Master these highly profitable Candlestick Patterns with this 82 page PDF FREE Candlestick Guide. Download these Swing Trading plus the Forex Profit Accelerator End of Day Trading Kit FREE. Get this Magic Breakout Trading Forex Strategy eBook FREE. Breakout trading is highly profitable if done correctly. The beauty of breakout trading lies in the fact that if you are right about the breakout, you can rake in a huge pile of pips in just about a matter of few minutes. But the problem is most of the time there are false breakouts and most of the traders can’t distinguish between a false breakout from true breakout.
You see, in case of a false breakout, price action is soon going to retrace itself. But in case of a true breakout price action never retraces itself. So, if you mistake a false breakout for a true breakout, you are going to lose yur shirt soon in the market.
Precisely because of this reason, most traders shy away from trading breakouts. But not Tim Trush and Julie Lavrine. They have been trading breakouts highly successfully. Infact, this Magic Breakout Forex Strategy FREE eBook is a gift from them.
Over the years, both Tim and Julie perfected their breakout trading strategies. Now, many momentum traders place a buy stop order at the significant high of the price aciton if a breakout on the high side is being anticipated. Similarly, in case of a breakout on the low side, many would like to place a sell stop order.
This way, if the breakout does take place, the price action will shoot up or down with high momentum dependingon whether it is a breakout on the high side or a breakout on the down side. The buy stop or the sell stop order will ensure that the order is filled in case of a breakout but is not filled in case of a breakout not taking place.
Sounds pretty sweet! Huh! But the problem is in case of a false breakout, price action is going to retrace itself and return to where it was before turning the short term gain into a huge loss. So, you can see, breakout trading can only be profitable if you know how to distinguish between a false from the true breakout.
You wil have to master certain chart patterns like the double top or the double bottom patterns that are often used by experienced traders to distinguish between the false from the true breakouts. You can also use ascending and descending triangles. Whatever, mastering these chart patterns is not easy for inexperienced traders who want to enjoy making hundreds of pips in a matter of few minutes. You see, even experienced traders can be wrong when identifying these chart patterns.
Meet Julie Lavrine. She has been trading the financial markets for over ten years and has been experimenting with different technical analysis tools. She has come up with an ingenious method of distinguishing a true breakout from a false breakout. She uses CCI Indicator. Yes, I am talking about the Channel Commodity Index Indicator.
If you have been trading for sometime, you must be familiar with the CCI Indicator. If not, you can easily master it in a few days time. Now, there are two lines on the CCI chrt. +100 and -100. When price action breaks above the +100 line, it is a signal to go long. And when the price action breaks the -100 line in the down direction, it is a signal to go short. These signals give you the advantage of acting before the crowd.
Julie and Tim both perfected this breakout trading strategy and used it highly profitably turning there $1,000 into a fortune. In fact, one of their students made a million dollars and his return was 5400% using this strategy!
First trade on your forex demo account. Suppose you want to detect a trend reversal breakout. You can identify it through the MACD divergence signals. You should look at how the MACD histogram is performing when you spot a potential breakout scenario on a currency pair chart. Get Netpicks forex signals free.
Understand the forex market.Is the MACD histogram also forming higher peaks if the currency pair has been making new highs? If it is so, you can safely assume that the uptrend is likely to continue. Any breakout to the downside will be short lived and probably false.
However, suppose the MACD histogram shows a bearish divergence. This is a strong signal that a downside breakout is more likely to be sustained than false. The reverse holds true for a bullish MACD divergence. In case of a bullish MACD divergence, the chances are high for an upside breakout.
A MACD divergence signal is a strong signal for a trend reversal. However, it seldom occurs. But when it makes an appearance immediately take note. Another momentum indicator that can help you anticipate when the prices are at the verge of breaking out is the RSI.
The RSI measures the relative changes between the higher and lower closing prices over a period of time. RSI stands for the Relative Strength Index (RSI). A reading of 70 and above indicates that the currency pair is overbought. A reading of 30 or lower indicates that the currency pair is oversold.
The most useful way of applying RSI is through its divergence signals. However, an uptrend could register a prolonged period of overbought conditions. Similarly, a downtrend could register a prolonged period of oversold conditions.
Like MACD, bullish divergence occurs when a currency pair declines to a new low but the RSI makes a higher low. A bearish divergence appears when the currency pair rallies to a new high but RSI makes a lower high instead.
Remember that it is very difficult to predict with 100% accuracy the success of a breakout. Using momentum indicators like MACD and RSI can sometimes provide clues to internal trend weaknesses since momentum proceeds price change for the breakout trading strategy.
Before implementing the breakout trading strategy, detail technical analysis of the current and past price action must be carried out in order to tilt the odds of success in your favor. Trading breakout can be a very profitable strategy if it is applied sensibly after thorough analysis.
