Keys to Trading Intraday Breakouts

Date: September 21, 2005 14:00GMT

Expert: Edward Ponsi, FXstreet.com FX Educator

Topics:
- Putting the Odds in your Favor
- Optimal Breakout Patterns
- Optimal Breakout Times

Who is Edward Ponsi?
Edward Ponsi has been recently appointed new FXstreet.com FX Educator and is the president of FXEducator LLC.

Speech Material:

Hello everyone, my name is Ed Ponsi of FXEducator and I’m happy to present this lesson to you today.

When trading intraday breakouts, or when engaging in any type of trading for that matter, it is important for the trader to use every type of advantage possible. In all forms of trading, no matter if the vehicle is the equity, futures, or forex market, there are many instances of false breakouts. In order to reduce the negative effects of these events, let’s take a closer look at intraday breakouts and how to trade them.

Ascending and descending triangles are excellent breakout patterns, because the pattern itself establishes a directional bias for the trade. An ascending triangle is formed by a combination of diagonal support and horizontal resistance; a descending triangle is formed by a combination of diagonal resistance and horizontal support. In the case of an ascending triangle, the bulls are gaining strength and buying at higher and higher levels, while the bears are merely trying to defend an established level of resistance. In the case of a descending triangle, the bears are gaining strength and selling at lower and lower levels, while the bulls are merely trying to defend an established level of support.

In the case of ascending or descending triangles, the trader can gain an edge by looking to the direction of the currency pair prior to the formation of the triangle pattern. This is because it is not unusual for currency pair to trend, then consolidate, and then resume trending. The directional bias of a triangle is to break the horizontal support or resistance, and if the pair was trending in the same direction prior to the formation of the pattern, the trade becomes all the more compelling.

For example, on the hourly chart of the EURUSD pair, we see the formation of a descending triangle.

(see figure 1) Click to enlarge:

The first thing the trader needs to ask is, what was the trend prior to the formation of the triangle? If we take a longer view of the pair.

(see figure 2) Click to enlarge:

We can see that the pair has been trending steadily lower. It’s important that we use the power of this trend to our advantage, to reduce the occurrence of false breakouts. As a general rule, traders should always trade with the trend, and never fight the trend. It is essentially the difference between swimming with the tide or against the tide, and traders that fight against trends often regret their actions.

Another edge that we can put to use when trading intraday breakouts is the time of day. Perhaps you are familiar with the trading axiom that a breakout is considered significant if it occurs on high volume, and is considered less significant if it occurs on low volume. While forex traders are not able to easily access accurate volume figures, we do know that trading is not equally liquid at all time of the day, and there are certainly times of day that generate more volume than others. Let’s take a closer look at the forex trading day to see how we can use this to our advantage.

When we’re dealing with a vast, liquid market like the Forex, which trades the equivalent of US$1.9 trillion on a daily basis, it’s important to understand which times of day are the most active and most liquid. Because this market follows the sun around the world, trades take place literally all day and night. Let’s take a closer look at the Forex trading day, to gain a better understanding of the market and of its optimal trading times.

The Forex trading day is considered to begin at 5:00 PM Eastern U.S. time. Because Forex trades 24 hours per day, the trading day also ends at 5:00 PM Eastern. Why is this particular time used? Consider that when it is 5:00 PM on Sunday in New York, it is Monday morning in places like Australia and New Zealand. Overall, volume is low at this time of day because the three biggest Forex volume centers – Great Britain, the United States and Japan – are mostly inactive at this time. However, the Australian dollar and the New Zealand dollar (also known as the “Kiwi”) may see some price activity during these hours.

A few hours later, around 7:00 PM Eastern U.S. time, Japan awakens and the Forex markets begin to stir. Japan is the third largest Forex trading center, and comprises about 10% of all Forex trading volume, as many major banks have offices in Tokyo. The Japanese Yen is particularly active at this time, especially vs. the Euro, the U.S. dollar, and the Great Britain pound. Most of the volume occurs during the early part of the Japanese session, and the liquidity lessens considerably as the trading day continues.

As the Japanese trading day winds down around 3:00 AM Eastern U.S. time, European markets open for business, and the London trading day begins soon afterward. Great Britain is by far the most important and influential Forex trading market in the world. The dealing desks for many of the world’s major banks are run from London, and the market is responsible for roughly 30% of all spot foreign exchange volume. London tends to be the most orderly foreign exchange market due to its tremendous liquidity.

About midway through the London trading session, U.S. Forex traders come to life. New York is the second most important market in Forex trading. New York trading is very liquid and accounts for about 20% of the world’s total foreign exchange volume. Trading is especially active early in the New York session, as the London session is still ongoing. U.S. Economic news releases often occur early in the New York session, and can cause a tremendous amount of volatility.

Trading often becomes choppy after midday in New York as the London market winds down, and liquidity and volatility begin to dissipate. By mid to late afternoon New York time, London traders have gone home for the day, and it is late at night in Japan. New York traders, while still active at this time of day, have already finished with the bulk of their trading. Friday afternoons in the U.S. are generally the least active, because for much of the trading world, it is already Saturday.

Finally, as the U.S. markets close, a new trading day is just about to begin in the western Pacific, as the Australian and New Zealand markets begin to stir, starting the process once again. The cycle continues all week, with most dealing desks closed from Friday afternoon until Sunday afternoon, when trading resumes.

Now that we have a greater understanding of the forex market’s liquidity as it relates to various times of day, let’s see how this can affect our trading. Just like an equity trader, I’ll assume that a breakout that occurs at a time of high volume is legitimate, and a breakout that occurs at a time of low volume is suspect.

For example, let’s take a look at the daily chart of EURUSD. The pair had formed strong support in the summer of 2004 at 1.2000, which is also a number that takes on psychological significance because it is a large round number. In fact, the pair could not close below 1.2000 and then trended higher, before returning to the same area of support in the summer of 2005, when it cautiously hovered near 1.2000

(see figure 3) Click to enlarge:

Finally, during the August 24 session, the pair suddenly tries to break support. However, we can see in the five-minute chart

(see figure 4 ) Click to enlarge:

that the break was short-lived, a classic example of a false breakout. A trader who pays attention to the time of day would have noted that the break occurred late in the Japanese session, a time of day that is notorious for low volume and for false breakouts. Such a trader would have considered the timing of this event to be suspicious and would have refrained from entering a trade.

One week later, on July 1, the pair tries to break the support level once again, only this time the breakout occurs at approximately 1430 GMT

(see figure 5) Click to enlarge:

At this time of day, the London session is ongoing, and the New York session is well underway. As a result, this is a time of high volume and the trade is more likely to succeed. The pair finally breaks 1.2000 and drifts as low as 1.1865 over the next few days.

As we can see, there are steps we can take to alleviate the problem of false breakouts. These are just a few of the subtle nuances that traders use to gain an edge.

Session Transcript:

FXstreet Moderator (Sep 21, 2005 10:08:37 AM)
Today I am delighted to welcome back our good friend and guest speaker Edward Ponsi.

Ed (Sep 21, 2005 10:09:03 AM)
Hi everyone, it’s great to be here with you on FX Street

FXstreet Moderator (Sep 21, 2005 10:10:17 AM)
Lets begin with pre reg questions.

Ed (Sep 21, 2005 10:10:38 AM)
Ok, let's start with our first question

Ed (Sep 21, 2005 10:10:54 AM)
I would like to recognize the best time to make a buy or sell by looking at the live charts.
raeburnaleppey

Ed (Sep 21, 2005 10:11:04 AM)
Thank you for your question.

Ed (Sep 21, 2005 10:11:20 AM)
If you are trading during a time of day that features high volume, breakouts have a better chance to succeed.

Ed (Sep 21, 2005 10:11:32 AM)
This is because the price can more easily break through existing stop and limit orders if the volume is high.

Ed (Sep 21, 2005 10:11:48 AM)
This is actually the basis for many stock trading methods

Ed (Sep 21, 2005 10:12:00 AM)
and we can apply it to Forex even though accurate volume figures are not available

Ed (Sep 21, 2005 10:12:11 AM)
by paying close attention to the time of day.

Ed (Sep 21, 2005 10:12:25 AM)
If you are trading during a time of day that features less volume

Ed (Sep 21, 2005 10:12:36 AM)
there is a greater chance that the move is a fake

Ed (Sep 21, 2005 10:12:47 AM)
Since there is a greater chance for false breakouts at this time,

Ed (Sep 21, 2005 10:13:01 AM)
some traders will “fade” (trade against) the breakout

Ed (Sep 21, 2005 10:13:13 AM)
if it occurs at a time of day when volume is understood to be low.

Ed (Sep 21, 2005 10:13:35 AM)
Let's go to the next question....

Ed (Sep 21, 2005 10:13:48 AM)
Which currency pairs do you recommend for intraday breakouts? srm70

Ed (Sep 21, 2005 10:14:05 AM)
I don’t really worry about the pair as much as I am concerned with the setup itself

Ed (Sep 21, 2005 10:14:22 AM)
If I see a good setup

Ed (Sep 21, 2005 10:14:34 AM)
then I am likely to take the trade, regardless of the currency pair.

Ed (Sep 21, 2005 10:14:47 AM)
The only exception is if the spread is exceptionally wide,

Ed (Sep 21, 2005 10:15:00 AM)
in which case I will decline the trade

Ed (Sep 21, 2005 10:15:10 AM)
unless the risk/reward is too attractive to pass up

Ed (Sep 21, 2005 10:15:30 AM)
What methods can be used to measure the risk vs. reward of a potential trade? highrisk0341

Ed (Sep 21, 2005 10:15:43 AM)
Great question

Ed (Sep 21, 2005 10:15:59 AM)
We need to look at risk/reward objectively

Ed (Sep 21, 2005 10:16:11 AM)
which can be difficult

Ed (Sep 21, 2005 10:16:24 AM)
It all comes down to seeing what is on the chart

Ed (Sep 21, 2005 10:16:33 AM)
as opposed to what we would like to see

Ed (Sep 21, 2005 10:16:45 AM)
It is easy to justify the risk of a trade by predicting an unlikely reward

Ed (Sep 21, 2005 10:16:59 AM)
This is one of the reasons why trading can be so difficult

Ed (Sep 21, 2005 10:17:12 AM)
because as human beings we often see what we want to see

Ed (Sep 21, 2005 10:17:26 AM)
Risk is fairly easy to measure

Ed (Sep 21, 2005 10:17:40 AM)
because it will be based on a stop

Ed (Sep 21, 2005 10:17:50 AM)
that falls within our maximum allowable loss

Ed (Sep 21, 2005 10:17:58 AM)
Reward can be tougher to quantify

Ed (Sep 21, 2005 10:18:10 AM)
we have to ask ourselves if we are being realistic

Ed (Sep 21, 2005 10:18:20 AM)
Has the price recently reached our exit point

Ed (Sep 21, 2005 10:18:34 AM)
or are we aiming for an exit that has been unreachable?

Ed (Sep 21, 2005 10:18:45 AM)
I try to err on the side of caution

Ed (Sep 21, 2005 10:19:00 AM)
and be conservative when determining exit points.

Ed (Sep 21, 2005 10:19:24 AM)
Ok, let's move on to the next question

Ed (Sep 21, 2005 10:19:35 AM)
How can you spot True Vs False breakouts? Thank you. alex.tatarov

Ed (Sep 21, 2005 10:19:52 AM)
Thank you for your question.

Ed (Sep 21, 2005 10:20:04 AM)
You can never be 100% sure if a breakout is real or false

Ed (Sep 21, 2005 10:20:15 AM)
but there are certain things that you can do to put the odds in your favour

Ed (Sep 21, 2005 10:20:29 AM)
I would recommend looking at the time of day of the breakout

Ed (Sep 21, 2005 10:20:42 AM)
does it occur during a time of high volume or low volume?

Ed (Sep 21, 2005 10:20:54 AM)
Breakouts that occur during times of high volume have a better chance of success.

Ed (Sep 21, 2005 10:21:10 AM)
Also, often a currency pair that is trending

Ed (Sep 21, 2005 10:21:27 AM)
will consolidate for a while before resuming the trend

Ed (Sep 21, 2005 10:21:39 AM)
So, look to see if there is a trend prior to the consolidation

Ed (Sep 21, 2005 10:21:54 AM)
If the pair was trending

Ed (Sep 21, 2005 10:22:13 AM)
a breakout in the direction of the prior trend

Ed (Sep 21, 2005 10:22:25 AM)
has a higher degree for the possibility of success.

Ed (Sep 21, 2005 10:23:04 AM)
Ok, let's go to the next question

Ed (Sep 21, 2005 10:23:14 AM)
Do your approaches also apply to breakouts in longer term trading, such as planning entry trades for the next day, including optimal stop loss and limits?joel

Ed (Sep 21, 2005 10:23:25 AM)
Great question.

