Breakout Strategy

A breakout strategy enters a trade when price moves beyond a defined range or level. The idea is that a strong move through support or resistance can lead to continued momentum.

Setup

The first step is to define the range using recent highs and lows or a volatility band. Breakouts are more reliable when the range is well formed and the market has consolidated for a period of time. Many traders also look for increased volume near the breakout point.

Entry and Exit

Entries are placed just beyond the breakout level to avoid early triggers. Stop loss placement is usually inside the prior range or near the breakout level. Exits can use trailing stops, profit targets based on the range size, or time based exits.

Filters

Filters help reduce false breakouts. Common filters include minimum volume, volatility expansion, or confirmation from higher time frames. Avoiding low liquidity periods and major news events can also reduce noise.

Risks and Limitations

False breakouts and whipsaws are common, especially in range bound markets. Gaps can create poor fills and wider losses. Tight stops reduce loss size but can increase the number of losing trades.

Conclusion

Breakout strategies can be effective when volatility expands, but they require clear rules, strict risk control, and realistic execution assumptions.