As the number of accessible derivative products continues to rise, so too does the volume of trading methods used by investors. These variable strategies may cover one or several market practices, and each offer different advantages to the traders who adopt them. Breakout trading is one such method, and one which is commonly associated with spread betting and the forex market. It is can also be practiced by both on and offline traders, with outlets such as Sucden Financial providing a viable platform from which trades can be executed.
What is Breakout Trading and is it Suitable for You?
The breakout method of trading is used to identify trends waves as they begin to ascend, allowing investors to maximize their potential profits. Historically, the signals for breakout trades are triggered when market volatility soars, as this sends prices either rising or falling outside of their established range. Once this has occurred, investors can adapt their trades accordingly and capitalize on the sudden price movement, while minimizing their risk in a volatile market.
The key to this method of trading is timing, especially when applied in the forex market. The global and volatile nature of this marketplace causes prices to shift suddenly and rapidly, and an inability to react to breakout trends as they are initiated can lead to an opportunity being missed. Once a stock or asset price moves outside of its established range or resistance level, then traders have a limited amount of time in which to execute trades and secure a profitable return.
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In terms of your own portfolio, it is worth considering the wider philosophy behind breakout trading. While breakouts can occur within any given time frame, many occur on either a daily or monthly basis, and this enables traders to pre-empt change and understand the underlying rules that govern market change. If you have the relevant knowledge base and skill set to forecast these trends accurately, then breakout trading may well be a viable option for you.
In Summary: Breakout Trading as a Viable Strategy
While breakout trading is an increasingly popular investment method, it is not necessarily compatible with every trader’s philosophy. Despite this, however, it is particularly suitable for those who have experience of a specific financial market and an ability to forecast trends before they break. For these individuals, breakout trading offers a unique opportunity to capitalize on largely unexpected price movements and accrue significant financial returns. If you are relatively inexperienced, however, you may need to practice this through a demo account before risking actual capital in the real-time forex market.
