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Types of Breakout Trading

10 February 2024

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In this chapter we will be talking about different breakout techniques as given below:

Support and Resistance

Support and resistance are two of the most important pillars in technical analy- sis. If a trader doesn't doesn't understand how they form and what they mean, it can really slow down their technical progress. However, worry not, I will explain everything about this in a greater detail later in the text.

A support or resistance level is established when the price activity of a market reverses and changes direction, putting behind a market peak or trough (swing point: a turning point price in the past). Support and resistance levels may carve out trading ranges, as seen in image 2.1, and they can also be observed in trend- ing markets when a market retraces and leaves swing points behind. Simply put, support and resistance can be spotted in ranging and trending market as well. Let's look at both the examples.

Support

Support is a level where a price movement in a downward direction stops for a while. In theory, support is when a lot of buyers come into the market and sur- pass the sellers. In short, when demand is higher than supply, prices go up. This stops a price drop or makes it turn around and go up.

A break below support suggests that individuals are prepared to sell at a new level. When support is broken, it is common for a new support level to be estab- lished at a lower price point. This is when we take the trade on short side and benefit from it.

A widely held belief is that the when the support is formed, a trader usually buys at support and intends to sell at resistance which is the part of reversal trading.

However, here we are talking about breakout trading so we will not do reversal trading and only take the short-biased trade when support is taken out on the downside.

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Articles
Breakout Trading Made Easy
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Embark on a thrilling and rewarding trading journey with bestselling author Sunil Gurjar’s Breakout Trading Made Easy. Using his own trading experience, Gurjar reveals the power of classical chart patterns in a strategy that has not only multiplied his capital but also shielded it during static or erratic market phases. Here’s your chance to explore the fascinating aspects of breakout trading and unravel the intricate dynamics of support and resistance—cornerstones of Gurjar’s approach—through insightful case studies illuminated by candlestick charts. Gurjar’s expertise in trading shines as he unveils the art of identifying genuine breakouts amidst the noise of the market. Recognizing the nuances of a fake breakout becomes second nature as he guides you through practical examples and time-tested techniques. This comprehensive guide on breakout trading equips you with the skills to set intelligent price goals and strategic stop-losses, crucial components in managing risk and maximizing rewards. With a focus on real-world application, Gurjar walks you through the fundamental principles and proven strategies, empowering you to make confident and informed decisions while dealing in stocks.