FOREX THEORY

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How to Trade Fakeouts

Chart Patterns (Part 3)

When the pattern experiences a false breakout, prices will usually rebound. Traders who have sold the downside breakout or who have bought the upside breakout will have their stops triggered when prices move against their positions. This usually is caused by the institutional traders who want to scrape money from the hands of individual traders.

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FOREX THEORY

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How to Trade Fakeouts

Chart Patterns (Part 2)

The head and shoulders pattern is considered a reversal. If formed at the end of an uptrend, it could signal a bearish reversal. Conversely, if it is formed the end of a downtrend, it could signal a bullish reversal. Head and shoulders are known for generating false breakouts and creating perfect opportunities for fading breakouts.

False breakouts are common with this pattern because many traders who have noticed this formation usually put their stop loss very near the neckline.

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WHAT ARE FOREX SIGNALS?

Forex signals are buy and sell trade alerts, which are sent to the paid subscriber’s e-mails or cell phones. Using such service is ideal for new traders who are not confident in their own skills or for the busy, more experienced Forex players who do not have the time to analyze and monitor the market.

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FOREX THEORY

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How to Trade Fakeouts

Chart Patterns

Chart patterns are physical groupings of price you can actually see with your own eyes. They are an important part of technical analysis and also help you in your decision-making process.

Two common patterns where false breakouts tend to occur are:

-Head and Shoulders

-Double Top/Bottom

The head and shoulders chart pattern is actually one of the hardest patterns for new traders to spot. 

However, with time and experience, this pattern can become an instrumental part of your trading arsenal.

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FOREX THEORY

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How to Trade Fakeouts

Trend lines

The SPEED of price movement is also very important.(Part 2)

How do we fade trend line breaks?

It’s very simple actually. Just enter when price pops back inside.

This will allow you to take the safe route and avoid jumping the gun. You don’t want sell above or below a trend line only to find out later that the breakout was real!

Using the first chart example, let’s point out possible entry points by zooming in a little

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How to Trade Fakeouts

Trend lines

The SPEED of price movement is also very important.

If price is inching like a caterpillar towards the trend line, a false breakout may be likely. However, a fast price movement towards the trend line could prove to be a successful breakout. With a high price movement speed, momentum can carry price past the trend line and beyond. In this situation, it is better to step back from fading the breakout.

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WHAT CURRENCY PAIRS ARE TRADED?

EUR/USD (Frequent)

GBP/JPY (Swing Trades Only)

GBP/USD (Swing Trades Only)

USD/CHF (Swing Trades Only)

EUR/JPY (Swing Trades Only)

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How to Trade Fakeouts

Trend lines

In fading breakouts, always remember that there should be SPACE between the trend line and price.

If there is a gap between the trend line and price, it means price is heading more in the direction of the trend and away from the trend line. Like in the example below, having space between the trend line and price allows price to retrace back towards the trend line, perhaps even breaking it, and provide fading opportunities.

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How to Trade Fakeouts

In order to fade breakouts, you need to know where potential fakeouts can occur.

Potential fakeouts are usually found at support and resistance levels created through trend lines, chart patterns, or previous daily highs or lows.

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