Trading Breakouts in Forex

 When trading the forex markets, many traders spend a significant amount of time looking for potential breakout situations. This is due to the fact that when these breakouts occur, they frequently result in a large number of points. In this section, we will go over three simple trading strategies for catching these breakouts.

The first method employs Bollinger Bands. This technical indicator is very useful for displaying areas of support and resistance, which are represented by the Bollinger Band range's two outer lines. When one of these outer limits is breached, you almost always get a breakout in the same direction.

To trade this breakout, you should ideally wait for a period when the Bollinger Bands indicator's outer lines have narrowed, as this indicates a period of tight consolidation. This means that a breakout will almost always have momentum when it breaks out of this narrow range. When the price breaks through one of the outer lines, you can either buy right away or wait for a pullback to, say, a short-term Exponential Moving Average for a better entry point.

The second method you can use involves using multiple Exponential Moving Averages, and in particular the 5, 20 and 50 period EMA's. You may also like to add the 100 or 200 period EMA to your chart as well.

Then you simply wait until all of these indicators have flattened out and are trading very close to each other, along with the price. Then you wait for the shorter term EMA, ie the EMA (5) to break out strongly from this narrow range, before taking a position in the same direction as the breakout, and close to the EMA (5) for maximum value.

Finally, you can trade breakouts using a price-based system. There are several approaches you can take. The most basic systems involve waiting for the price to trade in a very narrow range and then entering a position when the price breaks out of that range.

Another common system involves noting the high and low point from the previous day and then waiting for the price to break out of this range the following day. Indeed this can be a very effective way of trading the major currency pairs.

Overall, there are several ways to trade forex breakouts. Of course, none of these methods will work 100% of the time, and you will need to use a good stop loss strategy.

Risk Warning: Trading Leveraged Products such as Forex and Derivatives may not be suitable for all investors as they carry a high degree of risk to your capital. Please ensure that you fully understand the risks involved, taking into account your investments objectives and level of experience, before trading, and if necessary, seek independent advice.