 Hi in this video, I'm gonna be talking about breakout trading and how traders trade Breakouts now markets go from ranging to trending to ranging. So You know, you'll get a range a sort of trending market and then prices will end up going sideways for a bit a bit directionless and then you might even get a trend continuation to the upside and then a Ranging market of some sort and then maybe to the downside and So on and so forth so if markets go from trending to ranging to trending what breakout traders will look to anticipate is Really a major break of a level of support or resistance now that level of support and resistance Resistance can be horizontal. It can be dynamic. It can be Diagonal so dynamic being a moving average diagonal being a trend line. So You know after and that's really after price has been really been in a directionless market. So What I mean by that is One of the what one of the popular breakout trading patterns is would be a horizontal Breakout so we'll go over some diagonal ones as well But in this case, we draw that line again in this case We're gonna look at a horizontal one and we'll look at some diagonal Breakout patterns in a bit so You have prices are really contained between a Support and resistance level now. We need at least Two touches of a level to really confirm it as a level of support or resistance so when prices are really contained between This area here and this is what we would Probably consider this to be maybe like a box or a rectangle type of breakout. So Traders are wondering where Prices are going to go. So are they going to go to the upside and continue and maybe you know Start a trend to the upside or start a trend to the downside so if traders are anticipating a breakout of a level then if Prices do come down to a level of support then Traders breakout traders will be on alert. So what they really want to see here is a clear or a High probability or high probability that prices may break to the downside and there What they really want to see is a Candlestick close on the their trading time frame. So if this is a bearish candle This would be the open and this would be the close So what they want to see is price and the candlestick close beyond or below the level of support and that would tell them that prices have a decent chance of continuing To the downside and potentially they can be jumping on the beginnings of a Down trend after we've been in a ranging markets and the same thing would apply to the upside So if prices was to come up to here Breakout traders would be looking for a candlestick close Above the resistance level so this would be the open and that would be the close of the candle and the close of the candle Would indicate some sort of momentum or could indicate some sort of momentum to break out traders and They would then take that as a buying signal That prices are going to enter a Trend after it's been in a directionless or ranging type market for a while. So This is what we would call again a box or rectangle type of pattern And we're going to look at some examples of how traders trade this type of pattern on the price chart So here's an example of a break out type trade now The market had been moving sideways for a bit. So we had a level here We had a high and we had a low and then prices came up into the the resistance zone came down into the support zone creating You know Confirmed support and confirmed resistance because we don't know this is if this is support until the second touch Vice versa, we don't notice whether that's resistance until the second touch And then prices if we look at just zooming slightly so We can see here. We had really a directionless market Looking at this traders wouldn't know really what was happening Higher highs and higher lows weren't being made. This was the high and this was the low prices Which were kind of contained in this range this box this rectangle Until we see This candle right here. So let me See This candle right here Now so you can clearly see That this candle closed above The resistance high Kit a clear candle close and then what traders will do is they will Enter on the close of the candle above the Support or resistance level in this case the resistance level and then put their stop anywhere below the Either the candles low So they got a tighter stop or they will put it below the swing which is around here and obviously we Go further up. We can see That the risk reward Was pretty decent. So that's the first way and that's one of the The ways that traders will trade a Rectangle or a ranging type breakout strategy Now here's an example on the pound dollar hourly chart where you have a Arranging market and we have a breakout to the downside. So we have a Level that had been touched at least twice once and twice and the support level would been touched, you know Once twice a few times you can see that With this candle with here, obviously we didn't get a close below and If you're drawing support and resistance support and resistance is never fixed because price will always create new and new levels so once If we look at this in real-time we ignore everything To the right and if you were going through the charts scrolling in real-time this would have been a Resistance zone There would not have been a Breakout trade traders would not have got short on this time frame if the candle didn't close below here That's what you call maybe some sort of a false breakout And I'll get into that a bit later as well if we keep going Now that's the new resistance zone From here to here got one two three touches, and this is the low so if we draw It all the way across we can now see that prices Broke and closed to the downside that would indicate now a Potential change in the state of the market so rather than going from a directionless ranging market Breakout traders once they get that close on their preferred time frame Then they would look to get short and as you can see the market, you know did go lower So let's look at another type of breakout type pattern so this breakout trading pattern is what is known as the Rising and falling wedge. It's like the wedge pattern, right? So this would be what you would call the rising and this would be what you would call the falling So the rising wedge as you can see you've got you know resistance and support and prices contained within this wedge type pattern and The falling is obviously the opposite direction now A rising wedge is making steady higher highs Right see what steady higher highs another higher high here But the higher lows are Rising faster and steeper than the higher highs and it basically creates this This this this kind of triangle type pattern this wedge type pattern where Again traders are kind of caught between Support and resistance and then at some point Traders will even look to trade this wedge pattern to the upside as prices So as prices Getting squeezed and slowly squeezed there should be and pride and traders look for some sort of Breakout to the upside or a breakout to the downside and it's the same thing as prices get squeezed in the wedge then traders will trade a break of Either the resistance or support levels So let's have a look at the wedge pattern the rising wedge and the falling wedge on a price chart So here we have the rising wedge pattern on the Euro Canadian dollar to 40 chart and we can see here that prices are making Steady higher highs, but the higher highs are Not as steep as the higher lows are being made so we can see here we have a High and a low here And you can see the higher lows or a steeper angle then the The higher highs so prices are steadily being squeezed between the Lows and the highs creating