In today’s post, I will be sharing with you several indicators that I use to trade breakout and I call them the forex breakout indicator.
Forex breakout is one of the most profitable trading strategies that even new traders are able to do. It is very simple to execute and the movement is usually very large which also translate to more profit. In order to trade breakouts more effectively, you should make use of some indicators which are sometime known as breakout indicators.
Here are a few indicators that you should use when trading this strategy:
1) MACD indicator: This is one of my favourite indicators as it provides me with reliable entry and exit signal. When you are trading breakout, the most annoying thing that can happen is to see yourself entering a trade when you see the price breaking through a trend channel or trend line but later find it reversing and stopped you out. This occurrence is known as fake out and it can be minimise by using the forex macd indicator.
2) Oscillators: These are indicators that are able to show you whether the market is currently oversold or overbought. Examples of such oscillators are relative strength index and stochastic. By using the oscillator, you will be able to further enhance your entry as you are able to tell whether the price is going to continue in its range or breakout of the trend.
Let say that you are in a trend channel and the price is moving within the range. You will not know when it will break above or below the range or whether it is going to be repelled by the range resistance and support.
This is when the oscillator comes into use as it will be able to help you in this area. If you see the price moving toward a resistance level, you should take a look at the oscillator to see if it is overbought. If it is indeed overbought, there is a high chance that the price will be repelled by the resistance level. If you want to double confirm that it will be repelled, you can check your MACD to see if a bearish crossover is going to occur and this is exactly how I check for breakout and repulsion.
3) Bollinger Bands: This is an indicator that plots a upper band and a lower band that envelopes the price. Forex breakout usually occurs best when the market is in a period of consolidation. The longer the consolidation, the stronger is the breakout.
If the Bollinger bands are very narrow, you are likely to be in a period of consolidation and you should be looking for the price to make a sudden burst of movement.
Once you see the price breakout, you will definitely find the Bollinger bands to widen and this is the best time for you to enter a trade.
The above are 3 forex breakout indicators that I use to trade breakouts and I hope that this information is useful for your trading as well.