A breakout is a potential trading opportunity that occurs when a share price moves above a resistance zone or moves below a support zone on increasing volume . For trading breakouts one should be aware of support and resistance . It acts as the backbone of Price Action trading.
What is Support & Resistance ?
Support is a place where a stock price stop moving downwards. It is a horizontal area on a chart, where price experience buying pressure and tends to move up.
Resistance is a place where a stock price stop moving upwards. It is a horizontal area on a chart, where price experience selling pressure and tends to move down
Why are these support and resistance formed?
Support and resistance are formed only due to our own emotions at points around high supply or demand zone . For instance, if a price falls from high 100 to 50 then in and around that price (50) there will be lots of buyers ready to buy assuming it to be very cheap price and same goes for resistance where lot of traders would like to offload their positions considering that price to be too high for the stock and good time to book profit.
Why do we need Support and Resistance?
Support and Resistance often helps to set 1)Target, 2)Entry and 3)Stop loss.
Guidelines for Drawing Support and Resistance:
For the same chart if we ask 10 traders to draw support and resistance area, we will get 10 different result. So, what are the important things to consider ? I always prefer drawing rectangular zone instead of drawing single line to make chart look clean and easy to understand the area of supply and demand .
*Always Use Higher Time frame to draw Support and resistance area. * Draw a zone using rectangle which shows multiple touches. While, this zone act as great support and resistance area compare to few touches which was due to volatility . * While drawing zone make sure to cover shadows in all previous touches
Things to know:
* The more times the S&R zones are tested in a short period of time, the weaker they become & the greater the likelihood it will break.
Rules for Positional breakout :
1)Candle closing is mandatory to trade breakouts. 2)Wait for the retest, if the price closes too far from the breakout level. 3)There should not be HTF support/resistance near the breakout level.
Thank you for sharing your knowledge with others. 😀
Divyaapugal
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@johntradingwick,Thank u so much sir.. this is my first educational post in trading view.. I didn't expect that it will be featured that too as a editors pick... This motivates me to write more.. I will keep giving good content.. thank you for the coin sir :) keep supporting :)
@paladiti927, I don't know, whether is there anything like that...I used to scan manually one by one from my watchlist (nifty 500). In initial days it took 3 to 4 hours for analysing all... now it takes only 1 hour for scanning..
paladiti927
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@Divyaapugal, what points did you look at while scanning these stocks,
Gaurav2000
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@paladiti927 the more confluence you are able to add in the breakout trading, the more it will become good.... So i don't know about the fornulas but that you can use some indicators to add an additional confirmation.. like volume as said by @Divyaapugal, others can be MAs and ADX.