Breakout Trading
Breakout trading is a strategy used by traders to capitalize on short-term price movements. It involves entering a position when the price of an asset breaks out of a predetermined range. This range is usually determined by the support and resistance levels of the asset. The goal of breakout trading is to take advantage of the momentum created by the breakout and ride it until the trend reverses.
History of Breakout Trading
Breakout trading has been around for centuries, with traders using it to capitalize on short-term price movements. The strategy was popularized in the late 19th century by Charles Dow, who developed the Dow Theory. This theory states that the market is composed of three distinct trends: the primary trend, the secondary trend, and the minor trend. Breakout trading is based on the idea that the primary trend will continue until it is broken by a secondary trend.
Breakout trading has become increasingly popular in recent years due to the rise of algorithmic trading. Algorithmic trading systems are designed to identify and capitalize on short-term price movements, making them ideal for breakout trading.
Comparison Table
| Strategy | Time Frame | Risk/Reward |
|---|---|---|
| Breakout Trading | Short-term | High/High |
| Trend Trading | Medium-term | Medium/High |
| Position Trading | Long-term | Low/Low |
Summary
Breakout trading is a strategy used by traders to capitalize on short-term price movements. It involves entering a position when the price of an asset breaks out of a predetermined range. This range is usually determined by the support and resistance levels of the asset. Breakout trading has become increasingly popular in recent years due to the rise of algorithmic trading. For more information on breakout trading, visit Investopedia, The Balance, and Investing.com.
See Also
- Support and Resistance
- Trend Trading
- Position Trading
- Algorithmic Trading
- Dow Theory
- Price Action Trading
- Momentum Trading
- Range Trading
- Scalping
- Day Trading
