Breakouts are well-liked by forex traders.
Doesn’t that make sense?
When the price “breaks” out of that support or resistance level, one would expect it to continue moving in the same direction as the break.
There must have been enough momentum building up for price to break out of the level, right?
It’s time to get on that train. Everything is back on track now. All you have to do now is wait…
Wait for it…
Wait for it… Just a few more seconds… To see the price move in one direction… Then suddenly move thousands of kilometers in the opposite direction!
Huh?!? What the hell is going on?! What happened to the plan of “bread and butter and the abolition of world hunger”?
Support and Resistance Levels Are Tricky
One thing to keep in mind about support and resistance levels is that they are zones where a reliable price response can be expected.
Support levels are regions where there is just enough purchasing pressure to overcome selling pressure and halt or reverse a downturn.
A strong support level is more likely to hold even if the price breaks through it, providing traders with a nice buying opportunity.
Resistance levels are similar to support levels, however they act in the opposite direction. They have a tendency to stall or even reverse uptrends.
Resistance levels are regions where selling pressure is just strong enough to overcome purchasing demand and cause the price to fall.
Strong resistance levels are more likely to hold even if the price temporarily breaks through them, providing traders with a nice selling opportunity.
In the following part, we’ll go more into fakeouts, discussing why we should trade them and how to profit from them.
Learning about breakout tactics isn’t enough because there will be moments when breakouts fail. We need to know what to do in the event of a fakeout.
Next Lesson: Fade the Breakout