The first step in trading forex breakouts is to identify current behavior of the pair you are interested in trading. We would look for a pair that is moving sideways and consolidating, or consolidating after a movement in the direction of a major trend on the H4, D1, or W1 time frame. We have two breakout examples to present here.
Next, traders should identify the breakout points. Either a resistance or support breakout point, or both in some cases. Look at the pair below in the image. This is the EUR/CHF pair, it is moving completely sideways on the D1 time frame trend, so it is a candidate for a price breakout in either direction. Sometime pairs move sideways like this for 10-15 days because the forex market lacks volatility, or both currencies (EUR and CHF) are both strong or weak at the same time. Either way it is an opportunity to catch the next breakout and formation of a new trend.
When a pair is moving sideways like this traders can set audible price alerts to intercept the next breakout and movement. In this case you can set two price alerts to intercept the movement in either direction. Setting two price alerts on either side of the sideways channel consolidation is called a straddle alert. See the yellow lines for the location of the price breakout alerts.
What To Do When The Breakout Alerts Hit
When the price breakout alerts hit, you need to verify your trade entry. With this trading system , you can check the live signals on The Forex Heatmap®. In this case the live signals indicated that the CHF weakness was consistent across many pairs and was driving the movement that caused the breakout to occur.
On the smaller time frames like the M15 timeframe shown above you can see the intraday movement cycle more clearly, just over 100 pips. After the pair makes its intraday breakout movement, then you must re-assess the related market pairs on the higher time frames to see if you should continue to hold the trade. Traders must re-assess larger time frames and price targets after the EUR/CHF pair starts to consolidate and or retrace. You can scale out lots or exit as daytrade. If the EUR is strong or the CHF is weak on at least the H4 time frame, the best course of action is to scale out some of your lots, then also hold some lots in case the pair continues higher in the newly established h4 or D1 uptrend to the next resistance target.
Along with audible price alerts, Forexearlywarning also has a complete suite of professional forex alert systems, including push alerts to your cell phone. We can provide forex traders with various ways to monitor the market for price movement and breakouts across the top 28 most liquid pairs.
What Is The Best Time To Trade Forex Breakouts?
The best time to trade forex breakouts is in the main forex trading session. You can also trade breakouts in the Asian trading session on the AUD, NZD and JPY pairs after significant news drivers that can be tracked on the forex news calendar. Breakouts on 28 pairs and all 8 of the major currencies can be traded in the main trading session. This includes all combinations of the USD, CAD, EUR, CHF, GBP, AUD, JPY and NZD pairs.
Trending Pairs Also Have Price Breakouts
If a currency pair is trending up or down on the H4 time frame or larger, you can set a breakout alert to intercept trend continuation movements and directional trades. Look at the example below:
This pair is trending up on the D1 time frame. It starts to consolidate and form a bull flag chart pattern. Traders should go to the shorter time frames like the M15 time frame pictured above and set a price breakout alert on this pair. Once again, when the price alert hits, go check the signals on The Forex Heatmap TM and look for consistent strength on the base currency or consistent weakness on the cross currency, or both. This will create momentum and a strong entry point.
Conclusions About Forex Breakouts – In this article we outline effective ways to intercept and profit from two kinds of forex breakouts on trending and non trending pairs. Put these procedure into practice to improve your forex trading and pip totals.