Trading The FX Market With The Breakout Indicator MT4
Hello again on our Best MT4 Indicators website! Last time we shared an interesting Hull Moving Average MT4 article. Today we are going to start with the breakout indicator MT4. If you are very familiar with the foreign exchange market, you would understand that there are 2 major ways of trading for profit. While the first way of trading is known as trend trading, the second way is referred to as breakout trading. Regardless of the type of trading you choose, everything still boils down to the goal of generating profit.
It is common knowledge that asset prices move only 20% of the time in a trend. The remaining 80% moves sideways (breakout). Clearly, one could put up an argument that it is a better strategy to trade sideways or breakout than trends. However, the inherent risk trading breakout is very high, and you may lose your hard-earned money if you don’t apply caution. We have added a breakout indicator on our top 10 mt4 indicators page also.
Trend Trading Using Breakout Indicator Mt4
Trend trading is less risky, as there are no pullbacks since the prices would burst out with little or no momentum. If your strategy if top-notch, you would definitely reap a huge profit. This point gives trend traders an undue advantage over breakout traders.
In breakout trading, asset prices chop around, which can deceive a breakout trader into believing that the price will remain in a particular direction only to change direction moments after. Breakout traders are more compensated for taking a risk than their trend counterparts. No wonder, nowadays, day traders seem to prefer breaking out trading to trend trading to increase their profit margin.
Experiment with different strategies
For several years now, traders have been seeking ways to mitigate the risk involved in breakout trading. This pushed some traders to experiment with different strategies like Volatility or Bollinger bands and the use of boxes. While the former leads to trend generation, the latter defines the price at which a breakout could possibly occur; a breakout indicator MT4 comes handy in this regard.
The breakout indicator MT4 is a perfect tool to leverage if you want to trade breakout without much exposure to the market risk. Instead of manually plotting boxes on the trading graph, the indicator would automatically plot those boxes within a few seconds. You are even at liberty to set the period for the breakout indicator to work with.
Installing the Indicator
Here is how to install the indicator:
1. Download the breakout indicator from a reliable source
2. Open your MT4 trading terminal and save the file there
3. Refresh or restart the MT4 trader
4. After the trader must be restarted, open your indicator list to see whether you will find the breakout indicator.
5. If you see the indicator, copy it to your trading chart
6. The breakout indicator should appear on your chart.
The indicator is very simple to install and use on the MT4 trader. The first step to using the indicator is to set the timeframe for the indicator to work with – you’ve got to set the first and final trading hours. The indicator will then plot both the low and high of the period.
Configuring the Indicator
The configuration image above shows you how to set or adjust the breakout indicator to suit your trading strategy. The only downside of using this indicator is that it is highly time-dependent – there are some periods of the trend the indicator would not be effective.
For the indicator to be visually appealing, you have to adjust or set the color code. Once you are able to adjust all the settings and apply the indicator to your chart, the image below shows how it will appear. Also do not forget to check the strength off a forex pair. You can learn more about that on our Currency strength meter page.
From the chart above, you can see that the asset price breakout from the range and time periods; thus, you can trade the breakout. The indicator is very powerful – you can adjust it to trade any system or build your own unique trading system.
Trading Strategy Using the Breakout Indicator MT4
While there are several trading strategies to use the breakout indicator MT4 for profit, you need to be aware of the one-hour chart time frame. If for any reason, you change to a 4 or 5-hour time frame, you would not get the best from the indicator. You have to either adjust the period setting or switch to a lower time frame for the indicator to work in the 4 or 5-hour time frame.
To gauge the trend of the market, apply the indicator to the chart and adjust the period to 20-period moving average. Once you’re able to do that, you should see the below image.
A simple and straightforward way to trade breakout with the configuration above is to look at the range of the previous day trading session. The black horizontal line you see on the chart is the range of the previous day.
Once the breakout is below the low, you need to wait for the price to return back to its initial value. The following day, the price should breakout lower than what you had the previous day – the price should be below the moving average.
Set the target to the breakout’s lower range and place the stops near the previous highs. The only time you should move your stops is when the price move in your direction upon entering a trade. You can apply the same strategy if you take a long position; the image below shows what you should get.
Conclusion of Breakout Indicator Mt4
The breakout indicator MT4 is a great tool that you should install on your trading environment if you must break even with breakout trades. You can easily customize settings to suit your trading needs. The indicator is primarily used to plot the ranges of the highs and lows that form on the chart. Once you adjust the boxes, before you enter a trade position, wait for the price to breakout from the range.
While this indicator may potentially increase your earnings if you follow through with the strategy discussed above, we suggest that you do not use it in isolation. There are other technical indicators like resistance and support for you to leverage to validate the price. It works best on the time frame; as such, it is perfect for short-term trades. Day traders can maximize the use of the breakout indicator to increase their chances of making profits.
Furthermore, we have several technical indicators you can try alongside the breakout indicator. Combining these indicators with the breakout indicator will enable you to capture volatility occasioned by breakout trades. So check it out through this link here.
What do you think about the breakout indicator? Is a great tool to add to your chart? Would you rather jettison it and opt for other technical indicators? Comment your thoughts in the comment section below. BTW next time we will be posting an interesting “best forex reversal indicator” article. Stay tuned 😉