Today we will tell you about a robust trading strategy that many traders successfully use on IronTrade. Breakout is a popular trading method even though it is a bit more complicated than is at first apparent. With this method, we wait for the price to break through some levels. It may take a while, and you can see when an asset is stuck at some level. Just keep waiting.

 

This method is aimed at average traders who already have some analytical skills. It is important because you should read the signals and understand the whole market situation to use it. Technical analysis and understanding of chart patterns are also helpful to find potential breakouts. So, let’s see how it works in detail.

 

Usually, IronTrade traders try to spot support and resistance lines on the price chart when using this method. These lines are essential benchmarks that the price might move forward from or break through.

 

So, when you see the price bouncing or even breaking through the support or resistance lines, you may consider this as the first signal that the price will continue to move in this direction.

 

Any breakout may indicate an opportunity to invest UP or DOWN (depending on the asset you trade with). See the example of the EURUSD chart below. Here we can clearly see that the chart broke through the support line and started a bearish trend:

 

 

If the price breaks through the support line downwards and continues to move down, you can consider it a signal to invest DOWN. If the price breaks the resistance line upwards and continues to move up, it is a signal to invest UP.

 

Also, many traders who trade with this strategy do not open a trade immediately after a breakout. They wait for the market correction first to avoid a false signal, when the price may return to its previous level.

 

How to confirm a breakout

 

1. Chart patterns

It is quite a common thing to detect a potential breakout with patterns. We’ve already described some of them in our previous articles. Look for different shapes: triangles, flags, head and shoulders, and so. Just set the support and resistance lines following the current pattern and wait for the breakout.

 

2. Technical indicators

MACD, Bollinger lines, and RSI are your friends here. These are more advanced tools that can confirm a breakout with a higher probability. Also, you can use the volume indicator because breakouts usually happen within low-volume periods. After the breakout, you can generally see a higher volume in trades because the market enters a new active phase. Use several indicators together to get more accurate signals.

 

Risk management and breakouts

 

As usual, it is essential to apply several strict risk management rules when you use a breakout approach. There are several important risk management rules to be exercised together with the breakout approach. Traders that wish to stick with this style of trading may want to confirm the following:

 

• – monitor several assets at once. Sometimes it takes a while for a breakout to happen, so it will be faster when you track several assets together. It will save you time and provide more opportunities to gain;
• – general patience. It is always suitable for trading. Do not let your emotions prevail over your trading. Remember that it is always better to miss an entry than making a mistake that costs a lot.

 

Happy End

 

To sum it up, we can say that a breakout approach can be used with chart patterns, technical indicators, and economic news. This method helps traders to open positions at the right time. Still, as any other approach, it requires practice and risk awareness. Try to identify support and resistance lines while trading on the IronTrade demo account first. It will help you to understand it better. Good luck!