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Sunday, May 18, 2014

The ‘False Break’ Trading Strategy-2




3. Fakey’s (inside bar false-breaks)
The Fakey setup is one of my all-time favorite price action setups and learning to trade it will do a lot for helping you to understand market dynamics. Essentially, the Fakey is a price action pattern that requires there to be a false-break of an inside bar setup. So, once you have an inside bar setup, you can watch for a false-break of the inside bar and the mother bar. Now, I am not going to get into all the different versions of the fakey trading strategy today or the different ways to trade it, but you can learn everything about my proprietary forex fakey trading strategy in my professional Forex trading course.
Here’s an image of two Fakey setups, note that one has a pin bar as the false-break and other does not, these are just two of the variations of the Fakey setup:

False-breaks can create long-term trend changes

As price action traders, we can use the price action of a market to anticipate false-breaks and look for them at key levels as they will often set off significant changes in price direction or even a change in trend from these key levels.
We need to pay attention to the ‘tails’ of candles that occur at or near key levels in the market. Ask yourself how prices reacted during each daily session…where did they close? The close is the most important level of the day, and often if a market fails to close beyond a key market level, it can signal a significant false-break. Often, prices will probe a level or attempt to break out, but by the close of the daily bar price has rejected that level and ‘tailed out’, showing a false-break or false-test of the level. A failure of the market to close beyond a key market level can lead to a large retracement or a change of trend. Thus, the close of a price bar is the most important level to watch, and the daily chart close is what I consider to be the most important.
Here’s an example of a false-break in the EURUSD daily chart that led to a top in the market and started a long-term downtrend:
History Teaches Us A Lesson
It’s worth noting that on the week famous trader George Soros shorted the British pound and ‘broke’ the Bank of England ( September 16, 1992) -  the chart had shown a massive false-break signal. The chart below shows the price breaking upwards to new highs and then crashing back down. To those who follow me regularly you will note that this was actually a classic fakey setup, and is clear evidence that this price action strategy has worked for decades.

Final word on false-breaks…

As traders, if we don’t learn to anticipate and identify deceptions or ‘false-breaks’ in the market, we will lose money to traders who do. If we pay attention to the price action at key levels on the daily chart time frame, the ‘writing’ is usually on the wall in regards to false-breaks.
If I had to leave you with one crucial piece of advice for your Forex trading career, it would be to drop everything right now and start studying false-breaks and contrarian trading approaches. By doing so, you will be ahead of 95% of traders who are stuck in a cycle of trading off mainstream misconceptions and ineffective trading methods. As a contrarian, I want to be trading when most other retail traders are committed to the wrong side of the market, and this is difficult to do if you don’t understand false-breaks and fakey patterns. Trading false-breaks and my proprietary ‘fakey setup’ , and I expand on these topics in great detail in it. I teach my students a plethora of different price patterns to look out for when trading false-breaks and fakey setups. This ‘contrarian’ style of trading is something I strongly believe in, and it has proven itself time and time again. If you were to learn only one single trading strategy to apply in your Forex trading, false-breaks would be on top of the list.

Success in Forex = Learning + Practicing + Update Knowledge

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