Forex Channel Breakouts – Riding a Tsunami of Profits

Forex channel breakouts occur anytime that a price, either going high or low, breaks one of the set lines of a channel that is developed through technical analysis. A channel occurs when two lines are made to show the range of a current market. This can be done whether the market is in trend or in counter-trend. One line represents the high of a current channel, while the bottom line represents the low.

Any time the price of a currency pair rises above the top line, that is an upwards channel break. When the price of a currency pair drops below the bottom line of a channel, that is a downward channel break, also sometimes referred to as a “breakdown” as opposed to a “breakout.”

Not every break in the line becomes a full blown breakout. There are often times when a price may temporarily just break one of the lines, then retreat back into the channel. These are called “false breaks” or “false breakouts.” These can be frustrating because a lot of money can be made in the Forex market off of being in early on a major breakout, so false breakouts tend to get the hopes up before dashing them again.

A true Forex channel breakout that takes off however, can provide fantastic profits, and is a major reason why technical analysis is used in the market: to try and determine when these channel breakouts are going to occur and to get in the market early can bring good profits.

Channel breakouts can often lead to the forming of another channel, so constant analysis should take place even as the market is in the middle of a breakout in either direction. If you are riding the price up, a trailing stop can be a good idea since reversals can happen rapidly, and sometimes seemingly without warning.

From Jason Fielder – Founder, ForexImpact.com