Basic rules of Breaking Points StrategyThursday, 12 October 2017 00:00
Breaking Points Strategy - trading on intraday charts - is one of the favorite strategies for beginners of the forex market. Even though you can earn much more profit trading on the daily charts.
But as soon as the trader wants to switch one type of trading to another, such a thing will turn out to be quite difficult. The Breaking Points (BP) technique is one of the strategies that combine the analysis of daily charts and entering on small timeframes. It was developed exactly for such transitional moments.
To understand how the strategy works, you need to understand why it was invented. So, the authors were based on the fact that the market price for any financial instrument passes 100-200 pips a week. And if you enter this movement in the middle of the week, and exit at the end, you can close the deal with a good profit.
The advantage of the strategy is that it defines "breakpoints" that can be used to build your own trading methods. Also, on the plus side, you can work with pending orders.
In general, Breaking Points can be used on high volatile currency pairs with timeframes D1 and M15. In addition, you open the orders on a 15-minute timeframe, and you can use the daily chart to estimate the level of opening the position.
Rules for Entering the Market when following Breaking Points strategy
The first thing you need to know opening an order, is that it’s better to set Stop Loss and Take Profit on Monday, when the markets just open. If you do this on Friday, you can go to the gap. Also, according to this strategy, it’s necessary to enter the market with two orders at once, which will have different Take Profits, but one entry point.
- On Monday, you should mark the High/Low levels of the four previous trading days on the chart (adjust the D1 timeframe and draw the corresponding levels).
- Next, you need to switch to M15 timeframe, but the planned bands should remain on the chart;
- The next step is placing pending orders of Sell Stop and Buy Stop. The marks should be placed on the levels closest to the opening price;
- When the orders above will approach the opening price for a distance of less than 20 points, this should be ignored, but at the same time, put the pending order at a more distant level. You also need to pay attention to the levels of support and resistance, since there may be a price rebound from them.
At the end of the week, you must close all the transactions.
Restriction Levels, Risk Identification
We suggest setting the Stop Loss level at 40 pips. Choosing the parameters of the transaction, the risk shouldn’t exceed 2-3% of the deposit, because, no matter how well the trade went first, all the strategies have unprofitable deals.
As for Take Profits, the first order should be set at 50 pips, the second one - at 100. When the price reaches the first Take Profit, the second order should be transferred to a breakeven state - this implies moving the Stop Loss at the level of the opening price of the transaction.
Tips for Experienced Traders
Experienced traders, who have learned how to react quickly to changes on the market, can enter the position with three orders. Moreover, the third order should be set before the end of the week. Stop Loss of such a transaction should be transferred to a breakeven, as soon as the first Take Profit triggers, that is, along with the second order.
In addition, you can set the Take Profit for the total breakeven. As soon as this bar is reached, this week trading should be stopped.
Summary on Breaking Points Strategy
A huge advantage of a non-indicator trading is an opportunity to open the position at any time, which is suitable for you. Before that, it is recommended making a minimum fundamental analysis to manage your finances when the economic news is published.
Additionally, Breaking Points Strategy demands the need of working on two timeframes – a minute one and a daily one. This allows analyzing the situation in the long and short term, placing the right levels of a breakeven state, predicting the behavior of the trend.
Finally, note that all trading methods have a certain percentage of unprofitable deals. That is why we recommend you preliminary testing the system on a demo account to make the trade more efficient.