Understanding Forex Breakouts in Asia
A forex breakout is a sudden and significant price movement in a currency pair. Breakouts usually occur during periods of high volatility and can be either upward or downward. They are often caused by news events or economic data releases that cause investors to re-evaluate a currency’s value.
Breakouts can be tricky to trade, as they often involve entering the market when the price is already moving in a particular direction. It can be challenging to set a stop-loss order or take profit levels. However, breakouts can also offer opportunities for traders to enter the market when there is potential for significant profits.
Forex breakouts in Asia can be a profitable trading opportunity for those who know how to identify and trade them effectively. While breakouts can occur during the Asian trading session, they tend to be more prevalent during the Tokyo session.
How to identify when a breakout is happening
LOOK FOR A BREAKOUT ON THE CHART
One way to identify a potential breakout is by looking for price action that is ‘squeezing’ into a small trading range. You need to identify when the candlesticks on the chart are getting smaller and smaller, indicating that buyers and sellers are becoming more indecisive.
When this happens, it often signifies that a breakout is about to occur.
USE TECHNICAL INDICATORS
Another way to identify a potential breakout is by using technical indicators. You can use two popular indicators for this purpose: Bollinger Bands and the Average True Range (ATR).
The Bollinger Bands indicator plots upper and lower bands around a moving average, typically set to 20. The Bollinger Bands can help to identify potential breakouts by measuring market volatility. When the market is volatile, the Bollinger Bands will expand and contract when it is less volatile.
The ATR indicator measures the average range of price movements over a certain period. The higher the ATR reading, the more volatile the market is. You can use a high ATR reading to confirm that a breakout is about to occur.
What are the different types of breakouts?
THE FALSE BREAKOUT
A false breakout is when the price breaks out of a trading range but quickly reverses course and returns into the range. False breakouts can be challenging to trade as it can be hard to know when to enter or exit a position.
A fake-out is similar to a false breakout but occurs on a larger scale. A fake-out happens when the price breaks out of a significant support or resistance level, only to reverse and move quickly in the original direction. Fake-outs can be particularly difficult to trade as they often catch traders by surprise.
THE GENUINE BREAKOUT
A genuine breakout is when the price breaks out of a trading range and continues moving in the same direction. Genuine breakouts can offer opportunities for traders to enter the market when there is potential for significant profits.
How to trade forex breakouts in Asia
USE PENDING ORDERS
One way to trade forex breakouts in Asia is by using pending orders. It involves placing an order to buy or sell a currency pair at a certain price level, which you will execute if the price reaches that level. It can be a helpful way to trade breakouts as it can take the emotion out of decision-making.
USE A TRAILING STOP LOSS
Another way to trade forex breakouts in Asia is using trailing stops when a trader sets a stop-loss order at a certain distance from the current market price and then adjusts it as the price moves in their favour. It can be a valuable tool for managing risk, as it will automatically close your position if the price reverses and starts moving against you.
USE A BREAKOUT TRADING SYSTEM
A breakout trading system is a set of rules used to trade forex breakouts. There are many different systems available, and it is essential to find one that suits your forex trading style.
When using a breakout trading system, it is essential to have strict entry and exit rules in place. It will help ensure that you only take trades with a good risk-reward ratio. Having a sound money management strategy in place is also essential, as this will help you protect your capital if the trade does not go in your favour.