I got done couple of hours ago, right before some markets went berserk. Swissy is on crazy run, Euro is charging ahead as well. For good measure, gold broke above $1000 per ounce and DOW is making yet another 6 year low. Well, I’m just watching it now. All trades covered in this blog this week have been closed. While going over the charts I noticed an extreme number of false breakouts. Breakouts as I see them, this is. This seemed to be a theme this week on a lot of time frames, like 4H and 1H. I don’t think it is my observation alone, plenty of voices like this were heard. Which brings an interesting point- when does a breakout become a failed breakout? A lot of it is in the eye of a beholder. Trading breakouts out of triangles, flags, pennants and any other subjective pattern will always depend on how the lines are drawn, so there is no simple answer. I don’t trade them myself and bring it up only because a lot o people struggle with this issue. My own discretionary trading involves a lot of breakouts above/below highs/lows. No claim is made here that this is better than prior mentioned strategies, only that for me this is more objective. When I look at the chart it is obvious to me where high/low is and no guess is needed if price goes through these points. It either does or doesn’t. Once it does, question is, will it go straight to target or will it retrace before. By “straight” I mean on the time frame of interest. For example “straight” on 1H charts, would be a directional move without forming additional high/lows in the process. During this time some swings can happen on smaller time frames, but they wouldn’t be of importance on 1H chart. All kinds of studies were done and while precise numbers vary, most of the researchers claim that this happens only in about  25% cases. These means that most of the time price will pull back and often fall under the entry price. For some people this is a failed breakout- retracement below entry, before target is reached. Traders who are risk intolerant and employ extremely tight stop losses will  have more loosing trades, but, hopefully, the winners will be much bigger and recover the losses. Others prefer to have high win/loss ratio and will settle for more sizeable losses. A lot depends on the specifics of trading methodology and selection of objective and stop loss. Point is, that fake breakouts are a fact of trading life, no matter how defined, and one simply has to get used to them. The exact definition of a failed breakout is dependent on the strategy and trader has to determine on his/her own when the failure is taking place. Which means even more homework( it just doesn’t end, does it?).
This is a trade in EUR-GBP from last post.

Price moved under 0.8795 and triggered my order. An absolute ( maximum) S/L would at be at 0.8915, but I rarely wait for that. Immediately after entry this chart clearly formed potential reversal pattern, so I got out for a loss of 37 pips. Once the action stalled at 100SMA and started to turn, I gave it another shot. Was hoping run would made on the low. As we can see it didn’t happen, I had enough of trading for this week and got out with small gain. Very good trade earlier and these two non events- the sum of my EUR-GBP trading this week.
Also in last post a buy in CAD-JPY.

This followed a decent trade couple of days ago. Another shallow breakout, drop under the entry price. I simply closed for few pips at the same time previous trade was exited. Next week I’ll take another look at it.
In  the post “Japan in recession” I mentioned briefly a buy in GBP-CHF above 1.6715.

I’m bringing it up because there was a question about this trade in the comments. Here also price dipped well under entry level before resuming direction. In retrospect, I should have closed it with about 70 pips loss and then reenter at the same level as original buy. Well, it is what it is. Still learning to live with fake breakouts, failed signals and all other evils of trading. With deep, deep dismay I must say that perfect solution to these and many other problems is unlikely to be found.

Mike K.