False Breakout Reversal Forex Strategy

Markets often reverse at major support and resistance levels. We look for possible reversal buy signals near major support levels.

On the contrary, we look for reversal sell signals near major resistance levels with small stop-losses for both trade setups.

Let’s get right into this forex reversal strategy.

Chart Setup

Indicators: SupportResistanceLevels.ex4
Preferred time frame(s): 5 min and above
Trading sessions: Any
Preferred Currency pairs: Any

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Download the Support and Resistance Metatrader 4 indicator.

EUR/USD 30 Min Chart Example

forex-fake-breakout1

The EUR/USD penetrates through support but fails to close below support (false breakout) and then closed as a bullish rejection candlestick.

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Open buy order at the open of the next candle with stop-loss placed 3 pips below the low of the bullish rejection candlestick. Targets: risk-to-reward 1:1 and 1:2.

Trading Rules

Buy Rules:

  • Look for major support levels and draw the support line.
  • Wait for a candlestick that penetrates through support but fails to close below.
  • The above candlestick must close as a bullish candlestick.

Execute buy order at the open of the next candlestick. Place your stop-loss 3 pips below the low of the bullish reversal candlestick.
Set two price objectives for this setup. Close first half at risk-to reward 1:1 and second half at 1:2.

Sell Rules:

  • Look for major resistance levels and draw the resistance line.
  • Wait for a candlestick that penetrates through resistance but fails to close above.
  • The above candlestick must close as a bearish candlestick.

Execute sell order at the open of the next candlestick.
Place your stop-loss 3 pips above the high of the bearish reversal candlestick.
Set two price objectives for this setup. Close first half at risk-to reward 1:1 and second half at 1:2.

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