13.How can we measure the strength of breakout:
We can use the following indicators to measure the strength of breakout
Moving Average Convergence/Divergence (MACD)
MACD is lagging indicator. We use this indicator for seeing buy and sell signal and strength of trend.
Signal line crossover
- Buy when MACD line crosses the Signal line from below to above.
- Sell when MACD line crosses signal line from above to below.
Histogram:
- Histogram above MACD zero line buy
- Histogram below zero line Sell
It’s height also show the strength of trend. Increase height of historogram increase trend strength. If it is above zero than it is uptrend strength is increasing. If height increase below zero than it is increasing strength of down trend.
Divergence of MACD.
It shows signal before before change, Divergence is leading indicator.
Types of divergence:
- Positive
- Negative
- Hidden divergence
Newer use:
- Zero line reversal
- Sling short
- Hook
- Head and shoulder, Inverse head and shoulder.
- Double tops and bottoms
Relative Strength Index (RSI)
RSI is another momentum indicator that is useful for confirming reversal breakouts. I have written appropriate Uses of RSI in another eBook.
Uses of RSI:
- Double tops and bottoms
- Head and shoulder and inverse head and shoulder
- Oversold and overbought
- Trend direction and strength of trend.
- Divergence
- Trend channel
Finally we need to see forex news in forex factory or economic events
14.False Breakouts/Fake out:
In any break out we need to determine the time frame that is 1 hrs is better for day trading, Than we need to determine support and resistance of that time frame. Some times price breakout occur and it does not continue in new trend . As a result price will produce short spike. That is price breaks the Support and resistance and continue the previous direction.It is called false breakout
Or fake out.
15.How to avoid false breakouts or fake outs: How to trade on fake out
· At first we need to wait after breakout to form at least two higher high or lower lows.if price does not form two lower low or two higher high we should think it is fake out.
· Secondly We can use trend line , In false break out there is gap between price breakout and trend line
· Thirdly , We can see the speed of breakout,In false breakout it is speed of price movement is muchthan it fall.
· Fourthly we see the Chart pattern: in Head and shoulder , inverse head and shoulder, double tops and bottoms….. these are the pattern where false breakout occurs.
· That is we can avoid fake out by using trend line, Chart pattern, Triangles, head and shoulder, Inverse head and shoulder
Trend line breakout
Head and shoulder pattern
T
Trend line breakout
Channel and channel breakout:
Channel breakout:
16.How to Trade Fakeouts
Use of trend line: In fake out /false breakout there is gap between trend line and breakout prices
Speed of breakout: In False breakout the speed of price movement is much than normal breakout.
FinallY: false breakout occurs in head and shoulder pattern, inverse head and shoulder pattern, double tops and bottoms, In these case one should wait till price crossing neckline then take the decision
Besides triangle for
