HOW TO MAKE MONEY WITH BREAKOUT TRADING

HOW TO MAKE MONEY WITH BREAKOUT TRADING

Welcome to mahakal trading, In my five years of trading experience, I have used many indicators, learned many trading systems. But ‘Breakout Trading' is one of my favorite trading systems.Below are the two reasons why I liked Breakout Trading system: 

1. It is simple to understand and easy to execute (all you need is 5 mins during live market) 
2. It shows RESULTS!  

Nowadays, I use this system rarely as I have transitted into intraday trading. Besides, I am a student and a blogger. Hence, I do not  have extra time for market. 

However, Mahakal Trading have been teaching this technique to numerous people who have benefitted from Mahakal Trading advice. 

This blogpost of Mahakal Trading( HOW TO MAKE MONEY WITH BREAKOUT TRADING ) is beneficial if you are a working professional or a business person and have the mindset to hold your trades between 2 days to 2 weeks. For everyone else, it’s just a piece of some information. I have explained only the concepts which are required for ‘Breakout Trading’. 

So, let’s begin! 

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What is a Breakout?

Mahakal Trading says, “A breakout is a stock price moving outside a defined support or resistance level with increased volume. A breakout trader enters an extended position after the stock price breaks above resistance or enters a brief position after the stock breaks below support.”

Image 1 – A breakout example (break of resistance trend line)

In image 1. the price broke the resistance trend line with high volumes. Similarly, if the price breaks the support trend line, few recognize it as a breakdown. To keep it simple, we will focus only on the breakout.

Also read:- How to start Investment in Indian Stock Market in 2020

What is a False Breakout?

A false breakout is also recognized as a ‘failed break’. Investopedia.com’s definition for a failed break is, “A failed break occurs when a price moves through an identified level of support or resistance but doesn't have enough momentum to maintain its direction. Since the validity of the breakout is compromised, and the profit potential significantly decreases, many traders close their positions. A failed break is also commonly referred to as a false breakout.”

Image 2 – A False Breakout example

In image 2, the price showed the characteristics of a breakout. However, it failed in its attempt and broke on the opposite side.

Why is This Information Important?

In Mahakal Trading opinion, every trader (be it intraday, swing, positional, or scalper) should know how to differentiate a genuine breakout and a false breakout.

Do you know why?

Because every ‘Entry’ and ‘Exit’ in any trade should come through a breakout or false breakout opportunity!
(That doesn’t mean other trading techniques will not work. My explanation holds good if a trader is looking for the best entry point and best exit point.)
Let me explain.
It’s important to understand two herds that exist in the market:

1. Smart Money and
2. Dumb Money

‘Smart Money’ refers to institutional investors, big sharks who have money and information power who give direction and momentum to markets.

‘Dumb Money’ refers to nonprofessional traders, retail traders who often try to make quick money.

      Do you agree that it’s always a good idea to follow the smart money? If yes, check the below chart carefully. 

Image 3 – Action plan of Smart Money (Daily Chart)

If you look at image 3, the smart money has prevented the fall three times with significant buying volumes. Besides, the price has consolidated for over eight trading days before the breakout. It indicates two things: 

1. Smart money is not willing to sell at this price level. 
2. Dumb money got exhausted with its selling.

Image 4 – Action plan of Smart Money (Daily Chart) Result

If you look at image 4, it’s evident that smart money had a clear action plan. So, it’s always better to take Entry when we get the confirmation from smart money (you can’t make trades along with them unless you are one among them). Besides, it’s significant to plan Exit if you can judge smart money is exiting. A trading system should accommodate such Entry and Exit points. Because only ‘Entry’ and ‘Exit’ decide the fate of your trade irrespective of your reputation, experience, and qualification! This Breakout Trading System consists of three critical components: 

1. Drawing Proper Trend Lines 

2. Identification of Real Breakout 

3. Trade Execution 

Mahakal Trading will explain these concepts in detail separately in All upcomings blog post of Mahakal Trading.

I HOPE YOU LIKE MAHAKAL TRADING POST HOW TO MAKE MONEY WITH BREAKOUT TRADING. For Any Trading help follow my Blog Mahakal Trading. Thanks!