The ‘Breakout Play’ and Letting It Run As Much as Possible

Filed under: Learn Forex Trading |

All traders would like to be able to catch trends and to let them run for as long as possible. Today, I have yet another example of a breakout trade for you, along with a few other observations with this kind of trade.

 

Figure 1.

Figure 1.

To begin with, take a look at Figure 1. This is the daily chart for the EUR/USD pair (the exchange rate for the euro and the United States dollar) in late 2007 (traded in Forex Tester). There is a level of support/resistance marked in around the middle of the chart (marked with a horizontal red line), and this marked an eight-year high. So, when price finally broke through this level, and more importantly, closed decisively above this level, I put an order in to go long just a few pips above the high of this bullish candle, with a stop loss placed just a few pips below the low of this candle, and with no target set at all. The reason why there is no target set for this kind of trade is that we want the profits to run for as long as possible – i.e. until a bearish signal forms.

 

Figure 2.

Figure 2.

This order was filled, and price started to move up nicely with a couple of large bullish candles along the way. I trailed the stop up but never too close to the price action. If you take a look at Figure 2, you will see a closer view of the price action that most interests us here. At the top of the chart, there is a short, doji-like candle of indecision, followed by the largest bear candle for some time. It was here that I moved my stop to just below the low of this bearish candle, and this stop was hit the following day for a very nice profit of around 3.5 times the initial risk.

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