How to Make Money With Breakout Trading? Strategy, Book and Course
Updated: Jul 5, 2022
Every trader (be it intraday, swing, positional, or scalper) should know how to differentiate a genuine breakout and a false breakout.
Do you know why?
Because any ‘Entry’ and ‘Exit’ in any trade should come through a breakout or false breakout opportunity!
That doesn’t mean other trading techniques will not work. My explanation holds good if a trader is looking for the best entry point and best exit point in any trading technique.
Let me explain in detail.
Contents
What is a Breakout (Price-Volume Breakout)?
How to Differentiate a Real Breakout from False Breakout using Trend line Breakout?
Trade Execution Process Flow to Trade Different Breakout Patterns (to get low risk and huge returns)
Money Management in Breakout Trading
Open Range Intraday Breakout Trading System (ORB Strategy)
Popular Topics
Introduction
It’s important to understand two herds that exist in the market:
1. Smart Money and
2. Dumb Money
‘Smart Money’ refers to institutional investors, big sharks who have money and information power who give direction and momentum to markets.
‘Dumb Money’ refers to nonprofessional traders, retail traders who often try to make quick money.
Do you agree that it’s always a good idea to follow smart money?
Then you should know one thing.
Participation from smart money creates a genuine breakout, and the absence of smart money participation results in a false breakout. Isn’t it?
What is a Breakout (Price-Volume Breakout)?
Investopedia website says, “A breakout is a stock price moving outside a defined support or resistance level with increased volume. A breakout trader enters a long position after the stock price breaks above resistance or enters a short position after the stock breaks below support.”
In image 1, the price broke the resistance trend line with high volumes. At the time of breakout, the volatility of the stock will be high.
Similarly, if the price breaks the support trend line, few recognize it as a breakdown.
To keep it simple, we will focus only on the breakout.
But you can find a simple explanation about 'Breakdown' below.
What is Breakdown?
When a stock price moves below the support trend line with a big selling candle, then it will be recognized as a Breakdown.
What is a False Breakout?
A false breakout is also recognized as a ‘failed break’. Investopedia’s definition for a failed break is, “A failed break occurs when a price moves through an identified level of support or resistance but does not have enough momentum to maintain its direction. Since the validity of the breakout is compromised, and the profit potential significantly decreases, many traders close their positions. A failed break is also commonly referred to as a false breakout.”
In image 2, the price showed the characteristics of a breakout. However, it failed in its attempt and broke on the opposite side.