A range breakout is usually accompanied with increased volatility & increased volume. It help traders to decide entry & exit levels in equity. But, it is not a profitable trading strategy always. There are proven ways trading range breakouts can be disastrous.
You need to identify & trade range breakouts properly. Once a breakout happens on either side, you need to make positions depending on sustainability of trend & volume of traded quantity.
You can’t make a position in a stock after breakout & leave it to your destiny for profit making. You need to keep an eye on some technical aspects even after a share breakout of its tight trading range.
This strategy will ensure extraordinary returns to your stock investment. Here are 8 proven ways trading range breakouts can be disastrous:
(1) Every Explosion Is Not A Big One
It is one of the authentic & proven ways trading range breakouts can be disastrous. Every new investor or trader wants to earn money as quickly as possible. He/she often expects big explosions in stock price after breakout from tight trading range.
But, big & explosive gains do not happen in every share trading in very tight range. You should always have a realistic & reasonable price targets.
According to traditional technical analysis, your profit targets after breakout should be equivalent to the height of the range (resistance-support) added or subtracted from breakout price. If you have a reasonable profit targets, your chances to lose money decreases drastically.
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