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Breakout Strategy
Trade when price breaks through key levels
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What Is This Strategy?
Breakout trading captures the move when price breaks above resistance or below support. Successful breakouts often lead to significant trends as new participants enter.
How It Works
- Identify key resistance levels (recent highs, round numbers)
- Identify key support levels (recent lows, round numbers)
- Wait for price to close above resistance = Buy breakout
- Wait for price to close below support = Sell/short breakdown
- Confirm with volume - breakouts should have increased volume
Key Parameters
Lookback Period
Period to find highs/lows
Volume Confirmation
Volume multiple for confirmation
When to Use
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Best For
- • After consolidation periods
- • With volume confirmation
- • Clear support/resistance
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Avoid When
- • In choppy, trendless markets
- • Without volume confirmation
- • Near major news events
Risks & Limitations
warning
Be Aware
- • False breakouts (fakeouts) are common
- • Can lead to buying at highs if chase the breakout
- • Need quick exit if breakout fails
Example Trade
Scenario
META has been stuck at $300 resistance for 2 weeks. Today it closes at $305 on 2x volume.
BUY
Reasoning
Confirmed breakout with volume. Previous resistance now becomes support.
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