Hey trader, hope everything is going great!

What do you think about the markets this week, after the NFP and the ECB interest rate announcement last week?

I want you to tell me something, is it just me or you also think the NFP report should not be considered as an important announcement anymore?

I just don’t see the market reacting to the NFP report as it used to…

Now, this week comes what I believe is the NEW MOST IMPORTANT FUNDAMENTAL ANNOUNCEMENT: FOMC Meeting Minutes.

This ons has proved in the last year to be the fundamental release that most impacts the market.

Do you agree with me?

Ok, now on to breakouts!

Breakout Trades

I know there are traders that wouldn’t trade breakout trades, they are just to afraid of being caught in a false breakout.

A false breakout appears when the market breaks through an important S&R level and after a few candles it comes back to trade inside the range.

It’s not a very pleasant experience to see that happen, sometimes just a few seconds after you opened your trade.

Now, in order to decipher where false breakouts could occur you need to understand their nature.

When there is a fierce battle between buyers and sellers, the market tends to consolidate (forming what we call ranges).

Sometimes buyers or sellers are willing to take the market below or above respectively an important level to “see” how many traders there are and the strength of the other group.

Now, there are two possible outcomes:

If the there are plenty of traders with strength, they will pull the market back inside the range, and a false breakout occurs.
If there are no a lot of traders or not with enough strength, the market will continue in the direction of the breakout, and that’s a valid breakout.
So, the key question that you need to answer here is: when do we get a fierce battle between buyers and sellers? This way we’ll know when to avoid trading breakouts.

I’m going to help you answer that…

When ever the market trades near an important Long Term level, there will always be a fierce battle between buyers and sellers to determine which group will win.

So when ever you see the market trading near a LT level, avoid taking breakouts.

Clear enough?

Your Turn

Do you trade breakout trades?

How do you avoid false breakouts?

Share your thoughts