How to trade Breakouts

How to trade Breakouts

Sometimes in my post I use the word breakout. Let me clarify what meaning I put in this term.

Simply talking,

  • breakouts, bullish breakouts – is the process of successful crossing of resistance line. Price struggles above resistance (or zone of weakness) and does not move back.
  • breakdowns, or bearish breakdowns – is the process of successful crossing of support line. Price struggles below support line (or zone of strength) and does not move back.
  • fake breakouts, or traps for bulls – is the process of false crossing of resistance line. Price attracts traders in longs, because they think the advcane will continue. Unfortunately for them, soon price move back.
  • fake breakdowns, or traps for bears – is the process of false crossing of support line. Price attracts traders in longs, because they think the advcane will continue. Unfortunately for them, soon price move back.

Let’s go to example.
In the morning I’ve posted this picture in Telegram:

Here is an original big picture

My goal was to turn your attention to the following idea:

After period of dullnes (flatty sideways movements), traders and trading bots become sensitive to breakouts as they desire to open trade at the very beginning of the planned trend.

Now turn to cluster chart from professional software. Red clusters – executed SELL orders, green clusters – executed BUY orders. Below the clusters – delta indicator, it shows difference between BUYs and SELLs

  1. The balancing wedge, or the zone of dulling flat. We got resistance line above range, and support line below the range. The profile forms the shape of gaussian bell. Which way the market will move from it? Here is the clue comes…
  2. Trap for bears started to form here. You see effort of sellers (red clusters) to breakdown the support.
  3. Price quickly reversed. Green clusters point on buying. Trap formed. It increases chances on the genuine bullish from initial balance.
  4. Here is mentioned bullish breakout (effort of buyers to overcome resistance).

Setup worked fine. And it really works fine often. Any markets, timeframes.

Hope, this post was helpful to understand the concept of breakouts.

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