KISS FX breakout strategy

KISS FX breakout strategy’s main timeframe 15min. However, one should be aware of the entire picture (also other timeframes) of the market. This strategy will apply to any other time frame as well, but 15 min is recommended because of the possibility to small stop losses.

Figure 1 shows the chart setup for KISS FX breakout strategy.

Choose either bar chart or candlesticks as long recognizing the most obvious market patterns is possible. Make the chart easy to read. The chart includes the following technical indicators

(moving averages):

- 200 SMA black line

- 34 EMA blue line

- 55 EMA red line

Moving averages are used for the following purposes:

- to identify trends

- as a moving level of support & resistance

- to follow the interaction of lines (but wont base trading decisions on crossovers of the

lines)

- to identify exit points and for stop loss placement.

Simple moving average 200 (SMA 200, the black line) helps identifying the trend. If the trend is not obvious, the high- and low points of the price action can be marked to price chart. During an uptrend the price action produces higher highs and higher lows, and during a downtrend lower highs and lower lows. When there is no clear trend the market is moving sideways. Market doesn’tproduceclear higher lows or lower highs. When using the KISS FX breakout strategy, it is notrecommendable to trade at all during unclear trends.

Figure 2. A nice upward sloping trend in EURUSD currency pair (15min timeframe).

During an uptrend price action produces higher highs and higher lows (marked with a red lines).

200 SMA (black line) is clearly going up.

Figure 3. A downward sloping trend in EURUSD currency pair (15min timeframe).

During downtrend price action produces lower highs and lower lows (marked with a red lines).

200 SMA (black line) is going down.

Figure 4. An unclear trend with sideways movement.

Without a clear trend trading is not recommendable because it is more difficult.

ALWAYS WAIT FOR A CLEAR TREND AND NEVER TRADE AGAINST IT!

Market patterns

Market patterns are key elements for KISS FX breakout strategy. Instead of technical indicators, the entire “trading-system” is based on market patterns. Trader using market patterns will have a possibility to keep the charts simple and look for the same things than the big players (banks, hedge funds etc) are looking for from their price charts. If trader moves on the same direction with big players he will most likely win than lose. Market patterns are formed over and over again in charts hence they create many trading possibilities.

Support & resistance

Support & Resistance are the base for market patterns. Most of the readers are probably already familiar with the concept of support & resistance, but here is the idea:

The market forms high and low points of the price action to the price chart. High points are points, where the price refuses to go any higher. Low points are points, where price refuses to go any lower. Depending on the trend (up, down or sideways) points will be formed either upward sloping, downward sloping or vertically. Traders can draw lines between these points on their trading platforms. These points are formed in price charts every day. However, notice that the contact points don’t always have to be 100 % perfect. The sizes and durations of support and resistance lines are always different.

Sometimes traders can draw only a support line, sometimes only a resistance line. Sometimes the price action forms a channel-pattern, where both support and resistance lines are represented. An interesting thing about support and resistance lines is also the fact that previous support usually becomes resistance and vice versa.

When price reaches the line (support or resistance) it will either bounce back to the opposite direction or break out through the line.

Figure 5. shows two red lines representing support and resistance lines.

The price hits support at least 6 times and resistance at least 5 times in this example. Finally the resistance line is broken and the price continues going upwards.

Figure 6. An example of support & resistance lines.

This time the lines formed a clear channel pattern, which was eventually broken with a big move upwards.

Figure 7. A resistance line and also the concept of previous resistance becoming support (red

circle).

A trader doesn’t always have to draw both support and resistance line. Notice how price bounces back down always after hitting the resistance line before the breakout.

Figure 8. An example of moving averages (EMA 34 and EMA 55) acting as a moving support line.

TRY SEARCHING SUPPORT AND RESISTANCE LINES FROM YOUR OWN PRICE

CHARTS!

Other market patterns

KISS FX breakout strategy is mainly concentrated on support and resistance lines and channels.

However, there are also other market patterns that are worth of taking a look.

Figures 9&10. Examples of triangle patterns.

Triangle patterns are also channel patterns, but they form a triangle on the other end.

Figure 11. A flag pattern with a flagpole.

Flag is also a channel pattern. This time the flag patterns is downwards, but there clearly is a flagpole, the flag and finally a breakout from the flag. Flag patterns usually include a profit target, as the breakout is often as long as the flagpole.

Figure 12. A double top. Double tops form a nice vertical resistance line.

Figure 13. A double bottom. Double bottoms are obvious support lines.

Breakouts

The easiest way to base trade market patterns is to wait for breakouts. One can also trade the

bounces off the support and resistance lines, but KISS FX breakout strategy trades only breakouts.

Breakouts occur often enough to give a trader continuous profits in the market.

The price action, where the price forces itself out from a pattern (support or resistance line), is

called a breakout. These breakouts occur in every currency pair and on every timeframe on a daily basis. It is recommended to leave old support and resistance lines in place, as previous support often becomes resistance, as explained earlier. These lines can help in stop loss determining. For breakout traders it is important to have a strategy for breakout confirmation, as false breakouts occur every now and then.  

