In last week's trading update I mentioned a successful breakout trade that I placed on Friday morning. As a result of this, one of my readers emailed me over the weekend to ask me to talk them through it. Well anyway there was another perfect trading opportunity this morning, so I thought it might be a good idea to write a new blog post explaining the thinking behind this latest trade.

It was actually very simple. I don't use a huge number of different indicators when trading opening range breakouts. I simply use a basic 5 minute price chart along with pivot points to help me determine where I should be exiting a position.

What I am basically looking for amongst the major currency pairs is a very small overnight trading range (12.00 - 8.00 UK time) compared to the usual average (as indicated by the average true range (ATR) indicator on the daily chart).

In this particular instance I noticed that the GBP/USD pair had traded in a tiny range of just 27 points in these 8 hours. The average trading range for any given day is around 110 points according to the ATR indicator, so this suggested that we could get a big price move once the price broke decisively out of this range.

This is indeed exactly what happened. The price broke upwards just after the London market opened and it also broke above the pivot point, as you can see below. This was another encouraging sign that the breakout had legs, and so I went long at the close of the breakout candle at 1.6275.

My price target was simply the first level of resistance as indicated by the R1 level at 1.6304. As you can see this target was easily reached and it actually went on to hit the R2 level as well. In hindsight I maybe could have closed half the position at R1 and let the other half run, but I tend to bank safe profits when they are there when day trading the forex markets.

Incidentally you can see how the price fell back down again as soon as it hit the R2 level which just goes to show how influential these lines of support and resistance actually are in a lot of cases.

Anyway hopefully you can see how I trade these opening range breakouts. It's not a completely foolproof strategy, just like any other, but it does tend to have a very high success rate when you do get a good set-up like today. The key point is that you have to have a small overnight trading range. If it isn't that small compared to the average, which you will generally is most days, then you should simply leave it alone.