Breakout Trading - Comprehensive guide for Beginners

Breakout trading is one such method of trading, if you understand this method then you can make a lot of money. You need to understand first and then practice a lot. In this article, you will be told some of the best breakout trading strategies, which you should understand properly and then start with paper trading.

You must have the answers to these questions before you can understand breakout trading.

What is Support?

What is resistance?

What is trading range?

How Many Types of Breakout Trading?   

There is another element of surprise in catching breakouts, which I'll talk about later. It's Impossible to Catch a Breakout Without That Surprise Element, So Keep Reading.

What is the Support level in Trading?

As you can see in the below Nifty chart, Nifty has taken support at 17750 5 times in 1 month. That's why now 17750 will be called the support of Nifty. You also do the same analysis and find out which are the prices where the price goes down and comes up again.

                                                             

                                                                NIFTY

What is the Resistance level in Trading?

Resistance in price action is called the place from where the price comes back down after hitting it. The same thing is happening in the case of Jindal Steel as well, the price repeatedly hits 610-613 and comes down. You also have to identify the resistance in the same way.

                                                          JINDAL STEEL

What is the Trading Range?

In simple language, you can understand the trading range in such a way that the price is just stuck in the support below and in the range of resistance above. Below is an example of Sail where the price is repeatedly stuck at 128 in the top and 118 in the bottom. The trading range can be small or large, it depends on the time, for how long the price remains stuck in that range.

                                                                  SAIL 

How Many Types of Breakout Trading?   

There are many methods of catching breakouts, either you catch breakouts of support or resistance, or you catch breakouts of range, or there are many patterns that can be identified and traded by the price action on the chart. Symmetrical Triangle, Bull Flag, Ascending Triangle, Failed Descending Triangle, Rounded Bottom, Flat Base, Measured Move. These are some of the breakout patterns which we will discuss in the upcoming chapters.

Now let's focus on our main issue

What is Breakout Trading?

As above, I told you to identify support, resistance, and trading range before catching a breakout. If you learn to recognize the Key components of breakout, then catching breakout will also be easy for you.

Breakout trading is whenever the price breaks any support, breaks any resistance breaks any trading range, or breaks any chart pattern, then you have to trade in the same direction. So first of all, I told you about the key components of breakout in simple language.

Breakout Trading has its own pros and cons to it.

Pros:

• 1. You will catch every Trend in the market

• 2. Momentum is in your Favour

Cons:

• Breakout Can be false

• it can be psychologically difficult to enter the trade 

Friends, there are many types of trading, today we are talking about breakout trading. One is Sculpting Trading, on which I have written an article, you can read that too.

Scalping Trading 👈👈Click here 

Trading Range Breakout 

                                                     NIFTY

As you can see in the Nifty chart, Nifty was stuck in the range of 15500 to 16000 for almost 2 months. But after that, a green bullish candle was formed and nifty gave a breakout upwards.

Now how to prove whether this trend is correct or not?

Should we take a bullish trade with full confidence or not?

What if we take a bullish trade and see a reversal?

These are some of the questions that come to our mind when we see these breakouts in live trading sessions and before taking a trade.

Are you excited?

Now comes the surprise element that I mentioned above and that is the VOLUME.

I have indicated the volume area in the chart with arrows. More than average volume at the time of breakout. This is the key part to make sure the breakout is to the upside, and we can take a bullish trade.

Look friends there is no holy grail system in the stock market everything happens on predictions nothing is 100% guaranteed!

If you want to make money, trust the 99% and forget the 1% in which anything can happen.

Make sure to use stop loss to manage your risk. In this trade, you should keep the stop loss at the low of the bullish candle.

RESISTANCE Breakout 

                                                

                                                 INDUSIND BANK

This is the chart of IndusInd Bank in which you can see resistance has been broken out. The resistance of 1120 was touched quite a few times but finally, the price gave a breakout above 1120 with the volume. In this trade, you should keep the stop loss at the low of the bullish candle.

Friends, a very important thing to keep in mind is that whenever there is a breakout, try to test the resistance level once again and then go upwards with the volume. This makes double confirmed breakouts and you can take trades with more confidence.

SUPPORT BREAKOUT

                                                     BANKNIFTY

This is the chart of Bank nifty in which it broke the 5-time support of 43000. Volume is also supporting and confirming that Bank Nifty will go down. Look at the chart bank nifty retested the support 2 times but failed and came back down. In this trade, you should place stoploss just above the support level which is broken.

you have learned how to trade in breakouts or breakdowns or when to trade if the stock/index is in range.

There is one more breakout strategy that I want to discuss with you in this article and that is the Trendline breakout strategy.

BREAKDOWN TRENDLINE STRATEGY

                                               BANDHAN BANK

This is the chart of Bandhan Bank it broke an upward trendline with volume and then continued to fall. You see how many times the price touched the trendline and ran back up, but as soon as the trendline broke, all the Longers got trapped and the selling pressure increased. In this trade, you can place the stop loss just above the trendline.

If you practice this strategy continuously, then you can make a lot of money in trading.

BREAKOUT TRENDLINE STRATEGY

                                                    INDUSIND BANK

This is the chart of IndusInd Bank, the price was continuously falling, after retesting the trendline, the price would have come down, but finally, the price broke the trendline and gave an upward breakout with volume. In this, place the stop loss slightly below the trendline.

Friends, stop loss is your insurance policy in a way, that protects you from excessive loss, so never break the discipline of stop loss in trading.

CONCLUSION 

• How to identify support/resistance

• what is the importance of volume?

• You have to buy only when the resistance is broken with the volume, if the volume is low then do not buy.

• You have to sell only when there is a support break with the volume if the volume is less then don't sell.

• Don't take trades till the price is in a range, take trades only after the breakout of the range, and check the volume.

I hope this effort of mine will bring some change in your trading. Today you must have learned something new. I will continue to bring articles on similar topics related to the stock market in the future.

Friends, if you have any questions or suggestions, you can email me or comment.