Forex Course

148. How To Fade The Breakout By Successfully Trading It?


Most retail traders have a greedy mentality, so they always prefer to trade the breakouts to catch the home run. They believe in considerable gains in huge moves. Trading smaller moves are something they are not interested in because it takes a lot of work and time to scan the market. The problem with breakout trading is that the majority of the breakouts fail. To make consistent money from the market, professionals always prefers to fade the breakout. The fading breakout essentially means trading a false breakout.

Fading Breakouts = Successfully trading the False Breakout

The image above represents the formation of a false breakout, which gives us a potential sell opportunity. Experienced industrial traders are always interested in fading the breakout because they know the crux of it. Most of the time, when the price action attempts to fade the breakout, it fails and closes back inside any of the major levels. Therefore, fading the breakout is always a smarter move than avoiding it.

Trading Strategies

Always remember that fading the breakout is a short term strategy. Therefore, please do not expect a home run while taking these trades. What we are doing here is that we are trading the false breakout moves. During the fight between the buyers and sellers, we will witness the initial moves, often failing to give the breakouts.

We are just taking advantage of these exact moves. In the end, one party always wins, and we will eventually get the breakout on the price chart. Instead of waiting for the home run, it is always advisable to trade some smaller moves, and if the market allows the home run, we must definitely go for it.

Buy Trade

The price chart below represents a false breakout in the GBP/NZD Forex pair.

As we can see in the below chart, where the price action breaks below the channel, it came back right into the channel, indicating a false breakout. After the breakout, we can see the price action holding at the support zone. We decided to go long after we saw the red candles struggling to go down and when a clear big Green Candle is formed. Instead of being disappointed that the breakout didn’t happen to take the trade, these small trades inside the major areas come handy to make money.

Sell Trade

The image below represents the formation of a false breakout in the GBP/AUD Forex pair.

As you can see, the image below represents our entry, exit, and stop-loss in this pair. When the price failed to go above the major level, it is an indication for us to take a trade inside the triangle. Therefore, when the price came back, we took the sell entry to the most recent support area. The stops above the entry should be good enough.

Another Sell Trade

The image below represents a false breakout in the GBP/AUD Forex pair.

As you can see, when the prices failed to break the trend line and started to hold below the trend line, it was a sign that it is a failed breakout. It also indicates that the sellers are going to take over the market when we look-in the price action perspective. In this trade, we choose not to close our position at the most recent higher low. Instead, we went for the actual breakout. The holds below the support area is an additional confirmation for us to go to the most recent lower low area.

That’s about Fading the breakout, and we hope you find this lesson informative. Let us know if you have any questions in the comments below. Cheers!

Forex Course

145. Trading The Triangle Pattern Breakouts


Breakouts trading and trading the triangle chart pattern are two different trading tools. A breakout occurs when the price goes above or below the significant support resistance area. It indicates that the price is ready to move in the direction of the breakout, and any entry near the breakout will be fruitful. This is the reason why breakout trading is considered a leading method of trading in the industry as it helps the traders to anticipate the trend and ride the potential moves.

On the other hand, the Triangle is a technical chart pattern. The best description of the triangle chart pattern is as a horizontal continuation chart pattern, which helps the traders in finding the best entry on the price chart. At the beginning of the pattern, it is widest, and as the market continues the ranging move, the price starts to move in a limited, narrow range, and as a result, we witness the point of the Triangle on the trading chart.

The Trading Strategies

There are two types of triangle chart patterns. The first one is ascending chart pattern, and the second is the descending chart pattern.

Ascending Triangle Chart Pattern

Ascending Triangle is a bullish chart pattern that helps traders to take buy trade in an ongoing uptrend. The image below represents the formation of an Ascending Triangle chart pattern in the CAD/JPY Forex pair.

The image below represents our entry, exit, stop-loss, and take-profit in the CAD/JPY forex pair. As you can see, in an uptrend, when the price broke above the chart pattern line, it is a sign that the buyers are strengthening. Therefore, if the price is holding above the support line, it is an indication for us to go long in this pair.

Right after our entry, we can see that the price smoothly ran towards the north, and printed a brand new higher high. We can close our trade based on any nearest support area, and we also can use any indicator for the exit. The stop-loss order was placed just below the entry. In a strong trending market, the smaller stops are good enough to ride the trend.

Descending Triangle Chart Pattern

The Descending Triangle is a bearish chart pattern that helps traders in taking sell trades in an ongoing downtrend. The image below indicates the formation of a Descending Triangle pattern in the GBP/CAD Forex pair.

The below price chart of the GBP/CAD pair represents our entry, exit, and stop-loss. In a downtrend, when the price breaks below the support area, it’s a sign that the strong buyers failed to push the price higher, and any hold below the resistance line is an indication to go short. Soon after our entry, price blasted down south, printing a brand new lower low.

The descending Triangle is simple and easy to trade Forex chart pattern. Most of the time, this pattern offers excellent risk to reward entry trades. So when you see the pattern on the price chart, don’t forget to scale your position for more significant gains.

That’s about trading the ascending and descending Triangle chart pattern breakouts. Take the below quick quiz before you go. Cheers.

[wp_quiz id=”85881″]