False Break outs impose considerable loss to traders. How to recognize a false break out?
To recognize a false break out we should first learn what is a true break out? In fact,simply, Every break out which is not a true one is a false break out.
BTC in it's recent movements shows two beautiful example of false break outs. As shown on the chart, we have a dynamic resistance line with three clear rejections and two false break outs. It means before 1st break out which was 4th rejection BTC had a chance to break out the resistance but it never succeeded. Why?
A true break out has three important conditions :
1. first of all, Break out should be done by a strong high volume bullish candle and at least 50 % of body of such candle should be placed above the valid resistance.
2. A pull back to broken resistance and rotation is necessary to be sure about true break out. Please note sometime we may not see a complete pull back ( if there is a support before broken resistance) but who can accept the risk of false break out?
3. Continuation of movement in direction of break out.
As we can see, BTC in it's 4th and 5th attempts to break the line was unsuccessful even to fulfill the first condition.
Also shown on the chart is what could have been a true break out.
Although simple in concept, false break outs are headaches for some traders. What makes traders to fall in the trap of false break outs is not because of complexity of the concept ( As it is very simple ). It is about controlling emotions and psychology.
Good luck everybody.
To recognize a false break out we should first learn what is a true break out? In fact,simply, Every break out which is not a true one is a false break out.
BTC in it's recent movements shows two beautiful example of false break outs. As shown on the chart, we have a dynamic resistance line with three clear rejections and two false break outs. It means before 1st break out which was 4th rejection BTC had a chance to break out the resistance but it never succeeded. Why?
A true break out has three important conditions :
1. first of all, Break out should be done by a strong high volume bullish candle and at least 50 % of body of such candle should be placed above the valid resistance.
2. A pull back to broken resistance and rotation is necessary to be sure about true break out. Please note sometime we may not see a complete pull back ( if there is a support before broken resistance) but who can accept the risk of false break out?
3. Continuation of movement in direction of break out.
As we can see, BTC in it's 4th and 5th attempts to break the line was unsuccessful even to fulfill the first condition.
Also shown on the chart is what could have been a true break out.
Although simple in concept, false break outs are headaches for some traders. What makes traders to fall in the trap of false break outs is not because of complexity of the concept ( As it is very simple ). It is about controlling emotions and psychology.
Good luck everybody.
