When it comes to Forex trading, we know that no trading setup can be perfect and even though using support and resistance levels are one of the most tried methods used by successful traders.
There are some important factors that traders need to know about if they want to have success with this strategy.
There’ll be times where traders think they’re about to trade the perfect breakout because everything seemed good and working how it supposed to.
But shortly after, price pulls back to the range it was just previously trading in and they get stopped out.
This is called a false breakout (fakeout), or a breakout that looked like it was going to occur, but never did. The key to avoiding fakeouts in Forex trading is mastering if and when you decide to enter the trade.
Getting caught in a fakeout is the result of being in the wrong place at the wrong time.
Beginner traders will often make the mistake of getting all pumped up and entering a trade as soon as price breaks resistance.
In this article, we’re going to give traders some tips on how to trade breakouts!
Tip #1: Traders need to avoid breakouts that happen too fast
After price breakouts of a key level and blows right past it, traders might be tempted to hop on the move, but, this could be a big mistake. This is because the price can reverse just as fast as it broke out.
They also have to think about where they’d be putting their stop. They would place their stop loss below the level the price just broke out of.
However, the price has most likely already moved a good amount above or below that level. In that case, their stop would be too far from their entry, which means that they would have a greater risk of losing that trade.
The key here is, traders shouldn’t try and chase the parabolic moves in the market. It may be tempting to watch, but it’s not going to be a good strategy for long term success as a trader.
Tip #2: Watch how prices approaches the level
When trading a breakout, it’s important to look at how the prices approaches that level before the breakout. If you’re trading a breakout above the resistance, you would want to see a series of higher lows coming into the level of resistance.
But if you’re trading a breakout below the support, you’d want to see series of lower highs coming into support.
Tip #3: What is the next level after a breakout?
Whenever you’re trading a breakout, it’s really important to look for the next potential price level that you can go to.
If you’re trading a breakout of resistance, look for the next level of resistance. If you’re trading a breakout of support look for the next level of support.
Tip #4: It’s important to use multiple time frames!
If your trading a breakout on a shorter time frame, you may need to check the longer-term time frame to find what the overall trend it. In most cases, prices will break out in the direction of the trend in the upper time frame. If your trading on a longer-term time frame such as the daily or the 4 hour, you can check the shorter time frames such as the 15 and 30 minute to find your exact entry.
When it comes to Forex trading, it is very important to always be informed about movements, the market, and always find the correct strategy to gain earnings instead of losing your investment.
We hope this article provided you with valuable insight and can help you become comfortable in the Forex trading world, and more importantly, we encourage our readers to keep themselves informed about everything before jumping into a situation you can’t get out off.
That’s why we recommend joining our community of expert traders. Here the experts will make sure they hold your hands through this crazy financial jungle.
I always try to make people understand this; “a smart person learns from his mistakes, but a wise person learns from the mistake of others”.
Knowledge and experience is the key.
Whenever you are in doubt, consult someone that has done it already and learn from them. It’s that simple!
That’s why you need to join our thriving community and learn from people that have failed countless times in the past and learn from them. With their insights, you will definitely avoid most of the mistakes beginners and even experienced traders face.
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