Breakout trading strategy is highly profitable when the fake out is correctly filtered by price action confirmation. Professional oil traders use the candlestick confirmation pattern to trade the breakout once the key support or resistance level is broken by making a new high or low in the market. Most of the time, breakout generally occurs in the direction of the prevailing trend. Professional traders always look for buying opportunity in case of the uptrend on the contrary they try to go short in the breakout for the downtrend.
Let’s see an example how the professional oil traders use breakout trading strategy
Figure: A perfect breakout in oil price confirmed by candlestick pattern
Breakout trading in oil can be very risky without price action confirmation and proper risk management skills. In the above figure, the price is trading in a confined region for a significant amount of time. Professional day traders wait for a breakout in the direction the trend. At “Point A” the price breaches the most recent high making a bullish candlestick pattern commonly known as three white soldiers.
Once the candlestick confirmation is printed on the chart ,traders went long by setting a tight stop loss just below the three white soldiers. Since the oil is very trending pair most of the traders carry their trade along with the trend after the successful breakout of a confined region. By using the method of trailing stop loss one can “lock” a certain portion of their profit while riding the trend in the breakout.