Take a look at chart #4 - you will understand it fast: #4 EUR/USD 60-min Pipruit: Ok, I’ve got it. So what we should to do then, how to trade breakouts? Commander in Pips: First of all, remember the rules of breaking support and resistance levels – application of close price and the 3-period rule. These rules are absolutely suitable for estimation of breakout reality. Pipruit: Yes, I think that will help. Applying the 3-period rule I do not enter the trade on chart #4, because the market shows only 1close below the trend line. Commander in Pips: Yes, second – as we said, appearing of a Wash & Rinse pattern tells us that the market is ready for move in the opposite direction. We should not sell here, but buy. W&R confirms the strength of the line! We’ve talked about it in detail in previous chapters. Pipruit: So, should I never trade breakouts in this way, or what? Commander in Pips: Well, in fact you may. Some traders call this type of breakout trading as “Aggressive”, but we can’t agree with it. Because this type of breakout trading has not impressive probability to success and too far stop orders, that lead to much greater risk. This combination seems to us as “Not logical”, so our preferred way to trade the breakouts is the next one as on chart #5: #5 GBP/USD Weekly Here you can see how after the breakout, the market retests broken support of the up channel. When you see that the market confirms it failing to return right back (above the support) and capitulates – you enter short (i.e. Sell). Here you have some major advantages compared to the first way of breakout trading: 1. You do not need to guess about “solid move after breakout” 2. You have a confirmation from the market by failure to return right back above the line 3. You have a better opportunity to place your stop loss order and your stop loss order is tighter to significantly reduce risk. 4. Very often your entry level will be better compared to entering with the initial breakout (try to find entry level according to the first type entering – and you’ll see. Besides, there is a probability that with first type of entering your stop loss could be triggered precisely during the pullback. So you could be stopped out at the moment where you have to enter the trade and not to exit...) 5. All you need to succeed in this kind of trades – is a bit patience to wait the right moment to enter the market.