London breakout forex trading

How To Use Breakout Strategies To Profit From Forex An Introduction To Breakout Trading On Forex

Philip Moore

© Copyright 2012 London Forex Open http://www.londonforexopen.com

2 © London Forex Open 2012

2 How To Use Breakout Strategies To Profit From Forex

Contents

Introduction ....................................................................................................... 3

1. The Basics Of Breakout Trading ...................................................................... 4

2. The Basic Breakout ......................................................................................... 5

3. False Break Outs ............................................................................................ 6

4. Range Breakout Strategies ............................................................................. 7

5. Key Points To Consider When Trading Breakouts ........................................... 8

Conclusion ....................................................................................................... 10

Copyright © 2011 London Forex Open. All rights reserved. Unauthorized © 2011 London Forex Open. All rights reserved. Unauthorized duplication or publication of any materials from this website is express



Introduction

There are many ways in which you can trade the Foreign Exchange markets

and a wealth of strategies and systems that can be used.

All have the main objective of attempting to provide a consistent approach to

markets that will be able to deliver profits although the actual approach which

is use may be very different.

Of the many approaches that can be used for regular profit generation is the

breakout trading strategy.

This trading strategy remains popular with traders for two main reasons. The first is that it offers the potential to deliver high profits. The second is due to the flexibility that this trading style offers. Breakouts occur in all market, not just Forex, making the techniques of breakout trading universal.

They can also be used in a wide range of market conditions. They do not require strong trending markets to yield a profit and with the correct profit targets and stop levels applied, can be worthwhile strategy to trade in volatile markets.

In this guide we look at some simple applications of breakout trading strategies and outline some simple rules to follow in order to make the most of this trading strategy.

Phil Moore

http://www.londonforexopen.com



1. The Basics Of Breakout Trading

Breakout trading strategies are one of the most popular Forex strategies used

by traders. They are primarily used to capture moves in the early stages of a

trend when a currency pair is seen to move beyond a predefined level in the

market.

This level can be a previous level of support /resistance or a move out of a am

acknowledge market range that has defined previous trading boundaries.

The completion of chart patterns, highs and lows in the market or even the

preceding trading session can all provide situations for breakouts to occur.

The central concept behind a breakout is to capture the market momentum

that accompanies the break.

Market orders are placed to be activated in the direction of the break when the

price starts to move beyond the established trading range. At this point

momentum is anticipated to increase as increasingly, traders adjust their

positions to back the market direction identified by the break.

Essentially more buyers (or sellers) come into the market and increase the

momentum of the move.



2. The Basic Breakout

A key benefit of breakout trading

strategies is that they can be used in

a variety of market conditions.

This gives them a wide application

and delivers plenty of opportunities

for profits to be made.

They tend to work best at times

when high volatility is high and when

there is plenty of market volume.

These two factors are need in order to help ensure that sufficient momentum

can be generated following the initial break.

It is this momentum that breakout traders look to capture as they look for

continued follow through buying to build profits from the move.

Breakouts are both a popular and important trading strategy because they

can also prove to be the starting point for new price trends in the market.

They can be used on any chart time frame, from 5 minutes through to daily or

weekly charts.



3. False Break Outs

The term 'False breakout' is used to

describe a trading scenario where the

market looks to first breakout in the

opposite direction of an anticipated

break before assuming the intended

direction.

For example, a ranging market may

be looking to break higher but instead

it initially breaks lower.

This often occurs when the market is looking to take out established key stop

levels. It is also provides a good lesson in waiting for confirmation of the

desired break prior to entering a position.

False breakouts are often traded in addition to conventional breakout

strategies with both approaches offering an excellent method of capturing

strong, fast market moves.



4. Range Breakout Strategies

Range breakout trading strategies

target an established range in the

market.

Often markets will range for long

periods. When the range is finally

broker this can be accompanied by a

strong break.

Range breakout trading strategies

are also sometime referred to as 'box

breakout' strategies due to the characteristic shape of a box which is drawn on

the chart. If the market breaks outside of the box in either direction then a

breakout is assumed to have occurred.

Stops are generally placed some way inside the box to accommodate any

small pullbacks as momentum builds.



5. Key Points To Consider When Trading Breakouts

Here are the five key rules you should make use trading breakouts to ensure

you are able to maximize your trading results with this strategy.

1. Identify The Best Markets To Trade

Breakout trading strategies work best when market volatility is high. It

therefore stands to reason that this strategy these strategies are more

likely to succeed at the beginning of market session when volume and

volatility tend to be at their height.

Also consider the currency pair you are trading. Some exhibit greater

volatility in their trading and so are more suited to breakouts. For

example, trading the GBP/USD currency pair at the opening of the

London markets will provide a greater chance of breakout opportunities.

2. Have A Defined Entry Point

Use a set method to define your criteria to enter the breakout. Don't be

too keen to enter the market but seek confirmation of the move first.

Entering early can see you caught up in a false move.

Placing your entry point beyond the break level or on a confirmed

candle close can provide added confirmation of the break.

3. Always Trade With A Set Profit Objective

Before entering your breakout trade you should know the level at which

you are going to take your profits. This could be a set level that you use

for each trade (if using a set time strategy) or a calculated level which



takes into account the average moves at the time of day or important

support and resistance levels on the chart.

As breakouts can often result in the start of a more dominant trend you

it can be advisable to set multiple profit objectives on the trade. This will

also enable you to book some profits along the way.

4. Define Your Entry Rules

Use a defined method of entry for your trades and try to filter out the

weaker signals. Breakout trading is a profitable strategy as the moves

that follow the break can bring big rewards. However you don't want

these profits to suffer from chasing false moves.

Only take the highest probability moves when the breakout occurs.

Don't chase the market. If you miss the move then be patient and wait

for the next step-up to occur.

5. Minimize Your Risk With Stops

We have already mentioned that False breakout moves often happen.

Even though you should try to confirm the breakout before entering

there are times when you can still get caught in a false move.

To minimize this risk place a tight stop on your position. This could be

below the prior break level (support/resistance) or the prior market

range.

Also don't forget to move your stops as the breakout gains momentum.

This will help you to lock in profits.

10

© London Forex Open 2012


Conclusion

Capturing moves is only half the equation which equates to a successful

breakout strategy. If you want to ensure your strategy is profitable in the long

run you need to back this up with good money management and risk controls.

Breakout trading does not always have to target the big moves. You can

capture small profits from a break. However you should keep in mind the level

of risk attached and keep your stops tight.

As with all forms of trading it is the slow and steady approach that will lead the

to greatest gains in the long run.

Biography

The London Forex Open morning Forex trading system exploits breakouts at

the opening of the London Markets following the Asian market range.

Find out more about how you can profit from trading breakouts as part of your

trading strategy.

Visit www.londonforexopen.com

http://www.londonforexopen.com/

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London breakout forex trading