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Fakebreakout

BREAKOUT vs FAKEOUTTrading breakouts is a most profitable trading strategy that involves buying or selling an asset after a long period of consolidation. Confirming breakouts before jumping into a trade is the key task to become a successful breakout trader. Now lets see about the important key points to consider to confirm such valid breakouts TYPES There are different types of breakouts including 1)Trend line breakouts (diagonal form of S&R) , 2)Horizontal price breakouts, 3)Pattern breakouts (double top, double bottom & other) 4)All time highs/lows breakouts, 5)Fib level breakouts etc., The support and resistance lines that are drawn at potential breakout points "should be seen as area/zones instead of fixed lines" . BREAKOUT : A breakout is when the price of the stock breaches a support or resistance levels that has previously formed followed by a strong candle close. FAKEOUT : A false break or fakeout, as the name implies, is any move above a resistance or below a support followed by a reversal that fails to close above or below the broken level. WHEN THE FALSE BREAKOUT HAPPENS : A false breakout happens when there are no enough buyers or sellers to continue supporting the stock towards the breakout direction. In the examples above,the upper false breakouts happened because there were no enough buyers to continue pushing the price higher & tends to reverse similarly viceversa for the lower false breakout. VARIOUS SCENARIOS OF FALSE BREAKOUT POINTS TO REMEMBER 1)False breakouts can be avoided by waiting for strong candle closure above or below the levels to confirm the breakout strength. 2)Avoid the breakouts with non-stop parabolic movement (without pullback or retest). 3)Instead of using a single line as support or resistance, it is better to have an area/zone that covers all shadows in previous touches. 4)To take entry, always wait for the zone to breach by the candle closing confirmation combined with price action. Hope it was helpful to you, Happy Learning & Profit making :) Thanks & Regards Divyaapugal
NSE:NIFTYEducation
by Divyaapugal
29
How do the Breakout traders get trapped? Part- IIPsychology and Behind the scenes stuff: 1. At the BO, there was a massive bullish candle with a very high volume. This took out the previous resistance level. 2. The retailers saw this opportunity because the price closed above the previous resistance. Hence, they entered Longs. 3. The BO was followed by a Doji and then a Bearish candle. This indicated no Bullish follow-up. 4. The next candle was the last try to trap more longs before breaking down. This is indicated by the good volume on this candle. 5. Finally the price broke down with back-to-back bearish candles and reached the previous swing low. Warning candles: 1. Doji + Big Bearish candle indicating that there is no follow-up on the BO 2. Relatively good volume on doji indicates significant selling pressure. Never a good sign for a breakout. 3. A bullish breakout must always be accompanied by a good follow up, else it cannot sustain. Bullish BO needs good bullish candles, NOT dojis. P.S: I am not saying the fakeouts can be avoided. But there are a few cases where fakeouts can be avoided. Also, this is NOT investment advice. This chart is meant for learning purposes only. Invest your capital at your own risk.
NSE:BANDHANBNKEducation
by johntradingwick
34
How Breakout traders get trapped? Underlying logic: 1. The market already gave 11% in the impulsive move and created a high. Obviously, the momentum was fading out. 2. If you recall my lecture on market structure, you already know that after the creation of a high, we must come down to create a new higher low. The market cannot keep making new highs without creating a higher low. 3. There was a Bearish divergence. The price was moving up and up but the RSI was creating an equal high indicating that there isn't enough buying pressure. (I have already covered this in my older posts) Psychology and Behind the scenes stuff: 1. At the point of BO, there was only a round bottom, so nobody would have thought of it as the cup & handle pattern. 2. After the BO failed and the price dropped and formed the handle, the retailers thought of it as a cup and handle pattern. Only after the formation of the pattern, you would think of it as a pattern. 3. But the BO traders already got trapped at the top. You aren't aware of this if you don't have knowledge 4. So, in the end, nobody really paid attention to the manipulations done by the institutions. This is how retailers are trapped. Warning candles: Doji + Hammers + Bearish candles indicating that there is a problem with the follow-up. Relatively good volume on hammer & doji, which is never a good sign for a breakout. It indicates significant selling pressure. A bullish breakout must always be accompanied by a good follow up, else it cannot sustain. Bullish BO needs good bullish candles, NOT dojis. P.S: I am not saying the fakeouts can be avoided. But there are a few cases where fakeouts can be avoided. Also, this is NOT investment advice. This chart is meant for learning purposes only. Invest your capital at your own risk.
NSE:GRANULESEducation
by johntradingwick
248
How to avoid Fake Breakout? A lot of retailers may have gotten caught in this fake breakout in TCS. I provided that rough path (which I anticipated it would follow) in my original idea because I believed the conditions were not right for a breakout at the moment. The majority of the time, we cannot avoid getting trapped in fake breakouts. But in the recent case of TCS, the fakeout could have been avoided. Underlying logic: 1. The market already gave 8% in the impulsive move and created a high. Don't you think it needed a little rest before the next leg up? 2. If you recall my lecture on market structure, you already know that after the creation of a high, we must come down to create a new higher low. The market cannot keep making new highs without creating a higher low. 3. There was a Bearish divergence. The price was moving up and up but the RSI was creating a lower high indicating that there isn't enough buying pressure. (I have already covered this in my older posts) Warning candles: As soon as there was a breakout, there was a series of Hammers + Doji indicating that there is a problem with the follow-up. There was a significant volume on hammer & doji, which is never a good sign for a breakout. It indicates significant selling pressure. A bullish breakout must always be accompanied by a good follow up, else it cannot sustain. Bullish BO needs good bullish candles, NOT dojis. P.S: I am not saying the fakeouts can be avoided. But there are a few cases where fakeouts can be avoided. Also, this is NOT investment advice. This chart is meant for learning purposes only. Invest your capital at your own risk.
NSE:TCSEducation
by johntradingwick
24