Strategia forex breakout
Traders in profit will exit their positions at the nearest swing high to protect their profits. And traders looking to short will do so at the swing high. From traders exiting their long trades by selling , and traders looking to short the markets. With so much selling pressure in the same area, chances are, the breakout would fail if breakout happens without consolidation. So, what can you do? Well… you can trade the breakout, right? You can get long when the price trades above the swing high, and place your stops below the last swing low 2.
Support and Resistance, right? When the market is forming consolidation at the Support and Resistance area Why do you want to trade breakouts with consolidation? It could be to protect their existing positions or to trade the breakout in either direction. So, when the market breaks out of consolidation, you get a double dose of pressure. Because if there were strong selling pressure at resistance, the price should have fallen quickly.
Visually, it looks like an ascending triangle. Because if there were strong buying pressure at Support, the price should have risen quickly. Visually, it looks like a descending triangle. An example: Breakout bars for upside The bar that breaks structure resistance line Volume should dramatically increase If the follow-through bar is large, the odds of the trend continuing are greater The first pullback occurs after 3 or more bars of a breakout with low volume and lower tail Breakout and breakout bar The bar has a full trend body and small tails or no tails, the larger the body, the more likely breakout will succeed.
A wide spread up bar closing on the highs pushing up and through an old top to the left. It is an effort to go up as it is showing demand. After this event the market usually rests or starts to react, you are now looking for indications of strength to confirm the strength Breakout and volume If you observe a wide spread up, on high volume, punching through the top of a resistance supply line , and the next day is level or even higher, then you would now be expecting higher prices.
One more trend bar after breakout bar. It is simple yet highly powerful. This series of price action bearish bars represent the selling momentum in the market. And the selling is gaining momentum with the increasing number of bearish bars. Therefore, we will be watching the chart for a chance to trade it down, considering that the trend MAY have changed from an uptrend to a downtrend. Forex Breakout Strategy: Simple Trade, Simple Profits Soon after, it formed a big long price action bearish outside bar as marked by the yellow circle.
This confirms the downtrend as it has broken the previous lows of the previous uptrend With the big long price action bearish outside bar, and the previous series of bearish bars.
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Enter a sell order on the confirmation of the conditions above. Stop Loss Set the stop loss on the fractal above the entry candle. Conclusion This strategy is an excellent working strategy to use during a trend reversal. The best way to use this strategy is as a confirmation of a trend reversal setup based on the traditional support or resistance breakout.
This allows traders to filter out low probability trend reversal setups. Another way to use this strategy is as a scanner. Charts and currency pairs that pass the conditions above could then be considered as a possible trend reversal if there is indeed a support or resistance line that is close to being broken.
It is because support and resistance breakout trade setups simply work. However, traditional supports and resistances are not the only areas where traders could look for possible breakout trade setups. Swing highs and swing lows are also good spots to trade breakouts.
This is because swing highs and swing lows could also be considered as a horizontal support or resistance. Traders who traded on the reversal of a swing high or swing low would most likely have stop losses above a swing high or below a swing low. Breaches from these points would often result in a strong momentum move due to these stop losses being taken out.
Another advantage of trading on a swing high or swing low breakout is that trends could easily be identified just by simply looking at the pattern of swing highs or swing lows. Price action and naked chart traders would define a trend as a market with either a swing high and swing low that is constantly rising on a bullish trend, or a swing high and swing lows that is constantly falling on a bearish trend.
Traders who trade on the direction of the trend based on this assumption would often have a higher probability trade than those who mindlessly trade breakouts regardless of whether the market is trending or ranging. Zigzag Indicator The Zigzag indicator is probably one of the most underrated indicators. Even with its simplicity, it is still a very effective that traders could use to trade the markets.
The Zigzag indicator detects reversal points on the price chart whenever price reverses by a certain percentage as determined on the parameter. The indicator then connects these points with a line thus forming a zigzag like pattern.
The reversal points that this indicator detects are very useful information for most traders. These points could be considered as a swing high or a swing low. Traders who identify trends based on swing highs and swing lows could make use of this information. The market could be considered trending up whenever the swing highs and swing lows detected by the Zigzag indicator are constantly rising.
On the other hand, swing highs and swing lows that are constantly falling as indicated by the Zigzag indicator are indicative of a bearish trending market. The swing highs and swing lows indicated by the Zigzag indicator are also interesting points whenever price visits the same price level.
Price could either breakout strongly beyond the swing high or swing low, or it could reverse since swing highs and swing lows could also be considered as a horizontal support or resistance. Many traders use the 50 SMA to judge the direction of the trend. The major difference here is that instead of having one trend line and one horizontal line, we have two trend lines. One trend line is acting as support while the other is acting as resistance.
The breakout to this pattern occurs when the market eventually breaks to one side or the other. While a wedge is typically a continuation pattern, I tend to trade it based on whichever way the market breaks. In other words, I let the market show its hand before making any considerations about future price movement. Notice how in the chart above, the market had worked its way into a wedge pattern. As the market began to consolidate tighter, it eventually broke wedge support and subsequently retested this support level as new resistance.
This retest presented traders with a perfect opportunity to enter short. Entry Most times your entry will come on a retest of former support or resistance. We will discuss this in greater detail later in the lesson. Stop Loss Your stop loss should be placed above or below the breakout candle, at a minimum.
In the case of the USDJPY breakout pattern below, your stop loss should be placed above the candle that broke support. In the chart above, the market broke wedge support on the breakout candle and subsequently retested former support as new resistance. This retest presented an opportunity to get short with a stop loss above the breakout candle. This makes for an ideal area to target for our trade setup. So what kind of risk to reward ratio did we get out of this trade setup?
In the USDJPY 4 hour chart above, we can see that the stop loss was 13 pips from the entry while the take profit was 50 pips from the entry. This gives us a 3. One major difference here is that there was no retest of former support once the market broke to the downside. The retest that we look for as part of this Forex breakout strategy typically comes within the next few candles.
This is a good indication that the market lacks the strength to retest former wedge support. For this setup, our stop loss was 45 pips from the entry. Remember that you want your stop loss above or below the breakout candle. Because this is a short setup, our stop loss was placed above the breakout candle.
Our take profit, on the other hand, was pips from the entry. The target was identified by the recent low which was made several weeks prior. Note that the market gapped down the following week and ran for another pips before reversing. Although this looks great in hindsight, the logical target at the time was pips away, which still produced a very healthy 3.
This particular setup took just 36 hours from start to finish — not bad to be able to make a 7. The setup above formed on the daily chart, so from start to finish this consolidation period lasted for days. This brings me to an important observation about the Forex breakout strategy — the longer the market consolidates, the more volatile the breakout will be.
For those who were able to get in this trade at the breakout point and ride the trade until the consolidation period take profit level there was a massive gain to be had. A stop loss below the breakout candle meant a 50 pip stop with a potential gain of pips. That works out to a very healthy 12R trade.
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