False Break Pattern - False Breakout vs Fakey

Posted on Friday, 13 Nov 2020 By Admin

 False Break Pattern - False Breakout vs Fakey

What is a False Breakout?

A breakout of a price but not continuing to move. This pattern is important because a false breakout is a very solid basis that the price will change direction or that the trend will resume soon. A false breakout of a price can be thought of as a market rejection because it breaks but quickly turns, rejecting all traders following the breakout.

The following are 2 examples of false breakouts taking place above and below 1 price level. Notice that fake breaks come in different shapes, sometimes with pin bar or fakey, sometimes without:

   

A false breakout is essentially an upside-down movement that sweeps traders into the market with emotion instead of logical and positive thinking.

A false break happens because amateur and retail traders often enter the market when they feel safe. This means that they often enter the market once it has moved in one direction and they often try to predict too soon the market will break from resistance and support.

How to trade False Breakout patterns?

False breaks can occur in many market situations: trend, accumulation, reverse trend. But the best way is to trade them in conjunction with the trend daily.

On the chart below, we have a very clear down trend and many false breaks upwards. When you see a breakout like that, it's usually a good signal that the trend will continue. Amateurs often love catching a bottom in the downtrend and catching a top in an uptrend and this creates false breaks. On every false break in the chart below, it seems that traders think the downtrend is over and they start to buy. Then the professional traders come back, taking advantage of the temporary power of the downtrend, entering a short position to wipe out the traders trying to find a way to catch the bottom of the market.

   

A false breakout is very common when trading inside because traders often try to take a breakout chance but the price usually stays in the range longer than most predictions.

Intraday trading is very advantageous when you can wait for a price action signal at the stop or support and trade back on the other side. The best way to avoid entering the market by mistake on a false breakout is to wait for 2 days or more to close out of the range. If this happens, there is a good chance that the price has finished its boundary and a trend has begun.

In the chart below, we can see how a price action trader uses a pin bar to trade a false break at the border. Notice pin bar false breaks at resistance and 2 false breaks at support. An experienced trader can trade a false break without a signal like a pin bar.

 

   

A false break sometimes signals an end of a trend and a new trend is beginning.

In the chart below, we see an important resistance that held the price after 2 tests and on the 3rd time, the price made a false break with a large pin bar signaling an imminent reversal.

A few tips when trading fake breakouts:

- False breakouts can occur in markets with trends, in margins, and in reverse trends. Watch them carefully as they provide a basis in which the market will move.

- Trading in reverse trend is very difficult. The best way to trade is to wait for a clear breakout of the trend from an important resistance or resistance.

-The fake break gives us a gap in the middle of the battle between amateurs and professionals.

False Break Pattern - Fakey pattern

The fakey pattern can be described as a false break from the inside bar pattern. This pattern always starts with an inside bar pattern. When the price starts to break out of the inside bar pattern but quickly turns to make a false break and closes around the price of the mother bar or inside a bar, a fakey pattern is obtained.

Inside bar + Unsuccessful break = Fakey pattern.

Fakey is an important and effective price action trading tactic because it helps traders determine the stop-hunting of big boys and show how the price base moves next.

   

The picture above depicts four common fakey models. There is always an inside bar setup first followed by a fake break.

How to deal with a fakey pattern?

Fakey patterns can be traded in markets with a trend, range-bound, or reverse the trend at critical levels. There are so many false breakouts in the forex market, so learning how to trade fakey can bring you great advantages and profits instead of falling victim to it like many other traders.

Common entry points when there are fakey signals:

· At high or low breakout price of inside bar or mother bar in the opposite direction of an initial false break. You can use pending orders or market orders

· If a fakey model has a pin bar, please follow the rule of a pin bar

   

Let's look at a few more examples:

Fake trading in the trendy market.

The chart below is a good example of a fakey buy signal with a pin bar as a false breakout signal in a trending market. Note that there are 3 inside bars in this signal in a mother bar. This is very common and sometimes even has 4 inside bars before a false breakout occurs.

 

The next chart is another example of fakey when there is a trend. There is a clear uptrend before forming a fakey 3 pattern. Note that this fakey pattern consists of only 2 fake breakout candles. Instead of a false breakout on 1 candle, here it happens on 2 consecutive candles. These are also 10 common fakey forms.

   

Trade fakey signals against the trend from important prices

Next, you see an example of reverse trend fakey. That means the price can move against the nearest trend. In this case, a bullish fakey buy signal forms at critical support following a price drop. The fake signal is very "beautiful" and is confluent by the support level.

   

 

This is followed by an example of reverse trend fakey. This time is a fakey bearish sell signal formed at an important resistance level. Notice that the market rallied earlier. Then the fakey forms, it breaks down a critical resistance and puts additional pressure on the price to drop lower.

   

Some tips when trading fakey:

-The above examples do not cover all the fakey cases you will encounter, but only the common ones. Just remember if you have an inside bar pattern and then a false break it is a fakey pattern.

-You should not trade all the fakey conditions. This does not depend on its shape, but on where it appears on the chart, ie whether it confluence with the trend of the chart or not. Your knowledge and experience will help you know when to trade and when not.

-When starting out, look for fakey signals on the chart daily because it is highly reliable compared to smaller timeframes. Once you get used to it, you can use the 4-hour or even 1-hour timeframe.