By James Woolley – One of the easiest ways to make money as a forex day trader is to wait for the price to trade in a narrow range before breaking upwards or downwards out of this range. However while this sounds easy on paper, there are two key points you have to consider when trading these potentially profitable breakouts.
First of all it’s important to note that the best breakouts will generally occur in the first half of the trading session before the big moves have got under way. That’s because the overnight trading range (from a UK perspective) is often very narrow for the major currency pairs, so any breakouts that subsequently occur will often be quite considerable.
So you should seriously consider trading around the time when the London and European markets open, and ideally a couple of hours before this as well because sometimes you get some breakouts that occur quite early in the day. You do not really want to be trading towards the end of the trading day when the European markets are coming to an end because even though the US markets are just getting going around this time, the big moves have usually already happened by this time.
The second key point I want to make is that breakout trading by it’s very nature is not a surefire way of making money. That’s because if you actually watch the price action on a daily basis, you will see that many of these breakouts will fizzle out very quickly.
To combat this problem it is always a good idea to take some profits as early as you can (with half your position), and move your stop loss up to break-even as soon as possible. That way you will usually generate some profits from a trade even if the breakout is a false one because there will always be a little bit of momentum right at the start of one of these price moves.
If the price moves back into the range you will have already banked a small profit, but if the price continues to move in the required direction you can potentially bank some massive profits. This is particularly true at the start of the day, as I’ve already mentioned, because there is often much more potential for the price to move strongly in a certain direction.
So what I am basically saying in this article is that if you do trade intraday forex breakouts, it is best to scale out of a position in two stages because by taking some small profits early and moving your stop loss to break-even you give yourself a risk-free trade. It is also a good idea to trade these breakouts early in the trading session because this is when the biggest and most predictable price moves generally occur.
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