Trading Strategy in the Breakout Area
Breakout trading is one of the strategies with great profit opportunities. Usually, traders rely on trendlines as a technical tool to get breakout signals. But apparently, there is a simple forex strategy that can be used to ‘sharpen’ these signals. especially identified from the price breakout against the trendline. But before discussing the simple forex strategy in question, it helps us understand the importance of using more ‘honed’ trading signals.
In the world of trading, support and resistance will not last forever. At some point these levels will definitely break. At such times, traders can still try to find opportunities with a strategy called breakout trading which is one hundred percent different from bounce trading.
A support or resistance is considered a break if it meets at least one of the following two things.
– First, if the trader uses a candlestick chart, then the body of the candlestick must cross or break the support or resistance line.
– Second, when a breakout occurs, there is an increase in volume. The more significant the increase, the more valid the breakout is.
Some Things to Pay Attention to in Trading Using Breakouts
Observe Market Trading Volume During Breakout
A breakout accompanied by high trading volume suggests a greater possibility of trending. Conversely, a breakout that occurs when trading volume is low, indicates a high possibility for the price to reverse again (fake breakout).
Use Candle For Breakout Validation
In order for the breakout to be valid, traders should wait until the closing of the candle is above the resistance or below the support that is the reference for the breakout. It is even better if one candle is intact and the shadow is outside the related resistance or support area. The breakout has not really occurred if only the upper or lower end of the shadow candle has exceeded the support-resistance threshold.
Don’t Forget to Stop Loss
To overcome the risk of trading with a breakout reference, traders should place a Stop Loss right at the resistance or support point that previously marked the breakout. Stop Loss is important so that traders do not experience losses that are too large if the price fails to breakout later.
