Pros and Cons of Breakout Trading
The most common form of day trading, breakout involves identifying the pivot points (see definition in day trading terminology section) for a stock and then buying or selling short those pivots with the hope of getting a quick return when the price hits the desired point. Breakout trading is seen as a good strategy for beginners, because it is an accessible trend following strategy.
Pros of Breakout Trading
- Potential for quick gains.
- Breakouts are easy to identify.
- Most trading platforms provide valuable, easy to follow information and charts for breakout traders.
Cons of Breakout Trading
- Volume of breakout trading
- An intraday breakout is not guaranteed. Some breakouts may take overnight or a few days to give returns.
- Requires a lot discipline as it requires a trader to make quick, informed decisions on the spot.