Range breakout strategy

[EXPERTMARS 10]

RANGE BREAKOUT STRATEGY

 

Range breakout trading strategies are very effective in catching the short term price movements. This strategy is widely used by day traders .

 

Range breakout trading strategy is often used by market participants to get early into a potential momentum move in stock or a security . Range breakout often leads to expansion in volatility and quick profits.

 

I prefer to trade range breakouts in the direction of the near term trend using price action as confirmation to enter the trade. The range breakout setup consists of the following :

1) Price should be moving in a clear trend before a range or consolidation is formed .

2) A clear defined range or consolidation is then formed with no spike moves out of the range

3) A false countertrend move precedes the breakout (this is not necessary but a bonus if its there)

4) Price finally breaks out of the range in the direction of the trend . This is where you should buy .

 

The above image clearly defines the range breakout strategy . If used wisely the range breakout strategy has a high risk/reward ratio and can be consistently profitable.

 

https://encrypted-tbn3.gstatic.com/images?q=tbn:ANd9GcQ7vYuEx-cX_VDYWwHGP2Wkf4xE-lhIcU7fjdQp-eyYUN5PYLBBtQ

 

The above image again is a classic range breakout trade .

 

Range breakouts can be easily identified and has a high success rate .

[M.A 10]

Thx for sharing .

Range breakout strategy is sometimes misunderstood by novice traders as something BIG. You have explained strategy and its advantages but I think we should also look at Cons of this strategy. Especially those who want to try this strategy should know negatives of it.

 

 

1- Many False Breakouts:- Market never makes (or at least highly unlikely to make) smooth range which moves in predictable high and low. Reality is that market will give multiple false breakouts. Different measures can reduce chances of trading false breakouts but u cannot avoid all of them. It results in lower profit (assuming that u actually make profit when breakout occurs).

2- BIG breakouts misunderstanding:- As I said in start, novice traders shouldn't assume that breakout will be as big as shown in examples. There is low probability of big breakouts.

 

So for a novice trader this is hard-to-follow strategy because they do not have enough experience to avoid maximum false breakouts which will result in one after another loss.