The more powerful the price movement in the Forex market, the more money traders who trade with the trend can make . That is why such a phenomenon as a price breakout is of great importance for currency speculators.
Strategies based on the use of this phenomenon are distinguished by their profitability and acceptable risks. Of course, only if the trader's actions are timely and balanced. Let's consider the main provisions, nuances and trading recommendations for a price breakout strategy.
What is Forex Breakout?
As a rule, the value of a currency pair moves within a certain price band. Usually, its borders are indicated by support / resistance lines, although there may be other options.
If the trend goes beyond one of the corridor boundaries, breaking through it, then we can talk about the appearance of a price breakout. In this case, you need to enter the market immediately. It is clear that this must be done near the side that was pierced.
Breakouts are characterized by the increasing activity of market participants. Very often this phenomenon becomes the beginning of a new trend. Learn to find the prerequisites for its appearance, and you will be a few steps closer to success in Forex trading . Plus, breakouts happen all the time, in all market conditions.
The price corridor can be formed both by the aforementioned support / resistance lines and by various graphic patterns (flags, triangles, etc.). You can find breakouts and work with them on almost all timeframes, and according to the same rules.
How to find a price breakout?
You need to constantly monitor the trend line and its contacts with the boundaries of the price corridor. The more often they occur, the more reliable these boundaries are. However, the price cannot be in the same channel all the time. The longer it is in it, the closer the moment of its breakdown, and the larger the breakout will be.
The patterns are formed by the trend line and are also within the price range. As a rule, such patterns appear shortly before the breakout itself. They are used to drill down into trend analysis as well as to validate signals from other sources.
Opening trading positions
It is quite easy to find suitable points for entering the market according to the considered strategy. If the upper border of the price corridor has been broken, then buy deals are opened, if the lower one, then sell deals.
Entry points are in areas that are located immediately near the broken boundaries (depending on the direction of the breakout). A breakout is indicated by a candlestick that closed outside the channel. However, you need to be very careful here, since false signals are not excluded . So, the trend can return to the channel before the expiration of the specified time interval. In this case, the trader who opened the deal will incur losses.
Therefore, the market should always be analyzed comprehensively in order to find confirmation signals in time. For example, this can be increased trading volume, which often comes with price breakouts side by side. In addition, the following trend behavior can be used as confirmation: the price line exits the corridor, literally immediately returns to the broken border (without crossing it), and then bounces in the opposite direction.
Market exit
Without careful planning of this stage of trading, traders invariably face losses. Within the framework of the strategy under consideration, there are two options for possible actions that allow you to close deals with minimal losses and maximum profits.
Price trend behavior
Exit points are calculated based on the recent price trend behavior. Analysis of the market situation will allow predicting the further nature of the trend. Calculations are made at the moment of a breakthrough, there is no need to delay. You can also work with price fluctuations by averaging their values. In this case, they are guided by the number of points passed by the asset price during the period of fluctuations. Reaching a certain value can be a signal to close positions.
There are other ways of calculating exit points, but it is not at all necessary to completely close the trade when they are reached. You can close only a part of positions, because a trend that continues to move in one direction will bring a lot of profit.
Minimizing losses
The benchmark is no longer taken to take profit, but to minimize losses. This is done using the correct placement of Stop-loss orders. After the price breakout, the channel borders change their value to the opposite: resistance becomes support (in case of a breakout upward), support becomes resistance (in case of a breakout downward). It is near these lines that the corresponding stop orders are set.
This logic makes it possible to protect trades from the negative impact of the price movement if it goes in the opposite direction. In this case, the reaction speed is very important: if you see that the trend movement is at a loss, then you should not delay closing deals.
Stop-loss
It makes no sense to place Stop-loss at a large distance from the broken border of the corridor (outside of it), since in this case the order will react to frequent corrections of the price line. This will lead to premature closing of the trade.
The most reasonable solution is to place a Stop-loss in the breakout area. At the same time, it is installed in the price channel itself, and not outside it, because the trend can temporarily return to the broken border. If the breakout turns out to be false and the value of the asset returns to the channel, then the stop order will react to this event by closing the deal.
Conclusion
The main thing that can interfere with the successful implementation of the considered strategy is the emotions of the trader himself. Breakouts are nerve-racking because the value of an asset changes direction at an enviable speed and frequency. In such conditions, not everyone succeeds in maintaining composure and sobriety of mind.
Put discipline and patience in the first place, act only according to the indicated algorithm. Positive trading results will confirm the feasibility of this approach.
