How to Avoid Falsa Breakouts and Breakdowns?
Hello traders, today we will discuss how to Avoid Fails Breakouts and Fails Breakdowns.
Have you ever witnessed a significant resistance level being broken and opened a long trade just before the market made a sharp move to the downside?
Have you ever entered a short position after seeing the price break-through support only to watch the market rebound?
You are one of many false breakout victims, so don't feel bad. It might be challenging to learn how to recognise these things.
Continue reading as we talk about fakeouts and breakouts and introduce two potent indications from the @CRYPTOMOJO_TA team that can assist you in staying on the right side of the market and avoiding more suffering.
As shown above, the answer to this issue is actually quite straightforward. Waiting until the candle closes to determine the strength of the breakout is preferable to acting on trade as soon as the price breaks a crucial level. Therefore, it is not a good idea to position entry orders above or below support or resistance levels in order to automatically enter a breakout trade. Entry orders allow us to become "wicked" into breakout trades that never occur.
This indicates that the only way to successfully trade breakouts is to be seated in front of our trading terminals and prepared to take action as soon as the candle closes in the breakout zone. When the candle goes out, we can
How to avoid a false breakout
It can be almost impossible to tell a true breakout from a failed break if you don’t know what you’re doing. Here are four ways to avoid a failed break:
Take it slow
One of the simplest ways to avoid a false breakout is also one of the most challenging for many traders and investors – to simply wait. Instead of buying into the trend the moment your asset breaks through its support or resistance level, give it a few days (depending, of course, on your trading style and its timeline) and watch as, often, the failed breaks simply weed themselves out.
Watch your candles
A more advanced version of waiting it out, a candlestick chart can come in handy. When you suspect a breakout is happening, wait till the candle closes to confirm its strength. The stronger the breakout appears, the more likely it’s not a failed break.
While this can be an effective way to identify false breakouts, many traders and investors don’t have the time to sit and watch their chosen chart around the clock. That’s why, with us, you can set alerts to notify you of the specific market conditions you’re waiting for. In the case of a breakout, for example, you’d create an alert based on the candle’s close price, to notify you of any potential breakouts.
Use multiple timeframe analysis
Another efficient way to identify breakouts, and what of those are likely failed breaks, is multiple timeframe analysis. This entails watching your chosen market using a variety of different timeframes. When using this technique, you’d likely spot the potential for a breakout in the short term, then ‘zoom out’ to view that same market over a week, a month or even longer before opening a position.
This helps with identifying a false breakout because you’re paining perspective of your asset over both the longer and shorter term. Studying its patterns can show if what you think is a breakout is actually significant in the context of that market.
Know the ‘usual suspects
Some patterns in charts can indicate the likelihood of a false breakout. These include ascending triangles, the head and shoulders pattern and flag formations.
Learning how to identify these patterns can help you to tell the difference between a breakout and a false breakout, as these three formations are often associated with failed breaks. For example, ascending triangles are indicators of a temporary market correction, rather than a true breakout.
How to trade a false breakout
If you’re a trader, you may want to use a false breakout as an opportunity to go short, making a profit or loss from predicting that a market’s price is about to drop from its current high. Or, you could use it as an opportunity to hedge – going long in case it’s a true breakout and going short on the same market in case of a failed break.
To trade a false breakout you’d:
Create a live CFD trading account
Do technical analysis on your chosen market to identify false breakouts
Take steps to manage your risk, including stop orders and limit orders
Open and monitor your first trade
How to trade breakouts
Here’s how to trade breakouts with us:
Create a live account or practise first with a demo account
Learn the signs of a market about to break out – you can find out far more about breakouts by upskilling yourself on IG Academy
Open your first position
Plan your exit from the position carefully, including setting stop orders and limit orders
Take steps to manage your risk
Everything you need to know about trading breakout stocks
False breakouts summed up
A false breakout is a significant movement out of a market’s normal support or resistance levels that don’t last – hence it ‘fails’
These can cause costly mistakes for traders, thinking a market has hit a true breakout and to go long, only for it to lose momentum shortly afterwards
You can avoid false breakouts – or trade them intentionally – by studying your chosen market and knowing the chart patterns timeframes and other signs of a failed break
With us, you can trade on breakouts and failed breaks using CFDs.
This chart is just for information
Never stop learning
I would also love to know your charts and views in the comment section.
Thank you
Have you ever witnessed a significant resistance level being broken and opened a long trade just before the market made a sharp move to the downside?
Have you ever entered a short position after seeing the price break-through support only to watch the market rebound?
You are one of many false breakout victims, so don't feel bad. It might be challenging to learn how to recognise these things.
