There is another efficient approach for us to enter crypto trading besides the pullback. Traders call this alternative strategy ‘the breakout.’ Breakout trading tactics include support and resistance breakouts, moving average breakouts, and so on. However, we will concentrate on the trendline breakout in this post.
What Does a Trend Breakout Look Like?
When a trend (whether uptrend or downtrend) breaks out, it could signal a likely trend reversal. In other words, breaking the trendline you drew in a downtrend market indicates the possibility of a trend reversal. We can anticipate an upward market trend and take a long position.
Similarly, if the trendline you created in an upward market breaks, it could signal a trend reversal; we can also expect the market trend to shift to a bearish one, and we can start a short position. This strategy applies to any time frame.
Regardless of what strategy you employ, always be mindful of the risks. Cryptocurrency trading involves high volatility and the market can quickly turn against you. As Immediate Edge advises, “don’t invest more than you can afford to lose.” It’s better to start with a more modest budget to keep your losses to a minimum until you build the skills and confidence for bigger plays.
If you’re reading this, we can suppose you can draw a trendline already. But on the off chance you do not know how to do it yet, here’s a fast rundown. To claim that the trendline you draw in a downtrend is valid, you must connect at least two lower swing highs with it. At the bottom of an upward market, we need to witness at least two higher lows. We will link them to the trend line.
To take a long position, we need to look for a market that is on a downward trend. Then, we have to connect its lower ends to the top. There must be two or more for our trendline to be valid.
Afterwards, we have to watch the trend and wait for the line to break and the candlestick to cross it. This event could be the start of a trend reversal.
We can place a buy limit order a little higher at the breakout. We will also place the stop-loss below the entry point. Also, we should set our profit goal further away from the entry point. We can consider setting a profit objective at the resistance level.
The set-up is the polar opposite in a short position. First, we need to search for a market that is in an uptrend and link its bottom ends. Again, there must be two or more.
Then, we’ll wait for a break in the trendline we have established. It might indicate a possible trend reversal if the trend line breaks and the candlestick intersects the line. Now we can take a short position. It denotes that our expectations are down; thus, we will place a stop loss above our entry point.
Additional Tips and Tricks
Here are some recommendations from a variety of cryptocurrency traders.
When the trade is in your favour, meaning you immediately have noticed that it cannot reverse, you may try to use a trailing stop instead. It will assist us in maximising profit while also protecting potential profit in the event of a trend reversal.
Normally, you can’t catch up after a breakout with a long candlestick. Do not force yourself to trade with this strategy. Your stop-loss position is further away when the candlestick is long.
Another option is to utilise an ABCD chart pattern method or pullback trading technique when the breakout strategy does not seem like a good fit.
Because there is no such thing as a perfect method, you must exercise caution. False breakouts are often an issue with this method. They indicate that a breakout occurred but did not continue. As a result, a false breakout might get a trader stopped out.
Overall, the breakout strategy is one of the most effective easy price action tactics employed by expert traders. You don’t have to be the most efficient trader; all you have to do is be consistent. You can become a better trader by using a simple method.