Fake Breakout Reversal Strategy

Fake Breakout Reversal Strategy

Posted on

The strategy i want to teach you is about how to trade fake breakouts in the forex markets. Many traders like to trade breakouts in the direction of the overall trend but the simple fact is that there are a lot of unsuccessfull breakouts in the market. Explained below is how I identify and take advantage of fake breakouts.

Forex Chart Setup

  • Time Frame’s: 1 Hour, 4 Hour and Daily
  • Currency Pairs: Any

Forex Indicators:

Laquerre

How the strategy works

1) Identify important levels of support and resistance on the chart.
2) Closely monitor how the price behaves in the vicinity of these levels.
3) For short entries: Is the currency pair unable to break and CLOSE above the high after SEVERAL attempts? Now wait for the laquerre indicator to move back below 0.75 and go short at the candle’s closing price.
4) For long entries: Is the currency pair unable to break and CLOSE below the low AFTER several attempts? Now wait for the laquerre indicator to move back above 0.15 and go long at the candle’s closing price.
5) Profit objectives: risk-to-reward 1:2 (if your risk is 40 pips, you should be looking for a 80 pip target)
6) Stop loss: placed a few pips above the high price for shorts and a few pips below the low price for longs.

Example: GBP/USD Fake Breakout Forex Strategy

Fake Breakout Reversal Strategy

1) The GBP/USD was in a significant uptrend and rallied up to 1.5967.
2) The pair didn’t manage to break and close above the high after several attempts (little spikes).
3) The laquerre indicator was totally overbought and we looked for a move back below 0.75 to go short.
4) Laquerre went back below 0.75 and we entered a short position at 1.5921.
4) The stop loss was placed at 1.5970. Total risk on the trade was 49 pips.
5) Profit objective was 98 pips. With this trade you would have made 98 pips in about 1 day.