ATR Channels Momentum Breakout Forex Trading Strategy

0
1015
ATR Channels Momentum Breakout Forex Trading Strategy

Trading is not gambling. Many people think trading is just a glorified casino, but it really not like that. Gamblers play the game of chance, while traders play the game of probabilities. If you are risking money on something that has a high potential return with a high probability of turning out to be a win, if played smart, that would not be gambling. Traders who could find a way to trade the market with a good combination of a decent win rate and risk-reward ratio could earn consistent profits from the forex market.

One of the best ways to trade the forex market with a relatively high probability is by trading momentum breakouts coming from market congestion phases. Market congestion phases are periods in the market wherein price movement seems very stagnant. Price is moving within an average limit or even lower. This pent-up trading volume has so much potential to create a strong market movement once traders identify the sentiment of the market. A momentum breakout is that point wherein price has clearly broken out of the average movement within a short range. This gives traders a signal that the market is ready to move strongly in one direction. Seasoned traders could easily identify this phase and would immediately jump in on the momentum causing price to move further in the same direction. This means opportunity for those who can ride the momentum early.

ATR Channels

ATR Channels is a custom technical indicator which is a very versatile band-based indicator. It can be used as a trend-following indicator, a momentum indicator, a volatility indicator, or a mean reversal indicator.

The ATR Channels indicator is a channel indicator based on the Average True Range (ATR) and moving averages. The middle line of the ATR Channels indicator is basically a modified moving average which can be customized according to the trader’s preferences. The lines radiating from the middle line are lines that are moved away from the middle line based on a multiple of an underlying ATR.

The ATR Channels have six outer lines with varying colors indicating the distance of price from the moving average line. In this setup, the deep sky blue line is based on a multiple of 1.6x the ATR, royal blue is based on 3.2x the ATR, and blue violet is based on 4.8x the ATR.

Price closing strongly further away from the middle line indicates a strong momentum. On the other hand, price action showing signs of price rejection occurring on the outer levels indicate a potential mean reversal.

The indicator can also be used to identify market volatility because it is based on an ATR. Channel lines that are contracting indicate a market contraction phase, while channel lines that are expanding indicate a market expansion phase.

Bear Bulls Power

The Bear Bulls Power indicator is a custom momentum technical indicator which is based on market sentiment.

It is an oscillator type of technical indicator which plots histogram bars which could either be positive or negative. Positive bars indicate a bullish market sentiment, while negative bars indicate a bearish market sentiment.

Traders can use this indicator to confirm momentum and trend based on the market sentiment.

Trading Strategy

ATR Channels Momentum Breakout Forex Trading Strategy is a momentum breakout strategy based on the ATR Channels indicator. It also finds confluences between momentum breakouts and market sentiments in order to increase the probability of a trade setup.

The ATR Channels indicator is first used to identify market contraction phases. This is observed based on the contraction of the ATR Channel lines towards the middle line. Price action would also tend to be smaller and contained near the middle line.

Then, once the market contraction phase is confirmed, we then wait for price to breakout of the tight contraction. This is identified based on momentum candles closing beyond the royal blue line of the ATR Channels indicator.

The Bear Bulls Power indicator is then used to confirm the direction of the market sentiment. This is identified based on whether the histogram bars are positive or negative.

Indicators:

  • ATR Channels
  • Bear_Bulls_Power

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

Currency Pairs: FX majors, minors and crosses

Trading Sessions: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • The market should be in a contraction phase causing the ATR Channel lines to contract towards the middle line.
  • A bullish momentum candle should close above the upper royal blue line.
  • The Bear Bulls Power indicator should plot a positive bar.
  • Enter a buy order on the confirmation of these conditions.

Stop Loss

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

Exit

  • Close the trade as soon as the Bear Bulls Power indicator plots a negative bar.

ATR Channels Momentum Breakout Forex Trading Strategy

ATR Channels Momentum Breakout Forex Trading Strategy 2

Sell Trade Setup

Entry

  • The market should be in a contraction phase causing the ATR Channel lines to contract towards the middle line.
  • A bearish momentum candle should close below the lower royal blue line.
  • The Bear Bulls Power indicator should plot a negative bar.
  • Enter a sell order on the confirmation of these conditions.

Stop Loss

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

Exit

  • Close the trade as soon as the Bear Bulls Power indicator plots a positive bar.

ATR Channels Momentum Breakout Forex Trading Strategy 3

ATR Channels Momentum Breakout Forex Trading Strategy 4

Conclusion

This momentum breakout strategy is a profitable trading strategy.

Momentum breakouts are excellent entry points because price is usually more likely to move in the direction of the momentum candle rather than against it. However, most traders do not have an objective basis of identifying such trade setups. This strategy provides the structure and rules in order for traders to easily identify such trade setups with more objectivity. Traders only have to confirm based on their assessment of the momentum breakout if price action is indeed showing signs of breaking out of a market contraction phase.

Recommended MT4 Brokers

XM Broker

  • Free $50 To Start Trading Instantly! (Withdraw-able Profit)
  • Deposit Bonus up to $5,000
  • Unlimited Loyalty Program
  • Award Winning Forex Broker
  • Additional Exclusive Bonuses Throughout The Year

XM broker

>> Sign Up for XM Broker Account here <<

FBS Broker

  • Trade 100 Bonus: Free $100 to kickstart your trading journey!
  • 100% Deposit Bonus: Double your deposit up to $10,000 and trade with enhanced capital.
  • Leverage up to 1:3000: Maximizing potential profits with one of the highest leverage options available.
  • ‘Best Customer Service Broker Asia’ Award: Recognized excellence in customer support and service.
  • Seasonal Promotions: Enjoy a variety of exclusive bonuses and promotional offers all year round.

fbs broker

>> Sign Up for FBS Broker Account here <<

Click here below to download:

Save

Save



Get Download Access

LEAVE A REPLY

Please enter your comment!
Please enter your name here