Price breakouts may be triggered by sudden forex related news or comments or unexpected geopolitical events. Breakouts frequently occur along trendlines. A trendline breakout could signal a reversal or continuation of trend. In case of a trend continuation, this break may indicate a temporary interruption in the prevailing trend or signal that the trend will continue but at a slower pace.
Trading channel breakout is a very profitable strategy among the currency traders. A channel basically consists of two parallel trendlines which can be drawn to encapsulate the price action.
Trade the forex market volatility.Who doesn’t want to reap massive profits from a big price move in a short time? This is what breakout trading can provide you. A breakout typically occurs when the currency price moves beyond the period of consolidation or range trading.Try Netpicks forex signals free.
A breakout occurs when the price moves above or below a support or resistance level whether temporarily or permanently. There are times when trading the breakout can be very profitable even though breakouts are known to be technically unstable. In the end, you will have to develop your own forex trading system.
In order to trade breakouts with a higher probability of success, you will have to take into account many market factors including both the technical and the fundamental analysis.
Information about volume is critical to trading the breakout. The volume information is easily available for stocks and futures as both are traded on a centralized exchange and at the end of the day the traders can find out the volume of each security that had been traded during the day.
However, volume data is not available for currency markets due to its Over the Counter nature. This data cannot be collected due to the decentralized nature of the currency markets. Volume reveals where the market is positioned or positioning. Lack of forex volume data is a huge disadvantage to forex traders.
Volume is a very important criterion for any breakout trading strategy as successful breakouts are generally accompanied by a rise in volume. When the price attempts a breakout of a significant support or resistance level, it signals a change in the underlying supply and demand conditions possibly triggered by a change in market sentiments caused by some new markets fundamentals.
Price breakouts can be of two types: 1) Continuation Breakouts and 2) Reversal Breakouts. Successful breakouts must be accompanied with a strong surge of momentum in the direction of the breakout.
Continuation Breakout: In a continuation breakout, currency prices break out of an established price level to again resume the underlying trend. The breakout occurs after a period of consolidation in which the buyers and sellers of the currency pair try to regroup and think about the next price move. The price action climbs higher in continuation of an uptrend or falls further lower in a downtrend.
Reversal Breakout: Sometimes a breakout my lead to a trend reversal and the beginning of a new trend in the opposite direction.
A false breakout may occur. The prices may break the support or resistance but then retreat back into the previous price zone. There are many times when the price action does not move in a straightforward direction in the markets.
Stopping out most of the breakout traders if they have placed their stops just above or below the resistance or support levels! The worst kind of a breakout is the whipsaw type.
Learn candlestick patterns.When there is a lack of momentum or the breakout is small and weak, a whipsaw breakout usually occurs. When prices move out of a price range, then back into the price range and then breaks out of the level again, stopping both breakout traders and faders at least once, whipsaw takes place. First trade on your forex demo account.
Some times the price action is so choppy that it is better to stay out of the market. Breakouts all carry some risk of failure. Reasonably placed stops can help preserve your capital when the price breakout does not go your way.Develop a forex trading system that is rule based and mechanical.
Successful trading of a reversal breakout obviously means massive profits in the shortest possible time. However, things are not that simple as they seem on the surface. How do you know if a breakout is going to reverse the current trend?
You should look out for certain reversal chart patterns that tend to serve as harbingers of a trend change. Examples of such patterns include head and shoulder, double top/bottom, triple top/bottom etc. If you spot these chart formations in daily or weekly charts, there is a high chance that a reversal may be in the works.
In addition to looking for these chart patterns, you can also make use of the momentum indicators to tell you if a trend is nearing its end. Momentum indicators also known as oscillators are leading indicators. They help in identifying a trend reversal before time.
MACD consists of three exponential moving averages (EMA). The MACD line is the difference between the 12 period EMA and 26 periods EMA. Usually a signal line consisting of 9 period EMA is plotted together with the MACD line. Moving Average Convergence Divergence (MACD) is one of the simplest, yet most dependable indicators for a trader.
A better visualization of the MACD is in the form of a histogram. A bullish signal is given when MACD line crosses above its signal line. A bearish signal occurs when the MACD line crosses below its signal line.
The MACD histogram tracks the speed of the price action. For example, the histogram should become bigger if the price move accelerates with an upside breakout to a higher level as more and more buyers enter the rally.
As the speed of the price movement accelerates in a quick rally, each line becoming longer than the previous line. On the other hand, each line will become shorter than the previous line. When the price movement decelerates, the histogram will contract.
When the currency pair rallies to a new high but the MACD histogram declines then a bearish divergence is formed. You can detect trend reversal breakout with the help of a MACD divergence signals. Read the next part of this article for more.
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