Reality of Breakout System
For the forex trading for beginners one person first find out where the price is breakout. For that first he do participate in free forex demo account and start trading online as a currency trading for beginners. In currency trading platform there is many option for breakout system. As it is a free forex demo account he takes a trade out of mind or logic with breakout system and enjoy with successful forex traders.But for learn forex trading online it is not easy task.In Forex trading school you have to learn the reality of breakout, other wise your learning point sometime fall you in sea.
A breakout happens when the price breaks a significant high and makes a new high. This is the definition. Let’s give an example.
Another breakout happens when the price breaks a significant low and makes a new low.
It looks simple. Most traders are trying to catch these breakouts and make money on the accelerated price move. A so-called momentum trader places his buy-stop order just above the significant high. He is waiting for this high breakout… If there is no breakout, he cancels his buy-stop order and prepares for the next trade. If the breakout happens and his buy-stop target is filled, his trading platform automatically opens a long position. The same holds for a low breakout (in that case, trader would place a sell-stop order).
Why traders are doing that? Because the price action typically accelerates after a breakout and results in a nice profit. But it’s not so sweet every time. There is a risk of significant loss. The nightmares of momentum traders are “false breakouts” and they happen too often. Let’s explain why.
The secret behind false breakouts
Let’s discuss the false high-breakouts (the same holds for low-breakouts). There are times when price breaks a significant high, a buy order is filled, long position is opened, but the price quickly turns back down and never comes up or Stop Loss is filled. The trader has to exit position with a loss. Small losses are not something unusual.
Every professional trader has losses in Forex trading, you have to admit it. But a profitable trader wins more than loses after time. We have tested some breakout systems on all major currency pairs ten years back. Most of the breakouts were false breakouts or resulted in a small profit. Any system that relies purely on breakouts does not work consistently.
Since we, are in the financial markets for more than 7 years, we have collected some sort of information the large banks and corporations do not want you to know. A large bank has enough money to move the market for a while. When the price hits the significant high again, it should normally bounce back from this high forming a double top pattern.
But momentum traders would go long when a breakout happens – it is the well known practice explained in previous. When the price comes close enough to the high, traders inside the bank quickly buy a large volume of one currency pair ($ millions!). They move the market a few pips up and a forced breakout happens! There is a bunch of buy-orders lying just above the high and these orders get filled immediately. Then the market moves some additional pips up because of the new long positions.
After that the bank happily closes its own large position (sells the millions back) and the price quickly turns back. The banks “earn” great amount of money doing this unfair business. They do it a few times every day.
Hope you now learn what is reality of breakout. We will explain how you overcome and what you will use it for Forex trading.
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