Lesson 2 of 20 · 10 min
Breakout
Step 1
What it is
A breakout is when price closes beyond a range that has held for a while. The idea is that orders built up at that edge, and once it gives way, the move may continue.
Many breakouts fail and snap back. Because of that, we do not chase the breakout candle. We wait for price to come back and test the edge.
Traders use it because a range gives an exact level, and a break of that level gives an exact point where the idea is wrong.
Step 2
See it on a chart
A range breaks on heavy volume, then price returns to test the edge.
Illustrative chart with made-up prices and tick volume, built for teaching. It is not real market data and not a trade idea.
Step 3
The exact rules
What must be true before entry
- A range with at least two tests of the edge.
- A full close beyond the edge, not just a wick.
- Volume well above the range average on the break.
What volume should show
Where to enter
Where the hard stop goes
Where the target goes
What invalidates the idea
- Price closes back inside the range and stays there.
- The retest goes through the middle of the range.
When not to take it
- The range is so wide that 3:1 is not possible.
- The break came on thin volume.
- Major news is due soon, or you would be trading outside your planned hours.
- You have just taken a loss and feel the need to win it back.
Step 4
Your turn: plan the trade
Price has broken down out of a range on heavy volume and come back up to test the edge. Mark your plan.
This setup is a short. Look at the candles and the volume. Choose a line below, then tap the chart to place it. You can also drag its label or type a price.
Illustrative chart with made-up prices and tick volume, built for teaching. It is not real market data and not a trade idea.
Step 5
The trap: fear of missing the move
Watching a breakout run without you is uncomfortable, and that discomfort pushes people to buy at the worst price. If you miss the retest, you miss the trade. Nothing has been lost.
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