In order to understand what breakout trading is, you have to understand that there are two types of breakouts. Well I am going to talk about two types of breakout trading setup:
- Support and Resistance breakouts
- Swing high and Swing Low breakouts
So what is breakout trading? Simply put it, breakout trading is an attempt to enter the market once the price moves outside a defined price range (support or resistance). However, the important characteristic of a genuine breakout is that it needs to be accompanied with increased volume. A chart speaks more than words can do so here is what support and resistance breakout trading should look like: Please take a piece of paper and a pen because what you’re about to learn next is very crucial and it needs to be immortalized. In breakout trading a genuine breakout is followed by a big, bold candle that closes well above the support resistance level. In the figure above, this can be noticed quite instantly. As a rule in breakout trading the bigger the breakout candle is the better. What is breakout trading of a swing high and swing low?
Well, we apply the same rules as in the case of the support and resistance breakout trading but adding one…