Forex Breakout Trading

Forex breakout trading is one of the simpler forex trading strategies to use, but can deliver excellent results. The basic concept, is to watch a currency pair for a consistent trading value and then place your trades based on the values of these currencies breaking out of this pricing band. In most cases you can realize substantial profits in following this breakout as many of these instances will develop a certain momentum after the breakout.

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The key to successful forex breakout trading involves a consistent method for predicting when a breakout will occur. You also need to be careful to use stops to protect your investment as these breakout conditions can be very volatile and you’ll want to make sure you can retain any profit the trade may provide with a forex breakout trading strategy. There are a number of simple methods you can use with forex breakout trading to help you decide when a breakout might occur and the one you choose depends on which tools you have at your disposal.

The simplest forex breakout trading strategy indicator involves watching a currency pair that has been trading very consistently in a given range. If this has been happening for a period of time, chances are that these currencies will break out of this range and if you follow this movement with a trade, you can take advantage of this movement. To use this forex breakout trading strategy you can simple place buy and sell orders slightly outside of this trading range and capture the profit involved with the movement.

Another good indicator that will help you predict when this breakout might occur are the technical indicators associated with these currencies. A good one to follow is the exponential moving averages over several periods. Try to vary the period you follow and maybe use the 5, 20 and 50 to give you a good idea of when the pair is ready to break out. If these three indicators are flat and the currency pair has been trading in a very tight band, it might be a good time to make the trade.

A very popular method to use for forex breakout trading is watching the Bollinger Bands. The outer bands indicate a consistent range of values for a currency pair and if one of these bands is crossed, it indicates a breakout and can be a great time to trade. To use the bands effectively, you want to watch for a period when these bands have become very thin as this indicates a very consistent trading range for a given period of time. This also indicates that these bands are about to be crossed and can precede a breakout.

Forex breakout trading also relies in part on news reports and if a set of currencies have been trading fairly consistently and a world event occurs that may affect one of the currency values for the pair, watch for a breakout and follow it with a trade. Even though these can sometimes be a false breakout, if the trend in value continues it can be a very profitable run. The key to using this forex breakout trading technique is to act quickly with the trades following the news.

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