False Breakout

It is considered to be the most important event of all since, it provides the best trade opportunities with greatest risk and reward ratio in the wyckoff method.

it is the ultimate point of manipulation maneuver(Making Fool).

Note: The false breakout is the end of Cause (Range) and the beginning of Effect (Trend).

Some Important Points:

In the false breakout, well informed traders induce uninformed traders to the wrong side of the market, in order to create a liquidity area for themselves.
That's how we know well informed traders are entering in the opposite direction of that breakout.
This display of rejection can occur in one, 2 or several candlesticks.

Note: each case is a little different. So each market scenario must be analyzed separately/individually.

SPRING - Accumulation False Breakout
UP-THRUST - Distribution False Breakout

Accumulation False Breakout (Spring)

In the accumulation the FBO (False breakout) is called spring.
And it will induce sellers to the downside by a breakout of the accumulation support.
When uninformed traders see support being broken, they immediately start selling, just in FOMO (fair of missing out, an opportunity to make profit).
Meanwhile, the large traders are aggressively absorbing supply in order to enter long positions at low prices (from bottom).
Due to significant absorption of supply, price action will show a lot of rejections leaving prominent shadows/wicks at the accumulation support.
So we can say there are footprints of well informed traders at the spring.

Distribution False Breakout (Up-Thrust)

In the distribution the FBO (False breakout) is called Up-Thrust.
And it will induce buyers to the upside by a breakout of resistance or the distribution zone.
When uninformed traders (buyers in this case) see resistance being broken, they immediately start buying, just in FOMO (fair of missing out, an opportunity to make profit).
Meanwhile, the well informed traders are aggressively absorbing this demand in order to enter into a short position at very high (up) price.
Due to significant absorption of demand, price action will show a lot of rejections leaving prominent shadows/wicks at the distribution resistance.
So we can say there are footprints of well informed traders at the Up-Thrust.

Uses of False Breakout:

There are Three-3 main uses of False Breakout.

The most obvious one is to drive breakout traders out of the market. This happens just to fulfill the liquidity of the market. Perhaps this is the primary source of liquidity for the market.
False breakout triggers stop loss orders of the other traders who happen to dwell in that liquidity zone.
False breakout stop-out the traders who were smart enough to anticipate the direction that will inform traders want to go, but entered too soon in the market to display the direction.

Signs (of Identification) of false breakout

In the Wyckoff method there are two main signs that traders should look for the anticipation of false breakout.

Note: It is Interesting to know that there are different degrees in which falls breakout can happen. And there is inverse relation of false breakout between its apparent aggressiveness and power.

Terminal Shakeout

In an accumulation, a spring that breaks the support with more voilence is called terminal shakeout. see example

It should not close below the climax, otherwise we can see the downtrend.

However, the fact that prices traveled more in the direction against the well-informed traders , that denotes(Show) that uninformed traders were also powerful.

So the well informed traders has to work harder to absorb the supply.

In the spring that only penetrates(cross or touch) the support a little bit shows more power, even though it looked subtler(good) on chart.
That’s because of well informed traders already absorb all the supply (from the climax to the range after secondary text) and are ready to initiate the new trend/move.