False Breakouts, How To Predict Them?

[mo money 10]

A pattern failure of a false breakout usually leads to a quick reversal. I would like to learn how I can predict a false breakout from a real one before the move happens.

 

It appears that professionals usually get in before a breakout and would short new highs. How are they able to do this?

[jorge 10]

Just play the breakout. If it drops below the former resistance level, reverse and go short.

[mo money 10]

Is there no way to anticipate breakouts or false breakouts?

 

The broker dealer and financial sectors tend to lead the markets. Would looking at these sectors help anticipate a move in either direction? For example, if a stock is consolidating in a tight range and the broker dealer index breaks a key resistance, would this indicate this stock to breakout of the range?

[carter 10]

Is there no way to anticipate breakouts or false breakouts?

 

The broker dealer and financial sectors tend to lead the markets. Would looking at these sectors help anticipate a move in either direction? For example, if a stock is consolidating in a tight range and the broker dealer index breaks a key resistance, would this indicate this stock to breakout of the range?

 

Yes, they should be able to give you a heads up as they are leading sectors. I assume you are trading stocks. Perhaps you should take note of this and observe to see if it works? Also, I do think it depends on the stock you are trading. If you are trading a stock that moves inversley with the financial sector than it will probably not budge.

[Soultrader 12]

I tend to use market internals to anticipate breakouts. One method I use is new TICK/TRIN highs or lows. You can also use the PREM to spot any buy/sell programs at key price levels.

 

For methods to anticipate a pattern failure, if a key level of resistance is above a range I usually short at this level. For example is the YM is stuck in a range from 11770 to 11790 and 11800 is a key level of resistance, I will usually fade this level aiming for a breakout failure. I noticed that key price levels take several attempts to break. Usually the first attempt is a good fading opportunity.

[mo money 10]

Thanks for the insights. How about technical pattern failures? I have noticed that they tend to occur alot.

[Follow The Trend 10]

I tend to keep a close eye on trade volumes, as there needs to be a big push to breakout, and if there is no volume behind it, will it stick?

 

Sometimes a "false" breakout can be the first part of a proper breakout. I have seen many situations where stocks have hit highs then drifted back, but after a little consolidation, they have had another go at the breakout point, and passed through.

 

There is no real set pattern , and it probably comes down to gut feeling and experience.

[Trade Up 10]

As we are looking for changing trends we will often come across false breakouts.

 

While I would never normally rush in on an initial breakout, I take a lot of notice of trading volumes. This is perhaps more useful when shares are falling, and we are looking for that last big sell-off before the shares bottom out.

 

Next time you see a share turning after a downwad spiral, check the volume just before the turn, and chances are you will see the last leg of the sell off, on high volume.

[pipsaholic 10]

The breakout has to be a momentum bar stabbing right through it plus a 2-3 candle pullback and take it wait for the close also to be extra safe never enter on the first breakout.

[phantom 16]

"The breakout has to be a momentum bar stabbing right through it plus a 2-3 candle pullback and take it wait for the close also to be extra safe never enter on the first breakout."

 

Say what?

[Handlowiec 10]

This is not a prediction, but a wonderful insight from Schabacker on false breakouts.

 

He discussed trading (for example) breakouts in a triangle and then a false breakout (he calls "out of line movement) will give the trader insight into the direction of the true breakout.

 

The key is this, if you got whipped on the out of line movement, then you got an idea that the stock will break out in the direction ouf the out of line, and then the next entry may be the correct one.

 

"To the trader who did not act prematurely, however, the one-day out-of-line gave valuable information. It suggested, first, that the pattern of price trend would be up, in the direction of the out-of-line movement." - Richard Schabacker

[pipsaholic 10]

Through my analysis of charts I can see a lot of false breakouts usually its 1 and then price rallies up and does a true breakout of the symetrical triangles usually. There are so many systems designed up trading a false breakout some traders view them as not false but a springboard to a rally coming up.

[Guest OILFXPRO]

Following breakouts offer better success rates

 

a)The second breakout is a confirmation sign of market intent , two false breakouts is rare.

 

b)new trending breakouts with hh or ll tend to be in tune with markets

 

c) following underlying and preceding trend

 

d) backed with fundamental price drivers

 

e) Bounce off (rejection)previous resistance / support breakout

 

f) momentum breakouts

 

g) no divergence on stochastic on 15,30 and 240 min

 

h)channel breakouts in trending markets

[obradovicmilica 10]

Just play the breakout

[edgararakelyan 10]

I won't get into a breakout until it tests the support(old resistance) and is on a nice amount of volume.