Learn How To Trade Breakouts

How To Trade Breakouts

Have you ever asked the question, “Is it possible to trade breakouts in the forex market?” If your answer is “Yes!” this video is for you. If your answer is “No” still keep reading. You may discover a new strategy that enhances your trading career.

In this week’s video, we will discuss both bearish and bullish breakouts. I will lay out the exact trading strategy rules that I use to trade both forex and futures markets each day.

Identifying the market condition is the first key element, and arguably, the most important, to be successful at trading breakouts like a pro. If the market is range bound and not trending, more than likely, breaks will not work. To help me identify the condition of the market, I created the Intraday Trading Bias Indicator, (which you can access here.) The Intraday Trading Bias Indicator will help you identify market conditions, trending, or not trending.

As you will see in the example, I give in this week’s video, the Intraday Trading Bias Indicator, as well as the Value Line Indicator, both indicated that the EUR/USD currency pair was in a downtrend.

So let’s walk through this example.

After we identified that the EUR/USD currency pair was in a downtrend, our next step was to identify a lower swing point or “breakout level,” and set a sell stop at that price point. When the order fills, we place a stop loss above the most recent swing high and place the take profit order 2X the stop loss amount.

Does this all sound a bit confusing? That’s okay. Here are two simple steps to follow.

1) Place your stop-loss order above the most recent swing high for short trades.

2) Measure from the entry point to the stop-loss order.

(Note: If you are trading forex this measurement will be in pips. If you are trading futures, the measurement will be in ticks or points.)

To further explain how I use these steps to calculate my take profit level, let’s assume the distance from my entry to the stop-loss order is 10 pips. I would set my take profit at 20 pips. This strategy is how I obtain a 2:1 reward to risk profile on my trades.

Still using the above the example, here are the rules for managing an open trade.

IIf I’m using a 10 pip stop-loss, once the trade has moved in my favor by 10 pips, my stop-loss order is moved to breakeven plus 1-2 pips. This move results in a risk-free trade. The trade will hit my target order, or the trade will be stopped out for 1 or 2 pips of profit.

To see both bearish and bullish breakout trade examples on the EUR/USD currency pair in action, make sure to watch the full video below.

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