Breakouts - Trend & Trigger

In this context we define price breakouts as simply price making new highs or lows relative to previous price action.

In the ‘charting basics module’ we taught you isolation high/lows, which are merely forms of price breakouts. In other words, a 5 day isolation low is in essence a 5 day breakout; price has broken above the previous 5 days of price action. However a key difference is that many traders using breakout systems are not concerned with whether or not a pivot formed, nor are they concerned about inside and counter bars. It’s a method that is kept very simple.

A trader could easily create a system based on breakouts alone not even considering determining a trend by other means. The Turtle traders made famous the use of breakouts (Donchian’s channel breakout system) using such breakout systems as the 20 day and 55 day breakout for entry into a market. The breakout itself can be seen as a trend and trigger tool all in one, and then used as a termination tool too.

The use of waves or short term trends can also be used as a breakout tool, using the highs and lows created by the waves.

Move on to Step 4 - Module 2 > Trading System Builder Tool Kit: Trading Rules > Trigger: Which Triggers To Use