'False break' is an action of the market trend wherein it has failed the chart pattern. It is vital for you to learn and fully understand how a false breaks occurs or you will be losing plenty of pips. The good thing is that, when a false break had occurred on your trade its never too late to reverse your trade that still allows your to generate some profit.
How exactly does a false break occur?
To explain to you how exactly a false break occurs, I want you to refer on the image provided below. The image below show a 'bullish pennant' chart pattern. Support and resistance of the trend is indicated by the black line while the blue line is the market's trend. You can see that the market trend had bounced three times on the support and resistance levels but in its fourth attempt, the trend broke through the support line. This could trigger your stop-loss or influence your decision to go SHORT. But then later, the trend goes right up into its speculated direction.
If you have already been trading with the forex market for awhile then you may have already noticed some fast moving trend of the market. In such cases, false breaks can be often encountered. Here are the following instances on how false breaks occurs on your trades:
1. Fast Reversal on the Previous Pivot Point Levels
Pivot point is a price level wherein there's a high possibility that the trend will reverse its direction once reached or touched. It simply works just like support and resistance lines that once breached the trend will continue to push-through. But what happens when false break occur is that the market price will move past the pivot point level then surprisingly, it reverses for a fast move in the opposite direction.
2. Support and Resistance Lines
Just like the pivot point above, false break occur when the market trend will either break the support or resistance line then suddenly, it rushes back in the opposite direction.
3. Other Chart Patterns
There are actually plenty of chart patterns around but they can be flawed by false breaks.
Moreover, false breaks are a part of the challenge of trading the forex market. And it can only be minimized through the confirmation of other indicators such as the Fibonacci, Bollinger Band and etc... According to some experts, false breaks are tests of previous point of significance.
How exactly does a false break occur?
To explain to you how exactly a false break occurs, I want you to refer on the image provided below. The image below show a 'bullish pennant' chart pattern. Support and resistance of the trend is indicated by the black line while the blue line is the market's trend. You can see that the market trend had bounced three times on the support and resistance levels but in its fourth attempt, the trend broke through the support line. This could trigger your stop-loss or influence your decision to go SHORT. But then later, the trend goes right up into its speculated direction.
False Breaks Often Occurs During Fast Moves
If you have already been trading with the forex market for awhile then you may have already noticed some fast moving trend of the market. In such cases, false breaks can be often encountered. Here are the following instances on how false breaks occurs on your trades:
1. Fast Reversal on the Previous Pivot Point Levels
Pivot point is a price level wherein there's a high possibility that the trend will reverse its direction once reached or touched. It simply works just like support and resistance lines that once breached the trend will continue to push-through. But what happens when false break occur is that the market price will move past the pivot point level then surprisingly, it reverses for a fast move in the opposite direction.
2. Support and Resistance Lines
Just like the pivot point above, false break occur when the market trend will either break the support or resistance line then suddenly, it rushes back in the opposite direction.
3. Other Chart Patterns
There are actually plenty of chart patterns around but they can be flawed by false breaks.
Moreover, false breaks are a part of the challenge of trading the forex market. And it can only be minimized through the confirmation of other indicators such as the Fibonacci, Bollinger Band and etc... According to some experts, false breaks are tests of previous point of significance.
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