How to Trade Breakouts



A breakout in the trading world is a bit different from the breakouts you might have had as a teenager.

A breakout happens when the price “breaks out” of some kind of consolidation or trading range.

A breakout can also happen when a precise price level is broken, such as support and resistance levels, pivot points, Fibonacci levels  and more.

By means of breakout trades, the objective is to enter the market right when the price makes a breakout and then continue to ride the trade until unpredictability dies down.


Volatility, Not Volume

Unlike trading stocks or futures, there is no method for you to see the volume of trades completed in the foreign exchange market.

By means of stock or future trades, volume is important for building good breakout trades so not having this record available in the forex leaves us at a disadvantage.

Because of this disadvantage, we have to depend on not only on good risk management, but also on certain criteria in order to position ourselves for a good possible breakout.

Volatility would be regarded high, If there is a large price movement within a short  period of time.

Then again, if there is relatively little movement in a short period of time then volatility would be reflected low.

Even though it is  inviting to get in the market when it is moving quicker than a speeding bullet, you will frequently find yourself more tense and worried,  making bad choices as your money goes in and then goes right back out.

This high volatility is what interests a lot of forex traders, however,  it’s this same volatility that kills many of them as well.

The objective here is to use volatility to your benefit.

Instead of following the crowd and trying to jump in when the market is super volatile, it would be better to look for currency pairs with volatility that is very low.

This way, you can place yourself and be ready for when a breakout happens and volatility skyrockets!


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