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Forex Breakout Trading Strategy - Is this True Plan

Discussion in 'Forex Discussions' started by boom1, Nov 8, 2009.

  1. boom1

    boom1 New Member

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    How to trade breakouts in forex. Forex breakout trading strategy

    Trading skill level: Beginner
    Accuracy : High

    This is in fact of the the easiest to spot, trader friendly strategy that every forex trader can use no matter if your a amateur, novice or a forex veteran. A trend breakout is spotted once the currency pair breaks the immediate support or a resistance level.

    Well to trade forex, you need to a good arsenal of tools that give you a clear visual picture of the market sentiment. I would personally prefer using Japanese candlesticks rather than OHLC in spotting breakouts. Japanese Candlesticks are more visual friendly, it helps you to spot for pin bars , tweezers and engulfing patterns that will help you in your forex trading effectively.

    Steps of trading a breakout

    So this is what you’ll have to do in order to spot a trend breakout. Let me guide you throughout the steps. Step one, you’ll need to know how to draw support and resistance lines. The support and resistance line is drawn by using at least 3 points of support or resistance. Step two, you’ll need to spot for a good entry position once the immediate support or resistance had been broke; this could be rather tricky.

    Breaking the support or resistance signifies an end to a market phase and a possible trend reversal.In order to succeed in this strategy, having a good risk reward in place ensures your breakout trading to be successful. Bear in mind that it is not favorable if you enter trade immediately when you spot a candle breaking out from either the support or the resistance.

    You must be patient. Give yourself time to see how consecutive candles form before you enter the position. In the forex market, its always full of mixed market sentiment. Beware of possible false breakouts that would jeopardize your trade position.

    [​IMG]
    ...Refer to the attached picture for to view how to trade a breakout,,,
    forex break out strategy

    Here’s how you can trade a trend breakout. Refer to the picture above and study the entry and exit positions.

    The crucial point in trading a trend breakout is that it is important for you to wait for at least another 2 candlestick to signify for a strong permanent breakout and not a false breakout.

    Be sure you to know how to set proper stop loss level in this game. Place your stop loss level at the immediate support level. Sometimes setting a wrong stop loss level fails your trade immediately.

    Thus please bear this in mind, never trade with your emotions. In order to win in forex trades, you must be as disciplined as a ninja. Its is of uttmost importance to have proper analysis, coupled with good risk reward and money management.

    Lookout for false breakouts

    One downfall of the forex breakout trading method is that sometimes in a mixed market sentiment, spikes can happen. A market spike can lead you to believe in a false breakout, therefore making your trade into a losing trade.

    A false breakout can occur be due to major bank or political intervention, where huge volumes of buying and selling artificially “buffs” the actual outlook of the market.

    Breakouts in the forex trading is one of the easiest to trade strategy that I would really encourage both beginner or experienced forex traders to learn. Wish you great success in your forex trading, have a great pip hunt!
     
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