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Asian range 18 pips, London pokes 6 pips above it and is back inside 15 minutes later: real break or fake?

An Asian range on EURUSD, with made up levels, runs from 1.0810 to 1.0828, so 18 pips. At 07:20 UTC price pushes to 1.0834, 6 pips above the range high, and by 07:35 it's trading at 1.0824 again, back inside the range. Was that a fake break, or a real break that simply failed to follow through?

The numbers you can attach to it: the poke was 6 pips, a third of the range. It spent 15 minutes outside. Only one M5 candle closed above 1.0828, and its close was 1.0831, 3 pips beyond.

What I'm trying to pin down is which of those measurements carries information. The size of the poke relative to the range? The number of closes beyond it? The minutes spent outside? Or is the only thing that matters whether price comes back through the range high on a closing basis?

If you trade this, which number do you look at, and where is your line? I'm more interested in a threshold with a reason behind it than in a general feeling for it.

Fairman, the made-up levels keep the example clean. A rule that could decide the case is how the bar closes: a 6 pip poke that closes back inside the range on the M15 is very different from one that closes outside and holds. Writing that rule down before London opens takes the decision away from the moment.

Here's one candidate rule to shoot at. Call it a real break only if an M5 candle closes beyond the range by at least 20% of the range. For an 18 pip range that's 3.6 pips, so the close has to be at 1.0831.6 or higher. In this example the close was 1.0831, just short, so it's a failed break and a candidate for fading back toward the range. The weak point is the percentage: 20% of an 8 pip range is 1.6 pips, which is inside the spread plus noise on some pairs. A floor like "20% of the range or 3 pips, whichever is larger" might fix that, but I haven't tested it on enough mornings.

The stop placement changes how much room you need. Say you short at 1.0826 after price comes back inside, with the stop at 1.0835, one pip over the poke high. That's 9 pips of risk. The target at the range low, 1.0810, is 16 pips, so 1.8R. With $100 of risk, 9 pips is 1.11 lots. If you instead put the stop just above the range high at 1.0830, that's 4 pips of risk and 2.5 lots, but 4 pips is well inside the noise of the candles that just printed, and a retest of the high would take you out. The 9 pip version needs a smaller size and fewer trades survive it, but the ones that do have room.

I look mainly at the close, but on the M15 rather than M5, because the M5 on EURUSD at 07:20 gives too many false closes outside the range on a single burst of orders. My line is that a break needs an M15 candle to close beyond the range high by at least a quarter of the range and the next candle must not close back inside. In your example the M15 would almost certainly have closed back inside, so I'd treat it as failed.

The time outside the range matters less to me than where the return happens. If price comes back inside and then stalls just under the old high, the break can still be revived. If it falls through the middle of the Asian box, I take that as confirmation the poke was a stop run.

Over roughly a hundred mornings I logged, fakes that returned to the midpoint within 30 minutes went on to reach the opposite end of the range a bit more than half the time, which is enough for a reasonable fade with a stop above the poke.

Whether this was a break at all depends on how the range is defined. Suppose the range is built from 00:00 to 07:00 UTC and a candle at 06:40 UTC printed 1.0831. Then the range high is 1.0831, and the push to 1.0834 is only 3 pips beyond it. If the range window is 23:00 to 06:00 UTC, that 06:40 candle is excluded, the high is 1.0828 and the push is 6 pips beyond. Same morning, 3 pips against 6 pips. Before arguing about thresholds, I'd fix the window and keep it the same for a month of samples, otherwise you're comparing numbers that were measured differently.

What I'd also record is what happened next. After a failed break, did price reach the opposite side of the range before 09:00 UTC? A tally of 20 mornings with five columns would settle more than arguing: date, poke size in pips, number of closes beyond, minutes spent outside, and a yes or no for whether the other side was reached. In this example price came back to 1.0824, which is 14 pips above the range low. If the yes column is only 5 out of 20, a target at the opposite side is optimistic, and a target at the range midpoint, about 1.0819 here, might be the more honest one. Twenty mornings is about a month of weekdays, so the table fills in faster than most backtests take to set up.