It is no secret that most traders and most of my students already know that one of my favorite trading strategies is “The Breakout”. It is a simple strategy that can be easily learned and put into practice with a high rate of success, especially by beginning traders.

Traders need to understand one thing – all they need is to master one strategy to be successful, one strategy to make money, one strategy to make a living or build wealth. This strategy works, regardless of whether you are a stock trader, futures trader or a currency trader, a day trader, a swing trader, or a position trader.

What is a Breakout?

“A violent or forceful break from a restraining condition or situation (Webster’s Dictionary). Translating this into technical analysis, a breakout is the forceful break of price from tight and restrained  price parameters (support and resistance). It is the price movement through an identified area of consolidation.

The Concept

Markets move from periods of high directional activity and volatility (trend), to periods of rest (consolidation).  This cycle repeats itself in almost every active, volatile market.   The consolidation breakout strategy seeks to enter the market at the inflection point where a market is moving from a consolidation phase to a trend phase.

The Trade

I often post trades on my Facebook and Twitter pages for my followers, always real time and never after the fact. There is nothing worse than speaking about a trade that has already happened.

Last week I posted NFLX (Netflix ) as a trade idea (breakout). NFLX was basing on the 60-min chart the whole day on Wednesday since it has gapped. The strong gap up, above prior resistance from 11/03, indicated that more buying pressure was setting in and it had a considerable void area into further projected targets and the risk was definitely worth the reward.

The Parameters

  • Support: $401.50
  • Resistance: $414.68
  • Targets: $430.00, $450.00, $468.00. $480.00

The Chart

From the 60-min chart, you can clearly see the support and resistance and the violent break out that occurred above resistance.

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Targets areas on the daily chart

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The moment you acknowledge that trading is simple, that moment  will be your turning point. Find your comfort zone and find your trading strategy that best fits your personality.

Good Trading Everyone,

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To learn more from Anka Metcalf at TradeOutLoud, please click here.