How to Identify False Breakouts & Avoid 70% Spikes

How to identify breakout stocks and how to avoid false breakouts in forex. With the understanding of this article on how to identify false breakouts and avoid 70% spikes, you can identify breakout stocks and also identify false breakouts in forex with these guidelines. Many a time, some manipulations take place in forex, and day traders lose money without knowing the reasons.

A stock, forex, or cryptocurrency price may look to move in one direction as a result of a breakout, traders jump in, then the price quickly goes back to a previous state, thereby stopping traders out or putting them in a deficit position.  

You need to learn how you can trade in such fake breakouts and know the real breakouts while taking advantage of breakouts. False breakouts could give a trader so much profit without a drawdown in the global market.

Types of False Breakouts

How to identify false breakouts & avoid 70% spikes is a trading strategy that will accelerate maximum profit with good position size.

Chart patterns and candlestick patterns are some strategies employed to trade breakouts. You can also use false breakout” indicator tradingview to identify real breakouts. To avoid falling victim to these false breakouts, you need to take advantage of breakouts in all market conditions.

There are two kinds of false breakouts, which are:

Small false breakout

Large false breakout

A small false breakout could be a breakout that could be noticed as a real breakout on the lower time frame. For example, when price happens to break out on lower time frames and few day traders, position traders, swing traders, or scalpers jump in to follow the new trend for maximum gains but the price quickly reverts to its initial direction.

Large false breakouts are breakouts seen or noticed on higher time frames such as the daily time frame and it could be so real that many traders trade it and lose money. With an easy-to-spot trading pattern, a day trader can easily spot a false breakout.

How can you identify false breakout trading strategy and avoid losses? Be patient while you read and get understanding from this article. You will learn how to identify breakouts, either real or fake breakouts.

How to Identify False Breakouts

As a swing trading beginner or a day trading beginner, how to identify false breakouts and avoid 70% spikes is an important factor to consider, it is always their aim to capture big moves in the global market. All traders look to capture as high as 1000 pips in a trend.

Many traders look to place an order in a trending move with the aim of following the trend but contrarily a trend must also come to an end. You have to be patient, wise, and focused to know that you don’t have to trade simply because your emotions dictate for you.

To make a profit in the financial market, you have to do things differently and uniquely. There is a general saying, “buy low, sell high”. How low is the price when you decide to buy low? How high was the price when you decided to sell high?

Every false breakout is unique in its own way. All false breakouts are not equal. Breakouts can be seen on every time frame from 1 minute to 1-month time frame.

To identify a false breakout, you will notice that the previous trend has not broken, it was only a pullback to fake out new entry positions for emotional traders.

For example, in an uptrend where you have a series of higher highs and higher lows. Once the trend keeps, making new higher highs, the uptrend is still valid. The same thing happens in a downtrend, where you also see a series of lower highs and lower lows until the previous lower high is exceeded upwards and the price refuses to break the lower low both on the higher and lower time frame, a reversal is not yet established.

A smart trader can take advantage of a false breakout as I do oftentimes. In your trading plan, have a supply zone and demand zone set up. These 2 zones are determinants of a real breakout. Wicks or shadows on candlesticks show fake breakouts.

Breakouts are a movement of price in the opposite direction of the trend but only for a short while. You can back-test your trades and learn extensively how breakouts occur in forex and stock trading.  There is high liquidity in trading breakouts.

How to avoid False Breakout

Once you can identify a false breakout, you should be able to trade it differently and use it to your advantage.

1. False breakouts are short-lived, stay out of the market when you notice a false breakout

2. When false breakouts run into your demand or supply zone with wicks rejection, quickly take advantage of the breakout trade.

3. When the price consolidates around a support or resistance zone, there could definitely be a breakout, you can take advantage of the breakout while setting stop-loss a few pips away from the support and resistance zone and stay out of the market at the nearest swing high or swing low.

4. Using moving averages can help identify a fake and a real breakout.

How to Identify Real Breakout

For every fake identifier, there exists a real identity. The Same goes with false or fake breakouts.

1. Real breakouts are not short-lived but rather long-lived. They are long-term focused.

2. There exist a steady trending movement towards the breakout level.

3. There are sometimes price build-ups or accumulation around the breakout level before the price eventually breaks.

4. You will notice a kind of trap for opposite direction move before the eventual breakouts.

The above trading plan will help on how to identify false breakouts and avoid 70% spikes in your day trading.

Conclusion

How to identify false breakouts & avoid 70% spikes is focused on profiting from breakout trades and looking to place orders when the market structure guarantees the trade and also knowing when to stay away from the market. I hope as a reader, you have learned and mastered breakout trades with our forex trading strategy. You can read also how to identify false breakout in forex pdf.