Trading forex breakouts is one of the easiest and most profitable ways to trade the markets. There are different methods and technical indicators you can use to identify possible breakouts, but one of my favourite ways is by using Exponential Moving Averages, or EMA's for short.

What you do is plot 3 different EMA's on your chart - the 5, 20 and 50 period EMA's.

Then you simply wait until all three indicators have flattened out and are all very close to each other, before waiting until the price, along with the shorter term EMA, ie the EMA (5), leads the breakaway.

The EMA (5) is obviously always the first EMA to break away from the 20 and 50, and it's often just a case of entering a position on any slight pullback to this EMA (to get maximum value) and riding the new trend as long as possible.

A classic example of such a trade occurred yesterday on the 1 hour chart of the GBP/JPY currency pair.

Between 2.00 and 7.00AM (UK time) the 5, 20 and 50 period EMA's were all very close together and the price was consolidating around these indicators before the price, along with the EMA (5), broke upwards when the London market opened. You could therefore have entered a long position close to the EMA (5) at around 207.50 and banked over 300 points (if you'd sold at the very top).

This is just one example, but these kinds of breakouts happen quite often across the different pairs and across different time frames. They can be very profitable particularly if you trade the longer term charts, or at least from 1 hour upwards.

There are other ways you can identify possible breakout situations, such as waiting for narrow bollinger bands and taking a position when the upper or lower line is breached, but EMA's are one of the more effective ways in my opinion.

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