Most novice day traders have a major pet peeve: A stock, forex or futures contract looks set to move one direction following a breakout, they jump in, then the price quickly reverts course, stopping them out or putting them in a losing position.

But it doesn't have to be. Switch your mind frame from victim "Big traders and brokers are manipulating the price. When you start trading one of the first strategies you often learn, or feel compelled to trade, is a breakout strategy. Trading breakouts can work, but be prepared to experience many false breakouts: If false breakouts are frustrating you constantly, the market is telling you something.

Why not trade the false breakout instead of trading the breakout? If you are constantly losing money because of false breakouts, could you make some money trading alongside the traders who are taking it? You can, and it's a great strategy, though it requires practice, focus, and quick reflexes. False breakouts are best traded in the direction of the trend.

Simple Forex Breakout Trading Strategies - Algorithmic and Mechanical Forex Strategies | OneStepRemoved

For example, the trend is up and a triangle pattern develops. The price breaks slightly below the triangle, only to quickly jump back in.

That's a trade you want to be long buy because the trend dictates the price is likely to move higher See: Predict Chart Pattern Breakout Direction for Lower Risk Trades. A false breakout to the downside adds evidence to that conclusion if it can't go lower, it will try to go higher. The price is moving higher, pulls back higher low and then moves to the same point as the prior high. As the price starts pulling back again an experienced trader's internal dialogue is strategizing what to do before the trade even occurs:.

If the price continues to decline below the prior swing low bottom blue line the trend is likely transitioning to the downside and we don't want to go long. BUT, if the price pauses at or moves only slightly below the prior low, and then rallies sharply back above the prior low, buy quickly!

Set a stop loss just below the new low, and monitor conditions for when to exit a profitable trade. If the price is moving sharply higher, see if it breaks out above the prior high. If it pauses near the top of the pattern, exit immediately. The strategy is simple, but it takes practice and focus to implement it. False breakouts occur quickly, and try to draw you into trading the breakout.

Strategize in your mind:. Answer all these questions in your mind as the trade is potentially setting up. That way, if the trade does occur, then you can take it without hesitation, and know exactly what to do. The strategy should be written down in your trading plan , though even when you know it well, reiterate to yourself answering questions above exactly what you will do if a trade develops see: Know These 4 Things About Every Day Trade. How far the price moves back into the pattern for it to be considered a false breakout depends on the market being traded and the "context" of the trade.

On a very volatile day, the amount the price needs to move back into the pattern will be larger than on a day where volatility is very low.

Also assess the quickness and depth of the breakout. If the price breaks a long way out of the pattern about one-quarter of the pattern size or more , and then moves back into the pattern slightly, don't trade the false breakout strategy. A false breakout should be relatively small and short-lived for trading purposes.

Also, we want to see a sharp move back into the pattern. In this case figure 1 , if the price dropped sharply, but then moved very slowly and choppily back into the pattern, that indicates the buyers aren't eager; avoid trading the false breakout strategy.

Risk is relatively small on these trades difference between entry and stop loss so don't get greedy with the target. Hold the trade until momentum wanes. This may be near the opposite side of the pattern, or you may hold for a breakout in the trending direction. Exit if a false breakout occurs in the opposite direction of your trade.

The strategy works well because you are only trading false breakouts which align you with the dominant trend. You can still trade normal breakouts in the direction of the trend which are more likely to work out anyway.

Simple “Dax Breakout” trading strategy code | Strategies ProRealTime trading

Implementing this technique takes practice. Search the site GO. Day Trading Trading Strategies Basics Trading Systems Trading Psychology Stock Markets Risk Management Forex Technical Indicators Options Glossary.

Simple and Profitable Strategy for Trading Breakouts - Trading Strategies - Traders' Blogs

Updated October 13, Considerations and Final Word How far the price moves back into the pattern for it to be considered a false breakout depends on the market being traded and the "context" of the trade.

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