Forex Trading System – Breakout and Retracement

POSTED by: forex trader on 12/18/2009

There are many forex trading system out there. They should be simple and easy. I always use breakout and retracement for my trading system. I never use it for small time frames like M15 and M30. Hourly (H1), four-hourly (H4), and daily (D1) are my favourite time frames. Because I usually find breakout and retracement there.

Why do I use breakout for my strategy? Just look closely at currency pairs and you will find that trends usually start from breakout. Breakout strategy is so simple, just selling breaks of support or buying breaks of resistance, but most traders don’t do it. They always try to buy low and sell high and when they find a breakout then they just wait for a pullback, but prices never come back again and they finally lost opportunity to make profit. The professional traders do not care about perfect trade, buy low and sell high. They just want to know when prices are trending then they will decide to enter the market.

When you use this strategy, you will find many false-breakouts. How to know valid breakouts? A valid and good breakout usually has been tested by prices at least two times. When prices break the line, you should wait for closing. If prices close above resistance or below support then it may be a valid breakout. You should consider the main trend. If main trend is uptrend, so just entry for buy not sell.

For breakout strategy, I usually use trendlines to make a chart pattern. When prices break it then I follow it.Breakout trading is very low risk because your stop is always small so if your analysis is wrong, you will get out with a small loss and if the trend runs, you will get big profit.

Sometimes when prices are trending, we will find prices are pullback before it move to the direction of main trend. It called it a retracement. I usually use fibonacci retracement for retracement strategy. When prices are pullback at fibonacci levels, so there is a signal to enter the market. You can use 161.8% for the target. I also use candlestick chart pattern to get a confirmation.

Breakout and retracement are good forex trading system. You should learn it as much as you can because it’s so simple and easy. Don’t give up, trading is not difficult but it also is not always easy. As long as you always follow your trading system then you will be a successful trader.

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