Ed (Sep 21, 2005 10:23:36 AM)
Yes, absolutely

Ed (Sep 21, 2005 10:23:49 AM)
you can apply breakout techniques

Ed (Sep 21, 2005 10:24:00 AM)
to longer time frames as well as shorter time frames

Ed (Sep 21, 2005 10:24:12 AM)
The same theories about support/resistance, time of day, and trend direction

Ed (Sep 21, 2005 10:24:22 AM)
apply to the longer-term charts as well as the shorter-term charts

Ed (Sep 21, 2005 10:24:49 AM)
Alright, let's continue with the next question

Ed (Sep 21, 2005 10:24:55 AM)
Is there a rule of thumb for how long you should wait for price to move after it breaks through a range? paulhenry22

Ed (Sep 21, 2005 10:25:35 AM)
Thanks for your question.

Ed (Sep 21, 2005 10:25:45 AM)
No, I don’t really have a rule of thumb for the length of time

Ed (Sep 21, 2005 10:25:59 AM)
In fact, many traders believe that the longer a pair is consolidating

Ed (Sep 21, 2005 10:26:11 AM)
the stronger the breakout is likely to be

Ed (Sep 21, 2005 10:26:32 AM)
The theory is that there are many buyers and sellers entering the trade

Ed (Sep 21, 2005 10:26:58 AM)
and the longer the pair consolidates, the more traders are long and short the pair

Ed (Sep 21, 2005 10:27:16 AM)
So when the pair finally breaks out

Ed (Sep 21, 2005 10:27:28 AM)
many traders will be on the wrong side of the trade

Ed (Sep 21, 2005 10:27:41 AM)
and will be forced to cover their positions

Ed (Sep 21, 2005 10:27:56 AM)
In theory, the longer the consolidation

Ed (Sep 21, 2005 10:28:11 AM)
the more traders who will be on the wrong side of the trade

Ed (Sep 21, 2005 10:28:20 AM)
no matter which direction the pair breaks.

Ed (Sep 21, 2005 10:28:31 AM)
When these traders have to cover their positions

Ed (Sep 21, 2005 10:28:44 AM)
it adds fuel to the breakout, such as in a “short squeeze”.

Ed (Sep 21, 2005 10:29:17 AM)
Ok, next question...

Ed (Sep 21, 2005 10:29:32 AM)
How many pairs do you typically trade? Which is your favorite for this kind of trading?

Ed (Sep 21, 2005 10:29:43 AM)
Thank you for your question

Ed (Sep 21, 2005 10:29:57 AM)
I usually trade no more than three uncorrelated currency pairs at a time

Ed (Sep 21, 2005 10:30:11 AM)
What I mean by uncorrelated is

Ed (Sep 21, 2005 10:30:26 AM)
for example, I will not take three trades that short the USD simultaneously

Ed (Sep 21, 2005 10:30:44 AM)
or I will not take three trades that go long the JPY at the same time

Ed (Sep 21, 2005 10:31:01 AM)
I’m not saying that three is the optimal number of trades for everyone,

Ed (Sep 21, 2005 10:31:11 AM)
but it is a number with which I am comfortable

Ed (Sep 21, 2005 10:32:16 AM)
My favorite kind of trading is trend-based trading

Ed (Sep 21, 2005 10:32:27 AM)
I think anyone’s favorite type of trading

Ed (Sep 21, 2005 10:32:42 AM)
is probably based on that person’s individual experiences

Ed (Sep 21, 2005 10:33:01 AM)
as opposed to an objective review of techniques

Ed (Sep 21, 2005 10:33:13 AM)
so whatever method a trader uses

Ed (Sep 21, 2005 10:33:25 AM)
that creates initial success

Ed (Sep 21, 2005 10:33:49 AM)
is likely to be that trader’s favorite

Ed (Sep 21, 2005 10:34:00 AM)
as that trader will associate success with that method of trading

Ed (Sep 21, 2005 10:34:10 AM)
This can have the unfortunate side effect

Ed (Sep 21, 2005 10:34:20 AM)
of causing a trader to continue using a technique

Ed (Sep 21, 2005 10:34:28 AM)
even when it is no longer appropriate.

Ed (Sep 21, 2005 10:35:50 AM)
Ok

Ed (Sep 21, 2005 10:35:57 AM)
Let's go to the next question...

