Zebu blog

Tag: Volume Confirmation

  • The Anatomy Of A Perfect Breakout Trade

    Buying the breakout is a strategy in which you wait for an asset’s price to turn around and then try to invest in the early stages of its rise. (Some traders also use the word “breakout” to describe sharp price drops that happen after a time when prices went up or were stable.) When the decline stops and things start to get better again, this is called a “breakout.” The goal is to come together before the asset gains a lot of value.

    A retest happens when a stock price breakthrough is followed by a trend reversal and a return to a predetermined price range, such as the area around its 21-day simple moving average. Most of the time, the price goes back to where it was before the breakout. After that, it goes back to the way it moved before it broke out.

    When you buy the retest, you wait until after the breakout and buy the asset when it goes back into the range it was in before the breakout. This is helpful because it lets you move more methodically. You don’t have to invest right away because you don’t want to miss out. A retest also usually means that prices will be more stable in the future. The second breakthrough price range is more likely to hold.

    The problem with buying the breakout is, of course, that you can’t be sure when a breakout will happen until it has already happened. Even if an asset continues to lose value, its price can change from time to time. Sometimes, though, the asset has been revalued over a long period of time. In this case, any price changes will be made within a range of the new normal. You try to be right by making the best guess you can about what will happen to the price.

    And the problem with waiting for a retest is that it may never come. A very powerful breakout might be so strong that the price might breakout of a range and never move back inside if it. That is why, it is important for you to perform your own backtests and ensure that you choose a versatile strategy that lets you make the most of it.

    The most common indicator that intraday traders use to trade retest breakouts is the VWAP. It is the Volume Weighted Average Price that the price often moves to before moving again. For example, you mark the high and low of the 15 minute range of Nifty, and see a breakout happening at the high, then wait for it to come back to the VWAP before initiating a long trade. This will give you an attractive Risk:Reward Ratio.

    If you would like to start trading breakout strategies, open your best trading account with Zebu today.

  • Everything You Should Know About Breakout Trading


    Did you know that sometimes on the stock market, fake breakouts can happen? But what are breakouts? How can you tell if a breakout is real or not?

    Assume that there is a resistance for the market at 18,000. When the price reaches there, sellers might come in and try to push the price down. However, if the price manages to move above 18,000, then it is called a breakout.

    Similarly, you could say that there is some support. When the price gets to the support level, everyone buys. When the price hits this level twice in a row, it means something. When there is a third strike and the price goes through the support level line, this is called a breakdown. Simply put, breakouts and breakdowns are a rise and a fall.

    First, let’s talk about what “breakout” means. What price action will help you the most if there is a breakout? For our breakout to happen, a bullish engulfing pattern must form. Now, the price breakout should be supported by the volume breakout, which means that when the price breakout happens, there should be a lot of volume. This can be seen when the volume bars at the bottom of the chart break over the black line that shows the volume line. The first thing is that a bullish engulfing candle pattern forms, and this is the second thing.

    The third and most subtle trait is called consolidation. Think about how the market always forms bullish candlestick patterns right before a breakout during intraday trading on a 15-minute time frame. Many people think the upward trend is reliable, but they will learn over time that after the candle breaks out, smaller green candles, a doge, and finally a huge giant red candle are seen, and smaller red candles start moving sideways. As a result, a lot of people lose. Then, how can we stop this?

    Consolidation. When a breakout happens, it should follow a significant pattern, like three or four contact points. This tells us that the breakout is real, and the breakout of the candle and the volume should back this up. If there has been no consolidation and there is a straight breakout, there is a higher chance that the trade will fail. We should enter those breakout trades when there is a strong consolidation.

    The fourth quality is that it’s been tested more than once. It’s important to test the level of resistance more than once. Let’s say that over the course of 15 minutes, you can see a lot of consolidations against the resistance level, that the resistance line has been reached before and really broken through the day before. It will be less likely that the stock will break through resistance.

    When we talk about breakdown, it’s for the same reason that bearish engulfing candle patterns, the volume breakout, consolidation, and several tests all work. Once all of these checklists are met, then you can go ahead and take your trade. As always, follow a strict stoploss.

    Breakout trading is a simple price action strategy that can work wonders if you know how to prevent false breakouts. To open a trading account with Zebu and start trading breakout strategies today, please get in touch with us.