Breaking through trades are well-known to many friends; it involves entering the market when the price breaks through a certain resistance level. This is akin to a river breaking through a dam, where the pressure is suddenly released, and profits are sure to gush out. Therefore, the profits from breakout trades can be quite substantial.

If we liken breakout trading to an iPhone, then strong breakout trading would be the iPhone Plus. If we can find opportunities for strong breakout trades, we can amplify and strengthen our profits.

The chart shows the daily candlestick chart of the Euro against the US Dollar.

Before the US Dollar against the Japanese Yen initiated a bullish trend in 2022, from October 11, 2021, to March 11, 2022, the market was in a narrow range consolidation between 112 and 116 for five consecutive months. After breaking through, the market continued to rise.

Such a break-in entry is followed by a market that closes directly with a positive candle, and the market continues to rise, which is a very representative strong breakout.

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Thus, a strong breakout means that after the order is entered, the market quickly propels, and the price quickly moves away from our entry price, entering a profitable state. In this state, we have a significant psychological advantage, and the market will continue to move quickly.

This is unlike some markets where, after breaking through, the order is also entered, but the market lacks strength, either moving slowly with hesitation or returning to the entry price after a period of consolidation, or even falling back below the resistance level, turning a profit into a loss. At this point, it's a frustrating dilemma whether to hold or exit the order.

In fact, the logic behind strong breakout trading is not new, nor is it a very advanced technique; it has been around for many years.

As we all know, Jesse Livermore is the most representative figure in breakout trading. Almost all of his trading operations in stocks and futures were based on the breakout pattern, and he would patiently wait for strong breakouts.

In the book "Reminiscences of a Stock Operator," there is a scene where Livermore is bullish on wheat futures. The price was at 1.14, but instead of buying, he chose to observe the market and wait patiently.Wheat futures have been fluctuating between 1.10 and 1.20 for several months until the price surpassed 1.20 (a strong market breakout), after which he began to buy, and the market continued to rise thereafter.

At that time, there were no candlestick charts, so one can imagine wheat oscillating within a narrow range between 1.10 and 1.20 for several consecutive months. After such a prolonged period of consolidation, a breakout in the market is naturally a strong trading opportunity.

Doesn't the continuous narrow-range oscillation over these months resemble the USD/JPY trend shown in the picture above? A century has passed, and the patterns are essentially the same; the market is repeating itself, and history is reenacting itself.

Upon seeing this, you can also understand the benefits of strong breakout trading. But how can one find strong breakout trading opportunities in practice? How can one execute a strong breakout well? Today, I will share 5 types of strong breakout trading opportunities based on my past trading experience.

The article is quite lengthy, so I recommend you bookmark it for reading to avoid losing it. If you find it rewarding, you can give the article a like.

1. Trend breakout following a major trend reversal

The trend following a major market trend reversal can be divided into the early, middle, and late stages of the market.

The early stage refers to the period when the major trend's bullish and bearish forces have just started to shift, and the reversal's technical pattern has just formed. This is the stage when traders who are waiting and watching are preparing to enter the market. The psychological expectations of traders are strong, so the breakouts in the early stage are relatively strong, and typically, the market moves quickly and significantly.

The chart shows a 1-hour candlestick chart of spot gold. The entire downward trend is a reversal from a large bearish trend, moving from 1950 to 1900.

The market quickly tested the support at 1900 and formed a reversal morning star pattern, and the downward trend line has also been broken. This creates an expectation of reversal, entering the early stage of the market trend.The market made a strong breakthrough in 1912, breaking through directly and closing with a big bullish candle at a high level, quickly moving away from the entry price and generating floating profits. After that, the market continued to rise consecutively.

Notes:

It is essential to wait for the reversal after the completion of a large space trend to have room for a strong break.

The reversal trend can resonate with other technical positions, making the trading opportunity more ideal. For example, in the case mentioned above, the market tested the support at the round number level of 1900 and then formed a reversal, which further strengthened the meaning of the reversal.

2. Technical break under clear fundamentals

In all market trends, when there are significant changes in the fundamentals, they will guide a rapid, clear, and large space market, which is a relatively special category but also a particularly good opportunity for making a strong breakthrough.

For example, since September 2023, Saudi Arabia first announced that it would extend the voluntary additional production cut of 1 million barrels per day, which started in the third quarter of 2023, for another three months to the fourth quarter of 2023.

Additionally, Russia also decided to extend the 300,000 barrels per day oil export reduction implemented in September until the end of the year. The production cut measures changed the supply and demand relationship, affecting the trend of oil prices. Due to the tightening of supply, the crude oil prices were boosted, thus the fundamentals of crude oil were in a clear bull market.

