Fade the Breakout

Fade the breakout, yup and it is not just a typo!

Fading breakouts, this simply means, trading in the opposite way of the breakout.  Fading breakouts  = trading false breakouts.

You would fade a breakout if you consider that a breakout from a support or resistance level is false and incapable to keep moving in the same direction.

In instances,  in which the support or resistance level broken is important, fading breakouts may verify to be smarter than trading the breakout.

Remember that fading breakouts is a great short-term approach. Breakouts have a tendency to fail at the first few tries,  but may succeed in the long run.

Remember: Fading breakouts is a great short-term approach. It is NOT a good one to use for longer term traders.

You can avoid getting whipsawed, by learning trade false breakouts, also known as fakeouts.

The reason why the trading breakout appeal to many forex traders:  

Resistance and support levels are supposed to be priced floors and ceilings. If these levels are broken, one would anticipate for price to continue in the same way as the breakage.

If a support level is broken, that means that the general price movement is plunging and people are more possible to sell than buy.

On the other hand, if a resistance level is broken, then the people believe that price is more likely to increase even higher and will have a tendency to  buy rather than sell.

However, Independent retail forex traders have greedy mindsets. They believe in trading in the direction of the breakout. They believe in big gains on big moves.

This would be true, in perfect world,  but since we don’t live in a perfect world,  what does in fact occurs is that most breakouts FAIL.

Breakouts fail for the reason that the smart minority has to make money off the majority. No need to feel sad. The smart minority inclines to be comprised of the big players with big accounts and buy or sell orders.

To be able  to sell something, there should be a buyer. On the other hand, if everyone wants to buy beyond a resistance level or sell below a support level, the market maker has to take the other side of the equation.  But remember: the market maker ain’t no fool.

The retail traders like to trade breakouts.

The institutional, the smart minority, more seasoned traders like to Fade Breakouts.

The smart forex traders take advantage of the collective thinking of the trader or inexperienced traders and win at their expense. That is the reason why trading together with the more experienced forex traders could also be very profitable.

So, which would you rather be part of: the smart minority that fades breakouts or the losing majority that gets caught in false breakouts?

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