Continue reading as we talk about fakeouts and breakouts and introduce two potent indications from the @CRYPTOMOJO_TA team that can assist you in staying on the right side of the market and avoiding more suffering.
As shown above, the answer to this issue is actually quite straightforward. Waiting until the candle closes to determine the strength of the breakout is preferable to acting on trade as soon as the price breaks a crucial level. Therefore, it is not a good idea to position entry orders above or below support or resistance levels in order to automatically enter a breakout trade. Entry orders allow us to become "wicked" into breakout trades that never occur.
This indicates that the only way to successfully trade breakouts is to be seated in front of our trading terminals and prepared to take action as soon as the candle closes in the breakout zone. When the candle goes out, we can
How to avoid a false breakout
It can be almost impossible to tell a true breakout from a failed break if you don’t know what you’re doing. Here are four ways to avoid a failed break:
Take it slow
One of the simplest ways to avoid a false breakout is also one of the most challenging for many traders and investors – to simply wait. Instead of buying into the trend the moment your asset breaks through its support or resistance level, give it a few days (depending, of course, on your trading style and its timeline) and watch as, often, the failed breaks simply weed themselves out.
Watch your candles
A more advanced version of waiting it out, a candlestick chart can come in handy. When you suspect a breakout is happening, wait till the candle closes to confirm its strength. The stronger the breakout appears, the more likely it’s not a failed break.
While this can be an effective way to identify false breakouts, many traders and investors don’t have the time to sit and watch their chosen chart around the clock. That’s why, with us, you can set alerts to notify you of the specific market conditions you’re waiting for. In the case of a breakout, for example, you’d create an alert based on the candle’s close price, to notify you of any potential breakouts.
Use multiple timeframe analysis
Another efficient way to identify breakouts, and what of those are likely failed breaks, is multiple timeframe analysis. This entails watching your chosen market using a variety of different timeframes. When using this technique, you’d likely spot the potential for a breakout in the short term, then ‘zoom out’ to view that same market over a week, a month or even longer before opening a position.
This helps with identifying a false breakout because you’re paining perspective of your asset over both the longer and shorter term. Studying its patterns can show if what you think is a breakout is actually significant in the context of that market.
Know the ‘usual suspects
Some patterns in charts can indicate the likelihood of a false breakout. These include ascending triangles, the head and shoulders pattern and flag formations.
Learning how to identify these patterns can help you to tell the difference between a breakout and a false breakout, as these three formations are often associated with failed breaks. For example, ascending triangles are indicators of a temporary market correction, rather than a true breakout.
How to trade a false breakout
If you’re a trader, you may want to use a false breakout as an opportunity to go short, making a profit or loss from predicting that a market’s price is about to drop from its current high. Or, you could use it as an opportunity to hedge – going long in case it’s a true breakout and going short on the same market in case of a failed break.
To trade a false breakout you’d:
Create a live CFD trading account
Do technical analysis on your chosen market to identify false breakouts
Take steps to manage your risk, including stop orders and limit orders
Open and monitor your first trade
How to trade breakouts
Here’s how to trade breakouts with us:
Create a live account or practise first with a demo account
Learn the signs of a market about to break out – you can find out far more about breakouts by upskilling yourself on IG Academy
Open your first position
Plan your exit from the position carefully, including setting stop orders and limit orders
Take steps to manage your risk
Everything you need to know about trading breakout stocks
False breakouts summed up
A false breakout is a significant movement out of a market’s normal support or resistance levels that don’t last – hence it ‘fails’
These can cause costly mistakes for traders, thinking a market has hit a true breakout and to go long, only for it to lose momentum shortly afterwards
You can avoid false breakouts – or trade them intentionally – by studying your chosen market and knowing the chart patterns timeframes and other signs of a failed break
With us, you can trade on breakouts and failed breaks using CFDs.
This chart is just for information
Never stop learning
I would also love to know your charts and views in the comment section.
Thank you
Comment:
Hello traders, today we will talk about Trading Psychology
The most famous book on trading psychology , “Tradingpsychologie” aptly remarks, ‘The greatest enemy of the trader is fear. He who is afraid loses!’.
As a trader, you must have gone through emotions such as fear, greed, regret, hope, overconfidence, doubt, nervousness etc.
While every trader goes through this emotional rollercoaster, a successful trader knows that it’s never a good idea to let your emotions influence your investment decisions.
Not letting your emotions affect your trading decisions is the real meaning of trading psychology!
In this article, we will educate you on the meaning of trading psychology . We will also reveal trading tips and tricks to mentally prepare you to trade with confidence!
So, let’s begin!
What is Trading Psychology?
