The professional investors in the Forex market know the importance of a breakout trading strategy. Trading the breakout is very profitable since the market volatility remains very high. Sadly, the rookie investors don’t know the proper way to trade the breakout. In fact, they are scared to trade the breakout since they want to play too safe. But to become a skilled trader, you need to think about the breakout trading method. There are a few things you should consider at trading to become the best trader in the Forex market.
To learn about the breakout trading system, you must have a strong knowledge of the support and resistance. Support is such a place, where the market finds buying momentum. On the contrary, resistance is such a place where the price of a certain asset drops due to extreme selling pressure. And make sure you find the support and resistance level in the higher period so that you don’t have to lose a big sum of by trading the minor supply and demand zone. To make things clear, supply means resistance, and demand means support in the trading industry.
What is the breakout?
When the price breaks a major support or resistance level, we call it a breakout. There are two types of a breakout in the Forex market. If the breakout favors the trend, you can call it a continuation breakout. On the contrary, when the breakout goes against the trend, it is known as a reversal breakout. The professional traders use both continuation and reversal breakout in their trading style. But the naïve traders should rely on the continuation breakout strategy since the risk exposure is low.
Dealing with the pattern breakout
If you learn about the different types of chart pattern trading method, you will realize the importance of breakout. But finding the major chart pattern in the Forex market is not an easy task. However, you can rely on the auto chartist since it can pain the major chart pattern with a high level of accuracy. When you the auto chartist, you should rely on the bigger time frame since it will help you trade with confidence. The major chart pattern forming in the lower time frame is not all reliable and the professional traders always suggest to ignore lower time frame chart pattern.
Use the confirmation signals
To trade the breakout, you need two kinds of confirmation. First of all, use the price action confirmation signal so that you know the breakout is not fake. Once you have done the technical analysis, analyze the fundamental data. If the fundamental data goes in favor of the breakout, you can execute the trade and earn some decent money. On the contrary, if the fundamental data suggest something is wrong with the technical data, stay away from placing any trade. As a breakout trader, you have to be very smart in taking a decision at trading. Unless you keep a sharp eye of the technical and fundamental data, trading the breakout will be really tough.
Limit the risk
Trading Forex is a very risky business. And if you start dealing with the major breakout you are pushing the risk factors to the next level. To ensure the safety of your trading capital, you should think about the conservative approach at trading. For instance, instead of taking high risk, limit the risk by 1% in each trade. Though it can reduce your potential profit still it is the most feasible way to learn the breakout trading method. And never become too aggressive with your trading strategy since it can increase the risk to a great extent.
Earning money by using the breakout trading method is no tough. Create a demo account and start trading the major breakout. Though you fail many times, you will get better with time. And don’t forget to keep a close on the risk factors while you learn this strategy.