The ‘False Break’ Trading Strategy
When was the last time you entered a trade and it immediately moved against you even though you felt confident the market was going to move in your favor? When was the last time you traded a breakout and got stopped out? I’m willing to bet you’ve experienced one or both of these things recently in your own trading, and I’m also willing to bet that me or one of my students probably took the opposite side of one of these trades that seemed to ‘fake you out’ of your position…
You see, false-breaks happen all the time in the markets; they are a result of the ‘herd mentality’ that causes people to buy the top of a move or sell the bottom. As price action traders, we are in a unique position to take advantage of false-breaks and of the weak ‘herd mentality’ that so many amateur traders possess.
I have made most of my money as a trader by using contrarian trading approaches like false-breaks and my proprietary fakey trading strategy. It is the power of contrarian trading and using false-break patterns and fakey setups that allows myself and other savvy price action traders to profit from other traders’ misfortunes. This may sound a little harsh, but it’s the reality of trading that the majority of traders lose money, informed and skilled traders make money, and the ‘pigs get slaughtered’, as the saying goes. I hope there are light bulbs going off in your head now, because this article is all about contrarian thinking, false-breaks, and how to take advantage of the ‘herd mentality’ that causes so many traders to enter right when the market is about to change direction…
So what exactly is a false-break?
I thought you’d never ask! Joking, I know you are probably thinking that right now, so here you go…
A false-break can be defined as a ‘deception’ by the market; a test of a level that results in a break of that level but the market then retracts and does not sustain itself above or below that level. In other words, the market does not close outside of the level being tested; rather it leaves behind a false-break of it. These false-breaks are huge pieces of evidence for impending market direction, and we need to learn to use them to our advantage instead of becoming their victim.
Here is a visual example of a false-break of a key market level:
Essentially, a false-break can be thought of as a contrarian move that ‘sucks’ the over-committed side of the market out. The concept is to wait for the price movement to clearly show that a market has committed to one side of a trade and that they would be ‘forced’ to liquidate their position(s) on a strong reversal in the other direction. Typically, we see these scenarios unfold as a trending market becomes extended and all the amateurs jump in right before the counter-trend retrace, or at key support and resistance levels or at consolidation breakout scenarios.
The herd mentality causes traders to enter the market typically only when it ‘feels’ safe. However, this is the deception; trading off feeling and emotion is exactly why most traders lose money in the markets. Many traders become deceived because the market looks very strong or very weak, so they think it’s a no-brainer to just jump in with that momentum. However, the truth of the matter is that markets ebb and flow and they never move in a straight line for very long. This is known as “reversion to the mean” and it’s something I expand on significantly in my advanced Forex trading course.
We really have to use logic and counter-intuitive or ‘contrarian’ thinking to profit off of the weak-minded herd mentality that dominates most traders’ minds. This is why it’s very important to remain disciplined in the area of trading false-breaks, rejections and failures, and why I love trading them so much.
Types of False Breaks
1. Classic Bull and Bear traps at key market levels
A bull or bar trap is typically a 1 to 4 bar pattern that is defined by a false-break of a key market level. These false-breaks occur after large directional moves and as a market approaches a key level. Most traders tend to think a level will break just because a market has approached it aggressively, they then buy or sell the breakout and then many times the market will ‘fake them out’ and form a bull or bear trap.
A bull trap forms after a move higher, the amateurs who were on the sidelines watching a recent strong move unfold cannot take the temptation anymore, and they jump in just above or at a key resistance level since they feel confident the market now has the momentum to break above it. The market then breaks slightly above the level and fills all breakout orders, and then falls lower as the big boys come in and push the market lower, leaving the amateurs ‘trapped’ in a losing long position.
2. False-break of consolidation
False breaks of consolidation or trading ranges are very common. It’s easy to fall into the trap of thinking a trading range is going to breakout, only to see it reverse back into the body of the range. The best way to avoid this trap is to simply wait until there is a clear close outside of the trading range on the daily chart, and then you can begin to look for price action trading signals in the direction of the breakout.
