High Low Breakout Technique
Keywords: forex,trading,money,exchange,currency,investment,fund,foreign,market,stock,trend,dollar,global
This technique can be used for any market that has a decent daily range. If you look at any chart, what do you see? You should see a succession of bars that are doing one of three things.
1. Going up
2. Going down
3. Going sideways
Unless today’s bar turns out to be an inside day or very rarely the high and low of today are exactly the same as the high and low as yesterday, then we will have a new high or low.
Think about it. Today’s bar, in all probability will make a higher high than yesterday’s bar or a lower low than yesterday’s bar. This information is very powerful.
For example, company XYZ had a range of 200 points (high minus the low) yesterday. Today the high might be 50 points higher than yesterday’s bar or 50 points lower than yesterday’s bar. If we can find the average daily distance between the high of yesterday’s bar to the high of today’s bar and the average daily distance between the low of yesterday’s bar and the low of today’s bar, then we might have a trading opportunity.
Make yourself a little excel sheet or grab a pen and paper and start tracking the high and lows of each day. Then deduct the high of today from yesterday’s high and the low of today from yesterday’s low. After you have a few days worth of data you can get an average. On the excel sheet, below the first five columns are the date, open, high, low and close. “DR” is daily range, “TH-YH” is today’s high minus yesterday’s high and “YL-TL” is yesterday’s low minus today’s low. In the “TH-YH” column, I only record an entry if today’s high is greater than yesterday’s high and in the “YL-TL” I only record an entry if today’s low is lower than yesterday’s low. All pretty simple stuff.
OK, as you can see, the example of the GBP/USD (Pound/Dollar). The average breakout up was 54 pips and the average breakout down was 60 pips. The next thing to do is apply this knowledge to our trading.
On the 2nd September the high was 1.7972 and the low was 1.7864. We are looking for a breakout of either of these points. It doesn’t matter which way. So on the 3rd September you mark the previous day’s high and low and monitor what happens when it reaches these points.
The way I trade this setup is to wait for the market to test the low or high of the previous day and then pullback. I don’t enter on a break of the previous day’s high/low, I wait for a pullback of either a test of the high/low or a break of the high/low.
As you can see from the chart, the market came down and tested the low of 1.7864 and then pulled back. The low that was made was just a few pips lower than the previous day’s low and formed a little support area. That support area is the breakout point. You can place an entry order a couple of pips below the support area with a target of the average “YL-TL” as a target, which in this case was 60 pips. The stop is a bit more tricky. If the pullback is not too big you can place your stop just above the pullback area (resistance). If the distance is too great, then just use Dollar stop.
You can even take this down to a 1 minute chart and scalp the market with a very tight stop. There are loads of ways to trade this setup. You could add some indicators for confirmation. You could use the entry as setup for a position trade. You could even concentrate on inside day’s where the breakout might have a much larger range. However you decide to trade it, at least take note of the previous day’s high and low.
Martin Chandra (martinchandra.com) is a full-time investor. He has been researching investment strategies and make his own living. For more information please go to martinchandra.com
Previous Articles Highlighter:
Anticipating The Market And Execution (1)
Anticipation and execution Locals have to both anticipate the market and execute their own trades. If you think of all the possible combinations: - Good anticipation / poor execution, - Poor anticipation / poor execution, - Good anticipation / good execution, - Poor anticipation / good execution, It is obvious which we would all rather be, good / good; but which combination would you say you are?
What Is Support And Resistance (2)
The cause is not as significant as the effect, new expectations lead to new price levels. As you can see from the charts above. Some times the price will just keep going through support and resistance and sometimes it will come back to test its previous support or resistance line.
How To Change Careers... When You're Not Qualified (3)
But will studying really be all that beneficial, considering you've already acquired hands-on business and marketing skills? Couldn't you present yourself as someone with unequalled business experience, skills and knowledge - someone who has built and sold a company, as opposed to someone with theoretical knowledge acquired from a business school?
