FBO (False Break Out) Trade Opportunity

By April 3, 2012Analysis

Chart of the Day

 
GBP/USD H4 Chart
 
In this example of a FBO or False Break Out, we have a currency pair that’s following the current global macro economic leanings of a strong USD. Believing this from reading a sampling of articles from the major financial news outlets and following the major data releases of the main economic players, we have a clear idea of what direction we expect price to move. Some people that teach forex price action trading say you can never rely on the news to make decisions about trading. What?? If you cannot rely on your own deductive reasoning of global financial events, then you’re at the mercy of having to follow someone elses intuition.
 
So, we’ve determined that the current sentiment is for a stronger USD. Now we need to look through our charts and find a currency pair that’s playing the game in a way that suits our price action analysis. We use several different confirmation signals with one of them being the candle pattern called the False Break Out or FBO. Today we have a good example of a FBO on the H4 chart of GBP/USD.
 
The week opened with price jumping up to the red resistance line, then dropping to a support line that was formerly resistance. We saw a bounce off that support where an iside bar formed alerting us to the possibility for a FBO play to the short side. Sure enough, it formed very nicely on the next bar, breaking the high of the inside bar and the mother bar only to drop back and close lower than the inside bar’s high. That’s our signal to enter. At this point you should already have your reward to risk figured and be ready to push the ‘enter’ button for your trade. There’s nothing to do now but return to the charts in four hours or so to see how the trade is progressing. It wouldn’t have mattered had it turned against us for we are comfortable with our risk on the trade. Fortunately, it moved in our favor giving us many multiples of reward compared to the risk we accepted.
 

GBP/USD False Break Out trade

 

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