Identifying Fake Breakouts Using MT5’s Tick Volume Behavior

In trading, there is perhaps nothing more troublesome than a fake breakout and in the world of trading, the term breakout is used when price crosses above a key support or resistance level. Traders who work with funded accounts usually practice strict capital preservation and regulated trading so they avoid losing money. For these traders, understanding whether a breakout is real or fake is vital in order to maintain profitability.  

One of the most overlooked but effective ways of identifying fake breakouts is through tick volume analysis on the MT5 trading platform. Even though tick volume and real volume differ significantly, examining them can provide detailed insights regarding the market and help assess the effort that has been put in to achieve the breakout.

The Nature of Breakouts and Why They Fail

A breakout is one of the most popular concepts in trading. It occurs when the price surpasses a crucial horizontal level, which could be a recent high or low, a range boundary, or a trendline. Usually, breakouts indicate the start of a new trend or the continuation of an existing one. However, not all breakouts result in movement that can be sustained. There are numerous breakouts that are manipulated or overdone by institutions to ensnare retail traders by triggering orders only to reverse the market shortly thereafter.

Breakouts in tepid liquidity stagnation regions are termed as fake breakouts. These regions are the zones where a bulk of stop-loss orders are clustered, conveniently sitting just above resistance or beneath support. Once these stops are activated, they give larger players the liquidity needed to take positions in the opposite direction. This method of market manipulation is difficult to identify using price action alone. Tick volume is that one edge that can prove useful in this situation.

Exploring Tick Volume on MT5 Trading Platform

Tick volume is defined as the number of times the market price changes in a given timeframe, irrespective of the magnitude of the change. In the MT5 trading platform, this can be seen in a form of a histogram which is displayed beneath your price chart after you apply the volume indicator. Each bar of the histogram represents a candle on the price chart and reflects the number of price increases and decreases that occurred during that candle.

Even though tick volume does not indicate the actual number of contracts or lots traded, unlike stocks and futures, it still provides a useful estimate, especially in Forex and CFDs. Multiple researches and analyses have demonstrated a significant relationship between tick volume and actual traded volume. Hence it can be quite beneficial for volumetric strategies. 

MT5 offers various tools based on volume, with the most notable being the Volume indicator itself, On-Balance Volume (OBV), and Money Flow Index (MFI). Amongst all these, the raw tick volume histogram is the most useful for breakout analysis.

Identifying Fallacies of Breakouts through Tick Volume Analysis

Focusing on tick volume during crucial price shifts can result in either spotting fake breakouts or confirming real ones. When trying to break above resistance or below support, tick volume reveals market interest in the move.  

In most cases, a breakout indicates strong participation via noticeable tick volume. A breakout without institutional support on low or average volume is likely unconvincing and designed to entice traders.  

In simpler terms, if the market accepts a new price level, a significant surge in trader activity is anticipated. A lack of response suggests the breakout is likely unsustainable.  

MT5’s flexibility allows traders to monitor manipulative actions over multiple timeframes. Analyzing tick volume on breakout candles against prior candles answers the question of whether the market supports the move or manipulates to set poor trader entries.

Employing Tick Volume in Real-Time Situations 

Let’s say you are focusing on a currency pair that has been consolidating for several hours. There is a resistance level at 1.2750 that has been tested many times. All at once, the price breaks above 1.2750. At this point, everything gives the impression that it is a suitable entry point to take a position. This, however, is not entirely true. If you look at the tick volume on the breakout candle on MT5, you will see that it is not greater than the preceding candles, and in fact, it is lower. 

A pullback or reversal would occur if there is lack of increased tick activity. A genuine breakout should have an increase in tick volume and, in this case without it, weak volume indicates that strong buying interest is absent. As a result, the move is likely false. After a few moments, price would reverse sharply and late buyers would get trapped, confirming that the breakout was fake. 

We can use such analysis to dramatically improve ways traders manage an instant funded account, particularly if they have little margin for error. Avoiding false signals and actual traps is equally critical to discovering profitable trades, which can greatly enhance confidence while dealing with low-probability setups.

Enhancing the MT5 Trading Platform with Greater Volume-Based Analysis

The MT5 trading platform offers great flexibility which enables traders to improve their volume analysis experience. In addition to the default Volume indicator, traders can import custom indicators from the MQL5 marketplace or develop their own using the MQL5. Certain indicators demonstrate the divergence of volume, highlight volume spikes, and even plot tick volume on price charts for simple comparison. 

You can create templates that combine price action structures like horizontal support and resistance zones with tick volume indicators. With this combination, visualization of price testing key levels is enhanced and enables better assessment of market behavior: whether it is poised for a genuine breakout or a deceptive one. 

Moreover, the platform MT5 gives the ability to set alerts as well scripts to alert traders at specific conditions of volume spikes during breakouts which simplifies the confirmation process. 

Utilizing Tick Volume in Risk Management

For traders operating with an instant funded account, risk management is a must. There are strict rules on drawdowns, position size, and daily loss limit across trades under someone’s capital. By incorporating tick volume into your trade validation framework, you can streamline the trade’s validation enhancing compliance to the set risk parameters.Rather than blindly taking every breakout setup, traders can wait for confirmation in tick volume to commit capital. This pause in action has its advantages, especially when seeking participation in well-founded trends instead of market noise.  

Tick volume is just as valuable for trade exits. For example, the preservation of profits is possible if a breakout succeeds but tick volume sharply declines, indicating declining trend strength. Preventing reversals from eroding gains is more attainable after exiting a position at that point.  

Volume Confirmation’s Psychological Advantages

One hidden advantage of tick volume is the psychological benefits it offers. As much of an art as it is a science, trading thrives on the confident execution of tested strategies. Decisions made by the trader based on several confirming elements, such as price action and volume, tend to strengthen resolve. This heightened confidence lowers the chances of second guessing risky moves—hasty exits and early pulls on the trigger are frequent among traders managing real money accounts.

In relation to an instant funded account, confirmation bias can be detrimental in this setting. Once a trader receives funding, they must follow the rules set, which also includes managing their emotions. These traits can be improved with the use of data-based confidence. 

Conclusion

Every trader should master the skill of identifying fakes; however, for those under an instant funded account, precision is necessary and therefore, this skill set becomes critical. By paying attention to tick volume dynamics in MT5, traders can interpret the higher probability of breakout movements happening or not. 

While tick volume can sometimes be seen as an inadequate measure because it doesn’t comfort with real volume, it offers a different angle to observe market participation . A price level breakout accompanied by tick volume is likely to be true. If the price breaks and no volume supports, it is often a sign of a possible trap.

The MT5 platform’s volume breakout strategies can be seamlessly aided by advanced charting, and custom indicators, as well as the MT5 platform’s flexibility. Effective manipulation of tick volume allows traders to avoid significant losses in addition to achieving disciplined and consistent trading that earns funding program trust. 

In highly volatile trading markets, discerning between fake breakouts and real breakouts grants traders a competitive edge that could determine the difference between thriving and surviving with a funded account.