This method is based on the logic that every big trend starts and continues in the same way and if you look at a chart, you will see trends start by breaking through an overhead resistance level and making a new high. As a trend evolves and matures, it continues to break resistance levels and trading these breaks, can make you big Forex profits.
When you are trading a break of overhead resistance, you are trading when the odds are at there best and a continuation of the trend in the direction of the breakout is likely. You don’t need to guess what the market will do or predict anything, you simply wait for price action to confirm the move.
Not all breakouts continue of course and you get many which are “false” which breakout and then immediately reverse so you need to be patient and trade the right breakouts and there are three golden rules you need to follow which are:
1. The more times a level has been tested and help before the breakout occurs the better the odds of the breakout continuing once the break finally does occur. As a general rule, look to trade breaks after the level has been tested at least 4 times, before it finally gives way.
2.The spacing in terms of time between the tests of resistance is also important and the longer the time period between tests the better. I would look for at least a month between two of the tests, before deciding to trade a breakout.
3. Another great indication of whether a breakout will be good one is to look at the news. If the news is bearish and a strong breakout occurs, chances are it will continue. The reason for this is obvious – 95% of fOREX traders lose – so if everyone else is looking for the currency to go down when it breaks up, chances are the break will continue.
The above is a simple and very effective, way to trade Forex and it will always be effective as long as Forex markets trend. If you want a simple Forex trading strategy which only takes 30 minutes a day and makes big profits then, you should consider trading breakouts.