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How to Avoid False Breakout

Rule 1: Don’t enter the trade when there is parabolic movement or strong one side movement

Healthy trend.

Parabolic trend

False breakout of parabolic

Live chart example for parabolic:

Such parabolic momentum often causes heavy loss, therefore its not recommended. Lets suppose looking at the recent most long green candle we would have taken buying positions, it would have caused us losses due to our stop loss being crossed immediately.

Rule 2: Always buy breakout after consolidation

In the above image you can see market is consolidating after getting rejected multiple times from the current resistance level. Success rate of entering into such trades will be highly profitable. Most of the time this type of breakout can help you gain 1:2, 1:3, 1:4 reward ratio. Trading in these type of setups will help you increase your success rates and also help you achieve your targets more quicker.

If you open any market or stocks including bitcoins you will notice price movements following this principle:

  • stock will be in trend
  • after a trend stock will trade within a range, we call this consolidation
  • after consolidation again the stock will start moving towards the upside or downside
  • when ever you enter the trade after you get breakout your success rate will be very high

Rule 3: Always trade with volume confirmation

Volume plays a vital role in the price action trading. Whenever you get a breakout with good volume clearly shows lot of people are interested to trade with a stock at this particular level after the breakout. So next time when ever you are entering the trade make sure the volume is at least 30% more than the normal trade volume. This will significantly increase your success rates.

Rule 4: After the breakout enter only when next candle breaks the high of the breakout candle

Always enter into the trade after the breakout candle closes. Lets look at the following chart:

As you can see in the above image there is false breakout formed, if any one takes position before breakout candle closes, he would have suffered loss. Many beginners face this type of issue, technically this is termed as FOMO – fear of missing out.

Rule 5: Try entering the trade at retest to increase your odds of winning.

Note: Analysis content for education purpose only. Before investing do more research, consult your investors.  (The contents in this post is intended for informational, inspirational and or educational purpose only. If you are main copy right owner of this content and images used, kindly contact us to add you as reference or raise content removal request)

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