Ed (Sep 21, 2005 10:36:11 AM)
When shall we say its the low price so that we can place a buy position; its the high price, so we can position selling? mcanny2

Ed (Sep 21, 2005 10:36:33 AM)
Thank you for your question.

Ed (Sep 21, 2005 10:36:45 AM)
If support is tested and holds

Ed (Sep 21, 2005 10:36:54 AM)
and the price begins to move higher

Ed (Sep 21, 2005 10:37:02 AM)
then you could consider entering the long trade.

Ed (Sep 21, 2005 10:37:14 AM)
The situation is the opposite for short trades

Ed (Sep 21, 2005 10:37:28 AM)
wait for a successful test of resistance to hold

Ed (Sep 21, 2005 10:37:45 AM)
and then enter the short trade as the price falls away from resistance

Ed (Sep 21, 2005 10:37:56 AM)
This way you are not in the position of guessing

Ed (Sep 21, 2005 10:38:10 AM)
whether or not support/resistance will hold

Ed (Sep 21, 2005 10:38:35 AM)
Trading should not be a prediction, but a reaction to a set of circumstances

Ed (Sep 21, 2005 10:38:56 AM)
On to the next question...

Ed (Sep 21, 2005 10:39:12 AM)
What indicators on a 15min chart would you recommend to trade breakouts? merchcon

Ed (Sep 21, 2005 10:39:23 AM)
Thank you for your question.

Ed (Sep 21, 2005 10:39:37 AM)
For me, a breakout by definition is a trade that is based on price action

Ed (Sep 21, 2005 10:39:51 AM)
The only indicators that I use for breakout trades are trendlines and price action

Ed (Sep 21, 2005 10:40:00 AM)
regardless of the time frame.

Ed (Sep 21, 2005 10:40:09 AM)
I’m sure that there are other traders

Ed (Sep 21, 2005 10:40:19 AM)
who use indicators as a filter for their breakout trades

Ed (Sep 21, 2005 10:40:29 AM)
I prefer to use time of day and prior trend as my filters instead of indicators.

Ed (Sep 21, 2005 10:41:12 AM)
Next question...

Ed (Sep 21, 2005 10:41:16 AM)
Is buying breaks a sensible strategy or do you prefer to set up your positions at resistance and support points? soutmatt

Ed (Sep 21, 2005 10:41:30 AM)
Thank you for your question

Ed (Sep 21, 2005 10:41:39 AM)
Buying breakouts can be a good strategy

Ed (Sep 21, 2005 10:41:52 AM)
but it is not the only way to deal with the situation

Ed (Sep 21, 2005 10:42:18 AM)
Another possible solution

Ed (Sep 21, 2005 10:42:28 AM)
is to wait for a pullback before entering the trade

Ed (Sep 21, 2005 10:42:42 AM)
If you want to trade support and resistance levels

Ed (Sep 21, 2005 10:42:56 AM)
and are assuming that support or resistance will hold,

Ed (Sep 21, 2005 10:43:09 AM)
your entry point for short trades would be below resistance,

Ed (Sep 21, 2005 10:43:19 AM)
and your entry point for long trades would be above support.

Ed (Sep 21, 2005 10:43:34 AM)
This is the opposite of the breakout trade

Ed (Sep 21, 2005 10:43:53 AM)
in which the long entry is above resistance

Ed (Sep 21, 2005 10:44:07 AM)
and the short entry is below support.

Ed (Sep 21, 2005 10:44:29 AM)
Ok, on to the next question....

Ed (Sep 21, 2005 10:44:40 AM)
Do you look for ranges bounded on both sides, and just one support OR resistance level to be broken through?

Ed (Sep 21, 2005 10:44:53 AM)
Thank you, that’s a great question.

