Post of the Day: Trading a Breakout

[B]Student’s question:[/B][B][/B]

I have been through the Range Trading Webinar and found it quite helpful for trading the range itself. I am still not completely clear, however, on how to trade a pair when it breaks out of the range. Any thoughts would be appreciated…thanks in advance.


[B]Power Course Instructor’s Response:[/B]<b style="">

Good question…

Take a look at the chart below for a visual on this and take note of the “zones of support and resistance”. As long as the pair trades within those zones (meaning that a candle does not close outside those zones) a breakout from the range has not occurred.

If a candle closes above the zone of resistance, roughly above the green “buy” on the chart, a long position would be taken with a stop below the zone of resistance (as shown) within the range.

On the chart posted, however, the breakout occurred to the downside when the first candle closed below the zone of support. In this instance, the short position would be taken at the open of the next candle after the first candle that closes below the zone of support. The stop would be above the zone of support (as shown and inside the range.