3. Fakey’s (inside bar false-breaks)
The Fakey setup is one of my all-time favorite price action setups and learning to trade it will do a lot for helping you to understand market dynamics. Essentially, the Fakey is a price action pattern that requires there to be a false-break of an inside bar setup. So, once you have an inside bar setup, you can watch for a false-break of the inside bar and the mother bar. Now, I am not going to get into all the different versions of the fakey trading strategy today or the different ways to trade it, but you can learn everything about my proprietary forex fakey trading strategy in my professional Forex trading course.
Here’s an image of two Fakey setups, note that one has a pin bar as the false-break and other does not, these are just two of the variations of the Fakey setup:
False-breaks can create long-term trend changes
As price action traders, we can use the price action of a market to anticipate false-breaks and look for them at key levels as they will often set off significant changes in price direction or even a change in trend from these key levels.
We need to pay attention to the ‘tails’ of candles that occur at or near key levels in the market. Ask yourself how prices reacted during each daily session…where did they close? The close is the most important level of the day, and often if a market fails to close beyond a key market level, it can signal a significant false-break. Often, prices will probe a level or attempt to break out, but by the close of the daily bar price has rejected that level and ‘tailed out’, showing a false-break or false-test of the level. A failure of the market to close beyond a key market level can lead to a large retracement or a change of trend. Thus, the close of a price bar is the most important level to watch, and the daily chart close is what I consider to be the most important.
Here’s an example of a false-break in the EURUSD daily chart that led to a top in the market and started a long-term downtrend:
History Teaches Us A Lesson
It’s worth noting that on the week famous trader George Soros shorted the British pound and ‘broke’ the Bank of England ( September 16, 1992) – the chart had shown a massive false-break signal. The chart below shows the price breaking upwards to new highs and then crashing back down. To those who follow me regularly you will note that this was actually a classic fakey setup, and is clear evidence that this price action strategy has worked for decades.
Final word on false-breaks…
As traders, if we don’t learn to anticipate and identify deceptions or ‘false-breaks’ in the market, we will lose money to traders who do. If we pay attention to the price action at key levels on the daily chart time frame, the ‘writing’ is usually on the wall in regards to false-breaks.
If I had to leave you with one crucial piece of advice for your Forex trading career, it would be to drop everything right now and start studying false-breaks and contrarian trading approaches. By doing so, you will be ahead of 95% of traders who are stuck in a cycle of trading off mainstream misconceptions and ineffective trading methods. As a contrarian, I want to be trading when most other retail traders are committed to the wrong side of the market, and this is difficult to do if you don’t understand false-breaks and fakey patterns. Trading false-breaks and my proprietary ‘fakey setup’ is a core focus in my Forex price action trading course, and I expand on these topics in great detail in it. I teach my students a plethora of different price patterns to look out for when trading false-breaks and fakey setups. This ‘contrarian’ style of trading is something I strongly believe in, and it has proven itself time and time again. If you were to learn only one single trading strategy to apply in your Forex trading, false-breaks would be on top of the list.
97 Comments Leave a Comment
You are d best, God bless ur generation,
This is an eye opener in trading
Thanks Nial. Appreciate the Breakdown. It’s A lot to take in but I guess with the right attitude and determination you can make some sense out of it. Gotta Keep Pushing Forward.
You are welcome! Focus and commitment is the key to trading success.
Your emancipate me from mental slavery.Since applying this knowlegde I NEVER LOST a trade.My financial fear subsist.
Thank you Nial
I have gone over this lesson and all the other false break lessons and videos many times but this time i really see it , i really get it
Your course was so eye opening the first couple of times
After deciding to master the false break setup (fakey signal ) i have come back again to redo the course
I am so glad i have
My entire perception of the market has now changed
Thank you :)
My eyes are opened, thank you Nial
Hello Nial,thanks so much for this eye-and-mind opening article here. It’s just that it needs discretion to succeed having a quality trade setup in this situation.
Thank you Nial for revealing the deep secrets of the markets.
