How to recognize false and right breakout of support or resistance level

[Ted69]

Hi, guys!

I’ve recently started Forex with a book of J. Murphy “Technical Analysis of the Financial Markets”. But my trading is a bit disappointing, may be I didn’t quite get the essence of the analysis. Could anyone advice me some good books to read, please?

Also tell me please when breakout of support or resistance level could be false, and when it is true breakout?

Ted

 

[options]

When it keeps on going . It's real.

When it doesn't. It's false!

 

[elsaQ]

Ted
If you will allow me to offer you the benefit of my personal experience and offer you some advise it would be as follows:

Do not read any more TA books.

If you want to read then start off with Mark Douglas "Trading in the Zone" which starts to address the mental & emotional challenges faced by traders. Once you have finished that then start to google the topics he addresses. Other recommended reading is "The journey to the basement" and "no indicators revisisted" threads here on T2W.

Whilst you read these works get as much screen time that you can but keep your charts clean ie no indicators, no lines, nothing accept price and later on volume too. Everything else that you see is there to distract you. With enough screen time you will start to "see" stuff that for now remains invisible including when a breakout is real or just a fade.

Follow this route and I assure you that you will achieve far more success far quicker than relying on any TA book because the answers that you seek come from within and can't be found in TA

Best of luck

E

 

[jacinto]

Ted,

if you want good training for FX at a rather low cost, I suggest you have a look at one of the member's website.

you can just register and have free access to some of his live trading videos and then decide if you wish to join. I honestly recommend him.

search for Newtron Bomb on this site, if not,

www.trading-stragegies.info

j

 

[anley]

Ted

This page might help, makes sense as well.

www.learnmoney.co.uk/spread-betting/news-mar-2005-3.html

 

[nine]

Ted,

In my experience it takes time to become good at reading and trading any market. And each one has different quirks.

Something you might want to look at is an old strategy called the floor traders method. This is detailed, free, on NQoos site and can be used on any futures contract or currency pair. You'll also find a lot of other ideas about trading successfully on his site ...

http://www.trading-naked.com/FloorTraderMethod.htm

Best of luck.

 

[jacinto]

Ted,

In my experience it takes time to become good at reading and trading any market. And each one has different quirks.

Best of luck.

this is very true, and the link is also a must for anybody wanting to trade fx

 

[firewalker99]

Hi, guys!
Also tell me please when breakout of support or resistance level could be false, and when it is true breakout?

Ted

A good way to filter breakouts is too see whether or not they appear as a valid breakout on a higher timeframe too. Obviously when you have confirmation, it will be already quite late if you wanted to enter on the move, and it could be a safer bet to wait for a pullback or retracement.

 

[fibonelli]

Hi Ted,

From my accumulating knowledge, one method of trading breakouts is to wait for a retracement back to the prior resistance channel if price is rising and support channel if price is falling.

You could trade the eventual breakout by placing a contingent order at the channel with a stop a shade over 50% from this channel.

For example, price moved regularly between 20000 and 19970, price then broke out to 20015. Your contingent order could be a buy order at 20000 with a stop at 19983. Your price target can be estimated by looking at the next resistance area, the distance of the previous upmove, using Fibonacci etc etc.

It's clearer if you draw lines on your chart.

Best of luck

Fibonelli

 

[Rhody Trader]

Also tell me please when breakout of support or resistance level could be false, and when it is true breakout?

If you were trading something other than forex I would say you can use volume to help assess the validity of breaks. Higher volume is generally evidence in support of the move, while if volume dries up the move becomes suspect. In forex you could use the volume of futures contracts as a proxy.

 

[Ted69]

Ok, I think in general is clear that if it keep going above level it is true breakout.

Do you think there should be common patterns of when it is true?
Say if I look at the Break scenario then usually I can see price sort of do it twice.
Once slightly and then after short retrace once again. Problem is that also can go back in some cases.
So any idea of how would I set target that if broken means level is broken, but not at the end when it is too late to take this movement into account?

Ted