Trading psychology or investor psychology refers to the trader’s emotional and mental state which dictates their trading actions.
Some of these emotions like hope, confidence are helpful and should be embraced. But emotions like fear and greed must be contained. Another emotion that is very common in financial markets is the fear of missing out or FOMO.
It is essential to understand and develop a sharp mindset along with knowledge and experience to become a successful trader.
Let us take a look at the various psychological factors that affect a trader’s mindset and some pro-tips to deal with them.
1. Fear
Fear is a natural reaction that we sense when something is at risk. While trading, risks could occur in many forms –
Some bad news about the stocks or the market
Placing a trade and realising it’s not going the way you had hoped
Fear of loss of capital
Traders generally overreact and tend to liquidate their holdings because of fear. A strong trading psychology is when traders do not let fear dictate their buy/sell strategy.
What should you do?
Every trader must first understand what they are afraid of and why? Reflect on these issues ahead of time so you can quickly identify the problem and find a solution. Your focus should be to not let the fear of loss refrain you from making profit.
2. Greed
Greed enters when you desire excess profits. Rome was not built in a day and neither will your stock market fortune. If you find yourself on a winning streak, then book your profits and move on. Majority of the time, your greed will turn a winning streak into a disaster!
What should you do?
To combat greed, you should have a predefined profit booking level. Even before you enter a trade, define your stop-loss and book-profit levels to avoid being swayed by greed.
A sound trading psychology is when you are content with your profits and do not chase irrational profits.
3. Regret
Regret in trading comes in two ways.
A trader could regret placing a trade that didn’t work or
Regret not placing a trade that could have worked.
A trading psychology based on regret can be dangerous for a trader as it may result in placing wrong trades.
What should you do?
The best way to avoid a regretful trading psychology is to accept that you can’t have all the opportunities in the market. The equation in the stock markets is very simple – You win some; you lose some.
Once you accept this rule, your trading psychology will automatically change for the better.
4. Hope
Investors often think that trading is gambling. It’s because they hope to win all the time and when they don’t, they get dejected.
What should you do?
To become a successful trader, you must have a solid trading psychology which is not dependent on hope. If you keep hoping for things to change in the near future, you’re putting your entire investment at risk.
Don’t let hope keep you invested in a loss making trade. Be practical, and book your losses at the correct time.
To attain and maintain success as a trader, you have to work hard to cultivate a mindset! Let’s see how trading psychology helps you cultivate a better mindset!
How to Improve Your Trading Psychology
1. Get Yourself in the Right Mindset
Before you even start your trading day, simply remind yourself that markets are never constant. You will have some good days and some bad days, but the bad days too shall pass.
Another effective strategy to improve your trading psychology is to give yourself time. You are not going to make a fortune on your very first trading day. You need to spend time and efforts in creating a rock solid trading strategy which isn’t affected by the market sentiments.
While you cannot completely eliminate emotions from trading, the goal is to reduce the extent of emotions controlling your trading psychology .
2. Have a Great Knowledge Base
One of the best ways to improve your trading psychology is to increase your knowledge and trading skills. Having a strong knowledge base of the stock market is key to defeating negative trading psychology . Remember, knowledge is power!
3. Remind yourself that you are Trading in Real Money
When you’re trading online, it’s easy to forget that the numbers on your screen actually represent real money. There’s nothing wrong in risking your money in hopes of generating returns. But remember to be cautious and make smarter investment decisions.
4. Observe the Habits of Successful Traders
Stock market is unique because it treats each trader differently. When it comes to trading, you should be aware of what your peers are doing, not to copy them but to learn from them.
By observing the positive characteristics of successful traders and inculcating few habits or strategies into your own trading, you can improve your trading strategies manyfolds.
5. Practice! Practice! Practice!
Last but not the least, practice is the best and most reliable way to gain mental strength. It helps you improve your trading psychology over time as you build well practised trading strategies and are well prepared for any ups or downs.
The most famous book on trading psychology , “Tradingpsychologie” aptly remarks, ‘The greatest enemy of the trader is fear. He who is afraid loses!’.
As a trader, you must have gone through emotions such as fear, greed, regret, hope, overconfidence, doubt, nervousness etc.
While every trader goes through this emotional rollercoaster, a successful trader knows that it’s never a good idea to let your emotions influence your investment decisions.
Not letting your emotions affect your trading decisions is the real meaning of trading psychology!
In this article, we will educate you on the meaning of trading psychology . We will also reveal trading tips and tricks to mentally prepare you to trade with confidence!
So, let’s begin!
What is Trading Psychology?
Trading psychology or investor psychology refers to the trader’s emotional and mental state which dictates their trading actions.
