If you like price action trading, then this Breakout Forex Trading Strategy is one of them.
Currency Pair: GBPUSD and you can also trade EURGBP
Timeframes: You need the 1hr and 5min timeframes for this strategy (this is a multi-timeframe trading setup)
Forex Indicators: none required
This breakout forex trading strategy allows you to catch the early move of price when it is starting to establish its trend or market direction for the day. [sociallocker]
Here’s what you need to know:
- The Frankfurt Market Opens at 2:00 AM Eastern Standard Time (7:AM GMT)
- Then the London Market opens an Hour later (8 AM GMT).
This is the European forex session and forex market starts its day in Europe first.
BREAKOUT FOREX TRADING STRATEGY RULES
Here’s how you trade this forex breakout trading strategy:
- Open up with 1hr time frame chart
- Then find out the “price range” from 1:00 EST to 2:PM EST which means you have to look for the highest high (peak) and the lowest low (bottom) of the price in that range in that time.
- Then Draw parallel horizontal lines through those two price extremes-this will create a tunnel.
- This step here is very important: then switch to a 5 minute chart and wait and watch to see if a 5 minute candlestick closes outside of the tunnel.
- If it closes above the highest high, you initiate a buy order
- If it closes below the lowest low, you initiate a sell order.
- Buy order can be at market order or buy stop order. A sell order can be a market order or sell stop order.
- Place your stop loss at least 5 pips outside the tunnel (should not be exactly on the tunnel lines).
This chart below will make this strategy much more clearer. This is the 1hr forex chart where you begin your trading analysis following the steps given above:
This 5 minute chart below is where you trade. That’s where you wait patiently to see any 5 minute candlestick breaks out of the tunnel and and if it closes above it, you initiate a buy trade and if the closes below it, you enter a sell trade.
TAKE PROFIT TARGETS
You can use these few options here to set your take profit targets:
- 3 times what you risked.
- if buy trade, set your Take Profit targets within the previous swing high (peak) or if sell then use a previous swing low point (bottom).
HOW TO TRADE MANAGEMENT
- move initial stop loss to break even when market moves by the amount risked and continue to trail stop it behind each new low peaks that form (for sell order) and higher bottoms that form (for buy order)
DISADVANTAGES OF THE FOREX BREAKOUT TRADING STRATEGY
All forex trading strategies and systems have weaknesses. And as such this strategy is no exception:
- false breakouts in the 5minute timeframe can happen and get you stopped out.
- for this strategy to work, the market has to be start the day in a very strong trend
ADVANTAGES OF THE FOREX BREAKOUT TRADING STRATEGY
- a very simple forex strategy with simple rules easy to understand and execute.
- its based on price action trading and no indicators are required.
- has the potential to catch price moves early before the day’s major trendy move happens so if your direction is right, you can make a lot of profitable pips easily.
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