Breakouts

Breakouts and volatility I’ve written a lot about how one of the easiest and most reliable trading edges you can find in Forex – and also in stocks, commodities, or anything else – is trading breakouts above new long-term highs, or below new long-term lows, in the same direction as the breakout, when that breakout happens on above-average volatility.

The measurements I like to use are 50-day highs (or lows), and a 15-day average true range indicator, whose value should be below the range of the day giving the trade entry. Additionally, I like to see the price close within the top quarter of the day’s range, for long trades – or conversely, within the bottom quarter for short trade entries.

I mention this today because after a relatively dull period, we are starting to see more of these volatility breakouts in the market.

In the Forex market, the notable breakouts are long USD/CHF and USD/TRY, and short NZD/USD. In commodities, the precious metals Gold and Silver are making new 50-day lows, with Silver falling especially firmly, and Crude Oil has also continued to make new highs.

The strongest things are the U.S. Dollar and Crude Oil. The weakest things are the Swiss Franc, the Turkish Lira, the New Zealand Dollar, and precious metals. It is interesting that the greenback is strengthening, at the weekend it was looking as if it had run out of steam.

Trade accordingly and put the odds in your favour. Breakout trading strategies, even in Forex, tend to work better statistically than pull-back trading strategies. This is counter-intuitive and surprising to most people who have spent a lot of time watching price charts, but the moment when the price is cutting through new highs or lows with strong momentum is the time when the odds are most strongly on your side.

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 by the U.K. Chartered Institute for Securities & Investment. Learn more from Adam in his free lessons at FX Academy.