How to Trade a Breakout?

Breakouts are the high probability and low risk setup. These Setup occur mostly when the stock is in a consolidation state forming either but not limited to the below mentioned patterns:

1. Ascending, Descending and Symmetrical triangle
2. Channel Consolidation Pattern
3. Rising Wedge
4. Falling Wedge
5. Support (Demand) and Resistance (Supply) Breakout
6. Moving Average Breakout

So, what makes Breakouts a low risk setup?
Usually when such breakout happens, a good risk reward ratio can be achieved, because usually in such cases, Stop Loss is kept just few points above/below the support line/ trend line . Please note: Stop Loss should not be very tight and there shall be some leverage in case the stock retraces back.

What Can be learnt from this structure?
  • Stock Under Consolidation taking Support from the trend line
  • Closing below the Trendline
  • 50 EMA broken and closing below that

What next?
Stock might retrace back to the trend line and resist the same and then make a fresh fall. To confirm the entry, another continuation candle or a bearish candle near the entry would be the best possible scenario.