Welcome to Tradimo! Here is our special offer for new users: Buy your first course now and get 10% off!

Finding entries using a breakout

This lesson will now show you a second way of trading with support and resistance levels using what is called 'breakouts' – when the price breaks through a support or a resistance level.

Trading when the price breaks through support or resistance

This method is different to entering when the price finds support or resistance. Instead, you wait for the price to break through a support or resistance level.

Every trader needs a trading journal. As a Tradimo user, you qualify for the $30 discount on the Edgewonk trading journal. Simply use the code “ tradimo” during the checkout process to get $30 off. Use this link to get the discount.

There are two methods to do this:

Trading as soon as the price breaks through a level
Waiting for when support becomes resistance or vice versa.

Method 1: Enter your trade as soon as the price breaks through

First you identify support and resistance levels on your chart, as shown on the following chart:

Support and resistance trading breakout chart1

Resistance levels
Support levels

Wait until a candle either closes above resistance or below support. In the following chart, you can see that a candle has broken through, and closed above the resistance level:

Support and resistance trading breakout chart2

Resistance level
Candle has broken through and closed above the resistance level.

You can now enter a long trade once the candle as closed. The stop loss goes below the support level:

Support and resistance trading breakout entry

Resistance level
Long entry
Stop loss.

In order to determine your profit target, you find the next support level above your entry as shown in the following chart:

Support and resistance trading breakout profit

Resistance level
Long entry
Stop loss
Profit target

Method two: Waiting for price to come back to support or resistance

Method two is very similar to method one, only instead of entering as soon as a candle closes above resistance or below support, you actually wait for the price to come back to the level it broke through.

Take a look at the following chart where you can see a candle breaking below a support level and closing on the other side:

Support and resistance trading chart2_1

Resistance levels
Support levels
Candle has broken below and closed below the support level

Instead of entering a short trade as soon as the candle as broken below, you wait for the price to go back to the previous support level and see if this level now becomes resistance. Take a look at the chart below:

Support and resistance trading chart2_2

Previous support level.
Green shaded area shows the previous support level now acting as resistance.

Once the price has found resistance at the previous support level, then you enter into a short trade. The stop loss goes above the now resistance level as shown in the following chart:

Support and resistance trading entrymethod2