Three types of breakthroughs in the foreign exchange market

Foreign exchange trading is the process of investors trading currencies from different countries with each other. In order to make money in foreign exchange trading, you need to predict when the market will experience a breakthrough - that is, currency prices will exceed their normal range. There may be several types of breakthroughs in the foreign exchange market, and it is important to understand them before starting trading.

This article will discuss different types of breakthroughs and explain how to track them. We will also study the pros and cons of breakthrough trading and how to detect false breakthroughs. Finally, we will provide you with some factors to consider before entering a breakout transaction. Let's get started!

What is foreign exchange trading?

Foreign exchange trading is the process of buying and selling different currencies from around the world in an attempt to profit. The foreign exchange market or forex is the world's largest financial market, with daily transaction volumes exceeding $5 trillion. Currency is traded in the foreign exchange market through brokerage firms and banks, with prices fluctuating based on global events, economic indicators, and supply and demand relationships.

When traders believe that currency prices will rise, they will open long positions. Long positions are simply bets that currency prices will rise. If prices do rise, traders will profit. On the other hand, if prices fall, traders will suffer losses.

Similarly, when traders believe that currency prices will fall, they will open short positions. Short positions are exactly the opposite of long positions - this is a bet that currency prices will fall. If prices do fall, traders will profit. However, if prices rise, traders will suffer losses.

What is a breakthrough?

Breakthrough is a sudden sharp price fluctuation that occurs when the price of a currency pair exceeds its normal range. There are several types of breakthroughs that may occur in foreign exchange trading, and it is important to understand them.

You can break through the trend line. A trend line is simply a line drawn on a chart to connect the high or low points of a currency pair over a period of time. When the price of a currency pair exceeds the trend line, it is said to have broken through. Breakthrough of trend lines can indicate the beginning of new trends and can also be used to confirm the direction of existing trends.

If you do not use trend lines, you may observe support and resistance breakthroughs. The support level and resistance level are the key levels that are difficult for currencies to break through against prices. When prices break through these levels, it is said that a breakthrough has been achieved.

These are just examples of how breakthroughs occur. Overall, there are three types of breakthroughs;

Bullish Breakthrough

When the price of a currency pair exceeds the resistance level or trend line, a bullish breakthrough occurs. This type of breakthrough indicates that prices may continue to rise.

Bearish breakout

When the price of a currency pair falls below the support level or trend line, a bearish breakthrough occurs. This type of breakthrough indicates that prices may continue to decline.

Counterfeit goods

Counterfeiting refers to the price of a currency pair exceeding support or resistance levels, then reversing and quickly returning to these levels. Fake goods may be difficult to trade as they often occur without warning and can catch traders off guard.

How to track breakthroughs in the foreign exchange market?

The best way to track breakthroughs in the foreign exchange market is to use breakthrough trading strategies. There are many different breakthrough trading strategies available, and traders decide which one is most suitable for them. Some common breakthrough trading strategies include the following;

London Open Breakthrough Strategy

This strategy seeks to break through the foreign exchange market period that occurred in the first two hours of London

4-hour MACD foreign exchange strategy

This strategy uses moving averages and MACD indicators to identify potential breakthroughs.

Daily chart band trading system

The system uses daily chart data to identify potential band trading opportunities.

Axis Breakthrough Strategy

This strategy uses pivot points to identify potential breakthrough opportunities.

Factors to consider when breaking through foreign exchange transactions

When breaking through foreign exchange trading, there are several important factors to consider;

The Power of Breakthrough

The strength of the breakthrough is determined by the number of candles involved. Breakthroughs with only a few candlesticks are usually not as strong as those with multiple candlesticks.

volume

Trading volume is another important factor to consider when breaking through a transaction. Breakthroughs occurring at high capacity are usually more important than those occurring at low capacity.

Price trend

When trading breaks through, the price trend is also important. Breakthroughs with strong price trends are usually more important than those with weaker price trends.

Advantages and disadvantages of foreign exchange breakthroughs

Breakthrough in foreign exchange trading has both advantages and disadvantages. Some advantages include;

Breakthroughs can bring huge profits.

If a breakthrough is successful, it can bring substantial profits. This is because breakthroughs typically involve significant price fluctuations, which are profitable for traders.

Acne can occur frequently.

The foreign exchange market often experiences breakthroughs, which provide traders with many profit opportunities.

Breakthrough is easy to trade.

Breakthrough trading strategies are easy to follow, making them suitable for beginner traders.

Some drawbacks of trading breakthroughs include;

Fake goods may be expensive.

Fake goods often occur in the foreign exchange market, and if traders enter trading without proper confirmation, they may pay a high price.

Breakthroughs may be difficult to predict

Acnes are usually difficult to predict as they often occur without warning. This may make it difficult for them to successfully trade.

Acne may be at risk

Breakthroughs may be risky as they typically involve significant price fluctuations. If the breakthrough fails, it may lead to huge losses.

How to Avoid Fake Goods When Trading Breakthrough

When breaking through a transaction, it is important to pay attention to counterfeit goods. When the price of a currency pair exceeds the support or resistance level, counterfeit goods will occur, and then quickly reverse and return to these levels. Fake goods may be difficult to trade as they often occur without warning and can catch traders off guard.

It is important to wait for confirmation before entering the transaction to avoid getting caught in counterfeit goods. Some methods of obtaining confirmation include waiting for prices to close above or below support or resistance levels, or waiting for candlestick shapes to form.

Learn more about foreign exchange breakthroughs by trying DecodeFX

Now that you know the working principle of breakthrough, you can register for a foreign exchange trading platform and immediately practice the breakthrough strategy. Decode Global provides you with free simulated accounts and real accounts with the best trading conditions. This helps you practice, earn, and fully utilize your trading strategy.