Breakout forex strategies for many traders seem to be complex trading systems, since the algorithm of their work does not provide for a large number of technical indicators – hints, on the readings of which most traders are used to relying. Moreover, there may not be any indicators here at all, trading, most often, is carried out at important levels that a trader must be able to determine on a chart.
Nevertheless, breakout strategies are rightfully considered one of the most reliable forex strategies, since they are guided exclusively by price behavior, and in the market, as you know, it is the price that decides everything.
So, in order to understand that it is good, affordable and effective to work on a breakout, today we will consider one of such TS – the Daily Break Strategy or DBS for short.
• DBS isintraday forex strategy, since its principle of operation is based on a breakout of the previous day’s high or low, or a rebound from extremes.
Trading according to the DBS strategy is carried out using pending orders, the modified Fibonacci grid…
You can trade any financial asset according to the strategy, but preference, of course, is given to rather volatile ones with a sweeping amplitude of movement within the day. Any work schedule can be chosen. Usually it is H1 or M15.
Setting up a template for trading according to the DBS strategy
So, the main technical tool used in the DBS strategy is a specially customized Fibonacci line indicator
To modify it, you first need to stretch the Fibo grid between the maximum and minimum of the trading day, select its properties with the right mouse button and write the following values into them:
0 – input 1 (% $);
1 – entrance 2 (% $);
-0.5 – take profit 1 (% $);
1.5 – take profit 2 (% $);
0.236 – stop loss 1 (% $);
0.764 – stop loss 2 (% $);
-0.25 – used 1 (% $);
1.25 – used 2 (% $);
0.5 – used 3 (% $).
The Fibonacci indicator window is shown in the figure:
Fibonacci indicator window
Placing orders and trading according to the DBS strategy
As already mentioned, the Fibonacci grid stretches between the extremes of the previous trading day. Then, focusing on the numerical indicators of important levels, the trader places pending entry orders, position protection, and profit-taking.
Note: the rules of the strategy provide for the simultaneous placement of two unidirectional orders with profit taking at different target levels.
Fibonacci grid stretched along the extrema of the previous day
Now the trader should start placing pending orders and protective orders. This is usually done in the Asian session the next day. If in the morning any of the extremums was updated, then it is not recommended to trade on this instrument that day.
Two pending sell-stop orders are placed a little lower, usually by 3-5 points, of the “Entry 1” level. Stop-loss levels for each of them are prescribed according to the “stop-loss 1” level. Target points for one of the orders will be “used 1”, for the second – “take profit 1”.
At the same time, two Buy-stop orders are placed with a reference point to the “Entry 2” level. Here you should additionally provide for the size of the spread of the trading instrument. Also, protective orders are set with an eye on the “stop loss 2”. Take-profit of one order is placed for “used 2”, the second – for “take-profit 2”.
The example below shows that after placing orders, the pair in the European session of the next day began a downward movement, as a result of which two sell-stop orders were closed with profit.
When the first order is closed by take-profit, the stop-loss of the second is transferred to the start point or a few points below / above the entry.
example of selling on the DBS
However forex trading is not always so smooth. In case the pair chose the direction, updated the extremum, but did not go further (false breakout), two more groups of orders are envisaged, which are set after some of the orders set earlier are triggered. This will minimize losses. Safety orders are placed immediately as soon as some of the main orders are triggered.
To hedge the purchase, two sell-stop orders are placed just below the stop-loss level 2. Stop-loss for each and for them is set slightly higher (taking into account the spread) of the “Entry 2” level, the take-profit of one of them will be the “used 3” level, for the second the target will be the next level – “stop-loss 1”.
An example of this type of transaction is shown in the figure:
example of trading on TS DBS with a false breakout
A similar insurance takes place after the delayed salesmen are triggered. In this case, two buy-stops are set slightly above (taking into account the spread) the “stop-loss 1” level, protective orders are placed in the “Entry 1” area, the target marks are “used 3” and “stop-loss 2”.
Important! Unworked orders should not be left the next day.
Conclusions on the DBS strategy
Despite the apparent complexity and confusion due to the large number of levels and orders, trading strategy is very simple and requires only a careful study of the principle of operation.
You should pay attention to the fact that trading is carried out with double orders, therefore, in accordance with many-management, their total volume should correspond to the lot size accepted by the trader in trading on his trading system.
Naturally, DBS is not a “Grail”, the Forex market is very unpredictable, and the dynamics of quotations depends not only on technical factors. Nevertheless, DBS’s breakout forex strategy deserves the attention of both beginners and experienced traders.