(4) Allow Stock To Retest Its Support Or Resistance Levels
It is one of the most critical steps to handle trading breakouts in securities. After trading in a very tight range, a security is likely to show breakout on either side.
Once a security shows a bullish breakout from its resistance level then its old resistance will become new support. Similarly, if a security shows a bearish breakout from its support level then its old support will become new resistance.
In majority of the cases, stock is likely to test those levels it has broken recently after first couple of days. Thus, you should prepare yourself emotionally for it. You should never take any wrong step in a hurry during this re-testing of levels.
[Read Also: 10 Reasons To Buy Stock Trading In Very Tight Range]
(5) Know When Your Trade/Pattern Has Failed
It is one of the necessary steps to follow when trading breakouts. A stock trading in a narrow band is a unique opportunity to earn money in stocks.
When a stock retests a previous support or resistance levels & if it breaks it again to enter the tight trading range. This trading pattern is known as failed breakout.
You should cut your positions immediately with or without loss. You should never try to do gambling with your losses. You should not forget that cash is always considered as king in stock markets.
- Steps For Trading Breakouts: Shutterstock