Level breakout on Forex.
Very often, beginners hear about the breakout strategy, and most professional traders recognize its fairly high effectiveness. What is a level breakout in Forex and how is it used in trading.
A level breakdown is when the price overcomes a certain price limit, which for some time was the boundary for further growth or fall of the exchange rate. It was near this border that the price previously made a reversal, but then a breakdown occurred and the rate of the currency pair moved further.
Before getting to the heart of the matter, you should clarify what the levels are in Forex.
Typically, these types of forex levels are distinguished - support and resistance lines, historical and simply important points on the chart, upon reaching which the price makes a reversal in the opposite direction.
Support and resistance lines are drawn based on significant price highs and lows, limiting the price corridor in which the exchange rate moves.
From there it reaches the upper limit, then drops down again. Important points - they are also called basic points, since they play the role of a psychological barrier that does not allow the price to go further.
For example, a quote value of 1.0000 or 1.5000 is always difficult to overcome, but if the rate manages to break through this value, it will most likely move further towards the breakdown. Historical levels - they are determined based on technical analysis of previous time periods.
For example, if during the week the euro/dollar exchange rate did not rise above 1.2500, then this will be our historical level. A breakout occurs when the price not only reaches a certain indicator, but continues to move further, and it can be either true or false.
• True – the price continues to move towards the breakout for a fairly long period of time; for each time frame this value will be purely individual.
• False – the course, having passed a couple of points, makes a U-turn and returns to its usual framework.
It is this option that most often causes the majority of losses, so before opening a position you should first obtain confirmation of the breakout. Trading strategy.
As mentioned at the beginning of the article, this aspect is often used in various versions of Forex strategies.
All of them have one principle - if there is a breakdown of the level, then the price is highly likely to move further, so it is customary to open transactions in the direction of the breakdown. You will find a description of the trading strategy itself in the material “ Level Breakout Strategy ”.