News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Wall Street
Mixed
Gold
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Bullish
USD/JPY
Mixed
More View more
Real Time News
  • The AB=CD pattern is simple once you know how to spot it and draw the proper Fibonacci retracements. Make your trading strategy as simple as ABCD here: https://t.co/AKmlmaAZBS https://t.co/AyM4cSDXtC
  • Commodities Update: As of 07:00, these are your best and worst performers based on the London trading schedule: Silver: 1.46% Gold: 0.64% Oil - US Crude: -0.93% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/HdkcnCBndK
  • Forex Update: As of 07:00, these are your best and worst performers based on the London trading schedule: 🇳🇿NZD: 0.58% 🇬🇧GBP: 0.52% 🇦🇺AUD: 0.44% 🇪🇺EUR: 0.32% 🇨🇭CHF: 0.29% 🇨🇦CAD: 0.21% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/Lh2TJjviR7
  • Heads Up:💶 ECB President Lagarde Speech due at 07:30 GMT (15min) https://www.dailyfx.com/economic-calendar#2020-10-21
  • Canadian Dollar Outlook: Retail Sales Data May Fuel USD/CAD Downtrend - https://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/euro_open/2020/10/21/Canadian-Dollar-Outlook-Retail-Sales-Data-May-Fuel-USDCAD-Downtrend.html?CHID=9&QPID=917708&utm_source=Twitter&utm_medium=Moss&utm_campaign=twr $CAD $CADJPY $USDCAD https://t.co/sCKDAgobER
  • Indices Update: As of 07:00, these are your best and worst performers based on the London trading schedule: US 500: 0.55% Wall Street: 0.46% Germany 30: 0.25% France 40: 0.20% FTSE 100: 0.11% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/wmmWvAUv4Y
  • Technical indicators are chart analysis tools that can help traders better understand and act on price movement. Learn more about the importance of technical analysis here: https://t.co/NpC1D8y4Aa https://t.co/soVRqRLnrT
  • 🇬🇧 Core Inflation Rate YoY (SEP) Actual: 0.6% Expected: 1.3% Previous: 0.9% https://www.dailyfx.com/economic-calendar#2020-10-21
  • 🇬🇧 Inflation Rate MoM (SEP) Actual: 0.4% Expected: 0.5% Previous: -0.4% https://www.dailyfx.com/economic-calendar#2020-10-21
  • 🇬🇧 Public Sector Net Borrowing (SEP) Actual: £-36.1B Expected: £-33.6B Previous: £-35.9B https://www.dailyfx.com/economic-calendar#2020-10-21
What's the Story with False Breakouts?

What's the Story with False Breakouts?

2011-06-15 02:44:00
Richard Krivo, Trading Instructor
Share:

In our live webinars in the Trading Room, one of the strategies that we cover is trading with the Donchian Channels…Price Channels. Many of the traders have begun using them and often questions come up about the potential “bounce” that can occur after price action breaks through a level of support or resistance. Some of the questions center around the idea of a false break out and how those situations might be avoided.

There really is no way with any type of strategy that false breakouts can be filtered out and avoided. It is impossible to know that they are false before they happen or while they are happening. Using the Donchian channel strategy, however, and picking a strongly trending pair to trade you are putting the greater likelihood of success on your side.

Trading a pair that is in a strong trend as it breaks through a S/R level in the direction of that trend lessens the chance that there will be a false breakout because the momentum of the market is behind the move. Also, with the wider stops that the DNC strategy employs, you have a better chance of remaining in the trade through a retracement than the trader who places a tight stop and does not allow enough room for the trade to mature and develop.

Keep in mind that when a pair breaks through a significant level of S/R, oftentimes there is a strong pullback or retracement. This does not necessarily mean that the trend is changing. (It certainly could but it is more likely that price is coming back to test the S/R level that is just broke through and then continuing in the direction of the trend.)

Take a look at the 4 hour chart of the CADCHF attached for an example of the above…

Whats_the_Story_with_False_Breakouts_body_chart_6_15_11.png, What's the Story with False Breakouts?

Bottom Line: As traders all we can do is select the strongest trending pairs to trade, decide on a trading strategy, open a position with stops in place (no limit orders with DNC) and let the trade play out. With proper Money Management principles in place if the trade moves against us and we get stopped out we have not compromised a large percentage of our account so we “live to trade another day”. Should the trade continue in our favor, so much the better.

If you are interested in learning how to conduct a Strong/Weak analysis to determine how the strength of the currencies rank relative to one another, click on the link below…

http://www.dailyfx.com/forex/education/trading_tips/post_of_the_day/2011/06/15/How_to_Create_a_Trading_Edge_Know_the_Strong_and_the_Weak_Currencies.html

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES