Simple Forex Daily Breakout Strategy
There are many reasons why I would advise anyone to trade forex using the daily timeframe, but first, you have to find a suitable forex trading method.
The following reasons are why you should consider trading forex using the daily timeframe:
• With the daily timeframe, you reduce the risk of overtrading; because you are focused just on the daily candle and you trade only once a day.
• You get to go with the trend and increase your potential of hitting your target.
• You get to trade your method consistently.
• There is a reduction in noise in trading with the higher timeframe such as a daily candle. With the higher timeframe, false signals are reduced with the higher timeframe.
Now, that we have listed some of the benefits of trading with the daily timeframe, the next challenge is looking for a trading plan. Now I will want you to look at an empty daily timeframe without any indicators. I am sure you will notice a pattern of candle breaking the daily high or low of the previous day. This is what we will be basing the daily breakout methods we will be discussing in this article, that is the breakout of daily high and low.
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In this forex daily trading method, we based on our trade on the predominate daily trend and trade the breakout of the daily high or low depending on the trend.
Trend Breakout of Daily High or Low
Various indicators can be used to determine the trend or sentiment of the market and the one you want to use will depend on you. I am not going to highlight any particular indicator to use here so you can use the one you are ok with and understand. We are just going to discuss the principle of trading this simple trading method.
For example, if the predominating trend is bullish, then you must wait for a bullish candle to form at the close of the day and place your order just above the daily high of the day. In most case, the next candle will move past this order and trigger your trade and move way above the previous day high.
This is the basis of the trade, and it is simple to execute as it is simple to understand. The same principle you can apply to bearish sentiment when trading this daily breakout strategy.
You will need an understanding of candlestick formation to trade the daily forex method efficiently to execute this trade. You will need to understand the concept of demand and supply in forex, ranging market and trending market.
This forex daily breakout strategy is straightforward to understand and execute, but placing your stop loss and target point can be confusing. This depends on you actually, as you can place your stop loss and target point as follows:
• Placing target and stop loss 30 pips away from the entry, is one way people have traded this method.
• Some are comfortable placing stop loss and target points 50 pips apart to create more room for risk to reward ratio.
• You can place your stop loss and target point trading this daily forex breakout by going to the lower timeframe like 1 hour or 4 hours to calculate support and resistance region.
• You can also use Fibonacci and 123 trading method to target your target point and stop loss.
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Trading Daily Forex Breakout Using 4 hour Inside Bar Candle FormationThis forex daily breakout strategy commonly occurs in the daily formation, and you will need a combination of 4 hours and daily timeframe. The daily timeframe is to sort out the predominantly trend in the market while the 4 hours timeframe is to take your entry, stop loss and target.
Now I will show you how I trade this daily breakout strategy, and I place my order on the high of the day if the trend is bullish. Then I calculate the difference between the highest and the lowest and divide it by two and will subtract this from the entry point as my stop loss. The target will be three times that of the stop loss added to the entry.
You can see that with this method, investing $50 will give you $150 if you trade it with this method.
You should note that no trading strategy is 100% and you should trade with proper money management in mind. The same thing goes with applying this forex daily breakout strategy, and you should backtest this method before applying to your forex trading.