Can You Make Money Trading Short-term Forex Breakouts?

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Day traders use a variety of different methods to trade the currency markets, but one of the most popular methods is to trade price breakouts. This is where the price breaks out of an established trading range and continues moving strongly in the same direction. It can be very profitable, but there are a few points I want to make about this style of trading.

First of all you have to bear in mind that most of the big breakouts occur in the early part of the European trading session. So in other words if you are based in the United States and attempt to trade price breakouts at a time that's convenient for you, you will usually be too late because most of the big price moves will already have taken place. You really need to be at your computer when the European markets open, and ideally a few hours before this as well because you sometimes get some decent moves very early on.

It's also worth keeping an eye on the average daily trading range (as indicated by the ATR indicator) for a given currency pair because this will tell you how much a pair can be expected to move on any given day. You ideally want an initial trading range that's significantly less than this average range because this will often result in some big price moves when the price does eventually break out of the trading range.

Another point I want to make is that because so many of these breakouts turn out to be false ones, reversing back in the opposite direction, it's a good idea to take small profits, ie half of your overall position, for example, early on and adjust your stop loss to break-even to protect yourself when this happens. If this stop loss doesn't get hit, you can then let the second half of the position run for as long as possible and bank some really big profits. Best of all it's now essentially a risk-free trade.

So the point is that you can make some excellent profits by trading intraday forex breakouts, but for the most predictable and most profitable moves, it's best to look for possible opportunities early in the day. You should also consider exiting positions in two stages and creating a risk-free trade as soon as possible because of the fact that so many of these price moves fizzle out fairly quickly.

About the Author:
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