Breakout

Breakouts

Definition of a 'Breakout'

A price movement through an identified level of support or resistance, which is usually followed by heavy volume and increased volatility.
we look at a breakout either up or down from a range or key levels , like support restistance , value areas,rejections ,high activity levels...


Here iam going to explain what to look out for and how to play a breakout scenario :

First we are neutral as we just spoted our key levels and we watch the market actions around and between those levels,to judge the quality of demand and supply and where the past of least resistance most likely is..

this gives our first slightly biased view on the market . ie. lets say that we have whitnessed that the quality of demand is stronger and price has it much easier to move up , therefore we are slightly(bullish) ie. looking to lay first..

so then we watch where our nearest key level is and watch How price moves there and how it acts at our key level.


example:

lets say we have identified a key level @3,70 , now we watch how price moves to that level .in order to play a breakout several points have to be met and the market has to act in a certain way at our key level in order to take a trade wich anticipates a breakout to the top of the key level.

first we want to see that the path of least resistance is upwards , second we wanna see an increase in demand third the buying pressure has to be strong , and fourth the reactions/corrections should be weaker (no selling pressure)

how do we know if the path of least resistance is up ?

if price moves up in a rather smooth way having no problem eating thru the backsidefor example.. we move 3 ticks up and 1 tick down .4 ticks up 1 tick down etc.

how do we know if demand is increasing?

if we see an increase in size on the layside of the queue , and if the backside gets removedand instantly replaced with good volume on the layside (ex. we stood back @2,50 it gets matched now we stand Lay @2,50)

how do we spot that buying pressure is strong?

if we have good frequency of high or good sized prints on the layside wich eats its way thru the backorders u will notice that a strong buying pressure is like an avalanche of orders and money coming in.. with good size

how do we know that we have weak corrections?

if we see strong good volume sized prints on the upswings and/or with good frequeny , but we have small sized poor frequency prints (if any) to the downside ie. on downswings .. with less chance to make back ground.. (4ticks up, 1tick down)



example on a move torwards the resitance level of 3,70 , wich shows signs of strenght
and u shouldnt think about backing such a strong move up anyway ;)




we saw a print of 200 @3,60 and immdetialty stand lay with 150 now at that level (note it could be one order matching the size or witha size of 50 and frequent hits)


we increase in size on the layside


we move up again and print 600 @3,65 and again instantly go lay with 200



so we stand now @ resistance .. and size on the backside increases ..
we know whe are at an important level,, where something has to happen
we are slightly biased torwards a breakout due to the ongoing action that took place torwards that level.. and an increase in backside size doesent change that (prints mather)

so

these trades that took place + the fact that we stand lay on that traded areas has to be considered as signs of strenght and increase in demand and good buying pressure and therfore we anticipate a breakout of 3,70 . but only if price acts in favour of our anticipation @ that level..


Below is a Video of a real market example of a breakout , wich can come in manny ways
a follow up article on Breakout scenarios will be posted

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