What is a breakout trade ???


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  • #1 Collapse

    What is a breakout trade ???
    What is a breakout trade ?
    Brief about:
    -- To identify the transition.
    -- The false breakout.
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  • #2 Collapse

    Hi and good day friends!

    Today I will tell you about another trading strategy that is often shelved due to the false handling or misinformation going on around the forex circles. And now EnKubo 8x5 is going to propose a better way to handle and execute this trading strategy.

    The topic today will be…

    BREAKOUT trades

    What is a breakout trading?

    By a simple definition a breakout is a type of trade that you take when price breaks out of something and this can be a structure, static zone or dynamic zone or trading with the strong momentum that comes from one side.

    Breakout trades are very easy to spot and can provide nice profit too but oftentimes, people get faked out when doing this type of trade and that is why many people don’t like this trading strategy. One of the biggest advantages for trading breakout is you are going with the stronger momentum at that time. When you are in the market you want the momentum to be on your side and this is exactly what the breakout trading hinges upon and that is why if you know how to do it then you can make nice profit from it.

    Is there a way to avoid false breakout?

    Asking this question is really like saying is there a way I can avoid loss in this market. If you are new to this business then you should definitely accept that losses are just part of this business. You can’t always win and never lose in this business. That’s just how it is and you must accept this. Of course, accepting this fact is not the same as you have to be happy when you lose money, it’s not what I mean. Losses can happen because there are millions of traders in this business and many of them are on the other side of the trade and we simply can’t beat them all. However, we can limit our loss and this is the most important part of risk management in this business so even if you lose money your loss can be kept small in comparison to your profit. So, despite our best effort to follow the strategy to the dot you must accept that there is a possibility that you make a wrong decision and lose money.

    How to trade breakout?

    Before we go into this topic you should know that there are several types of breakout and they are:

    Breakout from a pattern. This kind of breakout exists when you already have an almost finished pattern and the breakout will just confirm what the pattern intended to do anyway. The best example for this kind of breakout is the breakout that happens on a triangle pattern. When you see a triangle pattern you simply can’t mistake it for another pattern because this pattern is so clear and distinct. All you need to form a symmetrical triangle pattern are higher lows and lower highs and then the breakout will confirm the pattern in the direction of the market strength. Just draw a line to connect the lower highs and another line below to connect the higher lows and at one point the lines will converge and this is the symmetrical triangle pattern. The breakout from this pattern will happen as the price gets constricted more and more and then boom! you have a strong breakout.

    Breakout from a support/resistance zone. This type of breakout is also one of the easiest to spot because the visual is also very clear in here. A support/resistance zone is an area where price bounced several times because there is a lot of pending order around that zone waiting to be executed. In the example of support zone you will see price bounce up from the zone because there is still a lot of buy pending order around the support area and when the price come near the area those orders will get executed and this will result in price bouncing up again, rejecting any attempt by the seller to drive the price down. However, as the zone gets tested many times the strength of that zone will decrease and eventually a strong momentum will create a breakout from that zone.

    Breakout from a trend line. This type of breakout is also very simple to trade because the main key to know whether the market is going in a trend is by having a lower highs and lower lows for the bear market and then a higher highs and higher lows for the bull market. Sometimes the market will just move up or down with retracement levels forming fractal or zigzag. This situation creates a trend line when you connect the higher lows and this line is called a trend line. At some point, this trend line will be broken because the momentum has shifted from one side to another and this might provide a good opportunity to get profit.

    Breakout from an indicator. There are a lot of indicators out there but when we are talking about breakout from an indicator we are talking about those that you put as overlay to the price. The indicator in this group includes moving average, bollinger band, ichimoku and some others. These indicators work similar to support/resistance or trend line where you see the price going along the line and then eventually cross the moving average. Or in the case of bollinger bands the price goes up beyond the upper band or drops beyond the lower band signaling a change in momentum.

    Breakout from bigger time frame. Those who trade using multiple time frames know how important it is to check the higher time frame before picking an entry level on the lower time frame. Big time frame candle’s high or low are usually used to seek an entry. The breakout can be used as scalp trading or also for trend following trades.

    Breakout from a level. There are different trading strategies out there and many of them use level as their decision maker and this includes pivot point, fibonacci and some others.

    So, you can actually spot and trade different types of breakout among the list above and there is really no shortage of breakouts in the forex market because there are many time frames and currency pairs that you can choose from. Let’s look at some examples to make things clear:

    As you can easily see from the chart below we have 2 breakouts one after another. The first breakout is a zigzag breakout while the other one is the breakout from a pause. The potential profit is nice because the price keeps coming up.

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    Stop loss and take profit

    The standard setting for the SL and TP levels are described on the chart below where the stop loss level is placed on the high of the retracement (or can be put also on the high before the retracement) and the take profit level is based on 1:2 RR (minimum). Of course, you can experiment with your own stop loss and take profit settings and find the optimum setting. However, you should know that the size of the SL will determine the possibility of getting your TP or not. If the size of your SL is big then you should not try to aim 1:3 RR because we don’t know how far the market will go and it might also not achieve your TP level.

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    What to avoid and what to look for?

    Trading breakout is good but there are also times where you should be careful or simply ignore the setup because they don’t provide a good potential RR or other reasons that we will mention below:

    The size of the stop loss is too big. Trading is a probability game and the market is not going to give you unlimited pips even if you are correct. So, if your stop loss is too big then it’s better to avoid the trade setup. You can also fine tune the setup to use a smaller SL to make the trade acceptable such as going into the smaller time frame.

    The trend is already exhausted. When the market is already moving too far from the reversal point and you see a breakout setup you have to be careful because there is a chance that the market will reverse on you. If a breakout happens near reversal or continuation on a bigger time frame then there is a higher chance that you will make money.

    Short or small build up. When trading breakout you want to make sure that the momentum is on your side and one of the ways to identify a good breakout is by judging the size of the build up. The longer it takes for the market to form a rectangle pattern the stronger the breakout will become. If the size of the build up is small then you have to pay attention before entering the position because there is a big chance that the breakout will fail you.

    Trade in the direction of the general trend. This is very important and it will filter out many fake signals and avoid losing money. There is a lot of way to determine the trend and one of them is the presence of higher highs and higher lows for a bullish trend and vice versa for the bearish trend. Taking breakouts at the reversal point can generate a lot of profit for you but they are less certain compared to taking a breakout when a trend is already established. However, as mentioned before you should also avoid a setup when the trend is already going on too far.

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    Breakout is one of the many ways to make profit from the market and when mastered properly it will generate consistent profit for traders. Before attempting this trading strategy please make sure to try it on a demo account first because there are a lot of things that you need to get familiar with and adjust.

    Stay safe and stay awesome!
    You only need to read THIS ARTICLE to make money from forex trading,


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    • #3 Collapse

      What is Breakout trade:This term is commonly used in the forex business, so here I will tell you that what is breakout trade. Usually, we use to support and resistance in our trades and also we use different kinds of patterns for our trades, so when the market break the support level or resistance level and gives a new trade opportunity is called a breakout trade. There are two main kinds of breakout trade.
      1. Bullish breakout.
      2. Bearish breakout.

      Bullish breakout:In the forex market, there are many patterns for trading and the basis of all patterns is support and resistance. When a market trading in a downtrend and the market breaks the resistance level and starts bullish movement this is called a bullish breakout and from this breakout, traders get a new opportunity for the opening to buy trades.

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      Bearish Breakout:In the forex market when the market is trading in an uptrend in any pattern and the market break support level that is called a bearish breakout and at bearish breakout traders get the opportunity for sell trades. At the time of any breakout never ignore volume, as volume tells about the strength of breakout.

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      What is the transition in forex:When the market changes its movement from an uptrend to downtrend or downtrend to an uptrend at that time identify the strength of the new trend is called transition in forex and this is very important and if we found the right transition then we can set our target accordingly when the market changes its trend at that time first thing which has to be noted is the strength of trend reversal.

      How to identify transition in the forex market:This is very simple if you trained your eyes and you have good technical knowledge then in a simple way you can identify the transition of the market, basically transition depend upon market lower highs and lower lows in downtrend and vise versa in an uptrend.

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      False breakout:If you are a forex trader then hope you listen to this term much time, that market gives a false breakout. So it is very important to know, what is a false breakout in the forex market?
      Many time it happens that market break a pattern towards its support or resistance and traders open new trades according to break out of the market but then suddenly market get a reversal and entered in the same pattern in which market was trading this is called false breakout and usually false breakout is to seem in both sides, support side and resistance side.
      It is very important to wait for a while to enter a new trade after a breakout, due to the false breakout market give huge losses to traders.

      False bullish breakout:
      In this breakout, traders face loss due to the opening of new buy trades.

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      False bearish breakout:
      In this breakout, traders face loss due to the opening of new sell trades.

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      • #4 Collapse

        Breakout trading

        What is a breakout trading ?
        Breakout trading is a trading strategy aims for entering the market when the price closes outside a given resistance or support level. And there are two types of breakouts, which are :
        • A bullish breakout : occurs when the price closes above a strong resistance level, to continue its upward movement.
        • A bearish breakout : occurs when the price closes below a strong support level, to continue its downward movement.

        How to trade breakouts ?
        The technical tools, such as resistance lines, support lines, and trend lines can help us much in identifying the breakout points. Where, the bearish breakout typically occur when a price breaks an uptrend line or support line. And to open a trade after the breakout occurs, you should wait until one candlestick at least closes below the uptrend or below the support line to open a sell trade. And for more clarification, you can take a look on the images below.

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        The bullish breakout typically occur when a price breaks a downtrend line or resistance line. And to open a trade after the breakout occurs, you should wait until one candlestick at least closes above the downtrend or above the resistance line to open a buy trade. And for more clarification, you can take a look on the images below.

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        What is the fake breakout ?
        The fake breakout is a condition occurs when the price go outside a given level and back again without breaking it. And when this occurs most of traders hurry to open a trade in favor of the breakout but they discover that this breakout is a fake breakout, and they may face losses when the price back again within range of the previous level. So, to avoid these fake signals, you should wait until one candlestick at least closes outside the level that the price went up or down outside it, to confirm the breakout. And for more clarification, you can take a look on the image below :

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