Trading breakout and avoiding 'fakeouts' | Forex Factory

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Trading breakout and avoiding 'fakeouts'

  • #1
  • First Post: Edited Aug 8, 2011 1:53pm Jun 8, 2011 3:25pm | Edited Aug 8, 2011 1:53pm
Hello,

I'm planning on doing some tests on this at the weekend, but for now I'm looking to hear other people's ideas. What are your methods for avoiding 'fakeouts' if you still want to trade breakouts?

For long-term trading systems I often look for two breakouts in a row.

Edited -

If anyone is interested, I've found that 'fakeouts' and reversals are more likely to occur at certain times of the day, see http://www.myforexdot.org.uk/day-trading-times.html for example, the GBP/USD is likely to reverse after the London market closes.
  • #2
  • Jun 8, 2011 7:17pm Jun 8, 2011 7:17pm
Quoting Davidee
Hello,

I'm planning on doing some tests on this at the weekend, but for now I'm looking to hear other people's ideas. What are your methods for avoiding 'fakeouts' if you still want to trade breakouts?

For long-term trading systems I often look for two breakouts in a row.
Ever heard of the "fakey setup" by Nial Fuller? It actually lets you take advantage of fake-outs or false-breaks, it's pretty cool.
  • #3
  • Jun 8, 2011 7:27pm Jun 8, 2011 7:27pm
Hi David?

Please don't equate my lack of posts equating with lack of experience. Obviously a breakout real or not will arise from a period of congestion. It is my feeling that the internals of the "congestion" can be monitored and and measured much like a sesmigraph(sp). The key, I believe, has do with "acceleration". Back from my college days,this requires use of calculus specifically use of "derivatives". The first problem, in my opinion, is a strict definition of "congestion". In a perfect world, the tops and bottoms form a perfect rectangle. In my mind that the internals i.e., momentum i.e., acceleration (deceleration) i.e.,a breakout number" would look much different on a real vs fake.

I hope this has been of help. I would love to have an indicator like that which works Please keep me informed.

Good Luck and Best Wishes;

Casey
  • #4
  • Jun 9, 2011 12:24am Jun 9, 2011 12:24am
Hi!

Does anyone use percent criteria for defining if breakout is reliable?

for ex, if e/u breaks a flag and it makes up 1-2%, then breakout is reliable...and we can open a position.
  • #5
  • Jun 9, 2011 12:33am Jun 9, 2011 12:33am
Dun Dun dun...

This just in!

Don't trade the breakout.

Trade the retest of the breakout!

Lose less if you are wrong.

Make more if you are right!

Retrace your way to financial wealth!!

dun dun dun!!
  • #6
  • Jun 9, 2011 1:35am Jun 9, 2011 1:35am
Quoting lartrade0623
Ever heard of the "fakey setup" by Nial Fuller? It actually lets you take advantage of fake-outs or false-breaks, it's pretty cool.
This sounds very interesting... googling...
  • #7
  • Jun 9, 2011 10:49am Jun 9, 2011 10:49am
there is 1 extremely clear indication that happens when a true breakout is going to occur..

however as someone mentioned the retrace is a better entry so...
  • #8
  • Jun 9, 2011 1:02pm Jun 9, 2011 1:02pm
If I have a bias, long or short, I tend to look for congestion and a break below/above opposite the direction I am biased to, which has a lack of follow-thru. If I want to go long, and the current range is 5 - 10, I want to see a break below 5 without much strength, and want to be buying at 4. As opposed to seeing a strong break above 10 and hoping that my order can get filled at 13 during the move.
  • #9
  • Jun 10, 2011 3:02am Jun 10, 2011 3:02am
Quoting Davidee
Hello,

I'm planning on doing some tests on this at the weekend, but for now I'm looking to hear other people's ideas. What are your methods for avoiding 'fakeouts' if you still want to trade breakouts?

For long-term trading systems I often look for two breakouts in a row.
Trade breakouts in the direction of the trend on higher timeframes. Also, following a breakout, I prefer to wait for a retrace before executing.
  • #10
  • Jun 10, 2011 12:50pm Jun 10, 2011 12:50pm
Quoting thelws
Dun Dun dun...

