Breakdown forex strategies - how do they work?
Many newcomers often believe that the trade strategy should work always and under any market conditions. Also, some have little idea of what types of trade strategies exist and what trade features exist for a type of TC. Knowledge of each type of strategy, its merits and disadvantages will enable the development of better and better TS. And today we are just going to discuss the peculiarities of building breakdown forex systems.
The breakdown of trend lines and important price levels means the emergence of many large players on the market with clear preferences towards the growth or decline of an instrument. It is at such moments that signals are generated, helping to enter the market in the direction of large volumes. These are typically classic trading strategies tested by dozens of years of trading on various instruments.
The basic idea embedded in punching trade strategies is that if the price is in the range for a long time, there will necessarily be a moment of power market decision and a breakthrough in a certain direction. Therefore, for this type of strategy, it is quite critical to select the same levels to break and correctly filter false breaks.
In order to fix a real sample, it is necessary to correctly imagine the direction of the current trend, to select the correct levels, the sample of which can lead to a serious change in prices and to determine in time the truth of the break of these levels. That is, we need fewer noises that can distort our analysis and contribute to the wrong trade solution. That is why breakdown strategies work best on instruments with volatility no lower than average and on periods no lower than hourly, where noises are no longer so much.
The system type is a collection of different systems of the same kind according to the main idea: trending, turning, punching. That is, the type of trading system answers the question "What will we trade?." The class of the system we will call a set of trading systems within one kind, using a common approach to finding trading signals. The question is "How are we going to trade?" So, what could be classes within a type of systems like punches?
Breakdown of the line of a trend
This is one of the oldest models of break trade. On the growing trend there is a line on rising lows, on the descending - on falling highs. As with all classes of punching strategies, it works well on the period from Н1 and above.
Sample support and resistance levels
This class of punching systems is also classic and one of the oldest. The signal for input on such a strategy should be not only the fact of breakdown of some level or range, but also analysis of market behavior near the boundaries of consolidation. In such strategies, the feet are typically set at the last level of the maximum or minimum before the break, and the profit is taken as the amplitude of the consolidation range or the previous motion.
Breakdown of moving averages
SMA and EMA lines, especially the standard set with periods of 20, 50, 100, 200 - the strongest price levels, and their sample means exit from the zone of average value and formation of a new trend. Typically, the signal is generated when closed above the maximum or below the minimum of the punch plug. However, this class of systems in its basic version currently brings quite a lot of false signals - markets have changed greatly with the emergence of such phenomenon as online trading and with the possibility to carry out complex mathematical calculations literally instantly. Therefore, this class of systems, like the rest of the classes, began to evolve. But unlike the rest of the classes, it has become a whole new class of systems - a sample of volatility that we 'll talk about a little later.