Talking Points:
- Volatility breeds breakout trading opportunities.
- 24-period Donchian Channel on an Hourly chart can give us medium term trade entries.
- Stops can be set opposite of the channel break using 1:2 risk and reward ratio.
While trend trading makes up the bread and butter of
my personal trading account, I also employ a breakout strategy that has
yielded positive results. It’s true that breakout strategies require
more time and energy than longer term trend strategies, but breakouts
are easy to trade when you have set rules to follow.
The ideal breakout trade is on a currency pair that
has exhibited a high level of volatility and then breaks a key support
or resistance level. Pairing this type of opportunity with a sound money
management plan can result in a trading edge. Today, we are going to
lay out this simple, no-hassle breakout strategy in 3 steps.
Step 1: Look for Volatility
Not all market conditions are ripe for breakout
trading. We need to first find the pairs that have shown the most
volatility. While you can independently figure out what pairs are the
most volatile by ‘eye balling’ it, we prefer using DailyFX’s Technical Analysis page.
Learn Forex: DailyFX Technical Analysis - Volatility
(Copied from DailyFX.com’s Technical Analysis page)
The image above shows volatility highlighted in red.
A 0% reading means a pair has shown almost no volatility while a
reading of
