A breakout trading strategy is about entering a trade when the price of a cryptocurrency moves decisively above a resistance level or below a support level, expecting strong momentum in that direction. Here’s how it works in simple terms:
You first identify key support and resistance levels—these are price points where the asset has repeatedly bounced off or failed to break through in the past.
You wait for the price to “break out” of this range, meaning it moves beyond these levels with increased volume. If the price breaks above resistance, it’s a bullish breakout; if it falls below support, it’s a bearish breakout.
The idea is that once the price escapes a well-established range, it will continue moving strongly in that direction, as traders rush in to follow the new trend.
Volume is important: a genuine breakout is usually accompanied by a surge in trading volume, confirming the move’s strength.
Traders often set profit targets based on the size of the previous range and use stop-loss orders to limit risk if the breakout fails and the price reverses (a “false breakout”).
Breakouts often follow periods of consolidation, where the price moves sideways and traders are waiting for a clear direction.
In summary, a breakout strategy aims to catch the start of a big price move by acting quickly when the asset escapes a well-defined range, using volume and price action as confirmation