Breakouts through areas of resistance are the best trade opportunities. (This will be the discussion of buying opportunities for breakouts. (There is an equal chance to sell on breakdowns and through support.) A breakout is when a price goes through a level of resistance that has been set up over time by price reversals happening at about the same price point in the past.
Sounds simple. Well, when that guy at the $1000 seminar told me about it, it sure sounded easy. I also read in the $90 book on trading that would make me a rich, independent trader that it was easy.
Breakouts are great if they keep going. If they fail, you can expect the price not to go up or down, but to stay in a range, probably going down before going back up. That change in price probably went past your stop loss, and you won't be happy about it.
It happens more often than you'd like to think. Since so many other people see the breakout, they are just as nervous as you are, and you have a larger number of quick exits with the slightest wiggle. People call this "buyers remorse" or a "bull trap." What this really means is that your P&L will take a big hit.
Remember that breakouts happen when a market has been in a range for a long time. With a move away from support or resistance and back into the trading range, the market usually stays in the same place. So, a failed breakout is the norm. The exception is the breakout. Some traders think it's the other way around. That can cause you to lose a lot of money when you trade.
Also, MACD Plays: When you're thinking about a stock, you need to know if it tends to move in a certain direction. If you want to make more money trading, you should be able to spot stocks that tend to do this. Logic says that you will make more money from stocks that are going in a certain direction than from stocks that go up and down.
