The
most commonly used forex trading strategy is breakout trading. A large number
of traders use this method as their entry mechanism. With proper money
management and risk control breakout trading can be profitable.
What
is a breakout?
A breakout is a movement/Break of price from a major
level. The level can be a major support or resistance (line or zone) or a trend
line etc.
How to identify a Breakout?
- Breakout can be a reversal or continuation of trend:
We
can see a breakout from a major support line which usually indicates a reversal
of the current trend. But in some cases if the current trend is really strong,
the breakout will be in the direction of the trend.
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| Breakout from Range |
See the above chart. Price has been ranging from January 2012 till may 2012. On May 2012 the support line was penetrated and the candle closed below support level. This is called breakout ( see the yellow encircled portion).
