Advance Forex Strategy – The 4Hour Break Out Method is designed for traders like me who don’t wish to spend all day long in front of their monitor. Once Mastered this system will reward you for the rest of your trading career.
This is trend following system using a breakout entry formation that usually has great results. Although I mainly use this system on the 4 hour charts it works equally as well on 1 hour charts and daily charts. This method can be traded on any pair at all. I watch around 10 pairs to look for setups. If you are planning on trading this many pairs it is
very important that you keep in mind the correlation of each pair, for example you do not want to have a long position on the EURUSD and USDCHF as these pairs are strongly correlated so all you are really doing is doubling up on your position.
Note: correlation means that the pairs move in ether the same direction or the exact opposite.
Setting up your charts:
Lets start by setting up your chart of your favorite pair, mine is the EURUSD, open the chart and add the following exponential moving averages.
30 (green),150 (orange),200 (blue),365 (red)
This is the basis for all the entries in this system, you will not need to change your chart at all from now on.
30 Exponential Moving Average:
The 30ema is the trend indicator, when price is in a good trend it tends to pull back to the 30ema and move away, the 30ema must be sloping up or down before we make any trades.
150, 200 & 365 (Exponential Moving Average):
The 150, 200 and 365ema act as super strong dynamic support and resistance. Go ahead and look at them on your chart and you will see how price bounce’s off these lines more often than not. You will often get a breakout formation after price has bounced off of one of these moving averages. They are also very useful as target areas for profit taking on open positions.
Your chart should now look like the one below, you can use any colors you wish for the moving averages but I will stick to these colors for demonstration purposes. (Notice how price bounced off of the green 30ema!)
Trading breakouts is one of my favorite trading techniques of all. You will find after trading this system for several trades that you will easily begin to spot the trades with no momentum and close them with a small loss instead of letting the trades run into your stop loss. The name of the game is to have wins larger than your losses.
As I said earlier I watch 8-10 pairs for setups, this provides me with plenty of entries so I can take only the very best ones.Trading with the trend already places the odds in your favor all you need then is a place to enter into the market with high odds of encountering little draw down.
Consolidations and breakouts happen all the time in trends and are perfect high probability places to enter into the market. The most common way to enter with a break out is right on the break of support/resistance, however if you have ever tried this then you know it is very hit and miss. The Majority of the time you will get false breakouts which take out your stop and leave you wondering why you entered into the market in the first place.
This is the fools way to get into the market, what you need is a place of low risk high reward, read on and discover one of the best techniques I know of. There are 2 types of breakouts that I trade one is more reliable than the other, it is up to you if you choose to trade both or not.
The first is a trend line breakout see diagram below for example.
As you can see price is in a up trend and formed a trend line against the trend. Price then broke out and retraced back to the trend line giving us a fantastic opportunity to buy In the direction of the trend.
this diagram price is in an up trend and formed a double top
against the trend. Price then broke out and retraced back to the
trendline giving us a fantastic opportunity to buy in the
direction of the trend. I find this setup on average more profitable
than the previous.
On my next post we shall be delving into the system proper with LIVE example trades…And don’t forget to drop your comments below using the comment box!