In the trading world, adhering to the principle of trading in alignment with the primary trend is fundamental. This conservative approach forms the basis of numerous trading strategies and is endorsed by many financiers. Those who adhere to this principle must exhibit discipline, focus, objectivity, and resist the influence of emotions on their decision-making process.
To pinpoint optimal entry points for contracts, traders in the binary options market employ a variety of tools, including candlestick analysis models, trend lines, indicators, and volume analysis.
However, a common query among new traders arises: if trading in accordance with the major trend is considered rule number one, why are there so many trading strategies that contravene this principle? For instance, strategies based on trading corrections or trend line breakouts exist.
The reason is obvious: no trading system is perfect, including the classic approach of trend trading. Nonetheless, adhering to the primary trend enhances the probability of achieving a favorable outcome in a transaction.
By the way, do you know that the breach of a trend line does not always indicate a reversal of the primary trend. On occasion, such a breach may signify a reinforcement of the trend, particularly when the price promptly retraces. This principle forms the basis of the “False Breakout” technique, which will be explained in this article.
What is the philosophy of the False Breakout System?
The name of the system reflects its underlying philosophy. Traders learn to distinguish between true and false breakouts, with options being purchased after the latter occurs. Furthermore, even new traders can easily identify such signals within the framework of this strategy. A false breakout is recognized when one candle breaches the trend line, only for another candle to bring the price back within the trend. Thus, the integrity of the primary trend is maintained and continues uninterrupted.
Let’s begin by highlighting that the “False Breakout” strategy aligns with the fundamental principle of trend trading. All signals to initiate an option purchase adhere to the direction of the primary trend, effectively minimizing risks and significantly enhancing the probability of profitability. To implement this strategy, all that’s required is a candlestick chart and the plotting of technical lines through price extremes. Subsequently, trend lines will be visible on the trading platform.
How to trade with the False Breakout Strategy?
One of the key advantages of this system is its versatility across various timeframes and assets, as long as the latter exhibit directional movement. It’s important to avoid employing the strategy in sideways markets.
Based on the above, initiate a CALL contract when a false breakout of the support line occurs.
Based on the above, initiate the PUT option when there is a false breakout of the resistance line.
Important: Enter the trade only after the closure of the return candle. Set the expiration time to cover one or two subsequent candles.
In conclusion, adhering to the rules of the “False Breakout” system while trading with the trend can lead to profitability. While this strategy isn’t foolproof and carries inherent risks such as speculation or unforeseen news events, empirical evidence suggests its efficacy, with profitable transactions occurring in approximately 90 percent of cases. Nevertheless, it’s crucial always employing money management practices.
Caution! This article is not intended to be investment advice. No strategy can guarantee 100% correct trading results. A successful trading result in the past is not a guarantee that it will be repeated in the future. Any information contained in this article is for informational purposes only.