Some of these emotions like hope, confidence are helpful and should be embraced. But emotions like fear and greed must be contained. Another emotion that is very common in financial markets is the fear of missing out or FOMO.
It is essential to understand and develop a sharp mindset along with knowledge and experience to become a successful trader.
Let us take a look at the various psychological factors that affect a trader’s mindset and some pro-tips to deal with them.
1. Fear
Fear is a natural reaction that we sense when something is at risk. While trading, risks could occur in many forms –
Some bad news about the stocks or the market
Placing a trade and realising it’s not going the way you had hoped
Fear of loss of capital
Traders generally overreact and tend to liquidate their holdings because of fear. A strong trading psychology is when traders do not let fear dictate their buy/sell strategy.
What should you do?
Every trader must first understand what they are afraid of and why? Reflect on these issues ahead of time so you can quickly identify the problem and find a solution. Your focus should be to not let the fear of loss refrain you from making profit.
2. Greed
Greed enters when you desire excess profits. Rome was not built in a day and neither will your stock market fortune. If you find yourself on a winning streak, then book your profits and move on. Majority of the time, your greed will turn a winning streak into a disaster!
What should you do?
To combat greed, you should have a predefined profit booking level. Even before you enter a trade, define your stop-loss and book-profit levels to avoid being swayed by greed.
A sound trading psychology is when you are content with your profits and do not chase irrational profits.
3. Regret
Regret in trading comes in two ways.
A trader could regret placing a trade that didn’t work or
Regret not placing a trade that could have worked.
A trading psychology based on regret can be dangerous for a trader as it may result in placing wrong trades.
What should you do?
The best way to avoid a regretful trading psychology is to accept that you can’t have all the opportunities in the market. The equation in the stock markets is very simple – You win some; you lose some.
Once you accept this rule, your trading psychology will automatically change for the better.
4. Hope
Investors often think that trading is gambling. It’s because they hope to win all the time and when they don’t, they get dejected.
What should you do?
To become a successful trader, you must have a solid trading psychology which is not dependent on hope. If you keep hoping for things to change in the near future, you’re putting your entire investment at risk.
Don’t let hope keep you invested in a loss making trade. Be practical, and book your losses at the correct time.
To attain and maintain success as a trader, you have to work hard to cultivate a mindset! Let’s see how trading psychology helps you cultivate a better mindset!
How to Improve Your Trading Psychology
1. Get Yourself in the Right Mindset
Before you even start your trading day, simply remind yourself that markets are never constant. You will have some good days and some bad days, but the bad days too shall pass.
Another effective strategy to improve your trading psychology is to give yourself time. You are not going to make a fortune on your very first trading day. You need to spend time and efforts in creating a rock solid trading strategy which isn’t affected by the market sentiments.
While you cannot completely eliminate emotions from trading, the goal is to reduce the extent of emotions controlling your trading psychology .
2. Have a Great Knowledge Base
One of the best ways to improve your trading psychology is to increase your knowledge and trading skills. Having a strong knowledge base of the stock market is key to defeating negative trading psychology . Remember, knowledge is power!
3. Remind yourself that you are Trading in Real Money
When you’re trading online, it’s easy to forget that the numbers on your screen actually represent real money. There’s nothing wrong in risking your money in hopes of generating returns. But remember to be cautious and make smarter investment decisions.
4. Observe the Habits of Successful Traders
Stock market is unique because it treats each trader differently. When it comes to trading, you should be aware of what your peers are doing, not to copy them but to learn from them.
By observing the positive characteristics of successful traders and inculcating few habits or strategies into your own trading, you can improve your trading strategies manyfolds.
5. Practice! Practice! Practice!
Last but not the least, practice is the best and most reliable way to gain mental strength. It helps you improve your trading psychology over time as you build well practised trading strategies and are well prepared for any ups or downs.
Comment:
Comment:
![TOP 20 Key Patterns [cheat sheet]](https://s3.tradingview.com/6/6puZ59qW_big.png)
( FIRST SOME BASIC INFO )
What is Elliott Wave Theory?
The Elliott Wave Theory suggests that stock prices move continuously up and down in the same pattern known as waves that are formed by the traders’ psychology.
The theory holds as these are recurring patterns, the movements of the stock prices can be easily predicted.
Investors can get an insight into ongoing trend dynamics when observing these waves and also helps in deeply analyzing the price movements.
But traders should take note that the interpretation of the Elliot wave is subjective as investors interpret it in different ways.
(KEY TAKEAWAYS)
The Elliott Wave theory is a form of technical analysis that looks for recurrent long-term price patterns related to persistent changes in investor sentiment and psychology.
