The breakout confirmation strategy aims to profit on such situations when the price moves out of the range and as a result, usually follows a more predictable path.
Still, we can not go blindly and trade any breakout that we find on the charts. In fact, the truth is that most of the breakouts in the Forex market are fake and you will actually lose money if you are not very experienced in trading breakouts.
That’s why a specific set of conditions must be met in order to increase the chances of making a profitable trade.
Conditions of the Forex Breakout Confirmation Strategy:
Note: The mechanics of this strategy can be also successfully used in determining true breakouts in single trendlines (without a range or a channel). However, a break of a simple trendline has proven to be less significant than the breakout of a channel or a range. Therefore, trendlines are not included as a condition in this strategy.
Initial Stop Loss Placement:
One of the best parts about this strategy is that it usually provides very tight stops and big profit potentials.
The stop loss should be placed right behind the retest of the broken trendline. That is:
Targets and Take Profit Rules:
For a horizontal range
For a sloping channel
This forex breakout trading strategy is little more advanced and requires experience of drawing the channels, recognizing ranges and Price Action patterns. However, once you master it, you will become the real professional Price Action trader.
Related education and FX know-how:
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