Breakout Strategies to Use While Trading

Every trader must maintain a trading plan if he really wants to be profitable in his operations, this includes measuring risk and establishing safe strategies to detect in the market and position his orders at the right time. Although there are many effective strategies to reach our target price, today we will talk about the famous "breakouts" and how we can make the most of them.

In trading, a breakout is a movement in the markets where the price leaves a range and breaks support / resistance levels. Generally, these price actions are accompanied by high volume, which will be strictly necessary to break these points and maintain a solid trend.

The breakout momentum

For long orders:

Frequently we are recommended to mark our entry at the end of a long bullish candle just about to break the resistance level, although if we want to trade safely the best thing is to wait for another confirmation after said resistance is broken, especially because there are cases in which the breakdown fails and the price is returned.

So we will mark our entry point after a bullish candle starts just above the resistance level that has already successfully broken and we will put our stop loss just below, at least 5 pips away.

For short orders:

We will apply basically the same procedure but in downtrends. Assuming a bearish candle is trying to break a support level, we will wait for a confirmation after the break to make sure the price is actually falling and we can take advantage of this path. Placing stop loss at least 5 pips above our entry point.

The breakout pullback

This strategy will work for pullbacks by breaking support and resistance levels. One of the main patterns to identify this entry is when (in bullish trends) the resistance level is touched at least 2 times by the price and its break comes from a strong pullback.

In such a case, our entry would be in the bullish candle that would form after the pullback, especially if it consolidates immediately after breaking resistance.

  This indicates a solid bullish trend that can give us a lot of profit pips.

In the case of downtrends, the same principle applies but in the opposite direction. If these pullbacks leave PIN BAR towards our entry points, it is better to abort the strategy and wait for another opportunity, since the price could turn against us due to different factors (volume, fundamentals...).

Moving average breakout strategy

For this strategy we recommend opening charts with H1 timeframe and having SMA 25 activated, we can apply it more than anything to bearish trends presented at support levels.

Frequently, we will see a pullback in a bearish direction that will form next to the moving average. If, after the pullback, the price continues to move down with a solid bearish candle, we can be certain that we will see a breakout, which will be confirmed by the presence of the moving average 25.

After the price breaks the support level, we will mark our entry on the next bearish candle to ensure a decent ride and protect our backs. If the price were to return, it would probably look for the resistance level again and take our Stop Loss on its way.


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