The markets are on the verge of huge trend changes. It’s the best time for margin traders, who risk little and can make huge profits. With apps like SimpleFX WebTrader, you can open leveraged positions on multiple accounts in different currencies.
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October is going to be the craziest trading month in the last few years. In this article, we’ll explain to you how to recognize false breakouts as you will see many of them trading USD, GBP, gold, stock, and Cryptocurrencies in the next days.
When the market gets to previous highs or previous lows it’s a good opportunity to make a low-risk, high-reward trade as prices tend to bounce off the support and resistance levels.
However, this doesn’t work all the time. Otherwise, there would be no winning trades. Sometimes the price breaks through the barriers, and that’s an even better opportunity to make an exceptional profit.
There are plenty of false breakouts. What seems to be a new trend may reverse. That is why good entry points are very important, but recognizing the trend is what separates a good trade from a bad one.
How to recognize a false breakout? If the market stabilizes with a double low, it may be a false break. The price may cross the psychological resistance or support barrier, but then it would push back to the range it was before.
Then it breaks below - maybe the price will start trading low. The market reverses really quickly. We can take a stop loss at this low.
False breakouts could give you a great opportunity to make more money, as you can realize your previously planned strategy at a better price.
Here's an example. I'm trading BTCCNY. At this chart, each candle represents 15 minutes' worth of trading.
As I was hunting for a good opportunity for a low-risk-high-reward trade on BTCCNY, I've set the resistance level at ¥28076, which seems to be quite an established level. I want to open a short position as soon as the price approaches it, and set the stop-loss slightly above.
The market was nudging the support level, and at the moment we are discussing I could see that the price has not only approached it but broke through. Should I change my strategy and buy? I decide to wait for confirmation.
Let's take a look at what happened next. The moment discussed above is now marked with the cursor. There were two false breaks, and one more rally before the market bounced off the resistance level and went down.
We was able to make a profit on my short position with a relatively low-risk decision.
Using a setup of a false breakout can give you an excellent trading opportunity. However, you have to know, it doesn’t work all the time. You need to be disciplined with your stop loss, you do not want to be in a trend that suddenly falls.
Hope you found this tutorial useful. Remember, if you are looking for a handy trading app to trade, SimpleFX WebTrader with no minimum deposits and multicurrency accounts (including cryptocurrencies) is the right choice. Trade now and get the $500 cashback.
Disclaimer: The content of this article is sponsored and does not represent the opinions of Finance Magnates.
