Filtered False Breakout Detector

The Filtered False Breakout Detector indicator identifies potential price reversals by detecting failed breakout attempts at significant swing levels, filtered by volume and price action context.

Usage

The Filtered False Breakout Detector identifies a specific three-candle sequence to highlight "bull traps" and "bear traps."

• Bearish False Breakout (Sell): Occurs when a candle establishes a swing high, the following candle breaks above that high, and the third candle closes back below the level. This suggests exhausted buying pressure.
• Bullish False Breakout (Buy): Occurs when a candle establishes a swing low, the following candle breaks below that low, and the third candle closes back above the level. This suggests exhausted selling pressure.

Traders can use these "FBO" labels to identify potential entry points for mean-reversion trades or to anticipate trend shifts. The signals are more reliable when the "Swing Lookback" is increased, as it ensures the level being tested is a more significant historical peak or trough.

Details

The script executes logic based on a precise 3-candle sequence:

1. Level Establishment: The first candle defines the price level. To increase reliability, the script checks if this candle is a local peak or trough based on the "Swing Lookback" parameter.
2. The Breakout: The second candle must move beyond the established high or low. If the volume filter is active, this breakout candle must also exhibit higher volume than the first candle, indicating high participation that ultimately failed to hold.
3. The Failure: The third candle closes back within the original range, confirming the false breakout.

Settings

• Swing Lookback: Defines the number of preceding bars used to determine if the level-establishing candle is a significant local high or low. Higher values result in fewer, but potentially more significant, signals.
• Require Higher Breakout Volume: When enabled, the breakout candle (the middle candle of the sequence) must have a higher volume than the level-establishing candle to trigger a signal.

FAQ

How do I use the Filtered False Breakout Detector?

Look for the "FBO" labels appearing above or below the price action. A green triangle below a bar suggests a bullish reversal, while a red triangle above a bar suggests a bearish reversal.

What does the Swing Lookback setting do?

It acts as a strength filter. By increasing the lookback, you ensure the indicator only triggers at major structural points rather than minor price fluctuations.

How can I access the Filtered False Breakout Detector?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.