3 Terms for Confirming Breakout

Have you ever felt there were thousands of pips above long positions that are still open, or thousands of pips below the short positions that are still open? That is what you will experience if trading follows the direction of the trend (trend following). Maybe you will not be bored of monitoring price movements for days, weeks or even months, because you are in a profit condition. But how do you do this? Breakout, or break a certain price level.

Is that easy? Yes, as long as the price movement is trending and fulfills the 3 conditions that usually occur on a breakout condition. For example, here are the key GBP / USD pairs for a break:

Why must there be conditions? Isn't it true that if the price has passed the key level it can be considered a breakout? Yes, there needs to be a condition to confirm the validity of the breakout that occurs because many traders are trapped because they only focus on the initial break.

Generally, traders assume as long as the price can penetrate the key support or resistance levels then there is a breakout, and they will automatically sell or buy. But in reality the market does not always respond as they think. Often the prices move back and forth because of the big profit taking by traders by sacrificing those who are impatient or hurriedly entering.

Breakout Confirmation Terms

There are three simple conditions for confirming breakout, namely:

1. Determine the key price levels of support and resistance. The key level means support or resistance that is really strong and has been tested. Prices must break this level.

2. Make sure that the closing price of the candlestick bar (breakout bar) is above the key resistance level or below the key support level. The farther away from the key level the more valid. For example for uptrend conditions, if the closing price of the bar breaks below the key resistance level then the bullish momentum is very weak and there tends to be a reversal movement due to their profit taking that has been bought long before, as happened in the following USD / CHF pairs. A is a breakout bar that is not confirmed so that the breakout condition is invalid. The price moves downtrend again (reversal).

3. Wait a few more bars to make sure the price is really at the new area level (post breakout). For daily time frames usually the waiting time is 3 days (or 3 bars). If during this period the price has moved at a new level, we can conclude that the breakout condition is indeed valid. If you use a lower time frame than daily, then estimate the number of bars to confirm, which is clearly more than 3 bars, and the smaller the time frame of your trading the more bars to confirm.

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