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Talking Points:

  • The USDJPY has declined as much as 468 pips for 2014
  • In a Downtrend, breakout traders will sell as price moves under support
  • Entry orders can be used for breakout entries

Trend traders often find themselves looking for answers when a directional market comes to a screeching halt. Below is a perfect example on the USDJPY. The pair as seen below, has declined as much as much as 468 pips for the 2014 trading year, but has neglected to form a new low since February! So how can trend traders approach the market when prices have stalled?

Today we will answer that question and more by looking for breakout trading opportunities with the trend. Let’s get started!

Learn Forex – USDJPY Daily Trend

A Basic USDJPY Breakout

(Created using FXCM’s Marketscope 2.0 charts)

Trading Breakouts

After finding the current line of support in a downtrend, implementing a breakout strategy takes just a few basic steps. Below, we can again see the USDJPY daily chart, with the current line of support identified at 100.75. This point on the graph is currently acting like a pricing floor. Breakout traders will wait for price to move through this area of support, and create a new low before entering into the market. The idea behind this strategy is to enter into the market on the creation of a lower low, with the expectation of price continuing in the direction of the primary trend.

One of the most prevalent ways of preparing for a price breakout is through the use of an entry order. An entry order can be set through the FXCM Trading station and allows you to trigger an order once the market has reached a designated price. In the event that price reaches the selected value, your order will be executed and your trade triggered into the market! This method of trading is very popular with traders, primarily because you don’t have to constantly monitor charts. Regardless if you are in front of your trading screen or not, your trade is scheduled to execute as soon as a breakout occurs!

Learn Forex – USDJPY Breakout

A Basic USDJPY Breakout

(Created using FXCM’s Marketscope 2.0 charts)

Stops and Limits

While designing a breakout trade, traders should consider how to manage their risk. This can be done through the placement of a pending stop order in tandem with the previously discussed line of support. In the event that price moves back above support, traders should consider the possibility that a false breakout has occurred. Using this logic, stop values can be placed above support to exit positions in anticipation of the market turning.

Once a stop is set, traders can then manage their profit targets by using a positive risk: reward ratio of their choosing.

As you can see, breakout trades can be setup with just a little bit of planning. To practice setting up entry orders for price breaks, register for a Free Forex Demowith FXCM. This way you can develop your trading skills while tracking the market in real time!

---Written by Walker England, Trading Instructor

To contact Walker, email WEngland@FXCM.com . Follow me on Twitter at @WEnglandFX.

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