The failed breakout trading strategy works great in short selling compared to buying.
When the market is in an uptrend, it goes up by making a higher high. When there is any swing high breakout, buyers enter the market and take the price higher. If we draw the horizontal line on the swing high point, we call it a resistance level.
Sometimes, when the market breaks the resistance level, it starts coming down instead of going up. If any red candle closes below the resistance level, we call it a failed breakout. Price comes down very quickly when a breakout fails.
If we are able to identify the failed breakout correctly, we can earn a lot of money in the forex or any market. This strategy is purely based on price action. We are not going to use any indicator in this strategy.
This strategy works in any market and in any time frame but for the forex market, it is recommended to use 1 hr or 4 hr time frame.
How to trade the failed breakout trading strategy for short selling?
1.. When there is an uptrend in the market, the market goes up by making a higher high.
2. If you draw the horizontal lines above the swing high, they are called resistance levels. When the price breaks any resistance level, we call it a breakout. Whenever the price breaks out, many new sellers enter the market and take the price higher.
3. After multiple higher high formations, buyers start losing control and the uptrend becomes weaker and weaker. If any red candle closes below the resistance line, we call it a failed breakout. Whenever there is failed breakout, buyers square off their positions and new sellers enter the market and take the price down.
4. If the volumes of the breakdown red candle are higher than the volume of a previous couple of candles, it is considered as an additional confirmation. The sell entry can be placed below the low of the red breakdown candle. The stop loss should be placed above the swing high only.
5. The partial profit can be booked at the next support level and be in the trade. Complete position can be squared off at the next to next support level.
