Forex breakout is one of the more commonly used forex trading strategies that are used by currency trader. The main reason it is so widely used is because of the clarity and simplicity of execution. It is so simple that even new traders without much experience can trade profitably with it if they put in some effort to practice the strategy in their demo account.
So what exactly is Forex Breakout?
It is the sudden surge of price in a particular direction after a period of side way movement or consolidation. With the sudden price movement, you will then enter a trade in the direction to grab the profit by riding the trend.
But How to Identify Forex Breakout Opportunity
First of all, you need to know the various candle patterns that will eventually constitute a breakout trading.
3) Trend Channeling
These are the common patterns for a forex breakout to occur. Usually It takes some time for the patterns to emerge and you should be on your toes when you saw these patterns on your chart and wait patiently for an entry opportunity.
Secondly, you need the help of an indicator called “Bollinger Bands”. The purpose of this indicator is to provide you with volatility check. It will be able to tell you whether the price is currently in consolidation or not.
When the upper and lower bands are narrow, it is signaling to you that the price is currently in consolidation and you should be waiting for a breakout.
Here are the steps I usually take to trade forex breakout
2) Draw the necessary trend lines to identify support and resistance level or even channel wall.
3) Always keep a lookout for the Bollinger Bands when it is narrow as it usually signals a consolidation in progress and then wait for the stochastic to either go oversold or overbought. Once the price produces a sudden surge in movement and also at the same time the bollinger bands starts to widen, you should then wait for the stochastic to either curve up if you are going LONG or curve down if you are going SHORT.
4) Always wait patiently for a proper trend line break before you enter any trade. Failure to do so may lead to loss of money due to fake outs.
This is usually how I trade breakout in forex and the winning percentage is pretty high for this strategy.
Note to Readers:
Do note that the above strategy is a general strategy that has not been fine tuned. In order for you to trade with it, please fine it tune on a demo account. If you do not know how to fine tune a strategy, please read the below
For those of you who are totally new to forex trading, I will suggest that you read through this blog post that I have written for beginners
If you are interested to learn how I do my forex technical analysis, you can take a look at the post below