What is the Best Way to Trade Breakouts?

What are breakouts, and how can I use them to my advantage？

Unlike the breakouts you may have experienced as a teenager, a trading breakout is a little different!

When the price “breaks out” (get it？) of a consolidation or trading range, it is known as a breakout.

When a specific price level, such as support and resistance levels, pivot points, Fibonacci levels, and so on, is breached, a breakout might occur.

The purpose of breakout trades is to enter the market when the price makes a breakout and then ride the trade until volatility subsides.

Not Volume, but Volatility

You'll notice that, unlike stocks or futures, there's no way to know how many trades were done in the currency market.

Volume is vital for making effective breakout trades in stock or futures transactions, thus not having this data available in forex puts us at a disadvantage.

Because of this disadvantage, we must rely not only on sound risk management but also on a set of criteria in order to position ourselves for a successful prospective breakout.

Volatility is deemed high when there is a substantial price shift in a short period of time.

Volatility, on the other hand, is defined as a relatively little amount of movement over a short period of time.

While it may be tempting to get into the market when it is moving at breakneck pace, you will likely become more worried and anxious, making poor decisions as your money moves in and out.

This tremendous volatility is what draws many forex traders, but it is also what kills many of them.

The idea here is to take advantage of volatility.

Rather than following the herd and jumping in when the market is extremely volatile, it is preferable to hunt for currency pairs with very low volatility.

This allows you to position yourself and be prepared for when a breakout comes and volatility soars!