Here we are going to look at a forex trading strategy anyone can learn in a few times and can apply for big profits. It’s simple and logical and you can learn it in a few days and then be making profits with it – Lets take a look at it.
The first point I am going to make before I cover this forex trading strategy is simple and simple forex trading strategies are better than complicated ones, as they are more robust with fewer elements to break.
This is a simple forex trading system that trades valid breakouts.
What is a breakout?
Quite simply it’s a level of support or resistance that is broken and the price makes a new low or high. If you look at any chart you will see that most of the big trends start from breakouts.
You don’t want to just trade any breakout you want to trade ones that are considered valid i.e they have been tested a few times and have held. The more tests that have occurred the better (you want a minimum of 3) and these should be in at least two time periods a few weeks apart.
Most traders hate buying breakouts because they think their not getting in at a good price. They want the price to come back so they can buy the pullback – but valid breakouts don’t pull back, they accelerate away from the breakout point and the trader who waits never gets in.
If you grit your teeth and buy a breakout, you may appear to miss a bit of the move but that’s ok, as there is normally plenty more to come.
Confirming the Move.
Not every breakout accelerates away and many quickly turn back so you need to be careful to confirm each and every move. What you need to do is, see if momentum is picking up as the breakout occurs i.e. you are looking for momentum to support the break. This is easy to do.
All you need to do is look and use some momentum oscillators and two of the best are the stochastic and Relative Strength Index (RSI).
We don’t have time to discuss them fully here, simply check our other articles. These are visual indicators all you need to do is look at the set ups and if they confirm momentum is on your side then you can execute your trading signal.
Very simple – you place it behind the breakout point.
Breakout trading is simple to understand and is based on timeless logic and works.
A Breakout System That’s Made Millions
If you want a totally mechanical way of trading here is an even simple breakout system. It’s called the 4 Week Rule and it was devised by trading legend Richard Douchian. The system was originally devised for commodity markets it works great in currencies to here it is:
Close short positions and take a long position when price exceeds the highs of the previous 4 weeks THEN Close long positions and go short position when a price falls below the lows of the previous 4 weeks.
This system is so simple – but has been used by trading legends such as Richard Dennis and countless others. It piles up money in trending markets if markets are choppy you can use this filter:
Enter on the 4 week rule – but exit the position on a shorter time frame and go flat. 1 or 2 week cycles can be used; you would then simply re enter on the next 4 week signal.
Use Breakouts for Forex Success
So there you have the basis of a simple forex trading strategy that’s proven to work. You can devise your own based on the above points or if you want a mechanical system the 4 week rule is simplicity itself and it works.
Either of the above forex trading systems can lead you to currency trading success, so try them and see for yourself.