Posted by forex at 5:11 AM
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1. Define breakout. Let's say you are monitoring a currency that is trading within a range of 60 pips ever day over the last week. When you look at the currency over longer periods of time you can see the same trend. Every two or three weeks, however, the currency breaks out of the range. The point at which the currency breaks out of the range is referred to by technical forex analysts as the 'breakout.'
2. Go to the forex trading site of your choice. Chart the EUR/USD on a range of different moving averages. That is, chart the EUR/USD price over the last 30 minutes, 1 day, 5 days, week, month and year. The longer the duration, the smoother the line.
3. Compare a short duration chart (5 days) to a longer duration chart (1 month). The 1-month chart will be smoother and less volatile than the 5-day chart; however, for the most part it should be trading within the range of the 1-month chart. Note the range of the 1-month chart. When the 5 day 'breaks out' of the 1 month, it is considered to be the foundation for a breakout. If the 'breakout' is followed by a surge in volume, the breakout may become the foundation for a new trading range.
4. Try this approach with other combinations of short- and long-term duration ranges to identify additional breakout opportunities.