Here we will show a simple method you can base your currency trading system on which will always work, is simple to understand and can make huge gains. Let's take a look at it in more detail...The method we are going to look at is simply buying or selling new highs or lows on a currency chart.
If you take a look at any currency chart, you will see that all big trends start and continue from breakouts to new highs and lows and they last a long time, many last several weeks, months or even years.
Most traders hate breakout trading, because they are obsessed with buy lows or selling highs (even though that's impossible) and they think when a break comes, they have missed the move. They then want to enter on a pullback but the trends don't pull back and they miss the opportunity.
Its not about pinpoint market timing it's about the odds of the trade.Valid breakouts make huge profits so don't think about the little bit you missed, think of the huge amount that could be coming!
Breakout trading works and you can put a simple, robust, trading system together quickly. Let's look at how to do it.
Step 1 - Use Bar Charts
Just simple charts and look for areas of support or resistance that have been tested a few times and are considered important by the market. The minim number of tests is 2 but the more the better and generally, if there in time frames wide apart that's better too.
The really good breakouts only come around a few times a month so be patient, you want the big high odds trades.
Step 2 - Confirm the Break
Not all breakouts continue of course so you need to filter them and for this you need some momentum indicators to confirm that price momentum is accelerating. Two good ones to use are the stochastic and RSI. These indicators give confirmation of whether momentum supports the break or not.
There are other momentum indicators but the above two are a good place to start. Don't use too many one or two is enough.
Step 3 - Stops and money Management
Stops are easy behind the breakout point. The real key to making money is trailing the stop, don't move it too quickly! If you are trading big breakouts, you need to give the market room to breathe and accept dips in open equity. A moving average near a key trend line, is a good way of doing it. We like the 40 day MA, then look for strong level around this average.
Keep in mind you will always give bit back at the end of a trend but the big trends can last many weeks or months and if you get just 70% of these trends, you will make a lot of money.
Breakouts A Timeless Method for Profits
Sure breakout trading is simple but it works and its obvious why.
If you put together a simple system and apply it with discipline, you could soon be making triple digit gains and enjoying currency trading success.
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1 comment:
Great Forex Trading information as usual, thanks.
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