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However, false breakouts just do not happen because of the tricks big players use. They could also be the result of market running out of steam to reach higher highs and lower lows in a sustained price break.

This can happen when there are not enough buyers in the market to sustain an upward price move or not enough sellers in the market to sustain a downward price move. Since the big players like to fade breakouts, individual traders have higher chances of success if they also fade the breakout.

Profits potential in price breakout is far higher than in a failed breakout. Everyone wants big easy profits. Fading breakouts is counterintuitive and it is not something instinctive. The question is how to identify a false breakout.

You should look for opportunities on a minimum time frame of hourly or more. False breakouts can occur anywhere on the price charts at the levels of support and resistance.

You need to know how to draw trendlines. Trendlines are drawn by joining at least two extreme points of highs or lows over a long period of time. They can be horizontal or sloping. The price will bounce off the trendline in a false breakout and the probability of a false breakout is higher if the trendline is at an angle or a gradient.

Usually the third or even fourth extreme point of contact on a gently sloping trendline presents a good fading opportunity. The chances of this fading breakout are more if the moving average lies slightly below the ascending trendline or slightly above the descending trendline.

The speed of price movement before the approach to the trendline should also be considered. If the prices are approaching the trendline slowly and gently, the chances of a false breakout or a trendline bounce will be much higher.

There will be a sustained follow through in prices if the price action has a high momentum. The fast and high amplitude approach of price action will most likely result in a successful price breakout of the trendline on the other hand. In such a case, dont trade it as a likely false breakout.

You will want to know how to trade a fading breakout? You should place a limit or market entry order a few pips below a down trendline or above an up trendline. You can stagger your entry orders by placing another order a few pips away from the breakout if you are an aggressive trader.

Now there are a few chart patterns that are ideal for identifying the false breakouts. You should read the next part of this article for more on those chart patterns. About placing staggered entry orders for fading breakouts, you should do it with a proper money management plan. Stops should be placed at least 20-30 pips beyond the support or resistance, away from the price zone. This will make your average cost of entry more favorable for either your long position or your short position.