Breakout Trading Entry, Exit And Stop Loss Strategies! Breakouts take place when price action breaks out from an established support or resistance. Trading these breakouts can be a profitable strategy. But most often price breaks out from a certain support and resistance and then returns to that level again. Other times, prices return to the support and resistance level after the breakout but then again start moving in the direction of the breakout.
So what you need is a stop loss strategy that gives the trade a little breathing room. This means placing the stop loss under the last minor low in an upside resistance breakout or the last minor high in a downside support breakout. This stop loss strategy provides the necessary breathing room while trading breakouts.
What you need is to distinguish a false breakout from a true breakout. For this you need an entry filter that tells you that this is a true breakout. One entry filter can be to wait for a certain minimum amount of price movement in the direction of the breakout before you decide to enter into a trade.
Another entry strategy entails waiting for the breakout candlestick or the bar to close. If the breakout candlestick or the bar does not close beyond the breakout level, it means it is a false breakout. If the breakout bar or the candlestick closes beyond the breakout level, wait for the next bar or the candlestick to close beyond the breakout bar or the candlestick extreme in the direction of the breakout. If it doesn’t wait for the subsequent bar or the candlesticks before entering into a trade in the direction of the breakout.
Another breakout trading entry strategy is to wait for the pullback in the downside breakout or the throwback in an upside breakout. As a breakout trader, you can wait for the pullback or the throwback to take place and then enter into a trade in the direction of the trade or you can use it as a secondary entry if the original entry was missed.
These were some entry and stop loss strategies. What is the best exit strategy? Once the breakout is confirmed, replace the initial stop loss with a trailing stop loss. This way, as long as the momentum continues and price keeps on moving in one direction, you will be in the market but as soon as retracement starts, the trailing stop will get you out of the market. Get this highly profitable Magic Breakout Forex Strategy by Tim Trush and Julie Lavrin FREE. Get these Correlation Trading Cheatsheets FREE.