Breakout trading strategy with volume confirmation on the hourly timeframe (H1) relies on identifying breakout points of support or resistance levels with volume confirmation and the RSI indicator to avoid false breakouts. Here is a detailed explanation of the strategy:
First: Strategy requirements
1. One-hour timeframe (H1).
2. Indicators:
- Volume indicator: to confirm the strength of the breakout.
- RSI indicator (14 periods): to avoid false breakouts and confirm momentum.
3. Types of breakouts:
- Resistance breakout (to enter a buy trade).
- Support breakout (to enter a sell trade).
Second: Steps to implement the strategy
1. Identify support/resistance level
- Draw support and resistance lines based on previous highs and lows.
- Wait until the price approaches one of these levels with a strong candle (long body).
2. Monitor the volume indicator (Volume)
- When the price breaks resistance or support, trading volume should be above average (compared to previous candle volumes).
- Buy signal: breaking resistance + increased volume.
- Sell signal: breaking support + increased volume.
3. Momentum confirmation using RSI
- For a buy trade:
- RSI must be above 50 (preferably rising at the breakout).
- Avoid entering if RSI is in the overbought zone (e.g., above 70) as it may indicate buying saturation.
- For a sell trade:
- RSI must be below 50 (preferably declining at the breakout).
- Avoid entering if RSI is in the oversold zone (e.g., below 30) as it may indicate selling saturation.
4. Enter the trade
- Buying: After closing a candle above the resistance with high volume and supportive RSI.
- Selling: after closing a candle below support with high volume and supportive RSI.
5. Determine Stop Loss
- For a buy trade: below the last candle's low before the breakout or below the previous support level.
- For a sell trade: above the last candle's high before the breakout or above the previous resistance level.
6. Determine Take Profit
- Use a Risk/Reward ratio of at least 1:2
- New resistance levels (for buying) or new support levels (for selling) can be relied upon as targets.
Third: Practical example of this strategy for Solana
Assuming Solana (SOL/USDT) is currently trading at $150, we will apply the breakout strategy with volume confirmation and RSI indicator on the hourly timeframe (H1).
Practical example (Buy signal - resistance breakout)
1. Identify the resistance level
- After analyzing the chart, we notice that Solana faces strong resistance at $152 (tested 3 times previously without breaking).
- The price is now approaching $152 with strong candle formations.
2. Monitor the volume indicator (Volume)
- As the price approaches $152, we notice:
- Trading volume is rising (above the average volume of the last 20 candles).
- Closing a one-hour candle above $152 (with a long body and strong close).
3. Momentum confirmation using RSI (14 periods)
- RSI indicator at 58 and heading upward (above 50, indicating positive momentum).
- No overbought condition (RSI below 70).
4. Enter the trade
- Entry point: after closing the candle above $152 (for example, at $152.5).
- Stop Loss: below the last low before the breakout (at $150, a risk of $2.5 per Solana).
- Take Profit: at $157 (Risk/Reward ratio = 1:2).
5. Trade outcome
- If momentum continues and volume increases, the price may reach $157 (profit of $4.5 per Solana).
- If the breakout is false and the price collapses below $150, stop loss is set at $150.
Practical example (Sell signal - support breakout)
1. Identify the support level
- Solana is trading at $150, with strong support at $148 (tested multiple times).
- The price is dropping towards $148 with strong bearish candles.
2. Monitor the volume indicator (Volume)
- As the price approaches $148:
- Trading volume is high (above average).
- Closing a one-hour candle below $148 (with a long body and strong bearish close).
3. Momentum confirmation using RSI (14 periods)
- RSI indicator at 45 and heading down (below 50, indicating bearish momentum).
- No oversold condition (RSI above 30).
4. Enter the trade
- Entry point: after closing the candle below $148 (for example, at $147.5).
- Stop Loss: above the last high before the breakout (at $150, a risk of $2.5 per Solana).
- Take Profit: at $143 (Risk/Reward ratio = 1:2).
5. Trade outcome
- If the decline continues, the price may reach $143 (profit of $4.5 per Solana).
- If the breakout is false and the price rises above $150, stop loss is triggered.
How to avoid false breakouts in this example?
1. Wait for the candle to close above/below the level (do not trade during the movement).
2. Ensure that volume is above average (otherwise, the breakout may be weak).
3. Avoid entering if RSI is in the saturation area (above 70 for buying or below 30 for selling).
4. Breakout testing: Sometimes the price returns to test $152 (in case of buying) or $148 (in case of selling) before continuing in the direction.
Summary
In this example:
- Buy trade: Entry at $152.5, Stop Loss at $150, Take Profit at $157.
- Sell trade: Entry at $147.5, Stop Loss at $150, Take Profit at $143.
- The strategy works best with volume confirmation and RSI, reducing the chances of false breakouts.
> Note: Always adjust support/resistance levels and stop loss according to actual market analysis, as prices may differ in real-time.
Fourth: How to avoid false breakouts
1. Ensure high volume: breakouts without volume are often false.
2. Avoid RSI saturation areas: If RSI is at 70+ (for buying) or 30- (for selling), the breakout may not be real.
3. Wait for the candle to close: do not trade while the candle is forming, wait for the close above/below the level.
4. Breakout with correction: Sometimes the price returns to test the support/resistance level after the breakout. If it does not fall back below with continued high volume, the signal is stronger.
Fifth: Features of the strategy
- Depends on multiple factors (price, volume, momentum) reducing the percentage of losing trades.
- Suitable for all assets (currencies, stocks, cryptocurrencies).
- Can be applied to other time frames (like 4 hours or daily).
Sixth: Disadvantages of the strategy
- You need patience to wait for confirmations (volume + RSI).
- In sideways markets, false breakouts may occur even with volume.
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