June 10, 2010 02:12

break or breakout trade

Posted In: Forex Q&A
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(also called a break)- a “break” or “breakout” occurs when an important level of support/resistance has been broken and the pair may be starting a new trend. Breaks are frequently used in swing trading to indicate a change or reversal in trend.

A breakout trade is a trade entered based on the assumption that the break of an important support/resistance level means a new trend has taken hold of the currency. See break for further information and trade example.

For example, if the the level at 1.4000 had been providing resistance (meaning the price action had been restrained to below this level) to the EUR/USD pair for the past several months then many traders would be looking to sell at this level. However if a sustained break above 1.4000 took place a new trend might be in place (see swing trading) and a breakout trade, in this case going long above 1.4000, might be entered. In the case of a break many traders consider the broken level to have switched its direction of pressure, meaning a former level of support is now a resistance level and a former level of resistance would be a new support level.

2 Comments on "break or breakout trade"
  1. Reply
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    Comment left on:
    August 12, 2010 at 22:41
    Befkaz says:

    From example above ,if the the level at 1.4000 had been providing resistance (meaning the price action had been restrained to below this level) to the EUR/USD pair for the past several months, How many candle will close above 1.4000 level before will could say resistance is broken?

  2. Reply
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    Comment left on:
    November 1, 2010 at 15:48
    Akinnuoye O Williams says:

    This is a comprehensive teaching. I got it it right

    Thanks

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