Gold (XAUUSD) has fired off a false break bullish engulfing bar on the daily price action chart. This engulfing bar is making a clear false break with the low of the engulfing bar moving down and past the recent swing support level, before snapping back higher to form the bullish engulfing bar and completing the false break. The reason this pattern is called a “False Break” is because price moves through a recent level and gets a lot of the market going one way and thinking that a support or resistance level is going to break and then price quickly snaps back the other way and in doing so stops out a lot of the market who entered trades thinking the market was going to move with the breakout. Because price does not break the level, the pattern is known as a “False Break”.
The chart below of the daily Gold market shows clearly how this false break works. Price moved below the recent support level and this would have got a lot of the market entering into short trades thinking that price was looking to break this recent support and continue moving lower. Price then snapped back higher and would have stopped a lot of these traders out who were looking for price to move lower. Often these false breaks can be explosive once they begin to reverse because once the stops start to get activated it can be like adding fuel to a fire and the higher price goes the more stops it begins to activate and if traders look at the 4hr chart of Gold they will see how explosive this snap back higher was once the reversal started. The inner workings of the false break can often be quite similar to that of the pin bar in that both are trying to fake out the market and get the market going the wrong way with price snapping back in the opposite direction. I explain in more depth how this works in this article here: Read Order Flow With Price Action
From here price would need to confirm the bullish engulfing bar by breaking through the high to have any chance of continuing to move higher. If price can break the engulfing bar high and then continue moving higher the next resistance levels come in around the 1306.70 and then 1327.70. Price Action traders should keep a look out for false break setups on their charts when they happen at key levels because when they are played from the best areas on the charts they can be very high probability plays. You can watch a video of a recent trade I made of a false break setup I played on the daily chart here: Daily False Break Pin Bar Video
Gold Daily Chart
Hi Johnathon,
I would like to say my sincere thanks for your price action information. I learnt a lot from your website.
You are doing a very good job by helping new bies. Hope you will continue the same.
Intially I struggled for couple of months, now I am happy with my trading. choosing A+ set ups.
This gold set up I have been looking from couple days, after seeing yesterday’s candle , I was in a doubt whether to take a call or not as the not candle not closed @ the highs, but I confirmed with your set up and took a call. and last week GBPUSD 4H set up also I have traded.
Hello Reddy,
thanks for your comments! Great to hear your coming along well and the strategies are working for you!
Keep up the good work,
Johnathon