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What is a Breakout Trading Strategy

05 Jan 2023

The kind of trader that uses the strategy of breakout trading is called a breakout trader. This trading strategy tactic searches for areas or levels that a stock has been unable to move above and beyond. A trader who practices this method waits for these stocks to move higher. When the price goes above the point at which the stock has been stuck for a period, the circumstance is known as a ‘breakout’. 

  • Breakout Trading Strategy

When a stock has stayed at a stagnant level in terms of its price, many traders tend to shift focus to other securities offering more dynamic movements, wanting trades to be lucrative faster. A breakout strategy involves a degree of patience as traders wait for a security to move a notch higher than a certain level that it has remained at for a while. Several breakout trading experts make use of analysis of a technical nature to identify patterns and trending prices. For instance, a breakout trader seeks periods in which the cost of security has shown resistance to shifting above or under a particular price range. After this, a breakout investor tries to earn a profit by going into a trade in the direction of a breakout. The trader does this by predicting that the price will continue to shift in the same direction. 

  • The Way a Breakout Trader Works

The key to success in trading has a lot to do with strategies and fundamental analysis for each of the tactics you use. You may want to open demat account, to begin with, but you need stocks to fill it with so you can begin your trades effectively. Breakout in trading occurs when a trader searches for securities that have been contained above a certain level (support), or under a particular level (resistance), in spite of several endeavours to make breakthroughs. Consider this picture: to the trader, this containment of the price acts much like a spring that is coiled. Once the price ultimately snaps out of the containment zone, it tends to move up, and this is the opportunity for the trader to make a substantial profit. A similar concept may be applied to any technical indication. If the technical indication is in the process of getting squeezed, not being able to make its way through an area, when it does, it presents a chance for breakout trading.  The breakout gives traders a signal for an opportunity to sell or buy a security in question, according to the state of the breakout - bearish or bullish. 

  • In the End, Discipline Matters

Trading is far from a game you play with securities and other assets. In fact, as you will learn, if you trade with premier broker Motilal Oswal, you will discover that trading consists of deep discipline to act with alacrity when a breakout trading strategy can be applied. Reputable brokers like Motilal Oswal can give you trading learning skills to help you do this. 

Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account | Types Of Demat Account & Trading Account

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