In this article, you’ll discover how to identify false breakouts, False breakout trading strategy and profit from trapped traders. What you will learn here is
- what is a breakout, we’ll discuss the two types of breakouts then you must know
- what enticed traders to buy breakouts, what gets them excited to click on the buy or sell button on these kinds of breakouts.
- when the break up traders get trapped
- how do you profit from the trapped traders
Let’s get started
What is a breakout
When we talk about breakouts generally there are two types of breakouts. It occurs when the price exceeds a key level that’s kind of like the general definition. but in essence there’s really two ways a market can break out it can break out of a range as shown in the below picture. The market can break out of a swing high or swing low. Second type is if the market is already in an uptrend or downtrend and the price can break above this swing high
What Entice traders to trade breakout
This is important because if you want to identify false breakout and learn False breakout trading strategy. You have to understand what makes traders buy a breaker. Traders, buy breakouts when the market is moving fast and the candles are big and bullish (or bearish in case downtrend) and a strong momentum on the trade screen. This is like psychological when you see huge bullish candles. And when you see the price breaking new highs every single day deep inside your heart you know there’s this voice saying buy me buy me buy me.
Look at the chart example below
If you look at this chart and the strong bearish move.
When the break up traders get trapped and False breakout trading strategy
Many traders who look at this and say oh there’s a break out. This is the high time to go for short trade by looking at the momentum and strong bearish candles. In such circumstances, you are supposed to wait for the confirmation otherwise trades get trapped in a market as the price reverses.
Now let me get my point, this is what entice breakout traders to trade breakouts. This is important because if you want to profit from this group of traders you have to be aware of this of what gets them excited. The reason why traders trade break out in this manner is because of the fear of missing out. They do not want the market to take off without them on board. And this is what make them fool. when you do that the market does a sudden reversal. You couldn’t even capture any quick games before you know it.
How do you actually profit from trapped traders in False breakout trading strategy
Till now you’ve learned a few things like you want to look for a strong momentum move into a key level. Because you know there the bigger the momentum the bigger the range of the candles. That’s where it’s going to entice more breakout traders to buy the briefer. This way it gets them excited Second, wait for a strong price reversal and enter on the next candle open.
In the above example, see as the price goes back into the range. There will be strong pressure to buy due to one, who sold the breakout. Now their stop losses are being hit and 2nd the traders who waited for the false breakout and entering at this level.