A Simple Forex Breakout Strategy

Filed under: Learn Forex Trading |

Today, I would like to talk you through a very simple forex breakout strategy. I have been testing this strategy on Forex Tester over the weekend (please see previous article on this software), and it has proven to be a profitable one. To begin with, let me talk you through the entry signal, as this is the simplest element of this strategy.

 

Figure 1.

Figure 1.

If you take a look at Figure 1, you will see a trade example that I did on Forex Tester. What we are looking for with this strategy is a decisive break of a new high or a new low (let’s say in the past three months). In this example, there is a horizontal line marking the most recent high in the past three months. When price reached this level, to begin with, it stalled and didn’t really break through, with a slight upper shadow piercing the level. However, after that, a long bullish candle formed, and it was here that I put an order in to go long at the break of the high of this bullish candle (with a stop loss just below the low of the bullish candle).

 

Once the order was filled, I kept a close eye on it and let price action guide me. Price moved up nicely until there was some ‘dark cloud cover’, a black bearish candle that almost engulfed the previous bullish candle. At this point, I move my stop loss up to the low of this bearish candle, and this was subsequently hit the following session. This provided profits of around 1.5 times the risk (thus, if you had risked $100 on the trade, then you would have made a profit of around $150). Importantly, in this kind of trade, I would not set a target, and instead would let price action guide you and move stops up when a bearish (or bullish in a short trade) signal forms.

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