Foreign exchange trading strategies

Foreign exchange trading strategies

The breakout trade is the easiest and the most difficult trade in the book so how can you accurately predict when the markets are finally going to breakout and how do you avoid those false breakouts come on let's explore you okay so in today's video I want to talk to you about a certain trading strategy known as the breakout strategy now we all love a breakout don't we and its determining whether the market is going to break out or be contained is what trading really is all about is the trend going to continue or is it going to reverse now a breakout is basically a break from support or indeed resistance and then for it to continue in that direction so in order to profit from a breakout we need to determine whether the breakout is confirmed or indeed it is a false breakout and it really is the false breakouts that catch many traders off guard and result in multiple losses so how do we determine if the breakout is indeed confirmed or is it a forced breakout it's a million-dollar question right well maybe it's not maybe it's not as difficult as you may think certainly if you apply certain rules and look at certain price action ahead of the breakout and we're going to discuss those in a few minutes but before we do I want to talk to you about the different market conditions where you could potentially see a breakout so there are basically three market conditions where we look for a potential breakout first of all you've got the ranging market this has been price is oscillating between two levels of support and resistance these are horizontal lines drawn on the chart usually where price is respected more than twice and a breakout trader is looking for a breakout of a particular range either to take it higher or indeed take it lower as no markets are contained in a range forever same as trends no market or in state of trend forever so then we have the trending market okay so this could be the market making a series of higher highs higher lows and then respected at a level of resistance a trend follower will look to see for the breakout in order to take that trend higher and eventually prices may indeed break the resistance line and move higher of could be a force breakout and it could result in the reversal in which case there will be a camera trend coming on then you have the counter trend trader that looks for breakouts potentially you'll see an uptrending market here following a particular trend line a breakout trader using counter trend will look for a breakout of this trend line in order to take the market low so this three market conditions they're all looking for the breakout you've got the range you've got the trend and you've got the counter trend so how best do you do determine whether indeed the market is going to breakout or indeed is it going to be a false breakout okay let's have a look at that now now one thing I think we are all in agreement of is the uncertainty on what price is going to do next none of us know for sure when you get these levels of resistance and support there's a big unknown what is above resistance is there so much supply that that's going to push any move back down we don't know below support is there so much demand enough demand to take the market back higher again and this isn't the same for trendy markets or ranging markets it is the same theory let's assume now we're looking at a trendy market so this market is trending up okay we're making a series of higher highs typically what you'll see ahead of resistance is some consolidation and the as these buyers all taking long positions well at some point want to take profits and as it comes into existence there's uncertainty because they don't know what's above that resistance level so quite often you'll find a head of resistance some consolidation and that is indeed what you're seeing here but a good indication for me is if as you see this consolidation if we're making a series of higher lows into that resistance that is an indication to me that the demand is getting stronger than the potential supply so this is an indication that the market could potentially break out a series of high highs into existence or indeed into his support it would be a series of lower lows now as a breakout trader by the other people do the guesswork I'd like to see other people put their hard-earned money on the line and I like to keep mine in my back pocket I like them to test the water and possibly get their fingers burnt so I'd like to see more kids do the breakout and then I react I will react with price action once the breakouts happened and indeed once the breakout does indeed happen this unknown becomes known the market is either going to be taken up by all this demand in which case the market is going to move back up or indeed the supply will over over way the demand and push the market back down resulting in a false breakout so I like to react after the breakout so indeed if the market were to have huge supply the market is going to come back down here again ok moving back down but in if this supply is taken out by the demand and the demand becomes stronger then this market could potentially close higher than that level of previous resistance so I like the market to break the level of support or resistance then come back down and then trade the continuation of that trend in this case an uptrend once I see price action confirming what is above here here you can see that there definitely that the buyers were in control they were taken down the sellers got exhausted buyers took control and closed the market higher so it's only after the breakout will I like to get involved and the complete than the opposite is exactly the same if you're looking for a Down trending market this is the same in the range trading market as well the range trading market you want to see what's above there you want the market to show its hand not use your hard-earned money for guesswork to train guess what's above or below and if indeed this does result in a false breakout and the market continues to go back down then others have lost their money and I've kept mine safely in my trading account and the same theory applies to a counter trend so for example here you see an uptrend depicted with this trend line ascending trendline price is moving up with the trend line a counter trend trader is looking for a reversal of that trend at potential levels of support or resistance so a counter trend trainer will be looking for a break of this trendline in order to take the market low if he doesn't know what's below in this trendline he doesn't know if there's big demand coming in below this trendline but I'll let him make that decision for me as a counter trend I want to look at price action at this break of trend line so yeah I look for the breakout this breakout could indeed just have been a false breakout and the market continues I want to see what happens once we break out I want to see the market come back to that trend line and then put in some price action could be a bearish engulfing or something like that there you have a small mother candle and the bigger outside candle a break of that indicates to me that yes this definitely could be a counter trend trading opportunity and once we've broken out of that trendline so I like to use price action in conjunction with these levels of support and resistance from my breakout I like the breakout to happen I like the market to show its hand either side of those support and resistance lines whether the trend lines are indeed horizontal levels or indeed even moving averages I like the market to show its hand and when the market shows its hand then I react as opposed to speculate into what is in the market this theory applies in all market conditions whether your range trading with your trend trading or indeed with it your counter trend training trade the breakouts but the market share its hand to you.

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