5 Types of Forex Breakout Trading Strategies That Work

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Forex Breakout Trading Strategies That Work

Breakout strategies are some of the most effective types of forex trading strategies. It is because breakouts are usually based on momentum. Momentum often leads to a rapid price movement heading in one direction. Breakout trades are often fast and are very effective, moving price far in a considerably shorter time.

We have compiled 5 breakout strategies that are very effective and could produce huge gains when used in the right trading condition. These breakout strategies could be applied in specific market conditions where breakouts could occur. This would allow you to trade the market on different market conditions that has a potential for a breakout trade.

ATR Momentum Breakout Forex Trading Strategy

One of the easiest ways to earn from forex is by trading momentum. In fact, there are traders who can turn a few hundred dollars into a few hundred thousand dollars just by trading momentum trade setups. Momentum trading strategies work and they could bring in the money.

The reason many traders are unable to trade on momentum is because of the fear of chasing price and rightfully so. There are some instances when candles that seem to show good momentum would immediately reverse on the next candle. However, there are also many instances wherein momentum trades would result in a sudden expansion phase or a trend. Traders who were able to enter the market as the momentum started would be happy that they did so. These trades often bring in huge gains in just a short while.

The key to profiting when trading momentum setups is in identifying the right momentum candle. This is because many traders would just eye ball a candle and decide haphazardly whether the candle is worth taking or not. Often, greed would cause them to take a trade on a candle that does not seem to have a strong momentum behind it. Others would carelessly trade momentum strategies on a market with low volatility wherein candles are misrepresented due to the low volatility range.

The ATR Momentum Breakout Forex Trading Strategy is a systematic method of trading momentum with less guess work. It provides clear cut trade setups based on rules allowing traders to filter out low probability momentum candles.

ATR Channels

The Average True Range (ATR) is one of the best indicators used to determine volatility. In fact, the ATR itself is a measure of volatility. This is because the ATR measures the average range of a candle. High volatility market conditions typically have candles with larger ranges while low volatility market conditions usually have lower ATRs.

The ATR Channels indicator is a type of channel or band indicator which is based on the ATR. It draws a moving average line in the middle. The lines that flank the moving average are plotted based on a multiplier of the ATR.

The ATR Channels could be used to determine overbought or oversold conditions. Prices which are beyond the outer lines could be considered either overbought or oversold.

However, the ATR Channels is also great for identifying momentum. Candles typically stay closer to the middle line. Candles that close nearer to the outer lines typically indicate momentum.

AVQ Trend

The AVQ Trend is custom momentum indicator based on the Average Directional Movement Index (ADX).

This indicator is great at identifying short-term trends and momentum. It is very responsive and could quickly identify short-term trend reversals.

It overlays lines over the candlesticks to indicate trend direction. For this setup, the indicator overlays magenta lines over the candles whenever it identifies a bullish short-term trend, and yellow lines whenever it identifies a bearish short-term trend.

Trading Strategy

This strategy is a momentum strategy which is based on the ATR Channels.

Candles with strong momentum and have broken out of a contraction phase would typically close further away from the midline. Candles that close beyond the green line of the ATR Channels indicator would confirm such momentum breakout. It is these types of candles that signal a viable entry.

The short-term trend or momentum is then confirmed by the AVQ Trend lines.

The candles breakout from the ATR Channels green lines and the AVQ Trend lines short-term trend indication should confirm each other.

Indicators:

  • ex4
    • Mult_Factor1: 1.0
    • Mult_Factor2: 2.0
    • Mult_Factor3: 3.0
  • ex4 (default setting)

Preferred Time Frames: 15-minute, 30-minute and 1-hour charts

Currency Pairs: major and minor pairs

Trading Session: Tokyo, London and New York session

Buy Trade Setup

Entry

  • Price should close above the upper green line of the ATR Channels indicator indicating a possible bullish momentum breakout candle.
  • The AVQ Trend indicator should overlay a magenta line on the candlesticks indicating a bullish short-term trend.
  • These bullish indications should be closely aligned.
  • Enter a buy order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss a little below the upper orange line of the ATR Channels indicator.

