Consolidation Breakout Zones Forex Strategy
The consolidation breakout forex strategy uses the Breakout-zones.ex4 indicator to identify price breakouts.
Breakouts are areas where the price action has left the boundaries of consolidation to find new price direction.
Areas of consolidation are found where the price is basically heading sideways, with highs and lows located at the same horizontal level respectively.
- MetaTrader4 Indicators: Breakout-zones.ex4 indicator (default setting).
- Preferred Time Frame(s): 1 Minute up to 4-hours.
- Recommended Trading Sessions: Any time. Depends on when the indicator signal appears on the chart.
- Currency Pairs: any
Areas of consolidation regularly appear in the market.
These are zones where the price is waiting for new direction.
This setup is commonly seen before a major news announcement.
The indicator plots the areas of consolidation and leaves the trading to the trader.
Buy Example (click the image for full size):
LONG ENTRY RULES
A long position is initiated when the following is displayed on the chart:
- The price candle must first break above the upper border of the breakout zone drawn by the indicator. This means the candle must close above the upper trend line. This is the breakout candle.
- After the breakout candle has formed, use a BUY LIMIT entry to take the trade. Entry price corresponds to the upper trend line.
Stop Loss for Long Entry:
A few pips below the broken upper trend line. Set the stop loss after the entry candle has bounced off the trend line, which now functions as a support.
Exit Strategy/Take Profit for Long Entry:
The Take Profit is set as follows:
- Use the nearest resistance to set the TP point.
- You can simply set the TP at 3 times the value of the stop loss.
SHORT ENTRY RULES
To initiate a short entry, we do the following:
- Allow the indicator to plot the breakout zone lines (red in colour), then wait for the price to close below the lower trend line.
- After the breakout candle has closed, set a SELL LIMIT entry using the lower trend line as entry price. This allows the next candle to pull back to this line and take off from the line which now functions as a resistance.
Stop Loss for Sell Entry
A few pips above the broken lower trend line. Set the SL after the price action has pulled back and has been rejected at the lower trend line.
Exit Strategy/Take Profit for Sell Entry
Set the TP as follows:
- You can use the next support level which appears on the charts.
- You may choose to set the TP at 3 times the SL.
About The Trading Indicator
The Breakout-zones.ex4 indicator is a simple indicator which helps the trader detect areas where price action is like the calm before the storm.
This is one of the easiest strategies to implement as it is beginner-friendly.