How to Trade Key Level Breakouts (Forex Strategy)
- VasilyTrader
- 20 minutes ago
- 3 min read
Today, I will teach you an easy way to trade key level breakouts in Forex.
I will show you a simple model you can use for accurate entries, along with a live trade example.
Take notes and get a profitable step-by-step strategy.
What is a Key Resistance Level
Let's start by discussing what a key level is.
A key resistance level is a historical price level where significant trading activity previously occurred.
It means the price reversed after a test of that level.
The more times the price respected such a level, the stronger it is.
Key Resistance Level Breakout
A breakout of a key resistance level and a candle close above that is an important event that indicates strong buying pressure.
After a breakout of a key resistance, the market will likely continue rising, and the broken resistance level will turn into a key support.
Key Resistance Level Breakout Strategy
To trade a breakout of a key resistance properly, use the following confirmation entry strategy.
Wait for a retest of a broken key resistance level.
It will be a very important condition.
But instead of buying the market after a retest, wait for the following confirmation signal.
Wait for the formation of a new higher high higher close after a retest of the broken key resistance.
It will provide strong confirmation.
Set a buy limit order at the level of the previous higher high.
Set a stop loss below the low of a retest movement.
Your take profit should be the next strong resistance.
Example
Let me show you how to use this strategy in practice.
I see a valid key resistance level on AUDJPY forex pair on a 4h time frame.
The significance of that resistance is confirmed by multiple strong bearish movements after its test.
This key resistance level was broken, and a 4H candle close above confirmed that.
The broken key resistance level turned into strong support.
A retest of the broken key level occurred then.
Our strong bullish signal is a formation of a new higher high higher close and a violation of the previous local high.
Buy limit order is placed following the rules of the strategy.
The trade is now active and bullish continuation is expected.
What is a Key Support Level
A key support level is a historical price level where significant trading activity previously occurred.
A key support is always below the current price.
The more times the price respected such a level in the past, the stronger it is.
Key Support Level Breakout
A breakout of a key support level and a candle close below that is an important event that indicates strong selling pressure.
After a breakout of a key support, the market will likely continue falling, and the broken support level will turn into a key resistance.
Key Support Level Breakout Strategy
To trade a breakout of a key support properly, use the following strategy.
Wait for a retest of a broken key support level.
It will be a very important condition.
But instead of selling the market after a retest, wait for the following confirmation signal.
Wait for the formation of a new lower low lower close after a retest of the broken key support.
It will provide strong confirmation.
Set a sell limit order at the level of the previous lower low.
Set a stop loss above the high of a retest movement.
Your take profit should be the next strong support.
Above is an example of the application of this strategy on GBPUSD forex pair.
Summary
Using these 2 models, you can easily trade the breakout of key support and resistance levels.
This strategy works on any time frame and is appropriate for scalping, day trading or swing trading.
