The Basics of a Forex Breakout

Article Summary: Trading a breakout strategy is easy to implement in the Forex market. Learn how to begin trading breakouts today!

Price breakouts are a market condition that occur after price action either rises above resistance or drops below support. Savy traders that are aware of these conditions can quickly adapt their trading plan and be prepared to take advantage of the next market move. To be better prepared for these scenerios, today we will examine the basics of trading Forex breakouts.

Learn Forex –EURUSD Daily Breakout

(Created using FXCM’s Marketscope 2.0 charts)

Many traders choose to trade breakouts due to their simplicity and effectiveness. To begin, traders will use entry orders to establish a price where they wish to enter into the market. If the price you select becomes available for trading your order will then be executed. This can be a huge benefit to traders that can’t monitor the market 24Hrs a day. Even if you’re away from the trading screen, if the price you select becomes available, after a breakout in the market, your trade will be executed. Let’s look at an example using the EURUSD.

To take advantage of a breakout on the EURUSD, entry orders should be placed above a point of resistance in its current uptrend. In the chart below, resistance has been identified as the current peak on the daily chart at1.3389. Orders should be set above this point, so in the event that price breaks through orders will already be set and waiting for execution. To limit risk, traders will also include a stop underneath current resistance levels to exit a position in the event that it reverses.

Learn Forex –EURUSD Basic Breakout Strategy

(Created using FXCM’s Marketscope 2.0 charts)

As you can see trading breakouts can be an effective way to time market entries. However, for those that are looking to spend less time in front of their charts, traders can consider trading an automated breakout strategy using FXCMs Mirror Trader. Using the Mirror Trader software, traders can select from a variety of breakout strategies. This includes both the Breakout 1 and Breakout 2 DailyFX PLUS trading signals which can be applied to over 14 different currency pairs.