Breakout trading strategy is a popular technique that involves taking positions after the market breaks significant price levels. In this strategy, the trader keeps an eye on a specific resistance or support level, and when the price breaks that level, it is understood that a new trend has begun.
For example, if the price of a cryptocurrency has been below a resistance level of $30,000 for several days, and suddenly it crosses this level, it is called a 'breakout.' Traders buy at this moment because there is a possibility that the price will go higher. Similarly, if the price breaks below a support level, the trader engages in short selling.
Some key factors must be considered for success in the breakout strategy:
1. Volume: If trading volume is high with the breakout, the chances of this breakout being genuine increase.
2. Risk Management: A stop loss must be maintained to limit losses if the breakout is false.
3. Confirmation: Simply breaking the price level is not enough; it is essential to close above or below the price level.
This strategy is particularly effective in volatile markets such as the crypto market. However, not every breakout is successful, so patience, analysis, and the selection of precise entry and exit points are extremely important.