Knowing False Breakout
False break is a break signal (the break of the support or resistance level) is wrong, or also known as a false break signal. Traders open long or short positions when the price has broken through a support or resistance level. However, it turned out that the direction of price movement was reversed and did not match the previous trader's predictions, so the trader's stop loss was hit. Of course, traders will not enter if they know that a break signal will occur. However, a trader cannot avoid a false break when he has opened a trading position.
False breaks can occur at any time. This is a result of the trader's response to market conditions to open long positions at the highest price level and sell at the lowest price level. False break can be considered as a ruse of the market. The market tests a level of support or resistance that has been breached, before finally reversing direction. It could also be, the market price movement does not continue beyond the level that has been tested, but returns to the original area and leaves it as a false signal or a false break. This situation often occurs in normal markets, both when the market is calm or when there is an important fundamental news release.
How to Trade a False Breakout Pattern
False breakouts occur in all market conditions; trending, consolidating, against the trend, but perhaps the best way to trade is in line with the dominant daily chart trend.
When a trader sees a false break against a dominant trend like this, it is usually a very good signal that the trend is ready to resume. Amateur traders like to try and pick the bottom in a downtrend or the top in an uptrend, and this can lead to a false break of the trend. On each false break, it is likely that amateur traders think the downtrend is over and they start buying, once this buying starts, the professional traders go back in and take advantage of the temporary strength in the downtrend and enter, and then the downtrend returns, consuming all amateur traders. who tried to select the bottom.
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