Talking Points
- Forex Scalpers can take advantage of short term breakouts in price.
- Traders may use a 30 minute chart to identify support and resistance levels.
- Entries can be set above/below key levels of support or resistance.
Once a strong trend is founds, Forex scalpers can use a variety of approaches for entering new orders. One of the most useful methodologies for trading short term moves is through the use of a breakout strategy. Today we will examine tips for trading breakouts and placing entries to take advantage of short term Forex moves.
A good candidate for breakout trading this week is the USDCHF currency pair, which will act as today’s example. The USDCHF has consistently made a series of lower lows over the past week and has declined as much as 238 pips through yesterday’s low at .8939. Traders looking for breakout entries for scalping will look to take advantage of this downward price momentum, in the event the pair moves to lower lows.
Learn Forex: USDCHF 4Hour Trend
(Created using FXCM’s Marketscope 2.0 charts)
In a strong downtrend like the USDCHF, traders will take opportunities to sell breakouts as price moves to lower lows. Support can be identified as a price floor and a place where a currency is propped up on our chart. For scalpers looking to trade breakouts, I recommended turning to a 30minute chart to find these levels as depicted below. The key to finding support is through connecting a series of lows through the use of a trendline. Once this line is drawn, traders will wait for price to break through the declared pricing level before placing new orders.
The easiest way to trade breakouts is through the use of entry orders. Entry orders should be placed underneath support which resides under the previously identified low on the graph. This way when price breaks through support traders will have an entry order pending execution. While writing this article, the USDCHF began moving through the previously established line of support at yesterday’s daily low of .8939. Traders setting entries under this price, would now be entered into the market with the expectations that price will continue descending toward lower lows.
Learn Forex: USDCHF Breakouts
(Created using FXCM’s Marketscope 2.0 charts)
As you can see breakouts are an effective way to approach short term entries for Forex scalping. However, it is important to note that false breakouts can and will occur! Traders should always prepare for price moving against their entry through the use of a stop order. Normally the previous line of support will be considered a new point of resistance. Stop orders can be placed above these values so all sell based positions are exited in the event price attempts to break upwards to higher highs.
---Written by Walker England, Trading Instructor
To contact Walker, email instructor@dailyfx.com. Follow me on Twitter @WEnglandFX.
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