Breakout strategies arenâ€™t always as simple as digital options traders would like. Any form of investment requires some education and strategies are certainly no exception. This strategy, however, is quite simple in design and should be easy enough for use by beginner level traders. As with many of the strategies used within the digital options platform, the breakout strategy made its way from the Forex realm into the world of digital options.
The breakout strategy is based on daily price action along with attempts to turn consistent profits using assets that are traded actively within the markets. The strategy is based on four different prospective setups, and one of the four will come into play each day, regardl Breakout Strategyess of marketplace factors. The prediction is that the present price will move in relationship to the prior days price action in one of four ways.
The prospective movements include:
- The current price exceeds the high for the previous day.
- The current price exceeds the low for the previous day.
- The current price surpasses both the high and low for the previous day.
- The current price does not surpass either the high or low points for the previous day.
- The first two price actions are quite possible and can certainly be profitable.
Whenever the asset price surpasses the high or the low, you trade with the breakout direction. When the price surpasses the high, buy a Call along with a short expiry. When the price surpasses the low, buy a Put with a short expiry. If no breakout occurs, donâ€™t trade. This also goes for a double breaks, as these carry a lot of risk. The goal is to execute several winning trades in a short period of time.
Breakout Strategy Advantages
Breakout trading is an integral part of digital options trading. The only challenge with breakout strategies is that there are so many of them that they can cause confusion. Some of these call for substantial investment knowledge and an advanced understanding of analysis. This strategy, however, does not call for anything more than a primary comprehension of digital options.
Breakout Strategy Drawbacks
The simplicity of this strategy also functions as its main drawback. In some ways the technique is similar to scalping. Scalpers rely on repetitive small price motions and modest profits. These trades have to be actively trading all day in order to build up profits and must also accept plenty of risk. This strategy does not make use of any real validation analysis. It also overlooks trends and existing market sentiment.
This strategy will help you choose sound entry points, but you may want to include a few extra analysis steps of your own. This breakout strategy is great for newcomers in search of a starting point, or for experienced traders who already know how to utilize various forms of analysis. With just a bit of additional validation added, this strategy can be very reliable.