News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Bullish
Oil - US Crude
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Wall Street
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Mixed
GBP/USD
Bullish
USD/JPY
Mixed
More View more
Real Time News
  • GDP (Gross Domestic Product) economic data is deemed highly significant in the forex market. GDP figures are used as an indicator by fundamentalists to gauge the overall health and potential growth of a country. Learn use GDP data to your advantage here: https://t.co/Yl9vM7kO6a https://t.co/3f5sLijsVB
  • The Federal Reserve System (the Fed) was founded in 1913 by the United States Congress. The Fed’s actions and policies have a major impact on currency value, affecting many trades involving the US Dollar. Learn more about the Fed here: https://t.co/ADSC4sIHrP https://t.co/PO93mIKAZP
  • Technical analysis of charts aims to identify patterns and market trends by utilizing differing forms of technical chart types and other chart functions. Learn about the top three technical analysis tools here: https://t.co/KDjIjLdTSk https://t.co/CHE6IOq3K5
  • The ISM manufacturing index plays an important role in forex trading, with ISM data influencing currency prices globally. Learn about the importance of the ISM manufacturing index here: https://t.co/Xr3xtoFpZy https://t.co/Agl1q6EQyu
  • Take a closer look visually at the most influential global importers and exporters here: https://t.co/G58J1dg6y3 https://t.co/UmubxiDXGc
  • Trading bias allows traders to make informative decisions when dealing in the market. This relates to both novice and experienced traders alike. Start learning how you may be able to make more informed decisions here: https://t.co/rz7fqhRoMG https://t.co/e4G1gTGhex
  • Greed is a natural human emotion that affects individuals to varying degrees. Unfortunately, when viewed in the context of trading, greed has proven to be a hindrance more often than it has assisted traders. Learn how to control greed in trading here: https://t.co/kODPAfJE79 https://t.co/pS48NIuwqX
  • Forex liquidity makes it easy for traders to sell and buy currencies without delay, and also creates tight spreads for favorable quotes. Low costs and large scope to various markets make it the most frequently traded market in the world. Learn more here: https://t.co/arxYmtQeUn https://t.co/gFVVZTGbe1
  • Forex quotes reflect the price of different currencies at any point in time. Since a trader’s profit or loss is determined by movements in price, it is essential to develop a sound understanding of how to read currency pairs. Learn how to read quotes here: https://t.co/CNtqrKWDBY https://t.co/nHXiNJhLes
  • A currency carry trade involves borrowing a low-yielding currency in order to buy a higher yielding currency in an attempt to profit from the interest rate differential. Find out if the carry trade suits your trading style here: https://t.co/7t4BzmLg8w https://t.co/h0TmJcZeqr
4 Step Guide to Trading Breakouts in Forex

4 Step Guide to Trading Breakouts in Forex

Jeremy Wagner, CEWA-M, Head of Education

Article Summary: A simple Forex strategy used by traders is a price breakout strategy. Here are 4 easy to follow steps to trade a price breakout and manage that risk.

You have probably heard the phrase “buy low and sell high”. This phrase permeates many different markets from real estate to automobiles. However, there are times, when you actually want to buy higher while selling lower. A breakout strategy does just that and it tends to work best during volatile market conditions or in strong trends. Today, we’ll discuss a 4 step strategy to trading breakouts in Forex.

Here are the 4 steps to identifying your Forex breakout trade.

  1. Add the Donchian Channel indicator (DNC) to your chart
  2. Identify the direction of trend
  3. Enter on a break of the DNC using entry orders
  4. Exit on a break of the opposing DNC using a stop loss

Let’s unpack each step of the strategy further.

The Donchian Channel Indicator

Add the Donchian Channels indicator to your intraday chart (between 1hr and 4hr charts) with an input setting of 55.

Learn Forex: The Donchian Channel Indicator

4 Step Guide to Trading Breakouts in Forex

If you wish to utilize longer time frame charts such as a daily chart, then follow these steps in how to trade Forex in your spare time. Trading from a daily chart will offer less trading signals and you will be in the trades longer versus an intraday chart which offers more signals with some of those signals being less reliable.

Identify Your Trend

As with any strategy, at DailyFX Education we recommend that you filter your trades solely in the direction of the trend. There are many benefits to following trends. Two benefits of trend trading include being bailed out of having an imperfect strategy and there are more pips available in the direction of the trend. Therefore, trading with the Donchian Channels is no different and we want to incorporate a way to filter our trends and bias our signals.

Add Your Entry Order

Once we have determined a trend bias, identify the entry price by incorporating the trend and Donchian Channels together.

Learn Forex: Entries with the Donchian Channel Indicator

4 Step Guide to Trading Breakouts in Forex

For example, in an uptrend, we want to buy 1 pip above the upper Donchian Channel. The best signal occurs on the first occasion where the upper Donchian Channel is reached. Subsequent breaks of the upper channel are ok, but the trend is a bit more mature and therefore, more likely to reverse.

In a downtrend, we want to sell 1 pip below the lower Donchian Channel. Again, the best signal occurs on the first occasion where the lower Donchian Cchannel is reached.

Add Your Exit Order

Once you have determined where to get in, it is important to know where to exit the trade. This strategy utilizes a manual trailing stop which is how many professionals manage their stops. For the purposes of this strategy, the trailing stop is located at the same price as the opposing Donchian channel.

Learn Forex: Exits with the Donchian Channel Indicator

4 Step Guide to Trading Breakouts in Forex

For example, if the trend is up, then we will use the lower Donchian channel as the stop loss. If you remain in the trade long enough, then over time, the lower Donchian channel and your stop loss will begin to move in your favor. The longer you are in the trade, the more favorable the trailing stop moves in your direction.

Conclusion

Many traders often ask if they can trade breakouts without having to use the Donchian channels indicator. The answer is yes, of course. The basic elements of a Forex breakout strategy remain the same. Look for a level of support and resistance, and play a price break of those levels.

As with any strategy, your entry and exit rules are just a couple pieces to the trading plan puzzle. Make sure your risk is commensurate to the size of account you are trading. In our DailyFX EDU courses, we talk about risking less than 5% of your account on all open trades.

Happy Trading!

---Written by Jeremy Wagner, Head Trading Instructor, DailyFX Education

Follow me on Twitter at @JWagnerFXTrader.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES