Momentum Breakout Strategy

tradingteacher

Junior member
34 0
This strategy works on what I think is the very core principle of trading, support and resistance.
Chart set up for this is very simple, you just draw into the charts, mark out the strong zone in a different colour so it stands out (it is a very important area).
You only need these lines drawn onto the chart, no other indicators are necessary using this strategy.
The strong zone is an area price will usually meet at some point in the trading day, and very often it will hold and send price shooting away from it. So when you see price try to break though the strong zone and get rejected, it is often a good time to assume a reversal is coming.
For example, if price has fallen though London and there are candles bouncing off the bottom of the strong zone, this is a great place to buy, buy as close to the end of the strong zone as possible and you can have a tight stop just outside there.
Often you can hit R1, R2 or better and this is trading at 3:1 ratio or better in a trade you can expect to win over 50% of the time. Good odds.
When price breaks through one support (S) or resistance (R) we have a strong bias towards it hitting the next R/S. Usually when price breaks these areas, it will retrace back to it and then go on to hit the next one.
So when price breaks (a break is defined by a candling closing above/below on 1 hour chart) one of these areas there is a high expectation trade if you can get it right at the broken area. Again you can opt to have a fairly tight stop (using recent high/lows) or you could have SL behind the previous level.
Eg; R2 breaks and you buy targeting R3 – R1 could be used as SL (usually giving a 1:1 ratio)
ALWAYS BE AWARE THAT VERY OFTEN A NEW SESSION OPENING CAN REVERSE THE DIRECTION (Maybe only for a candle or two, but enough to stop you out)
Be cautious of weak breaks and reversal candles like pinbars going into the open of a market.
A trade from around the strong zone to S1 / R1 is available most days on at least a few pairs and trades are for a average of 30 pips per target level, and this can be a fairly hassle free way of making 300 pips a week or more.
I always take multiple targets, if for example I was buying from the strong zone I would TP part position on R1 and move SL into slight profit and try to see how far I could run it for. I feel this decreases my risk and gives me greater reward potential.

Money management;
“There are two rules to investing, one preserve your capital.
Number two, Never forget number one” Warren Buffet.
A successful trader is defined by their ability to get pips, keep pips, repeat process.
It can be a good idea to split each trade into 3 categories, low, medium and high risk.
I personally usually take exposure of about 3% when trading, so I split it 1.5% low, 1% medium and 0.5% high.
Eg
Let’s take a $1000 account, if you are willing to be exposed to losing 3% in a trade and you split as above you have $30 at low risk, $20 at medium risk and $10 at high risk.
Low risk is the closest highest expectation target to TP, once that is hit you move the sl on the medium ($20) into breakeven area and leave the high risk one at the same sl area.
Now you have the chance to run these two for bigger target areas and maybe get 100s pips with them and you’re not exposed to any risk, a small profit is already locked in.
Medium risk can go for about 3:1 ratio (though targets should never be picked on pips value – refer to levels)
High risk, no TP target, you just trail the stop and try to stay on until it turns.
This gives you full possibility to catch trends and also cuts the exposure to the market.
Hitting one trade on this a day and getting stopped out with medium risk at breakeven and high risk at loss with low risk TP on 1:1 ratio would make you $20 profit a day - $400 a month.
That’s 40% profit, now of course you are not going to win all the trades, but the profit count is not even considering the times the other trades take profit which can counter losing trades (every medium targeting hitting 3:1 covers a losing trade) so you have pretty high expectation.
 

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tradingteacher

Junior member
34 0
Results for GBPUSD EURUSD EURJPY

EURJPY - As I mentioned above, the strong zone is expected to be met at least once most days, and new trading sessions opening often reverse the direction. Candles on London open did suggest it may turn, so shorting with a target of the strong zone (taking some profits at supports on the way down and trailing stop).

A trade from near the end of the strong zone it a very good place to get in with the best R/R ratio. SL goes just outside the strong zone, a first profit target of the top of the zone (if you got in at the bottom) always leave a runner trade to catch it if it breaks out and starts to trend.
I would consider only ever taking these strong zone trades as a "safe" method with very high expectation.

EURUSD - Could have been shorted from London open, but the candle patterns were fairly strong I thought, was hard to know what way it would go.

Another good example of the strong zone trade, although it did break through it bounced enough to give 30 pips or so and this is ample space to take some profit and move SL and take out all risk exposure with profit locked in.

When price broke through the strong zone it fell sharply and now is retracing, I think the bias is towards a bounce of (around) todays strong zone and a fall to todays S2 at least.

GBP - When we is getting rejected at the strong zone on a market open, it's good expectation to move away from that zone, so GBP gives a good short signal in the morning and falls through out the day (I thought GBP would be stronger today)
Here you take the trade when it can't break the strong zone, SL behind the strong zone and you have various targets on the way down and SL moved to protect trade.
 
 
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