Trading The Breakout (Part I)
A breakout typically occurs when the currency price moves beyond the period of consolidation or range trading. Who doesnt want to reap massive profits from a big price move in a short time? This is what breakout trading can provide you.
There are times when trading the breakout can be very profitable even though breakouts are known to be technically unstable. A breakout occurs when the price moves above or below a support or resistance level whether temporarily or permanently.
You will have to take into account many market factors including both the technical and the fundamental analysis in order to trade breakouts with a higher probability of success.
The volume information is easily available for stocks and futures. Both are traded on a centralized exchange. At the end of the day, the traders can find out the volume of each security that had been traded during the day. Information about volume is critical to trading the breakout.
However, volume data is not available for forex markets due to its OTC nature. Being decentralized, this data cannot be collected. Lack of forex volume data is a huge disadvantage to forex traders. Volume reveals where the market is positioned or positioning.
Successful breakouts are generally accompanied by a rise in volume. Volume is a very important criterion for any breakout trading strategy. It signals a change in the underlying supply and demand conditions possibly triggered by a change in market sentiments caused by some new markets fundamentals when the price attempts a breakout of a significant support or resistance level.
Price breakouts can be of two types: 1) Continuation Breakouts and 2) Reversal Breakouts. Successful breakouts must be accompanied with a strong surge of momentum in the direction of the breakout in order to be sustainable. Poor momentum will generally lead to the fizzling out of the breakout and continuation of the existing trend.
Continuation Breakout: The price action climbs higher in continuation of an uptrend or falls further lower in a downtrend in a continuation breakout. The breakout occurs after a period of consolidation. The buyers and sellers of the currency pair try to regroup and think about the next price move. Currency prices break out of an established price level to again resume the underlying trend.
Reversal Breakout: Reversal breakout means a new trend in the opposite direction. It is caused by new market fundamentals. A breakout my lead to a trend reversal and the beginning of a new trend in the opposite direction!
A false breakout may occur. The prices may break the support or resistance but then retreat back into the previous price zone. There are many times when the price action does not move in a straightforward direction in the markets.
If you are a breakout trader and you have placed your stop just above or below the resistance or support levels, a false breakout will stop out most of the breakout traders! The worst kind of a breakout is the whipsaw type. - 23200
There are times when trading the breakout can be very profitable even though breakouts are known to be technically unstable. A breakout occurs when the price moves above or below a support or resistance level whether temporarily or permanently.
You will have to take into account many market factors including both the technical and the fundamental analysis in order to trade breakouts with a higher probability of success.
The volume information is easily available for stocks and futures. Both are traded on a centralized exchange. At the end of the day, the traders can find out the volume of each security that had been traded during the day. Information about volume is critical to trading the breakout.
However, volume data is not available for forex markets due to its OTC nature. Being decentralized, this data cannot be collected. Lack of forex volume data is a huge disadvantage to forex traders. Volume reveals where the market is positioned or positioning.
Successful breakouts are generally accompanied by a rise in volume. Volume is a very important criterion for any breakout trading strategy. It signals a change in the underlying supply and demand conditions possibly triggered by a change in market sentiments caused by some new markets fundamentals when the price attempts a breakout of a significant support or resistance level.
Price breakouts can be of two types: 1) Continuation Breakouts and 2) Reversal Breakouts. Successful breakouts must be accompanied with a strong surge of momentum in the direction of the breakout in order to be sustainable. Poor momentum will generally lead to the fizzling out of the breakout and continuation of the existing trend.
Continuation Breakout: The price action climbs higher in continuation of an uptrend or falls further lower in a downtrend in a continuation breakout. The breakout occurs after a period of consolidation. The buyers and sellers of the currency pair try to regroup and think about the next price move. Currency prices break out of an established price level to again resume the underlying trend.
Reversal Breakout: Reversal breakout means a new trend in the opposite direction. It is caused by new market fundamentals. A breakout my lead to a trend reversal and the beginning of a new trend in the opposite direction!
A false breakout may occur. The prices may break the support or resistance but then retreat back into the previous price zone. There are many times when the price action does not move in a straightforward direction in the markets.
If you are a breakout trader and you have placed your stop just above or below the resistance or support levels, a false breakout will stop out most of the breakout traders! The worst kind of a breakout is the whipsaw type. - 23200
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Know The Forex Market. Learn Forex Trading!
posted by X - Men @ 10:54 AM
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