Exit

  • Close the trade as soon as a candle closes below the upper orange line of the ATR Channels indicator.
  • Close the trade as soon as the AVQ Trend indicator overlays a yellow line on a candle.

ATR Momentum Breakout Forex Trading Strategy

 

ATR Momentum Breakout Forex Trading Strategy

Sell Trade Setup

Entry

  • Price should close below the lower green line of the ATR Channels indicator indicating a possible bearish momentum breakout candle.
  • The AVQ Trend indicator should overlay a yellow line on the candlesticks indicating a bearish short-term trend.
  • These bearish indications should be closely aligned.
  • Enter a sell order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss a little above the lower orange line of the ATR Channels indicator.

Exit

  • Close the trade as soon as a candle closes above the lower orange line of the ATR Channels indicator.
  • Close the trade as soon as the AVQ Trend indicator overlays a magenta line on a candle.

ATR Momentum Breakout Forex Trading Strategy

ATR Momentum Breakout Forex Trading Strategy

Conclusion

This strategy is a good momentum-based strategy. Momentum strategies work. In fact, momentum candles would often result in a profitable trade. The key is identifying momentum breakouts. This strategy provides an objective way of identifying momentum breakouts.

Most trade signals produced by this strategy would result in high yields. This provides a relatively high reward-risk ratio.

There are also scenarios wherein the entry candle that closes beyond the green line of the ATR Channels indicator is not a long momentum candle. It is still a viable entry as long as price action is showing momentum.

 

SAR Cloud Breakout Forex Trading Strategy

One of the most effective form of breakout strategies are breakouts from a retracement or congestion. This is because retracements and congestions are a form of market contraction.

The market has two phases, one is an expansion phase and the other is a contraction phase. Markets cycle between these two phases alternately. Strong trends and momentum are associated with the expansion phase. During this phase, the market would move rapidly in one direction. Then, after the expansion phase, volume would usually drop as market participants either start to lock in profits and other traders would see price as either too high or too low. This leads to a gradual reversal. However, this reversal is usually not permanent. Often, as long as the long-term trend is in place, and the larger timeframe trends are not yet overextended, the market would often rebound and start another expansion phase going the same direction as the initial trend. This marks the end of the retracement or congestion, both of which are contraction phases.

What comes after the contraction phase is quite exciting as it would be another expansion phase. It is again a phase where strong one directional price movements occur, and momentum is strong. This phase presents opportunities to profit from the market. Traders who are able to enter at the start of this new momentum are often rewarded with huge gains.

The SAR Cloud Breakout Forex Trading Strategy is one which exploits this cycle. It trades on breakouts from retracement supports or resistances which are often the start of a strong momentum-based trend.

Forex Cloud

The Forex Cloud indicator is a custom indicator designed to identify the long-term trend and the area which could be considered as the mean of the trend.

This indicator marks the area of the mean price by shading the area. During a bullish trend, this indicator would be shading the area below price with lime dots. On the other hand, during a bearish trend, the shaded area is shifted above price and the dots are colored red. This represents the mean, as well as the dynamic support or resistance.

The indicator also draws a silver dotted line to represent the opposing support or resistance from the trend. During a ranging market, price would often bounce in between the shaded area and the dotted line. However, during a start of a momentum, price would breakout from the dotted line and start a new trend in the direction of the main trend as indicated by the color of the shaded area.

SAR Oscillator

The SAR Oscillator is a trend following indicator based on the Parabolic Stop and Reverse (SAR) indicator.

The SAR indicator is a staple indicator which is used by many traders as a trend indicator and as a basis for placing stop losses. The SAR indicator would place dots on the price chart based on the direction of the trend. On a bullish trend, dots are placed a certain distance below price, while on a bearish trend, the dots are placed above price. Stop losses can be placed beyond these points as trends are considered to be reversing whenever price breaches these points.

The SAR Oscillator on the other hand is based on the traditional SAR indicator. Instead of placing dots on the price chart itself, the indicator displays a histogram on a separate window. The histograms represent the distance between price and the dots. Positive histograms indicate a bullish trend while negative histograms indicate a bearish trend.

Trading Strategy

This strategy is a breakout strategy which is used to confirm breakouts from a retracement or congestion in an established long-term trend.

To trade this strategy, we must first identify the direction of the trend based on the shaded portion of the Forex Cloud indicator. Then, we wait for a retracement towards the shaded area, which is the dynamic area of support or resistance. As price retraces to this area, an opposing diagonal support or resistance would usually be established due to the gradual retracement or congestion. Trades are taken based on the breakout of these support or resistance lines. However, the opposing dynamic support or resistance line of the Forex Cloud indicator would also be used as the main breakout point. Price should close beyond the Forex Cloud indicator’s dotted silver line to confirm the breakout.

In addition to the Forex Cloud indicator, the SAR Oscillator should also confirm the trend reversal. The trend indicated by the SAR Oscillator should agree with the direction of the breakout.

Indicator:

  • ex4
    • TimeFrame: H4
  • ex4
    • Pas: 0.005

Preferred Time Frame: 15-minute chart

Currency Pairs: major and minor pairs

Trading Session: Tokyo, London and New York

Buy Trade Setup

Entry

  • The Forex Cloud indicator should display a lime shaded area below price indicating a bullish long-term trend.
  • Price should retrace towards the lime shaded area.
  • A diagonal or horizontal resistance line should be observable.
  • Price should break above the resistance line.
  • Price should break above the dotted silver line of the Forex Cloud indicator.
  • The SAR Oscillator bars should become positive indicating a bullish trend reversal.
  • These bullish signals should be closely aligned.
  • Enter a buy order on the close of the candle breaking above the silver dotted line.

Stop Loss

  • Set the stop loss on the top edge of the lime shaded area of the Forex Cloud indicator.

Exit

  • Close the trade as soon as the SAR Oscillator bars become negative.

Sell Trade Setup

Entry

  • The Forex Cloud indicator should display a red shaded area above price indicating a bearish long-term trend.
  • Price should retrace towards the red shaded area.
  • A diagonal or horizontal support line should be observable.
  • Price should break below the support line.
  • Price should break below the dotted silver line of the Forex Cloud indicator.
  • The SAR Oscillator bars should become negative indicating a bearish trend reversal.
  • These bearish signals should be closely aligned.
  • Enter a sell order on the close of the candle breaking below the silver dotted line.

Stop Loss

  • Set the stop loss on the bottom edge of the red shaded area of the Forex Cloud indicator.

Exit

  • Close the trade as soon as the SAR Oscillator bars become positive.

ATR Momentum Breakout Forex Trading Strategy

ATR Momentum Breakout Forex Trading Strategy

Conclusion

The SAR Cloud Breakout Forex Trading Strategy is an excellent strategy to use in a long-term trending market condition.

It is even more effective when aligned with a price pattern trade setup on the higher time frame. As an example, the sell trade on the NZDUSD 15-minute chart above is a bearish flag pattern on the 4-hour chart.

SAR Cloud Breakout Forex Trading Strategy

It takes a lot of patience to wait for price patterns to form on the higher timeframes. It also takes skill and a lot of practice to master pattern trading but once you learn it, it is a great tool to use as a confirmation to this strategy.

 

Fisher Gator Reversal Breakout Forex Trading Strategy

Breakouts are usually a telltale sign of a trend reversal. This is commonly observed on a clearly trending market with a defined support and resistance.

Breakouts from a diagonal support or resistance often indicate that a market that had been constantly forming a higher high and low or a lower high and low has just broken such trending pattern. Such break in a trending pattern often indicates one thing – the end of a trend. Once a trend has ended, there are only two scenarios that could occur, either the market will range prior to the next trending market, or the market would immediately reverse.

