A Breakout without momentum often does not push the price towards the trend. The price seems to come back at the breakout level again. On the other hand, a breakout with momentum pushes the price towards the trend in most of the cases. In today’s lesson, we are going to demonstrate a chart, which has two types of breakouts. Let us get started.
The chart shows that it heads towards the North. Upon finding its resistance, it makes a bearish correction. It finds its support and produces a bullish engulfing candle. The price heads towards the North again. It makes a breakout with a candle having a long upper shadow. It is a breakout. However, the breakout takes place with two bullish candles. Let us proceed to the next chart to find out what the price does.
Despite making a breakout, the price does not head towards the North. It rather consolidates around the breakout level. The breakout level still holds the price. Nevertheless, it does not look that good for the buyers. The price may come back within those two levels and hit the lower support. Let us find out what happens next.
The price does not come back within the breakout level. It makes another breakout at consolidation resistance. It takes only one candle to make the breakout. Breakout traders want to get this kind of breakout to trigger a long entry. The buyers may trigger a long entry right after the last candle closes by setting stop loss below consolidation support and by setting take profit with 1R.
The price heads towards the North with good bullish momentum. The next candle comes out as a strong bullish candle. It suggests that the bull has taken control. It seems the price may hit 1R in a hurry as well. This is what the breakout traders want.
As anticipated, the chart produces another bullish candle and hits the target. It takes two candles to achieve 1R. It gives traders more confidence about the strategy and saves their time. They can concentrate on other charts to look for entries. It does not mean it goes like this every single time though.
The above charts show that a breakout by two candles does not generate the momentum towards the trend. However, when the breakout takes place with a single candle, the price heads towards the trend’s direction in no time. Thus, if we do not want to hang around with our entries and keep an amazing winning rate, we may take entries on a breakout that takes place with good momentum.