Breakout Trading Strategies for Daytraders
There are many different trading strategies by which one can trade the financial market successfully. Breakout trading strategy is one of the most important trading strategies since the market tends to show high volatility followed by a successful breakout of confined region. Professional day traders keenly wait for the breakout and enter into the trade with proper risk management system.
Chart Example: Breakouts
Figure: Trading the Breakout
In the above figure, the price was confined in a rectangle region with a two false spike penetrating the upper key resistance. Traders who entered aggressively in the market without price action confirmation would have badly burnt. On the contrary, professional traders wait patiently even though the market clearly breached the support zone.
The market eventually retraced back to the support level which turned into resistance and formed a bearish engulfing pattern. With the formation of this bearish engulfing pattern, the market gives a clear direction of the new bearish movement of the pair. Remember fake out are the more common phenomenon for the day traders since they rarely trade the weekly charts.
Longer-time frame tends to develop less false signal compared to the shorter one. It is very crucial that traders use proper money management while trading the breakout in the daily chart to avoid unavoidable circumstances.