Our system is going to use no indicators ( although you can add some this system will work well without them and make profits) We are going to build a simple breakout trading system which is a timeless way to trade and the reason why is simple:
All the biggest and best bullish currency trends, start by breaking to new market highs and if you look at any currency trading chart, you will see this is true. With this system were only going to trade the best breakouts so were going to generate our trading signals in a selective manner in the following way...
Number of Tests
The minimum number of tests is 2 to get a resistance level but were going to use 6 or more tests before the break as a minimum. It's a general rule that the more times the level has been tested before the break, the better the odds are of a continuation.
Duration of Time Between Tests
The duration between any 2 of the tests must be 2 months or more and the wider apart, the tests are in terms of time, the better the break is likely to be when it occurs.
The Harder the Trade is the Better it is likely to be
In terms of breakouts from congestion breaks which occur which most people can't see a reason for the break happening is probably a good one. If most people see a break coming and its heavily featured in the media it will be less likely the breakout will be sustained than one which isn't.
To explain this we can look at Heisenberg principle in physics which postulates:
“if something is closely observed, the odds are it is going to be altered in the process” If a market breaks when know one expects it, the odds are therefore far higher than when they do and the more uncomfortable you feel about the trade because if everyone is against you, the better the chance of a big profit from the break is!
Trade Cross Rates as Well as Majors
The majors have a huge amount of speculators trading them and are closely observed but the crosses have less interest, I.e. there less observed this means that you will get many great opportunities and widen your potential profit potential – ALWAYS keep in mind - “The General Rule is - “The Less Observed, the better the trade”
As soon as you place your trading signal, the stop goes directly under the breakout point and if the break is a good one, you will have great risk to reward. Keep your stops tight at around 50 pips if possible, if you have good breaks you could be making 500 or more - so you can get quite a few trades wrong and still come out ahead long term. When trailing your stop keep it well back, until you have made a good few hundred pips profit before moving it to break even and then trail it up slowly, outside of random volatility.
Will the above system work? Yes but you must be patient to wait for the right trading opportunities but you must trade the system with rigorous discipline for it to work; if you do this, you will have built a currency trading system with great risk to reward which can lead you to long term currency trading success.