Thursday, August 13, 2015

Pound false break above Asian highs

On the 13th of August, 2015 gbp/usd made a false break above Asian session highs. We often see these false breaks. Most traders tend to trade Asian session breakouts placing buy stop orders above Asian session highs and sell stop orders below Asian session lows. This kind of trading strategy hardly ever works and you often see false breakouts that often reverse and price goes in the opposite direction. So, the best course of action is to trade against such breakouts. 

When price broke upwards right at the start of New York session you should have sold gbp/usd and gone short. You could take a short at 12:15 GMT when first bearish candle closed and placed your stop loss order above the highest point of the day, which at that time was at 1.5637. So, your stop would have been around 20 pips. Most traders have risk reward ratio 1:2. It means you should have gone for at least 40 pips. This you would have easily achieved as price moved as low as 1.5574. 

You would have entered your trade at 1.5620 level and exited at 1.5580. Spread would have been around 2-3 pips depending on your broker. Even if it was 4-5 you would still have reached your take profit target of 40 pips. 

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This is how you trade false breaks. 

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