Some Thoughts On Trading Breakouts
Breakouts can be very subjective, what's important is finding an approach which suits your own trading style.
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I think the first thing that I would just say is, technical analysis can be a very subjective part of trading, especially in some areas, and there's been many debates about how to interpret and use various technical tools and patterns and indicators and I'm sure that when it comes to breakouts, it's not going to be any different.
But as I said, it can be very subjective, and even with things like train lines, and support resistance areas, even with something like that there can be many differences between traders, one might use the wicks and one might use the bodies and another one might use both, for me those type of differences are not really helpful because I don't think there's only just one correct way to look at these types of more subjective tools.
So having said that, I'll quickly explain, you know, what I look at when it comes to breaks and false breaks. And again, I'm not saying by any means that this is the correct way, I don't think there's one correct way. And that's the way that I prefer to look at things and they might be many, many traders that look at it differently. And as long as it works for you, you know, that's the main point or the key point to really take away from this.
So, the way that I normally look at breakouts and false breaks, is generally I consider a level to be broken when the market has successfully closed above or closed below a level and I consider it a false break if we couldn't close above or below it, or we had a close but the candle is the next one reverses the move completely.
Yes, sometimes the market respects a, level to the tee, but mostly it's going to be a an overall zone where the market reacts from and that is why I normally like to see the market close below a zone and also follow through to make sure you know that it's really a clean break of that particular area.
Now the other thing to keep in mind, you know, is that when you use candlesticks, you can look at clean breaks and false breaks and all these things, but the one thing to keep in mind is that there's always going to be differences with one broker to another right because of your liquidity provider so it's always always important to keep in mind that there's lots of caveats and lots of limitations with using things like candlesticks, yes, they are great for analysis, but they do have lots of limitations.
So if you have a broker, I have a broker and they both use different liquidity providers then your chart might look slightly different from mine, you might have a close on a level just below a level just above a level when my chart doesn't show the same thing. So that's always something to keep in mind.
And apart from that there's always a very big debate, around traders when it comes to the timeframe and the closing of candles, do you use a close of the five minute or do you use the 15 or the m 30? Or the daily or the one hour this I mean, arguably the most convincing close would be a daily close above or below a level I think daily closes are more important but then you have the argument of if you are using candles if you are using the daily, are you using you know a New York candle close daily chart, are you using another one?
So there's so many subjective things out there, you know. So always take these things with a pinch of salt and use it in the way that you feel comfortable with in the way that it makes sense for you. For regular breakouts and false breakouts, but something that I do like and I probably use this more than any other pattern is isn't just a normal breakout to a false breakout, but something we call a false break pattern.
A false break is actually this pattern that we have here so a false break of a level would be when you have a convincing break, you have a close below it, you moving through that level, and then you have a very aggressive counter rotation back above or back below the important level. You have a break back above a retest and then a continuation of the move that is what we call a false break pattern.
For me, it's a really convincing pattern and the reason for that is, you know, nothing for me shows the strength of a particular level like when you have a clean break out a convincing one but the market bids that back up immediately and you have a retest of that level and a continuation to the downside so or to the upside rather so you know when it comes to false break patterns it really helps to have your levels as accurate as possible.
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There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
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We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://bit.ly/2HFykNd
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I think the first thing that I would just say is, technical analysis can be a very subjective part of trading, especially in some areas, and there's been many debates about how to interpret and use various technical tools and patterns and indicators and I'm sure that when it comes to breakouts, it's not going to be any different.
But as I said, it can be very subjective, and even with things like train lines, and support resistance areas, even with something like that there can be many differences between traders, one might use the wicks and one might use the bodies and another one might use both, for me those type of differences are not really helpful because I don't think there's only just one correct way to look at these types of more subjective tools.
So having said that, I'll quickly explain, you know, what I look at when it comes to breaks and false breaks. And again, I'm not saying by any means that this is the correct way, I don't think there's one correct way. And that's the way that I prefer to look at things and they might be many, many traders that look at it differently. And as long as it works for you, you know, that's the main point or the key point to really take away from this.
So, the way that I normally look at breakouts and false breaks, is generally I consider a level to be broken when the market has successfully closed above or closed below a level and I consider it a false break if we couldn't close above or below it, or we had a close but the candle is the next one reverses the move completely.
Yes, sometimes the market respects a, level to the tee, but mostly it's going to be a an overall zone where the market reacts from and that is why I normally like to see the market close below a zone and also follow through to make sure you know that it's really a clean break of that particular area.
Now the other thing to keep in mind, you know, is that when you use candlesticks, you can look at clean breaks and false breaks and all these things, but the one thing to keep in mind is that there's always going to be differences with one broker to another right because of your liquidity provider so it's always always important to keep in mind that there's lots of caveats and lots of limitations with using things like candlesticks, yes, they are great for analysis, but they do have lots of limitations.
So if you have a broker, I have a broker and they both use different liquidity providers then your chart might look slightly different from mine, you might have a close on a level just below a level just above a level when my chart doesn't show the same thing. So that's always something to keep in mind.
And apart from that there's always a very big debate, around traders when it comes to the timeframe and the closing of candles, do you use a close of the five minute or do you use the 15 or the m 30? Or the daily or the one hour this I mean, arguably the most convincing close would be a daily close above or below a level I think daily closes are more important but then you have the argument of if you are using candles if you are using the daily, are you using you know a New York candle close daily chart, are you using another one?
So there's so many subjective things out there, you know. So always take these things with a pinch of salt and use it in the way that you feel comfortable with in the way that it makes sense for you. For regular breakouts and false breakouts, but something that I do like and I probably use this more than any other pattern is isn't just a normal breakout to a false breakout, but something we call a false break pattern.
A false break is actually this pattern that we have here so a false break of a level would be when you have a convincing break, you have a close below it, you moving through that level, and then you have a very aggressive counter rotation back above or back below the important level. You have a break back above a retest and then a continuation of the move that is what we call a false break pattern.
For me, it's a really convincing pattern and the reason for that is, you know, nothing for me shows the strength of a particular level like when you have a clean break out a convincing one but the market bids that back up immediately and you have a retest of that level and a continuation to the downside so or to the upside rather so you know when it comes to false break patterns it really helps to have your levels as accurate as possible.
-----
If you find this content helpful, you’ll love Forex Source.
There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