Ed (Sep 21, 2005 10:45:05 AM)
Either situation is fine

Ed (Sep 21, 2005 10:45:17 AM)
but there is always a temptation to see something that isn’t there

Ed (Sep 21, 2005 10:45:31 AM)
What I mean is

Ed (Sep 21, 2005 10:45:45 AM)
if there is a clear support level but no resistance level

Ed (Sep 21, 2005 10:46:14 AM)
there is a tendency among many traders to ‘invent’ a resistance level

Ed (Sep 21, 2005 10:46:24 AM)
where none exits

Ed (Sep 21, 2005 10:46:38 AM)
We have to take care to trade only what is really on the chart

Ed (Sep 21, 2005 10:46:47 AM)
as opposed to what we would like to see

Ed (Sep 21, 2005 10:46:57 AM)
So if there are clearly defined support and resistance levels

Ed (Sep 21, 2005 10:47:14 AM)
that is fine

Ed (Sep 21, 2005 10:47:26 AM)
but if there is only a support level or a resistance level

Ed (Sep 21, 2005 10:47:38 AM)
that can be useful too

Ed (Sep 21, 2005 10:47:53 AM)
as long as we are trading what is actually on the chart

Ed (Sep 21, 2005 10:48:05 AM)
as opposed to what we would like to see on the chart

FXstreet Moderator (Sep 21, 2005 10:48:41 AM)
Thank you very much for that, Ed

FXstreet Moderator (Sep 21, 2005 10:48:53 AM)
Please post your questions now and Ed will attempt to answer as many as possible.

scooby (Sep 21, 2005 10:49:44 AM)
Would you say trading a breakout of the asaian session range at the start of the UK session would be the safest way to trade forex?

Ed (Sep 21, 2005 10:49:58 AM)
Great question scooby

Ed (Sep 21, 2005 10:50:20 AM)
It is one of the better times of day

Ed (Sep 21, 2005 10:50:24 AM)
to trade breakouts

Ed (Sep 21, 2005 10:50:29 AM)
because of the high volume

Ed (Sep 21, 2005 10:50:40 AM)
of the UK open

Ed (Sep 21, 2005 10:50:49 AM)
but there are other times of day

Ed (Sep 21, 2005 10:50:59 AM)
that may be just as advantageous

Ed (Sep 21, 2005 10:51:05 AM)
for example,

Ed (Sep 21, 2005 10:51:26 AM)
during the time of day when the UK and US sessions are open simultaneously

Ed (Sep 21, 2005 10:51:39 AM)
but you are correct to assume that breakouts

Ed (Sep 21, 2005 10:51:52 AM)
will have a greater chance of success at that time of day.

0mar (Sep 21, 2005 10:52:12 AM)
does the height of the triangle indicating technical target also apply to forex trading?

Ed (Sep 21, 2005 10:52:19 AM)
Thank you Omar

Ed (Sep 21, 2005 10:52:32 AM)
many traders use the height of the triangle at its widest point

Ed (Sep 21, 2005 10:52:57 AM)
to determine the target for a breakout of this triangle.

Ed (Sep 21, 2005 10:53:11 AM)
This has been a widely accepted practice

Ed (Sep 21, 2005 10:53:27 AM)
and while no real reason (support/resistance, etc)

Ed (Sep 21, 2005 10:53:40 AM)
exists for the height of the triangle

Ed (Sep 21, 2005 10:53:53 AM)
to accurately predict the target,

Ed (Sep 21, 2005 10:54:11 AM)
there may be a "self-fulfilling prophecy"

Ed (Sep 21, 2005 10:54:30 AM)
that will cause the breakout to run into turbulence at that point'

Ed (Sep 21, 2005 10:54:49 AM)
In other words, if enough traders believe

Ed (Sep 21, 2005 10:55:00 AM)
that a random point will act as support or resistance

Ed (Sep 21, 2005 10:55:06 AM)
and place their orders accordingly

Ed (Sep 21, 2005 10:55:20 AM)
then that point may actually become support or resistance

Ed (Sep 21, 2005 10:55:29 AM)
due to the existence of the orders

Ed (Sep 21, 2005 10:55:39 AM)
and their effect on price action.

vince (Sep 21, 2005 10:56:10 AM)
are triangles the only way to tell of breakouts, or is their an other method used will triangles;. that can improve your odds?

