We all have traded a false breakouts, haven’t we? OK, not all, but most of us have.
If you are one of the few traders who still haven’t, you should do it at least once hehehe… just to get more experience (I’m kidding, even if you wanted, you never know what kind of surprises the market has for you).
Anyway, this is how it feels to trade a false Breakout
You draw an important resistance level (at least you think it is important)… you feel confident about this level and decide to set a buy stop order just above the resistance level.
What are your thoughts at this moment?
You cant wait to see the market triggering your order, because you know once it reaches the level, the market will explode, and you’ll get at least 50 pips in a few minutes, piece of cake (you close your eyes and picture this scenario).
You stay away from the chart for a few minutes, and once you see the market trading below your buy stop order, you switch over to a lower timeframe (as if it would give you control over what the market is doing). There you are, starting at the 1 min chart without blinking… and of course, a big smile on your face…
Everything looks good…
You are still positive about this trade, you review everything, you confirm every aspect of the plan and you arrive to the same conclusion: This is the trade of the week.
false breakouts, support and resistance, valid breakouts