If traded, the first scenario would often lead to either a breakeven trade, a minor loss or a small gain. On the other hand, if the market turns out to be an immediate trend reversal, such conditions would usually lead to huge gains. Trading trend reversals is clearly a viable trading strategy. It provides traders the opportunity to gain huge profits with a reasonable risk.

R Gator

The R Gator indicator is a custom momentum indicator based on Bill William’s Alligator strategy. It is built on the same concept of using the movements of a certain set of moving averages to assess whether the market is trending, expanding, contracting or reversing.

The R Gator indicator displays three moving average lines on the price chart, much like the regular Alligator indicator. The shorter period moving average is colored red, the mid-term moving average is colored green, while the longer period moving average is colored blue. The market is said to be expanding or trending when the lines are fanning out, while lines that are contracting are indicative of a contracting market typical of a retracement. Markets with moving average lines that are crossing over are indicative of a reversing market.

The difference between the standard Alligator indicator and the R Gator indicator is that the R Gator is customized to produced trend reversal signals much earlier than the Alligator indicator.

MA Ribbon Filled

The MA Ribbon Filled indicator is another trend indicator based on moving averages.

It is composed of two moving averages, one representing a longer period and the other for the shorter period. The indicator then fills the space between the two moving average lines to clearly indicate the direction of the trend.

The shorter period moving average line would stay above the longer period moving average line during a bullish trend, while it would stay below the longer period moving average line during a bearish trend. Crossovers between the two moving average lines indicate a trend reversal.

FBS Fisher

The FBS Fisher indicator is an oscillating indicator used to determine trend direction and trend strength.

This indicator indicates trend direction by displaying histogram bars. Positive bars generally indicate a bullish trend while negative bars indicate a bearish trend.

Another feature of the FBS Fisher indicator is that the bars change colors whenever it detects a strengthening or weakening trend. A trending market has histogram bars that are colored gold. However, these bars change colors whenever the indicator detects a weakening trend. On a bullish market, a weakening trend would be indicated by red bars, while on a bearish market, a weakening trend would be indicated by lime bars.

Trading Strategy

This strategy uses the confluence of the three indicators above to confirm a trend reversal based on a breakout of a support or resistance level coming from a previous trend.

To trade this strategy, the support or resistance from the previous trend must be clearly observable. It is also best to use the outer most support or resistance as this usually means that there are less obstacles along the way as the trade progresses.

The indicators must then confirm the direction of the trend reversal. The R Gator moving averages must reverse and start to fan out in the direction of the new trend. The MA Ribbon Filled indicator lines must also start to crossover indicating that the mid-term trend is starting to reverse. Finally, the FBS Fisher indicator histogram bars must also confirm both trend direction and trend strength of the new trend.

The confluence of the indicators as mentioned above must be accompanied by a breakout beyond the support or resistance line.

Indicators:

  • ex4 (default setting)
  • MA ribbon filled.89.21.ex4
    • MA1 period: 24
  • FBS Fisher.ex4
    • Period: 28

Preferred Time Frames: 15-minute, 30-minute, 1-hour and 4-hour charts

Currency Pairs: major and minor pairs

Trading Session: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • A resistance line should be clearly identifiable.
  • The R Gator lines should start to crossover and fan out with the red line above, the green line at the middle and the blue line below.
  • The MA Ribbon Filled indicator should start to crossover with the lime line crossing above the red line.
  • The FBS Fisher indicator should be printing green positive bars indicating a bullish trend.
  • A candle should break above the resistance line.
  • These bullish signals should be closely aligned.
  • Enter a buy order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss on the fractal below the entry candle.

Exit

  • Close the trade as soon as a candle closes below the MA Ribbon Filled lines.

Fisher Gator Reversal Breakout Forex Trading Strategy

Fisher Gator Reversal Breakout Forex Trading Strategy

Sell Trade Setup

Entry

  • A support line should be clearly identifiable.
  • The R Gator lines should start to crossover and fan out with the red line below, the green line at the middle and the blue line above.
  • The MA Ribbon Filled indicator should start to crossover with the lime line crossing below the red line.
  • The FBS Fisher indicator should be printing green negative bars indicating a bearish trend.
  • A candle should break below the support line.
  • These bearish signals should be closely aligned.
  • Enter a sell order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss on the fractal above the entry candle.

