My Forex Breakout Strategy Rules are resources that let me stay away from disasters. I don’t want to take unnecessary risks. So, I stay away from Trading Scenario that induces negative trades. What I mean is that I don’t want mistakes that can move a trade balance under my risk limit.
I don’t wait for a breakout or a breakdown to take my trades. My focus is to analyze the risk per every possible entry point that I see in a Trading Scenario. I do it days in advance, even weeks in advance. Then, later I decide where to set my orders.
This is what I do as a daily routine for my Students on Profiting.Me and I do it with accuracy. It is a daily practice that takes time. But it is a necessity.
Forex Breakout Strategy Rules
Liquid Markets and Non-Liquid Markets need different approaches. Some of the differences are the Volume of Negotiations and what induces people to trade.
It is easy to make money in the Forex Market because it is liquid. Instead, for a Non-Liquid Market, it could be not so easy as it can seem.
For example, a Low Priced Stock could show some tedious circumstances for trading. This happens because it is Non-Liquid and only a Catalyst makes it attractive.
Forex Breakout Strategy Rules are important also for a Non-Liquid Market. The reason is that some rules are valid for Liquid Markets and not valid for Non-Liquid Markets. It is easy to understand this because everything we do in Trading is always around the Risk. But a good risk evaluation is not the only important thing.
Indeed, Volatility, Trading Volume, Unbalance, and Catalysts affect the Trader’s decisions.
Breakout and Breakdown can carry a high-risk.
Breakout and Breakdown in a Liquid Market
When the Market is Liquid the Market Makers move the price defining the main trends. The Institutional Investors orders in Buy or Sell change the price direction, marking Pivots.
On Breakout the price is already rising, then the buyers are already pushing up the price. So, every breakout carries a high-risk. It is too late for a low risk trade.
Here my Forex Breakout Strategy Rules. They are valid for Forex so as for every Liquid Marketplace and Financial Instrument.
- When the Market is Liquid, NEVER Buy on Breakout, NEVER Sell on Breakdown.
- When the price is converging with a strong supply level or resistance it can rise more before to drop.
- Look where the price changes the direction before to think at the breakout or breakdown.
- Trade the Frameworks, not the breakout.
- When the Price is in Consolidation every breakout can fail.
Explaining the Forex Breakout Strategy Rules
1 – NEVER Buy on Breakout, NEVER Sell on Breakdown
In a situation where the market is Liquid, Buy at the breakout carries an extreme risk. It is the same also for a situation to Sell at the breakdown. When the price is too low the risk per Sell trade is high. When the price is too high, the risk per BUY trade is high.
A Profitable Forex breakout Strategy in a Liquid Market is to DON’T trade Breakouts. In the same way to DON’T trade breakdowns.
2 – False Breakout Forex
In a Forex Supply Demand unbalance the strength of the unbalance defines where the price is going. So, going over a supply level, the price could mark a new price range for a new unbalance. So the price drops, failing the breakout. This is a common situation that shows the risk to Buy at the breakout and to Sell at the breakdown.
3 – Where the Momentum Begins
Instead of losing money buying on a breakout so as selling on a breakdown, why don’t look to the momentum? I mean, why don’t look to where the momentum begins?
Buy at the origin of the bullish momentum, then Buy low carries an acceptable risk. Thinking in this way, trading becomes easier just because the risk per trade is low.
4 – Trend Changing and Rotation Framework
Low-risk trades are where the price action completes a trend rotation. So, the price action can mark a set of steps that define a Rotation Frameworks. These steps happen time by time repeating themselves. So a framework shows a statistical advantage. This is possible because a Framework shows several trading opportunities just in its steps. The most profitable trading opportunity comes with the last step of the Rotation Framework.
5 – Price Consolidation and Choppy Chart
Another consideration is the price that moves in a range. When the chart is choppy, it shows the uncertainty between Supply and Demand willing. This increases the risk for trading because breakouts and breakdowns can fail several times. So, the right way is to wait for a spike from the uncertainty, before to think about how to trade.
Breakout and Breakdown in a Non-Liquid Market
When the Market is Non-Liquid, Catalysts are a concrete resource. If there is no negotiation or a low volume of negotiations, the market is in a deadlock.
I don’t lose time with Financial Instruments that are not moving. The students of Profiting.Me know this because I repeat it every day.
I care only of what has moved over specific price changes. So, I investigate the origin of the volatility.
In the Forex Market, the volatility blows away reference points that we mark in the lower time frames. So the use of Catalysts gives the advantage to ride the induced volatility by trading. This is at the base of every Forex daily breakout strategy. But this is only a Trick because the real trends so as the largest profits come with big investors’ orders.
Here my Forex Breakout Strategy Rules. They are valid for who loves to trades Forex in Lower Time Frames, using Economic Calendar Events. But they work better for any Non-Liquid Market and Low Priced Financial Instrument.
- When the market is Non-Liquid, Buy at the breakout or Sell at breakdown ONLY if there is a solid Catalyst.
- Find what is moving over a Price Change and look to what the price is going to break.
- Investigate looking for a Catalyst that explains the volatility.
- If the Catalyst is not Solid, the breakout or breakdown can fail.
Explaining the rules
1 – Buy at the breakout or sell at breakdown ONLY by Catalyst
As a Penny Stocks Trader, if there is no solid Catalyst, I don’t invest 1 penny in any Financial Instrument. Penny stocks are garbage, investors need a specific reason to trade or invest. When Trading Volume is rising the price share moves. This means that traders are buying and this causes volatility induced by the Catalyst. Then, other traders enter the market to ride the volatility, feeding the rising. This makes grow the price a lot, generating large rewards. This explains why Penny Stocks are so profitable for traders. This is the same for Low Priced Listed Stocks so as for other marketplaces unknown to retail traders.
