Narrow Range Breakout Forex Trading System

Narrow Range Breakout Forex Trading System
Small losses and BIG WINS are key to this system's success
You will learn a low risk, high probability Forex Trading System that finds huge wins while risking very little - the KEY to its success

There are many ways to trade the Foreign currency market. The key behind any profitable forex trading system is having small losses, risking no more than 2-3% of your account on any given trade and to focus on methods that find wins of 1.5 to 2X bigger than you are risking.

Van Tharp in his excellent "Trade Your Way to Financial Freedom" book defines risk in terms of R. If you are risking 10 pips than that counts as 1R. You should have an expectation that if trade works it will return 15 pips-20pips+ which is 1.5R to 2R.

Thinking in terms of your risk vs reward in such ways will dramatically help you as a trader!

It will force you to FORGET about sub optimal trades, the kind of trades where you are likely to only make as much or less than you are risking. Taking such sub optimal trades is a recipe for disaster and very likely to mean failure for you and your trading career!

So now that you have a basic understanding of always risking a smaller amount than your profit targets or trailing stops will give you in profits when the trade works we can discuss an excellent trade method that is a perfect example of such a concept.

It's called Narrow Range Breakout system. Volatility is EASIER to predict than price levels. The markets all have periods of HIGH volatility followed by periods of LOW volatility! Getting into a trade during a period of LOW volatility is higly profitable because soon after the market returns to a period of high volatility and thus when wrong you have super tiny losses and when the trades work you have huge profits.

We teach our traders to use the Chandelier trailing stop as a way to stay in trends as long as possible and catch as many pips in the move as possible. The key with any trailing stop or exit technique is to give the trade SOME room to wiggle yet to not give back too much of the profit when the move is over. The chandelier trailing stop moves up when the market moves up and it also moves up when the market goes sideways and volatility decreases. On big trend moves we've found it catches 75 to 90% of the move and will usually keep us in the trend until its over. Most Forex trading software platforms have this tool as does our TopGun Software. This is the tool we will use for our exit method for this system. I'm discussing it FIRST because it uses volatility as a means of stop placement. Because this system I'm about to describe gets INTO the trade during low volatility the stop is SUPER TIGHT and thus when wrong you lose such a tiny amount of pips and dollars! The wins of this system are often 3 to 10X bigger than this tiny initial risk. Van Tharp would be very proud of this system because it obeys his key rule of keeping super small losses and it obeys his second rule of shooting for wins that are MANY TIMES BIGGER than initial risk!

Entry Method - This system is very simple and can be applies to different time frame charts - Daily, 240 minute, 60 minute and even 30 minute works in the Forex markets.

Step One Look for Narrow Ranges - We define a narrow range as one where the High-Low is less than either the 4 previous bars or 7 previous bars. If the range is less than the 4 previous bars it also must meet one additional rule which is it has to be an inside bar. An inside bar is just that, its INSIDE of previous bar. This means the low is GREATER than previous bars low and the high is LESS than previous bar's high!

The above is the SETUP phase of this system.

Step Two Wait for breakouts UP or down outside of the Narrow Range Bar's High or Low. This is super simple, simply buy the breakout of the narrow range bar's high and sell the break down of the narrow range bar's low.

Then employ the trailing stop. This system is just this simple!

Here's a perfect example of one our NR Breakout Visual Basic script found in real time. It labels the chart with a NR7 showing that the previous 4 hour bar (240 min bar) was smaller in range (high-low) than the previous 7 bars. You can see it took three attempts at this trade, the first two with small 10 pip losses and then bought again at 132.40 and rode it up and exited when Chandelier Trailing Stop was hit at 133.29 for a win of 84 pips after the spread and 64 pips net for the day after the two losses!

This trading system works due to the low volatility of our chandelier trailing stop, ie it risks very little. This trade also has a decent winning percentage of usually over 50% and often 60% and higher! So when it fails you lose very little, often 8 to 12 pips. And when it works you make usually 30-50 pips and sometimes 100 to 150 pips! Also keep in mind that even on days where it works only 1 out of 3 times as in this example the wins are usually so big it doesn't matter. It's the true beauty of this trading system. One win can wipe out 3 to 6 losses in one felll swoop.