The Failed Breakdown Setup: How Institutions Trap Retail Traders

All right, good morning, everybody. Dan with Funded Trader Academy here, and in this video, I want to cover the failed breakdown trade.

Okay, so this setup has a few key elements: an entry model and a trigger, and we’re going to cover that today using the DeltaFlow Order Flow tool on TradingView.

So let’s start with an initial framing of the day. We’re going to go back to September 25th, and I’m going to show you the elements of a failed breakdown.

Okay, so we start off just by framing our day. We’ve got a couple of volume profiles here just to kind of track the movements, volume, and imbalances on the day, and we’re watching the Asian session here, the London session surge, and this pre-market push to the upside.

Okay, so as we come into the market, we’ve got a few key levels that are marked off. We’ve got our bullish above level here. If we bust through here in order to expand higher, okay, off the overnight session, we must take out this 7,800 level.

If we are going to flush back to the downside, we must take out that 7,769 area.

Okay, so we’re looking at these two areas right here as our initial levels of interest. This is where I’m interested in being a potential seller if we displace through here, or if we’re looking at being a potential seller or buyer if we displace through here.

So if we’re going to expand, those are the two options.

Okay, if we come down to this level, right, we’re going to frame our day using a couple of if-then scenarios, right? So if we come down to this level and we fail a breakdown, I’m interested in being a buyer.

Okay, I’m going to show you the signals on that here that develop in replay mode, just to show you this element.

This is a trade I took live on Friday, the 25th. So, we’re going to watch this specific thing play out here today, but we’re going to frame our day and be prepared for a few scenarios: a failed breakdown here, a true breakdown here, and we’re going to be prepared for a failed breakout here and a true breakout here.

Okay, so we’re going to play all sides of that potential initial thrust of the market.

Okay, so let’s go watch that unfold here on Friday.

Okay, so we’re looking at this same level, the 7,769 level, and all the way up here to 7,800 is another key area of interest.

Okay, so let’s watch as the market opens. Right now, we’re sitting at just a couple of minutes before the market opens. So, let’s play this forward.

And here comes the initial surge.

Okay, very, very aggressive bearish flow pumping into the market. Okay, big-time aggression pumping in and shoving price directly straight down to our key area of interest.

So this is where we observe.

Okay, we have now taken and swept this area, or potentially taken and swept this area. So now the question is, what’s the market going to do?

Okay, so now we watch bulls step in. Okay, aggressive bulls counter and step in immediately off the open. This is happening super fast.

Okay, bulls step in again. Bulls step in again. Here comes a little bit of resistance. Okay, and there go the bulls again.

Okay, so now we have a failed breakdown.

Okay, we have heavy, aggressive bears on an initial thrust shoving the market down, taking out a key level. 7,769 has been taken. The bulls have countered. And now what did we just do on this particular candle right here?

The bulls have shifted control from the bears and broke structure.

Okay, so now we’re going to go ahead and we’re going to buy. Stop loss is going to go down here. Our target initially is going to be right here.

Okay, this may be a little bit aggressive of a stop, but we can always move that up. So let’s go ahead and walk it forward.

Bulls maintain control. You can see the bullish flow continuing to push and pump to the upside.

Our target is right here at this particular swing high. Now that we have cleared this structure, we can start to notch our stop up. Take some risk off the table.

You don’t want to suffocate it, but we can start to notch it up once we start to make a clearance.

Okay, little slight pullback here, and price continues and takes out the target.

Okay, so let’s recap. What did we just do here today?

Okay, these are the elements of a failed breakdown.

We started off framing our day with a potential series of scenarios, usually four: failed breakdown, failed breakout, true breakdown, and true breakout.

Okay, we take a look at the market structure in the morning, and we see what are the key levels of the day that, if we’re going to break to the upside, what has to happen? Okay. If we’re going to break to the downside, what has to happen?

Those are your key structure levels. Usually, it’s the overnight high and overnight low, but sometimes there’s a key structure level in the way, in the middle there somewhere as well.

Okay, that’s typically how we frame our day, and then we simply await for price to arrive.

And what we saw take place right through here is we saw heavy, aggressive bearish flow pumping into the market.

This is an inducement move.

Okay, we took out a key level, swept it, and bulls stepped in.

And what tends to happen here is the institutions are pumping this to the downside. They’re attempting to induce retail traders to get into this trend late.

Retail traders are seeing this. They’re seeing this as soon as we pump through and take out a key level, which is why we want to understand where those key levels are.

Okay, once that happens and they take it, the aggressive—or, I’m sorry, the passive institutions are selling in or buying into that aggressive flow once they’ve induced the retailer.

They are buying into this, and you can see that happening. They start to get aggressive. They get more aggressive, and now they flip the script and hammer the throttle back to the upside.

That is your failed breakdown.

Call it an institutional trap. Call it whatever you’d like, but this is how you take a key level, fail the breakdown, and flip the script, and the institutions rip it back to the upside.

Okay, so the key elements are: one, number one, you need a key level. Okay, you need a clear shift in control, and you need a break of structure.

Once those three elements are happening, okay, now you have to ask yourself, is the risk worth the reward?

In this case, it was about a 2:1 risk-to-reward, just over 2:1.

If we were to go map this out, we entered on this opening right here. Took it all the way up to here, about an 11-point trade, and the stop goes somewhere in this area here.

Risking five to make 11. I’ll take that trade over and over and over again.

All right, hope that was helpful. We’ll see you guys over on the next video.

Hey everyone, it’s Dale here. I hope you enjoyed the video. If you like to trade alongside me and our team of prop firm funded traders every day, then click the link below the video and hop aboard.

We’re looking forward to trading with you.