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Prepare for the Next NZDUSD Breakout

Prepare for the Next NZDUSD Breakout

Walker England, Forex Trading Instructor

Talking Points:

  • The NZDUSD has declined as much as 1129 pips
  • Price is currently consolidating this week
  • Traders can begin looking for a breakout

The NZDUSD has been one of the Forex markets strongest trending pairs, declining as much as 1129 pips over the past three months. However this week, the pair has begun to consolidate while failing to break to a lower low. This can be a strong clue that a breakout for the currency pair may be on the horizon. So today we will examine how to prepare for the Kiwi’s next big break. Let’s get started!

Learn Forex –NZDUSD Daily Trend

Prepare for the Next NZDUSD Breakout

(Created using FXCM’s Marketscope 2.0 charts)

Find the Swing High/Low

First, in order to prepare for a breakout, traders must identify a key line of support and resistance. This can be done through finding the current swing high and low on your chart. This step is important, because a breakout above a swing high will represent a bullish breakout. If price moves below an identified swing low, this would represent a bearish breakout. Let’s look at an example.

In a downtrend like the NZDUSD, the swing low will be the lowest price on the graph. This level is currently acting as a value of support at a price of .7706. From the low, we should move up the chart and locate the next highest price displayed. In this example the swing high is located at a price of .7926. Now, with support and resistance identified, traders can begin their entries for a market breakout.

Learn Forex –EURUSD Swing High / LOW

Prepare for the Next NZDUSD Breakout

(Created using FXCM’s Marketscope 2.0 charts)

Trading with OCO Orders

The key to breakout trading is to buy a currency pair when price breaks resistance, or sell if price breaks support. The easiest way to do this is by setting entry orders. Traditional entry orders will remain pending until the price selected is reached by the market. Then your trade will be executed at the markets prevailing price. This is a great way to trade but it can be difficult since traders can never be 100% certain which way the market will break until after the fact.

One way to tackle this is through the use of an OCO (One Cancels the Other) entry order. This allows traders to set entry orders on both sides of the market. Once set an OCO will trigger a buy position in the event that price breaks resistance, while deleting the pending sell order. If price breaks support, a sell entry will be triggered with the pending buy order deleted.

Prepare for the Next NZDUSD Breakout

Managing Risk / Taking Profit

Managing risk should always be a consideration when trading any strategy, and breakouts are no exception. In the event of a false breakout, traders should be prepared to exit the market as quickly as possible. One way to identify potential stop placement, is to set your stop order in between the identified swing high and low. Again using the example above, this would mean setting a stop near .7816.

From here, traders will also need to select a potential profit target. This can be done by taking a 1x extension of the distance found between the current swing high and low. This will allow traders to benefit from a positive risk reward ratio, by looking for twice as much profit relative to the amount of risk assumed through the setting of their stop.

Practice

Now that you are familiar with all of the components it takes to trade a breakout, it’s time to practice these techniques! To practice setting up OCO orders and managing risk, register for a FREE Forex demo with FXCM. This way you can work on your breakout trading, while trading the market in real time!

Click HERE to Register Now

---Written by Walker England, Trading Instructor

To contact Walker, email instructor@dailyfx.com. Follow me on Twitter @WEnglandFX.

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