Justin Bennett is a Forex trader, coach and founder of Daily Price Action. He began trading equities and ETFs in and later transitioned to Forex in His "aha" moment came in when he discovered the simple yet profitable technical patterns he teaches today. Justin has now taught more than 1, students from 53 countries in the Daily Price Action course and community.

Follow JustinBennettFX Recent Lessons. We will also take a look at several examples on both the 4-hour chart as well as the daily chart. I have found these two time frames to work best when trading this breakout strategy. A breakout is any price movement outside a defined support or resistance area. The breakout can occur at a horizontal level or a diagonal level, depending on the price action pattern.

Notice in the illustration above, we have a market that is trending up but has found resistance at a horizontal level. After two unsuccessful attempts, the market finally breaks through resistance. This signals a bullish breakout from a key resistance level.

After two unsuccessful attempts, the market finally breaks through support. This signals a bearish breakout from a key support level. This particular Forex breakout strategy is one I have used for years. It has become my favorite pattern to trade, partly because of its reliability and partly because of the more than favorable risk to reward ratios it often produces.

The illustration above is very similar to the first two illustrations. The major difference here is that instead of having one trend line and one horizontal line, we have two trend lines.

One trend line is acting as support while the other is acting as resistance. The breakout to this pattern occurs when the market eventually breaks to one side or the other. As the market began to consolidate tighter, it eventually broke wedge support and subsequently retested this support level as new resistance. Most times your entry will come on a retest of former support or resistance.

We will discuss this in greater detail later in the lesson. Your stop loss should be placed above or below the breakout candle, at a minimum. In the case of the USDJPY breakout pattern below, your stop loss should be placed above the candle that broke support. This makes for an ideal area to target for our trade setup.

So what kind of risk to reward ratio did we get out of this trade setup? In the USDJPY 4 hour chart above, we can see that the stop loss was 13 pips from the entry while the take profit was 50 pips from the entry.

This gives us a 3. This wedge pattern occurred on the GBPNZD 4-hour chart. One major difference here is that there was no retest of former support once the market broke to the downside. Notice in the GBPNZD chart above, the market failed to retest former support before dropping pips. The retest that we look for as part of this Forex breakout strategy typically comes within the next few candles.

In the GBPNZD 4 hour chart above, notice how the market begins to move sideways for several periods. This is a good indication that the market lacks the strength to retest former wedge support.

50 Pips Daily Breakout Forex System

For this setup, our stop loss was 45 pips from the entry. Remember that you want your stop loss above or below the breakout candle. Because this is a short setup, our stop loss was placed above the breakout candle. Our take profit, on the other hand, was pips from the entry. The target was identified by the recent low which was made several weeks prior. Note that the market gapped down the following week and ran for another pips before reversing. Although this looks great in hindsight, the logical target at the time was pips away, which still produced a very healthy 3.

As I bring this lesson to a close, I want to leave you with one last setup. The setup above formed on the daily chart, so from start to finish this consolidation period lasted for days. This brings me to an important observation about the Forex breakout strategy — the longer the market consolidates, the more volatile the breakout will be.

For those who were able to get in this trade at the breakout point and ride the trade until the consolidation period take profit level there was a massive gain to be had. A stop loss below the breakout candle meant a 50 pip stop with a potential gain of pips. That works out to a very healthy 12R trade. Just remember that like any other trading strategy, this breakout strategy is not without flaw. Here are some of the highlights to keep in mind as you begin to implement this trading strategy into your game plan.

Do you use a similar Forex breakout strategy? Or maybe you just have a question about this lesson. Any Advice or information on this website is General Advice Only - It does not take into account your personal circumstances, please do not trade or invest based solely on this information.

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4 Step Guide to Trading Breakouts in Forex

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