BreakoutTrading

Simple,ProvenStrategiesforIdentifyingand

ProfitingfromBreakouts

TableOfContentsIntroductionChapter 1 – What Is aBreakout?– Reversal Breakouts andContinuationBreakouts–TriangleBreakoutsChapter 2 – How Can YouPredictaBreakout?Chapter3–HowDoYou

KnowIfaBreakoutIsReal?Chapter4–Step-by-StepHowTradeaBreakoutChapter5–FinalCommentsConclusion

IntroductionIwanttothankyouverymuchandcongratulateyoufordownloadingthebook,BreakoutTrading–Simple,ProvenStrategiesforIdentifyingandProfitingfromBreakouts .Forthemajorityofthetime,stocksandcurrencypairstendtotradewithinwell-

definedranges–oftenbetweensupportandresistancelevels.However,therecomesapointwhenasecuritybreaksoutofitstradingrange,andthisisknown–notsurprisingly–asabreakout.Byidentifyingor–evenbetter–predictingabreakout,atradercantakeadvantageofhigh-probabilitytradingopportunities.Inthisbook,you’lllearn

simplestep-by-stepstrategies,techniquesandguidelinesforidentifyingandpredictingbreakoutstohelpyougenerateconsistenttradingprofits.Thanksagainfordownloadingthisbook,Ihopeyouenjoyit!

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Chapter1-WhatIsABreakout?Breakouts occur when asecurity breaches a specificprice level, suchasa supportor resistance level. Perhapsthe simplest example of thisis when a security is tradinginachannel.Forinstance,thediagram below shows

EURGBPtradinginapricingchannelandthenbreakingoutofthatchanneltotheupside.

Ofcourse,evenifthereisnotaclearlydefinedchannel,itisstill possible to identifybreakouts by looking attrends. For example, if onlythelowertrendlineisdrawn,then a breakout occurs whenthe price breaks through thetrend line. It is important tonotethatthemovementneedstobeintheoppositedirectionto the trend to qualify as abreakout – in other words, a

downside movement in anascending trend or upsidemovement in a descendingtrend.

ReversalBreakoutsandContinuationBreakoutsAnother important type ofbreakout to look out for iswhen the market enters aconsolidation period. This iswhena trendcomes toahalt

and the market starts tradinghorizontally.Atthispoint,themarket is essentially takingabreather, after which it canbreakout in the samedirectionastheoriginaltrend–acontinuationbreakout–orcan start to move in theoppositedirection–areversalbreakout. The chart belowshows an example of areversalbreakout.

TriangleBreakoutsOne other type of breakoutthatisquitecommoniswithatrianglepattern.This iswhenpricesareconvergingwith ina triangle and the price thenbreaks out of the triangle.Therearethreedifferenttypesoftriangle:

Ascending triangles,where the upperresistancelevelsstaysconstant while thelows keep on gettinghigher. This istypically when thebulls are starting toget anupper handonthebears.Theseoftenlead to a breakout totheupside.Descending triangles,

which are theoppositeofascendingtriangles and indicatethatbearsaregainingmomentum.Theseareoften followed by adownsidebreakout.Symmetricaltriangles,whichshowthat the bulls andbears are relativelyevenly balanced.These can lead to

either an upside ordownsidebreakout.

The following chart shows atypical breakout from asymmetricaltriangle.

Chapter2-HowCanYouPredictABreakout?While reacting to a breakoutcanleadtoprofits,beingableto predict an upcomingbreakout can give you asignificant tradingadvantage.In other markets, trading

volumes are often used topredictbreakouts,butvolumeinformationisnotavailableinforex markets. Instead, forextraders need to look tovolatility to positionthemselves for breakouts –volatility is essentially theamount by which pricesswing over any given periodoftime.The goal is to look forsecuritieswith lowvolatility,

since low volatility canindicate an upcomingbreakout. For instance, in atriangle pattern, the volatilitydrops as the sides of thetrianglegrowcloser–with abreakout likely to happen asthey start to meet. Moregenerally, thereareanumberof different ways ofmeasuring volatility,including moving averages,Bollinger bands and averagetrue range (ATR). For

instance, theupperandlowerBollinger bands becomecloser to each other asvolatilitydecreases,asshownbelow.

