Breakout trading in the forex model is a trading strategy based on identifying asset price points that break support or resistance levels. This strategy is commonly used in the Forex, foreign exchange, and cryptocurrency markets. Use this trading with the goal of keeping up with emerging market trends and profiting. To better understand this transaction, please refer to the article below from Forex Trading!
Introduction to breakout trading
Breakout trading is a trading strategy that can help investors profit from market fluctuations.
What is Breakout trading?
Breakout trading is a trading strategy commonly used in financial markets. This type of strategy focuses on identifying and capitalizing on key price points. When the asset price breaks through a previously established support or resistance level.
This transaction usually occurs when the asset price breaks out of a fixed price range and begins to move in a new direction.
Note when trading with Breakout on the Forex model
When trading with Breakout on the Forex model, you should note the following:
Confirming the authenticity of the Breakout: Breakouts that come with high trading volume often have high credibility. Combining Breakout with technical indicators and market news to increase accuracy. At the same time, perform basic technical analysis to ensure trend-following trading.
Apply an effective risk management strategy: Always set a stop loss order to limit losses if the Breakout does not happen as expected. You should only invest money that you can afford to lose. Avoid putting all your capital into a single transaction.
High leverage can magnify profits but also magnify losses. Use leverage with caution.
Patience and discipline: Do not rush to enter orders when the Breakout has just occurred. Wait for confirmation signals and increased trading volume. Avoid conducting trades based on emotions or being influenced by crowd psychology. Keep calm and control your emotions when trading to make wise decisions.
Improve your trading knowledge and skills: Read books, and participate in courses and forums to improve your understanding of this strategy. Use a demo account to practice trading and test the effectiveness of the strategy. Update market news, analyze price charts, and listen to experts’ opinions. To be able to make wise trading decisions.
See more: Be more successful through this technical analysis
Types of Breakout trading in forex models
In Forex models, there are several common types of Breakouts such as:
Breakout trading strategy for up and down trends
Uptrend Breakout: Determine the Breakout point when the price surpasses the resistance level in the market’s uptrend.
Downtrend Breakout: Determine the Breakout point when the price surpasses the support level in the market’s downtrend.
Reversal Breakout: Determine the Breakout point when the price breaks through the support/resistance level, leading to a trend reversal.
Fake Breakout Trading Strategy
Fake Breakouts are a strategy that exploits market turbulence created by fake price Breakouts. This strategy has high potential risks but also offers attractive profit opportunities. This type of trading occurs when the asset price breaks through support and resistance levels. But did not maintain the trend and returned to the previous price range.
Fake Breakout Trading Strategy in Forex model:
Counter-trend fake breakout:
- Entry point: When the price breaks through the support/resistance level but trading volume is low and RSI/Stochastic is high.
- Stop loss: Set above the false resistance level or below the false support level.
- Profit target: Actual support/resistance level or key pivot point.
Fake breakout according to price model:
- Entry point: When the price completes a reversal pattern after a fake Breakout (such as a head and shoulders pattern).
- Stop loss point: Set above the top of the model or below the bottom of the model.
- Profit Target: Actual support and resistance levels or key pivot points.
Real Breakout trading strategy
True Breakout, also known as True Breakout. This is a trading strategy to keep up with new market trends. This strategy is highly appreciated for its high profitability and potential in determining market trends.
True Breakout characteristics:
- High Trading Volume: The Breakout was accompanied by a spike in trading volume, confirming the authenticity of the Breakout.
- Price after Breakout: Price tends to continue moving in the Breakout direction after overcoming support and resistance levels.
- Confirmed by indicators: Some MACD indicators, Ichimoku Kinko Hyo can confirm a real Breakout.
How to trade according to the real Breakout trend:
- Entry point: When the price breaks through the support/resistance level and maintains the trend of moving in a new direction with high trading volume.
- Stop loss: Set below the support level or above the broken resistance level.
- Profit Target: The next key support/resistance level or pivot point on the price chart.
How to implement a price pattern trading strategy:
- Entry point: When the price completes the price pattern signals a new trend.
- Stop loss point: Set below the bottom of the model or above the top of the model.
- Profit Target: The next key support and resistance level or pivot point on the price chart.
See more: Exness – Trade With The World’s Leading Broker Exness
How to use Breakout trading on the Forex market quickly
To use Breakout on Forex models, you can refer to the following ways:
Enter a buy order with Breakout on the Forex model
Conditions for entering a buy order:
- The price graphs of the rsi and MFI indicator are in an average and long-term uptrend. The simplest way to determine it is that the price must be on the EMA200 axis.
- The Breakout candle closed above the resistance zone and trading volume was at the 20-session average.
Determine to take profit and cut loss:
- Stop loss below the nearest Swing Low point
- Take profit = 2 x (buy price – stop loss price) or at the nearest resistance level
Note: In case the distance from the purchase price to the nearest resistance level is < 2 x (buy price – stop loss price). You can choose not to participate due to the unattractive profit rate.
How to enter a sell order with Breakout trading
Conditions for entering a sell order:
- The index’s price graph is in an average and long-term uptrend. The simplest way to determine is that the price must be below the EMA200 axis.
- The Breakout candle closed above the resistance zone and trading volume was at the 20-session average.
How to determine take profit and stop loss:
- Stop loss above the nearest Swing High point
- Take profit = 2 x (stop loss price – sell price) or around the nearest support level.
Wait for the Retest to enter the order
Waiting for a Retest is a technique to increase the reliability of the Breakout. By waiting for the price to return and checking the support and resistance zones that have been broken before entering a trade.
How to perform:
- Identify Breakout points: Use technical analysis techniques such as support and resistance zones, price models, and indicators. To identify potential Breakout points.
- Wait for the price to retest: Watch when the price breaks through the support and resistance levels and returns to test this zone.
- Enter an order when there is a confirmation signal: If the price touches the support and resistance levels and forms a confirmation signal. For example, if the price pattern is reversing, increasing, and decreasing trading volume, enter a trading order according to the Breakout trend.
Conclude
In the above article, Forex Trading has given you some information about Breakout trading. This type of trading is not a perfect strategy and can lead to losses. Therefore, it is necessary to be fully equipped with knowledge, skills, and experience before applying the strategy. Hopefully, the information in this article will help you during the trading process. In particular, don’t forget to follow Forex Trading to get more financial information!
FAQS
Is there a fee for trading with the Breakout trend?
This transaction is free of charge. However, trading costs will arise from the trading platform you use. For example, commission fees, trading spread fees, overnight fees, deposit and withdrawal fees…
Is Breakout trading safe?
This transaction is a potential strategy but also has many potential risks. Therefore, investors need to be fully equipped with knowledge, skills, and experience before applying this strategy.
How to recognize a successful Breakout
Recognize successful Breakouts by monitoring price trends and identifying support and resistance levels. Once the price increases or decreases to the point of surpassing this threshold, the Breakout point will be successfully identified.
