Forex
Breakout Strategies - Why They Don't Work Like They Used To
Forex breakout strategies are some of the oldest trading
strategies in the history of Forex trading. Back in the old days, all you
needed to do was to identify the range limits, go long or short when the limits
were broken and hey presto, you had your Forex breakout trading profits. Like
it or not, they don't work like they used to anymore, leading many traders to
abandon them altogether.
That said, there are still Forex breakout strategies that still
make a lot of money from the markets, so what's their secret to success? By the
end of this article, you'll know exactly why most people are losing money
trading breakouts and how you can buck the trend with Forex breakout strategies
that actually work.
Most of the popular Forex breakout strategies that we know are
derived from stocks and commodities, and some of them are even predate the
Great Crash and the Great Depression. Back in those days, even the simple
activity of compiling and analyzing a chart was a highly advanced activity that
brought a big edge to traders who did it. Savvy traders in those times saw the
opportunities that lay within the consolidation patterns and the tight narrow
ranges that formed just before a big move, and piled on top of these moves just
as they were breaking out of the range. This was the birth of what is known
today as Forex breakout trading.
Over the years, technology has advanced but sadly most Forex
breakout strategies have not. Today, if you're still drawing support/resistance
lines and trendlines to form wedges, triangles and the like to identify your
breakout setups, then it's no wonder that your Forex breakout strategies are
not working. Simple lines are no longer sufficient to give you a big edge in
your breakout trading, especially in the ultra competitive arena of Forex where
fakeouts abound and genuine, sustained breakouts are hard to come by. That's
largely because of the nature of the markets, because as much as you can put on
trades 24 hours a day, there are very well known liquidity and volatility
spikes triggered by certain market opens.
The key to success with Forex breakout strategies is in
recognizing that breakouts don't happen after every consolidation. There is
only one reason why there are breakouts in Forex, and that's when trades are
piling into the markets one after the other. This can be as a result of high
impact news releases, such as the non farm payrolls or interest rate
announcements, or in periods following market opens. Of the four major market
opening times, the London open is the period with the highest volatility and
the greatest opportunity for breakout trades. If you want to give your Forex
breakout trading the best chance of success, you would be wise to focus on
these high probability breakout periods and ignore the rest.
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