Breakout trading is one of the most fast-paced Forex trading strategies out there, and if you are looking to money fast this is something you want to become very good at. Breakout trading is a chart-based strategy that lends itself naturally to technical analysis, and hence is very easy to grasp by novice traders.
The idea behind breakout trading is that you want to profit from the currency “breaking out” of a technical patter such as a trend channel, triangle or a consolidation range. The logic is that the momentum that caused the breakout will carry the exchange rate way beyond the breakout point of the pattern, and as a Forex trader you can profit from that. If you are looking at daytrading, one, three and five minute charts are the most appropriate time period or if you are looking at intraday trading then you may want to use end of day charts.
So how do we go about finding breakout signals?
Especially if you are just beginning trading Forex, it will be difficult to find intraday breakouts due to the short amount of time available to analyze price patterns. However, if you want to make money fast and get started with breakout trading intraday, one of the most popular Forex strategies is the 9-minute opening range breakout trade.
The 9-minute opening range breakout trade looks at the high of the first 9 minutes of trading. As a time period, Forex traders generally pick one third of the amount of time you are observing. So in this case you would pick a 3-minute candlestick.
When a full 3-minute candle breaks about the first 9-minute breakout high, this breakout trading method would generate a go long signal.
We know when to get into the trade with this breakout trading strategy, but how do we determine when to exit the trade? Exits are discretionary in this trading strategy. Many traders usually employ trailing stops to allow profits to accumulate. One hard and fast rule is that the exchange rate immediately drops back below the 9-minute breakout line, then the positions is to be closed. You can enter the position once the currency breaks out again, but following the same momentum logic we mentioned earlier, once the price breaks back down it is likely to continue doing so.
This is a simple overview of Forex breakout trading strategies. There are a number of other trading methods you can read about online.