this wedge type pattern and then what we see is a break so Traders Would be looking to enter on either the break above This level or a break below this diagonal support level and as we can see prices broke below the diagonal support level and So on the close of the candle Traders would enter put their stop somewhere in a safe location and then Trade to the downside and again the same thing would apply to the upside any breaks of diagonal resistance With a bullish candle and traders would get into the upside So here we have the falling wedge pattern on the New Zealand Canadian dollars 60 minute pair where we have Prices are steadily making lower highs and lower lows But again the key to this is that the lower highs around here the angle is a steeper angle then The lower lows so the lower lows you're making steady ones here and here But it's more of a shallow angle whereas the Lower highs are making Steeper Is making a steeper kind of angle again and prices are being squeezed into a wedge and then prices Would either break out to the upside Or break to the downside now we can see here and this candle here is our Breakout candle and this is where traders would look to enter So let's get rid of that and then zoom in On this candle here again, so we get a close below our Diagonal support level and then traders would put their stop-bloss in What they deemed to be a safe place and then price goes to the downside and the same thing would Apply regarding the upside if prices broke above this Diagonal resistance level Traders would wait for a candle close or two candle closes a clear candle close above that level To get involved in that trade So this triangle pattern is called the pennant pattern spell PE double n a n t and it pretty much is Where prices get squeezed and prices neither making higher highs or higher lows again, it's directionless So you've got a high here and you've got a low here and this is making a Lower high And this is making a higher low. There's no direction As to where the market may want to go so prices being squeezed into This kind of Tip of a triangle type pattern and then Traders are looking for prices to either break to the upside or break to the downside In a trend either Continuation if prices have been coming down this way This could be seen as a trend continuation pattern or if prices had been going up and then started creating this pennant pattern then Traders could see this as a trend continuation depending on whether it breaks past the Diagonal Resistance or the diagonal support so Let's have a look at the pennant pattern in action on a price chart So here's an example of the pennant pattern on the Australian Swiss Frank 60-minute pair now you have a high here and you have a low here and price is making Steady lower highs but higher lows so you can see the Triangle pattern formation and prices getting squeezed in between the two diagonal Support and resistance levels until prices break out right here so this candle we can see is quite a negative bearish candle and Traders would have entered on the break of that candle there. So if we were going for a short position Traders would have entered here put their stop somewhere above any of these swings possibly above the actual pennant pattern itself and Then gone for their their their profit target Which is somewhere down here So that's an example of the pennant pattern breaking to the downside the same would be said to the upside It's pretty much the same. You would wait for a candle close Below or above that level in the case of the upside and Again traders would enter on the close of the break out candle So this break out pattern is what we would call the ascending and descending Triangle, so this is the ascending and This is the descending So what you have is it's similar to a wedge pattern but what you have is a horizontal level of a resistance in an ascending Triangle pattern and Prices the prices are not making, you know, higher highs They're just literally bouncing off that horizontal level and then you will have basically higher lows being made Until price gets squeezed into a Level and then price will even break out from the horizontal level Sorry about that or it would break down So it would break that diagonal Support level or it would break the horizontal Resistance level so obviously prices are making higher lows But we're not making higher highs and it's the same thing with the descending triangle So we're making that would be maybe a high and that'd be a lower high And then this would be another lower High, but price isn't making lower lows. It's just bouncing off of this Sorry about that. It's just bouncing off of this these levels of Support so again Traders would either look the price to break to the downside so they break horizontal support or Prices to break above the diagonal resistance zone So let's have a look at the ascending and descending triangles on a price chart Here we have the Euro Australian dollar on the four-hour chart a 240 minute chart and we have an ascending triangle. So we have a level of Resistance here. You can see it's been touched a few times and We have higher lows being made so this would have been the high This would have been the low and we can see that prices are being squeezed and Squeezed and squeezed and this is the this is a higher low right here Until we get to This candle here So this very bullish candle would have been where traders would have entered again, stop placed below or In a place where you think is safe and that swing there probably would have been the safest place for traders to place their Stop loss and then we can see that prices eventually continued making Higher highs and Higher lows so prices continue to To go higher So again, you can see where prices are making Higher lows steadily, but prices can't make or not making Higher highs so prices again are being squeezed through here and price will either break to the upside or to the downside so Again, if you were looking for a break to the downside what we were looking for is a bearish candle to break past the level of Diagonal support this trend line here and the same principles apply as soon as the candle closes Above that level you get quite a bullish candle or a bearish candle in the case of if it was breaking past Diagonal support, then you would enter or traders would enter on the candle close So in this example, we have a descending triangle Breakout pattern on the Australian dollar Japanese yen 15 minute pair and we can see that price is being supported horizontally Here so we've got a touch one two three of the level and then we have Lower highs being made. So this would be the high and we have a lower high here and obviously we connect the the lower highs and create this some this Diagonal trend line to the downside now where traders would Enter would be on the break of the diagonal Resistance level or if prices broke the horizontal support level, but in this example we had prices This candlestick here broke to the upside So traders would get long and Put their stop-loss Around here or anywhere where they think that their stop-loss would be safe Then go for the risk. So like I said this one was a descending triangle that broke to the upside but Descending triangles can also break to the downside and the same principles would apply where you would have probably a bearish candle would break past the The horizontal support level prices are being squeezed And then there should be some sort of breakout either to the upside or the downside So I hope you found the breakout trading useful and Informative and if you want to ask me any questions, just send me an email at info at trading 180.com