#BreakoutTradingStrategy Breakout systems are based on the idea that if the market makes a move from a previous price level, it is likely to continue moving in the same direction. This continuation may only last for a short period of time, but it can be enough to make a profit.

In a breakout system, you always enter a trade in the direction that the market is moving at the time. The idea is that momentum tends to precede price, so if the market is moving up, it is likely to continue moving up for a while.Another principle of price behavior in breakout systems is that the market tends to alternate between periods of equilibrium and disequilibrium. When the market is in equilibrium, supply and demand are balanced, and prices are stable.

However, when the market is in disequilibrium, supply and demand are unbalanced, and prices are volatile. Breakout systems take advantage of this volatility by entering trades when the market breaks out of a period of equilibrium.

By understanding these principles, you can create breakout systems.

How to identify potential breakout trades

Technical analysis can be used to identify support and resistance levels, as well as other indicators that may signal a breakout is imminent. However, we in systematic/algorithmic trading are reactive to price action, as opposed to the predictive styles of the popular TA gurus on YouTube or Twitter. In the end, we look for price action that breaks through channels or levels. We can use plenty of methods to find those levels, such as a Donchian channel, Bollinger bands, Keltner channel, and many more.

Even the popular ascending triangle used by TA magicians could do a good job, but it is difficult to test it in an exact systematic way. Instead we could try to code the contraction of volatility together with a breakout out of the trading range.

The volatility contraction means the market finds it equilibrium and the breakout afterwards means people don’t agree anymore with that price level#solana