If you believe that a breakout from a support or resistance level is fake and that the price cannot continue in the same direction, you would fade the breakout.

When a big support or resistance level is violated, fading breakouts may be smarter than trading the breakout.
Remember that fading breakouts is an excellent short-term strategy. Breakouts typically fail on the first few attempts but may finally succeed.

REPEAT: Fading breakouts is an excellent short-term trading approach. It is NOT recommended for long-term trading.

You can avoid being whipsawed by knowing how to trade false breakouts, often known as fakeouts.

Many forex traders like trading breakouts. Why?

Price floors and ceilings are supposed to be represented by support and resistance levels. If these levels are breached, price should continue in the same direction as the break.

When a support level is breached, it indicates that the overall price movement is negative and that people are more likely to sell than buy.

If, on the other hand, a resistance level is broken, the market believes that price is more likely to rise further and will tend to purchase rather than sell.

Independent retail forex traders are avaricious. They believe in trading in the breakout direction. They believe in massive gains on massive moves. Catch the large fish and ignore the tiny fry.

This would be true in an ideal world. But the world is not without flaws. Princesses and frogs do not live happily ever after.

In reality, the majority of breakouts FAIL.

Breakouts fail because the wise minority needs to profit from the mass.

Don’t be too hard on yourself. The clever minority consists of significant players with large accounts and buy/sell orders.

There must be a buyer in order to sell something.

If everyone wants to purchase above a resistance level or sell below a support level, the market maker must take the other side of the trade.

And be warned: the market maker is no fool.

Breakouts are popular among retail traders.

The smarter, more experienced traders, the institutional traders, prefer to fade breakouts.

Smarter forex traders take advantage of the crowd’s collective thinking or rookie traders to gain at their expense.

That is why trading alongside more experienced forex traders can be extremely beneficial.

Would you rather be among the savvy minority that fades breakouts or the losing majority that gets caught in false breakouts?

Let’s look at how to fade breakouts immediately.