Exit

  • Close the trade as soon as a candle closes above the MA Ribbon Filled lines.

Fisher Gator Reversal Breakout Forex Trading Strategy

Fisher Gator Reversal Breakout Forex Trading Strategy

Conclusion

This strategy is an excellent working strategy to use during a trend reversal.

The best way to use this strategy is as a confirmation of a trend reversal setup based on the traditional support or resistance breakout. This allows traders to filter out low probability trend reversal setups.

Another way to use this strategy is as a scanner. Charts and currency pairs that pass the conditions above could then be considered as a possible trend reversal if there is indeed a support or resistance line that is close to being broken.

 

ZigZag Swing Breakout Forex Trading Strategy

Support and resistance breakout strategies are basic strategies that traders use. It is because support and resistance breakout trade setups simply work.

However, traditional supports and resistances are not the only areas where traders could look for possible breakout trade setups. Swing highs and swing lows are also good spots to trade breakouts. This is because swing highs and swing lows could also be considered as a horizontal support or resistance.

Traders who traded on the reversal of a swing high or swing low would most likely have stop losses above a swing high or below a swing low. Breaches from these points would often result in a strong momentum move due to these stop losses being taken out.

Another advantage of trading on a swing high or swing low breakout is that trends could easily be identified just by simply looking at the pattern of swing highs or swing lows. Price action and naked chart traders would define a trend as a market with either a swing high and swing low that is constantly rising on a bullish trend, or a swing high and swing lows that is constantly falling on a bearish trend. Traders who trade on the direction of the trend based on this assumption would often have a higher probability trade than those who mindlessly trade breakouts regardless of whether the market is trending or ranging.

Zigzag Indicator

The Zigzag indicator is probably one of the most underrated indicators. Even with its simplicity, it is still a very effective that traders could use to trade the markets.

The Zigzag indicator detects reversal points on the price chart whenever price reverses by a certain percentage as determined on the parameter. The indicator then connects these points with a line thus forming a zigzag like pattern.

The reversal points that this indicator detects are very useful information for most traders. These points could be considered as a swing high or a swing low. Traders who identify trends based on swing highs and swing lows could make use of this information. The market could be considered trending up whenever the swing highs and swing lows detected by the Zigzag indicator are constantly rising. On the other hand, swing highs and swing lows that are constantly falling as indicated by the Zigzag indicator are indicative of a bearish trending market.

The swing highs and swing lows indicated by the Zigzag indicator are also interesting points whenever price visits the same price level. Price could either breakout strongly beyond the swing high or swing low, or it could reverse since swing highs and swing lows could also be considered as a horizontal support or resistance.

50 SMA

The 50-period Simple Moving Average (SMA) is another staple indicator that traders use to identify trend direction. Many traders use the 50 SMA to judge the direction of the trend.

Traders could use the location of price in relation to the 50 SMA or the slope of the 50 SMA to identify trend direction.

Price above the 50 SMA indicates a bullish trend, while price below it indicates a bearish trend. A 50 SMA that is sloping up indicates a bullish trend, while a 50 SMA that is sloping down indicates a bearish trend.

Awesome Oscillator

The Awesome Oscillator is a momentum indicator developed by Bill Williams.

This oscillating indicator indicates trend direction by displaying histogram bars. The histogram bars are based on the difference between a 5-period SMA and a 34-period SMA. The SMA used in this indicator is based on the midpoint of each candle instead of the close price.

Positive bars indicate a bullish trend while negative bars indicate a bearish trend. Bars that are lower than the previous bar are colored red while bars that are higher than the previous bar are colored green.

Trading Strategy

This trading strategy trades on breakouts from swing highs and swing lows in the direction of the trend.

The swing highs and swing lows are based on the Zigzag indicator. Currency pairs are considered trending based on whether the swing highs and lows are constantly rising or falling. The trend direction is then confirmed by the 50 SMA and the Awesome Oscillator.

