HOW TO TRADE A SUSTAINED BREAK TRADING STRATEGY

A sustained break is a break which has longevity and usually follows a currency that has been ranging or follows an uptrend or down trending market.

A sustained break is a breakout that has the strength and longevity around a support or resistance level. The break is used to confirm that the trade is in the right direction. The length of the break in terms of time depends on each trader’s particular trading strategy as traders will have different support and resistance levels depending on which time frame they are using. Whatever the time frame as long as the trader knows the critical support or resistance levels any close above or below that level will give a clue as to whether the break will be sustained.

How to Trade a Sustained Break Trading Strategy:

In the EUR/USD chart above the Euro has been down trending and then ranging along the support level closes below the support level. The strategy here would be to go short on the sustained break below the support line. Your stop loss is best placed at least 5 pips above the support line. This should protect you from being taken out by a quick retracement bounce and also protect you in the event the break is not sustained. Use another indicator to confirm the breakout.

 

On the EUR/USD chart above the Euro is on an uptrend as the trend line indicates. However, the price then closes below the trend line. This suggests that there is an imminent market reversal. The trading strategy here is to go short once the break below the trend line is confirmed by another technical analysis indicator. The stop should be set approximately 5-7 pips above the price where the trend line crosses the breakout candle.

 

Another strategy available to a forex trader is trading a breakout from a downward trend. On the EUR/USD chart above the Euro is on a downtrend as the trend line indicates. However, the price then closes below the above the trend line. This suggests that there is an impending market reversal. The trading strategy here is to go long once the break above the trend line is confirmed by another technical analysis indicator. The stop should be set approximately 5 to 7 pips below the price where the trend line crosses the breakout candle.

Finally, you should be careful about the risk reward you decide to use when you set your stop loss and your profit target. Risk is an inevitable part of trading and each trade carries some amount of risk depending on the trader’s actions. The best way gauge your risk is to determine your risk reward ratio. This is a parameter which reveals how much is being risked versus the probable reward from the trade.

If for example you stand to lose $200 from the trade and on the other side you could gain $400, your risk reward ratio is 1:2 which is a pretty conservative ratio and one which is recommended as the minimum.