Breakout Trading Strategy
Breakout Trading is a trading strategy when the price breaks through an important support or resistance level, signaling the start of a new trend. When the price passes through price zones that the market previously could not break, it indicates a change in the supply-demand balance and the potential for a strong movement.
A successful Breakout often leads to prolonged trends, allowing investors to earn significant profits if they know how to enter orders and manage risks reasonably.
How to Implement Breakout Trading
1. Identify Support and Resistance Areas
Support: A price area where when the price drops, strong buying pressure causes the price to bounce back multiple times.
Resistance: A price area where when the price rises, strong selling pressure causes the price to reverse downward multiple times.
➡️ The more these areas are tested without being broken, the more significant the breakout becomes when it occurs.
[Rest of the translation continues in the same professional manner, maintaining the technical trading terminology and structure]Need to wait for price:
Approach the breakout area.
Show signs of slowing down or reversal.
3. Confirm Pullback
Use reversal candlestick patterns to confirm Pullback signal:
Pin Bar: Candle with long tail reflecting price rejection.
Bullish Engulfing (when price pulls back to support).
Bearish Engulfing (when price pulls back to resistance).
Morning Star/Evening Star.
Additionally, can combine with indicators:
RSI for oversold (support) or overbought (resistance) signals.
MACD confirms momentum crossover.
4. Enter Order After Confirmation
Buy (Longing Entry):
When price pulls back to test support and bullish candle pattern appears.
Sell (Short Entry):
When price pulls back to test resistance and bearish candle pattern appears.
5. Risk Management
Stop-Loss:
Set just below support area (when Buy) or above resistance area (when Sell).
Or can be set based on the most recent volatility range.
Take-Profit:
Based on Fibonacci Extension (1.618 or 2.618).
Based on potential next resistance level in the main trend.
Risk/Reward Ratio:
Always aim for a minimum ratio of 1:2 or higher.
RISK MANAGEMENT IN TRADING
Risk management is the process of controlling the acceptable level of potential losses in each trade to protect the account from severe damage. In financial investment, controlling losses is more important than seeking profits - because surviving in the market is the first step to long-term victory.
Stop-Loss (Loss Cutting Order)
Stop-Loss is an automatic trading order designed to limit the maximum loss in case the market moves against the investor's expectations. When the price reaches the preset Stop-Loss level, the order will automatically close the position, helping to protect the account from uncontrolled loss risks.
Cutting losses at the right time is not a failure, but a proactive action to protect capital, maintain the ability to continue trading, and survive long-term in the market.
Stop-loss will help traders avoid heavier losses
Role of Stop-Loss in Trading
Protect Account:
A reasonable Stop-Loss helps avoid excessive losses in situations of unusual market volatility (news shock, flash crash).
Maintain Trading Discipline:
Do not let emotions dominate, do not "hope" the market will turn around when reality is opposite.
Increase professionalism and stability in investment results.
Manage Psychology:
Reduce psychological pressure in trading, help investors focus on strategy instead of fearing losses.
Build Long-term Strategy:
Maintain account stability to take advantage of good opportunities in the future, instead of being eliminated from the market due to large losses.
Important Notes When Setting Stop-Loss
Do not set Stop-Loss too close to entry point:
If set too close, natural price fluctuations might trigger Stop-Loss and then move in the predicted direction.
Do not set Stop-Loss too far:
This makes potential loss too large compared to expected profit, reducing Risk/Reward effectiveness.
Do not move Stop-Loss against the trend: When price is near Stop-Loss, absolutely do not move it further away with hope of recovery - this increases losses and violates risk management principles.
Should determine Stop-Loss from the beginning of trade planning, not "wait and see how the market goes" before setting.
Take-Profit (Profit Taking)
Take-Profit (TP) is an automatic order that helps traders close positions when the market reaches a predetermined profit level, thereby preserving gains before price fluctuations can erode or reverse that profit.
Take-Profit is like "safely putting" success in your pocket, instead of letting the market take back what you've earned.
Take Profit can be divided into multiple stages to maximize profit
Vai's Role of Take-Profit
Lock in Profits at the Right Time:
Ensure that achieved profits are not lost due to unexpected market fluctuations.Reduce Psychological Stress:
Help investors adhere to their plan, avoid "greed" when expecting prices to continue further, but are suddenly reversed by the market.Optimize Trading Performance:
Instead of waiting hopelessly or making emotional decisions, Take-Profit brings proactivity and scientific approach to trade management.Protect Reasonable Risk/Reward Ratio:
When Take-Profit reaches the initial target, the overall strategy will achieve the expected stable profit according to the long-term plan.