The chart shows the 15-minute candlestick chart of U.S. crude oil futures. The breaks marked in the two images are after the aforementioned production cuts were announced, and the fundamentals were clearly in a bull market. On the left side of the chart, after the market broke through, it closed directly at a high level, forming a big bullish candle with a solid body.On the right side of the chart, after the market consolidates at a high level, it breaks through and closes with a positive line, and then the market embarks on a continuous rise.

Precautions:

A clear understanding of the fundamentals and a clear direction is a relatively special trend, which requires understanding and analysis of the fundamentals. Additionally, it requires patient waiting. However, since there are many products, as long as you are patient, opportunities are not scarce.

The chart demonstrates a horizontal breakout trade. In fact, in the case of clear fundamentals, you can also trade the trend line breakout after a pullback ends.

3. Choose to make a breakthrough when the market is fast and large.

There are some special time periods in the market trend where the market moves faster and larger.

For example, during the European and American trading sessions in foreign exchange trading, the trading volume is large, and the market trend is fast, especially when influenced by economic data, the market becomes more intense.

Another example is when the market tests important support and resistance levels such as round numbers or historical highs, the contention between bulls and bears is fierce, and the market becomes faster and larger, which are suitable times for strong breakouts.

The chart is a 5-minute candlestick chart of gold.

The Asian trading session is completely in a narrow range with very little space, the European trading session begins to fall, but the space is also limited, and a consolidation structure is formed. Until the American trading session, the market breaks through with data and falls sharply, showing a strong breakout trend.Precautions:

In the foreign exchange market, the trading space between the Asian and European sessions has been continuously compressed and oscillating. Under such circumstances, the probability of a strong breakout in the American session is higher.

Additionally, if a foreign exchange instrument experiences a series of days with small range compression and narrow oscillation, the probability of a strong breakout in the subsequent market is also higher.

4. Breakout of multiple resistance levels resonance

In the trend, when multiple technical indicators point to the same resistance level, this forms a resonance at the resistance level. Such a breakout point will attract more traders' attention. Once the market breaks out, more participants will join the trade, making it easier for the market to form a strong breakout.

In the chart, it is a 1-hour candlestick chart of the Euro against the US Dollar. On the right side of the chart at the 1.09000 level, it is both the breakout point of the downward trend line and the breakout point of the hourly chart level horizontal consolidation, creating a resonance between the two breakout points.

Furthermore, in the chart, the market continuously tests the support near 1.08300, and after three bottom tests, it reverses (three blue rectangles at the bottom of the chart). The expectation for the bulls is very strong, forming a multi-layer resonance breakout market. After the breakout, the market quickly surges and continues to rise.

Precautions:

There may be a very small price difference between the breakout points of multiple technical positions resonance. In such cases, the last broken price should be taken as the standard. For example, the prices of the two breakout points mentioned above are 1.08950 and 1.09000, so one should enter a long position when the market breaks out at 1.09000.

5. Breakout after repeated testing of resistance levelsThe resistance level is continuously tested, which can fully verify the effectiveness of this resistance level. At the same time, the more frequently a resistance level is tested, the more easily it is observed, and the more traders will pay attention to this level. Once the market breaks through this level, the number of participants in the trade will increase, making it easier to form a strong breakout trend.

The chart is a 1-hour candlestick chart of the Euro against the US Dollar.

During the continuous 5-day consolidation trend, the bottom of the market can be connected by an upward support line, which is easily recognizable as it is continuously tested.

In the blue circle on the right side of the chart, the market breaks downward, and after this support line is quickly broken, it directly closes at a low level, forming a strong breakout trend.

Notes:

Resistance levels that are repeatedly tested usually go through a relatively long period of consolidation, so once the market breaks through and shows a strong breakout, the profit space will be relatively large.

Whether it is horizontal testing or trend line testing, try to choose the resistance level breaks that are neat and easy to identify. Clear positions that you can see, others can see too, which is more likely to form a resonance of trading expectations.

6. Several points to note for strong breakouts

(1) Is it necessary to distinguish between fake breakouts when entering a strong breakout?

No, because all strong breakout trading opportunities have been filtered and selected layer by layer, which can be said to be the best of the best. The profit-to-loss ratio of these trading opportunities will be very large, and the success rate is also relatively high. There is no need to further distinguish and filter, even if there are stop-loss orders, they are acceptable within the error tolerance range.(2) One can choose to trade in commodities that exhibit more one-sided trends.

Selecting commodities with strong trend characteristics for trading can yield better results, such as crude oil and gold in the foreign exchange market, which tend to move in one direction and have a higher probability of forming a strong breakout.

(3) Trading opportunities for strong breakouts require patient waiting.

The examples we discussed earlier are filtered cases, and their frequency in actual trading is not high. It is normal to need to wait patiently when trading; after all, good things are not commonly seen, and it depends on who can seize them.