the breakout trade is the easiest andthe most difficult trade in the book so how can you accurately predict when themarkets are finally going to breakout and how do you avoid those falsebreakouts come on let's explore you okay so in today's video I want to talkto you about a certain trading strategy known as the breakout strategy now weall love a breakout don't we and its determining whether the market is goingto break out or be contained is what trading really is all about is the trendgoing to continue or is it going to reverse now a breakout is basically abreak from support or indeed resistance and then for it to continue in thatdirection so in order to profit from a breakout we need to determine whetherthe breakout is confirmed or indeed it is a false breakout and it really is thefalse breakouts that catch many traders off guard and result in multiple lossesso how do we determine if the breakout is indeed confirmed or is it a forcedbreakout it's a million-dollar question right well maybe it's not maybe it's notas difficult as you may think certainly if you apply certain rules and look atcertain price action ahead of the breakout and we're going to discussthose in a few minutes but before we do I want to talk to you about thedifferent market conditions where you could potentially see a breakout sothere are basically three market conditions where we look for a potentialbreakout first of all you've got the ranging market this has been price isoscillating between two levels of support and resistance these arehorizontal lines drawn on the chart usually where price is respected morethan twice and a breakout trader is looking for a breakout of a particularrange either to take it higher or indeed take it lower as no markets arecontained in a range forever same as trends no market or in state of trendforever so then we have the trending market okayso this could be the market making a series of higher highs higher lows andthen respected at a level of resistance a trend follower will look to see forthe breakout in order to take that trend higher and eventually prices may indeedbreak the resistance line and move higher ofcould be a force breakout and it could result in the reversal in which casethere will be a camera trend coming on then you have the counter trend traderthat looks for breakouts potentially you'll see an uptrending market herefollowing a particular trend line a breakout trader using counter trend willlook for a breakout of this trend line in order to take the market low so thisthree market conditions they're all looking for the breakout you've got therange you've got the trend and you've got thecounter trend so how best do you do determine whether indeed the market isgoing to breakout or indeed is it going to be a false breakout okay let's have alook at that now now one thing I think we are all in agreement of is theuncertainty on what price is going to do nextnone of us know for sure when you get these levels of resistance and supportthere's a big unknown what is above resistance is there so much supply thatthat's going to push any move back down we don't knowbelow support is there so much demand enough demand to take the market backhigher again and this isn't the same for trendy markets or ranging markets it isthe same theory let's assume now we're looking at a trendy market so thismarket is trending up okay we're making a series of higher highs typically whatyou'll see ahead of resistance is some consolidation and the as these buyersall taking long positions well at some point want to take profits and as itcomes into existence there's uncertainty because they don't know what's abovethat resistance level so quite often you'll find a head of resistance someconsolidation and that is indeed what you're seeing here but a good indicationfor me is if as you see this consolidation if we're making a seriesof higher lows into that resistance that is an indication to me that the demandis getting stronger than the potential supply so this is an indication that themarket could potentially break out a series of high highs into existence orindeed into his support it would be a series of lower lows now as a breakouttrader by the other people do the guesswork I'd like to see other peopleput their hard-earned money on the line and I like to keep mine in my backpocket I like them to test the water and possibly get their fingers burnt so I'dlike to see more kids do the breakout and then I react I will react with priceaction once the breakouts happened and indeed once the breakout does indeedhappen this unknown becomes known the market is either going to be taken up byall this demand in which case the market is going to move back up or indeed thesupply will over over way the demand and push the market back down resulting in afalse breakout so I like to react after the breakout so indeed if the marketwere to have huge supply the market is going to come back down here again okmoving back down but in if this supply is taken out by the demand and thedemand becomes stronger then this market could potentially close higher than thatlevel of previous resistance so I like the market to break the level of supportor resistance then come back down and then trade the continuation of thattrend in this case an uptrend once I see price action confirming whatis above here here you can see that there definitely that the buyers were incontrol they were taken down the sellers got exhausted buyers took control andclosed the market higher so it's only after the breakout will I like to getinvolved and the complete than the opposite is exactly the same if you'relooking for a Down trending market this is the same in the range trading marketas well the range trading market you want to see what's above there you wantthe market to show its hand not use your hard-earned money for guessworkto train guess what's above or below and if indeed this does result in a falsebreakout and the market continues to go back down then others have lost theirmoney and I've kept mine safely in my trading account and the same theoryapplies to a counter trend so for example here you see an uptrend depictedwith this trend line ascending trendline price is moving up with the trend line acounter trend trader is looking for a reversal of that trend at potentiallevels of support or resistance so a counter trend trainer will be lookingfor a break of this trendline in order to take the market low if he doesn'tknow what's below in this trendline he doesn't know if there's big demandcoming in below this trendline but I'll let him make that decision for me as acounter trend I want to look at price action at this break of trend line soyeah I look for the breakout this breakout could indeed just have been afalse breakout and the market continues I want to see what happens once we breakout I want to see the market come back to that trend line and then put in someprice action could be a bearish engulfing or something like that thereyou have a small mother candle and the bigger outside candle a break of thatindicates to me that yes this definitely could be a counter trend tradingopportunity and once we've broken out of that trendlineso I like to use price action in conjunction with these levels of supportand resistance from my breakout I like the breakout to happen I like the marketto show its hand either side of those support and resistance lines whether thetrend lines are indeed horizontal levels or indeed even moving averages I likethe market to show its hand and when the market shows its hand then I react asopposed to speculate into what is in the market this theory applies in all marketconditions whether your range trading with your trend trading or indeed withit your counter trend training trade the breakouts butthe market share its hand to you.
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