Breakout Method - One of the Simplest Trading Methods

By Albert Schmidt

Many new Forex traders ask what trading system is better to start. I believe the simpler the system the easier can a trader learn to trade. In my opinion trading systems based on a breakout method are the simplest and easiest to trade. I would like to discuss the advantages of breakout method and give a few examples of it.

1. What is the breakout method?

First let's define what the breakout method is. Whenever you define a price range and the price breaks out of that range you have a trading opportunity. The range can be defined in different ways. Usually it's a period of time where price did not move a lot. It can be the period of Asian session. Sometimes an indicator can be used to identify such a ranging period. I use Ballinger bands to identify the squeeze in price range.

2. How to trade the break out method?

It's very simple to trade the breakout method. First you need to set a pending order to buy at the top of the range. Then you set the pending order to sell at the bottom of the range. Or if you can continuously watch the charts then you buy or sell as soon as price breaks out the range. Some people introduce more sophisticated rules into break out method. Fore example they can wait until candle closes outside of the range. The beauty of the break out method you know for sure where to place your stop-loss level.

3. Example of a Bollinger-squeeze breakout method.

This is one of my favorite trading setups. Place Bollinger indicator on your 15-minute chart. Look for the period when bands become horizontal and the distance between them becomes no more than 10-15 pips. The longer the squeeze lasts the higher the probability of a profitable breakout trade. Now place your orders on each side of the bands. The upper band is where you place your buy order, the lower band where you place your sell order. Stop-loss levels are placed at the opposite bands. With EURUSD pair this method gives at least 30 pips. But taking profit is actually art of trading. So you need to test your profit taking levels and methods with it.

Albert Schmidt is a part-time currency trader. After quite a long time of struggle he learned to make consistent profit trading in Forex. Review a trading strategy he successfully uses in his trading Forex.