|
Become a member
Breakout strategies are based on chart technique. The strategies attempt to trade chart breakouts above resistances or supports or out of price formations in the direction of the breakout. The quality of the trading signals generated by breakout strategies stands and falls with the quality of the chart analysis and the correct tactical positioning in the market.
A long position is opened when the market crosses a resistance level. A short position is opened when the market breaks a support on the downside. This definition initially allows any resistance and support to be the basis for trading signals. However, such a broad definition is hardly meaningful from an empirical point of view.
Breakouts should be significant
For the sake of a high hit rate and an attractive price potential at the time of opening a position, it is advisable to limit the signals to significant breakouts. Not every previous high or low in a trend is automatically significant. Rather, look for horizontal resistance and support where the market has reversed at least twice.
In addition to horizontal resistance and support, trendlines and chart formations are also relevant for breakout strategies. If the market runs above a trend line, this acts as support. So-called cross resistances are particularly significant: this is a coincidence of a trend line and horizontal resistance. The same applies analogously to supports.
The stronger the resistance, the stronger the breakout.
The following applies: The more significant a resistance is, the greater the probability that the market will not overcome it. At the same time, however, when a resistance is overcome, the significance of the breakout increases with the number of previous failed attempts.
Significance in this context means that overcoming strong resistances with a very high probability leads to price movements in https://exness-vietnam.asia/ on a considerable scale in the direction of the breakout.
In chart price formations such as the shoulder-head-shoulder formation, triangles or wedges, the breakout point results from the nature of the formation. In the case of an upper shoulder-head-shoulder formation, for example, the breakout occurs when the neckline is broken.
Turnover and volatility should confirm the breakout
In practice, false breakouts occur time and again: Initially, the conditions for a breakout are in place, but it breaks off after a short time. The risk of false breakouts can be minimised by looking at additional secondary indicators. These include, in particular, turnover or open interest and market volatility.
If a market is running towards a significant resistance, the turnover should be declining. From the moment of the breakout, the turnover should increase significantly. This also applies to volatility, which should increase: ideally, the breakout ends with a large white candle without a wick.
In most breakouts there are return movements in the direction of the breakout point. These alone by no means constitute a false breakout as long as the breakout point is not breached again. However, the weaker the return movement, the greater the potential of the breakout.
| 