Thanks for this. It makes a whole lot of sense. Av been a victim countless times.
lovely, thanks Nail and be blessed
Thank u Nail. Please false breaks is it the same as pullback
And I might actually get there, thanks to you, Nial . What a gift you have given! I am slowly but surely coming to realise that absolutely everything you say about trading is just so damn right! :)
Mind opening just tried some of your tips on the eur/usd and i have to say i’m impressed… That was helpfull
You ride on tiny hints from these bars, successfully. As you say 95% of the traders don’t look there. Admirable!
Nail I thank God for using you to touch my life, remain bless as you are blessing us.
The Ultimate Strategy!
My mentor Nial.You are the best of the best.I have a question for you sir.What is the difference between failed pin bar strategy and false break trading strategy in ptice action.
A friend introduced your website to me and since then I found this very interesting and educative. I say thank you for sharing this with us. May God continue to bless you. Ogunyebi Festus.
Great Article/Lesson , thx Nial.
Thanks for the lesson for
It helps me understand what’s going on. Marc Canada
since i have been studying fx, you are the most brilliant fx trader. with ur article things have chandge for me thank you men
Thanks nail!!! But PIGS will always be PIGS, and will consistently be slaughtered. Thanks again for your insights. Kudos
That’s great. I’d have to say thank you friend
Nice one , this is lovely, I love your trading method, thanks
really good article!! from now, I’ve got a new education about trading strategy. It will be make me better on trading. thanks nial…
Hi, in Fakey, we might entry at breakout in Inside bar but it formed fakey at the end..
How to avoid this happen?
I always love to read your article and you have very amazing insight. I have been trading for 2 years in Japan. I could improve my trade recently because of your lectures.
WOW.EXCELLENT ,VERY USEFULL
Well explained Nial. This makes so much sense. This is the truth. Forex grail…
I agree with Tom above who said it would be really helpful if you showed possible trade entry points with this and your other strategy examples
wow one of your greatest articles each one serves a different purpose in trading and is neccessary as a lesson.
This article like other articles has covered basic market movements and concepts.
Thanks Nail .
wonderful article. May God bless you and your family.
you are sowimg now and you will harvest.
Dear Nial, Great articles. Awesome insight, unparalled patience, much dedication. I got your course, great material, indeed. Worth every penny spent.
I’m starting to get the false break concept at key resistance/support levels. Thanks Nial
Every note helps a lot in my way to be a excellent pro trader
False break is the most interesting and the best phenomena I learnt from Nial for trading. Thank you a lot
i wish i have know you much earlier to save all my agony & years frustration in trading….great article Nial!
HI thanks for article!
What is worth more than the money making from trading for NIal must be the praise of his followers. He is one person who deserves it. Almost a fool proof strategy for whom is disciplined.
A five star lesson, again. I call him “The Master” of swing trading.
yeah u right
Absolutely agreed! Risk/reward using false breaks is exceptional. Hard thing is to learn to be able to pull the trigger against the crowd.
In deed, this is wonderful lesson, I must stick to ur lessons.
God bless u for ur generosity
Thanx Niall.I am not new but did not understand the Charts.i just implement this strategy on EURUSD charts, things are Cleared to me.Thanks for helping me and peoples like me.
On many of these False breaks they show exhaustion candles or what we call pin pars signaling the end of both and up trend and a down trend. The longer the wick the wick OR tail the better either way. The importance of drawing support and resistance lines is so important.
again, it’s a great lesson for me to add my trading knowledge. thanks a lot nial…
The he who gives he shall receive..
I don’t see how people would spend hundreds of dollars on gossip newspapers like National Inquirer and so on , and not spend few hundreds on getting Niall’s valuable and today’s very needed input on how to trade the markets. Niall’s imput is the core of not only getting wealth, but also the core of how to protect the wealth of those who already have it.
Keep up the generous work Niall !!!
Gold dust…as usual, Thanks Niall.
Thank you Nial.
You are my mentor!!!!
IT is always a great lesson from the Professor.
I absolutely love your lessons Nial! Keep up the great work!
I love to read your articals
Thanks Nial. Inspirational as always!
Great stuff Nial, look forward to reading that part of your course.
