Trick to Profit from False Breakouts🚨
1. Identify Key Support and Resistance Levels 🔑
Before jumping into false breakout trades, ensure you’ve identified strong support and resistance levels.
These are areas where the price has historically reversed or stalled.
Support: A price level where the market tends to stop falling and starts to rise.
Resistance: A price level where the market tends to stop rising and starts to fall.
Candlestick Patterns:
Candlestick formations like Doji, Engulfing, or a long wick (shadow) can signal indecision in the market, which could lead to a false breakout.
3. Wait for a Quick Retest 🔄
The key to trading false breakouts is patience. After the price breaks through the support or resistance level, wait for it to retest the breakout point and fail to hold.
If the price quickly retraces back inside the range (below resistance or above support), it’s likely a false breakout.
4. Enter the Trade in the Opposite Direction ⬇️⬆️
Once the price fails to maintain the breakout level, enter the trade in the opposite direction.
Here’s how to do it:
For a False Breakout Above Resistance:
If the price breaks above resistance but quickly falls back below it, consider selling or going short, expecting the price to continue moving downward.
For a False Breakout Below Support:
If the price breaks below support but quickly rises back above it, consider buying or going long, expecting the price to return to the previous range.
Take Profit:
Set your take profit at the previous support or resistance level (the one the price just broke). This allows you to catch the price’s return to the range.
Example:
Let’s say Bitcoin breaks above $35,000, a strong resistance level, but the volume is low and the price quickly retraces back below $35,000. This is a potential false breakout. You can sell Bitcoin at $34,800, with your stop loss just above $35,000, and take profit when the price returns to $34,000.
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