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Understanding False Breakout Using Trendline and SMA 1


A false break out occurs where a Trendline is broken and 10 SMA crosses the Trendline before 40 SMA. Price may remain in the bullish mode but it will eventually retest the lower band. Buy is then taken when price reached the Bollinger lower band. Another indicator for buy confirmation is that Bollinger lower band must have crossed the Trendline to confirm bulls are completely in charged.
A false breakout is basically for price to reach 200 SMA or its upper band. You will see that SMA does not agree with price movement. For instance 100 SMA may be crossing below 200 and 40 SMA still below 100 SMA.
A Trendline is established by break and retest of 40 SMA (Primary Trendline). If you connect break and retest of 10 SMA it is secondary Trendline which may offer support to reach primary Trendline.
usdcad-d1-False breakout

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One thought on “Understanding False Breakout Using Trendline and SMA

  • Gloria

    hi Justice. thanks for sharing but i must say its quit confusing. i will appreciate a diagram added to the illustration if u don’t mind for easy understanding.
    keep up the good work.