How Do You Identify A Fake Breakout? | Forex Factory

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How Do You Identify A Fake Breakout?

  • #1
  • First Post: Edited 5:30am Feb 5, 2013 4:35am | Edited 5:30am
what i mean is, say you are trading the previous sessions high and low. for example, you are trading the asian session high and low during the london session.

often what happens is price breaks the high or low but reverses. i.e. the breakout is a fake.

is there a better way of identifying whether the breakout will fail or not ? is there a better way of identifying a fake breakout in advance ?



at the moment i try to ''predict'' if it is going to be a fakey through technical analysis, but the point of this thread is to establish if there are better ways of identifying a fakey.

iam not an advocate of indicators, but any good indicators in this case would do.


thanks
  • #2
  • Feb 5, 2013 4:56am Feb 5, 2013 4:56am
On the lower timeframes (H1 and below)...well...flip a coin in my opinion. Your data's delayed by 15min, so you never see the current picture until it's too late.

On the higher time frames, always wait for CONFIRMATION before entering a trade...don't try to pick tops and bottoms

The THV system is great at catching false breakouts.
  • #3
  • Feb 5, 2013 4:56am Feb 5, 2013 4:56am
Quoting whatfx
what i mean is, say you are trading the previous sessions high and low. for example, you are trading the asian session high and low during the london session.

often what happens is price breaks the high or low but reverses. i.e. the breakout is a fake.

is there a better way of identifying whether the breakout will fail or not ? is there a better way of identifying a fake breakout in advance ?



at the moment i try to predict if it is going to be a fakey through technical analysis, but the point of this thread is to establish if there are...

You are on the right lines, in my opinion. Fakes are a problem and as I have studied consolidation, compression and chart patterns quite deeply, I understand to some extent. Every trade is a break out, actually, from the line you choose, an so the usual rules apply: Limit risk, let your winning trades run. But there are other rules you can apply. For instance, It's not a good idea to short on the hourly if the daily is long and price has left the 20dma behind. That is a strong trend. You might be lucky and hit the daily reversal point, but the probability is that you are in the wrong direction.

Regarding daily sessions, London midnight and London 8am are two lines which you should always bear in mind. Price will often revisit these levels. Later, when New York opens, EST becomes more important. If Asia has eaten all the pies... LOL.... if we are at 40 - 50% of the daily ATR when London opens, then unless you are scalping, not much doing, in my opinion, unless something major is happening.

Learn about price action candles. Set some rules about break outs and maybe only take retests of levels. Longer and tighter consolidations usually give more reliable break outs.

Just a few thoughts.
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  • #4
  • Feb 5, 2013 5:01am Feb 5, 2013 5:01am
Higher tf s/r... If price breaks short then goes long hard it's definitely breaking down to the s/r point to go long..

charts GJ today... H1 breaks short in london, everyone piles in short giving the liquidity for the long move....daily s/r hits... trend resumes
Attached Image(s) (click to enlarge)
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tradewith60
  • #5
  • Feb 5, 2013 5:15am Feb 5, 2013 5:15am
Quoting 60minuteman
Higher tf s/r... If price breaks short then goes long hard it's definitely breaking down to the s/r point to go long..

charts GJ today... H1 breaks short in london, everyone piles in short giving the liquidity for the long move....daily s/r hits... trend resumes
I get you but the price didn't go short at the London open this morning. It bounced off 145 (yesterday's low-ish) at 7.45am UK and never looked back.
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  • #6
  • Feb 5, 2013 5:38am Feb 5, 2013 5:38am
Quoting smikester
I get you but the price didn't go short at the London open this morning. It bounced off 145 (yesterday's low-ish) at 7.45am UK and never looked back.
yeah probably not the best example, being a bit lazy... but point being, its never a fake break out, thats misleading.. if you think its a fake break out you've either read the trend or the higher tf s/r wrong
tradewith60
  • #7
  • Feb 5, 2013 5:43am Feb 5, 2013 5:43am
Quoting 60minuteman
yeah probably not the best example, being a bit lazy... but point being, its never a fake break out, thats misleading.. if you think its a fake break out you've either read the trend or the higher tf s/r wrong
Yep
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  • #8
  • Feb 5, 2013 5:51am Feb 5, 2013 5:51am
Quoting whatfx
what i mean is, say you are trading the previous sessions high and low. for example, you are trading the asian session high and low during the london session.

often what happens is price breaks the high or low but reverses. i.e. the breakout is a fake.

