A false breakout is a strong clue that price may change direction or the trend may soon resume. A false breakout can be considered a “deception” by the market because it looks like price will breakout but it quickly reverses. It is a “tempting” breakout. Often, amateurs mistake it for a breakout when it is actually a false breakout.

As a price action trader, you need to learn how to use false breakouts to help you, rather than falling victim to them.

Here are two clear examples of false breakouts above and below key levels, the long upper shadow hammer (shooting star) and the long lower shadow hammer.

False breakout hammer candlestick with long shadow

False breakout trading strategy

How to trade false breakouts?

False breakout signals occur in all trending markets and are traded in the direction of the current major trend. In the chart below, multiple false breakout signals appear in a clear downtrend. Amateur traders like to go long against the trend, but professional traders use this false breakout signal to continue shorting and stand in a better position. Position.

False breakout in a downtrend

For a range-bound market, the main approach is to wait and see.

Swinging market

False breakouts can sometimes indicate the beginning of a new trend, as well as the end of the current trend.

In the chart case below, we can see that a key resistance level position is tested twice, and then in the third test, an inverted hammer line with a long upper shadow appears, indicating that a potential downward market is about to appear.

False breakouts not only mean a downward move, but also trigger the entire downtrend market.

Market reversal triggered by false breakouts

Summarize the trading skills of false breakout patterns

1. False breakouts occur in trending markets, which provides us with strong clues

2. Counter-trend trading is difficult, but one of the "best" ways to trade with a trend is to wait for an obvious false breakout signal from a key horizontal support and resistance level

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