If you have just started learning trading, you have likely already encountered terms like 'breakout' and 'reversal'. These strategies are quite popular and help traders find entry points in the market. Let's break down what they are and how to use them in the simplest and clearest way.
What is a breakout?
Breakout is a situation where the price 'breaks' an important level on the chart and moves further. Levels can be:
- Resistance is a zone where the price could not rise above for a long time.
- Support is a zone where the price has not dropped below for a long time.
Example of a breakout:
Imagine that the BTC price is holding at $93,000, but then suddenly breaks this mark and starts rising to $95,000. This is a breakout from resistance.
How to trade breakouts?
1. Find an important level.
Look at where the price has stopped several times before. This will be the level of support or resistance.
2. Wait for the breakout.
As soon as the price crosses the level and confidently settles above (or below), you can enter the trade.
3. Don't forget about confirmation.
Sometimes breakouts can be false: the price 'breaks' the level and then returns back. To avoid this, wait for the candle to close beyond the level.
What is a reversal?
Reversal is the opposite strategy. Here, traders expect that the price will not break the level, but instead rebound from it.
Example of a reversal:
If the BTC price has tried to break $95,000 several times but has returned down each time, this is a reversal from resistance.
How to trade reversals?
1. Determine the level.
Find support or resistance on the chart where the price has already reversed several times.
2. Wait for confirmation.
If the price approaches the level and starts bouncing off it, you can open a trade.
3. Use a stop-loss.
If the price does break the level, it's important to minimize losses.
Breakout or reversal: what to choose?
Breakout is suitable for those who are ready to go with the trend. This strategy helps to 'catch' price movement after a strong surge.
Reversal is better for those who prefer to trade within established boundaries, where the price 'moves' between support and resistance.
Both strategies — breakout and reversal — work if used correctly. The main thing is to analyze the market, monitor volumes, and always set stop-losses. Choose the appropriate tactic, try it in practice, and remember that success in trading comes with experience.
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