is there a better way of identifying whether the breakout will fail or not ? is there a better way of identifying a fake breakout in advance ?



at the moment i try to ''predict'' if it is going to be a fakey through technical analysis, but the point of this thread is to establish if there...
A good way to confirm your break would be (ie. Short breakout):

1/ Wait for the candle to close outside the no trade zone

2/ Wait for a lower fractal to form

3/ Wait for an upper fractals to form

4/ Then and only then, trade the lower fractals breakout

In other words, wait for a retracement then enter with momentum (like 60minuteman like to say !)
MT4/MT5 EAs/Indicators/Alerts coder
  • #9
  • Feb 5, 2013 6:48am Feb 5, 2013 6:48am
Quoting FerruFx
A good way to confirm your break would be (ie. Short breakout):

1/ Wait for the candle to close outside the no trade zone

2/ Wait for a lower fractal to form

3/ Wait for an upper fractals to form

4/ Then and only then, trade the lower fractals breakout

In other words, wait for a retracement then enter with momentum (like 60minuteman like to say !)
^^^ This x10000!!

Basically, it's best to wait for confirmation before entering trades. Will cut down on you being stopped out a lot
  • #10
  • Feb 5, 2013 7:26am Feb 5, 2013 7:26am
Be pleased for all comments but to answer the thread question

One of( i am telling one of) method more than 90% accurate is Volume to find out the Fake from real BreakOut
Of course it's very important you know how use the Volume around High and Low level for real braking and the time and Market in this regards
Have a nice day
Kami
Don’t follow someone else’s trading advice blindly
  • #11
  • Feb 5, 2013 7:44am Feb 5, 2013 7:44am
A great indicator to keep you out of bad trades is the Damiani indicator...it's in the MT4 repository. Alternatively fractals are really really good as they help you stay out of trades until a move is confirmed.
  • #12
  • Feb 5, 2013 8:19am Feb 5, 2013 8:19am
Quoting FerruFx
A good way to confirm your break would be (ie. Short breakout):

1/ Wait for the candle to close outside the no trade zone

2/ Wait for a lower fractal to form

3/ Wait for an upper fractals to form

4/ Then and only then, trade the lower fractals breakout

In other words, wait for a retracement then enter with momentum (like 60minuteman like to say !)

yes, but on what frame ? that makes a huge difference
  • #13
  • Feb 5, 2013 8:20am Feb 5, 2013 8:20am
My 2c is this.

Learn about Supply and Demand Zones, then google 'Bull Trap' and 'Bear Trap'

don't take a breakout that will send you directly into an opposing Supply or Demand zone - especially during Frankfurt/London changeover.

Sam Seiden explains it well here:

http://www.tradersq.com/seiden36.htm

this has saved me countless losses on potential False breaks - AND helps you join in and make good money on them

ignore indicators, how the F*# are they going to help you avoid false breakouts??????????
- Look to the left, Trade to the right - I am the system
  • #14
  • Feb 5, 2013 8:36am Feb 5, 2013 8:36am
Further to above - this is what happened the other day. I shorted this.

also google 'Frankie Fakeout' and probably wouldn't hurt to check out some of the stuff on this forum to do with Orderflow and why false breakouts happen + why they cause such big moves in the opposite direction.

see attached.
Attached Image (click to enlarge)
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- Look to the left, Trade to the right - I am the system
  • #15
  • Feb 5, 2013 10:03am Feb 5, 2013 10:03am
Quoting whatfx
yes, but on what frame ? that makes a huge difference
The timeframe where you are trading your break.
MT4/MT5 EAs/Indicators/Alerts coder
  • #16
  • Feb 5, 2013 10:03am Feb 5, 2013 10:03am
Quoting Sebastiaan76
My 2c is this.

Learn about Supply and Demand Zones, then google 'Bull Trap' and 'Bear Trap'

don't take a breakout that will send you directly into an opposing Supply or Demand zone - especially during Frankfurt/London changeover.

Sam Seiden explains it well here:

http://www.tradersq.com/seiden36.htm

this has saved me countless losses on potential False breaks - AND helps you join in and make good money on them

ignore indicators, how the F*# are they going to help you avoid false breakouts??????????
I'm not a big fan of indicators but they will help you stop trading a false break out. How? If the daily is pointing up, don't trade your hourly down indicator.

Sam Seiden has made old fashioned support and resistance easier to understand for novice traders. New improved support and resistance are now buy and sell levels, even having the nerve to surprise us with "No it really is different!" - just like the new improved soap powder. A good trader by all accounts, who makes money by giving seminars.

