Learn Forex: Basic Breakouts for Forex Trends

DailyFX

Article Summary: Trend traders enjoy the luxury of first identifying market direction prior to executing a trading strategy. Once found traders can employ a breakout strategy for entries.

As we discussed in an earlier edition of Trading Tips, there are many advantages of trading directional markets. Below we can see a prime example of a trending market in the AUDUSD. The pair has advanced over 449 pips since its September 2012 low was created at 1.0488. Notice the series of higher highs printed on the daily graph below. With such a strong uptrend in place, this makes the AUDUSD and ideal candidate for buying opportunities.

Today we will continue our discussion on trend trading basics, by identifying potential breakout trading opportunities with the daily trend.

Learn Forex – AUDUSD Daily Uptrend

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Learn_Forex_Basic_Breakouts_for_Forex_Trends_body_Picture_2.png, Learn Forex: Basic Breakouts for Forex Trends

(Created using FXCM’s Marketscope 2.0 charts)

Trading Breakouts

Trading a breakout in an uptrend is a very straightforward process once you have identified the markets current high and low. Our current high resides at 1.0597 on the AUDUSD. This point is currently acting as a price ceiling or an area of resistance for the pair. Breakout traders will wait for price to breach this value, and create a new high before entering into the market. Traders will look to buy with the expectation of price continuing to rise and create a higher high in the market.

One of the most popular ways to trade breakouts is through the use of an entry order. An entry order can be set through the FXCM Trading station and allows you to set an order at a preset price. In the event that the market trades through that price, your order will be executed for you. This method of trading is very popular with traders that don’t have the ability to constantly monitor charts. Regardless if you are in front of your charts or not, your trade is scheduled to execute as soon as s breakout occurs!

Learn Forex – AUDUSD Daily Breakout

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Learn_Forex_Basic_Breakouts_for_Forex_Trends_body_Picture_1.png, Learn Forex: Basic Breakouts for Forex Trends

(Created using FXCM’s Marketscope 2.0 charts)

Stops and Limits

After finding a point to enter the market, it is always to manage a trades risk expectations. There are many ways to do this when trading trends, but the easiest way to find order placement is to turn again to our charts previously defined highs and lows. In an uptrend, traders can always turn towards the previous low as a line of support. Stop values can be placed under this value to exit positions in the event of the market turning.

Once a stop is set, traders can then manage their profit targets by using a positive risk: reward ratio of their choosing. Traders may also opt to lock in profit using a trailing stop or other methodology of their choosing.

---Written by Walker England, Trading Instructor

To contact Walker, email WEngland@FXCM.com . Follow me on Twitter at @WEnglandFX.

To be added to Walker’s e-mail distribution list, send an email with the subject line “Distribution List” to WEngland@FXCM.com .

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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