Relax and put down the pimple cream! Day breakouts don’t refer to acne attacks that take place during the day. In fact, it is a term used in forex trading, where there is a rise in price after it breaks above a certain resistance level. It can also take place when specific levels, such as pivot points, support and resistance levels or Fibonacci levels, are breached.
Breakout trading in forex is highly popular because it provides risk-reward ratios. Who would have thought a term you dreaded as a teenager would come to your rescue when you started day trading? Let’s find out more.
Some might wonder what we mean when we say breakouts clear certain crucial levels on a chart. These levels are mostly psychological and are an indication of how day traders feel about certain price levels. The good thing about breakout day trading is that it can transform ordinary traders into extraordinary ones. The bad thing – many lose money day trading them too quickly, since prices sometimes revert to their initial mark. The solution, then, is to not trade until you’re sure the tide has turned your way. There are a number of indicators that can help you identify a genuine breakout from a ‘fake’ one.
For trading breakouts successfully, the market condition should either be up trending, or range-bound, with the price action close to the upper end of that range. Indicators and strategies help you confirm a breakout, or predict its strength. Let’s take a look at them.
Breakout trading is routine for swing and intraday traders, and is used by even highly successful automated systems. In a choppy market, breakout strategies help traders play safe and not worry too much about the long term.
If you liked this educational article, please consult our Risk Disclosure Notice before starting to trade. Trading leveraged products involves a high level of risk. You may lose more than your invested capital.