Stock Charts for Dummies - Making Money from Breakouts - an Excellent VideoIn online stock trading people often like to trade breakouts. So what are breakouts ? Well simply put, a breakout occurs when a stock price breaks out above or below its previous trading range based on support and resistance levels - see stock trading for beginners. You can make money trading breakouts but how is it done ?
This excellent video from Lance at yourtradingcoach.com shows a way of trading breakouts that reduces risk. It should be required viewing for all online stock traders. It's a pity I didn't see it before I decided that trading breakouts was a good idea ! My strategy for trading breakouts turned out to be very painful but that is because I combined it with the strategy of not applying stop losses. A very sad story which I will not relate here.
However, in this video Lance expains how he trades breakouts by reducing the risk first. His thinking is that breakouts in fact generally represent too much risk for too little reward, so if he is going to trade a breakout then he likes to get in early to put the odds in his favor, which is very sensible avice and he also gives very useful advice on how to spot when a breakout in the charts may be about to occur so that you can get in early and thus put the odds more in your favor.
The usual way of trading breakouts is to wait until a breakout has occurred and then to jump in and to place a stop loss below the previous low. Unfortunately this can mean that the stock price can fall back quite a long way before you actually get stopped out and you can lose even more if you ignore the need for stop losses. My free advice for trading stocks online, whether you are trading breakouts or even just swing trading, make sure you have a stop loss set and stick to it !
By following the breakout trading advice given in the video you can still trade breakouts but you get to reduce your risk, so that you will get out with either a large gain, a small gain or you will break even. Take a look it's quite simple really.
See also the basics of stock trading and two excellent videos about the absolute basics of stock charting stock market for beginners
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