False breakdown as a way for a player to gain a position.Johannes Röll 15 / March / 20 Visitors: 42
False breakdown as a way for a player to gain a position.
False breakdown is one of the elements of price action, which shows that someone in the moment urgently gets the right amount due to other people's stops.
How does it work?
It is known that the main volume of market players gain during the period of market consolidation. Movements go in a rather narrow corridor, within the boundaries of which sellers and buyers collect volume before a further price movement. This is called the accumulation zone. Such zones are usually disclosed on strong news or after the strongest player has gained a certain amount. The problem of a major player is that when collecting his volume, he often cannot do it in the allotted time.
How to eat a large player in the market?
It suddenly turns out that, in addition to the largest player in the same range, stickfish also frolic. Typically, this role goes to small speculators with tightly limited daily losses. Small speculators, even guessing with the main direction of the future price movement, are forced and accustomed to put stops very close to the entry point. Usually immediately outside the range.
And of course, they are the first to fall under the distribution. If a major player has not gained the required volume, then at the moment right before the news release he can trigger the price outside the range so that the stop-losses of other market participants work. Stoplos buyer is an automatic sale of an asset. The asset is immediately bought back in large quantities, after which the price returns to the range and usually immediately flies in the opposite direction. But without the extra passengers.
Types of false breakdown.
Simple false breakdown. This is when the action takes place within the framework of one candle. They pecked at the level, immediately returned and went in the right direction. Only buyers are bred here.
Complex false breakdown. This is when the price goes beyond the level and is fixed there, provoking new victims to join the game for a breakdown. However, Krupnyak still pushes the movement back into the range, throwing buyers and then sellers out of deals first. On the chart, it often looks like a popular head / shoulders formation. Such a model is considered stronger.
Myths about false breakdown.
1. True false breakdown must go on a large volume! Not at all necessary. The volume in the tail of the PL depends on the volume of the stops that have been broken. You can verify this by looking at cluster graphs with LP.
2. Any change (reflow) with a refund is a false breakdown. Not at all. The price draws many figures randomly at times misleading beginners. False breakdown is the purposeful action of one player to collect someone else's liquidity. And this is possible only in strictly defined situations described above.
True and false breakout provide an excellent opportunity for trading. The stop is relatively small (for local tops or bottoms), and the profit can be set as you like. In my opinion, breakdown systems give an excellent result for testing.
Johannes Röll was born 1978 in Brilon,Germany. Graduated RWTH Aachen University. Over the past ten years he worked as Head of the plastic card team, where he was mainly responsible for the development of the distribution, Head of sales Department and Financial Analyst,where he got experience in planning and support sales figures for branches. For the present he works as freelancer