The Complete Guide to Breakout Trading

Contents
About The Author..................................................................................................................................... 3

Introduction ............................................................................................................................................... 4

Breakout Trading: What Is It And How Does It Work? .................................................................... 5

The WRONG Way To Trade Breakout — You Must Avoid At All Cost ......................................... 7

My Favorite Way To Trade Breakouts (With Low Risk And Huge Returns) ............................... 8

1. You Increase Your Profit Potential And Lower Your Risk.......................................................................9

2. You Improve Your Winning Rate .....................................................................................................................10

Breakout Trading: When Do You Buy Breakouts? ......................................................................... 12

Breakout Trading: When Do You Short Breakdowns?................................................................... 14

How To Identify Explosive Breakout Trades About To Occur ..................................................... 15

Breakout Trading Strategy: The Trend Trading Breakout .......................................................... 17

Conclusion ............................................................................................................................................... 20

Do You Want More Stuff Like This? .................................................................................................. 20

2
 The Complete Guide to Breakout Trading

About the Author

Hi, my name is Rayner Teo.

I’m not a multi-millionaire trader, I don’t drive fancy cars, and I don’t live in a
penthouse.
But I am an independent trader, an ex-prop trader, and the founder of
TradingwithRayner.
I specialize in studying great research (from people much more qualified than me)
and applying it to the real-world of trading to find out what works and what doesn’t.
And finally, share them with traders like you so you can become a consistently
profitable trader.
Cheers,

Rayner Teo

3
 The Complete Guide to Breakout Trading

Introduction
Do you trade breakouts?
Then you know breakout trading can be exciting.
The price quickly moves in your favor and make it seems like you’re printing money.
However…
Breakout trading can also be painful.
For example:
You notice the price breaking above Resistance.
The candles are big and bullish, so you go long.
But suddenly, the price does a 180-degree reversal.
And before you know it, you bought the highs and now you’re bleeding in the red.
Ouch. So now you’re probably wondering:
“How do I filter for high probability breakout trades and know which are the ones to
avoid?”
Well, that’s what you’ll discover in today’s post.
Or if you prefer, you can watch this training below…

4
 The Complete Guide to Breakout Trading

Breakout Trading: What is it and how does it work?

A breakout occurs when the price moves beyond a certain level.
So, breakout trading is entering trades when momentum is in your favor.
Here’s what I mean:

Now…
Breakout trading guarantees you catch every trend in the market — that’s why it’s
widely used by Trend Followers, CTAs, and even Market Wizards.
I don’t buy stocks on a scale down; I buy on a scale up. — Jesse Livermore
Whatever method you use to enter trades, the most critical thing is that if there is a major
trend, your approach should assure that you get in that trend. — Richard Dennis
If I were buying, my point would be above the market. I try to identify a point at which I
expect the market momentum to be strong in the direction of the trade. — Ed Seykota
However, nothing is perfect.
And breakout trading has its pros and cons to it.
I’ll explain…

5
 The Complete Guide to Breakout Trading

Pros:
• You’ll catch every trend in the market
• Momentum is in your favor

Cons:
• It could be a false breakout
• It can be psychologically difficult to enter the trade
I know…
Getting “caught” in a false breakout sucks.
You feel like an idiot buying the highs only to watch the market do a sudden reversal.
That’s why in the next section, you’ll learn how to identify high probability breakout
trades — and avoid the ones likely to fail.
Read on…

6
 The Complete Guide to Breakout Trading

The WRONG way to trade breakout — you must avoid

at all cost
I know.
It can be exciting to trade breakouts.
The price is moving fast, the candles are bullish, and momentum is in your favor.
However…
When it feels “right” to buy a breakout, it’s usually the worst thing you can do.
Why?
Because in the short-term, the buying pressure is exhausted and have no more
“energy” to push the price higher.
So what happens?
The “smart money” starts to take profit.
Then, bearish traders will look to short the markets.
Slowly, the market starts to reverse…
At this point, traders who bought the highs are sitting in the red.
And when they can’t take the pain any longer, they cut their losses.
The result?
Increased selling pressure which causes the market to reverse lower.
So here’s the lesson:
Whenever the market looks very bullish — it’s usually too late to enter the trade.

7
 The Complete Guide to Breakout Trading

My favorite way to trade breakouts (with low risk

and huge returns)
So…
You’ve learned how NOT to trade a breakout.
Now, you’re probably wondering:
“So how should I trade breakouts?”
Well, my secret is this…
You want to trade breakouts — with buildup.
What’s a buildup?
I’ll explain…
A buildup is a tight consolidation and you’ll notice the range of the candles get
smaller.
Here’s what I mean…

Now, a buildup is powerful for 2 reasons…

8
 The Complete Guide to Breakout Trading

1. You increase your profit potential and lower your risk

Earlier:
You saw that if you trade breakouts without a buildup, it’s likely to fail.
But that’s not all.
Because where do you put your stop loss?
If you’re like most traders, you’ll put it below Support.
And given the distance of your stop loss, you must reduce your position size (so you
can maintain your risk).
This means the market needs to move a lot just for you to earn 1R (which is your risk
per trade).
An example…
If you have a stop loss of 1000 pips, the market needs to move 1000 pips in your favor
so you can earn 1R.
Now…
If you have a tighter stop loss, you can increase your position size (while maintaining
your risk).
This means the market needs to only move a little for you to earn 1R.
An example:
If you have a stop loss of 100 pips, the market needs to move 100 pips in your favor
so you can earn 1R.
Can you see how powerful this?
If you want to learn more, go watch this training video below…

