How to Trade the Breakout of a Range 101In this post, we will learn how to trade the breakout of a clear range. Let's start learning.
a) First of all, we need a clear Range ( we can say that is clear when we have a support and a resistance level and the price in between for a considerable amount of time)
b) From a technical perspective, the expected movement after a range is broken is the extension of it in the broken direction (green arrow)
c) Also, we will see how that projected movement fits in the context of the chart. In this case, we will look for the next resistance zone.
d) The correct way of identifying a resistance zone is by looking for clear reversal movements in the past. Ignore small corrections. Look for reversal movement and define it with a horizontal line ( in this case, we used 2 yellow arcs to show the idea)
e) Now you can see two things. 1) The projected distance of the range is very similar to the distance towards the next resistance zone 2) You have good space to try to catch a wave
f) But how can I trade a situation like this? You need a CONFIRMATION. In this case, we always wait for corrective structures (remember that corrective structures can be Flat, Zig Zag, Triangles, or Irregulars)
g) Wait for a clear corrective structure on the Edge of the broken Range. IF that happens, you need to define its edges, and from now, it's straightforward. (You can also look for a corrective structure on a lower timeframe; for example, if you define the range on the 4HS chart, you can change your timeframe to the 1H chart.)
h) Open positions on the Breakout of the structure, Set stop loss below the structure, Set take profit on the next resistance zone, Define the risk you will take on the trade
i) Use this as an archetype on how to trade this type of structure.
Have a great day!
