The breakout trading strategy is one of many trading strategies that traders utilize to maximize their returns on investments. As a trader, it’s crucial to determine your entry and exit points as you start investment in different asset classes. The breakout trading strategy is just about the timing of entering the market when the chances of gaining returns are high.
So, what exactly is the breakout strategy?
To thoroughly understand what a breakout strategy means, there’s one term that you need to familiarize yourself with – ‘breakout.’ A breakout is when the price of a certain asset moves past a certain range. Usually, this price movement is contextualized to be of high momentum, which means that the price of the asset is likely to follow an upward trend in the future. When a breakout occurs, and a trader demonstrates interest in that particular asset by putting in their money, they are said to be utilizing the breakout market trading strategy.
How is the breakout strategy different from momentum trading?
Breakout trading might sound similar to the momentum trading strategy, but the two have a key difference. In momentum trading, a trader enters the market when a price trend has already been established. On the other hand, in breakout trading, a trader invests when they’ve just begun to anticipate a trend in the market based on several indicators. To learn more about this topic, we recommend you refer to a mobile trading app or blog that can give you more insights on the difference between the two strategies.
How to succeed as a breakout trader?
- Choose the right platform: The search for the best stock trading app or platform won’t be easy, but it’ll surely be worth the effort if you want to utilize the breakout strategy. The first step to success as a breakout trader lies in being selective with the choice of platforms. Ideally, look for platforms that especially focus on market breakouts, so you get all vital breakout notifications.
- Familiarize yourself with key terms: Apart from ‘breakout,’ several other terms are frequently used when discussing breakout trading, such as support and resistance level. By understanding what these terms mean, you’ll be able to forge better conversations with professional breakout traders who will be able to help you become a better trader. Additionally, you won’t find yourself caught in a spiral of confusion when you come across industry-specific terms when reading blogs or guides.
- Decide on a confirmation metric: Multiple ways exist to assess whether a breakout has occurred. Traders weigh in factors like price movement, trading volume, etc., to determine the occurrence of a breakout. To confirm whether a breakout has occurred, it’s best to decide which metric you’re going to track. Any share trading app focusing on breakout trading may allow you to set your parameters when deciding if a breakout occurred.
To sum up, a breakout strategy entails entering the market when the price of a certain asset moves past a certain range. Nonetheless, it’s worth mentioning that gaining expertise in breakout trading will require continuous effort and more exposure to different market conditions. Patience is the key to becoming a successful breakout trader.
