False break plays

[MRC & Co]

Seeing we have so much action in the breakout threads, thought I would start one on what to look for should the breakout not eventuate or use as an entire play on their own (a play probably better to trade in this environment IMO).

There are two kind of these plays. Firstly, a false break, and then a break of that false break. I will concentrate on a false break, which is actually a fade pattern, meaning, you are going against the recent trend. Which allows for tight stops.

As you can see, price breaks the previous resistance high, then comes off (the false break), it then travels to retest the resistance (get any weak shorts out), before it truly falls off. If that secondary high, were to actually break the 'false break' high from previously, then it would be more likely to truly breakout (there is rarely a false break of a false break).

Break of false break plays can probably go on the breakout thread, as they are trend continuation, not trend reversal patterns.

Sorry do not trade shares anymore so don't spot the charts with these patterns, but this thread could potentially be used in the same manner as the breakout thread.

IMHO, these would be much more useful in a bearish environment. Along with break of false breaks of support, which would actually be downward breakouts.

On the false break pattern, your stop would go slightly above the false break level and your entry would be when it comes back through the previous resistance (or breakout level), now turned support. High (stopping) volume and a long wick on the false break, woud be preferable, but isn't necissary.

This thread came to me from everyone looking at breakout patterns in the breakout thread, whereby I was actually discussing with another member or two, how these were likely to be better played as false break patterns.

I'll be lingering more into the background of this forum, so hope this can be of some use.

Cheers and all the best with the trading.

 

[MRC & Co]

Also, note, you want the false break to be short lived, no more than a few bars.

This chart was not a good example, as it actually made a tiny false break, then came off, then made a false break of a false break, ha ha, which would just chop you up. But you get the point.

Don't like to be a hindsight pointer, so try some in real-time.

 

[Wysiwyg]

I can also see that as a head & shoulders pattern with an overdone short-covering rally on the right shoulder.The right shoulder being a short entry target and erring on the side of patience.And hindsight again.

 

[Boggo]

Also, note, you want the false break to be short lived, no more than a few bars.

RIV may be an example of that MRC & Co, tech/a could have a field day with the volume analysis of those two recent high days.
Is it going to stay up this time ?

RIV chart below

 

[MRC & Co]

Yes, could be used as one Boggo, gather you mean the resistance at the bottom price broke above before falling back down into the range? Will be interesting to see how it plays out.

Personally, the more significant the support or resistance, the more likely a false break will eventuate as a decent reversal.

Wy, this is a false break thread, not a H&S thread.

 

[skyQuake]

I was just about to make the exact same thread in response to the brkout thread lol.

I like to trade false brks on futs, though they do happen on stocks as well but to a slower degree... Problem is on stocks the false brk may attract enough attention to make it a REAL break, with momentum keep pushing it higher.

Anyways, below are 2 SPI charts; Prices consolidate in the channel. The first break stops out all the people trading the range of the channel, and all the breakout traders jump in (and most of the retail crowd). This gets reversed, and all their stops get triggered which leads a stronger move the other way.

BHP made an inverted H&S (kinda), and the break above 32 suckered everyone in... And promptly reversed and breakout traders took a savage beating.

 

[MRC & Co]

I was just about to make the exact same thread in response to the brkout thread lol.

ha ha, great minds ey!

Thx for the charts mate. I'm surprised so much attention is given to breakouts, guess everyone likes the potential big winner, but false breaks will give you a higher win % IMO, with very small risk.

Agree though, prob better on the futs and even better intraday where no fundamental news comes out to blast the current TA (sentiment).

 

[It's Snake Pliskin]

I was just about to make the exact same thread in response to the brkout thread lol.

I like to trade false brks on futs, though they do happen on stocks as well but to a slower degree... Problem is on stocks the false brk may attract enough attention to make it a REAL break, with momentum keep pushing it higher.

Anyways, below are 2 SPI charts; Prices consolidate in the channel. The first break stops out all the people trading the range of the channel, and all the breakout traders jump in (and most of the retail crowd). This gets reversed, and all their stops get triggered which leads a stronger move the other way.

BHP made an inverted H&S (kinda), and the break above 32 suckered everyone in... And promptly reversed and breakout traders took a savage beating.

Skyquake,
Just on the BHP chart the failed breakout day was a classic reversal day bar. But more interesting is the rising wedge. What do you think about it? Could it be a shakeout?

 

[julius]

Great stuff MRC & skyQuake.