Chapter3-HowDoYouKnowIfABreakoutIsReal?While breakouts do occurregularly, the fact is that thevast majority of them arefalse alarms – in fact, theseare sometimes referred to as

fake-outs. Fake-outs alsooffer major tradingopportunities, but they aremorecommonlyexploitedbylargeinstitutionaltraderswhoare looking to take moneyfrom smaller traders whohave mistakenly taken thebreakoutbait.It is often possible to tellwhetheratrendisrunningoutof steam and heading for areversal breakout. For

instance, MACD – whichstands for Moving AverageConvergence/Divergence– isagoodwayofmeasuringhowmuch momentum there is inthe market, with a highMACD indicating highmomentum.Inotherwords,ifprices are rising and theMACD is strongly positive,then any downside breakoutthat occurs is likely to be afalseone–althoughthereareno guarantees. On the other

hand, if prices are rising andthe MACD is small ornegative,thenthereisagoodlikelihood that any downsidebreakout is real. The sameapplieswithdownwardtrends– ifpricesare fallingand theMACD is strongly negative,then an upside breakout isunlikely.Another indicator thatcanbeusedinsteadofMACDis theRelative Strength Index – or

RSI.Thisbehavesinasimilarmanner to MACD, exceptthat the values vary between0and100,with50indicatingno real upward or downwardmomentum. The RSI is alsouseful to determine whetherthe market is overbought oroversold – a value below 30isoversold,whilethevalueofover70isoverbought.The other thing key thing tolookatiswhetherthereisany

fundamental news – such aseconomic data or a globalnews event – that could bedriving trader sentiment. Ifthere isn’t, then there is agoodchancethatthebreakoutisn’treal.

Chapter4- Step-by-Step-HowtoTradeaBreakoutHere are the basic steps tofollow when tradingbreakouts:

1. Look for chart

patterns that couldlead to breakouts,including trend lines,ascending anddescending channels,continuation patternsand triangles. Payattention to whetherthe most likelybreakout is acontinuation orreversal.

2. Use volatility

indicators to predictwhen breakouts arelikely. Goodindicators to useinclude movingaverages, BollingerbandsandATR.

3. Measure the strengthof breakouts usingmomentum andstrength indicatorssuch as MACD orRSI. Beware of false

breakouts, whichoften happen whenthe apparent breakoutisn’t supported bytheseindicators.

Alwayslookforfundamentaleconomicorothernewsthatcouldbedrivingtradersentiment.Ifthisisn’tthere,itismorelikelythatthebreakoutisreallyafake-out.

Chapter5–FinalCommentsBreakouts offer strong profitopportunities for traders.However,itisveryimportantto focus on identifyingwhether breakouts are real,since the majority are falsealarms. In fact, institutional

traders tend to trade againstbreakouts, looking to takemoney from smaller traderswho have misread thebreakout signals. Focus onchart patterns combinedwithlow volatility to predictupcoming breakouts, and becareful to confirm that thebreakout is supported bytechnical strength andfundamentals beforecommittingtoit.

Conclusion

Thankyouagainfordownloadingthisbook!Youshouldnowhavetheknowledgeyouneedtostarttradingbreakouts.Thenextstepistotakeaction!Finally,ifyouenjoyedthisbook,pleasetakethetimetoshareyourthoughtsandpost

areviewonAmazon.It’dbegreatlyappreciated!Thankyouandgoodluck!

Bonus:DownloadtheFreeTradingToolkitGetinstantaccesstofreecheatsheets,workbooksandguidestohelpyoubecomeaprofitabletraderorinvestor.Asaspecialthanksfor

downloadingthisbook,we'veputtogetheratoolkitofexclusiveresources,including…-Ourexclusiveebook:HowtoProtectYourTradingProfits-Downloadablecheatsheetsforprovenoptiontradingstrategies-Ourstep-by-stepguideforusingademotradingaccounttomaximizeyour

profits-Plus,brand-newebooks,downloads,workbooks,cheatsheets,videosandmoreeachmonth

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