Risk Management

There are several technical tools that help you determine important levels. Traders draw these levels through previous highs and lows, use Fibonacci retractions and pivot points, trendlines, and so on. Important levels act as support / resistance to the price, and the more the price touches those values, the higher the degree of level matching you found.
When price breaks an important level, it means that it should keep moving in that direction. However, this will only happen in the case of a real breakup, which does not happen every time. In many cases, the price goes above an important level but can not sustain this movement, returning to the previous commercial scope. Thus, this breach shows to be false.
How do we know if a breach is true or false? It is quite difficult to know immediately after the price moves on a level. At the same time, it is obvious that the trader must negotiate a true and a false breakup in different ways. 
Note that price patterns – such as channels, triangles and flags – can be very valuable for identifying potential break points. The more important the level, the harder it will be for a price to break it. Concomitantly, it is worth remembering that a true breach of a very important level will have a more serious consequence. 

Negotiating false disruptions

It is worth mentioning that there are more false breaks than true ones. Novice traders tend to rush to negotiate a breakup without actual confirmation of it and end up being pushed out of the market by larger players.  
If the price returns to the previous commercial breadth after an attempt to break and remain there, we have a false break. This can happen instantly after the price crosses an important level or up to 4 candles after the level. This latter case is called a bull / bear trap. Reversal candle patterns in the vicinity of a “break” level give reliable tips that the break failed. 


False breaches are best traded in the direction of the trend. We strongly recommend that you analyze H1 and other longer time intervals because the price action on the smaller ones (M30, M15 etc) is too chaotic. 
A particular case is the so-called Fakey standard or, in other words, a false breach of an inner bar. Inner bar is a candle completely covered by the previous candle. If you observe an inner bar and realize that your break ends in a pin bar candle shape, this is a strong sign that the price will move in the opposite direction to the false break. 


Negotiating a real breakup

If you have decided to enter the market in the direction of disruption, do so with caution. In many cases, simply placing a pending order – a Sell Stop slightly below the support level, for example – can trigger your order of entry and then lead to a loss if the price returns higher. 
To solve this problem, some players place incoming orders into a short position below the breakout candle. Still, the risk of a false breach remains high. 
To increase your chances of success, you should look at the tearing sail: your length should exceed the average at least 1.5 times. It should also have full body (can not be a doji or pin bar). Even if the candle fits into this description and close below the support level, wait for the second candle – the confirmation candle, which should be smaller than the spark plug and close also below the level of breakage.
If the confirmation candle close close to the breach level, we can enter the market price. If the candle has closed away from the breaking level, we have placed a Sell Limit closer to the breaking level. 


Patience is often the best option. In graphics patterns such as ‘Head and Shoulders’ (head and shoulders), there is usually a retest of the broken level. 
If you have decided to trade in the breach, it means you are taking a greater risk than otherwise. This greater risk should be reflected in your risk management: it is recommended to quickly move the Stop Loss order to the equilibrium level (ie, move your Stop Loss to a point where your trading will close at 0 times faster than during the negotiation of breadth and trend). The risk / reward ratio can be up to 1: 4, 1: 5. You can use scaling out (partially close the position as the price moves in your favor).  
Do not forget factors like market sentiment, economic news and common sense. These things can give you insight into the nature of what is happening on the chart. 
To summarize, “confirmation” should be your magic word. It does not matter if we’re talking about false or true breakup. True disruption requires more confirmations than false ones. 

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