In the Forex market, you need to know about all the terms and their uses in order to trade profitably. Most traders think that having a fair knowledge of the support and resistance is going to make them a millionaire. But there is a term called “Breakout” and it plays a vital role in your success. When a price moves above a resistance or below a support level, it is termed as breakout. Even the long term trend might be changed due to the major breakout of the trend line. Usually, the breakouts are triggered by high impact fundamental news. So, if you can analyze the major news, you can make big profits in the breakouts. For instance, many pro traders in UK had made millions by utilizing the massive bearish breakout in the GBP related pair during the Brexit event.
In breakouts, traders get many possible trading opportunities. To trade profitably in the market during the breakouts you need to understand each movement of patterns that occurs in the chart. In this article, you will get some idea about the different types of breakouts and how they work.
What is a continuation breakout?
If a pattern continues to move in the same direction as the major trend after a breakout, it is known as a continuation pattern. The continuation pattern will not always be in the continuation trend and it may also result in a fake breakout. Unless you get a confirmation of the breakout, never consider it as a continuation breakout. Make sure you are analyzing the higher period or else you are most likely to deal with tons of false breakout. The skilled traders always suggest that naïve traders use the continuation breakout at the initial stage since the risk exposure is low.
A continuation pattern is traded by moving the trade in the direction of breakout that will also be known as the trend direction. You can find out the continuation pattern by using the trading techniques which includes drawing trend lines. Try to trade in the direction of the trend when the price break out.
What is reversal breakouts?
The reversal breakouts are quite similar to the continuation breakouts. After a long trend, the reversal breakouts tend to take place followed by the consolidation. In the reversal breakouts, if the trend weakness, the traders push the price in the reverse direction. Remember the fact that breakouts needs to be against the prevailing trend in order to consider it as a reversal.
When you trade the reversal make sure you have access to the robust trading platform. Elite traders prefer CFD trading with Saxo since they always give the retail traders high-end trading environment.
What are false breakouts?
You might be surprised to know that the market can fake you by producing false breakouts. If the trend doesn’t continue to move or accelerate in a direction when the price breaks at a certain level of support and resistance, you can consider it as a false breakout.
Traders often put on an expecting position in the direction of the breakout to make profits but at times might results as false breakouts. So, you need to be careful while putting a position for any trades. You can also use specific stops to protect your trades from losing.
Many traders think it’s very easy to understand the breakouts of the market. But when they trade, they find out how difficult it is. You won’t understand the breakouts properly if you don’t learn and use strategies efficiently. Take time before you put for any positions in a trade. It’s also important to find out whether the breakout is for real or if it is a false one. You can only understand the breakouts properly if you are ready to give it time. Learn all the terms with patience so that you don’t end up being fooled by false breakouts.