Most chart patterns use the breakout concept, which means they give buy or sale signals when the market price exceeds a certain point. It makes breakout trading easier because traders can know the entry points ahead of time. This FXOpen Guide will introduce you to the concept and patterns of breakout trading.
What Is A Breakout In Trading?
A breakout is when the price of a stock breaks above or beneath a significant level. Support and resistance breakouts are most common. When the price breaks through a strong barrier, it is accompanied by significant trading volume. The rule is that traders are to buy when a price crosses above a level and then sell when he moves significantly below the level.
Price will usually consolidate for some time before breaking. This allows traders to identify the best entry points. Breakouts are popular with traders because they allow them to enter a trend early and assess strong price momentum, which can lead to significant rewards.
Breakouts can be seen on charts for all assets, and in all timeframes. That is, a breakout in stocks, meaning a strong stock price move beyond a certain level, won’t differ from a breakout in forex, cryptocurrencies*, commodities, or indices.
