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Asked a question 7 days ago

How to identify fake breakouts and breakdowns in intraday trading?

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Hello, 
To Identify fake breakouts or breakdowns in intraday trading, you need to understand the market sentiments. What the markets are trying to do or which side the market will rally. Based on that you need to mark your levels and then execute the trade!

Thanks 

Amar R

A breakout is when the price moves through a support or resistance level and keeps moving in that direction. However, if the  price moves through a support resistance level, but then fails to continue moving in that direction and instead reverses course is known called as failed breakout.

For example, assume the price of a stock has reached Rs 2000 several times in the past, but each time it is fallen after reaching it. This is a resistance level. If the price moves above Rs 2000, that is a breakout. If the price then falls back below Rs2000, and keeps dropping, that is a false breakout. The breakout lost momentum and the price reversed.

Hope this answer your question.

 

Candle must open above/below resistance/support.

Basically, it depends on the type of breakouts or breakdowns. If the market is trading is consolidated and then it gives you a break out up side, then there might be high chances of market giving you a fake break out and then coming back to the same zone. Understand the candle stick patterns in the breakout of breakdown such as bullish engulfing or bearish engulfing, baby candle, and many more. Just master the candle stick pattern with price action. You will find the solution by yourself!

Thanks & let me know if you still have any doubts 😊

I would suggest you a trick that I use for breakouts and breakdowns, always try to enter after a retracement, it will help you with better risk to rewards!

Naresh Janagam
Full-time Learner & Part-time trader

Hi Mahesh,

Breakouts and breakdowns happen when the price is stuck in a range. When buyers and sellers are not clear about the direction, the price will be traded in a range. 

How to get alerted breakouts or breakdowns:
Mark the high and low of the price range, and set the price alert (FYERS has a price alert feature), You will get notified for it.

All breakouts are genuine breakout but it might be fake if you took trade without other two confirmation like volume,Big time frames Support/Resistance, Fibonnaci retracement, EMA crossover, chart patterns, MA or EMA support/Resistance, RSI or other any indicators.

 

I mean for a good breakout or breakdown trades you should have minimum more two reason.