The support and resistance level breakout trading system is a price action trading system; it is one of the simplest and easiest trading setups to spot and trade.
This support and resistance level breakout trading strategy is different from the horizontal support and resistance trading strategy in which you trade the bounce of the price on the support and resistance levels.
Support Level Breakout
A support level breakout is when a price breaks a support level and continues to head down, in a downtrend.
Hence when a support level is broken, it means the market is in a downtrend.
Resistance Level Breakout
A resistance level breakout is a price breaks a resistance level and continues to head up, in a uptrend.
Hence when a resistance level is broken, it means the market is said to be in an uptrend.
Timeframes : Preferable to use 1 Hr, but you can use small time frame also.
Instrument : you can trade any instrument
Trading Rules for the Support and Resistance Breakout :
Trading breakout is really simple. Remember Support breakout is for sell trades and Resistance breakout is for buy trades.
- The pink boxes represent support levels (image 1) and resistance levels (image 2).
- And the blue arrow indicates the candlestick that broke the support level (image 1) and resistance level (image2) and closed below/above it.
- Identify the support level /resistance level and you can draw a horizontal line if you wish to.
- For Support breakout, take note of the breakout candlestick when price comes down and touches that support level. The breakout candlestick is that closes below the support line after intersecting it.
- For resistance breakout, take note of the breakout candlestick when price head up and touches that resistance level. The breakout candle stick is that close above the resistance level after intersecting it.
- Then place a sell stop order 2 pips below the low of the breakout candlestick for support breakout or place a buy stop order 2 pips above the high of the breakout candlestick for resistance breakout.
- After that, place your stop loss 2 pips above/below the high/low of the breakout candlestick or just 2 pips above the high of the nearest swing high.
- Take profit should be atleast 2-3 times what you risked or you can make use of trailing stop technique to ride out the trend if you want.
Image 1: Support Breakout