Knocking

In forex trading, “knocking” refers to a situation where a currency pair’s price briefly breaks through a specific level of support or resistance and then quickly reverses back in the opposite direction. It is also known as a false breakout.

Knocking can occur when the price approaches a key level, such as a support or resistance level, and traders expect it to break through and continue in that direction. However, instead of a sustained move, the price quickly retreats, trapping traders who entered positions based on the breakout.

There are several reasons why knocking may happen in forex trading. One common reason is the presence of stop-loss orders placed just beyond the support or resistance level. When the price reaches this level and triggers these orders, it can lead to a temporary surge in buying or selling pressure, causing the price to briefly break through the level before reversing.

Another reason for knocking is the presence of market participants who intentionally create false breakouts to trigger stop-loss orders and profit from the resulting price movement. These participants are often referred to as “stop hunters” or “liquidity providers.”

Knocking can be frustrating for traders who were expecting a breakout and can result in losses if they entered positions based on the false move. To manage the risk associated with knocking, traders often use stop-loss orders to limit potential losses and employ risk management strategies such as position sizing and proper trade analysis.

Technical analysis tools and indicators, such as trendlines, support and resistance levels, and oscillators, can be used to identify potential knocking situations. However, it is important to remember that knocking is a common occurrence in forex trading, and traders should always exercise caution and consider multiple factors before making trading decisions.