The false breakout is one of the most deceptive movements for new traders. But those who understand the game correctly can use it to their advantage and earn well. Let's see together how to understand it and deal with it wisely.
What is a false breakout?
It's when the price breaks support or resistance and then quickly returns back inside the range it was in.
This usually happens when the 'big players' in the market try to trick the smaller traders into entering trades quickly, and then they reverse the direction on them.
For example, Bitcoin is at a resistance of 95,000 and suddenly breaks to 100,000; people quickly enter buys... and then it goes back down below 95,000 and continues to drop. That's a false breakout.
How to avoid falling into the trap
Simple but powerful steps: don't enter the trade as soon as you see a breakout. When the price breaks resistance or support, wait a little; don't rush. The market can easily deceive you.
Check if the price returned inside the range quickly
If it returns within 1 to 3 candles (for example, 3 candles on the hourly timeframe), it's likely a false breakout.
Look for a confirmation candle
Check if there is a reversal candle like a hammer or an engulfing candle. These give you a signal that the false trend has ended.
Enter the trade after confirmation
That means if the breakout was upwards but turned out to be false, you enter a sell. If the breakout was downwards and turned out to be false, you enter a buy.
Set your target wisely
The price often returns to the other side of the range, so that could be your logical target.
How to differentiate between a false breakout and a real one
The false breakout quickly returns inside the range the price was in, and there isn't a large or clear trading volume. It happens more in sideways (range) markets.
As for the real breakout, it continues in the same direction and doesn't quickly revert back, and it usually comes with a large trading volume. This often happens when the market has a clear trend or after an important news event.
Look at the overall context
The false breakout loves a market that doesn't move much (the range) and not strong trends.
Use indicators to assist you
Like the RSI or moving average; when you see that RSI, for example, is overbought and there's a false breakout upwards, that's a strong selling opportunity.
Risk Management
Always place a stop loss outside the false breakout area
Don't risk more than 2% of your capital on the trade in this case.
Common mistakes you should avoid
Don't enter because you're afraid of missing the opportunity (FOMO) and ignore confirmation signals, and don't neglect reviewing your trades after they end. This is a big problem because you're not learning from your mistakes.
A false breakout is not a trap… it's a treasure if you understand it correctly
Those who understand the market see the false breakout as an opportunity that allows you to enter the trade at an excellent price (close to support or resistance), with low risk and a clear target, meaning a decent profit.
The false breakout is a trap set for hasty people, but at the same time, it's a golden signal for those who watch the market with a keen eye. Be patient, wait for confirmation, and use your brain.
Review past market movements; you'll be able to distinguish a false breakout at first glance, and at that point, you'll enter the trade knowing what you're doing 😊👻
#FalseInformationAlert #INitOnBinance #FalseBreakout #INitOnBinance #TariffPause #CryptoMarketCapBackTo$3T
