Forex Trend Following - Using Breakouts Huge Profits

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Forex Trend Following - Using Breakouts Huge Profits

06.10.2007 20:14 Saturday

The most lucrative form of trading is locking into and following long term trends in forex that can last for months or years. Most traders have no idea how to profit from forex trend following so we will show you how to do it in 5 simple steps.

1. Be Selective

The first point to keep in mind is that the big trades don’t come around very often so you need to be patient and selective. You don’t get rewarded for trading frequently; you get rewarded for being right.

You can trade less than a dozen times a year and make triple digit gains, if you pick the right trades. So don’t be tempted to get in the market for the sake of it be patient.

2. Watch Breakouts

Forget buying low and selling high – most great trends start from new market highs and you have to be ready to buy these breaks.

If you wait for a pullback you will simply miss the best trends, because when a new trend breaks out - it moves quickly.

The best risk/ reward is offered on the these breaks. Most traders can’t buy breakouts, as they want to buy at a lower better price and wait for a pullback and they never get in and miss the trade.

3. Use a Simple System

To trend follow and catch breakouts you don’t need a complicated system.

All you need to understand are basic trend lines and the concept of support and resistance and that’s it.

A simple forex trading system is best, as it’s easy to understand and easy to apply – if you complicate your system, it will be less robust and will have too many elements which will break in trading.

All the best forex trading systems are simple and yours should be to.

4. Trade Valid Support and resistance only

Keep in mind, you only want to trade breaks that are considered important by the market.

This means that levels have been tested several times, in at least two time frames, preferably a few months.

When these levels are broken, chances are there are stops behind the level wating to be hit and new trend followers waiting to kick in which will accelerate the price trend.

5. Confirm – Confirm – Confirm!

Make sure that any breakout is confirmed by momentum oscillators – this will ensure you filter out false breakouts.

If you are not trading with price momentum, you’re not trading the odds and you won’t win – period.

Only take breakouts confirmed by a rise in price momentum.

We don’t have time to discuss the indicators to use here - but look up: RSI, ADX and the stochastic, as a good place to start.

6. Accept Short Term volatility

Breakout trading can see huge volatility after the initial breakout has occurred, don’t be tempted to move your stop to quickly WAIT.

You’re trying to catch the big trends so accept that you will see counter moves eat into your profits by several thousand a day.

If you want to catch the big trends and make $10, $20, $30,000 or more - accept the drawdowns in the short term and keep your eyes on the bigger prize if you dont you will be stopped out early and miss the big profit you were aiming at.

So there you have it.

A simple, logical system, that can and will pile up huge profits in under an hour a day.

You won’t have to spend much time on this system and you won’t trade very often – but you will make a lot of money and that at the end of the day, is what forex trading is all about.

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Article Source: http://EzineArticles.com/?expert=Monica_Hendrix
 


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