Beware Of Range Breakouts

in business •  12 days ago


If you are a trader I'm sure you have come across a trade scenario called a range breaker, it's pretty easy to spot and is a favorite of many beginner traders. There are some that believe range breakouts can provide great returns, as the market begins to break out of its range-bound pattern. Unfortunately, the truth is that ranged trading often turns out to be unprofitable for most beginner traders.

Breakout trading is prone to be affected by a phenomenon called false breakouts. This is when the price moves beyond a previously established price range but then turns around and retreats back to the previous price range. False breakouts occur because support and resistance are not 100% accurate. If you want to avoid trading false breakouts then you need to be sure to look at indicators such as RSI because they will show you what the market is doing it if the asset is truly breaking out.

Trying to trade breakouts is not really a good strategy for a novice trader because to successfully do it you require quite a bit of knowledge and discipline. If you're just starting out although it may be easy to spot range trading opportunities I suggest you avoid it until you have gotten good at technical analysis and are confident with making range based trades. My stance is to trade value based assets because inevitably their prices will rise and you will stand to profit regardless of the current range that it is trading in.

Trying to make trades and catch a breakout at its start is an easy way to make your balance suffer. Even the pros have a hard time catching breakouts as they occur. if you are a day trader then you could wait for a trend to develop and passively use a trend trading strategy to capitalize on the breakout but this too requires practice and a bit of skill. in the end, the best strategy is patience, this will allow the essay to make it move and reveal if the breakout is occurring or not. If you must range trade then I strongly suggest using the RSI because it may help clarify the indications of a breakout from range trading.

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