Breakout Levels

What does it do?

The Analytic Trading Breakouts indicator automatically draws red and green lines on the chart for price levels that have been broken by large bullish and bearish candles. The lines remain until the breakout price level has been re-tested by a bar from the opposite side. By default it will show 3 levels above and 3 levels below the current price that have not yet been retested.

In addition, for backtesting how price reacts to these levels when it re-tests them, past levels can be shown and statistics on the percentage of the time the first re-test of the level closes onside within X bars.

This gives you the ability to better understand how this pattern performs on various instruments and timeframes as part of your strategy building, and to help maximise a positive edge when combined with other price-action signals and technical analysis.

What is it for?

Breakout bars tend to show a rapid change in the trading range of market price in one direction. Markets find their price through a mechanism know as price discovery, this is where bulls and bears trade the instrument in each direction to the point that one is exhausted and the direction reverses to find the next equilibrium for value.

The breakout bars will tend to occur at times of significant news or rumour information releases, or after the build up of significant bullish or bearish pressure – normally showing as a wedge or flag shaped pattern on your charts.

Breakout levels are where a prior high or low is tested in one direction and successfully breached in that direction. Once the bar closes through this level we view this as temporary confirmation of the market directional bias, and the potential beginning of a new trend.

However, the price discovery mechanism as to whether this level is a new temporary floor or ceiling for bulls or bears isn’t complete until that previous exhaustion point has been retested from the opposite side.

We actually consider breakout bars and market gaps as the same pattern and signal, and use them in similar ways.

How do we use it?

We use breakout levels as price points of significant interest, using the breakout direction to show us an increased probability market directional bias with a successful breach and close.

However, once the move has occurred, most of the potential profits from the initial move will have been made by traders on a lower timeframe so we do not enter trades at the market price upon the bar close but look for a second chance to enter a trade in the same direction when price has retraced back to that level from the opposite side.

Entering a trade on the first retest of these levels is, for us, a trade of good value because we have both the directional bias and knowledge that this price was a previous exhaustion point and therefore more likely to produce a positive reaction upon the subsequent re-test.

We are looking at the green levels to place buy limit orders to enter trades and buy stops to exit them, and the red levels to enter sell limit orders and sell stops when they occur at prices that are also significant levels as shown by our Support & Resistance Levels indicator.

The most desirable setup, for us, occurs when trading inside two breakout levels that both have been breached by large candles and have as yet large gaps from subsequent bars that have not re-tested the breakout levels.

Please don’t be tempted to buy and sell at every line though because this indicator is still designed to be used in conjunction with market analysis using the rest of our indicators setup – like the higher-timeframe candles directional bias, and a certain amount of personal discretion.

We recommend you spend some time watching how price reacts to breakout levels and studying the price-action at them with the historical levels showing, before you use them to trade.

Breakout Levels specific settings

In most cases these settings can be left on the default values, although users with different strategies or preferences to our own may want to be able to adjust them. 

Pip Calculation Settings

Display Settings

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