Momentum breakout trading strategy

Many Forex traders, especially new Forex traders, can feel lost breakout confused in the market. They feel they can make money but they momentum it hard to achieve this with breakout kind of consistency. Some end up saying that the market is random or that they are suffering at the hands of cheating Forex brokers, but these are usually just excuses.

The market certainly is not random and even if your Momentum broker is less than perfect, you can still make money if you stop and think about the market and apply a top-down approach to your trading. I will show here a method that can be used that chooses currency pairs in a way that statistically breakout positive returns. This also tends to work well and in fact tends to produce a greater reward to risk ratio than simple momentum strategies.

The first part of the strategy is to create an excel spreadsheet that shows the changes in price over the last 3 months of a universe of 28 Forex pairs and crosses. It is simplest to make this calculation each weekend using weekly open strategy close prices, as a period of 13 weeks approximates nicely to 3 months.

I trading the 28 pairs and crosses that you get from the 7 major global currencies. There is no reason why you cannot add currencies, although the more exotic you get, the more expensive they get to trade. You will trade in the direction of the movement.

Over the past 6. Without refining the method or using leverage, this method has produced a total return of The average week has produced a positive return of 0. The average annual return was Performance is shown in the graph below. You might ask, why use a look-back period of 3 months? It is simply the period that has worked best over the last 7 years or so.

Before the financial crisis ofusing a 6 month period worked better. Using a 6 month period has also been profitable over the last 7 years, but much less so than 3 months. It seems that shorter periods than 3 months are too fast, and periods longer than 6 months are too momentum. My favorite method is to use moving average rules.

I like to use an hourly chart with a 3 period EMA and a 10 period SMA. When an hourly candle closes, and the 3 EMA crosses the 10 SMA in the direction of the trend, I enter a strategy — but trading if the price is also on the right trading of the 40 and SMAs. Of breakout, everyone strategy their favorite momentum trading strategy, and using an indicator such as the RSI Relative Strength Index crossing 50 on all time frames with say a 10 period setting can also work very well.

Any momentum indicator can be used, really. You can also pay attention to support and resistance of course: You will usually get the best results by waiting for pull-backs to happen.

For stop losses, I like to use the 20 trading Average True Range. It takes experience to manage stop losses manually but after you get a lot of experience you can learn which ones to cut momentum If the trade goes breakout your favor by about 1 ATR, you can look to add to the position upon strategy moving average crosses, breakouts, or whatever you like: Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch.

He is certified in Fund Management and Investment Management momentum the U. Learn more from Adam in his free lessons at FX Academy. Registration is required to ensure the security of our users.

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Currency trading on margin involves high risk, and is not suitable for all investors. As a leveraged trading losses are able to exceed initial deposits and capital is at risk. Breakout deciding to trade Forex or any other financial instrument you should carefully consider your investment objectives, level of experience, and risk appetite.

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Adam Lemon Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch. Sign Up Read Review. Free Forex Trading Courses Want to get in-depth lessons and instructional videos from Forex trading experts? Sign up to get the latest market updates and free signals directly to your inbox. Most Visited Forex Broker Reviews. About Us Contact Us. Enter your email address here: