I should have written about this support level forex breakout forex trading strategy in the very beginning and I thought I did but when I checked, I could not find in of forextradingstrategies4u so here it is ladies and gentlemen!
The support level breakout forex trading system is a price action trading system, it is one of the simplest, easiest trading setups to spot and trade…even a 6 year old can trade forex using this system.
This support level breakout forex trading strategy is different from the horizontal support and resistance trading strategy where you trade the bounce of the price on the support and resistance levels.
But first up, let me give you bit of context about how to trade support level breakouts.
What Is The Support Level Breakout?
A support level breakout is when you see price break a support level and and continues to head down, in a downtrend.
So when a support level is broken, it means the market is in a downtrend.
Referring to the GBPJPY 4HR chart below:
- the blue boxes represent support levels
- and the white arrow indicates the candlestick that broke the support level and CLOSED below it.
As you can see on the chart above that as subsequent support levels got broken, the market continued to move further down.
Timeframes and Currency Pairs That Can Be Use To Trade The Support Level Breakout?
This forex trading system can be applied to any currency pair.
For timeframes, it is preferable to use 1hr and upward but having said that, you can also use this system and trade the smallest time frame like the 1 minute.
Heck, you can even use this system as a forex scalping system if you are thinking of trading in the 1 minute timeframe.
How To Trade Support Level Breakouts
Trading Support level breakout is really simple. Remember, its only sell trades you are going to take here.
Here are the trading rules:
- identify the support level and you can draw a horizontal line if you wish too but it does not really matter as long as you can see the support line.
- when price comes down and touches that support level, you must sit up and take notice and wait for the breakout candlestick. The breakout candlestick is the candlestick that closes below the support line after intersecting it.
- Place a sell stop order 2 pips below the low of the breakout candlestick.
- Place your stop loss 2 pips above the high of the breakout candlestick or just 2 pips above the high of the nearest swing high.
- Take profit should at least be 2-3 times what you risked or you can use this trailing stop technique to ride out the trend if you want.
Here’s the chart explaining the trading setup and rules:
As you can see, the support level breakout trading system is really simple to spot and trade.
Further Notes on Stop Loss Placement
I gave you two options for stop loss placement:
- 2 pips above the high of the breakout candlestick. The advantages of this is that it is a tight stop loss and this can increase your risk:reward greatly when your trade goes well. The only problem with this is that it may be quite close to the entry price level and you may get stopped out prematurely.
- or 2 pips above the high of the nearest swing high. The advantage of placing your stop loss here is that you have less chance of getting stopped out from a trade prematurely. The big problem here is that sometimes, the stop loss distance to the nearest swing high will be quite large 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 risk:reward ratio.
So there you have it, the support level breakout forex trading strategy at your disposal. If you enjoyed, this, then sharing is caring, please click any of those sharing links to tweet, like or share. Thanks