While there are many different varieties of Forex trading systems, one of the most reliable types are those that involve breakouts.
What is a breakout?
They are basically price movements that shoot out of a price consolidation range. Breakouts can occur either above resistance or below support levels.
What is the significance of it?
A breakout from a recent price consolidation typically indicates that prices are likely to keep moving in the same direction. If the breakout occurs above resistance levels, prices are likely to keep going up. If the it occurs below support levels, prices are likely to keep going down.
Why are breakouts good predictors of future price movement?
When the market price moves below support levels for example, it means that the buyers that were supporting the price have "run out of steam", resulting in the sellers pushing price down. And because the buyers have no more "strength", the remaining sellers are expected to further push the market price even lower.
The opposite is true for prices that breakout above resistance levels.
Are they 100% accurate in predicting future price movements?
Unfortunately, the answer is no. There is actually no single method that can predict future price movements with a 100% certainty. Price breakouts are only one of the many indicators you should include in your trading system and strategies.
I have entered into many trades where price breakouts reversed almost immediately after I placed my trade, so please be aware that prices may not always keep moving in the same direction.
To learn more, download my free 26-page guide here: "Forex Trading Traps!"
Harold Hsu is the owner of ForexSystemProfits.com where he provides premium Forex trading information and resources.
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