THOSE PESKY FALSE BREAKOUTS WHAT DO WE DO - forex trading system system

THOSE PESKY FALSE BREAKOUTS WHAT DO WE DO ~ forex trading system system

False breakouts are one of the necessary evils of the Forex market. Signals that appear to indicate the start of large gains for the trader often turn out to be broken promises that lead to unexpected losses. Spotting the signs that actually give a heads-up as to the potential for these reversals helps to avoid these scenarios that arise during long periods of market indecision and low liquidity.

Take the recent movements of the EURO NZD and the GBP AUD as examples. These both gave bearish signals that broke the Support of their respective Consolidations that had formed below larger Pennants setups. Given that these smaller Consolidations represented a test of the Support of these broken Pennants, gains of several hundred pips would have been expected.

EURO NZD - DAILY CHART

Source: FXCM Marketscope

DAILY CHART- GBP CAD

Source: FXCM Marketscope

Nevertheless, the candles that broke these setups were not strong enough to justify entry. Whenever this happens, you will either have a stronger candle that appears a few days later to continue the breakout, or an opposing candle that starts a False Breakout reversal. In this case, the latter was the result for both pairs.

DAILY CHART- EURO NZD

Source: FXCM Marketscope

DAILY CHART- GBP CAD

Source: FXCM Marketscope

From this point, we could have one of two scenarios unfolding in the next few days. We could see the market move sideways for awhile before providing another set of bearish signals that start their respective downtrends. On the other hand, the reversals could indicate that start of uptrends that take them back inside of their Pennants, possibly breaking out above the Resistance. But how can we know in advance that what seems like perfectly normal signals will actually lead to these types of reversals?

Practice, practice, practice. With Candlestick Patterns, one has to review several examples of breakouts to be able to quickly distinguish between the ones that lead to breakouts and those that will only cause unnecessary headaches for traders. This will allow you to confidently enter and trade those that will actually break and provide strong gains over a very short period.

DAILY CHART- CHF JPY

Source: FXCM Marketscope

DAILY CHART- USD CAD

Source: FXCM Marketscope

The concept of the average Daily Range of a currency pair is also important. Most breakout candles that lead to trends are usually the same size of the Daily Range of that pair. This range also varies among currencies such that a normal candle that is acceptable to be traded for one currency pair may not be strong enough for another. One must also be able to determine if the candle and the start of a potential breakout would also coincide with the Weekly Range of that pair. This would significantly increase the possibility of a reversal such as that which is now taking place on the EURO USD.

DAILY CHART - EURO USD

Source: FXCM Marketscope

_RECENT EMAIL FROM CLIENT

____________________________________________________

SUBSCRIBE TODAY

____________________________________________________

US$120.00

Free 

 ___________________________________________

Duane Shepherd 

(M.Sc. Economics, B.Sc. Management and Economics)

Currency Analyst/Trader

Contact: shepherdduane@gmail.com

Twitter: @WorldWide876

Facebook: DRFXTRADING 

More info for THOSE PESKY FALSE BREAKOUTS WHAT DO WE DO ~ forex trading system system:

TRADE RESULT AUD USD - automated forex trading signals system

TRADE RESULT AUD USD ~ automated forex trading signals system

Trade Type	Breakout, Medium Consolidation
Signal Needed	Daily Chart
Target	Breakout Equivalent
Result	-100 Pips

________________________________________________________________________

The intention here was to continue to go long in favour of the Aussie in response to the breakout signal provided above the Daily Charts Pennant. The pair had actually formed a smaller Pennant above a larger Pennant before providing the Bull Candle Signal for entry. Instead of breaking higher, however, the currency pair reversed unexpectedly despite having a strong setup and signal. So what could have been the reason for this loss?

Lets first take a look at what the overall picture was on the Daily Chart. As we see in the chart below, the smaller Pennant was essentially testing the broken Resistance before giving the breakout signal.

DAILY CHART

Source: FXCM Marketscope

This was also taking place in an uptrend that added support for the currency pair to continue moving higher. Following the close of this candle, entry took place immediately with the Stop Loss set at the appropriate point on the 4 Hour Chart and the target of the Breakout Equivalent put in place. Within a few days, the market reversed sharply to take out the trade, resulting in the loss of 100 Pips.

DAILY CHART

Source: FXCM Marketscope

The issue at hand now following this loss and trading losses in general, is to ascertain the possible cause especially given the apparent clarity and strength of this setup. Two separate, but related reasons could provide the answer.

SCENARIO 1

It is quite possible that these two Pennants are actually about to give way to the formation of a larger Range Setup. This is something that happens from time to time in the currency market. If this is the case, then we could see a pattern that looks like this.

DAILY CHART

Source: FXCM Marketscope

If this is what will be formed, then we could either see another bullish signal to continue the uptrend or a bearish breakout that starts a downtrend.

SCENARIO 2

The alternate scenario involves taking a wider view of this currency pairs previous patterns. The unexpected reversal that took place could actually be the start of a bearish wave within a much larger Consolidation setup that is being formed.

DAILY CHART

Source: FXCM Marketscope

Confirmation of this will come in the upcoming days or weeks in the form any of these Candlestick Formations below the Uptrend Line;

• ABC Reversal Signal;
• Formation & Break of Small Consolidation;
• Counter Trend Line Setup & Break;

Provided they are strong, any of these signals could lead to a steady downtrend over the next few months until Support is hit, over 500 Pips away.

With any successful Methodology that is applied to the currency market, losses are always expected along the way in between profitable trades. One of the distinguishing advantages of trading with the higher time frames, however, is that it allows the trader a lot more time to calmly analyze the reasons for these losses and make adjustments where necessary. This helps to take the emotions out of trading and avoid the common habit of trying to exact immediate revenge on the market - a habit that inhibits long-run profitability in Day Trading. 

Lets patiently waiting on the next opportunity that this market will provide on this or any other currency pair as we start a new month.

RECENT EMAIL FROM CLIENT

____________________________________________________

SUBSCRIBE TODAY

____________________________________________________

US$120.00

Free 

 ___________________________________________

Duane Shepherd 

(M.Sc. Economics, B.Sc. Management and Economics)

Currency Analyst/Trader

Contact: shepherdduane@gmail.com

Twitter: @WorldWide876

Facebook: DRFXTRADING 

More info for TRADE RESULT AUD USD ~ automated forex trading signals system: