5/27 Analysis: Breakout & Momentum Strategies
Today we are going to look at 2 distinct strategies:
- Breakout on the open
- Momentum Trading
First, let’s look at the breakout strategy at the open of NY. If we look at the Currency Strength Indicator above you can see the USD (blue line) is strong and getting stronger while the EUR (pink line) is weak and getting weaker.
The potential trade would be:
- EUR/USD SELL
But since this is a financial center opening, there is a strong chance that any trend may reverse (even temporarily) so we want to place our entry say 10 pips below the current price so that only when momentum carries it through our stop will we enter the trade. We actually have a breakout box tool that can be placed on your charts.
Today was a good example of why we do this:
The trend did reverse temporarily. Here is what it looked like on the chart:
So by only entering on a breakout (putting your entry 10 pips below the current price), you would avoid the temporary reversal. If the trend continued up in this case, you would never have entered the market. However, when it turned back down, you would have entered when price carried through the breakout box (the green box on the chart). The momentum kept going for over 30 pips without any pullbacks before eventually reversing.
Now, let’s look at the market when we are already in the session a bit. This is 16 minutes after the NY session has started:
Now, we have huge momentum showing on the USD (blue line) and the GBP (red line). Notice how steep the lines are.
We enter this right away because the momentum is strong and the market has been open for some time.
- GBP/USD SELL
This is a trade I took personally getting in near the middle of that initial down bar. This went straight in my favor for over 30 pips.
Watch the entire video analysis below:
You can see that our Currency Strength Indicator is an effective tool for multiple strategies and even avoiding bad trades or at least bad timing. If you keep using this tool every day along with our daily Forex analysis, you will increase your win rate and be on your way to becoming a profitable trader long term.
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