9
 The Complete Guide to Breakout Trading

2. You improve your winning rate

Imagine:
The price is at Resistance.
You know this is an area where the price could reverse lower.
But it didn’t.
Instead what you get is a buildup at Resistance.
So, what does it tell you?
Perhaps there’s no selling pressure.
Or, there’s strong buying pressure supporting the higher prices.
Whatever the case is, this is a sign of strength.
Here’s an example:

10
 The Complete Guide to Breakout Trading

But don’t forget…

When the price breaks above Resistance, traders who are short will cut their losses.
Plus, momentum traders will hop on board and buy the breakout.
All these factors increase the buying pressure — and the market is likely to breakout
higher.
Does it make sense?
Great!
Then let’s move on…

11
 The Complete Guide to Breakout Trading

Breakout Trading: When do you buy breakouts?

So…
The buildup is a core concept whenever I trade breakouts.
However, there are variations of it.
For example:
When you see higher lows into Resistance, is this a sign of strength or weakness?
Take some time to think about it…
…
…
…
Now, similar to the buildup concept I shared earlier.
When you see higher lows into Resistance, it tells you:
1. There’s no selling pressure
2. There’s strong buying pressure supporting the higher prices
3. Buy stop orders are clustered above Resistance
Clearly, this is a sign of strength.
Here’s how it looks like:

12
 The Complete Guide to Breakout Trading

Now you might be familiar with this chart pattern, and it’s called an Ascending
Triangle.
So if you spot such a pattern, it means the market could breakout higher.
If you want to learn how to trade this chart pattern, go check out The Ascending
Triangle Trading Strategy Guide.
Next…

13
 The Complete Guide to Breakout Trading

Breakout Trading: When do you short breakdowns?

This is the inverse of what you’ve learned earlier.
Whenever you see lower highs into Support, it tells you:
1. There’s no buying pressure
2. There’s strong selling pressure pushing the price lower
3. Sell stop orders are clustered below Support
Clearly, this is a sign of weakness.
Here’s how it looks like:

Now you might be familiar with this chart pattern, and it’s called a Descending
Triangle.
So if you spot such a pattern, it means the market could breakdown lower.
Now…
You’ve learned when to buy breakouts and short breakdowns.
Moving on, you’ll learn how to identify explosive breakout trades about to occur.
Are you excited?
Then read on…

14
 The Complete Guide to Breakout Trading

How to identify explosive breakout trades about

to occur
Here’s the thing:
The market is always changing.
It moves from a range to trend (and vice versa).
And the longer a market stays in a range, the harder it breaks.
Here’s an example:

But why?
Because the longer the market is in a range, more orders are placed in the market.
Let me explain…
Bullish traders will put buy stop orders above Resistance (hoping to catch breakouts).
Bearish traders would short the market and have their stop loss (also a buy stop order)
above Resistance.
As time passes…
You’ll get an overwhelming amount of buy stop orders above Resistance.
So, when the market breaks out, it’ll trigger these clusters of buy stop orders which
fuel strong buying pressure.

15
 The Complete Guide to Breakout Trading

So…
If you want to identify explosive breakout trades above to occur, pay close attention
when the market is in a range for a long time.
Because the longer it range, the harder it breaks.

16
 The Complete Guide to Breakout Trading

Breakout Trading Strategy: The Trend Trading

Breakout
Here’s the deal:
In a strong trend, the price tends to stay above the 20-period Moving Average.
So if you’re waiting for a pullback, then you’ll be disappointed as the market continues
making new highs — without you.
Here’s what I mean:

Now…
There’s a time for trading pullbacks, but not when the market is in a strong trend.
Instead, you want to trade breakouts.
That’s why I call this breakout trading strategy… The Trend Trading Breakout.
Here’s how it works:
1. The market is in a strong uptrend (respecting the 20MA)
2. Buy breakouts above the swing high
3. Set your stop loss 1 ATR below the swing low
4. Exit the trade if the price closes below 20MA

17
 The Complete Guide to Breakout Trading

An example…
Winning trade on (EUR/USD):

Winning trade on (NI255):

18
 The Complete Guide to Breakout Trading

Losing trade on (XAG/USD):

So here’s the takeaway…

In a strong trend, you want to buy breakouts (or short breakdowns) because the
market is unlikely to offer a pullback.

19
 The Complete Guide to Breakout Trading

Conclusion
So here’s what you’ve learned today:
• Don’t buy breakouts after a strong bullish momentum because that’s when the
market is about to reverse
• You want to buy breakouts with a buildup
• Higher lows into Resistance is a sign of strength
• Lower highs into Support is a sign of weakness
• The longer the market is in a range, the stronger the breakout
• A Trend Trading Breakout strategy that works

Do you want more stuff like this?

Then check out my website, TradingwithRayner because you’ll learn

new trading strategies and techniques to level up your trading.
There’s no hype or fluff but only the good stuff.
Here’s the link: www.tradingwithrayner.com

20