Nicely drawn chart though and I especially liked the sneer at us pathetic retail traders who all went long 10 minutes before the London open.

Hilarious!
Gone to a better place
  • #17
  • Feb 5, 2013 10:13am Feb 5, 2013 10:13am
candlestick patterns.....wait for the close to confirm a breakout. also, it's nice to see the market consolidating before a breakout, rather just going parabolic into a key level. if you pay attention to the context, you can get a clearer idea of the quality of the breakout.
  • #18
  • Feb 5, 2013 1:04pm Feb 5, 2013 1:04pm
Quoting smikester
I'm not a big fan of indicators but they will help you stop trading a false break out. How? If the daily is pointing up, don't trade your hourly down indicator.

Sam Seiden has made old fashioned support and resistance easier to understand for novice traders. New improved support and resistance are now buy and sell levels, even having the nerve to surprise us with "No it really is different!" - just like the new improved soap powder. A good trader by all accounts, who makes money by giving seminars.

Nicely drawn chart though and I especially...
Glad you found it amusing. I was trying to make a point. Apologies if i upset your retail sensibilities. I know in the past I have found myself with a chart that looked like that and my buy order being the very top of that pin - and thought, wow, the precision, how did I pick the EXACT top.

I disagree re S/R and Supply Demand being the same, but to each their own. It's just a good way of avoiding the scenario where by you buy/sell a breakout into a stronger opposing Supply/Demand/Support/Resistance or whatever you believe in level.

You stick to your indicators, and I'll stick to not trading into obvious bull and bear traps. Suffice to say, False breaks can still occur WITH the trend to drive prices higher, so that big money can sell higher up.

I agree with one thing, which is that Sam Seiden probably does now derive his income from the seminars, but when you apply the concepts with your own learning and observation and by looking at charts to see when and where price turns etc - it's still a very useful concept. He gives most of it away for free anyway. Not sure what else you would get by actually paying for his course.

You're saying it's a simple as, wait for Daily Stochastic/MACD/RSI/Insertfavouritevariationofthesamethinghere to turn down, and then you are good to trade a breakout in that direction on H1 anytime you like? I tried that years ago - in fact I used to wait for H4/H1 and M15 Stochastics to all line up, and sometimes it worked, other times it didn't.

Anyway, i went to the trouble of doing up a chart + providing a link to a useful article to help the thread owner as I had often wondered the exact same thing.

I'm sure he finds your vague reference to using indicators on the daily timeframe and your opinion about Sam Seiden and his silly fad of new age Supply Demand equally as useful. Thanks for contributing.
- Look to the left, Trade to the right - I am the system
  • #19
  • Feb 5, 2013 1:46pm Feb 5, 2013 1:46pm
Quoting Sebastiaan76
Glad you found it amusing. I was trying to make a point. Apologies if i upset your retail sensibilities. I know in the past I have found myself with a chart that looked like that and my buy order being the very top of that pin - and thought, wow, the precision, how did I pick the EXACT top.

I disagree re S/R and Supply Demand being the same, but to each their own. It's just a good way of avoiding the scenario where by you buy/sell a breakout into a stronger opposing Supply/Demand/Support/Resistance or whatever you believe in level.

You stick...
I don't use indicators. But nor do I dismiss them. Knowing how an indicator works it can be useful to a trader. And I am not saying anything like what you are suggesting, as you know. My contribution was an earlier post which you may or may not have read.

Thanks for the apology. I guess you work for a company if you are not one of us retail trading jerks - I've crossed swords with other "supply and demand" traders who know it is the only way to trade. It was precisely that tone that set me off. If you find it the best and believe in it, then good. I'm willing to bet your years of failure with indicators helped you learn a bit about levels, though...

Here's a useful link for anyone interested in paying for a seminar.

Now here's a chart:

Attached Image (click to enlarge)
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Now my earlier point is demonstrated by the daily chart and the 20dma. It's an indicator, but you don't need it. Your eyes can tell you. But your brain can lie to you so sometimes it's good to use an indicator as a measuring stick. The price has definitely left the 20dma and it's pointing up. Chances are your on a roll with this:

Attached Image


Easy to explain after the fact. Regards and good trading to you.
Gone to a better place
  • #20
  • Feb 5, 2013 1:53pm Feb 5, 2013 1:53pm
To me, supply and demand represents momentum while support and resistance shows lack of momentum.

Edit: pic!

The red line represents a demand level, while the white lines represent S/R.
Attached Image (click to enlarge)
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