How To Use Breakout Strategies To Profit From Forex An Introduction To Breakout Trading On Forex
Philip Moore Š Copyright 2012 London Forex Open http://www.londonforexopen.com
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How To Use Breakout Strategies To Profit From Forex
Contents Introduction ....................................................................................................... 3 1. The Basics Of Breakout Trading ...................................................................... 4 2. The Basic Breakout ......................................................................................... 5 3. False Break Outs ............................................................................................ 6 4. Range Breakout Strategies ............................................................................. 7 5. Key Points To Consider When Trading Breakouts ........................................... 8 Conclusion ....................................................................................................... 10
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How To Use Breakout Strategies To Profit From Forex
Introduction There are many ways in which you can trade the Foreign Exchange markets and a wealth of strategies and systems that can be used. All have the main objective of attempting to provide a consistent approach to markets that will be able to deliver profits although the actual approach which is use may be very different. Of the many approaches that can be used for regular profit generation is the breakout trading strategy.
This trading strategy remains popular with traders for two main reasons. The first is that it offers the potential to deliver high profits. The second is due to the flexibility that this trading style offers. Breakouts occur in all market, not just Forex, making the techniques of breakout trading universal. They can also be used in a wide range of market conditions. They do not require strong trending markets to yield a profit and with the correct profit targets and stop levels applied, can be worthwhile strategy to trade in volatile markets. In this guide we look at some simple applications of breakout trading strategies and outline some simple rules to follow in order to make the most of this trading strategy. Phil Moore http://www.londonforexopen.com
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How To Use Breakout Strategies To Profit From Forex
1. The Basics Of Breakout Trading Breakout trading strategies are one of the most popular Forex strategies used by traders. They are primarily used to capture moves in the early stages of a trend when a currency pair is seen to move beyond a predefined level in the market. This level can be a previous level of support /resistance or a move out of a am acknowledge market range that has defined previous trading boundaries. The completion of chart patterns, highs and lows in the market or even the preceding trading session can all provide situations for breakouts to occur. The central concept behind a breakout is to capture the market momentum that accompanies the break. Market orders are placed to be activated in the direction of the break when the price starts to move beyond the established trading range. At this point momentum is anticipated to increase as increasingly, traders adjust their positions to back the market direction identified by the break. Essentially more buyers (or sellers) come into the market and increase the momentum of the move.
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How To Use Breakout Strategies To Profit From Forex
2. The Basic Breakout A key benefit of breakout trading strategies is that they can be used in a variety of market conditions. This gives them a wide application and delivers plenty of opportunities for profits to be made. They tend to work best at times when high volatility is high and when there is plenty of market volume. These two factors are need in order to help ensure that sufficient momentum can be generated following the initial break. It is this momentum that breakout traders look to capture as they look for continued follow through buying to build profits from the move. Breakouts are both a popular and important trading strategy because they can also prove to be the starting point for new price trends in the market. They can be used on any chart time frame, from 5 minutes through to daily or weekly charts.
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How To Use Breakout Strategies To Profit From Forex
3. False Break Outs The term 'False breakout' is used to describe a trading scenario where the market looks to first breakout in the opposite direction of an anticipated break before assuming the intended direction. For example, a ranging market may be looking to break higher but instead it initially breaks lower. This often occurs when the market is looking to take out established key stop levels. It is also provides a good lesson in waiting for confirmation of the desired break prior to entering a position. False breakouts are often traded in addition to conventional breakout strategies with both approaches offering an excellent method of capturing strong, fast market moves.
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How To Use Breakout Strategies To Profit From Forex
4. Range Breakout Strategies Range breakout trading strategies target an established range in the market. Often markets will range for long periods. When the range is finally broker this can be accompanied by a strong break. Range breakout trading strategies are also sometime referred to as 'box breakout' strategies due to the characteristic shape of a box which is drawn on the chart. If the market breaks outside of the box in either direction then a breakout is assumed to have occurred. Stops are generally placed some way inside the box to accommodate any small pullbacks as momentum builds.
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How To Use Breakout Strategies To Profit From Forex
5. Key Points To Consider When Trading Breakouts Here are the five key rules you should make use trading breakouts to ensure you are able to maximize your trading results with this strategy. 1. Identify The Best Markets To Trade Breakout trading strategies work best when market volatility is high. It therefore stands to reason that this strategy these strategies are more likely to succeed at the beginning of market session when volume and volatility tend to be at their height. Also consider the currency pair you are trading. Some exhibit greater volatility in their trading and so are more suited to breakouts. For example, trading the GBP/USD currency pair at the opening of the London markets will provide a greater chance of breakout opportunities. 2. Have A Defined Entry Point Use a set method to define your criteria to enter the breakout. Don't be too keen to enter the market but seek confirmation of the move first. Entering early can see you caught up in a false move. Placing your entry point beyond the break level or on a confirmed candle close can provide added confirmation of the break. 3. Always Trade With A Set Profit Objective Before entering your breakout trade you should know the level at which you are going to take your profits. This could be a set level that you use for each trade (if using a set time strategy) or a calculated level which
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How To Use Breakout Strategies To Profit From Forex takes into account the average moves at the time of day or important support and resistance levels on the chart. As breakouts can often result in the start of a more dominant trend you it can be advisable to set multiple profit objectives on the trade. This will also enable you to book some profits along the way. 4. Define Your Entry Rules Use a defined method of entry for your trades and try to filter out the weaker signals. Breakout trading is a profitable strategy as the moves that follow the break can bring big rewards. However you don't want these profits to suffer from chasing false moves. Only take the highest probability moves when the breakout occurs. Don't chase the market. If you miss the move then be patient and wait for the next step-up to occur. 5. Minimize Your Risk With Stops We have already mentioned that False breakout moves often happen. Even though you should try to confirm the breakout before entering there are times when you can still get caught in a false move. To minimize this risk place a tight stop on your position. This could be below the prior break level (support/resistance) or the prior market range. Also don't forget to move your stops as the breakout gains momentum. This will help you to lock in profits.
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How To Use Breakout Strategies To Profit From Forex
Conclusion Capturing moves is only half the equation which equates to a successful breakout strategy. If you want to ensure your strategy is profitable in the long run you need to back this up with good money management and risk controls. Breakout trading does not always have to target the big moves. You can capture small profits from a break. However you should keep in mind the level of risk attached and keep your stops tight. As with all forms of trading it is the slow and steady approach that will lead the to greatest gains in the long run. Biography The London Forex Open morning Forex trading system exploits breakouts at the opening of the London Markets following the Asian market range. Find out more about how you can profit from trading breakouts as part of your trading strategy.
To find out more visit http://www.londonforexopen.com/breakout-tradingstrategy/ www.londonforexopen.com 1 Š London Forex Open 2012 0