Box Break Out Forex Strategy
Box Break Out Forex Strategy
The box break out forex strategy is one of the most well-known and consistent forex trading strategies out there. Traders have literally been using this strategy to successfully trade the markets for decades, and it works especially well in the forex markets. Every serious forex trader needs to have a working knowledge of the box break-out forex strategy as it is crucial to spotting profitable opportunities within the market. So let’s look at some examples of this time-tested forex trading strategy and discuss how you can begin to implement it into your trading routine.
The first example we are looking at below is of the AUDJPY daily chart. First, notice how price bounced between 76.50 and 80.00 several times before breaking out to the upside. Once price did finally breakout from this “box” of support and resistance, it moved a minimum of the width of the original box, which was 350 pips, typically price will go a little further than the width of the box before a major reversal, as it did in this example.
Review of the Box Break-out Forex Strategy:
• Look for “box” areas on the currency pair you are trading where price has bounced between nearly the same support and resistance levels several times, forming a box like setup.
• Trade the breakout of the box by putting a buy and sell above and below the box setup, once your first order gets filled the other one automatically becomes your stop loss.
• Set your initial target at the width of the box. In the example above the daily box of AUDJPY was 350 pips, so the initial target was set at 350 pips.
• Often time, price will retrace and test the box break-out level, such occurrences are usually very high probability entry scenarios, especially when confirmed with a rejection bar or price action setup.
The intra-day box break-out forex strategy:
Another way that many traders like to use the box break-out forex strategy is as an intra-day trend continuation pattern. In the example below we are looking at the 1 hour GBPUSD chart and we can see that the trend was up before the box formed between 1.5300 and 1.5140.
After price bounced around in this box for several days it broke decisively to the upside, with the dominant trend, shooting up 160 pips with only a slight retracement along the way.
Notice in the zoomed in chart below we can see the breakout of the box in the above chart. We also have highlighted a 1 hour pin bar setup that showed rejection of 1.5315..this rejection candle was close enough to our initial breakout near 1.5300 to be viewed as a very solid 2nd entry opportunity for any traders who missed the original breakout.
As you can see by the examples in this article, box break-out forex strategy nearly always retrace somewhat after the initial breakout. Typically the retracement will move down or up to re-test the initial breakout level, however sometimes they come just shy of fully re-testing the breakout level. In either case these 2nd entries are a much safer way to trade the box break-out forex strategy because of the fact that you never REALLY know when the box is going to DECISIVELY breakout. Often times there will be many “false” breakouts which can fill you prematurely and thus whipsaw you out of a position.
The best way to avoid this is to wait for the initial breakout and then enter on the first retracement to the breakout level, this is the more conservative way to trade the box break-out forex strategy. The more aggressive way to trade the box break out forex strategy is to simply place a buy and sell stop about 10 pips above and below the box and just sit and wait for the box to breakout, taking profit once price moves the width of the box, however keep in mind this method may result in false-breakouts filling your order in the wrong direction, but the plus side to this strategy is that you will won’t miss many of the initial decisive break-out moves.
