Breakout Trading - the first steps. Is it for beginners?
Breakout trading is one of the most common types of trading, more precisely, trading strategies on the Forex exchange. The first time this type of trade was tested for a long time and showed good results. Today, little has changed and this strategy is able to bring good money, if used correctly, and also to feel the market.
Breakout trading can be recommended to both novice and conservative traders.
The essence of the breakdown trading strategy
Imagine a situation where the quotation fluctuates for a long time in a specific, narrow corridor, for example, 1.6000-1.6200. As soon as the price reaches the upper level (approximately, not necessarily with an accuracy of 1 point), it turns around and goes down. Having reached the lower level, the price again makes a turn, this time up. This continues for some time. Thus, the price moves in this corridor, which means we can use it. After all, sooner or later the price breaks through any of the levels.
Best for trading brokers are suitable - Alpari, RoboForex or Forex4You.
The next “stop” of the quote is likely to be at the levels of 1,5800 or 1,6400. Why there? It is noticed that during breakdowns the price moves a distance equal to the channel from which it emerged - for our example, the channel value is 200 points.
How can you make money on it? Simple - trading for a breakdown. By the latter we mean confidently overcoming the price of any of the important price levels (1.6000 - 1.6200). There are two trading options: placing a pending order to buy slightly above 1.6200 or to sell - below 1.6000. You can also open positions in real time when price breaks through these levels. The latter option is preferable, although the trader is not always in front of the monitor during a strong price spurt.
Breakout Trading Features
Each of these methods has its pros and cons. By placing pending orders, you may encounter the so-called. false breakdown, when the price broke through the level, and then returned to the channel. If the trader absented, you can get significant losses. If you are almost constantly online, you can get into a situation where the movement in the market will be so strong that you may not have time to catch the right moment, getting only a few points of profit.
Trading online or using pending orders is up to you. Both options are good. Most use manual opening of market positions. This makes it possible to respond in a timely manner to new price changes.
In the screenshot you can see how the price moved in the corridor 1.6118-1.6224. The boundaries are arbitrary and may differ by several points. It is important for us to know the approximate location of the levels of this channel. We also see a false penetration of the channel (upper limit), after which the price returned back.
After a while, the price breaks through the lower channel and moves on. Conditionally, we place a pending sell order just below the lower border of the channel. We place a pending buy order for the upper border.
To get a more accurate signal, it is better to use additional indicators, volumes (Better Volume) or patterns (candlesticks or PriceAction). In other words, breaking through the price of the channel must be confirmed and amplified by another signal. Then the probability of a correct entry into the market, i.e. trading for a breakdown will have a high probability of successful continuation of the movement.
What else to say about breakout trading? It needs practice and market understanding. All this is being developed. Success and remember that the profitability of trading depends very much on the broker you choose!