Forex Trading Basic

Use of Simple Forex Trading Breakout Strategy

Forex Trading Breakout Strategy

Forex Trading Breakout Strategy: The previous strategy was about entering on bounces from the trend line; this strategy looks forward to enter on breakouts/breakdowns of the trend line. Every trader should be prepared for both the bounce and the break. They should keep their mind and eyes open to both possibilities, which can be harder than it looks like. Usually when we trade to a selected direction, we start to develop a psychological bias for that direction, and we are reluctant to swing 180 degrees around and take a trade in the opposite direction. It would be ideal if we were that much flexible, though usually what takes place is that we start to trade with one method or the other.

Trading the breakout/breakdown of the trendline gives more credence than the bounce, particularly as it has been used effectively by experienced traders, and written about intensively by many famous technicians like Tom DeMark.

Forex Trading Breakout Strategy

Trading the breakout/breakdown of the trendline can be very useful because when the trendline breaks, it represents a reversal from the trend of that timeframe, propelling the market to stretch back to its nearest support, sometimes that can be very far away, depending on how far up or down the market had trended. it is always safer to take a breakout/breakdown on a lower interval time frame in the direction of a trend that remains firm in the higher interval time frame. For example, if the daily or H4 time frame is strongly bullish, you would want to place a buy stop for a breakout through a downward trendline taking place on a H1 or M30 time frame. That way you will be able to trade with the larger trend current, which would give you a better edge than other.

The Setup of Forex Trading Breakout Strategy

Draw a downtrend trendline or uptrendline using the rules drawing trendlines discussed above, or you  can auto drawn using the DeMark Trendline Trader indicator.

Choose a timeframe that pictures  the setup with the best slope, with preference given to higher timeframes over lower ones. Always try to look for breakout/breakdown in direction of larger trend, but keep it in mind that opportunities exist in breakouts of the larger trend itself.

The Entry Rules of Forex Trading Breakout Strategy

The entry is done on the breakout of the downward trendline or the breakdown of the upward trendline by a predetermined number of pips. The predetermined number of pips should be suitable enough for the currency volatility and time frame. Usually a break of the trendline by 10 pips should be enough.

Example of GBPUSD on H1:

example-of-gbp

Avobe,, I used the DeMark Trendline Trader indicator to auto-plot the trendlines on the GBP/USD H1 chart at around 3:00 am on March 30 2011. I could see a very interesting downward trendline resistance that had formed on two swing highs (solid red line), and since the larger trend was up, I chose to have a buy stop entry 10 pips above the trendline (dotted red line), which was hit at 7:00 am on March 30 2011. Three bars later it hit my target of  60 pip profit.

Exit Rules of Forex Trading Breakout Strategy

Once you have mastered how to draw good trendlines by hand or via automated indicators, you can easily zoom in and out on multiple time frames, you can easily search for the time frame where it looks like traders are lining up to support a downward trendline support or a upward trendline resistance. To make sure if you should be taking bounces or breaks from these identified trendlines, you should be first familiar with the trend taking place on the larger time frame.

If the technical and fundamentals suggest that the larger trend is up, you would best to look for bounces from upward trendlines or breakouts from downward trendlines on smaller time frame intervals. And If the technical and fundamentals suggest the larger trend is down, you should look for bounces from downward trendlines or breakdowns from upward trendlines on smaller time frame intervals.

Every once and while there is a break or bounce from a daily time frame itself, and if a definite break occurs, then you should be prepared to switch gears; that is, if you were formerly bearish, you may become bullish, and vice versa. The daily bar break is a useful break, and a lucky opportunity if you can find it. Remember, if you miss the initial breakout of the daily bar, you can always play the retest. The pullback to the support or resistance bar that was just broken allows traders who did not get in on the initial breakout another chance to get in. You can then have the benefit of having former support become resistance, and the former resistance becomes support. when the new trend continues, you can always take advantage of the bounces or breaks on smaller time frames in the direction of the new trend until the next breakout/breakdown of the daily trend.

The bottom Line: Forex Trading Breakout Strategy

Trendline trading thus called the instincts of a hunter, inclining one to follow the path of the larger trend game, at the same time it tracks the zigs and zags of different time frames, trading with the herd on the bounces from “strong” trendlines, and setting stop entries on the breakouts of “weak” trendlines that dare to counter the larger trend.

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Please note that: because of the differences in trading conditions, all the forex strategies can not be applied to all broker platforms. So, Choosing Forex broker is a vital task. We would like to recommend you HYCM Broker. This broker has all the positive trading conditions necessary for any forex strategy to work. Read HYCM Broker Review to learn more.

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Chapter 7

Forex Trading Strategies

Lesson 1profitable Forex trading strategies
Lesson 2Most popular trading strategies
Lesson 3Forex Scalping Strategy
Lesson 4Forex Trading Hedging Strategy
Lesson 5Forex Trading Trendline Analysis
Lesson 6Forex Trading Breakout Strategy
Lesson 7Pivot Point Reversal Strategy
Lesson 8Pivot Point Break Out Strategy
Lesson 9News Trading Strategies
Lesson 10Marker Sentiment Analysis
Lesson 11Pivot Points Trading Strategy

Go back to Main Page: Forex Trading For Beginners

About the author

Syed Nazim

Syed Nazim is the Marketing Manager of RedMaroon, a Digital Marketing Agency for Financial Institutions. He is also involved with Forexing24.com as a writer and financial Analyst. He is a brilliant marketing geek with vast experience in every sector of Digital Marketing. He likes sharing strategies, tactics and proven methods to help you build a business and live the life of your dreams.

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