Breakout pullback forex

I have written a lot about how trend trading can be a great way to put the odds in your favor when trading Forex or anything else. Even though it is a style which is subject to draw downs, identifying and following trends has been found to be a consistently successful trading methodology, and can be followed by anyone, even novice traders. I have looked at various entry methodologies and have tended to favor entering after pull backs which then return to the prevailing trend.

The Definitive Guide to Trading Pullbacks and Breakouts | TradingwithRayner

However, I would like to present new research which suggests that a breakout entry style can be even more effective. All kinds of weird and wonderful methods exist for identifying trends, but it does not have to be complicated to be effective. I have found that simply determining whether the price is above or below its levels from 1, 3 or 6 months previously is enough to provide a statistical edge that the price will continue in that direction.

The best results are obtained by using both 3 months and 6 months, although using 3 months alone has been very successful over recent years.

Continuing to keep things as simple as possible, I found that identifying pullbacks as occurring when the price makes a new 1 day low price in an upwards trend, or new 1 day high price in a downwards trend, can be very effective. I defined trend as above both the prices of 3 months and 6 months, or below both.

The 4-hour Japanese candlestick making the price should have a range greater than the period average true range ATR , to show momentum in the direction of a prevailing trend. An entry is triggered if the price reaches 1 pip beyond the trend end of the candlestick during the next 4 hours.

A stop loss is placed 1 pip beyond the other end of the candlestick. This is a good indication of a solid strategy:. I have always felt as a Forex trader that breakouts do not tend to work very well in trading Forex, compared to the way they work when trading stocks and commodities.

It also always seemed logical to me that the pullbacks in trends would have the most profitable entries, as the price logically travels the furthest from these areas in a trend. Once I constructed a breakout system with a lot of filters to find entries within a trend, I was surprised to find that the results were better than those for the pullback entries shown above.

When the candlestick closes, the 10 period RSI relative strength index must be greater than 50 in an uptrend or less than 50 in a downtrend.

The range from high to low of the closed candlestick must be greater than the period average true range ATR. This might seem like a lot of filtering, but all it really does is make sure that the short-term and medium-term trends are aligned with the long-term trend when the trade is entered.

The significance of the moving averages lies only in that they give a very similar result to the day RSI. Performing the same back test as described previously using this entry method, surprisingly, produced a better positive expectancy at every reward to risk level below 20 to Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch.

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Trend Trading Entries – Pullbacks or Breakouts? | DailyForex

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Pullback Entries Continuing to keep things as simple as possible, I found that identifying pullbacks as occurring when the price makes a new 1 day low price in an upwards trend, or new 1 day high price in a downwards trend, can be very effective. This is a good indication of a solid strategy: Breakout Entries I have always felt as a Forex trader that breakouts do not tend to work very well in trading Forex, compared to the way they work when trading stocks and commodities.

The breakout system is as follows: Trade in the direction of the trend only using a 4-hour candlestick chart. The 18 period SMA simple moving average must be the trend side of the 60 period SMA. The candlestick must have a high or low beyond the trend side of the previous candlestick.

Performing the same back test as described previously using this entry method, surprisingly, produced a better positive expectancy at every reward to risk level below 20 to 1: 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?

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