The trendline breakout forex trading strategy is a breakout trading system you can use when price breaks a trendline.
In the trendline trading strategy, you want price to obey the trendline to take a buy or sell trade. But in this trendline breakout trading strategy, price has to break it.
So if you were waiting for a trendline trading setup to form but instead you get a trendline breakout, then that’s where you need to use the trendline breakout trading strategy.
What Timeframes To Use Trendline Breakout Trading Strategy?
Any timeframes can be used but I suggest you use 1 hr timeframe and above.
What Currency Pairs To Use The Trendline Breakout Trading Strategy?
Any currency pair is suitable.
Any Forex Indicators Required?
No. You don’t need forex indicators to go with the trendline breakout strategy. What you need is just the ability to draw a valid trendline and watch to see if the price breaks it or not.
Buy Trade Setup Exampe
On the chart below, you see the daily chart of EURGBP and the trendline breakout setup.
Here are a few important things to note:
- make sure there is a breakout candlestick before you place your pending buy stop order. You should not enter a trade “on market”.
- so what is the breakout candlestick? A breakout candlestick is the candlestick that close above the trendline (for a buy trade setup as this chart below shows).
For take profit targets, you can use the previous swing high or use risk to reward of 1:3.
For stop loss, place it under the low of the breakout candlestick.
Sell Trade Setup Example
Here an example of a sell trade setup on GBPJPY 4HR chart. As mentioned before, there must be a breakout candlestick for you to be able to take a sell trade.
In this case, the breakout candlestick is the candlestick that touches the trendlien, breaks it and closes below it. That is your signal to place your pending sell stop order.
So if the market decides to continue moving downwards on the next candlestick that forms, then your pending sell stop order will be activated.
Advantages of the Trendline Breakout Trading Strategy
- easy to implement if you know how to draw valid trendlines.
- really good risk to reward ratio.
- trendline breakouts indicate trend change and you can ride out this new trend, essentially, from the very beginning making lots of pips along the way as the trend gains momentum.
Disadvantages of the Trendline Breakout Trading Strategy
- you will always have false trendline breakouts. That’s just the behavior of price in forex trading, expect it.
- stop loss distances can be huge when the breakout candlestick length is significant. In such instances, you need to decrease your trading lot sizes to allow you to manage your trading risk to a level where you are comfortable with.
Don’t forget to like, tweet share etc by clicking those sharing buttons below.