Forex strategies revealed | FSR Forum

Hi everyone. How can we tell if a price making a new high or low is a breakout or going to be a reversal? Any signs to distinguish?

You can in many cases tell by looking at presence or absence of a divergence between a price chart and an indicator graph, for example by using MACD divergence rules.

Right. Thanks

Always wait for confirmation of continuation of a breakout or reversal before placing a trade.
In the case of a breakout only place a trade in the direction of the breakout if the price goes a few pips beyond the furthest point of the breakout candle when the next candle is in motion as often a retracement occurs immediately after the breakout.

True. But what happens when the breakout bar is too strong,that by entering the next bar,the stop loss would be very big?

I would be inclined to keep the stop-loss the same for each specified currency pair and time-frame, irrespective of the size of the breakout candle, otherwise the danger is if you have a very large breakout candle your stop-loss will also be large with larger potential losses.

Got it. Thanks

ivanlim wrote:True. But what happens when the breakout bar is too strong,that by entering the next bar,the stop loss would be very big?

Another option would be to consider feeding your bet size in gradually to properly test & validate a breakout move.

So, if you're staking say 2.5% as a total bet size for that particular trade opportunity, you'd feed in 1% of the size on the initial breakout & only begin to add to, or compound your position once the move confirmed it's genuine intent.

That option ensures you don't miss an aggressive move up or down through a potentially important level, where price might simply shift away without offering a realistic chance of getting onboard a pullback.

The other major benefit of that type of play is the fact you're not outlaying excessive risk up front (or at the pullback entry) at the start of the move in order to test the validity of the breakout move.