Strategies based on the use of this phenomenon are distinguished by their profitability and acceptable risks. Of course, only if the trader's actions are timely and balanced. Let's consider the main provisions, nuances and trading recommendations for a price breakout strategy.
What is Forex Breakout?
As a rule, the value of a currency pair moves within a certain price band. Usually, its borders are indicated by support / resistance lines, although there may be other options.
If the trend goes beyond one of the corridor boundaries, breaking through it, then we can talk about the appearance of a price breakout. In this case, you need to enter the market immediately. It is clear that this must be done near the side that was pierced.
Breakouts are characterized by the increasing activity of market participants. Very often this phenomenon becomes the beginning of a new trend. Learn to find the prerequisites for its appearance, and you will be a few steps closer to success in Forex trading . Plus, breakouts happen all the time, in all market conditions.
The price corridor can be formed both by the aforementioned support / resistance lines and by various graphic patterns (flags, triangles, etc.). You can find breakouts and work with them on almost all timeframes, and according to the same rules.
How to find a price breakout?
You need to constantly monitor the trend line and its contacts with the boundaries of the price corridor. The more often they occur, the more reliable these boundaries are. However, the price cannot be in the same channel all the time. The longer it is in it, the closer the moment of its breakdown, and the larger the breakout will be.
The patterns are formed by the trend line and are also within the price range. As a rule, such patterns appear shortly before the breakout itself. They are used to drill down into trend analysis as well as to validate signals from other sources.
Opening trading positions
It is quite easy to find suitable points for entering the market according to the considered strategy. If the upper border of the price corridor has been broken, then buy deals are opened, if the lower one, then sell deals.
Entry points are in areas that are located immediately near the broken boundaries (depending on the direction of the breakout). A breakout is indicated by a candlestick that closed outside the channel. However, you need to be very careful here, since false signals are not excluded . So, the trend can return to the channel before the expiration of the specified time interval. In this case, the trader who opened the deal will incur losses.
Therefore, the market should always be analyzed comprehensively in order to find confirmation signals in time. For example, this can be increased trading volume, which often comes with price breakouts side by side. In addition, the following trend behavior can be used as confirmation: the price line exits the corridor, literally immediately returns to the broken border (without crossing it), and then bounces in the opposite direction.
Market exit
Without careful planning of this stage of trading, traders invariably face losses. Within the framework of the strategy under consideration, there are two options for possible actions that allow you to close deals with minimal losses and maximum profits.
Price trend behavior
Exit points are calculated based on the recent price trend behavior. Analysis of the market situation will allow predicting the further nature of the trend. Calculations are made at the moment of a breakthrough, there is no need to delay. You can also work with price fluctuations by averaging their values. In this case, they are guided by the number of points passed by the asset price during the period of fluctuations. Reaching a certain value can be a signal to close positions.
There are other ways of calculating exit points, but it is not at all necessary to completely close the trade when they are reached. You can close only a part of positions, because a trend that continues to move in one direction will bring a lot of profit.
Minimizing losses
The benchmark is no longer taken to take profit, but to minimize losses. This is done using the correct placement of Stop-loss orders. After the price breakout, the channel borders change their value to the opposite: resistance becomes support (in case of a breakout upward), support becomes resistance (in case of a breakout downward). It is near these lines that the corresponding stop orders are set.
This logic makes it possible to protect trades from the negative impact of the price movement if it goes in the opposite direction. In this case, the reaction speed is very important: if you see that the trend movement is at a loss, then you should not delay closing deals.
Stop-loss
It makes no sense to place Stop-loss at a large distance from the broken border of the corridor (outside of it), since in this case the order will react to frequent corrections of the price line. This will lead to premature closing of the trade.
The most reasonable solution is to place a Stop-loss in the breakout area. At the same time, it is installed in the price channel itself, and not outside it, because the trend can temporarily return to the broken border. If the breakout turns out to be false and the value of the asset returns to the channel, then the stop order will react to this event by closing the deal.
Conclusion
The main thing that can interfere with the successful implementation of the considered strategy is the emotions of the trader himself. Breakouts are nerve-racking because the value of an asset changes direction at an enviable speed and frequency. In such conditions, not everyone succeeds in maintaining composure and sobriety of mind.
Put discipline and patience in the first place, act only according to the indicated algorithm. Positive trading results will confirm the feasibility of this approach.
تبصرہ
Расширенный режим Обычный режим