When trading breakouts in forex, it is important to realize that there are two main types:
- Continuation breakouts
- Reversal breakouts
Knowing what type of breakout you are seeing will help you make sense of what is happening in the big picture of the market.
Breakouts are significant because they indicate a change in the supply and demand of the currency pair you are trading.
This change in sentiment can cause extensive moves that provide excellent opportunities for you to grab some pips.
Sometimes when there is an extensive move in one direction the market will often take a breather.
This occurs when buyers and sellers pause to see what they should do next.
As a result, you will see a period of range-bound movement called consolidation.
If traders decide that the initial trend was the right decision, and continue to push the price in the same direction, the result is a continuation breakout.
Just think of it as a “continuation” of the initial trend… You’re so smart!