Trading Currencies - Forex Breakout Strategy

The Breakout Strategy is one of the mostor breaks above a resistance point, a high probability
commonly used by professional and successfultrade in the continued direction of the breakout may
traders. Even though it is used by professionals, it isbe executed. (If the currency pair breaks through a
really simple to implement using regularly updatedsupport point, then go short/place a sell order on
technical charts which are readily available online.that pair. If the currency pair breaks above a
Breakouts in the forex market occur anytime that aresistance point, then go long/place a buy order on
price breaks above or below a resistance or supportthat pair.)
point. These points are determined by technicalThe trick here is to enter the trade as soon as you
analysis and anyone can find what the technicalpossibly can after the breakout occurs. If you wait
points are on charts online. Sometimes I use the freetoo long, you could miss the major move and actually
technical charts available to all at However, I highlyenter too late, possibly even so late that the trade
recommend the technical analysis charts and otherreverses for a loss. If you enter the trade and set a
resources inside the members area atreasonable stop profit, you will minimize your loss
For those of you who are very new to forex tradingpotential while setting yourself up to collect the big
or who have never studied the breakout strategy, Ipip movements that are often associated with
will explain the definition of support and resistancecurrency pair breakouts.
points. A support point is a low point which hasNow obviously, a full breakout does not occur every
shown support for the particular currency pairtime a currency pair breaks above or below a
(meaning the last time the pair touched that level ittechnical point. Sometimes it leaps above or below
did not fall further). And a resistance point is a highthe technical point briefly and then pulls back. Such
point that the pair has tested but has not been ableincidents are often referred to as "false breakouts."
to break above. So, for example, let's say mostHowever, catching the trend on a true breakout is
recent technical chart on the the EUR/USD gives theworth losing some pips on all the false breaks the
following information: S1: 1.3609 S2: 1.3584 S3: 1.3560,trader has to take when using this strategy.
and R1: 1.3657 R2: 1.3682 and R3: 1.3706. This meansHundreds of pips can be gained when a trader enters
that S1 is the current first level of support for thea trade at the beginning of a true breakout. So by
EUR/USD and the last time the EUR/USD tested S1,setting your stops correctly, you should not lose too
enough buying occured that it did not fall any further.many pips on false breaks, and you may even be
If the EUR/USD falls through S1, then S2 is the nextable to grab a small profit even on a false breakout.
level of support, and finally S3 is the third level ofWhen you catch a true breakout, however, you
support. Likewise, R1 would indicate the first level ofcould very well gain hundreds and maybe even 2
resistance through which it may be unlikely for thehundred pips. When this happens you can set a
EUR/USD to be able to break above. If EUR/USDtrailing stop and let the trade continue to run at no
does break above R1, then R2 is the next level ofrisk with your profits "locked in." The first time a
resistance, and R3 is the third level.trader catches a true breakout with great
Now that you fully understand the basics and themomentum behind it, the trader will definitely
simplicity of reviewing the technical chart. It is easyrecognize the power and simplicity of the breakout
to spot a breakout trading opportunity. When thestartegy and will realize that all of the small losses on
price of a currency pair breaks below a support pointfalse breaks were well worth it!