Trading strategy for breaking through support or resistance levels
If you look at any of the charts of a currency pair, you will immediately notice that the price of this instrument does not move in a straight line.
In its movement, you can clearly determine the minimums and maximums, which will serve as the basis for the Forex breakout strategy.
The level breakout strategy involves overcoming price boundaries, which are best used as support and resistance lines.
The channel forex indicator is ideal for building them .
Its convenience lies in the fact that it immediately builds a line of support and resistance on several time periods and you can easily find points for placing orders, regardless of which time frame you are working on.
In the same case, if you build these levels manually, it is very difficult for them to coincide on several time frames selected for analysis.
And it’s always easier to automate graphic constructions than to do it manually.
The level breakout strategy can be used by placing both regular and pending Forex orders; the use of pending orders will be even more justified in this case, since you do not need to constantly be in front of the trader’s trading terminal, and all the necessary stops can be set in advance.
The essence of the strategy is to detect a breakout of the price channel in time and open a position in the desired direction, while it should be taken into account that the breakout itself can occur both in the direction of the movement of the main trend and against it.
This trading option works especially well in a flat , when the price forms a narrow price corridor and any intersection of support or resistance lines will mark the beginning of a new trend.
Key points of the level breakout strategy using a specific example
1. We select a currency pair with a clearly defined price corridor, that is, the price chart should contain both ups and downs in price. The more horizontally the trend moves, the greater the likelihood of making a significant profit.
2. Download and install the channel forex indicator .
3. Determine the order placement level, it must be at least 10 points below the support or resistance line; if desired, you can place pending orders in both directions.
In the same case, if you prefer to constantly monitor the conduct of trading, you just need to open a deal as soon as the price crosses one of the levels and goes further, the main thing is not to rush and wait until the trend moves at least 10 points from the set level. This approach will filter out false signals.
4. Stops – when placing orders, we set a stop loss and, if desired, a take profit; we determine the stop loss level depending on the time period of trading and the magnitude of rollbacks on it.
Or we place it in front of the border of the level for which we expect a breakout, that is, if a false breakout occurs and the price returns to the boundaries of the channel, the mistakenly opened order will be closed by stop loss and reduce possible losses.
5. The transaction is closed when the take profit and at your discretion.
Trading strategies based on the breakdown of levels are highly effective; as practice shows, almost 70% of transactions with the right approach are closed with a profit. The speed of price movement after the level has been broken out also plays an important role; this moment also serves as confirmation of the continuation of the trend.
You will find another version of the strategy for breaking through levels here - http://time-forex.com/strategy/proboynay-strategiy , so to speak, this is its more recent version.