Figure 14. A breakout of a resistance line.

This figure is also a perfect example of how previous resistance becomes support as the price hits the previous resistance line at first after breaking through it.

Figure 15. A false breakout and a breakout of moving averages (red circles).

The blue circle shows a false breakout. Two red circles represent breakouts of moving averages (first the prices go through 34 and 55 EMA´s, and in the second circle the price crosses 200SMA).

Figure 16. A double top (resistance line) and a support line.

These lines together form a triangular channel. The price breaks through the resistance line on the third time, when price reaches the resistance line (double top).

Risk-to-reward ratio

All the upcoming calculations are based on the following situations:

- Capital $ 5000 dollars

- Traded currency pair EURUSD (pip value 10 USD, standard lot size 100 000) (Pip value is

different in different currency pairs)

- Used risk percentage per trade 3 %

- Used stop loss +- 30 pips

- Leverage 1:100

- Timeframe used 15 min

Entry strategy

To enter a position one must a have a good reason for it. It is not wise to trade just for the sake of trading. Entering a position without a good reason is called overtrading, which is one of the main reasons why many beginners in forex fail. They get too confident and trade “because the last trade

was a winning trade as well”.

Before a trade can be opened pay attention to the points below:

1. What is the trend? (What is the direction of moving averages? Is the market producing

higher highs and higher lows or lower highs and lower lows? What is the direction the

price is most likely going to go?)

2. Is the price above or below the moving averages? (Don’t sell if the price is above moving

averages, don’t buy if the price is below moving averages).

3. LOOK FOR THE MOST OBVIOUS PATTERNS! Are there clear support and

resistance lines or market patterns (channels, triangles, flags etc) with many contact points?

For clarity, check also bigger picture from other timeframes to be sure that there are no

support or resistance lines you cannot see from the timeframe used.

4. WAIT FOR A BREAKOUT!

5. WAIT FOR BREAKOUT CONFIRMATION! When a price bar closes above/below

support or resistance line, wait for confirmation of price closing outside the support- or

resistance line and going 3 pips above/below the previous high- or low point.

RULES FOR ENTERING A TRADE

BUY

- Trend is upwards

- Price is above moving averages

- It is also preferable that shorter moving averages (34 & 55 EMAS) are above the 200 SMA

- There is are clear resistance line

- Breakout upwards is about to take place

- BREAKOUT CONFIRMATION: Price closes above the resistance line. After a closed

bar, the price must go 3 pips above the previous high point.

SELL

- Trend is downwards

- Price is below moving averages

- It is also preferable that shorter moving averages (34 & 55 EMAS) are below the 200 SMA

- There is a clear support line

- Breakout downwards is about to take place

- BREAKOUT CONFIRMATION: Price closes below the support line. After a closed bar, the price must go 3 pips below the previous low point.

Figure 17. The confirmation of a breakout.

When the bar closes above the resistance line (red circle), we enter 3 pips above the high point (red

line).

Figure 18. An example of a confirmed breakout.

The bar closes above resistance line and we would have entered 3 pips above the high point.

The stop loss and take profits will not always be the mentioned 30 pips. If a breakout from a

resistance line occurs, a good stop loss point is right below the broken resistance line (because

previous resistance becomes support). If a breakout of a support line occurs, stop loss would be placed above the broken support line (because previous support becomes resistance).

Exit strategy

As mentioned already in previous chapter, KISS FX breakout strategy uses partial exits to ensure gained profits. Set profit target for the bigger part of the trade (80%). Set the profit target to 10-30 pips depending on personal willingness to risk and risk-to-reward ratio.

As the magic of compounding chapter shows, even 10 pips per day can make massive gains in the long run. Exit the 80 % after the profit target is reached. Move the stop loss according to money management rules. Exit the 20 % from the trade, when 34 EMA rolls over.

Example trades

Look carefully at the examples shown below. There are examples of good and bad trades. These examples are not live examples, but the meaning is to give the reader a clear picture of the things to look for before entering a trade.

Example 19 GPBUSD 15 min

A perfect example of a trade we wouldn’t have taken. The triangle pattern is very clear and we do get a breakout as well. However, the trend is very unclear and the price bounces on both sides of the moving averages. No trade in this case. Remember to obey the entry rules every single time.

A clear market pattern. Would we have taken this trade? No. The price is below all the moving

averages so we were expecting a breakout downwards. The trend is also very unclear.

Figure 22 EURUSD 15 min.

A perfect example of support & resistance + a breakout trade. We can actually spot two breakout trades from this figure. The first breakout occurred and we made profits. We left the old resistance line in place and eventually the price came back down and found support from the old resistanceline. Then the price formed a double top before a breakout and we made profits from the second breakout too.

Figure 5 EURUSD 15 min.

A nice descending channel. The moving averages are also acting as a sloping resistance line. The prices were nicely below all the moving averages. However, the breakout occurred upwards so we didn’t enter, as we were expecting a downward breakout.