What You Should Know About False Breakouts


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John Paul takes a look at a weekly E-mini chart, showing October of 2012 to the current week. For the last two years, the market has shown a bullish trend. Is a reversal now on the way? John Paul does not have a crystal ball. Instead, he offers solid advice: beware of false breakouts. False breakouts are market activity that lure traders in one direction, only to reverse against their trades. It seems as though the E-mini produces a false breakout condition every two to three months. For the week of August 1, 2014, the chart shows a large, red candle, indicating a false breakout could be occurring. If this is indeed a false breakout, watch for the market to test the previous high. It may be too early to consider this the long-term bearish trend traders have been expecting.

1 Comment

  • nick says:

    You are right, of course. One thing a trader might do is put a sell stop in three or four ticks below the candle..or an OCO trade going both ways (The long would be above the red down candle.). Nevertheless
    this isn’t a trade I would fool with until a support level below was broken by a lower high against a flat
    pivot. In minute to minute emini trading on say a 5 min chart..these long candles (both up and down) usually reverse. You can often get a good scalp trade going the opposing way.

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