This issue is quite interesting and important. Many people really dislike fake breakouts, thinking that they lead to losses, and after losing money, it's easy to get carried away. Sometimes, a single fake breakout can wipe out an account.

I too was once severely punished by a fake breakout. At that time, I was engaged in intraday 5-minute short-term trading, entering the market by drawing trend lines and breaking through them. I remember that my technical skills were not good enough, my system was not well-developed, and I had almost no understanding of fake breakouts. From the afternoon until night, the market just didn't move, and I made dozens of trades, going long and short, and was wrong dozens of times. That was the day with the most stop losses in my trading experience, and thinking back now still gives me goosebumps.

Now, it's my 12th year of trading, and I have a completely different understanding of fake breakouts. Today, I'll discuss why there are so many fake breakouts in the market and how to deal with them.

First: Fake breakouts must exist, and we can only accept this reality.

Market trends cannot be without fake breakouts. Why? The reason is simple: if all breakouts were real, then we could just grasp the rules of breakouts, and everyone would be able to make money. Financial markets are a zero-sum game; we can only make money when others lose. If everyone could make money, whose money would we be making? So, if fake breakouts didn't exist, financial markets wouldn't exist either.

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So the existence of fake breakouts is an objective reality, and it won't change whether you accept it or not.

After understanding this principle, our focus should not be on "eliminating fake breakouts," but on how to correctly deal with them.

Second: Is the existence of fake breakouts necessarily bad?

There is a harsh realization that only some traders lose money in fake breakouts, get carried away, and lose their rationality, allowing another group of emotionally stable, self-restrained individuals to make money.

In a zero-sum game market, there must be losers.I understand that no one wants to lose money, but this reality is right here, so looking at it from an objective perspective, fake breakouts are not necessarily a bad thing. The issue lies within oneself, whether one can remain calm and rational in the turbulent financial markets, and handle some trading orders with great self-discipline, that is the key point.

So everyone's view of things is from their own perspective. Those who suffer losses detest fake breakouts, while those who profit from them like them. As I've mentioned before, many profitable traders actually enjoy fake breakouts because they can take advantage of human nature to make a profit. The reality is harsh, but making money is real.

Third: How should we correctly deal with these fake breakouts?

As mentioned above, fake breakouts are inevitable and unavoidable. So, how to handle these fake breakouts is the dividing line between profit and loss. What should we do?

First, we need to thoroughly understand the underlying logic that profits and losses come from the same source. We must fully comprehend that trading does not achieve profits from one or two transactions, and it is impossible to always be profitable without a single loss. The overall profit in trading is like the peak and off-peak seasons of a tourist attraction, relying on the profits from the peak season to cover the losses from the off-peak season, allowing the business to continue for a long time. This is what we are pursuing.

So when encountering a fake breakout, we strictly stop losses, and when encountering a real breakout, we hold onto the profits, and we absolutely value the success rate and profit-loss ratio of the entire trading strategy. In the long run, if the overall profit is greater than the loss, then the trading is successful.

Second, we can filter signals after fake breakouts for trading. Many consolidation patterns have quite distinct characteristics when they move in the opposite direction after a fake breakout, such as a large operating space or fast movement speed. These are all excellent trading opportunities. By persistently adhering to this trading method, the probability of making a profit is very high.

Some may ask here, can I only trade the reverse breakout after a fake breakout? Doing so must consider two specific issues.

First, this approach is very patient-testing. There are fewer trading opportunities for reverse breakouts after a fake breakout, and it requires patience to wait for the trading signals. Many times, one must maintain an empty position. Can you accept this counter-human nature setup?

Second, not all market conditions will have fake breakouts. If the market has a real breakout, then your profits will also be lost. Losing 100 dollars will be much more painful than gaining 100 dollars. Can you withstand this psychological pressure? Will it affect your execution?So, we must not only objectively view fake breakouts but also ensure that our execution is not compromised. We should choose a more cautious trading strategy to deal with fake breakouts.

Markets have their ups and downs, and trading involves both profits and losses. Fake breakouts can cause us pain, but they can also become our weapons.