Simple, easy to learn and effective breakout forex strategy. It can be applied across all currency pairs, to bring steady and risk effective results. Breakout on the envelopes tunnel occurs on specific conditions and in the direction of the main trend. Each position is protected and profits are maximized by employing trailing stop.
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Strategy is suitable for anyone patient enough to wait for a perfect setup. Once the signal occurs, strategy will look to ride the winning trade for as long as possible. Volumes (tick activity) is a necessary element to this breakout system. Therefore, make sure that you trade with reliable and trusted ECN broker with accurate volumes readings.
Strategy was tested on high quality historical tick data of EURUSD since 2003. Strategy is provided with free expert advisor created by theforexkings.com.
Used tools and indicators
Moving average convergence divergence (MACD 500,250). One of the more popular methods of trend visualization. Only histogram is considered.
Envelopes (period 80, deviation 0,4): We will use this indicator to draw a simple tunnel consisting of average high and low price.
Breakout candle (range 30 – 150 pips). Candle with defined body range surpassing the tunnel boundaries. Volume on the signal (breakout candle) must be larger than on previous candle. This is a basic breakout confirmation premise. Growing volume signalizes more interest in breakout (price continuing to move in breakout direction) as the candle approaches support/resistance of the tunnel.
Advanced trailing stop (extra deviation for trail stop 20 pips). Once we enter the trade, we will be looking to ride the breakout for as long as possible. We will adjust our trailing stop with each candle close only in the direction of profitable trade.
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Forex strategy rules
MACD histogram trending below zero. Downtrend.
We will be looking for a breakout on bottom envelopes line (support).
Breakout candle: Bearish candle closing below the bottom envelopes line, while previous candle closed within the tunnel. Volumes Reading on the breakout candle is larger than on previous candle. Breakout candle must have defined body range (enough momentum) to be considered a valid breakout.
Trailing stop is placed above the high of breakout candle + extra distance above, to cover that unexpected moves. TS is the only way how to close the trade, in this breakout forex strategy.
MACD histogram trending above zero. Uptrend.
We will be looking for a breakout on upper envelopes line (resistance).
Breakout candle: Bullish candle closing above the upper envelopes line, while previous candle closed within the tunnel. Volumes reading on the breakout candle is larger than on previous candle. Breakout candle must fall within defined body range (enough momentum) to be considered a valid breakout.
Trailing stop is placed below the low of breakout candle - extra distance below, to cover that unexpected moves. TS is the only way how to close the trade, in this breakout forex strategy.
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Disclaimer: Expert advisor was tested for profitability on historical data. All screen shots provided are displaying real results of the test. However past data will never guarantee future success. Every expert advisor needs to be tested properly on demo account. LIVE use only on your own risk. Read full disclaimer. TheForexKings Team does not give any financial advice. TheForexKings does not take any responsibility for any user’s investments and investment decisions. All rights reserved. Strictly for personal use.