Ed (Sep 21, 2005 10:56:18 AM)
Thank you vince

Ed (Sep 21, 2005 10:56:32 AM)
Triangles are not the only method for determining breakouts

Ed (Sep 21, 2005 10:57:08 AM)
for example, you could simply have a breakout above horizontal resistance

Ed (Sep 21, 2005 10:57:19 AM)
without the rising level of support

Ed (Sep 21, 2005 10:57:31 AM)
but that rising level of support is telling us something

Ed (Sep 21, 2005 10:57:36 AM)
that may be very important

Ed (Sep 21, 2005 10:57:47 AM)
it is telling us that the bulls are gaining strength

Ed (Sep 21, 2005 10:57:53 AM)
or becoming more aggressive

Ed (Sep 21, 2005 10:58:04 AM)
so using the asymetrical triangle

Ed (Sep 21, 2005 10:58:15 AM)
that is in conjunction with an underlying trend

Ed (Sep 21, 2005 10:58:33 AM)
and that breaks out at a high-volume time of day

Ed (Sep 21, 2005 10:58:49 AM)
when we have all of these factors together,

Ed (Sep 21, 2005 10:59:04 AM)
we are simply trying to increase our chances of success

Ed (Sep 21, 2005 10:59:11 AM)
by putting the odds in our favor

Guest (Sep 21, 2005 10:59:38 AM)
question : I usually draw the Pivots , Support and ressistance , fibo , and camarilla Lines on my chart , but my porblem is this : EVERY 10-30 pips , I have a line , those are all important

FXstreet Moderator (Sep 21, 2005 11:00:12 AM)
I usually draw the Pivots , Support and ressistance , fibo , and camarilla Lines on my chart , but my porblem is this : EVERY 10-30 pips , I have a line , those are all importan

Ed (Sep 21, 2005 11:01:14 AM)
Thank you for the question

Ed (Sep 21, 2005 11:01:34 AM)
It sounds like you are jamming too much information on to your chart

Ed (Sep 21, 2005 11:01:47 AM)
Everyone trades differently

Ed (Sep 21, 2005 11:02:14 AM)
so I am not going to say that "this is the right way, this is the wrong way", etx

Ed (Sep 21, 2005 11:02:25 AM)
but personally, I like to keep it simple

Ed (Sep 21, 2005 11:02:42 AM)
simple trading systems work just as well for me as complicated systems

Ed (Sep 21, 2005 11:03:02 AM)
I would recommend focusing on fewer elements

Ed (Sep 21, 2005 11:03:18 AM)
and simplifying your process

Ed (Sep 21, 2005 11:03:33 AM)
because if you have lines all over your chart,

Ed (Sep 21, 2005 11:03:39 AM)
and they are 10 pips apart

Ed (Sep 21, 2005 11:04:07 AM)
then you are always going to be too close to support/resistance to really allow yourself room

Ed (Sep 21, 2005 11:04:15 AM)
to allow a successful trade to run.

Ed (Sep 21, 2005 11:04:36 AM)
Just my two cents, again I am just telling you what I would do in this situation

Ed (Sep 21, 2005 11:04:52 AM)
and what is best for some, might not be best for others

FXstreet Moderator (Sep 21, 2005 11:06:12 AM)
When the time of day confirms, and you have a breakout that's likely to be sustained, how soon do you enter?

Ed (Sep 21, 2005 11:06:37 AM)
Thank you for your quesiton Eric

Ed (Sep 21, 2005 11:06:56 AM)
There are two generally accepted ways to enter this trade

Ed (Sep 21, 2005 11:07:15 AM)
Each has advantages and disadvantages

Ed (Sep 21, 2005 11:07:20 AM)
as we will see

Ed (Sep 21, 2005 11:07:32 AM)
we could enter simply on a break of the trendline

Ed (Sep 21, 2005 11:07:53 AM)
In other words, as soon as the price breaks below support, we can sell.

Ed (Sep 21, 2005 11:08:17 AM)
the advantage to this method is that the entry price is often ideal

Ed (Sep 21, 2005 11:08:40 AM)
the disadvantage to this method is that it increases the chance of buying or selling

Ed (Sep 21, 2005 11:08:44 AM)
into a false breakout

Ed (Sep 21, 2005 11:09:16 AM)
The other method would be to wait for a candle to close above resistance or below support

Ed (Sep 21, 2005 11:09:57 AM)
The advantage of this method is that the occurence of a false breakout is less likely to be a problem

Ed (Sep 21, 2005 11:10:32 AM)
the disadvantage is that by the time the candle closes, the price may be far away from the ideal entry point.

