Synopsis E-book: Magic Breakout- FX Strategy
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.