Currency Trading Price Consolidation Breakouts
Every consolidation in forex charts will eventually end in a breakout in currency trading (usually wild and fun!)
When currency traders identify a price consolidation, they usually anticipate a breakout to follow. A breakout occurs when prices break out of consolidation, penetrating the support (downward breakout) or resistance (upward breakout) lines.
To profit from a consolidation and breakout, you will need to make a straddle trade. Because you cannot know when currency trading whether the market will break out of consolidation downward or break out upward, you need to prepare for either (thus you are straddling the consolidation). Place one order to buy 15 pips above the level of resistance and another order to sell 10 pips below the level of support.
Why place your buy and sell orders beyond the levels of resistance and support in the forex? Otherwise, you could be entered into the market when it is still in consolidation, by a relatively minor 5 or 10 pip spike within the consolidation.
You don’t want to enter until just before the fundamental announcement (the anticipated breakout point). Why place your buy order 15 pips above the level of resistance and your sell order only 10 pips below support? Remember that the chart you look at is a bid chart, but the price you buy at is the ask (which, remember, is about 5 pips above the bid price).
Currency Trading Consolidation, Upward breakout, and Straddle Trade
Trading inside consolidation
While currency trading breakouts from consolidation can lead to solid profits, if the consolidation range is large enough, it is also possible to profit from trading inside the consolidation.
This would be a consolidation you would not want to place a straddle on, however (if the trading range is wide enough to profit from trading the consolidation it would be too risky to straddle).
In this case you would sell at the resistance level with a profit limit at the level of support and a stop loss at the last level of resistance. You would also want to buy at the support level with a profit limit at the level of resistance and a stop loss at the last level of support.
Related posts:
Tags: breakout, consolidation, currency trading, resistance, straddle, support Posted in
Rapid Forex on 
Kulvadee on 
dan on 
Chris E on 
mario on
April 28th, 2010 at 5:32 pm
Can you tell us the time frames you use? You could also make a PDF file with the rules of trading your system. Something like a cheatsheet.
Thanks for sharing this with us.
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Rapid Forex
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April 28th, 2010 at 5:33 pm
@Eneias – good idea for a cheatsheet. The time frames are referred to in this post: “Timeframes for Forex Sailing“
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April 29th, 2010 at 8:56 am
nice job brian as allways.
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April 29th, 2010 at 1:45 pm
Hi Brian. what time frame you consider to be the best for trading on breakouts? (or within the consolidation range), like I said before I trust the 4WR by Richard Donchian, but breakouts does not come very often, the daily chart is what I use for breakouts, but looking a 4 hour chart seems to me like a good time frame to trade within support and resistance levels.
what do you think my friend?
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May 3rd, 2010 at 3:19 am
great post as usual!
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May 26th, 2010 at 11:01 pm
thanks again, Brian. A valuable reminder.
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May 30th, 2010 at 12:02 pm
Brian,
I have followed your trading methods for years. When you closed Rapid Forex I was disappointed.I wondered what was going on! Now I want to thank you for all the free trading ideas you are giving away. I feel much better now knowing I can continue studying your teaching methods.
FDR Jr.
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