Home/Blogs/What is a Breakout Trading Strategy

What is a Breakout Trading Strategy

stock market
21 Dec 20216 mins readBy MOFSL

The stock market is rife with equal opportunities for investors and traders of all types. The majority of investors and traders are interested in long-term investing primarily, that is, buying shares at a low price and selling high to rake in wealth. However,several other types of traders prefer day trading. There are many methods and tactics to indulge in this kind of trading, and breakout trading is one which you can find out more about here. 

  • What is breakout in trading?

Breakout trading strategy is a common way to trade for investors who may not want to hold shares for too long, and get into a trade fast and get out even faster. It is defined as a kind of momentum trading tactic in which a trader seeks levels that a share hasn’t been able to move above. When shares move beyond these levels of prices, or show potential to move this way, the term to represent this is a breakout. The trade is conducted when this happens. 

  • How a Breakout Strategy Trader Works

Traders who make use of a breakout strategy to tell when a share price moves beyond a certain level utilize technical analysis. They often depend on patterns in prices and trends to show how prices move in the stock market. For example, to make this clearer, a breakout trader looks for instances in which the price of a share or any security has shown resistance to moving over or under a certain price level. The trader then tries to profit by getting into a trade in the direction of a breakout. All the while, the trader assumes that the price will keep moving in the same direction. 

  • Support and Resistance

When you speak of breakout trading as a strategy used in online trading, it's important to understand the roles of support and resistance. A trader who uses a breakout strategy searches for assets that have been constrained to trading under a particular area (resistance), or over a particular level (support). The stock may have tried to break out many times, but without much success. However, a breakout trader believes that the stock will eventually break out of a confined space. When this happens, the trader tries to capitalize on the stock’s movement. So what does the breaking out of an asset really do? It serves as a sign for the trader to purchase or sell a specific security, according to the trend of the breakout - which may be bearish or bullish. 

  • Taking Stock of Strategies

A trader who is well-versed with a breakout trading strategy will enter a trade, typically, when the price goes above the support or resistance area that has been identified. Traders use a number of tactics to trade, and experience and study make these fruitful. You can learn more from ace broker Motilal Oswal as you embark on your trading journey. 

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

Disclaimer: The stocks, companies, or financial instruments mentioned in this blog are for informational purposes only and should not be considered as investment recommendations. It is advised to consult with your financial advisor before making any investment decisions. Investment in securities markets are subject to market risks, read all the related documents carefully before investing. Investors are strongly encouraged to carefully read the risk disclosure documents prior to participating in market-related investments or trading activities. Due to the volatile nature of financial markets, no guarantees can be made regarding investment returns. Motilal Oswal Financial Services Ltd. does not offer any assured returns on market-linked securities. Please note that past performance of stocks or indices is not indicative of future results.
Open Demat Account
I wish to talk in South Indian language
By proceeding you’re agree to our T&C
Click here to see your activities