How To Decide On A Fashion Design School (4)
You also need to ask about and consider the ratio of teacher to students. The size of a class per teacher can indicate two things; the school is either too popular or it is underfunded.
How To Make Web Surfing Secure (5)
Generally software is well written by qualified programmers. Professionally written software will include all the instructions that you need to obtain the best performance of the tool. If this is not the case, keep on searching.
Exiting A Losing Trade (6)
Once you have entered a trade immediately place a stop. This safeguards you from losing your entire account. It is also wise to talk with your broker about how they execute your stop.
What Is Open Source Software And Why Is It Used? (7)
- In a 2002 survey it was found over 31% of UK and nearly 42% of German companies were using or planning to use OSS. - In 2001, Debian (an Open Source Operating System), contained over 55 million lines of code and was estimated to have consumed over 14,000 person years in development time.
Advertising Tips For A Network Marketing Business (8)
Joining an affiliate promotions company could have your ad posted on several hundreds of sites, each one promoting their own site, giving you that much more exposure for which you pay only if others visit your site.
Securing The Lowest Home Mortgage Rate (9)
Don't go after a loan that will stretch your finances to the brink of breaking, and you should (in many cases) be rewarded with a better rate. Savings. Banks are generally impressed by those who manage to put a decent down payment into a new home.
A Striking Domain Name Could Be The Key To Success (10)
Most good sites will offer you an option to look at available alternatives. Scanning these can sometimes net names that are better than the ones you started looking for.
Newer Articles Highlighter:
What Is Simple Moving Average? (1)
to find the 3 period average of the following sequence 5,10,8 add the three numbers together which gives 23 and divide that number by 3 which equals 7.7. The graph shows price strength is associated with a rising moving average and that weakness is denoted by a declining moving average.
Where To Place Your Trading Stop (2)
He determines that he will use a dollar value as his stop of $300. This makes his stop level of 1.0810 (30 pips at $10 per pip). If the market should retrace 30 pips or more then his stop will be hit and he will be out of the market.
The Mastery Of Self Trading (3)
Lets look at some particular behaviours in trading. Not cutting losses, what is the likely thinking that would result in this behaviour? - Losing is bad (If I lose then I am a loser) - Being wrong is bad (we all learn this at school!) - To take charge/control - I want to be right all the time i.e. perfectionist - And snatching profits: Fear of losing what we have (losing is bad again) & Need to feel good (I am not good enough) Ultimately I thing we struggle as traders because we want and need to feel good about ourselves and we are looking to the market for this affirmation.
Day Trading Strategy (4)
If, for example, you are a fan of RSI or any other oscillator, use that as your entry signal, but only take signals in line with the trend as you see it.
How To Lose Weight By Avoiding The Triggers To Weight Gain? (5)
For example, if you find that you're eating an extra meal because you're feeling hungry between the main meals, you could plan a snack in between. Or perhaps you realize that your eating too late at night or drinking too many coffees, you could simply adjust accordingly.
Intraday Trading Tactics (6)
This is because you will try and convince yourself that the move against you is temporary. To overcome this directional bias I use the following discipline to help tell me when the market is doing something different from what I expect.
The Trend Is Your Friend (7)
This is how great fortunes are made. Martin Chandra (martinchandra.com) is a full-time investor. He has been researching investment strategies and make his own living. For more information please go to martinchandra.com
The Flaw In Our Emotions (8)
One other reason some people don't make it in the trading game and probably the hardest for some people to own up to is, some people are just not meant to be traders.
What Are Commonly Traded Securities (9)
With the advent of the Internet and growing competition it is now easily in the reach of most traders. You will often hear the term INTERBANK discussed in FX terminology.
Understanding Stochastics (10)
Lane observed that as prices increase in an up trend, closing prices tend to be closer to the upper end of bars and in a down trend closing prices tend to be nearer the lower end of bars.