosophy. This shit we are talking about, right?
p.s. this is not a question since I know the answer already.
Observer effect
  • #14
  • Jan 21, 2024 5:48am Jan 21, 2024 5:48am
Higher high, lower low, breaking structures..... that's all. Remaining is just a provability game........ Make it simple.
I will do you a favor. Study this thread: https://www.forexfactory.com/thread/1262733-break-through-trading
Simplicity is the ultimate sophistication - Leonardo da Vinci
  • #15
  • Jan 21, 2024 5:56am Jan 21, 2024 5:56am
Quoting ryuryu
{quote} Ok, on FX market moves because of magic. And sucessfull traders are successful because they have correct trading mood and philosophy. This shit we are talking about, right? p.s. this is not a question since I know the answer already.
Not at all. you’re confusing two separate methods. One is about group behaviour and the other is about flow. Both are — or should be - based on observation and maths. Just because hope and pray is popular doesn’t make it right.
re flow you can’t see the true depth of any bank from an order book. Anyone who thinks otherwise believes in jiujiu ironically. Time and sales is more useful because it tells you what’s developing that may yet be invisible on the chart, but neither tells you the true depth or target.
  • #16
  • Jan 21, 2024 8:55am Jan 21, 2024 8:55am
Quoting heispark
Higher high, lower low, breaking structures..... that's all. Remaining is just a provability game........ Make it simple. I will do you a favor. Study this thread: https://www.forexfactory.com/thread/1262733-break-through-trading
I want to write a book called "Idiotic statements about trading".
Quoting heispark
Higher high, lower low, breaking structures
- this I'll place in second chapter and
Quoting heispark
Make it simple
- into the first chapter of course. Near "correct trading mood" and "10000 screen hours"

Anyway the Q was: is it possible to identify the breakout. The answer is yes. But not using candlestick charts, magic and colored lines for sure.
Observer effect
  • #17
  • Jan 21, 2024 2:16pm Jan 21, 2024 2:16pm
Quoting HM.Gerald
{quote} If you follow range analysis through trendlines, you will see the range squeezes before real breakout whereas fake breakouts can’t be presumed through trendline range.
About the squeeze, using the TTM squeeze indicator, the Bollinger bands and the keltner channel, it appears the decision about a break is still not full proof. It gives confidence in identifying a fake squeeze, but doing trendline (support/resistance) analysis for different chart time intervals will also give confidence to identifying the fake squeeze. Volume can help decide the direction from the squeeze. HM. Gerald - are you essentially saying the same thing? The TTM squeeze indicator can help decide the start of a longer trend.
  • #18
  • Jan 25, 2024 12:27am Jan 25, 2024 12:27am
First pattern:
Orders hitting an upper ask level and can't break it first, the tension rises (even more if the bids get eaten/absorbed around this higher level).
The passive sellers remove their liquidity and start hitting the ask with big market buy orders.
Price will break this upper resistance and shoot up and kill/hunt all sellers, it's sometimes very good to see in the ES/SPY where the price can easily run 2-4 Dollar higher (SPY).


Second pattern:
The price rises with low or even negative delta.
It looks like that the passive side is in control.
But then huge sellers step in during the mid/end of the US session and hammer the price down with much bigger market sell orders.
Again,the SPY can easily fall for 3-5 Dollar, they are running it all way down (till the most buyers have their stops triggered).
  • #19
  • Jan 25, 2024 5:06am Jan 25, 2024 5:06am
Quoting ryuryu
is it possible to identify the breakout
May I ask you right about this aspect: is your LOPEN strategy still actual and used by you with the current rules?
Thank you!
Just an opinion. Based on research
  • #20
  • Jan 25, 2024 5:23am Jan 25, 2024 5:23am
Quoting The-Flipper
First pattern: Orders hitting an upper ask level and can't break it first, the tension rises (even more if the bids get eaten/absorbed around this higher level). The passive sellers remove their liquidity and start hitting the ask with big market buy orders. Price will break this upper resistance and shoot up and kill/hunt all sellers, it's sometimes very good to see in the ES/SPY where the price can easily run 2-4 Dollar higher (SPY). Second pattern: The price rises with low or even negative delta. It looks like that the passive side is in control....
Hi Flipper

On the first pattern you described on ES / SPY, the breakout is not caused by passive sellers switching sides but rather new passive sellers entering the order book creating a strong Ask imbalance. When this occurs on ES / SPY - HFT Algorithms are programmed to hunt these passive sellers causing a strong Bullish move.
When it rises more, cascading stop clusters occur offering even more money for the liquidity traders.
That's where the real money is - hunting for those Stop clusters to create a cascading move at no expense but pure profit for the traders long.

Cheers
Trading thin liquidity at the boundary of the charts
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