How To Trade Breakouts

Mark Austin:

Hey, guys.

So, today’s video tip is all going to be about breakouts, and also how to identify breakouts on the chart.

First of all, you want to be using a daily chart. That’s a very important part of trading breakouts and identifying them.
You want to be looking for key areas in the market.
So the best breakouts are the most obvious ones because if you can easily identify it then other people are as well.
That’s why you really want to be using horizontal lines.
So if I just look at this daily chart here, we can see that we’ve got a breakout level coming up here, actually right now.
So 75, 77, 78, this is an important area for the market, and you can see this as a daily chart.
You can see in 2017 this was an area of resistance. It’s broken up in December and now it becomes support and it’s very easily identifiable.

Now, what we don’t really want to be doing is looking at slanting trend lines like this or like this.
They’re just tricky. They’re very subjective and it’s difficult to find a clear point on the chart.
So the next thing to do is we need to make sure, once we’ve identified the area of where the market could break down,
I mean, it’s not at the moment, this is narrow support, so if it cleanly breaks down, then we’re expecting a move.
I’m expecting a move at least down to 7,500 here.

But how do we distinguish between a false break, because there’s a lot of false breaks in the market, and a real break that’s happening?
Well that’s when we would go down to the 5-minute chart. So let’s just pull this 5-minute chart up.
And really what we want to be seeing is, well, let’s just blow this up a bit. Okay. We’ll start from 8:00.
First of all, you really want to be taking action from 8:00 in the morning, so cash hours, that’s when the real action is.
That’s very important action. Now, if you’re using the daily chart, then you can use 5-minute bar acceptance.
So the area we were looking at is here, this line across here. I’d want to see at least 5-minute bar acceptance.
So 5-minute bar acceptance is a full bar closing body and wick below the level and then a break of that by two pips.
And it’s got to be a decent bar as well. I’m talking about something like this or here.
These are tiny little bars, they’re little sort of 3 pip bars.

I mean, technically, this bar is below the 77, but it’s just such a small bar that for me it’s irrelevant.
So we haven’t really even seen a 5-minute bar closing body and wick yet, below the 77 level.
I want to see a nice break down bar, a bit like this. This bar is sort of 7 to 10 points. That’s a decent bar.
Once we’ve got that, and remember the whole bar needs to be below 77 and close-out below there, then it’s a break of that bar.
So we then need to see a two bit break of that bar. And then, you’ve got confirmation of a break.
So you could just get in there.

Now, where would you stop be? You could have 5-minute bar acceptance back above the breakout level,
and you could be looking for 15% ATR to 30% ATR of a five-day average true range.
Remember, if you’re on Magnetic Whale Reports or Protrader, you get the ATR emailed to you every day with all the technical levels that we’re looking at.

Now, another way of trading a breakout, of course, is to wait for the market to cleanly break and then wait for a retest.
So let’s just have a little look for another example of that. Because for this particular example, we’re looking at acceptance.
But let’s try and look at a previous example of a break and a retest.
Okay, so going back to the daily charts here, I mean obviously, this level here, we identified as a breakout.

So once we saw a clean breakout to the upside, that was a reason to get long in the market.
Now, you can see this is a daily chart we’ve broken out and then we’ve come to do a retest. So this was, we broke out on the 21st of December.
So let’s scroll down and have a look at what we would’ve done there.
Okay, guys. This is going back to the 21st of December, I’ve gone onto a 5-minute chart here to make it easy for you.
So going back to what we were talking about, we’re talking about acceptance.
So let’s try and look for acceptance. So obviously, no acceptance here. This bar is an acceptance because it’s still on the level of this bar.
You might think it is, but it’s not. The lower of this bar is still kind of on the breakout.

This bar is your acceptance. It’s a nice clean bar to the upside.
And then, it’s above the level nicely. So once this breaks out by two pips, so high was 87,
so you’d be looking to get in around 89, then you go long.
And you’re looking for sort of 30% ATR, 15 to 30% ATR.
Where’s your stop? It’s 5-minute bar acceptance back below the break.
So you’ve seen it, it’s broken out at nicely. It’s rallied all the way up to 76.10, and you would have got some nice points there.

Now, the other way of doing this, of course, is to wait for the breakout and then wait for a pull back to the actual breakout areas itself,
which you’d see a lot as well.
So you’ve seen the breakout here, then it pulls all the way back down again, and then you’re really just looking for a buy signal back at the breakout level.
You can see it tests this area and it holds it.
And then, eventually, it’s off to the races. So these are very good examples of what to do at the breaker out area.
And, it’s fitting that we’re actually, this breakout level, which was a very important one in December, is now potentially setting out to the downside.
So as I said, at the moment, we haven’t seen acceptance.

This video tip will probably be produced and sent out to you tomorrow or maybe Friday,
in which case we would have either seen acceptance or not. So it’s a good case study to review.
All right. Hopefully, you found that useful.
That is how to trade breakouts.