This resistance level forex breakout forex trading strategy is a really solid price action trading strategy and it is the exact opposite in implementation to the support level breakout forex trading strategy.
The resistance level breakout forex trading system is a price action trading system that is very easy to spot and trade.
This resistance level breakout forex trading strategy is different from the horizontal support and resistance trading strategy where you sell on the downward bounce of the resistance level.
But first up, let me give you bit of context about how to trade the resistance level breakouts.
What Is The Resistance Level Breakout?
A resistance level breakout is when you see price break a resistance level and and continues to head up, in a uptrend.
So when a resistance level is broken, it means the market is said to be in an uptrend.
Referring to the GBPJPY 4HR chart below:
- the blue boxes represent resistance levels
- and the white arrow indicates the candlestick that broke the resistance levels and CLOSED ABOVE it.
As you can see on the chart above that as subsequent resistance levels got broken, the market continued to move further up.
Timeframes and Currency Pairs That Can Be Use To Trade The Resistance Level Breakout?
This resistance level breakout forex trading system can be applied to any currency pair.
For timeframes, its best to use larger timeframes from 1 hour and upward but you can still use the smaller time frames as well even down to the 1 minute.
If you like scalp trading, you can use this system in the 1 minute or 5 minute charts too.
How To Trade Resistance Level Breakouts
Trading Resistance level breakout is really simple. Remember, its only buy trades you are going to take here.
Here are the buy trading rules:
- identify the resistance level and you can draw a horizontal line if you wish too but it does not really matter as long as you can identify the resistance level and wait for price to come to it.
- when price head up and touches that resistance level, you must sit up and take notice and wait for the breakout candlestick. The breakout candlestick is the candlestick that close above the resistance level after intersecting it.
- Place a buy stop order 2 pips below the low of the breakout candlestick.
- Place your stop loss 2 pips below the low of the breakout candlestick or just 2 pips below the low of the nearest swing low.
- Take profit should at least be 2-3 times what you risked or you can use this trailing stop technique to ride out the uptrend if you want.
Here’s the chart showing you the trading setup:
As you can see, the resistance level breakout trading system is really simple to spot and trade.
Further Notes on Stop Loss Placement
I mentioned two stop loss placement options which you can use. Now, I wan’t to talk a little bit more about each of them so you understand what you are getting into when you use these two stop loss options:
- 2 pips above the low of the breakout candlestick. The advantages here is the fact that it will be a tight stop loss and this can increase your risk:reward greatly if the trade goes according to plan. But the only problem with this is that it may be quite close to the price level where you entered your trade and you may get stopped out too early only to see price move back in the direction that you were hoping for in the first place. It can be frustrating when that happens but don’t loose your cool…
- or 2 pips above the high of the nearest swing low. The main advantage of placing your stop loss here is that you have less chance of getting stopped out from a trade prematurely. The main problem here is that sometimes, the stop loss distance to the nearest swing low will be quite a huge and this reduces your risk:reward ratio as well because price has to move a lot of distance in the direction of your trade before you even reach a 1:1 or even 1:2 risk:reward ratio.
20 OTHER BREAKOUT FOREX TRADING STRATEGIES YOU MAY BE INTERESTED IN
Here’s a list of forex breakout trading strategies you may be also interested in knowing:
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