Forex Breakout Strategies

Posted on 13th December 2017
Forex Breakout Strategies

What attracts people to forex trading is the potential to make tons of money within the shortest possible time. In theory this is true. But in practical terms that is far from the reality. While the trade may happen instantaneously, preparing for it takes a lot of work. You have to wait for the right opportunity with patience and keep trying until the perfect setup appears. Breakout trading is an approach employed by traders to initiate a position when the markets break a support to the downside or resistance to the upside. With breakout trades, investors aim to enter the market when the price makes a breakout and then sustain the trade until volatility fizzles out. Breakouts occur in any kind of market setting. Thus, traders can hope to make quick profits using the best breakout trading strategies. Here are few of them:

INTRADAY APPROACH :

Pivots are effective breakout trading indicators. For such a breakout strategy, Forex investors use the standard pivots or made-to-order ones like Camarilla pivots etc. However, trading a Forex breakout is identical. Savvy traders use timing to their benefit. They wait for economic releases to hit the wires. After these if the market still ranges, possibilities are it will move back to the pivot. Therefore, even though traders analyse pivots for Forex breakout trading, they may end up trading a range as a Forex breakout doesn’t happen that frequently.

TRENDLINES :

A trendline represents the line of a trend. So, when the trendline gets broken, the trend breaks. This makes trendlines ideal tools in a Forex breakout analysis. To plot a trendline, you require two points. By joining them, and surmising the outcome, you’ll have a trendline. Also, the greater the time frame is, the more important the consequences. However, at times false breakouts also happen.

VOLATILITY-BASED :

The Bollinger Bands indicator is an ideal indicator for volatility breakout trading techniques. Volatility breakout trading using this indicator centres on the distance between the upper and lower Bollinger Bands. The lesser the distance between them is, the more potent the Forex breakout will be. Bollinger Bands is a fantastic Forex breakout trading indicator available on AX1 trading platform too.

CHANNEL BREAKOUT :

Channelling is an important aspect of technical analysis. Even corrective waves in theories like Elliott Waves, channel. A Forex breakout from a channel is a robust signal. In a bullish channel, traders must sell. The reverse is true in a bearish one. However, you must wait for a retest of the channel as breakout trading without the channel being retested sends out false signals.

Conclusion

Irrespective of the time frame, breakout trading is an ingenious method. Be it intraday, daily or weekly charts, day trading or swing trading you can use this strategy to all modes of trading. To distinguish between a breakout and a false alarm, it is in your best interest to wait for an affirmation. For example, a fake out occurs when prices open beyond a support or resistance level, but by the end of the day, retrace to a prior trading range. If an investor acts haphazardly or without confirmation, there is no surety that a trend will sustain or prices will continue the levels they've broken out of. Smart investors look for above-average volume as ratification or wait towards the ending of a trading period. The best bet is to use market volatility to gain maximum profits. Rather than following suit and blindly jumping in when the market is highly volatile, it's safer to go for an asset with low volatility. By doing so you can strategize your position yourself and be at a vantage point for when a breakout occurs and volatility peaks.

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