Breakout Trading Strategy
Based on my own perspective and some articles, I have summarized the following points:
Core Logic Level
1. Follow the Trend: The breakout trading strategy is based on the idea that “once a trend is formed, it will continue for a period of time.” When the price breaks through key resistance or support levels, it is seen as a signal that a trend may start or continue, allowing traders to enter the market in the direction of the trend, hoping to capture the profits brought by the trend.
2. Key Price Level Breakouts: Focus on price levels that have been repeatedly validated by the market and hold significant psychological or technical meaning, such as previous highs, lows, round numbers, Fibonacci retracement levels, etc. A valid breakout above these levels often indicates a change in the balance of power between bulls and bears in the market.
Trading Execution Level
1. Entry Timing: Usually, after the price breaks through a key level, wait for a confirmation signal before entering the market. For example, if the price retests without breaking the breakout level, or if there is an increase in trading volume, these auxiliary signals can help reduce the risk of false breakouts.
2. Stop-Loss Setting: Set the stop-loss level near the breakout point, because if the price fails to break out and returns to the original range, it indicates that the breakout may be false; timely stop-loss can limit losses. For instance, after breaking upward through a resistance level, set the stop-loss a certain percentage below the resistance level.
3. Take-Profit Strategy: A trailing stop-loss method can be used, moving the take-profit level upward (or downward) as the price rises (or falls) to protect some profits and allow profits to run. Target price levels can also be set based on previous resistance or support levels, trend lines, etc., for taking profits.
Risk Control Level
1. Capital Management: Allocate funds for each trade reasonably to avoid suffering large losses due to a single trading mistake. It is generally recommended to control the risk of a single trade within a certain percentage of the total account funds (e.g., 1% - 2%).
2. Filter False Breakouts: Combine with other technical indicators or market factors to filter out false breakout signals. For example, observe whether the trading volume significantly increases during the breakout; if the volume is insufficient, the reliability of the breakout may be low; one can also consider the overall market trend, news factors, and other elements for comprehensive judgment.
The above content is my personal opinion and is for reference only.
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