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How to put breakout trading to work

by , 23 October 2015
How to put breakout trading to work
When the market is trading in a range, you may be wondering how best to trade it.

You have a number of trading options. You can wait until a trend appears. You can trade the range. Or you can trade a breakout from the range.

Let's take a closer look…


Range bound trading


If you want to try to profit from a market that’s stuck in a defined range, you can trade the range it’s in.

To do this, you buy at the bottom of its range and sell at the top of its range. In other words, buy at support and sell at resistance.

If the range continues, you can keep trading it.

When you trade the range, you need to watch for the price breaking out of the range. This is why you need to place your stops just outside of the defined range you’re trading.


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Putting breakout trading to work


If the price breaks through support or resistance levels, the market can move quickly. This is where breakout trading comes in.

Instead of focusing on trading the range, you want to trade a breakout from the range.

To do this, you need to know what the defined range is. Mark the highs and lows with trend lines on your chart. Then you need to wait for the price to break out of this range.

It’s vital that you only use this method with clearly defined ranges. You want to see the price hitting support and resistance levels and moving back.

When the price breaks out of the range, you need to be ready to put a trade on. To manage your risk, put your stop loss below the lowest low of the range, Frank Hemsley in Profit Watch explains.

Set your target at twice the range. This gives you a reward to risk profile of 2:1.

To be good at breakout trading, you need to know the market well. For example, do it on an index or share you regularly trade. This will make it easier for you to spot when it’s trading in a range.

So there you have it. How to put breakout trading to work.

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Comments
1 comments


Nkosiindiphile Mdingi 2015-10-25 23:22:09

I need special advise on making money through stock market, trading and buying of shares