When Trading Volume is rising the price share moves. This means that traders are buying and this causes volatility induced by the Catalyst. Then, other traders enter the market to ride the volatility, feeding the rising. This makes grow the price a lot, generating large rewards. This explains why Penny Stocks are so profitable for traders. This is the same for Low Priced Listed Stocks so as for other marketplaces unknown to retail traders.
This explains why Penny Stocks are so profitable for traders. This is the same for Low Priced Listed Stocks so as for other marketplaces unknown to retail traders.
Forex Breakouts Strategy Rules shows why people love to trade the Forex Economic Events Calendar. A Solid Catalyst from the Economic Calendar offers a short-term opportunity on Forex.
In a Non-Liquid Market if the Catalyst is Solid, trading the breakout and the breakdown pay.
2 – Price Change and Clear Price Action
The first thing is to look for what is moving. So, if in the short-term some Financial Instruments are moving they catch our attention.
Considering a reference marketplace (Forex, Stocks, etc), look for a Price Change.
The first thing that I do is to look for the Best Gainers and Best Losers.
For Penny Stocks and Low Price Stocks, I usually look for a daily Price Change Percentage of 5% in Gain.
For my Forex Breakout Strategy Rules, I usually look for a daily Price Change of 0.5% in Gain or Loss.
Knowing what Financial Instruments are moving a quick look at the chart shows where to focus. We want a clear and clean Price Action. A Trend Rotation, a possible Breaking for a Trend, Continuation Patterns are important.
Looking for the ones with a clear Price Action we remove the ones that can carry high risk.
3 – Investigate the cause of volatility looking for specific Catalysts
It’s necessary to look better on catalysts and choose the right ones that induce spikes. In a Non-Liquid Market, we look first at what is moving and later we investigate about it. This is a common and a useful practice for Low Priced Listed Stocks and Penny Stocks. So having clear to what investigate we go to look for the news about those Financial Instruments.
An example of Solid Catalyst is a Signing of a Contract. It makes spike up a stock price. So we know what is happening and that the market is moving. Now we look to the price action to open a trade. This can happen at the breakout of a strong resistances, so as buying in the dip on a support.
Instead, the Forex Breakout Strategy Rules show a difference. Forex has a Specific Events Calendar that collects all the news. The Events Calendar shows a scheduling with clear indications of the Volatility. This means that we know in advance the Catalysts and their short-term impact to the market. So when a Report becomes public, short-term traders will ride the volatility induced.
The volatility can become a support resistance breakout indicator. This means that the volatility will go to break a resistance so as a support for a breakout or breakdown. But this makes sense ONLY if there is a Solid Catalyst.
If the Catalyst is not solid or if there are no Catalysts the risk becomes high.
This is a peculiarity for Non-Liquid Marketplace.
If the Market is not moving, there is no sense to invest on it.
In a Non-Liquid Market, when the breakout or breakdown has the sustain of a solid Catalyst, usually it doesn’t fail.
False Breakout Strategy for Liquid Market
I want to add something more to my Forex Breakout Strategy Rules It could seem a contradiction. But in reality, it just follows the rules.
A breakout so as a breakdown can fail. In a Non-Liquid Market, this happens because the catalyst is not good or it is too old. Try to trade them is risky.
In a Liquid Market Like Forex a false breakout or a false breakdown show opportunities for day traders.
They are for who loves to trade keeping the eyes on the screen.
The price action can convergence with strong supply levels or demand levels. Then it can go over the supply so as under the demand and turn back.
What we have is that the breakout or the breakdown has failed. As the Forex Breakout Strategy Rules explains, the failing can show trading opportunities by a Pivot.
The new High Pivot so as the new Low Pivot defines an unbalance for a new Supply or Demand. So, it seems that the price is going in the opposite direction. This shows opportunities to trade, of course accepting the risk.
I usually don’t look and I don’t care of false breakout or false breakdown. I even don’t care about resistances or supports. But there are many ways to trade in these circumstances having specific Forex Breakout Strategy Rules.
What I like more is to have a Rotation Framework. Then, I prefer false breakout or false breakdown that happens with a step of a framework.
For example, a step of a framework and a new pivot that pushes away the price marking a long tail.
Everybody who beggars for volatility Buy at the breakout or Sell at the breakdown.
Instead, I Buy and Sell at strong levels, where the volatility makes converge the price.
According to the Forex Breakouts Strategy Rules, it is clear that there is high risk. Indeed, on Forex, Buy at the Breakout or Sell at the Breakdown is the highest risk trading approach.
Forex Breakouts Strategy Rules for a Liquid Market seem to work in a different way on lower time frames. In reality, there are different approaches and different causes.
People teach to Buy on the Breakout and to Sell of Breakdown, but they don’t tell what is the risk. Besides, in the mind of a newbie trader, it seems an easy practice that everybody can do. Instead, buy at breakout is no so easy and the result is that they lose money in a systemic way.
The different approaches around Liquid Market, Non-Liquid Market plus Catalysts show many peculiarities. They are important details about Trading and Marketplaces. They mark the difference between experienced traders and newbies.
The experience shows many things and everybody should listen to what a mentor repeat day by day. Experiences are resources that a mentor shares around to everybody who wants to listen to it. So the best thing to do is just listen to him, take notes, study, and practice.
I share my experience with the Students of Profiting.Me. My full attention is for my Best Students.
So now, let me ask you some things:
- Did you ever think about the risk around a Breakout or a Breakdown?
- What are your favorite Catalysts in the Forex Economic Calendar?
- How do you trade Breakout and Breakdown?
- Are you a Stock Trader too?