The huge number of trading systems available to a trader can be divided into two main categories: breakout strategies and strategies based on price rebound from important levels. In today’s article we will grieve about the first type of trading systems. Their overall advantage is their high trading result. But there’s one pretty big drawback. Breakthroughs are often false. And if you don’t take the necessary measures, you can get major losses.
Trading breakdowns can be conventionally classified into several types.
Types of breakout trading systems
I’ll focus on four main views.
Trend line breakthrough
When the price after a long movement in a certain direction (up/down) breaks the trend line and continues to move in the direction of breakdown, then this situation is considered as a signal to open trade orders. The disadvantage of this method is that it requires a competent construction of a trendline, and this comes only with experience.
Perfection of support/resistance levels
Strategies based on the breakdown of important levels are perhaps the most popular among traders. And there’s an explanation for that. If the price has crossed a level that was not available to it many times before, it is a serious request to continue the price movement in the direction in which the break-down occurred.
Channel Boundary Problem
Canal strategy can bring stable profit. As a rule, trading is conducted inside the channel, i.e. deals are opened at the rebound from its borders. However, a confirmed break-down of the channel can bring a large profit to the trader.
Moving Average Crossing
Moving Average is a popular indicator based on many trading systems. Crossing the MA price (breakout) can also be considered as a signal to enter the market. But the obligatory requirement is its confirmation with the help of other analysis tools.
Tips for using breakout strategies in trading
- Opening a trading position immediately after a break-down involves high risk. The best option is to enter the market after the price of the trading instrument returned to the broken level and broke away from it. This price movement is a confirmation of a break-down.
- The following criteria can also be used to confirm the truth of the breakdown. A piercing candle has a large body. The moment of the breakdown was accompanied by a large volume. After the breakthrough candlestick on the chart there appeared 2-3 candlesticks of the same direction.
- If a break-down occurs after a long price consolidation, the probability that it will be false is low.
- When estimating a breakthrough situation in the market, a trader can be assisted in making the right trading decision by volumes.
Trading breakdowns have performed well not only in currency trading but also in other markets.Fyodorov’s Inga25.04.2018