How to Deal with Breakout
Breakout trading is one of the strategies with great profit opportunities. Usually, traders rely on trendlines as a technical tool to get breakout signals. But apparently, there is a simple forex strategy that can be used to sharpen these signals. Especially identified from the price breakout against the trendline. But before discussing the simple forex strategy in question, it's a good idea for traders to understand the importance of using more refined trading signals.
Breakout Confirmation Terms
1. Determine key support and resistance price levels. Key levels are really strong and tested support or resistance levels. The price has to break through that level.
2. Make sure that the closing price of the candlestick bar (breakout bar) is above the key resistance level or below the key support level. The further it is from the key level the more valid it is. For example, for uptrend conditions, if the closing price of the bar breaks out below the key resistance level, the bullish momentum is very weak and a reversal movement tends to occur due to profit taking of traders who have entered buy long before.
3. Wait a few more bars to make sure the price is really at the new area level (after the breakout). For the daily time frame, the waiting time is usually 3 days. If during that period the price has moved at the new area level, the trader can conclude that the breakout condition is indeed valid. If the trader uses a time frame that is lower than the daily, then estimate the number of bars for confirmation, which is clearly more than 3 bars, and the smaller the trading time frame, the more bars the trader will confirm.
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