Breakout Trading Strategy – Implementation & Advantages
Traders of the currency markets will use the breakout trading strategy. It is popular because it provides a good level of risk versus reward and can yield high profits if applied correctly. It can also be implemented on an account easily as it does not take too much time.
Select
One of the most important foundations for r the success of any Breakout strategy is to select the best currency pair to trade and combine this with optimum trading time. When constructing a breakout system, you need to make sure that you observe the movement of a currency pair throughout the day to find out when a breakout is most likely to occur.
Following the break, for a successful follow-through, you need market volume. Therefore obvious times to look for breakouts are at the opening of regional markets or when the news has just been released. By combining the right currency pair with the correct time for trading, you will increase your chances of capturing the most powerful moves.
Plan
One of the main advantages of trading with a breakout Trading strategy is that you can plan your trading in advance while waiting for the move to occur. This helps to remove any emotional judgments from your trading decisions.
Once you have identified the key level that you expect the price to move through, you can analyze the char to decide your course of action. You will be able to identify the best points to locate both your stop levels and price targets. You can even set your orders to be automatically executed at your specified levels.
Confirm
When trading a breakout it is vital that you enter the position early enough. You must avoid any false moves and wait for the break to confirm. Set your orders beyond the break level you identify to avoid getting caught in extended markets. Once the break has been confirmed, you can add to your orders to back the move.
Always set a tight stop on your orders. If the break turns out to be false, then you want to ensure you get out of the market with the minimum damage to your account. Keep the order open and wait for the market to turn around – this will likely end up compounding your loss.
Exit
Just as you need to know when to exit if the market reverses, you should also have a clear plan of when to book your profits. By setting price targets, you will be able to identify the best places to close out your order. If the moves are particularly strong, you may even want to close only a proportion of your open order and let the rest run. It is, however, that you book the majority of your profits when the initial move occurs.
