Breaking the Breakouts – Proven Strategies for Profit in 2021
If you’re a trader looking to make a profit in 2021, the secret lies in fully understanding and correctly implementing the three kinds of breakouts: fakeouts, breakouts, and retests. With the right know-how, traders can craft a reliable strategy and avoid costly misreadings of market signals.
Fakeout vs Breakout vs Retest: Strategies Overview
When it comes to taking advantage of breakouts, traders must first understand what these different terms stand for. Fakeouts, breakouts, and retests occur at various stages over the course of a trading session.
Fakeouts
Fakeouts occur when price movements mislead traders that a breakout has happened, only for those same movements to still remain within the current trading range. Despite the sudden upsurge in price movements, the market eventually falls back into a regular pattern. This can be very costly for traders that read the market wrong and place a trade only for the market to reverse shortly afterwards.
Breakouts
In contrast, breakouts are when price movements exceed the limits of its current range, signaling a true trend in one direction or the other. Traders must be quick to identify these breakouts and act on them based on their strategy. If the trade goes in favor of the trader, then a lucrative profit may be made. If not, then the trader may now be gambling on the market, with all the associated risks.
Retests
Retests generally follow a successful breakout. It occurs because once the market makes a breakout, the price may overshoot into too strong a movement, triggering traders to liquidate their positions. This activates a period of retracement where price returns back towards its initial direction. Traders must watch out for these retests and adjust their strategies accordingly.
Mastering the Three with These Strategies
A trader can go a long way if they fully understand fakeouts, breakouts, and retests in the market. By saying that, each of these three may be approached differently and there is no single strategy that works for all. Here are a few strategies recommended for mastering the three.
Strategy 1: wait for retests
After a successful breakout, the market makes a retest which may occur once or multiple times. Once this has happened, traders may use technical indicators to make sure a that the retest was successfully completed, such as its price being able to stay within the trading range limits. This signals that the breakout is indeed legitimate and may be profitable to take advantage of.
Strategy 2: wait for breakout confirmation
Another strategy is to wait for confirmation of a breakout occurring. If it is decided that the market is indeed making a breakout, then a trade should only be placed after the price has exceeded a particular level. This ensures that the trade is in line with the market’s current momentum and greatly reduces the chances of any fakeout occurring.
Strategy 3: wait for an entry/exit range
Some traders create an entry/exit range for all their trades. This is an area between two levels where any breakout within these levels will be seen in anticipation of the trend being a long-term and stable move. When a break happens within this range, the trader may then enter the market. Exiting the market after a exceeding a certain range also helps reduce losses in case of any misreadings on the market signal.
Frequently Asked Questions
Q1: What is the difference between a breakout and a fakeout?
A breakout is when the market movements exceed the range of its current trading range, signaling a true trend in one direction. A fakeout is when price movements may mislead traders that a breakout has happened, only for those same movements to still remain within the current range.
Q2: How can I determine if a breakout is a fakeout or not?
One way to ensure that a breakout is not a fakeout is to wait for a retest. Once the retest
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