Risk Management- Breakout Levels
We look at a USD/JPY chart, where we have a rising trend line with the price bouncing off the trend line. The more the chart holds this formation, the stronger the trend but also the stronger the break.
You can see in this chart there was an aggressive break below the trend line, however the close was only marginally below it, which means the trend line may not necessarily have been broken. This was a difficult break to establish in a volatile market and the chart shows how quickly the market can turn back from a break.
When identifying a break out levels, traders can adjust the size of trades and the placing of stop loss orders based on the ‘cleanliness’ of the trend and break.