forex scalping consolidation and breakout
What are the steps in forex scalping that we must consider in order to trade consolidations and breakouts or plain breakouts from triangles?
1)Identify the most suitable pair
Find a pair that have built strong support or resistance levels and watch them. Remember, the stronger the support or resistance, the better the outcome. Make sure you understand this when you locate pairs to watch.
This is what we did this morning with eurjpy.We had a short signal in our smoothed main chart but we waited the breakout to happen.
2)Wait For the Breakout
Finding a good pair does not mean a trade should be taken prematurely. Wait patiently for the pair to make its move. Patience Is A Trader’s Virtue.
3) Set a Reasonable target price
If you are going to take a trade, set an expectation of where it is going. If you don’t, you won’t know where to exit the trade. This can be done by calculating an average move that the pair makes or measuring the distance between support and resistance (especially when trading price patterns).
4)Allow the pair to Retest
This is the most critical step. When a pair breaks a resistance level, old resistance becomes new support. When a pair breaks a support level, old support becomes new resistance. In the majority of your trades, the pair will test the level it has broken after the first minutes. Prepare for it.
That’s what we did in gbpjpy in the DOW open when it retested a break in a trendline in our high timeframe chart.
5)Know When Your Trade/Pattern Has Failed
When the pair attempts to retest a prior support or resistance level and it breaks back through it, this is where a pattern or breakout has failed.That is a fakey. It is imperative you take the loss at this point. Don’t gamble with your losses.
This strategy requires plenty of patience. By following these steps, you will reduce emotion and be more objective about a trade.
7)Exit at Your Target
If you are not exiting the trade with a loss, then you are in the trade. You should remain in the trade until the pair price reaches its objective, or your trailing stop is hit or reach your time target without hitting your target price.
Breakout trading welcomes volatility. The volatility experienced after a breakout is likely to generate emotion because prices are moving quickly and in a volatile fashion. Using the steps covered today will help you define a trading plan that, when executed properly, can offer great returns and manageable risk.
The three pairs we watch and their signals today