Breakouts: How to identify and trade?
In the weekly chart of SADBHAV, the scrip was trading in a channel, which is indicated through two parallel blue lines on the chart. We can clearly see that the scrip remained bullish till Dec 2017, and from Jan 2018 onwards, it has shown dips.
In Jan 2018, there was the formation of Bearish Engulfing as indicated by black arrow on the chart. Now from Jan 2018 onwards, the scrip is continuously moving in a channel and continuously testing the upside resistance and downside support of channel.
If we see on the charts, the scrip is now testing the lower side of channel (support). If the scrip closes below the support level of 354-350, then this instance will be termed as Breakout.
Breakout is basically moving out from a range in simple terms.
How to trade? After recognizing that breakout has occurred:
In this chart, the overall trend was bullish till Dec 2017, and then the scrip showed dip and moved in a range. The breakout will occur once the scrip closes below 354-350. From that level, we can expect a dip of almost 22 points, which indicates a level of 332-328.
On a daily chart, draw a fibo from swing low to swing high, The scrip is trading near 50% fibo level of 358. Closing below 50% fibo level will take the scrip to the levels of 336-332. This again confirms that if breakout occurs at 354-350 levels, then the scrip is expected to dip till the levels of 336-332-328-300.
So, a breakout is confirmed with high volumes on the chart and a trade can be initiated keeping the nearby resistance as SL and support as target.