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Chapter 20, Part III. Trading Fakeouts. Page 10

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 22, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Commander in Pips: Let’s start from the first question – how to open a position to fade a breakout:

    1. You have to check – are there any strong support areas (or resistance if this is reverse patterns) existing just below neckline? If there are, then the probability of breakout failure is significant and you may try to trade it.

    2. Even if there are no such levels, you may keep a close eye on price action around breakout and look for some candlestick reversal patterns, butterflies opposed to the breakout or something like that. For instance, you may see that in the example with Double top market has formed nice bullish engulfing right after breakout:

    3. Usually, if you intend to anticipate false breakout and fade it – you may enter in opposite the direction to the breakout with a stop below the low of the fakeout and target – near the top of the right shoulder or Double Top pattern. Although the risk to take the loss is high – the risk/reward ratio is also solid.

    Anyway, it is better to rely on some market’s clues that could appear on intraday charts that could hint of a false breakout.

    On the second part of your question we have answered already. The major approach to trading classical patterns is to open your position prior reaching of the neckline, based on some clues and attention to nuances. Re-read chapter 14 for details. Second – adjust (reduce) your target if some strong levels stand just under the neckline. This allows you to make a little profit even if the market will show a breakout failure.

    Pipruit: And is any market suitable for fading breakouts? I mean not particular asset but price behavior.​
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