Point and Figure
Chart Patterns - False Breaks
Similar to bull and bear traps, false (or marginal) breaks occur at minor support levels (from a previous low) or minor resistance levels (from a previous high). They should only be traded in an established trend.
Up-Trend
In an up-trend, if price falls below the previous low by only a small margin (normally only one box) and then promptly reverses upwards, buy on recovery above the previous low.
A possible weakness of point and figure charts: you will not see the recovery until price has increased by the reversal amount.
Down-Trend
The same applies to down-trends. If price rises above the previous high by a small margin and then promptly reverses, buy on the retreat below the previous high.
