Preschool>= Lesson Status ?
Kindergarten>= Lesson Status ?
Elementary>= Lesson Status ?
Grade 1 Support and Resistance Levels
Grade 2 Japanese Candlesticks
Grade 3 Fibonacci
Grade 4 Moving Averages
Grade 5 Common Chart Indicators
Middle School>= Lesson Status ?
Grade 7 Important Chart Patterns
Grade 8 Pivot Points
Summer School>= Lesson Status ?
High School>= Lesson Status ?
Grade 9 Trading Divergences
Grade 10 Market Environment
Grade 11 Trading Breakouts and Fakeouts
Grade 12 Fundamental Analysis
Grade 13 Currency Crosses
- What is a Currency Cross Pair?
- Crosses Present More Trading Opportunities
- Cleaner Trends and Ranges
- Taking Advantage of Interest Rate Differential
- Obscure Crosses
- Planning Around News and Fundamentals
- Creating Synthetic Pairs
- Euro and Yen Crosses
- How to Use Crosses to Trade the Majors
- How Cross Currency Pairs Affect Dollar Pairs
- Summary: Currency Crosses
Grade 14 Multiple Time Frame Analysis
Undergraduate>= Lesson Status ?
- Why Keep a Trade Journal?
- Benefits of Keeping a Journal
- What Should You Record in Your Journal?
- Potential Trading Area
- Entry Trigger
- Position Sizing
- Trade Management Rules
- Trade Retrospective
- Trading Journal Statistics
- Reviewing Your Trading Journal
- Difficulties of Keeping a Trade Journal
- Summary: Keeping a Trade Journal
Graduation>= Lesson Status ?
- Which Trading Style is Best for You?
- Which Currencies Should You Trade?
- What is Your Level of Trading Experience?
- Should You Be a Discretionary, Mechanical, or Hybrid Trader?
- What Kind of Mechanical System Suits Your Personality?
- What is Your Attitude Towards Risk?
- What Kind of Stop Suits Your Trading Style?
Types of Breakouts
When trading breakouts it is important to realize that there are two main types:
- Continuation breakouts
- Reversal breakouts
Knowing what type of breakout you are seeing will help you make sense of what is actually happening in the big picture of the market.
Breakouts are significant because they indicate a change in the supply and demand of the currency pair you are trading. This change in sentiment can cause extensive moves that provide excellent opportunities for you to grab some pips.
Sometimes when there is an extensive move in one direction the market will often take a breather. This occurs when buyers and sellers pause to see what they should do next. As a result, you will see a period of range-bound movement called consolidation.
If traders decide that the initial trend was the right decision, and continue to push the price in the same direction, the result is a continuation breakout. Just think of it as a "continuation" of the initial trend.... You're so smart!
Reversal breakouts start off the same way as continuation breakouts in the fact that after a long trend, there tends to be a pause or consolidation.
The only difference is that after this consolidation, traders decide that the trend is exhausted and push the price in the opposite or "reverse" direction. As a result, you have what is called a "reversal breakout". You catch on quick!
Now we know by now you are super excited to start trading breakouts (please tell us you haven't already started trading!) but you also have to be careful. Just like Kobe Bryant can fake out defenders in the NBA, the market can fake you out as well producing false breakouts.
False breakouts occur when the price breaks past a certain level (support, resistance, triangle, trend line, etc.) but doesn't continue to accelerate in that direction. Instead, what you might've seen was a short spike followed by the price moving back into its trading range.
A good way to enter on a breakout is to wait until the price retraces back to the original breakout level and then wait to see if it bounces back to create a new high or low (depending on which direction you are trading).
Another way to combat fake outs is by not taking the first breakout you see. By waiting to see if the price will continue to move in your intended direction, you give yourself a better chance of taking a profitable trade. The downside to this is that you may miss out on some trades in which the price moves quickly without any hesitation.
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- Trading Breakouts
- Ways to Measure Volatility
- Types of Breakouts
- Spotting Breakouts
- Measuring the Strength of the Breakout
- Trading Fakeouts
- Fade the Breakout
- How to Trade Fakeouts
- Summary: Trading Breakouts and Fakeouts