Article Summary : Scalpers have many options when it comes to Forex strategy. Today we will discuss trading breakouts for short term market moves.
Scalpers can apply a variety of trading strategies when approaching the market once price direction is found. One of the most useful methodologies for trading short term moves is through the use of a breakout strategy. Today we will examine placing entry orders to take advantage of these short term moves when day.
A good candidate for breakout trading this week is the NZDUSD and will be our example for the day. The NZDUSD has consistently made a series of lower lows over the past week and has declined as much as 225 pips from its high at .8585. Traders looking for breakout entries for scalping will look to take advantage of this price momentum, in the event the pair moves to lower lows.
Learn Forex: NZDUSD 4Hour Trade
(Created using FXCM’s Marketscope 2.0 charts)
In a strong down trend, traders will want to trade breakouts of support to lower lows. Support can be identified as a place where price is propped up on our chart, and for scalpers it is recommended to begin finding these areas using a 30minute chart as pictured below. The key is to wait for a series of higher lows to be formed, as the pair retraces against the primary trend. These lows can be connected using a trendline to identify exactly where support is on your chart. With support identified, traders will now wait for price to break through the declared pricing level.
To take advantage of a breakout, entry orders should be placed underneath support and the previously identified higher low on the graph. This way when price breaks through support traders will have orders set waiting for execution. Currently support is found at the last touch of our ascending trendline on the NZDUSD near the previous low at .8379. Traders will set entries beneath this value in expectations to be entered into the market upon the trend continuing with a price break towards lower lows.
Learn Forex: NZDUSD Breakouts
(Created using FXCM’s Marketscope 2.0 charts)
As you can see breakouts can be an effective way to time market entries. However, in the event that a false breakout occurs it is always important to set a stop on your position. Traders scalping with breakouts can identify great Risk/Reward levels by placing stops above the aforementioned trendline or the use of a previous high. This way all sell based positions are exited in the event price attempts to break upwards to higher highs.
---Written by Walker England, Trading Instructor
To contact Walker, email [email protected] . Follow me on Twitter @WEnglandFX.
To be added to Walker’s e-mail distribution list, CLICK HERE and enter in your email information.
Would you like dozens of trade ideas every day with updated charts to identify major levels support and resistance on the currency pair you’re trading?
If so, click here to learn more about our Technical Analyzer on Plus.