Does it make sense to only fade moves against the major/intermediate trend ?

You guys should post some more examples of these kinds of plays on intraday SPI charts...

 

[Nick Radge]

We've been trading these with over the last 5-months of volatility. The BHP trade is one we shorted, as we did STO and AWE at the same time.

The rising wedge is an interesting observation Snake. We did a lot of research back in the late 90's regarding a secondary rally that traveled at a lower incline than the first and found some very promising results. The only issue was that they were quire rare. This then led is to to Rising Wedge, which led us to www.wolfewave.com. I did this course back when is was US$500 and not $3,000 (and content has not changed).

This was good, but when combined with a false breakout, such as BHP, STO and AWE it works well.

This post may contain advice that has been prepared by Reef Capital Coaching ABN 24 092 309 978 (“RCC”) and is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

 

[It's Snake Pliskin]

We've been trading these with over the last 5-months of volatility. The BHP trade is one we shorted, as we did STO and AWE at the same time.

The rising wedge is an interesting observation Snake. We did a lot of research back in the late 90's regarding a secondary rally that traveled at a lower incline than the first and found some very promising results. The only issue was that they were quire rare. This then led is to to Rising Wedge, which led us to www.wolfewave.com. I did this course back when is was US$500 and not $3,000 (and content has not changed).

This was good, but when combined with a false breakout, such as BHP, STO and AWE it works well.

This post may contain advice that has been prepared by Reef Capital Coaching ABN 24 092 309 978 (“RCC”) and is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Nick are you saying you are short NOW on Bhp or that you have been at times over the past 5 months?

 

[Nick Radge]

Short now. Setup day was Jan 7th, entry on Jan 8th - unfortunately on that gap down which now makes the position a little more difficult to manage.

 

[skyQuake]

Lol, i didn't even notice the wedge, was too concentrated on how the false brk will play out. That just adds more conviction to a BHP short!

This is eerily similar to BHP's first test of $33 and its subsequent tanking when the fed first started cutting rates...

 

[nikemi]

I was just about to make the exact same thread in response to the brkout thread lol.

I like to trade false brks on futs, though they do happen on stocks as well but to a slower degree... Problem is on stocks the false brk may attract enough attention to make it a REAL break, with momentum keep pushing it higher.

Anyways, below are 2 SPI charts; Prices consolidate in the channel. The first break stops out all the people trading the range of the channel, and all the breakout traders jump in (and most of the retail crowd). This gets reversed, and all their stops get triggered which leads a stronger move the other way.

BHP made an inverted H&S (kinda), and the break above 32 suckered everyone in... And promptly reversed and breakout traders took a savage beating.

skyQuake,

why are you considering the resistance line being at the previous tops where you've drawn it, isn't it more accurate for it to be at the top of 01/10/08 as it never managed to close the gap it made two days before that. I was looking at a breakout above the 33.40 level to call it a breakout, which obviously never materialised...

 

[skyQuake]

skyQuake,

why are you considering the resistance line being at the previous tops where you've drawn it, isn't it more accurate for it to be at the top of 01/10/08 as it never managed to close the gap it made two days before that. I was looking at a breakout above the 33.40 level to call it a breakout, which obviously never materialised...

That would have been fine too, but there were no retests of the $33 level. It was just hovering just below 32s and never managed to break that decisively. Once it did however, I assumed people jumped on and loaded up the truck.

Wasn't a very good example, I'm still working on stocks reactions to the brks; It behaves a fair bit differently to the futs.

 

[Nick Radge]

Take a look at CSL. Setup bar yesterday on the false breakout, triggered short today.



This post may contain advice that has been prepared by Reef Capital Coaching ABN 24 092 309 978 (“RCC”) and is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

 

[It's Snake Pliskin]

Take a look at CSL. Setup bar yesterday on the false breakout, triggered short today.



This post may contain advice that has been prepared by Reef Capital Coaching ABN 24 092 309 978 (“RCC”) and is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Nick that should have been one for the false break false breaks.

It seems luck plays a big role at times.

 

[Nick Radge]

Yeah - the old double false break trick.

Still short AWE, BHP and STO, although gave a lot back today.

 

[MRC & Co]

Yeah - the old double false break trick.

lol, gotta love those! Chops you to pieces!

 

[Joules MM1]

CSS

signif volume, has not fulfilled a tech call for a break-out and prev trend has shown false breaks are the popular thing......this is worth watching

it's in the volume, stupid!