July 19, 2011

GBP/USD 19 July 2011 - Did You Catch This Breakout?

Today I want to talk about a trade that I placed this morning because it was yet another example of a perfect early morning breakout. As always I was watching the GBP/USD when I switched my computer on at 7.30 this morning to see how big the overnight trading range was, and therefore whether or not there was an opportunity to trade a breakout.

Yesterday the overnight range was far too big, but this morning there was a perfect opportunity to place a trade. The overnight trading range (between 00.00 and 08.00 UK time) was just 26 points. This compares to an approximate daily average of 116 points (according to the ATR indicator on the daily chart), so there were hopefully plenty of points available when the price did eventually break out of this narrow trading range.

As you can see from the 5 minute chart below, the price hovered around the pivot point overnight, but broke upwards out of this range just after the London market opened at 08.00, which is always a good sign. So I entered a long position at the close of the breakout candle at 1.6087, and held on to this position until the price hit the R1 line at 1.6123, 36 points higher.


Of course not every trade works out as well as this one, but this is an example of a system that does have a very high success rate overall. Plus when the overnight range is as small as it was today (just 26 points), the odds of success are even higher.



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