Very interessant, your article!
famous trader George Soros shorted the British pound and ‘broke’ the Bank of England
How? that is not possible! can it.
unless he sold $10000 billion
please explain how he broke bank of england
SwissCHF, to answer your question – Soros is known as “The Man Who Broke the Bank of England” because of his US$1 billion in investment profits during the 1992 Black Wednesday UK currency crisis
What a laid back article yet simple but profound.
My advice to all aspiring traders coming to this website is to stick to Nial’s trading strategy like a fanatic sectarian believer would to his religion. If you think that you can blend up your own ideas with PA strategies then perish the thought of success in FX market. Bottom line, follow PA strategy thoroughly and fully without blending it with your ideas of what may work and watch your success skyrocket.
Great Article Sir,
One of the truth of Trading is Trading false breakout, You are a Great trader & guide. Thanks a lot for providing such a good information with examples.
Keep it up sir.
Excellent, excellent, excellent ….. Thanks !!!!!
NIAL sir thankyou for your service. May GOD bless you.
Only some people in the world have good intentions on others welfare. Thankyou again.
In a matter of time, u will help ♍ƺ boost my bank account.
Very good article and relevant to what I am doing on intraday charts. thx.
Great as always.
Great bit of education Nial.
A word to the wise is sufficient…..thank you Nial.
A friend posted this and gave me the link. I call him friend and he sure got it from a friend. Are you a friend of my friend? i guess so cos business wise he always talks and trade your principles.Thanks to Nail, friend
You are the best Nial…
Anotehr excellent article. One of the things that I’ve learned from Nial is the strong emphasis on price levels, something tha I wasn’t paying much attention to when I was first starting out. When you start approaching the market from that angle the picture suddenly becomes a lot clearer.
Thanks Dear Nial
Very Useful point which i am sure many traders got trapped in that many times.
Thanks Dear Nial
Very Useful point witch i am sure many traders got trapped in that many times.
All hail the god of Forex Trading..I am addicted to your lessons Nial.. you changed my trading style and i am still shocked the way my trading has gone easy for me. Fakey setup is one of my best and i learnt it from you..Respect to the Alcapone of Forex trading..
If I am to choose one setup for forex trading then it would be fakey. Fakey works best when it is traded in the direction of the daily trend.
Thanks valuable tips
This is indeed, is from a Master and this article is worth sleeping and waking up and sleeping with again so that it becomes ones second nature.
I doff my hat!
Fantastic article. Know the feeling all too often of opening a trade and then it goes against me. Makes a lot of sense. Time to put your theory into practice.
great lesson Nial
Thank you. You are the strongest
Well put Nial! Now if I can only learn ALL the possible configurations of a false break :)
Great article my friend!
SIMPLY FANTASTIC, THE ARTICLE IS SUPERB.THANK YOU, NIAL
Wow I just had a revelation !!
I’m only a new trader
I was looking at the charts today and these types of setups seemed to jump out at me. and then you posted this article and linked the dots and a light bulb just went on in my head!
Thanks Nial, this has really built my confidence in my trading strategy!
Thank you Nial for this artical.
Just when I was beginning to lose my PATIENCE, along comes another reminder from you about jumping the gun.
Thank you for keeping me informed and on my toes.
Nial, your articles are a must read for all traders. great article!
IS CERTAINLY ONE OF THE BEST TECHNIQUES, WHICH HAS RESULTED IN CHANGING MY TRADING IDEAS….NIAL YOU ARE THE BEST….
This is good for the season we are in
very very educative article from one the greatest price action traders of our time
I love to read your articals, its amazing and full of knowledge, the way you explain it outstanding , waiting for opening account and enter in member area.
Great article, but it’s 100 times harder to trade these setups live when we don’t see following bars. It’s a pity that you haven’t described these charts with possible entries (how would you enter) for ilustration how to trade these setups. Keep up good work Nial.
Tom, I do expand on the actual entry techniques in my course and members lessons, cheers.
Another great article, likely best one yet. Fantastic. You’re the Einstein of trading. Everyone should be reading and writing you comments. Awesome article buddy. Thanks. Your articles always add knowledge to the already huge knowledge base. This’ll be great for beginners and experienced alike. Hope I can make one of your seminars.