Many forex traders like to incorporate forex breakouts into their overall trading strategy because they can be extremely profitable. When a price finally breaks out of a tight trading range, many traders tend to jump on board and carry the price further away from this trading range, which is why this strategy is so effective.
Focus on Opening Range Breakouts
One of the most popular ways of trading these breakouts is by focusing specifically on overnight / opening range breakouts. By that I mean the opening hours of the new trading day. I myself tend to focus on the hours between 00.00 and 06.00 GMT and predominantly concentrate on the British and European-based pairs such as the GBP/USD and EUR/USD pairs, for instance.
These hours are notoriously quiet and yet these few hours before the busy opening session set the tone for the rest of the day. You will often find that the price will stay confined in a fairly tight range during these six hours or so and when the UK and European markets open, the price will trend significantly in one direction and will often break strongly out of this initial trading range.
Therefore a profitable strategy is to open a long position when the high point of this opening range is breached and open a short position when the low point is breached. There are various ways you can put this system into practice. You can either open a position as soon as the price crosses the line or as soon as the breakout candle closes, or you can wait for a pull-back and then jump on board if the price continues to move in the direction of the initial breakout.
All of these methods tend to work quite well and there is a logical reason why this is the case. The fact is that every currency pair has an average daily range, i.e the average number of points between the high and low points for a given trading day. So on those days where the opening range is very narrow, this initial range will be a mere fraction of the overall average, so therefore you can expect some big price moves to occur during the rest of the day either above or below the overnight range.
So if you are looking for a simple forex trading system (that doesn’t use any complicated technical indicators), then I can definitely recommend you consider trading breakouts from overnight trading ranges because this can be a very profitable strategy.