On the 50 SMA, price should be on the correct side of the 50 SMA based on the trend and should be sloping towards the direction of the trend.

On the Awesome Oscillator, histogram bars should be staying above zero during a bullish trend and below zero during a bearish trend.

If the trend direction is confirmed based on these conditions, a stop order entry is placed on the swing high or low where the breakout is anticipated and the stop loss on the opposite swing high or low. The take profit target is then set at a fixed 1.5x the risk on the stop loss. This multiplier could be adjusted based on the risk appetite of the trader. Higher multipliers could yield higher gains but could have lower win rates, while lower multipliers could have higher win rates but with lower gains.

Indicators:

  • ex4 (default setting)
  • 50-SMA (green)
  • ex4 (default setting)

Timeframe: 1-hour, 4-hour and daily charts

Currency Pairs: major pairs, minor pairs and some exotic pairs

Trading Session: Tokyo, London and New York

Buy Trade Setup

Entry

  • The swing highs and swing lows based on the Zigzag indicator should be constantly rising indicating a bullish trend.
  • Price should be above the 50 SMA.
  • The 50 SMA should be sloping up.
  • The Awesome Oscillator should be printing positive bars.
  • Set a buy stop order on the swing high on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss at the swing low after the swing high where the buy stop order is based on.

Take Profit

  • Set the take profit target at 1.5x the risk on the stop loss.

ZigZag Swing Breakout Forex Trading Strategy

ZigZag Swing Breakout Forex Trading Strategy

Sell Trade Setup

Entry

  • The swing highs and swing lows based on the Zigzag indicator should be constantly falling indicating a bearish trend.
  • Price should be below the 50 SMA.
  • The 50 SMA should be sloping down.
  • The Awesome Oscillator should be printing negative bars.
  • Set a sell stop order on the swing low on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss at the swing high after the swing low where the buy stop order is based on.

Take Profit

  • Set the take profit target at 1.5x the risk on the stop loss.

ZigZag Swing Breakout Forex Trading Strategy

ZigZag Swing Breakout Forex Trading Strategy

Conclusion

Setting stop entry order on swing highs or swing lows during a trending market is a strategy that many naked chart and price action traders use. This is because this type of strategy is a high probability strategy.

However, identifying swing highs and swing lows is often difficult for new traders. This strategy simplifies the process by identifying the swing points for the traders. It also filters out trades on currency pairs that are not trending strongly. This produces trade setups with an even higher probability.

Trading this type of strategy could produce good results for traders who would want to trade swing point breakouts on trending markets.

 

EMA MACD Congestion Breakout Forex Trading Strategy

Congestion zones are a good source of potential breakout trades.

The market is composed of two phases – expansion and contraction. Congestions are a type of contraction where instead of retracing from a trend, the market starts to have a narrow range where price tends to stay within for a while.

Congestions are the kind of market condition that traders would avoid at all cost. These markets have low volatility and are very choppy. Trading within such a narrow range makes it difficult to profit from the market.

However, savvy traders know that there is an opportunity to trade whenever a market congestion is observable. This is because they are not looking to trade within the congestion area but rather, they are looking to trade the breakout from such congestion. Often, breakouts from congestions have a sudden burst of momentum. This is because most traders stay on the sidelines during a congestion phase. As soon as a trading opportunity is available, a big chunk of the market could trade with high volume and thus causing a strong momentum price movement.

This strategy thrives on such conditions. It allows traders to systematically take trades on breakouts from a congestion zone using a combination of indicators that confirm such breakout.

Exponential Moving Averages Signals

The Exponential Moving Averages Signals indicator is a custom indicator that provides trade signals using a combination of Exponential Moving Averages (EMA).

This indicator provides trade signals based on the crossover of two EMAs. The indicator then conveniently displays an arrow at the point where the crossover occurred, pointing the direction of the trade signal.

MACD Elder

The MACD Elder indicator is a custom indicator based on the Elder Impulse System as developed by Alexander Elder. It is still based on the traditional MACD indicator, however, this configuration of the MACD is modified.

