1. Two moving averages combined

Strong price movement is when 2 moving averages are separated from each other and vice versa, weak volatility is when the two moving averages move close together:

2. Bollinger Bands

BB is a great indicator of momentum. When the 2 bands are wide open, it shows strong volatility in the market. And vice versa, when BB contracts, shows weak volatility:

Types of breaks
  • Continue
  • Reverse
For the break to continue

When the market moves in one direction, there will often be periods of market slowing, which we call accumulation. As shown below:

If the traders decide to follow the previous trend, then the breakout trade now makes sense of trend continuation.

For the reversal breakout

The only difference to a continuing break is that in an accumulation phase, instead of continuing the trend, the market pushes prices back or reverses. As shown below:

How to trade breakout

1. Trendline

The first, the most common way, is to use the trendline and draw a trend line on the chart. As shown below:

Please note, the more touchpoints the trendline has, the stronger the trendline will be. When the price approaches the trendline, there are 2 possibilities, namely a continuation of the trend or a break of the trendline and a reversal.

However, looking at the price alone is not enough to judge. At this point, using the indicator will help you a lot.

Note the chart above, the price broke the trendline together with the MACD, showing a strong decline. Thus, this information will show us that the trendline breakout is likely to continue to push the price down further, and traders should watch to sell the pair.

2. Triangular model

You can also trade breakouts by looking for a triangle pattern. There are 3 types of triangles:

The rising triangle:

We will be looking for a breakout of the upper edge of the triangle to keep the market bullish. Because the bullish triangle patterns are usually bullish. The right decision is to buy.

Decreasing triangle:

The Decreasing Triangle is the opposite of the Ascending Triangle. We should watch sell when the price breaks the lower edge of the Triangle:

Isosceles triangle:

You see the picture below. Instead of having horizontal support or resistance, the market now creates higher lows and lower highs forming an isosceles triangle.

Unlike the bullish and bearish triangle, the symmetrical triangle does not clearly indicate a buy or sell signal. Instead, you have to wait for the market to break one of the two sides of the triangle to determine the time to enter the trade.

Ways to avoid fakeout

Not all breakouts have been successful. Even a lot of them are failures or fakeout.

As shown below, the EMA acts as a resistance, although the price was identified as a resistance breakout, then turned around again.

When traders know how to properly analyze and trade breakouts, a lot of fakeouts will be avoided, which can limit many unnecessary losses.

Note, whether the price breaks a pattern or an important resistance, or a trend is the first factor we need to look for when trading a breakout. Then consider momentum based on indicators to confirm that breakout.