Momentum Breakout Forex Trading Strategy-Learn Momentum Trading Using Price Action

Lets me discuss about this Momentum Breakout Forex Trading Strategy which you are going to learn here today.

For you to able to trade this forex strategy, you need to be able to identify support and resistance levels because that’s where you are going to use this trading system.

Here are the two possible scenarios that you will sometimes see happening on your charts:[sociallocker]

  1. you are monitoring a support level, maybe hoping to buy on the upward bounce of price on that support level but it does not happen. What you see is a very long bearish candlestick that breaks the support level without any hesitation and closes below it.
  2. or you are monitoring a resistance level and maybe hoping to sell when price hits that level and falls back but that does not happen. What you see is a very long bullish candlestick that breaks the resistance level and closes above it.

This very long candlestick that causes the breakout is called the momentum candlestick.

Currency Pairs: Any but preferably, use the majors because of their lower spreads.

Timeframes: You can use either of these: 15 mins, 30 mins, 1 hr and 4 hr

Forex Indicators: no forex indicators required for this trading system.

 

BUY SETUP AND BUY TRADING RULES

  1. a soon as you see a very bullish and long candlestick that closes above the resistance level, initiate a buy order at market price
  2. and place your stop loss at 2-5 pips below the low of that momentum candlestick.
  3. set your take profit target at 3 times what you risked.
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See chart below for a buy setup example.

Momentum Breakout Forex Strategy

SELL SETUP AND BUY TRADING RULES

  1. a soon as you see a very bearish and long candlestick that closes below the support level, initiate a sell order at market price
  2. and place your stop loss at 2-5 pips above the high of that momentum candlestick.
  3. set your take profit target at 3 times what you risked.

See chart below for a sell setup example.

Momentum Breakout Forex Trading Strategy

 

DISADVANTAGES OF THE MOMENTUM BREAKOUT FOREX TRADING STRATEGY

  1. Because the momentum candlestick is a very long candlestick, guess what? Your stop loss distance are going to be huge. Therefore use position sizing to  reduce your risk.
  2. Sometime, after a momentum candlestick breakout, price will not continue in that in the same manner as the momentum candlestick, it may go up and down, or sideways for a while before it continues again in the direction of the momentum candlestick.

ADVANTAGES OF THE MOMENTUM BREAKOUT FOREX TRADING STRATEGY

  1. very easy to spot this kind of trading setup.
  2. you don’t need a lot of forex indicators, just price action and candlesticks.

 

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