Forex Breakout Trading Strategies

Breakout trading strategies are a common Forex trading strategy. They are primarily used to capture moves in the early stages of a trend when a currency pair moves beyond a preset identifiable trading range.

This range can be defined as a chart pattern, previous highs and lows of the market or the range that the pair has moved in during a trading session.

Breakout trading strategies require orders to be placed in the direction of the break when the market price starts to 'break out' of the formerly established trading range. At this point momentum is anticipated to increase as traders jump on board the market momentum.

Breakout trading strategies can be used in all types of market environment, although they will tend to be most successful when both market volume and volatility is high. This is why this approach is most commonly used at the opening of a new market session when trading activity is at its highest. All breakouts require the potential for increased volume to enable the momentum to continue the follow through buying after the range is breached.

Breakouts are both a poplar and important trading strategy because they can also prove to be the starting point for new price trends in the market.

They can be used on any chart time frame, from 5 minutes through to even daily or weekly charts.

False Break Outs

A 'False breakout' is the term used to describe a trading setup where the market initially breaks in the opposite direction of the dominant trend. The market then subsequently reverses and heads in the initially anticipated direction. This often happens when the market looks to take out established stops before continuing its move.

The London Forex Open system looks for a breakout of the range established over the quieter Asian session but can also be configured to trade range breakouts from other market sessions. It also provides a separate trading strategy that can be used to capture False breakout moves.

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