Avoiding Forex False Breakouts

Posted by admin 06/02/2014 Comments are off 745 views

forex

A question that’s on the lips of a lot of new forex traders is if a breakout is a false or a real breakout, the truth is we will never know at the time, but there are ways that you can reduce the possibility of trading a false breakout and having a losing trade.

Assume A Forex False Breakout.

One very simple trick to avoid trading false breakouts in forex is to simply assume that the first breakout is one, because it simply often is, the second might also be we never know but what we are trying to do as forex traders is to increase the probability that our trade is a winning one. Be it support and resistance, triangles, wedges or a Gartley pattern, most of the time the trendlines will be tested and that means they will break out at least once to find which way the market will go, sometimes the market will go, but the point is that most of the time it won’t and if it doesn’t most of the time, you don’t want to be trading  that it will most of the time. By assuming that the first breakout out of every setup is a false one then you are decreasing the low probability trades, trading forex is all about possibilities and probabilities, there are no fixed rules of cause and effect.

Forex Usually Ranges.

Although there are trends in forex, but whenever you look at  a trend that trend will be inside a range on a higher timeframe, so you can assume that after a long period of time the price will eventually return to where it is now. If you are treading a trend on the 1 hr timeframe then you need to be keeping an eye on where the price is on the daily timeframe, since if the price is approaching a support and resistance level, you should assume until you see different that the price will reverse because this is what it will do most of the time.  If you think that what you want to do most of the time is assume the market is ranging since the market does mostly range, then you will be in sync with the market more of the time. It may well be a trend trade on a smaller timeframe but the longer timeframes will provide you with clues as to where these trends will continue to and where they will reverse.

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