Trading False Breakouts and Breakdowns // stocks day swing traders david moadel
welcome to looking at the markets with David Modell today I wanted to talk
about false breakouts and false breakdowns let's take a look at what I'm
talking about we have a one-minute candlestick chart
for Home Depot stock and the examples today will all be one minute Candlestick
charts which day traders often use but the principles I'll be talking about in
this video can also apply for swing traders for example with a daily
candlestick chart ok so we can see on the one-minute candlestick chart the
price of Home Depot stock went up to a particular level here and then it
bounced off of it bounced down off of it so it's starting to form a resistance
level here and then it comes back up to it and it can't get past it so now it's
an even stronger resistance level and it breaks above it so some chart people
would say well it broke above it and so therefore it's going to go up they would
call that a breakout but you have to be patient you want confirmation make sure
it really is a breakout because the market will give you head fakes this is
a perfect example of a head-fake look at that classic head fake came above and
then look at that red candle definitely not a breakout it's a breakdown and when
you see a candle that size what more confirmation do you need and so there it
went down down down down down so there's the head fake and then there's a very
convincing candle to the downside and down down down after that so this would
be a false breakout and when I see that I can take a position
could possibly take a short position although you want you want to be very
careful with short positions because if you're wrong about your short position
you could incur a very heavy loss so please be careful with short positions
so that's an example of a false breakout there are also false breakdowns so for
example this is Pfizer stock the one-minute candlestick chart
thanks to trading view calm for providing these charts want to give
credit so we see the price action went down to a certain level then bounced off
of it and so it's forming a support level here and then it goes down to that
same level again and if you see the shadow or wick of this candlestick
it looks like it's breaking down below that support level and some people might
say well that's going to go down more because it's break down below the
support level but again you have to be patient you want to be patient see if
it's a head-fake or not and here it is another head-fake went down below that
support level and then came right back up and it went up past this resistance
level up and up and away another textbook example but in this case it's
it's not a false breakout it's a false breakdown and I might take a long
position here after the candlestick price action shows that it is in fact a
false breakdown and when it went above that resistance level that confirmed it
even more here's another example this is visa stock the one-minute candle
candlestick chart and it came down to this level then bounced off of it
forming the beginnings of a support level came down to it again we can see
if we look closely on this candlestick went down below it don't be fooled some
people would say oh it broke down that support level clearly it's gonna go
down clearly it's a breakdown nope head fake false breakdown we could see it
coming right back up you want more confirmation you could wait until it
goes above this level which it did and up up and away a nice profit for people
who took a long position and a lot of heartache for people who assumed that
this would be a breakdown just because it went below the support level doesn't
mean it's a breakdown nope I look for those head fakes I hope you do too so
don't let the market head fake you be patient wait for confirmation that it
really is a breakdown or breakout check for the head fakes and see where it's
really going I hope this was helpful to you my name is David Modell if you have
questions if you need more help with trading investing charting whatever
might be stocks options crypto currencies commodities you can email me
anytime my email address is David Modell at gmail.com
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