The theory identifies impulse waves that set up a pattern and corrective waves that oppose the larger trend.
Each set of waves is nested within a larger set of waves that adhere to the same impulse or corrective pattern, which is described as a fractal approach to investing.
Before discussing the patterns, let us discuss Motives and Corrective Waves:
What are Motives and Corrective Waves?
The Elliott Wave can be categorized into Motives and Corrective Waves:
1. Motive Waves:
Motive waves move in the direction of the main trend and consist of 5 waves that are labelled as Wave 1, Wave 2, Wave 3, Wave 4 and Wave 5.
Wave 1, 2 and 3 move in the direction of the main direction whereas Wave 2 and 4 move in the opposite direction.
There are usually two types of Motive Waves- Impulse and Diagonal Waves.
2. Corrective Waves:
Waves that counter the main trend are known as the corrective waves.
Corrective waves are more complex and time-consuming than motive waves. Correction patterns are made up of three waves and are labelled as A, B and C.
The three main types of corrective waves are Zig-Zag, Diagonal and Triangle Waves.
Now let us come to Elliott Wave Patterns:
In the chart I have mentioned 5 main types of Elliott Wave Patterns:
1. Impulse:
2. Diagonal:
3. Zig-Zag:
4. Flat:
5. Triangle:
1. Impulse:
Impulse is the most common motive wave and also easiest to spot in a market.
Like all motive waves, the impulse wave has five sub-waves: three motive waves and two corrective waves which are labelled as a 5-3-5-3-5 structure.
However, the formation of the wave is based on a set of rules.
If any of these rules are violated, then the impulse wave is not formed and we have to re-label the suspected impulse wave.
The three rules for impulse wave formation are:
Wave 2 cannot retrace more than 100% of Wave 1.
Wave 3 can never be the shortest of waves 1, 3, and 5.
Wave 4 can never overlap Wave 1.
The main goal of a motive wave is to move the market and impulse waves are the best at accomplishing this.
2. Diagonal:
Another type of motive wave is the diagonal wave which, like all motive waves, consists of five sub-waves and moves in the direction of the trend.
The diagonal looks like a wedge that may be either expanding or contracting. Also, the sub-waves of the diagonal may not have a count of five, depending on what type of diagonal is being observed.
Like other motive waves, each sub-wave of the diagonal wave does not fully retrace the previous sub-wave. Also, sub-wave 3 of the diagonal is not the shortest wave.
Diagonals can be further divided into the ending and leading diagonals.
The ending diagonal usually occurs in Wave 5 of an impulse wave or the last wave of corrective waves whereas the leading diagonal is found in either the Wave 1 of an impulse wave or the Wave A position of a zigzag correction.
3. Zig-Zag:
The Zig-Zag is a corrective wave that is made up of 3 waves labelled as A, B and C that move strongly up or down.
The A and C waves are motive waves whereas the B wave is corrective (often with 3 sub-waves).
Zigzag patterns are sharp declines in a bull rally or advances in a bear rally that substantially correct the price level of the previous Impulse patterns.
Zigzags may also be formed in a combination which is known as the double or triple zigzag, where two or three zigzags are connected by another corrective wave between them.‘
4. Flat:
The flat is another three-wave correction in which the sub-waves are formed in a 3-3-5 structure which is labelled as an A-B-C structure.
In the flat structure, both Waves A and B are corrective and Wave C is motive having 5 sub-waves.
This pattern is known as the flat as it moves sideways. Generally, within an impulse wave, the fourth wave has a flat whereas the second wave rarely does.
On the technical charts, most flats usually don’t look clear as there are variations on this structure.
A flat may have wave B terminate beyond the beginning of the A wave and the C wave may terminate beyond the start of the B wave. This type of flat is known as the expanded flat.
The expanded flat is more common in markets as compared to the normal flats as discussed above.
5. Triangle:
The triangle is a pattern consisting of five sub-waves in the form of a 3-3-3-3-3 structure, that is labelled as A-B-C-D-E.
This corrective pattern shows a balance of forces and it travels sideways.
The triangle can either be expanding, in which each of the following sub-waves gets bigger or contracting, that is in the form of a wedge.
The triangles can also be categorized as symmetrical, descending or ascending, based on whether they are pointing sideways, up with a flat top or down with a flat bottom.
The sub-waves can be formed in complex combinations. It may theoretically look easy for spotting a triangle, it may take a little practice for identifying them in the market.
Bottomline:
As we have discussed above Elliott wave theory is open to interpretations in different ways by different traders, so are their patterns. Thus, traders should ensure that when they identify the patterns.