Every day market is giving us opportunities to earn money; we only need to be aware and ready. Today we can make profits by doing a breakout trading strategy based on price action theory.
Today AUD/NZD shows this chart. As you can see the pair has done a very strong downtrend but now we have a very interesting price action pattern. First of all we can see a double bottom, this is a great signal for bullish traders, but it is even more important if the volume decreases in the second low. As you can see, we have less volume in the second low, ¡GREAT! One more point for bullish purposes. The low volume means no one was trying to sell hard to beat the previous low, so everyone was agree that this minimum is important enough to wait and see what happens.
Click to see full image
Now we have consolidated tops and bottoms, the price is ranging perfectly. So, one possible strategy is to seat and wait for a breakout and follow it. It is called a breakout trading strategy.
Breakout trading strategy alternative
I think that we have at least one alternative strategy. I don’t know if this will be a trend change, but I know that double bottoms usually create new uptrends. Assuming that, I will be ready to buy now (without breakout) with a Stop Loss around 150 or 200 pips and I’ll try to ride the next trend at least for 600 or 700 pips, where we have the next important resistance level. I have 1:3 ratio; I only need to win 1 of 4 trades. My experience says that this ratio is good enough when you work with double bottoms, but if you want you can try to buy even lower to get a better ratio.
Anyway, if I have a breakout in the lower band I can also close my buy and sell. Then, I will be doing a breakout trading strategy. I can try to make profit from the continuation of the downtrend if the double bottom breaks. Remember that you can also try a range strategy, buying on the bottom line and selling in the top line, but I don’t like to trade this way.
I want to share with you a great ratios calculator, as you can see ratios are very useful to know if we are doing a profitable trade or not. I hope this calculator will be very useful for you.[sociallocker id="2514"] [/sociallocker]