Screening False Breakout From A True Breakout

Sometimes, the markets change direction due to a fundamental factor. The market change of direction is strong enough to cause a currency pair to break through a previously established support and resistance level. When a previous support and resistance level is broken by the markets, new levels are established. However, the broken levels may still have some influence on the market in the future. Get these Forex Scalping Cheatsheets plus the 10X Scalping System and the Hot Time Indicator FREE. These forex scalping cheatsheets give you the best times for scalping plus five different ways that you can scalp the currency market. Download this Magic Breakout Trading Forex Strategy Ebook FREE just now. Master these Candlestick Patterns with this 82 page PDF FREE Candlestick Guide! This candlestick guide used to sell for $97 but it is a FREE complimentary gift for you from the Options University.

Even when you take all the precautions with your support and resistance levels, you may fall victim to a false breakout. Now, you will ask how I can tell when the price has truly broken through support and resistance in a new direction.

There are two methods that help you screen out a false breakout with a true breakout. Setting price-amplitude benchmarks and identifying role reversals.

A price amplitude benchmark will tell you if the price has broken through the predetermined level but did not breakthrough the benchmark; you don’t have to worry about a change in the trend direction. However, if the price had enough momentum behind it to breach the benchmark, it can continue in the new direction.

Once a resistance level is broken, that same level will turn into a support level. Similarly, when a support level is broken, that same level will turn into a resistance level. You should understand both the price amplitude benchmarks and the role reversal confirmations and use both in your trading analysis to filter out a false breakout from a true one.