Ed (Sep 21, 2005 11:10:53 AM)
The trader has to choose which method works best

Ed (Sep 21, 2005 11:11:18 AM)
I tend to be cautious so I often wait for the candle to close

Ed (Sep 21, 2005 11:11:33 AM)
if the candle closes and the price has extended too far from the breakout point

Ed (Sep 21, 2005 11:11:44 AM)
I just pass on the trade

Ed (Sep 21, 2005 11:11:54 AM)
I am much more concerned with making a poor entry

Ed (Sep 21, 2005 11:12:01 AM)
than I am with missing a move

Ed (Sep 21, 2005 11:12:08 AM)
you can't catch every move

Ed (Sep 21, 2005 11:12:17 AM)
and trades that I miss

Ed (Sep 21, 2005 11:12:35 AM)
cannot have a negative impact on my p&l

Ed (Sep 21, 2005 11:12:46 AM)
so I don't worry about the ones I miss,

Ed (Sep 21, 2005 11:12:54 AM)
I worry about the ones that I take

Showroom Moderator (Sep 21, 2005 11:14:36 AM)
Last question:

kiwiflier (Sep 21, 2005 11:14:51 AM)
Ed, would you consider fading the false breakout as illustrated in your example considering the time of day?

Ed (Sep 21, 2005 11:15:11 AM)
Thank you for the question

Ed (Sep 21, 2005 11:15:47 AM)
In hindsight, it's very easy to see that fading that move

Ed (Sep 21, 2005 11:16:04 AM)
would have been the right move

Ed (Sep 21, 2005 11:16:15 AM)
At the time that the move occurred,

Ed (Sep 21, 2005 11:16:22 AM)
there was very little activity in the market

Ed (Sep 21, 2005 11:16:28 AM)
there was really nothing going on

Ed (Sep 21, 2005 11:16:47 AM)
and the move was very sudden, and did not appear to occur in conjunction

Ed (Sep 21, 2005 11:17:05 AM)
with any news event, economic indicator, or other market-moving event

Ed (Sep 21, 2005 11:17:34 AM)
the price stayed under the breakout level for about 2 minutes if I recall correctly

Ed (Sep 21, 2005 11:17:44 AM)
all the signs of a false breakout

Ed (Sep 21, 2005 11:18:03 AM)
plus it occurs late in the Japanese session

Ed (Sep 21, 2005 11:18:20 AM)
at a time that is not particularly active

Ed (Sep 21, 2005 11:18:34 AM)
one way that a trader could deal with this...

Ed (Sep 21, 2005 11:18:50 AM)
if he or she suspects a false breakout, and sees the price under 1.2000...

Ed (Sep 21, 2005 11:19:03 AM)
a trader could place an entry order just above 1.2000

Ed (Sep 21, 2005 11:19:09 AM)
that way, if the breakout is real,

Ed (Sep 21, 2005 11:19:19 AM)
the order will probably not execute

Ed (Sep 21, 2005 11:19:24 AM)
but if the breakout is false

Ed (Sep 21, 2005 11:19:42 AM)
the trader can catch the pair as it rises back above 1.2000

Ed (Sep 21, 2005 11:20:07 AM)
so instead of gambling as to whether or not it is a real or false breakout

Ed (Sep 21, 2005 11:20:28 AM)
the trader is setting up to catch a reversal of a false breakout if it occurs

Ed (Sep 21, 2005 11:20:51 AM)
that might be a good way to deal with the situation

FXstreet Moderator (Sep 21, 2005 11:21:44 AM)
Thank you very much for that, ED

FXstreet Moderator (Sep 21, 2005 11:21:58 AM)
If your question was not answered during the course of this chat, please contact Ed

FXstreet Moderator (Sep 21, 2005 11:22:09 AM)
Email: edponsi@fxstreet.com

FXstreet Moderator (Sep 21, 2005 11:22:33 AM)
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FXstreet Moderator (Sep 21, 2005 11:22:46 AM)
Awaiting your emails: please

Ed (Sep 21, 2005 11:23:10 AM)
Thank you everyone for being here today

FXstreet Moderator (Sep 21, 2005 11:24:04 AM)
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FXstreet Moderator (Sep 21, 2005 11:24:21 AM)
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FXstreet Moderator (Sep 21, 2005 11:24:42 AM)
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Ed (Sep 21, 2005 11:25:32 AM)
Thank you everybody, I look forward to hearing from you

Ed (Sep 21, 2005 11:25:56 AM)
please feel free to send an email to me

Ed (Sep 21, 2005 11:26:20 AM)
edponsi@fxstreet.com

FXstreet Moderator (Sep 21, 2005 11:26:29 AM)
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FXstreet Moderator (Sep 21, 2005 11:26:40 AM)
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