LandOfCash Forex expert advisors, Trailing EA, Indicators.

Forex Trading Expert Advisors (EA or automated trading system) and Custom Indicators (CI) for MetaTrader Platform.

LOCTrailing With Partial Close Expert Advisor protect your orders profit. Trail stop level for manual and automatic orders with different algorithms, move stop loss into breakeven. Order now for only $129.95

LOCInfo Custom Indicator follow the simple rules and make the right decision when to buy or sell. View Moving Average, Stochastic indicators from multiple time frames in one place. Download now for FREE!


Welcome Guest! To enable all features please Login or Register.

Notification

Icon
Error

Options
Go to last post Go to first unread
painofhell  
#1 Posted : Thursday, October 12, 2017 12:23:03 PM(UTC)
painofhell


Rank: Advanced Member

Groups: Registered
Joined: 9/25/2016(UTC)
Posts: 770

Breakout trading has become popular as traders await many pairs to breakout from their consolidating ranges. Trading a breakout strategy is fairly straight forward; traders will look to buy a breakout of price above resistance or sell as price breaks through support. However, there is one question on the back of everyone’s mind. How can I avoid false breakouts?

A false breakout occurs when prices moves through a support or resistance level and proceeds to immediately move in the opposing direction. Below we can see a false breakout on the EURUSD pair. Support was consolidating throughout early trading as denoted by a series of higher lows. Price moved through support perhaps triggering fresh short positions, but quickly moved higher! Surely there must have been a warning signs about price retracing after breaking support.
UserPostedImage
Many traders think that indicators are the answer. Unfortunately, every indicator we have available to us is lagging in nature. Whether it is a classic oscillator, moving averages, channels, or bollinger bands they all rely on an interpretation of past price action in an attempt to find price direction. This leaves us at a loss as a breakout trader, because more often than not price will move against us faster than an indicator can update.

One aspect that we can control as traders is risk management. We need to decide how many pips we are ultimately willing to accept in loss, for an attempt to make a profit. Below, we can see a daily chart of the USDCAD, as mentioned by James Stanley in the Weekly Trading Lesson. The Range has been broken at present and many breakout traders are opting to enter fresh sell positions under .9850.
UserPostedImage
Risk has been divided into two portions equaling half the distance of our range. Aggressive traders may choose to set stops in Risk Zone 1. In the event of price retracement, traders utilizing this zone will exit the market quickly. While minimizing our risk to the smallest levels possible is definitely a plus, it should be expected for trades to be closed out fairly quickly. This may eliminate giving your trade space to return back in the direction of your trade.

Conservative traders may choose to set stops in Risk Zone 2. Risking up to 100 pips to .9950 on the USDCAD gives the trade ample room to run. If price breaks through resistance, our trade is not immediately in jeopardy of being closed. However, having a wide stop comes at a cost. If our trade continues to move against us, we ultimately may risk twice as many pips in loss than a trader choosing Zone 1.


As a trader we need to find which category we fall into, using the Risk Paradigm above. Once we have decided on a course of action regarding risk, we can ultimately ignore the false breakouts we were so concerned about before. By focusing on these conditions we can control, we can ultimately plan our breakout trades more effectively and be better prepared for any market move.
Open Account: Real / Demo
www.instaforex.com
Rss Feed  Atom Feed
Users browsing this topic
Guest
Forum Jump  
You cannot post new topics in this forum.
You cannot reply to topics in this forum.
You cannot delete your posts in this forum.
You cannot edit your posts in this forum.
You cannot create polls in this forum.
You cannot vote in polls in this forum.