That is a really cheesy title I know but the message behind it is completely true. Many people get bamboozled looking for the latest and greatest trading methods that will help them make a fortune from forex trading. However breakout trading can be much easier to implement and can be highly profitable.
The methodology behind breakout trading is that at times the price will consolidate around a certain level and will remain in a tight range. Now obviously the price will not remain in this narrow range forever so when it finally breaks out of this range, it is likely that a strong breakout will occur.
This isn't always the case but the longer time frame you use to trade the markets, the greater the chance that a meaningful breakout will take place. This is because there will be lots of traders and financial institutions all around the world who will have noticed that the price is trading in a narrow range and who will also be waiting to enter a position as soon as the price breaks out.
In general terms the longer the time frame the greater the profits you can make. For example, a breakout seen on a 5 minute chart may only result in 5 points before running out of momentum whereas a breakout on a monthly chart, for instance, could result in a profit of 3000-5000 points. In financial terms this equates to a profit of $30,000-$50,000 if trading a single lot.
Let me give you a few real-life examples of substantial breakouts that have taken place in recent years to demonstrate this point.
Firstly if you open up a monthly chart of the GBP/USD currency pair and plot the 5,20 and 50 period EMA's on this chart, you will see that there was a tight period of consolidation between July 2005 and March 2006 where the price was stuck in a narrow range and was close to all of the EMA's. Then in April 2006 the price broke upwards, the EMA (5) crossed the EMA (20), and the price subsequently rose around 3000 points up until November 2007. That equates to over 150 points per month which is not bad going at all.
It was a similar story on the EUR/USD pair as well. This pair also broke out at the same time and rose around 3500 points in total, so this would also have been a highly profitable trade. A lot of forex traders make hundreds, if not thousands of trades and still do not make anywhere near 3500 points profit, so you should be able to see why breakout trading, particularly when carried out on a longer time frame, can be so profitable and is consistently one of the most popular methods of trading.
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