Potential fakeouts are usually found at support and resistance levels created through trend lines, chart patterns, or previous daily highs or lows.
Trend lines
In fading breakouts, always remember that there should be SPACE between the trend line and price.
If there is a gap between the trend line and the price, it means the price is heading more in the direction of the trend and away from the trend line.
Like in the example below, having space between the trend line and price allows the price to retrace back towards the trend line, perhaps even breaking it, and providing fading opportunities.
The SPEED of price movement is also very important.
If the price is inching like a caterpillar toward the trend line, a false breakout may be likely.
However, a fast price movement towards the trend line could prove to be a successful breakout.
With a high price movement speed, momentum can carry prices past the trend line and beyond.
In this situation, it is better to step back from fading the breakout.
How do we fade trend line breaks?
It’s very simple actually. Just enter when the price pops back inside.
This will allow you to take the safe route and avoid jumping the gun. You don’t want to sell above or below a trend line only to find out later that the breakout was real!
Using the first chart example, let’s pinpoint possible entry points by zooming in a little.
