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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
True or false: A breakout strategy focuses on selling once support is lost (entering a long position) or buying once resistance is breached (going short).
Explanation
While trend-following strategies aim to ride existing trends, breakout trading is about identifying the starting point of a new trend as prices break through established levels. Breakouts tend to signal shifts in market sentiment and increased volatility.
A continuation breakout trading strategy is:
Explanation
A continuation breakout strategy aims to capitalise on a trend's momentum. Riding an existing trend is known as a trend trading strategy, whereas the reversal breakout strategy aims to profit from an expected trend reversal.
True or false? A 'fakeout' is a term used to describe a false breakout
Explanation
A false breakout – or fakeout – is where the asset price breaks out of the consolidation phase but then quickly reverses, resulting in a loss.
Which of the following might a trader use to identify a breakout? Select all that apply.
Explanation
You can spot breakouts using technical analysis and chart patterns, trend lines and channels. Trading volume can also be used as a confirmation signal of a breakout when trading stocks, bonds, commodities, or futures.
The average true range (ATR) indicator is:
Explanation
The ATR indicator is used to track volatility in a given time period. It moves up or down according to whether an asset’s price movements are becoming more or less dramatic. A higher ATR value represents greater volatility in the underlying market, and a lower ATR represents the opposite.
The MACD indicator stands for:
Explanation
MACD stands for Moving Average Convergence Divergence. This indicator aims to identify changes in a share price's momentum, collecting data from different moving averages to help traders identify possible opportunities around support and resistance levels.
RSI is: Select all statements that apply.
Explanation
Relative Strength Index (RSI) is a key tool used in technical analysis that shows traders how quickly prices are moving in one direction (momentum) and gives a number between 0 and 100. Generally, readings above 70 indicate overbought conditions and readings below 30 indicate oversold conditions.
True or false: when the ATR falls, it indicates:
Explanation
A higher ATR value represents greater volatility in the underlying market, and a lower ATR represents the opposite.
Which of the following statements is true?
Explanation
Leverage entails using borrowed capital to increase the potential return of a trade by allowing traders to control larger positions. While it can amplify profits, it also increases the risk of significant losses, which is why successful breakout traders use leverage cautiously and implement robust risk management measures.
Risk tolerance is (select all that apply):
Explanation
Risk tolerance is the degree of risk a trader is willing to endure. It's a subjective measure and varies from person to person. Your risk tolerance will be influenced by your financial goals, trading time frames, financial situation, and personal comfort with risk.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. All trading involves risk.
The value of shares, ETFs and ETCs bought through a share dealing account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results.
CFD accounts provided by IG Markets Ltd, spread betting provided by IG Index Ltd and share dealing and stocks and shares ISA accounts provided by IG Trading and Investments Ltd. IG is a trading name of IG Markets Ltd (a company registered in England and Wales under number 04008957), IG Index Ltd (a company registered in England and Wales under number 01190902) and IG Trading and Investments Ltd (a company registered in England and Wales under number 11628764). Registered address at Cannon Bridge House, 25 Dowgate Hill, London EC4R 2YA. IG Markets Ltd (Register number 195355), IG Index Ltd (Register number 114059) and IG Trading and Investments Ltd (Register number 944492) are authorised and regulated by the Financial Conduct Authority.
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