Advanced Trading Strategies

Breakout – One of the most popular trading strategies, the Breakout is a strategy of monitoring a currency pair as it oscillates up and down in a narrow price range, then placing a trade depending upon the direction of the break of the range. A Long position can be placed if there is a break above the range; or, a Short position can be placed if a break below the range occurs. Buying or selling usually occurs after the price makes a move out of the range. Traders can either wait for a breakout to occur to place a trade or set an entry order to be executed in the event of a breakout of the range. When considering a Breakout, a trader should evaluate the following possible trading techniques:

  1. Has price remained in a narrow range for an extended period of time? The longer price remains flat or in a narrow range, the possibility of a breakout increases.
  2. What was the overall market direction or trend before the narrow range? Often, when a breakout occurs, price continues in the direction of which it originated.

Channel Trading – When the market is in a range, resistance and support price points within the range can often be identified. Sometimes during a range-bound market, these price points are reached in succession. In this case, at a repeated resistance level, a trader can short the market if the trader feels the market will retrace down to the previous support level. And, in similar fashion at a repeated support level, a trader can place a long position. It’s important for a trader to do a thorough analysis before executing a channel trade. A continuation of the range may make channel trading a favorable strategy; however, if the market breaks out the range, there is the possibility of a channel trade being placed in the wrong direction.

In this example above, there is a price range that is about 60 pips wide between the 2 red lines representing Support and Resistance. In the middle of the range, there is a magenta line used to identify the halfway point between Support and Resistance. For this strategy to work effectively there should be ample distance between Support and Resistance – at least enough to trade within. Too tight of a price range may be dangerous with this strategy.

Let’s walk through this example of a Channel Trade strategy:

First, wait for the setup. There needs to be a repeated move in price to a Support or Resistance level to trade. In this case, there is a repeated Support at # 3.

Then calculate the repeated distance from Support to Resistance. Also, mark the halfway point, which can be used as either a Limit (take profit) point if reached or as a Stop-Loss if price moves through.

At # 3 point, a trader can enter a Long trade with the expectancy for the trade to move up to the price level of # 2. In this case, however, price did not reach the Resistance of the range but hesitated at point A which is a little beyond the halfway point.  In Channel Trading, be aware of price hesitation. This can be a sign for potential reversal. As price moves above the halfway point, a trader can set a Stop-Loss at that price level.

As the trader feels that price will not go higher, the trader can exit his Long position around point A and enter a Short position with the expectancy of the short to descend down towards Support represented by points # 1 and # 3.

At point B, the trader can exit the Short position and enter into another Long position with the expectancy for the trade to move up to the price level of # 2. In which it did at point C.

Then, the process is repeated if there still exist the conditions for channel trading. In this case, a trader might have traded points A, B, C, D, E and then F.

It’s important for a trader to do a thorough analysis before executing a channel trade.  For most traders, it requires a keen eye to the charts and a feel for the market.  It’s typically most suited for an active trader. If you attempt this strategy, remember that a continuation of the range may make channel trading favorable; but, if the market breaks out the range, there is the possibility of a channel trade being in the wrong direction.

Scalp Trading – This strategy is designed for active traders. Multiple trades are made for small gains. Each trade is held for a short period of time typically within a few minutes. The success of using this strategy depends in part to market volatility and a trader’s ability to quickly enter and exit with minimal loss.

Straddle Trading – A trading strategy of setting entry stop orders above and below either a narrow range channel or resistance and support levels. Once one order has been filled, the trader can remove the other order. When considering a Straddle trade, a trader should evaluate the following possible trading techniques:

  1. Narrow range channel – an entry buy stop can be placed above and an entry sell stop can be placed below in the event price breaks out of either side of the channel.
  2. Resistance and Support – an entry buy stop can be placed above resistance and an entry sell stop can be placed below support in the event the market makes a push beyond either level.