Trading ChartsTrading is all about taking risks and opportunities. And different trading scenarios always present different risks in relation to those opportunities. Some traders may feel that opportunities may sometimes present itself during range breakouts. These are instances where breakouts may occur which may look to some people as a great opportunity to profit from. A breakout usually occurs when the price moves outside a certain range. But is it a good time to trade?

It may be relatively to determine a range for a certain stock or asset most of the time. It may present an opportunity to profit for many traders. Some traders may buy when a certain price breaks above its usual limit and then sell once it is about to break support. But at the same time, trading on range breakouts may also be quite a risky proposition especially inexperienced traders. Here are some of the possible reasons.

False Breakouts

One reasons why it might not be that easy to trade o range breakouts is that there may be multiple instances of false breakouts happening. This usually occurs when the price may breakout from its usual range but then just as suddenly move back within its previous price range. Some may mistake this into a legitimate price breakout which may lead them into a buy position the moment it occurs. But then the sudden retreat of the price back to its previous range would result in a selling position at a loss for traders. What makes range trading difficult in this case is that there is usually several instances of false breakouts that may mislead traders that can easily result in potential losses.

Unpredictable Price Breakout Corrections

There are also instances where range breakouts do not generally go in the same direction. There are times when they suddenly dip back, as if going back into its original price range. Those traders who bought positions the moment the breakout occurred would see this as another case of false breakout and would settle to sell for a little profit or even a loss.

But then this movement may actually be just a price correction which then may bring the price to go up towards its breakout range once again. Traders may watch this instance in frustration since they may already have sold their positions. This type of unpredictability ma be another reason why it may not always be that profitable when trading on range breakouts.

Explosive Price Breakouts Are Actually Rare

Although range breakouts do have its potential for profits, explosive breakouts are actually rare considering the number of assets and instruments to choose from that are spread among different markets. Choosing that potential trade likely to experience a range breakout may actually be quite difficult. This would require analyzing every stock, commodity and other instrument out there on a daily basis that may have even an inkling of having a range breakout. That, in itself would be quite a difficult undertaking. This is another reason why trading on range breakouts would not be that profitable after all.