Trading breakouts or pullbacks, which is better? This is a hotly contested debate, even among professional traders – but it shouldn’t be!
As a quick reminder: – Buying a breakout is buying when the price is moving up and above an area of resistance. – Buying a pullback is buying when the price is moving down towards support, typically sometime after a breakout higher – Vice versa for selling.
There are advantages and disadvantages to both of these approaches. As traders we need to fully UNDERSTAND and ACCEPT the range of possible outcomes from our strategy. Only then can we feel comfortable executing it again and again over time.
Let’s look at an example.
Chart 1: USDJPY 1hr candlestick chart
In Chart 1, a trader is analysing a chart of USDJPY at the ‘You are here’ point in time. The trader has decided the trend is down and is anticipating the move lower shaded in green before it happened. Let’s go...
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