There are a large number of terms to learn and understand when trading gold on forex, but “breakout” is one of the easier ones to remember. A breakout happens when the gold price breaks out of a certain range or other elements like support and resistance levels. When using breakouts in your trading strategy, the main thing you want to do is make a trade right before or exactly when the price breaks out. When you do that, you can ride the wave of momentum until it slows down.
How do you know when breakouts happen? Here is what to look for and how to take advantage of it.
When Do Breakouts Occur?
If you’re new to the market and are still trying to figure out exactly what is gold trading, you should still be able to understand a breakout. It’s difficult to predict when a breakout will occur, but it’s easy to spot when it does happen. The main thing to remember with forex gold trading is to trade early in the process of the breakout to take full advantage. If you wait too long, you’ll likely miss the best trading opportunity.
Continuation vs. Reversal Breakouts
Gold buyers and sellers will often take short pauses when there has been movement in one direction for a significant amount of time. This is called consolidation.
With a continuation breakout, gold traders will continue with the initial trend after the consolidation period and analyzing whether the trend was good or bad. A reversal breakout starts off the same way with the consolidation period, but gold traders decide the trend is not worth continuing, so the price goes in the opposite direction.
Using Volatility to Your Advantage
It’s important to understand the difference between volatility and volume when trading gold on forex. As a gold trader, you can’t tell how much volume is occurring at any given time, but it is easy to see volatility. Simply put, volatility is high when there is a lot of movement, and it’s low when there is very little movement.
Many gold traders make the mistake of entering the market when volatility is at its highest. The savvy gold traders will find opportunities when volatility is fairly low, so they can be ready when a breakout happens and can ride the wave of volatility in a positive direction.
Breakouts aren’t too difficult to understand for new gold traders. Incorporating breakouts into your gold trading strategy will help you take advantage of market trends and set yourself up for success.
How to Trade Gold?
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