This indicator is an oscillating indicator that displays trend direction using histograms and a signal line. Positive histograms indicate a bullish trend, while negative histograms indicate a bearish trend. Crossovers between the histogram bars and the signal line also indicate a possible trend reversal.

The indicator’s histogram bars also change colors depending on the direction of the trend. Green bars indicate that the bulls have taken over and that the market is pressured to trend upwards. Red bars indicate that the bears have taken over and that the market is pressured to go lower. Blue bars on the other hand are printed whenever the conditions for a green and red bar have not yet been met.

Trading Strategy

This trading strategy trades on breakouts from tight congestion zones which are confirmed by the confluence of the Exponential Moving Averages Signals and the MACD Elder indicator.

On the price chart, a congestion zone should be observable. This is characterized by a narrow price range with candles that are showing indecisiveness. The tighter the range, the better.

Price should then break out of the range. As price breaks out of the range, the Exponential Moving Averages Signals indicator should print an entry signal indicating the direction of the breakout. This should also be confirmed by the crossing over of the MACD Elder indicator over the midline. The color of the MACD Elder histogram bars should also confirm the direction of the breakout.

Indicators:

  • ex4
    • FasterEMA: 15
    • SlowerEMA: 18
  • ZZ_YZ-MDAC_ELDER_1-1000.ex4 (default setting)

Timeframe: 1-hour, 4-hour and daily charts

Currency Pairs: major and minor pairs

Trading Session: Tokyo, London and New York

Buy Trade Setup

Entry

  • A congestion zone should be observed on the price chart.
  • Price should breakout and close above the congestion zone.
  • The Exponential Moving Averages Signals indicator should print an arrow pointing up.
  • The MACD Elder histograms should be color green indicating a bullish market bias.
  • The MACD Elder histograms should be crossing above zero.
  • The bullish signals above should be closely aligned.
  • Enter a buy order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss below the middle of the congestion zone.

Exit

  • Close the trade as soon as the Exponential Moving Averages Signals prints an arrow pointing down.
  • Close the trade as soon as the MACD Elder histograms cross below zero.

EMA MACD Congestion Breakout Forex Trading Strategy

EMA MACD Congestion Breakout Forex Trading Strategy

Sell Trade Setup

Entry

  • A congestion zone should be observed on the price chart.
  • Price should breakout and close below the congestion zone.
  • The Exponential Moving Averages Signals indicator should print an arrow pointing down.
  • The MACD Elder histograms should be color red indicating a bearish market bias.
  • The MACD Elder histograms should be crossing below zero.
  • The bearish signals above should be closely aligned.
  • Enter a sell order on the confirmation of the conditions above.

Stop Loss

  • Set the stop loss above the middle of the congestion zone.

Exit

  • Close the trade as soon as the Exponential Moving Averages Signals prints an arrow pointing up.
  • Close the trade as soon as the MACD Elder histograms cross above zero.

EMA MACD Congestion Breakout Forex Trading Strategy

EMA MACD Congestion Breakout Forex Trading Strategy

Conclusion

Trading on congestion zone breakouts is probably one of the best trade setups. This is because trading on such conditions allow for a very high reward-risk ratio.

Tight congestion zones allow traders to put tight stop losses. Some could even place the stop loss on the other side of the congestion zone since most congestion zones are tight enough to allow for it. Then, after the breakout, the market usually expands rapidly toward the direction of the breakout. This allows traders to gain so much, with so little risk.

Trading congestion zones with a confirmation and confluence of reliable indicators improve the probability of the strategy. This strategy does that.

Final words

All 5 strategies work well as a breakout strategy. The key to trading these strategies profitably is in identifying the correct strategy for the market condition you are trading in.

There is always an opportunity to trade a market whatever the condition is. The question is if you have the technical know-how to trade the current market condition.

Identify the right market condition and the trade setups available then apply the right strategy. If you do this right often, then you should be profitable.

Trade wisely.

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