Understanding how to trade false breakouts safely is especially important in online trading. Trading has always been a risky business. However, we must do everything possible to reduce this risk. Today, I’m going to show you some principles that will improve your results. By the way, I’m going to show this with a real example.
- Do not trade a false breakout if it occurs against a strong trend. Here, I do not mean that you should trade only in the direction of trends. Not at all. You can trade against the trend. But if the direction of the trend is evident to everyone, then the trend has already gained strength. Therefore, you should not trade against this trend. The movement may go without rollbacks, and this means a loss. If the trend is weak or not entirely obvious, you can safely open positions against this trend.
- Open your position based on previous support or resistance levels. Again, you should not take this literally. Price constantly breaks levels, so you should not count on them as something reliable. But if there is a price range in which you see several price levels, then you can use this. It is possible that the price will receive support somewhere in this area at one of these levels.
Here is an example of real trading. You can see a deal made by my Perpetual EA in the picture. The deal took place on December 30. We have volatility here, but the trend is bullish.
My solutions on MQL5 Market: Vladimir Toropov’s products for traders
The robot decomposed the bullish trend into several price ranges (violet) and identified the upper limits in them, as well as internal strong supports (red) and resistances (green).
The Expert Advisor made these calculations using Data Science methods, and we will not dwell on this in detail here.
At 10:17, the robot opened a position at a support level inside the price range. At the same time, the previous range, with its support and resistance levels, helped the prices to hold on and turn in our direction.
The size of the Stop Loss also allowed Perpetual EA to hold the open position. The advisor calculates this size using data science methods, considering the current volatility.
The higher the volatility, the larger the Stop Loss. In this way, the robot adapts to the market situation. Its market entries always take into account current information.
At 12:10, the robot closed the deal near the upper border of the price range. As you can see, the price soon reversed. Now the prices are much lower than the levels at which this deal took place. The bullish trend has changed to a bearish one.
That’s how important it is to close a position in time! However, we will talk about this some other time.
I hope it has become more apparent to you how to trade false breakouts safely. You need to use these and other similar techniques.
Good luck in trading!