Hi, I’m Kamepoko.
Breakout method is good.
I have made a lot of money with this method.
You may have heard of the breakout method at one time or another and have actually tried it.
However, are you winning by adopting only that method?
You may have made some money with the breakout method, but that is just a coincidence.
It is a gamble, so to speak.
Then, is the breakout method wrong?
No, they are not.
There are certain points that you must keep in mind when using the breakout method.
If you don’t know them, you can’t make money.
In this article, I have summarized the important things to keep in mind when using the breakout method.
(Mainly about the trend line breakout method)
I hope this article will be of some help to you.
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Points to keep in mind for using the Breakout Method
Enter because you broke the trend line.
If you enter the market only by looking at the shape of the market without using your head at all, you will never become a winning trader.
What I value in market analysis is to understand the flow of the market by looking at the charts of multiple time frames.
This is called “multi-time frame analysis“.
This multi-timeframe analysis is the absolute key to using the breakout method.
Multi-time frame analysis is mainly about following the chart in order from the upper leg to the lower leg and figuring out which time frame you are currently in.
When you break a trend line and make a short entry, have you ever seen a reversal like this?
Let’s say this is a 5-minute or 1-minute chart.
Look at the chart of the higher leg often.
In fact, when you entered, there may have been an uptrend on the hourly time frame.
How to win with Breakout Method?
So, when should you enter the market to win?
Basically, you should enter in the same direction as the trend direction of the upper leg.
For example, when one wave of upward movement is confirmed on the hourly time frame.
At this point, the price switches to the upper line of sight on the hourly.
Based on Elliott waves, it is more likely that a second wave of adjustment will occur after this, followed by a third wave of upward movement.
After confirming the second wave of adjustment, the chart is dropped to the lower leg.
This is where the breakout method is utilized.
The important thing to remember when entering currency trading is to make the initial move.
Often it is already too late when everyone can see that a trend is developing.
Aim for the timing when the price switches from up to down or down to up.
Utilizing the Fractal Structure
Charts have a fractal structure, so in the second wave of adjustment after one wave of upward movement in the upper leg, the lower leg is in a downtrend.
In actual charts, though, it is rarely this clean.
Entry is considered when this downtrend of the lower leg is broken.
More expected is when the trend of the lower leg is completely broken.
In other words, enter at the last push low or break of the return high.
Advantages and Disadvantages of the Breakout Method
The advantage of the breakout technique is that when it works well, you can take the initial price movement, so you are less likely to have unrealized losses after entering the market.
Another advantage would be a better risk-reward ratio.
However, the disadvantage is that it reduces the winning rate.
By the way, just because you are doing multi-timeframe analysis does not mean that you will win every time with a breakout method.
There is no such thing as a 100% win rate.
It is a question of how to find a place with high expected value and enter the market.
If you are entering at a high expected value, it doesn’t matter if you win or lose on that trade.
What is important is whether you can properly explain why you lost or bought the trade.
Stop-loss position when using the Breakout Method
There are two things that I use as a guideline for stop-loss positions when using the breakout method.
①When the basis for entry collapses
The first is when the basis for entry has definitely broken down.
For example, let’s say you have a buy position with the expectation of an upturn.
But when you get a chart like this, you have broken the basis for an uptrend in the chart for that time frame.
(because the lows have been cut)
If there is strong buying pressure in this price range and the candlestick is pulled back, I will hold the position and see what happens, but if it breaks on the candlestick substance, I will immediately cut my losses.
If the candlestick breaks above the gray line, we will hunt for stop-losses that have accumulated near the upper gray line, and new sell orders will increase, which will increase the likelihood of a stronger downward momentum.
②When the price moves back within the trend line
The second is mainly used for scalping, when the price is brought back within the trend line again after an entry.
In this case, the selling forces will be stronger than the buying forces and the price is very likely to go backwards.
In these cases, I will cut my losses immediately.
Losses are vital.
Absolutely follow the stop-loss rule you set before your entry.
It will be a well-founded loss and not just any loss.
It will always lead to the next one.
Summary
How was it?
In this article, I shared the knowledge needed to successfully use the breakout method.
You need to trade not only by memorizing the form, but also by considering the psychology of other traders.
I hope this article has been of some help to you.
See you again in the next article.
