To recap, trading forex breakout patterns can be a highly profitable trading strategy when you learn to identify A+ breakout setups. There are two. A breakout is any price movement outside a defined support or resistance area · The Forex breakout strategy has 4 parts: support, resistance, breakout and retest. Breakout trading is used by active investors to take a position within a trend's early stages. Generally speaking, this strategy can be the starting point. SPORTS BETTING SUGGESTIONS

Heck, you can even use this system as a forex scalping system if you are thinking of trading in the 1 minute timeframe. Remember, its only sell trades you are going to take here. Here are the trading rules: identify the support level and you can draw a horizontal line if you wish too but it does not really matter as long as you can see the support line.

The breakout candlestick is the candlestick that closes below the support line after intersecting it. Place a sell stop order 2 pips below the low of the breakout candlestick. Place your stop loss 2 pips above the high of the breakout candlestick or just 2 pips above the high of the nearest swing high.

Take profit should at least be times what you risked or you can use this trailing stop technique to ride out the trend if you want. Further Notes on Stop Loss Placement I gave you two options for stop loss placement: 2 pips above the high of the breakout candlestick. The advantages of this is that it is a tight stop loss and this can increase your risk:reward greatly when your trade goes well. The only problem with this is that it may be quite close to the entry price level and you may get stopped out prematurely.

The advantage of placing your stop loss here is that you have less chance of getting stopped out from a trade prematurely. This signals a bearish breakout from a key support level. The reason these breakouts are such an important trading strategy is because they often represent the start of increased volatility.

By waiting for a break of a key level, we can use this volatility in our favor by joining the new trend as it begins. It has become my favorite pattern to trade, partly because of its reliability and partly because of the more than favorable risk to reward ratios it often produces. There are four parts to this Forex breakout pattern.

Support Breakout Retest The illustration above is very similar to the first two illustrations. The major difference here is that instead of having one trend line and one horizontal line, we have two trend lines. One trend line is acting as support while the other is acting as resistance. The breakout to this pattern occurs when the market eventually breaks to one side or the other. While a wedge is typically a continuation pattern, I tend to trade it based on whichever way the market breaks.

In other words, I let the market show its hand before making any considerations about future price movement. Notice how in the chart above, the market had worked its way into a wedge pattern. As the market began to consolidate tighter, it eventually broke wedge support and subsequently retested this support level as new resistance.

This retest presented traders with a perfect opportunity to enter short. Entry Most times your entry will come on a retest of former support or resistance. We will discuss this in greater detail later in the lesson. Stop Loss Your stop loss should be placed above or below the breakout candle, at a minimum. In the case of the USDJPY breakout pattern below, your stop loss should be placed above the candle that broke support.

In the chart above, the market broke wedge support on the breakout candle and subsequently retested former support as new resistance. This retest presented an opportunity to get short with a stop loss above the breakout candle. This makes for an ideal area to target for our trade setup. So what kind of risk to reward ratio did we get out of this trade setup?

In the USDJPY 4 hour chart above, we can see that the stop loss was 13 pips from the entry while the take profit was 50 pips from the entry. This gives us a 3. One major difference here is that there was no retest of former support once the market broke to the downside.

The retest that we look for as part of this Forex breakout strategy typically comes within the next few candles. This is a good indication that the market lacks the strength to retest former wedge support. For this setup, our stop loss was 45 pips from the entry.

Remember that you want your stop loss above or below the breakout candle. Because this is a short setup, our stop loss was placed above the breakout candle. Our take profit, on the other hand, was pips from the entry. The target was identified by the recent low which was made several weeks prior. Note that the market gapped down the following week and ran for another pips before reversing. Although this looks great in hindsight, the logical target at the time was pips away, which still produced a very healthy 3.

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