This just in!

Don't trade the breakout.

Trade the retest of the breakout!

Lose less if you are wrong.

Make more if you are right!

Retrace your way to financial wealth!!

dun dun dun!!

If you wait for a retrace it might not happen, during a strong trend the market might just keep on going and not retrace back to under the breakout. My tests suggest that waiting for a retrace is a bad idea on currency pairs that trend well, well at least it is on the EUR/USD.
  • #11
  • Jun 10, 2011 9:41pm Jun 10, 2011 9:41pm
Quoting thelws
Dun Dun dun...

This just in!

Don't trade the breakout.

Trade the retest of the breakout!

Lose less if you are wrong.

Make more if you are right!

Retrace your way to financial wealth!!

dun dun dun!!
Get money, don't let money get you. @kauaiforex
  • #12
  • Jun 11, 2011 3:04am Jun 11, 2011 3:04am
I avoid the fakeout by aiming to trade the breakout.
  • #13
  • Jun 11, 2011 3:57am Jun 11, 2011 3:57am
andrews pitchfork,action reaction,elliot would help you to determine breakout timing and set pending order.
use trail stop
  • #14
  • Jun 11, 2011 4:01am Jun 11, 2011 4:01am
Quoting Davidee
Hello,

I'm planning on doing some tests on this at the weekend, but for now I'm looking to hear other people's ideas. What are your methods for avoiding 'fakeouts' if you still want to trade breakouts?

For long-term trading systems I often look for two breakouts in a row.
What kind of breakout are you exploring? Not all breakouts are equal
  • #15
  • Jun 11, 2011 5:55am Jun 11, 2011 5:55am
Quoting willf
What kind of breakout are you exploring? Not all breakouts are equal
A Donchian channel that uses the closing price rather than the highs and lows. Long term too, daily candle sticks with channels of many weeks.

Donchian channels work well on markets that trend well and work really badly on markets that are driven almost purely by speculation. Speculators have become more and more influential in the markets in recent years and therefore Donchian breakouts don't work nearly as well as they did in the days of the Turtles when speculators had far less cash in real terms than they do now. The famous 4 week breakout might even have a negative expectancy these days on markets where Donchian channels still work.

Nevertheless, markets like the EUR/USD are still to large to be moved primarily by speculators trying to get a bounce off of some support or resistance line on a 15 minute chart, things like interest rates and the policies of the likes of China's central bank matter far more; and on these markets Donchian Channels still work. But only long-term time frames appear to be effective. Here's a little test I did after someone mentioned Donchian channels on another thread a while ago Donchian Channels Test

It's important when deciding how to trade a market to know what's moving the market. Is it speculators jumping in the buy the S&P index at under 1200 when it falls to a long term significant support level? The trade using support and resistance. Is the policies of the US Federal Reserve, the European Central bank and China that is having the most effect? Then trade the long-term trend.
  • #16
  • Jun 16, 2011 12:30pm Jun 16, 2011 12:30pm
Quoting josef
This sounds very interesting... googling...
Interesting statements there josef. Are you trading a robot or are you discretionary? What did you find out about the fakey setup?
  • #17
  • May 17, 2014 5:48am May 17, 2014 5:48am
Hi Davidee and friends,
Breakouts are associated with consolidation in price.
Its quite simple to identify when a price is in consolidation - just convert your chart to a line diagram display - higher highs and higher lows or lower highs and lower lows identify trends - anything other is some form of consolidation which price will at some point breakout from.
Fakeouts
When you experience a fakeout (failed breakout,) - then take a trade in the direction of the fakeout which usually has a successful outcome. ie just trade what the market offers
The lower timeframes will give a good indication of what to expect
Hope this helps someone
  • #18
  • Last Post: May 17, 2014 10:23am May 17, 2014 10:23am
Waiting for a retrace is a bad idea because you often end up with those which have the least momentum. Markets have changed since the 80's.

Having access to good flow information will certainly make it easier.

Speaking on my own behalf, break-out's are not traded unless market positioning strongly disagrees with the break-out direction.

When you start hearing about one on CNBC or the blogosphere you should wait for the first sign of reversal and go with it.
Twitter - @Jimbaloo
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