There are many ways to trade the forex. One of these ways is to trade a breakout method. Essentially this means there is some congestion in price after very little price activity. This can sometimes be at the end of the US trading session and in the Asian trading session when volumes begin to diminish and the major banks and players in the market have shut down for the day.
Then, once the European session opens, or there are economic news releases in Europe and the United States, volume increases and price movement can begin to liven up the markets. Generally, price will start to move quickly in one direction, or alternatively, move one way, then quickly move another way. How to capture this fast moving price action or breakouts can be tricky.
However, how does one go about setting themselves up to profit from this forex action. Using a system that has rules that you can stick by and be proven over time is one guaranteed way of doing so. If one approaches this style of trying with a haphazard approach, a trader can begin second guessing their decisions to enter a trade, where to place stops, where to exit if the price does not go in your intended direction and where to exit when you are in profit.
One such strategy to enter into markets is to use indicators that show you where price is in relation to previous price, the strength of previous price action and the intention of price to continue in a particular direction. Using moving averages and having price break those moving averages is a very robust way to show a breakout of price from a particular range. Having confirmation of the breakout with where the breakout bar closes can indicate also where price might want to go. For instance, if a bar shoots up and that price bar closes near the high of that price bar, that is a fairly strong indication that price might want to keep moving.
Making sure entry rule is place in a position that captures the continuing move is essential. Enter too early and if price turns around, you could very quickly have a losing trade. Also, placing trades with the ability to scale out of the positions is a sure fire way to long term profits. Closing out a portion of a trade once it has reached a certain profit then moving the entry to a break even ensures the trade will not lose and that it is a winner. This is a huge psychological benefit to a trader as this can greatly reduce the stress of trading once they know there is no chance of further losses.