Breakout trading can be an interesting thing… of course if you know how exactly to trade them.
And in order to trade them, you need to have full understanding of the types of breakouts. And here we can deal with two types: continuation and reversal breakouts.
Reversal breakouts
Reversal breakouts in the rapid and strong movement of the market that goes against the previously existing trend. It is usually preceded by the so-called consolidation with is just a part of the market where it is ranging. It exists between resistance and support level, just like ranging market should.
Continuation breakout
Continuation breakout in its turn is a rapid and fast movement of the market keep on with the existing trend. It is also usually preceded by consolidation.
There are also false breakouts. And, boy, can they make a whole lot of mess for us.
Imagine that you see a rapid trend followed by consolidation and you think you to yourself ‘Wow, I can finally use everything Anna from invrestingchef told me and get some pips! I gotta thank you later!’ Well, thank me when you know how to spot a real breakout and not a false one.
Note that after a false breakout you can see a genuine one, but it can easily go in direction you were not counting on.
A false breakout it a seeming movement of the price with or against the trend from the consolidation period that occurs only to go back to consolidation. If you are not sure whether you are dealing with the breakout or not it is better for you to wait and miss a couple of pips, but instead to be sure that you are the right path rather than lose it all.
