Forex Breakout Strategies - Why They Don't Work Like They Used To
Forex breakout strategies are some of the oldest trading strategies in the history of Forex trading. Back in the old days, all you needed to do was to identify the range limits, go long or short when the limits were broken and hey presto, you had your Forex breakout trading profits. Like it or not, they don't work like they used to anymore, leading many traders to abandon them altogether.
That said, there are still Forex breakout strategies that still make a lot of money from the markets, so what's their secret to success? By the end of this article, you'll know exactly why most people are losing money trading breakouts and how you can buck the trend with Forex breakout strategies that actually work.
Most of the popular Forex breakout strategies that we know are derived from stocks and commodities, and some of them are even predate the Great Crash and the Great Depression. Back in those days, even the simple activity of compiling and analyzing a chart was a highly advanced activity that brought a big edge to traders who did it. Savvy traders in those times saw the opportunities that lay within the consolidation patterns and the tight narrow ranges that formed just before a big move, and piled on top of these moves just as they were breaking out of the range. This was the birth of what is known today as Forex breakout trading.
Over the years, technology has advanced but sadly most Forex breakout strategies have not. Today, if you're still drawing support/resistance lines and trendlines to form wedges, triangles and the like to identify your breakout setups, then it's no wonder that your Forex breakout strategies are not working. Simple lines are no longer sufficient to give you a big edge in your breakout trading, especially in the ultra competitive arena of Forex where fakeouts abound and genuine, sustained breakouts are hard to come by. That's largely because of the nature of the markets, because as much as you can put on trades 24 hours a day, there are very well known liquidity and volatility spikes triggered by certain market opens.
The key to success with Forex breakout strategies is in recognizing that breakouts don't happen after every consolidation. There is only one reason why there are breakouts in Forex, and that's when trades are piling into the markets one after the other. This can be as a result of high impact news releases, such as the non farm payrolls or interest rate announcements, or in periods following market opens. Of the four major market opening times, the London open is the period with the highest volatility and the greatest opportunity for breakout trades. If you want to give your Forex breakout trading the best chance of success, you would be wise to focus on these high probability breakout periods and ignore the rest.
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