Breakout trading is one of the most profitable forex trading strategy. It has the potential of making a lot of pips for you. But it can be frustrating most of the time to trade breakouts as most of the breakouts have a tendency to fail due to the lack of momentum in them. Most of these false breakouts are caused by forex brokers or other big players in the market to take out the small players in the market.
The trick in breakout trading lies in filtering out the false breakout from a true breakout. If you can somehow master how to filter a false breakout from a true breakout, you can avoid burning your fingers by trading these false breakouts. What you need is to develop a false breakout filtering system that can help you screen out a false breakout from a true breakout.
Here is one false breakout filtering forex strategy that you can master and trade highly profitably. This false breakout filtering forex strategy revolves around taking advantage of a strong trend in the market that is making higher highs or lowers lows. Suddenly it makes a low or high, fail, then reverse and start making highs or lows again as the case maybe.
If you can find such a trade setup, it has a very high probability of success inherent in it. The reason is simple. Most of the inexperienced players tried to trade the false breakout, got their fingers burnt and were stopped out when the trend again made a u-turn. This leaves only the strong real money big players in the market who reenter the market again in the direction of the trend and push it higher or lower as the case maybe.
This is how you are going to play this strategy. Look for a currency pair making a 20 day high. Look for this pair to make a 2 day low in the next three days. Now, if this pair makes a 20 day high in the next 3 days after making the 2 day low, go long by placing the stop loss a few pips below the 2 day low that you had identified earlier. Protect profits by using a trailing stop.
Similarly, in case you find a currency pair making a 20 day low, look for it to reverse and make a 2 day high in the next three days. Enter into a short trade if you find this pair trading below the 20 day low in the next three days. Place the stop loss a few pips above the 2 day high that you have previously identified. Protect your profits by using a trailing stop. Get this highly profitable Magic Breakout Forex Strategy by Tim Trush and Julie Lavrin FREE!