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What is Breakout Trading?

Breakout Trading is an active trading technique used by investors who try to capture the strength of trends' early periods. A Breakout occurs if stock price moves above a resistance level or below a support level and this price action is associated with increased volume. Breakout Trading is a great opportunity for taking profit from the beginning of major price moves, and increase in volatility, which when played adequately can guarantee limited downside risk.

A Breakout is a potential trading opportunity that occurs when stock price manages to Break Out of its range after it has stayed in a trading range for a while.

Prior to acting on Breakout Strategy it is imperative to identify current price trend patterns along with support and resistance levels and determine entry and exit points accordingly. When studying stock charts, stock candidates' technical analysis with clear identification of chart patterns 80 is a must, and you'll also need to implement proper risk management strategy. Set a stop loss order below the Breakout level if you go long and place it above the Breakout level if your stock is shorted. Limit orders will help to reduce the risk and minimize losses in case of failed breakout also referred to as fakeout.

Breakout strategies are commonly used by medium- or long-term investors as well as Day Traders backed by short-term time horizon. In intraday trading, as a momentum -based trading strategy, Breakout Trading can be combined with other trading techniques.

Breakout Trading assumes quick entries and exits. It is vital to enter the trade right at the bottom if you open long position, and at the apex point if you go short, where the Vreakout should transpire. You should contemplate exiting the stock when momentum stops. Stock Scanners and particularly Breakout scanners can help you find setups.

Trading Breakouts can be very profitable if traded in line with rules of thumb. Risk of a fakeout is high that should be taken into account which is why developing a sound risk management is of paramount importance.

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