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    Thread: What are the types of breakouts you know in forex trading?

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      Default What are the types of breakouts you know in forex trading?

      What are the types of breakouts you know in forex trading? Kindly explain them.


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      Breakout trading is an approach that is employed by traders to initiate a position when the markets break a support to the downside or resistance to the upside. There are many different types of breakouts, including:

      - The horizontal price breakouts,
      - Trend line breakouts,
      - Fib level breakouts,
      - Moving Average breakouts, and more.

      It is our responsibility as traders, to find high probability breakout opportunities and execute the trade. But when trading breakouts in Forex, it is not always a smooth ride. Typically support resistance lines drawn at potential breakout points should be considered as zones rather than fixed lines. That being said, a breakout system requires the use of trader discretion to minimize false signals and fakeouts.


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      The most popular and common breakout is support and resistance breakout. If the price break the resistance then it will make new high and if the price break the support level then it will make new low. We can trade with these breakouts if we are confidence with it. If we are not confidence then we need to stay away from trading. There are also false breakout so we need to be careful. Support and resistance strategy is basic but powerful. We need to make back test and forward test. Make sure we use bigger time frame to indicate support and resistance. Moreover with bigger time frame, we can see the trend and we can trade with trend.


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      Trading breakout is one of the most profitable ways of trading the forex market. As traders, we should always look at our charts with sharp eyes to be able to trade and identify breakouts when they occur. Breakouts is basically what happens when either a previous support or resistance level cannot hold again and the market has moved passed it. For technical analyst, it is very easier to identify the breakouts on the chart, this is so because when the current support line or resistance line drawn on the chart has been broken and the market keeps moving far away from the line, you know a breakout has occurred. As simple as it may be to sight a breakout on the chart, traders should be careful not to trade false breakout because as simple as they are to identify most times, they can be very technical to identify sometimes. So before a trader places a trade as a result of a breakout, he must confirm other market indicators. Types of breakouts includes trend lines breakout, fibonacci level breakouts and so on.


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      Breakouts in forex trading is essentially used by forex trader to take advantage of market positions when it is still in the early stage of trend. There are basically two types of breakouts in forex trading which are; continuation breakouts and the reversal breakouts. While it is effective when used properly, it is important to identify the kind of breakout that is in action in order to have an understanding of the market environment.

      Either the continuation or reversal breakouts, they're are very important because they shows an alteration in the support and resistance of the type of pair that is been transacted. This alteration can result in a major moves that renders a relevant chances for a trader to maximize profits. Let's take continuation breakout for example, the market goes into recess when there is a major strength in one way. This happens as a result of break between the buyers and sellers.


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      A breakout is any price movement outside a defined support or resistance area. The breakout can occur at a horizontal level or a diagonal level, depending on the price action pattern. We have a market that is trending up but has found resistance at a horizontal level. After two unsuccessful attempts, the market finally breaks through resistance. This signals a bullish breakout from a key resistance level. The bearish breakout is similar to bullish breakout, only this time the market breaks to the downside. After two unsuccessful attempts, the market finally breaks through support. This signals a bearish breakout from a key support level.


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      Quote Originally Posted by Jerryparker     
      What are the types of breakouts you know in forex trading? Kindly explain them.
      There are three main types of breakouts which are :

      1- Continuation Breakouts :
      occurs when the price breaks a certain level in the market after a breather periods then continue its movement with same market direction .
      2- Reversal Breakouts :
      occurs when the price breaks a certain level in the market after a breather periods but on the opposite way of the market trend .
      3- False Breakouts :
      occurs when the price breaks a certain level in the market then back again due to its failing in breaking this level to continue its movements into its previous trading range .

      We can understand well the difference between those three types from the explanation which i made in the images below :
      - Continuation breakout :
      Name:  continuation.JPG
Views: 27
Size:  116.1 KB

      - Reversal Breakout :
      Name:  reversal.JPG
Views: 25
Size:  125.1 KB

      - False Breakout :
      Name:  false breakout.JPG
Views: 25
Size:  109.5 KB

      All this types of breakouts may occurs to :
      - Resistance lines .
      - Support lines .
      - Trend lines .
      - Moving averages .
      - Pivot points .
      - Fibonacci levels .
      - Chart pattern levels .
      - Time highs or lows .
      - Price Channels, .. etc .


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      In order to explain and understand Forex Breakouts, We need first to understand what a breakout is.

      A breakoutcan be simply explained as a situtation in the financial Market when the price of an asset moves above a resistance area, or moves below a support area. Breakouts shows the potential for the price to start trending in the breakout direction. A simple illustration, a breakout to the upside from a chart pattern could indicate the price will start trending higher. Some Breakouts occur on high volume (relative to normal volume), Such breakouts shows a greater conviction which means the price is more likely to trend in that direction.

      2 Main types of Breakouts in Forex trading are -

      1). Continuation.

      2). Reversal


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      Breakout is a part of forex trading business. I know about two types of breakout in forex market. Support break out and resistance breakout. When support break then we are going to sell again. And when resistance breakout we are going buy again. To understand perfect breakout is important. Because sometime this breakout is not valid breakout this is also called fake out. We need to be clear about breakout or fake out. If the market give breakout then we can use breakout trading strategy for making profit in forex business. This is really good option for the trader to make good trading. I also like to breakout trading.


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      Breakout occurs after the price has been confined in a range for a reasonable period of time and then forcefully moves out .This is called breakout and the two main types are continuation breakout and reversal breakout.In some cases it may happen and eventually the price may return to the confinement and this is called a false breakout.
      Trading breakout is one of the best opportunities (with very high potential in terms of take profit and at least on 4 hour chart) if well handled and it is the reason why in addition to the knowledge of price action the breakout should be confirmed with the use of indicators such as Fibonacci,Moving Average or Stochastic.


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