Introduction To The FBO (False Break Out)

By August 24, 2011Articles

This tutorial concerns us with one of the four forex entry set ups I teach my students. It’s less well known than the Pin Bar set up, but still a very powerful indication of potential market direction. We will be looking at the particulars of the False Break Out or FBO. The FBO is used as an entry trigger on daily (D1), four hour (H4) and hourly (H1) charts.


The False Break Out or FBO starts as an inside bar, usually smallish in nature. Typically traders are taught to take the break of that inside as an entry point which is determinant of market direction. What we look for is a false break of the high of the candle prior to the inside bar. What this tells us is traders were buying, pushing the price up above the recent candle high, but found there not enough buyers to keep the price moving up. At that point, selling ensued bringing the price back below the recent candle high. This is where our entry would occur.

Here’s a diagram illustrating the previous paragraph:

false break out example


Of course a trader always wants to trade this with other signals of confluence. A recent swing high or swing low as a support or resistance level works very well. Or a 50% retracement level on the D1 or H4 charts.


Here is a chart showing a FBO in action:


False Break Out Chart example


In Conclusion

As you can see, the FBO makes an excellent high probability entry set up for trading in the currency markets. Remember to always calculate your reward to risk ratio. Traders should see reward to risk of 1.5:1 or better, preferably 2:1.


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