What is Breakout Trading in Forex Market Advantages Disadvantages ~ forex trading courses perth
1. As a breakout trader, you are a market follower. You just go with the flow instead of whining that you bought low or sold high, against the market, while the market was unstoppable.
2. If things go wrong, you can still blame the market instead of blaming yourself, since you are a market follower (see 1. above), right? – I guess this qualifies as a morale booster. It’s always better to blame something/someone else instead of blaming yourself, thus losing confidence in what you’re doing – and you certainly DON’T want to lose confidence in what you’re doing, because knowing your stuff and believing in what you do is what trading is all about.
3. Chances are that you will jump into some violent moves in your favor, as best breakouts usually occur fast, market being driven by tons of stop-loss orders getting filled on its way (we all know most people set their stops above/below recent highs/lows or range tops/bottoms)
And some of the disadvantages:
1. Many times you need a larger stop loss, compared to buying around support or selling at resistance, because you should allow for some corrective movements against the position. Corrections are normal and they occur all the time. A tight stop is easily hit during a corrective phase once a resistance/support is breached and you just jumped into a breakout trade. Keep in mind that market has a habit of re-testing a key level from the opposite side once it’s been breached (i.e.: support becomes resistance and vice-versa). The re-test is what confirms that a change or role occurred, and that’s when you start questioning whether the breakout was real or fake – and tight stops or manual closing/reversing become some of the things to put on the “Don’t Do This” list.
2. Many breakouts fail (doh – playing the Captain Obvious role here). Else, everyone would trade breakouts and know each other because they’d be sharing the same exotic beaches somewhere. Anyway, once you become familiar to these kind of market movements, it should be easier to identify a real breakout when you see it.
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