In the journey of learning technical analysis, understanding price action stands out as the most important skill of all. There are many analysts, but few understand the basic rules of trading and price action rules; if this were not the case, you wouldn’t find an analyst losing. At the heart of these rules is the breakout trading strategy, which professionals know is controlled by the market maker and often turns into traps for unaware traders. Therefore, understanding price action in these critical areas is the dividing line between success and failure.

What is a breakout?

A breakout is a strong trading signal that occurs when the price decisively closes above a major resistance level (in a bullish trend) or below a major support level (in a bearish trend). This movement indicates a potential change in the balance of power between buyers and sellers.

The ten golden rules for successfully trading breakouts

These ten rules represent the essence of practical experience to avoid false breakout traps and increase the chances of catching strong trends.

1. Confirm the breakout: Closing is key Do not rely on just a temporary price break. Wait until the price closes decisively above the descending trend line or above horizontal resistance. This confirmation is your first defense against false breakouts.

2. Stop Loss: The cornerstone of risk management Once you enter a successful breakout trade, set the stop loss at the low of the breakout candle (bar). The logic is simple: If the breakout is real and the trend will continue, the price should not return to the starting point.

3. Move the stop loss: Protect profits As the price moves in your favor, you should protect your profits. Move the initial stop loss to become a trailing stop, which can be:

· Below the 10-day exponential moving average (10 EMA).

· Or below the low of the previous day.

· Or in the case of strong trends (parabolic cuts), below the 70 level on the RSI.

4. Pay attention to overbought conditions (Overbought) Breakouts that occur when the market is in an overbought condition (RSI above 70) are less likely to succeed. However, a continuous close above 70 RSI can be a signal for the start of a parabolic movement (strong hysterical rise) and not its end.

5. History does not forget: Know past resistance Buying a breakout without knowing historical resistance levels on the chart is a risky adventure. Buyers who are stuck at those old levels will exploit any rise to exit at their breakeven point, creating selling pressure that hinders movement.

6. Follow the current: The market trend is your ally Do not trade a breakout against the overall market trend. Breakouts in bearish markets often fail, and even late breakouts in a bullish market are weak. Always make sure to align your trades with the main trend.

7. Exit on failure: Acknowledge mistakes If you bought a breakout and the price starts to retreat and closes below the low of the breakout day or the previous day, this is a clear exit signal. This failure means that the breakout was false. Conversely, respecting the low of the breakout day indicates strength and a new range.

8. Do not expect.. wait for confirmation Trying to buy the stock before the breakout happens based on expectations is a bad strategy. You risk entering a trade in a resistance area. Waiting for the breakout to happen and close above resistance ensures you have higher chances of success, even if it means entering at a higher price. 'Better late and right than early and wrong.'

9. Don't chase the price after a long picture Chasing a breakout after the price has moved for several consecutive days is a bad idea. The bulk of the movement often happens in the first few days after the breakout. Entering late means you are paying a premium price without a 'profit cushion' that allows you to wait.

10. Choose your assets wisely Not all breakouts are the same. Breakouts in growth stocks and commodities have a much higher probability of success than their counterparts in large caps or indices, due to size, liquidity, and the nature of speculation on them.

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