TradingView EN Ticker Search SIGN IN JOIN FOR FREE

Ideas Markets Scripts Screener Shows Chart More

NEW

BTCUSD Types of false breakdowns EDUCATION

Bitcoin / U.S. Dollar (BITFINEX:BTCUSD) 6042.3 −55.8 −0.91%

EXCAVO Oct 1, 2018

Trading Tools BTCUSD btcusdlong btcusdshort education BTC excavo 15708 45 382

Oct 1, 2018 FALSE BREAKOUTS, BULLISH AND BEARISH TRAPS

FALSE LEVELS BREAKOUT: TRADE, KINDS, PATTERNS

Trading strategies using key support / resistance levels are among the most popular and often used in trading practice by
most traders. However, behind the seeming simplicity of the trade of the rebound from levels, and their breakdown lies a
lot of nuances, which are often the cause of an unsuccessful trade deal. One of them is a false breakdown of levels, which
cannot be identified correctly identify on the chart by all traders. It is the trade of false breakdowns that leads in most
cases to incorrect entry into the market.
To minimize the risk of trading levels, let us study the concept of "false level breakdown", the logic of their formation, types
and how to avoid mistakes in trading levels.
So, a false breakdown is a situation where the price of the traded asset breaks the level, but it cannot gain a foothold
above or below it and comes back. Schematically, this pattern and pattern are shown below.
They are often called “bullish or bearish trap” in literature. You can come across them quite often in the upward and
downward tendency, in consolidation, in figures of the graphic analysis on statistic and dynamic (movings) level.

LOGIC OF FORMING FALSE BREAKDOWN

At the heart of this price behavior there are two mechanisms.
1.The lack of demand or supply on the market.
In this case, the price is actively moving to an important price level, but as we approach it, the size of bars (candles)
begins to decrease, and volumes - begin to decline. This means that at these levels, the demand for the asset falls
sharply due to a decrease in the volume of the traded asset or unwillingness of traders to buy / sell the asset at a too
high / low price. And the output of prices beyond the important level (false breakdown) has no chance of continuation.
In this situation, most often the market goes into a flat state.

2. Getting the position by a marketmaker / specialist due to small traders.

As you know, when the price moves up / down, the marketmaker takes the opposite position, that is, he provides
liquidity to the asset. When the important price level is reached, the activity of the participants decreases and the
demand / supply falls. The marketmaker, in order to close its existing position and turn, needs to collect an asset at the
prevailing price. Not being able to place his applications for the purchase / sale of an asset at one time, he performs
manipulations (actions contrary to his intentions), provoking the “crowd” to sell / buy a trading instrument, that is,
create additional supply / demand in this area. For this, he makes a false move beyond the boundaries of the
resistance / support zone and most small traders, following the logic, buy / sell an asset to a marketmaker. Having
gained a necessary volume and closed the current position, the maketmaker starts moving to the opposite side, and
the crows loses money. It is a false breakdown, most often used by a marketmaker for these purposes. In this variant,
the price is suitable and breaks the level with large-size bars and high volumes, but after the breakdown volumes fall
sharply. This indicates the activity of market participants and requires knowledge of patterns for identifying false
moving.

TYPES AND VARIANTS OF FALSE BREAKOUT