FOREX THEORY
Summary: Trading Breakouts
Trading Breakouts
With breakout trades, the goal is to enter the market right
when the price makes a breakout and then continue to ride the trade until
volatility dies down.
Breakouts are significant because they indicate a change in
the supply and demand of the currency pair you are trading.
You’ll notice that unlike trading stocks or futures, there
is no way for you to see the volume of trades made in the forex. Because of
this, we need to rely on volatility.
Volatility measures the overall price fluctuations over a
certain time and this information can be used to detect potential breakouts.
There are a few indicators that can help you gauge a pair’s
current volatility. Using these indicators can help you tremendously when
looking for breakout opportunities.
-Moving Averages
-Bollinger Bands
-Average True Range (ATR)
There are two types of breakouts:
-Continuation
-Reversal
To spot breakouts, you can look at:
-Chart Patterns
-Trend lines
-Channels
-Triangles
You can measure the strength of a breakout using the
following:
-Moving Average Convergence/Divergence (MACD)
-RSI
Finally, breakouts usually work best and FOR REAL with some
kind of economic event or news catalyst. Always be sure to check the forex
calendar and news before figuring out whether or not a breakout trade is the
right play for the situation.
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