Breakouts are everyone's favourites and finding breakouts is an art that only few know. I will try my best to share some insights and knowledge on how to find breakouts well before time and use this as an example to show you few secret sauce.
Breakouts happen when price is moving up and breaking old price highs or price trend lines. This old price highs or price trend lines can be on any time frame and price consolidation in these time frames can help us in understanding how impactful will be he breakout.
For public company stocks breakouts can be seen on daily, weekly or monthly chart. Some small breakouts can even be seen on 4 hourly charts and so on. For Crypto trading breakouts we can find it even on smaller time frames. With this blog post you will be able to find at least one good breakout every day. So let's begin.
A recent example of Dogecoin breakout is a perfect trade setup where you could have entered and exited with much profit.
We will use Trading View Screener to find perfect breakout on any time frame. Some key ingredients that will help us to find a breakout are mentioned below.
Top ingredients of stock or crypto trading breakout:-
Volume: Volume is important factor and good breakout can only happen when there is volume That is number of trades happening on that particular time frame.
RSI: Relative Strength Index during a breakout will be very high (Above 70), sometimes even more depending on stocks, crypto and more.
Price making new highs: This is a simple point go interest for us to understand that price can only make a breakout when it is moving higher than its previous all time high within the time frame. E.g. in daily chart it will make a breakout when it is going above the consolidation phase and making new highs and breaking old price highs.
Positive news or point of interests: News and sentiments play a major role during potential breakouts E.g. Covid vaccination news will give positive sentiments in markets and stocks that are near trendiness and breakout points will eventually get much needed push to pass through the resistance and manage to give a nice breakout.
Step by Step guide to enter a breakout trade (with bonus for futures trading on how to exit):-
Setup your screeners on trading view, with above 4 metrics and add few more like New 1 month high, new 3 month high and new 6 month high.
Find stocks and cryptos where there are new highs above, and check charts on 4 hourly, 1 hourly, 1 day to find patterns of trend lines and breakouts.
Once you find these trendiness, write down price and add alerts for the price
Check RSI and volume and check for important resistance levels
Wait patiently, it is not necessary that breakout happens today, and sometimes breakout might already have occurred. In both cases, we wait and see how price is moving.
Above setup is an exercise that needs to be done days before the breakout or on the same day. It is better if the trader is well prepared days in advance so that he knows what will happen on the trading day when breakout happens.
For any type of breakout on bigger time frames like Daily or Weekly, you can also check Elliott wave to understand points where we might need to exit. Futures trading is a perfect example where sometimes exit from breakout is important. When the crypto is pumping up, there are more chance that it will retrace back and we want to exit from the trade as soon as that happens.
For a smart trader and one of our friends, the best way to do that is to keep a minute chart open for a crypto futures trading and find the perfect decisive sell candle and book profits before it is too late.
"Recently (Jan 2021), two coins showed massive surge Doge Coin and XRP and both after reaching a point retraced back making it very difficult for amateurs to keep profits as many lost lot of money during these trades. Best way is to book profits at perfect time and wait for market movements that show sell signal on smaller time frames live 1 minute etc." - Mark (Crypto Trader)
How to add stop loss during breakout?
One way to add stop loss during breakout is to add stop loss just below your entry price and then keep shifting it higher as price goes higher. However, for a crypto futures trading, it is good idea to keep a watch on smallest time frame possible and exit as soon as the Elliott wave targets are hit and small time frames are showing a sell signal.
For stock traders who are looking for long term investment, for them exit strategy can be different. However for intra day traders or day traders, and futures traders, it becomes important to exit fast before it is too late.
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