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False Break of Support & Resistance
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False Break of Support & Resistance

  #1 (permalink)
LIOR
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False Break of Support & Resistance

Hello everyone , I want to ask if there is a way to identify False Breaks of support & resistance levels

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  #3 (permalink)
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Put your S/R line on your chart, if price jumps your line temporarily but quickly falls back and takes off the other direction, you know you have a false breakout.

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scalpingticks View Post
Put your S/R line on your chart, if price jumps your line temporarily but quickly falls back and takes off the other direction, you know you have a false breakout.

Until it then turns around and breaks out again and continues through support. My point is be prepared for anything to happen. There is no perfect support/resistance identifier, they break all of the time in different ways. Prepare for the worse, hope for the best.

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Instead of focusing on identifying the false BOs, you could learn to identify true ones.

At the very least, you should have a strong bar closing outside the previous range, with no or only a small shadow. The size of the bar should be meaningfully greater than the size of recent bars within the chop out of which it broke.

There are other factors, but this should get you started.

"...the degree to which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader." - Mark Douglas
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Maybe this will help


Anagami View Post
Instead of focusing on identifying the false BOs, you could learn to identify true ones.

At the very least, you should have a strong bar closing outside the previous range, with no or only a small shadow. The size of the bar should be meaningfully greater than the size of recent bars within the chop out of which it broke.

There are other factors, but this should get you started.

Just to re-iterate what @Anagami has said. Here is a screenshot of today's 1 min ES chart. maybe this can help identifying real breakouts and not worry about false breakouts as the Smart Money will do more than 1 false breakout to confuse retail traders.

Regards,

Dudley

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mrmuggins View Post
Just to re-iterate what @Anagami has said. Here is a screenshot of today's 1 min ES chart. maybe this can help identifying real breakouts and not worry about false breakouts as the Smart Money will do more than 1 false breakout to confuse retail traders.

Good analysis, but looking at bar closes on a 1 minute chart for false breakouts is nonsensical, due to the fact that there are hundreds of them in a day, and their closing values are not linked to anything except a clock and an event which occurs every 60 seconds. A daily close may provide some sense of confirmation, if such a thing exists, but the 1 minute timeframe, while useful, is not a timeframe to put any weight at all into where a bar closes. Also, confusing the issue with smart vs retail will only make the waters more muddy.

As for the spoo action today, that was indeed a good spot to look for a breakout failure. The market will rarely form more than 3 uniform distributions like it did today, and then continue down without at least a push up, particularly in this multi-year BTFD environment.

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Agree with you


josh View Post
Good analysis, but looking at bar closes on a 1 minute chart for false breakouts is nonsensical, due to the fact that there are hundreds of them in a day, and their closing values are not linked to anything except a clock and an event which occurs every 60 seconds. A daily close may provide some sense of confirmation, if such a thing exists, but the 1 minute timeframe, while useful, is not a timeframe to put any weight at all into where a bar closes. Also, confusing the issue with smart vs retail will only make the waters more muddy.

As for the spoo action today, that was indeed a good spot to look for a breakout failure. The market will rarely form more than 3 uniform distributions like it did today, and then continue down without at least a push up, particularly in this multi-year BTFD environment.

@josh

I totally agree with you about using the 1 min chart. I was just using it to confirm what @Anagami said about concentrating on identifying real breakouts rather than worry about false breakouts, and today's 1 min chart with much larger bars and large volume was used to put that point across, rather than to advise using 1 min charts for identifying real breakouts.

Dudley

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mrmuggins View Post
Just to re-iterate what @Anagami has said. Here is a screenshot of today's 1 min ES chart. maybe this can help identifying real breakouts and not worry about false breakouts as the Smart Money will do more than 1 false breakout to confuse retail traders.

Regards,

Dudley

What I like to do is take an average of the volume of each 1 minute bar and then plot lines representing 2, 3 and 4 times each bars average.

When I get a bar that is 3 or more times the average I take notice where it is taking place then place lines at the top and bottom of the 1 minute bar.

All breakouts/false breakouts have to be taken in context though. that 1st breakout you show came after the ES couldn't get above resistance at the top of a multi day balance area.

the false breakout at the bottom of the day was in the lower zone of the balance area and price had already met /exceeded it's 10 day ATR so in my opinion it was higher odds the breakout would fail(plus the range and volume were lighter)

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Use an offset distance that equals the average price movement for the choosen time frame. It's better to have a real break confirmation and loose some ticks instead of getting tricked by false breakout's. Also make sure the next breakout sup / res band is worthwhile targetting.

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