MODULE 9: The False Break

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LESSON: The False Break

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[op_liveeditor_element data-style=””][text_block style=”style_1.png” align=”left” font_size=”16″ font_font=”Montserrat” font_color=”%237e7e7e”]This section is going to cover a super high probability pattern in the Forex market that can lead to explosive moves.

This is a pattern that you can use to be on the right side of the market if you understand it, and trade it with confirmation.

Many of the price action entry signals that are discussed in previous sections can also be used in conjunction with this pattern to create high probability trade setups.

You can also trade it on all time frames from the higher time frames like the daily, down to the smaller time frames that you are profitable and comfortable on.

(I personally do not move below the 15 minute chart and I recommend no one else move below this time frame every either because no matter how much experience you have once you get below this time frame price becomes less clear and lot more unpredictable).

Many traders in the Forex market focus on what is termed “Break out Trades”.

This basically means they look to take trade entries when price ‘breaks out’ of a significant level and look to capitalise on the next large move. Once this support or resistance has broken out, the ‘Break out’ trader will then look for that level to hold as a new support or resistance.[/text_block][/op_liveeditor_element]

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What is the False Break Setup?

The basic psychology behind the false break is quite simple.

Many traders are always on the hunt for breakout setups and to profit from price making explosive breakouts of support or resistance areas which price is doing every single day.

Traders that trade these breakouts, will set their orders on the break of either the high or low of a significant support or resistance area, and then look to make profit from the market continuing in the breakout direction.

Many times however the market will breakout slightly before shooting back in the opposite direction. This pattern is known as a false break. It basically involves the market making a break of a level but not continuing on.

This is why it is known as the false break as the break out is a false move. The trader who entered on the breakout setup will have their stops taken out or they will jump out of their trade themselves as the market whips back the opposite way.

How Do We Take Advantage of False Breaks?

You can take advantage of false break and enter on the right side of the move rather than being stopped and caught out with the breakout players in a number of ways as I am going to teach you in this module and I also have a video in the next lesson that will walk you through this.

The reason false break trading is SO powerful and we can do it on all time frames is because we are doing it at major levels. We are watching in live time the market get faked out through a major level, and then we are jumping back on board the other way – that is what false break trading is when you do it at it’s best.

Trading this way is known as taking the “contrarian approach” or in other words doing things differently to the rest of the pack.

Another huge reason the false break is such a high probability play is because we are entering when the market has shown its hand and only after the true direction has become clear.

The market has been shaken out and now we come in after the cards have been dealt and make our trade. The smart trader waits until the market has shown what it wants to do and then jumps aboard!

Example of a False Break

Price on the chart below made an attempt to break out and through the resistance. Before this pin bar below was formed and it looked how we see it now; price started to breakout with breakout traders starting to go long and push price higher.

When price started snapping back lower, a quick reversal began to form and all of a sudden all of the traders looking to go long and make breakout trades above the resistance level now had their stops in danger.

For us this false break pin bar is an A+ High Probability Trade Setup to get short.[/text_block][/op_liveeditor_element]