Forex Trading Advanced Level Course
    About Lesson

    Fade the Breakout

    Fading breakouts means trading in the opposite direction of the breakout. Fading breakouts = trading FALSE breakouts. You will fade a breakout if you believe that a breakout from a support or resistance level is false and unable to keep moving in the same direction. In cases in which the support or resistance level broken is significant, fading breakouts may prove to be brighter than trading the breakout. Keep in mind that fading breakouts is a great short-term strategy. Breakouts tend to fail at the first few attempts but may succeed eventually.

    Fading breakouts is a great short-term strategy

    Fading breakouts is a great short-term strategy. It is NOT a great one to use for longer-term traders. You can avoid getting whipsawed by learning to trade false breakouts, also known as fakeouts. Trading breakouts appeal to many forex traders. Why? Support and resistance levels are supposed to be price floors and ceilings. If these levels are broken, one would expect the price to continue in the same direction as the breakage. If a support level is broken, the general price movement is downward, and people are likelier to sell than buy.

    Conversely, if a resistance level is broken, the crowd believes that the price is more likely to rally even higher and will tend to buy rather than sell.

    Independent retail forex traders

    Independent retail forex traders have greedy mentalities. They believe in trading in the direction of the breakout. They believe in huge gains on huge moves. Catch the big fish; forget the small fries. In a perfect world, this would be true. But the world is not perfect. Frogs and princesses do not live happily ever after. What does happen is that most breakouts FAIL. Breakouts fail simply because the intelligent minority has to make money off the majority. Don’t feel so bad. The intelligent minority tends to be comprised of the big players with huge accounts and buy/sell orders. To sell something, there must be a buyer. However, if everyone wants to buy above a resistance level or sell below a support level, the market maker has to take the other side of the equation.