Indicators That You Can Use To Confirm Breakouts (2024)

FAQs

Indicators That You Can Use To Confirm Breakouts? ›

By utilizing the Average True Range (ATR) indicator and Simple Moving Average (SMA), it detects potential breakout conditions and tracks consecutive candles that remain within the breakout range.

By utilizing the Average True Range (ATR) indicator and Simple Moving Average (SMA), it detects potential breakout conditions and tracks consecutive candles that remain within the breakout range.

The higher than average volume helps confirm the breakout. If there is little volume on the breakout, the level may not have been significant to a lot of traders, or not enough traders felt convicted to place a trade near the level yet. These low volume breakouts are more likely to fail.

This is the best way to spot a false breakout by first waiting for the candle to close. If the body closes above/below the trendlines, then it's likely to be true breakout. On the other hand if the candle doesn't close above/below, then it's likely to be false breakout.

The breakout candle should have a full body (it can't be a doji or a pin bar). If the candle is full-bodied and closes below the support level, wait for yet another candle. This second confirmation candle should be smaller than the breakout candle and it should also close below the breakout level.

Breakout happens when price moves up after a period of consolidation and goes above recent pivot high or resistance zone. Breakdown happens when price moves down after a period of consolidation and goes below recent pivot low or Support zone. Reliability of the Breakout or Breakdown is increased with spike in volume.

For example, assume the price of a stock has reached $100 several times in the past, but each time it is fallen after reaching it. This is a resistance level. If the price moves above $100, that is a breakout. If the price then falls back below $100, and keeps dropping, that is a false breakout.

The first way to spot a possible breakout is to draw trend lines on a chart. To draw a trend line, you simply look at a chart and draw a line that goes with the current trend. When drawing trend lines it is best if you can connect at least two tops or bottoms together.

How do you confirm trend change? ›

You should always confirm the trend change with other tools, such as trend lines, moving averages, volume, or oscillators. For example, if the HTF is in an uptrend, but the LTF shows a lower fractal high, you can wait for a break of the trend line or a cross of the moving average on the LTF before selling.