July 24, 2008
Here's 3 Strategies You Can Use To Trade Forex Breakouts…
One of the most popular methods traders use to trade the markets is breakout trading. This is where you wait for a price consolidation in a tight trading range and take a position when the price breaks out of this range. So with that in mind, here's 3 simple strategies you can use to trade forex breakouts:
1. Price Consolidation
This is the simplest form of breakout trading because it doesn't involve any technical indicators. You simply wait for a period of low volatility where the price is stuck in a very tight range. Then you go long when it breaks upwards out of this range and vice versa.
One way of doing this is by plotting a bar or candlestick chart and waiting until a sequence where you get 1 large bar and 4 subsequent bars that all lie within the initial bar's high and low point. Then you simply wait until the high or low point of the initial larger bar is broken and trade in the same direction.
2. Bollinger Bands
Bollinger bands are also a useful tool for identifying breakout situations. All you do is wait until the outer two lines of the Bollinger Band indicator narrow, and then take a position when one of these lines is breached.
3. Exponential Moving Averages (EMA's)
A method I like to use sometimes involves multiple EMA's, namely the 5, 20, 50 and 200 period EMA's. All you do is wait until all of these indicators are all very close to each other , and then wait for the shorter-term EMA, ie the EMA (5) to lead the breakout one way or the other.
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