Breakout trade – what is it?

by | Nov 10, 2022 | Forex Analysis

Breakout

Hi everyone,

There are many strategies when it comes to trading; one of them is a breakout trade. Today I will explain a breakout trade that you need to look out for.

Breakout trade

A breakout trade is one of the market strategies that still work today. No strategy works 100% as you know in the markets, but the strategy’s effectiveness counts as this is what will make us the most money.

A breakout trade according to Investopedia is when price moving outside a defined support or resistance level with increased volume. So if price moves above resistance the trader will open a long position and if price moves below support the trader will open a short position.

Let me show you a few examples below:

EURUSD

A very recent example is EURUSD when it broke the parity region of 1:1. This was a significant psychological level as 1 EUR bought you 1 USD. It hasnt been at this level since 2002 so the traders globally were watching this level. In our webinars and weekly anlaysis videos we had warned our members to not long the EUR when it came to parity region as the likely hood of you getting taken out was high.

Why? Because the banks and hedgefunds are aware there will a lot of retail traders planning to long at this position. You would have lost every time had you taken a long position there. Now for the short position you still needed more confirmation before taking it. You can see this in the below screenshot.

EURUSD weekly

So what was the plan? We said to members until and unless EURUSD broke the parity region on the weekly don’t open the position. So we waited. On the 18th of September the weekly candle closed at 0.96700 area as you can see above. Then the week ahead we told members we need a pullback to the 1.0000 area for a short. We had multiple reasons for it.

As you can see below on the Daily timeframe we had the 55 MA, the 1.0000 pscyhological level, major resistance level, downward trendline and the 61.8% fib extension. We had multiple reasons to take the short. I closed the position at 270 pips in the end with only a 60 pip stop. So more than 1:3 risk reward.

EURUSD Daily

Here is one of the videos i shared when the trade was live.

As of now I have added another forward order which you can see above screenshot at 0.99370 as we again have the multiple reasons and can look to ride the trend downwards. It still has the potential to head all the way to 0.9000 which is nearly a 1000 pips if you do hold it long enough.

A few more examples below:

GOLD- breaking the monthly level and the 200 MA after many years.

Gold

GBPUSD- Breaking the COVID low for the first time at 1.14

GBPUSD weekly

EURCHF- Recently did a Triangle breakout this week which has the potential to do at least 250 pips to the upside.

EURCHF

Plenty of examples above like we have shown that have worked if you had taken them. Sometimes they dont work as you can get fakeouts but losing is part of any trading strategy and we need to accept that.

Hope you found this article helpful and use this strategy in your trading style.

We are NOT a “tipping service” our aim is to teach you how to trade for yourself.

Kind regards,

Ashley

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