The Breakout Trading Strategy is a technique used by traders to enter the market when the price breaks through important levels such as support/resistance, trendlines, or consolidation areas.
Here is a complete and practical explanation:
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๐ What Is Breakout Trading?
Breakout = price breaks through important levels, then moves with high volume in a certain direction.
Example:
Breakout upwards = breaks through resistance โ buy signal (bullish)
Breakout downwards = breaks through support โ sell signal (bearish)
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๐ง Basic Concept:
Breakout often indicates the beginning of a new trend or strong movement after a sideways period.
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โ๏ธ Steps of the Breakout Trading Strategy:
1. Identify Key Areas:
Look for support and resistance
Or form technical patterns: triangle, flag, rectangle, etc.
2. Wait for Breakout Confirmation:
Price closes the candle above/below the key level.
Stronger if accompanied by high volume.
3. Enter Position:
Enter buy if breakout resistance.
Enter sell if breakout support.
4. Set Stop Loss:
Below/above the breakout level (fakeout = big risk!)
Use ATR (Average True Range) for volatility tolerance.
5. Target Profit:
Use:
Risk:Reward ratio 1:2 or 1:3
Projection from patterns (e.g., height of rectangle)