How to approach breakouts - best practiceThis is one of the easiest and simple ways to trade forex pairs.
I tried to describe the approach on the chart, both H1 and M15 timeframes.
ANALYSIS/ PLANNING THE TRADE:
- On the "higher" - H1 - frame we wait for a completion of a sideway move (flag/ consolidation), and note, it took 7 days to complete it, after a strong impulsive move down.
- Price makes a local extreme, may we call it a "key" level, followed by two attempts to break it. Usually, the core entry should be located at the third attempt to break the key level.
- Breakout attempt: at this time price makes a consolidation at the key level (as opposed to strong prior rejections). This consolidation usually takes a form of a simple ABC correction, that should be monitored at a lower time frame (in our case - M15).
- Core target should be at the x2 distance of the width of the H1 consolidation. Therefore the minimum risk to reward is 1:1 with a very high probability of success.
- Nevertheless, I would recommend to improve the R:R by locating a better entry with a tight stop loss.
INITIATING A TRADE
- If you are comfortable with a stop loss above the consolidation as shown on the H1 chart - blue zone - you may trade via a sells stop below the key level.
- I prefer to improve market timing (AND THIS CAN BE DONE IN REALITY) and reduce the risk - and enter with a sell stop below the m15 "flag". (Please, switch to M15 chart and check the orange zone marked at the key level).
MANAGING THE TRADE
Usually, this pattern delivers a strong move and the entry is located easily (NOTE: you have to be very patient - as the consolidation takes a week, and the confirmation is on M15 frame).
- I recommend keeping your stop loss intact for a while and track the dynamics of the Bollinger bands 20.
- taking profit at x2 distance below the larger consolidation with an entry as described above will give you R:R 4x and this should be quite a good deal.
- quite often the potential of such moves is far better then x4, this should be planned and executed within a broader context, I guess. Or by trailing your stop loss and exiting AT OBVIOUS DIVERGENCE (REVERSAL) SIGNALS.
- in the case discussed in this post I also showed the exit at the local reversal - that is the best practice of you trade Elliott wave approach - get a reversal impulse up and close the trade at the pullback in the local wave 2 by 50 or 62%.
I WOULD ASK TO PUSH A LIKE BUTTON IF YOU FIND THIS POST USEFUL.
GOOD LUCK IN YOUR TRADING!
