After finding a good instrument to trade, it is time to plan the trade. Entry points are fairly black and white when it comes to establishing positions on a breakout. Once prices are set to close above a resistance level, an investor will establish a bullish position. When prices are set to close below a support level, an investor will take on a bearish position. Forex Price Breaks Out of the range consolidation pattern after a period of time and forex price continues to move upwards after an upwards forex price breakout.
When trading breakouts, there are three exit plans to arrange prior to establishing a position. Breakouts occur in all types of market environments. Typically, the most explosive price movements are a result of channel breakouts and price pattern breakouts such as triangles, flags, or head and shoulders patterns. As volatility contracts during these time frames, it will typically expand after prices move beyond the identified ranges. Breakout trading is used by active investors to take a position within a trend’s early stages.
How to use Level 2 Data to Trade at a Higher Tier!
The range in this pattern can be rectangular shaped or have irregular support levels and both formations are valid as long as the top of the pattern at resistance is flat. Profit targets can be set at round numbers, an overbought reading, or a trailing stop can be used to maximize profits. A flat-top pattern is one of the many ways of trading breakouts in the financial market. As the name suggests, it happens when the price of an asset meets a substantial resistance and struggles to move above it for a certain period. The flat top breakout pattern signal is more valid and has the potential for a bigger trend to emerge the longer the consolidation and time frames.
At the same time, the longer these support and resistance levels have been in play, the better the outcome when the stock price finally breaks out. To determine the difference between a breakout and a fakeout, wait for confirmation. For example, fakeouts occur when prices open beyond a support or resistance level, but by the end of the day, they wind up moving back within a prior trading range. If an investor acts too quickly or without confirmation, there is no guarantee that prices will continue into new territory. Many investors look for above-average volume as confirmation or wait toward the close of a trading period to determine whether prices will sustain the levels they’ve broken out of.
Bonus Tip: Top 2 Breakout Trading Books
When you can consistently trade breakouts and take the meat of the move, you can work to grow your small account. And that’s what’s so great about trading breakouts. They tend to happen consistently enough that if you study hard, you’ll be ready to play them. Breakout trading is any strategy that takes advantage of the price action as a stock breaks through resistance. Predetermined exits are an essential ingredient to a successful trading approach.
- A flat-top breakout is easy to see on a candlestick chart.
- Range consolidation stock indices chart pattern forms over an extended period of time giving this stock indices chart pattern its range shape.
- You might even wait for the third candle — it depends on the catalyst, the candle period, and your trading plan.
- You can apply this strategy to day trading, swing trading, or any style of trading.
- But breakout trading is a great strategy to learn.
The pattern works well to identify whether the asset’s price will continue rising or not. In this article, we have looked at how the pattern works and how you can trade it well. And the best way to learn to spot breakouts is by studying the past and getting lots of screen time.
Flat Top Breakout Pattern
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The triangle, wedge, or flag is a period of consolidation after a rise in price. One consolidation breakout strategy is to wait for confirmation before opening a position. But to me, it makes sense for newbies to start with breakout trading strategies.