Breaking Support/Resistance

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Permalink Reply by Caroline Carlin on October 20, 2010 at 9:51am

Hello,

There are two strategies that I usually employ on breakouts, one is using a pending stop order 5 to 10 pips above the resistance or support area, (this will depend on which other significant levels are near, like Fibonaccis or trend line barriers) and the other one is a direct entry only when the break has been retested and confirmed. For further safety I would recommend to check the entry on lower time frames as well to be sure that there are no other supports or resistances in the way and to enter the trade at the best possible price.

As with any other strategy, losses are to be expected to a certain extent, but this issue is handled through the setting of tight stops to minimize the risks and only trading when there is enough momentum and liquidity, and an assessment of a risk-to-reward potential ratio of at least 1:2 in a strong or at least steady trending market.

Regards
Caroline Carlin

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Permalink Reply by JDfn Administrator on October 20, 2010 at 11:06am

Hi there Karim, To answer your question, I usually tend to wait for (2) consecutive candlesticks(either green or red) depending on your direction to completely close, then I'll enter at the start of the (third) candlestick. As fas as stop losses, I'll either use 15-30 pips below major support(assuming going long) or above resistance(assuming heading short).

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Permalink Reply by Adam Horak on October 27, 2010 at 11:56am

you need to look at a few other conditions when placing a (break out trade) not just the number of pips but the strength of the move as well... you may want to use that entry point above the breakout with an RSI or Stochastic to confirm there is strength behind the move, also make sure you are following the over all trend. The number of PIPs outside of the breakout is only a small part when placing a breakout trade.

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Permalink Reply by PJ Shimkonis on November 15, 2010 at 6:33am

The key to pivot points is to buy, if you like, when the price is above the pivot point you use and sell when the price is below the pivot point. Scalping is 5 to 10 pips and no more, and 20 pips is definitely a longer term strategy. Support and resistance are directly related to pivot points.

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