Avoid False Breakouts: Step-by-Step Guide & Transcript

[00:00] of the most common ways trader s lose money. They see price break a high, enter the trade   expecting it to go up, and unfortunately  price does exactly the opposite.   If only there was a way to avoid these false  breakouts completely. To make sure this never  

[00:16] Know when they were about to happen. Well actually, there is. There is a way.   these false breakouts are ABOUT to happen. But you will ALSO be able to take advantage  

[00:31] of them, for high probability moves. A very common setup you will see is this.  

[00:48] Where price moves, and creates a high. The specific point we are going to be   focusing on is the break of this high. Now there are two scenarios that can happen.   Scenario one, price breaks the  high and closes ABOVE the high.  

[01:02] Scenario two, price breaks the high and just wicks  above the high but ends up closing beneath it.   If scenario two happens. Where the candle  breaks the high, but closes beneath it.   is because price rose above the high,  and left behind a large upper wick.  

[01:20] What this is showing us is that buyers attempted  to go higher, but then an influx of sellers   than buyers at this level. Which if this happens, especially at a high, there   is a high probability chance that we could get  more confluences for a trade to the downside.  

[01:36] But what happens if price closes above the high? If price closes above the high,   this is now considered a breakout. Now you may be thinking to yourself, well if the   other scenario was the quote on quote bad scenario  this scenario must mean price will move higher?  

[01:52] Which what I see a lot people do  is enter a long trade as soon as   they see this candle close above the recent  high. Expecting it to keep heading upwards.   Which if you are doing this, its one of the  worst mistakes you can possibly make.  

[02:06] You see if you are entering right here, your risk  to reward is going to be absolutely terrible.   Because where are going to place your stop loss? You could place it below this low, but then your   stop loss is going to be massive and if you do get  a losing trade, you are going to take a big hit.  

[02:23] Yeah, you could make your stop loss smaller. But just because price breaks this high,   doesn t exactly mean its going to keep  shooting up directly up from here.   high does give bullish tendencies it doesn t  exactly mean you should enter right away.  

[02:41] Which brings me to one of the best words  of advice I can possibly give you.   If you want price to go higher, you  actually want price to go lower first.   If you want price to go lower, you  want price to go higher first.  

[02:54] Once you understand this concept,  your trading will change forever.   So going back to our scenarios, if price  breaks the high but just wicks above it   and closes beneath it. This is indeed a  fakeout. But we don t want to just enter  

[03:07] a short trade immediately. We first want price to  come up first, get a better entry then enter.   Same thing with the opposite scenario. If price  breaks the previous high but closes above it. This   is indeed a breakout but we don t want to enter a  long trade immediately. We want price to come back  

[03:23] down first. Get a better entry, then enter. So now you know the difference between a breakout   and a fakeout we can start reading the market a  lot better. But not only that, we can combine the   So here we have an uptrend. We have are low  right here. We have our high right here.  

[03:40] Now price can do anything right here. We are  trying to predict price we are trying to read it.   Price ends up going lower. While going  lower, it does end up breaking this low. Now   this is the point we need to start paying close  attention. If we look closely, while doing this,  

[03:55] it didn t close below it. It just wicked  beneath it. Which shows us that sellers   tried to push price beneath this low, but buyers  stepped in, and fought them off at this level.   But this in itself is not enough reasoning for us  to enter just quite yet. So lets keep watching.  

[04:15] After doing this price starts heading  upwards. Backing up the idea the fakeout   heading towards this recent high. As price crosses this high, it does  

[04:27] something that backs our thesis even more. While doing this break. The candle closes above   this high. Which, would be considered a breakout. So now we have two confluences. We have our   fakeout to the downside. Then we have a  breakout to the upside. Both showing signs  

[04:42] Price made both a high and a low. This time price moves upwards first.   Will moving upwards it breaks this recent high.  While doing so, it crossed the high, but it just  

[04:56] wicked above it and ended up closing beneath it. Showing buyers tried going up, but sellers took   control and brought the price back down. After doing this, price starts heading lower.   Backing up the idea the fakout is taking effect. While moving lower, its breaks the recent low. Not  

[05:12] only did it break it, it closed beneath it. Giving us a breakout to the downside.   We have our fakeout to the upside. Our breakout  to the downside. Which can give us the idea   there is a great chance for a downwards  move. Which is exactly what happens.  

[05:26] So now you understand the difference  between a breakout and fakeout and   understand how to use them together. But there s still a problem.   Say if you get a fakeout, the directly after,  get a breakout. If you entered as soon as the  

[05:40] breakout happens, we still have the same problem  that I mentioned before. Where will you put your   stop loss. Sure you could put it here, but  then your risk to reward is not the best.   Because if you do get a losing trade. Your  loss will still be pretty significant.  

[05:55] So we need to a way to not only make our stop  loss smaller, so our losses are smaller.   But we also need a way to make our wins bigger. And in order to do that,   we need to get a better entry. To do this, go to tradingview. If you don t  

[06:10] yet have it, ill leave a link in the description. Go to your chart, grab the fibonnaci retracement   tool on the left. Place it on your chart. Next, go to the settings of the fibonnaci.   Make the values. 0, 0.706, 0.618, 1, 0.79  

[06:26] This will leave us with 3 main  levels that look like this.   These levels are whats called The golden zoneeee   Or where price has the highest probability  of pulling back to and reversing.  

[06:41] Which if you re thinking like im thinking,  we can use this to our advantage.   Here prices moves and creates a high and a low. It ends up breaking our low. We look closely,   and just wicks beneath it. Showing buyers are stepping in at this level.  

[06:56] Leaving behind a fakeout to the downside. After doing so it starts rising backing up   the idea the fakeout is taking effect. While doing so, it breaks the previous   high. Not only that it closed above it. Once this happens, grab your fibonnaci tool.  

[07:11] Mark from the fakeout, to the breakout. This will leave behind our golden zone.   Now you aren t entering at the breakout,  you let price come down first into our  

[07:24] golden zone so you get a way better entry. Now you can place your stop loss below the   low, which is smaller than before. Set your take profits at the highs.   And then finally just watch price  play out. Boom easy winning trade.  

[07:38] Hopefully I got the idea in your head,  that you no only need a breakout,   but you need a fakeout alongside with it. On top of that, let price retace back down   your trading will change forever. Thanks for watching. I will be posting  

[07:54] some trade ideas inside my telegram.  See you in there.