the breakout trade is the easiest and the most difficult trade in the book so
how can you accurately predict when the markets are finally going to breakout
and how do you avoid those false breakouts come on
let's explore
you
okay so in today's video I want to talk to you about a certain trading strategy
known as the breakout strategy now we all love a breakout don't we and its
determining whether the market is going to break out or be contained is what
trading really is all about is the trend going to continue or is it going to
reverse now a breakout is basically a break from support or indeed resistance
and then for it to continue in that direction so in order to profit from a
breakout we need to determine whether the breakout is confirmed or indeed it
is a false breakout and it really is the false breakouts that catch many traders
off guard and result in multiple losses so how do we determine if the breakout
is indeed confirmed or is it a forced breakout it's a million-dollar question
right well maybe it's not maybe it's not as difficult as you may think certainly
if you apply certain rules and look at certain price action ahead of the
breakout and we're going to discuss those in a few minutes but before we do
I want to talk to you about the different market conditions where you
could potentially see a breakout so there are basically three market
conditions where we look for a potential breakout first of all you've got the
ranging market this has been price is oscillating between two levels of
support and resistance these are horizontal lines drawn on the chart
usually where price is respected more than twice and a breakout trader is
looking for a breakout of a particular range either to take it higher or indeed
take it lower as no markets are contained in a range forever same as
trends no market or in state of trend forever
so then we have the trending market okay so this could be the market making a
series of higher highs higher lows and then respected at a level of resistance
a trend follower will look to see for the breakout in order to take that trend
higher and eventually prices may indeed break the resistance line and move
higher of could be a force breakout and it could
result in the reversal in which case there will be a camera trend coming on
then you have the counter trend trader that looks for breakouts potentially
you'll see an uptrending market here following a particular trend line a
breakout trader using counter trend will look for a breakout of this trend line
in order to take the market low so this three market conditions they're all
looking for the breakout you've got the range
you've got the trend and you've got the counter trend so how best do you do
determine whether indeed the market is going to breakout or indeed is it going
to be a false breakout okay let's have a look at that now now one thing I think
we are all in agreement of is the uncertainty on what price is going to do
next none of us know for sure when you get
these levels of resistance and support there's a big unknown what is above
resistance is there so much supply that that's going to push any move back down
we don't know below support is there so much demand
enough demand to take the market back higher again and this isn't the same for
trendy markets or ranging markets it is the same theory let's assume now we're
looking at a trendy market so this market is trending up okay we're making
a series of higher highs typically what you'll see ahead of resistance is some
consolidation and the as these buyers all taking long positions well at some
point want to take profits and as it comes into existence there's uncertainty
because they don't know what's above that resistance level so quite often
you'll find a head of resistance some consolidation and that is indeed what
you're seeing here but a good indication for me is if as you see this
consolidation if we're making a series of higher lows into that resistance that
is an indication to me that the demand is getting stronger than the potential
supply so this is an indication that the market could potentially break out a
series of high highs into existence or indeed into his support it would be a
series of lower lows now as a breakout trader by the other people do the
guesswork I'd like to see other people put their hard-earned money on the line
and I like to keep mine in my back pocket I like them to test the water and
possibly get their fingers burnt so I'd like to see more kids do the breakout
and then I react I will react with price action once the breakouts happened and
indeed once the breakout does indeed happen this unknown becomes known the
market is either going to be taken up by all this demand in which case the market
is going to move back up or indeed the supply will over over way the demand and
push the market back down resulting in a false breakout so I like to react after
the breakout so indeed if the market were to have huge supply the market is
going to come back down here again ok moving back down but in if this supply
is taken out by the demand and the demand becomes stronger then this market
could potentially close higher than that level of previous resistance so I like
the market to break the level of support or resistance then come back down and
then trade the continuation of that trend in this case an uptrend
once I see price action confirming what is above here here you can see that
there definitely that the buyers were in control they were taken down the sellers
got exhausted buyers took control and closed the market higher so it's only
after the breakout will I like to get involved and the complete than the
opposite is exactly the same if you're looking for a Down trending market this
is the same in the range trading market as well the range trading market you
want to see what's above there you want the market to show its hand not use your
hard-earned money for guesswork to train guess what's above or below and
if indeed this does result in a false breakout and the market continues to go
back down then others have lost their money and I've kept mine safely in my
trading account and the same theory applies to a counter trend so for
example here you see an uptrend depicted with this trend line ascending trendline
price is moving up with the trend line a counter trend trader is looking for a
reversal of that trend at potential levels of support or resistance so a
counter trend trainer will be looking for a break of this trendline in order
to take the market low if he doesn't know what's below in this trendline he
doesn't know if there's big demand coming in below this trendline but I'll
let him make that decision for me as a counter trend I want to look at price
action at this break of trend line so yeah I look for the breakout this
breakout could indeed just have been a false breakout and the market continues
I want to see what happens once we break out I want to see the market come back
to that trend line and then put in some price action could be a bearish
engulfing or something like that there you have a small mother candle and the
bigger outside candle a break of that indicates to me that yes this definitely
could be a counter trend trading opportunity and once we've broken out of
that trendline so I like to use price action in
conjunction with these levels of support and resistance from my breakout I like
the breakout to happen I like the market to show its hand either side of those
support and resistance lines whether the trend lines are indeed horizontal levels
or indeed even moving averages I like the market to show its hand and when the
market shows its hand then I react as opposed to speculate into what is in the
market this theory applies in all market conditions whether your range trading
with your trend trading or indeed with it your counter trend training trade the
breakouts but the market share its hand to you. If you
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