The sudden burst of price activity seen this am demonstrates that you need to be able to read price action to determine if a breakout is likely.
If we look at today's EUR chart on the left (click once for larger image) you can see that the upper Buy level (horizontal blue line) served as resistance all morning. Between 11:30 and 11:45, the price moves upwards towards resistance but notice this time the fast (pink) stochastic line is now above 50 and moving sharply to overbought levels. The slower (grey) stochastic line also rises above 50 and confirms the upward move.
This provides a strong indication that there is good price momentum and a breakout is likely. On the next bar starting at 12:00, the EUR/USD price moves easily through resistance and in the next 15m moves 78 pips in a near continuous move to the upside target.
How can I tell when a breakout is likely?
Not all moves from the buy or sell level to the target is this explosive but many are and you will have noticed that when one currency pair breaks out, other pairs follow at the same time. For this reason, you need to have your buy or sell orders ready and waiting to capture such moves because when prices are moving fast, it is difficult to place 3 or 4 orders with any degree of sensitivity to get a good fill.
On the stochastic plot, the 50 level is marked by a horizontal dotted line, 70 level (overbought) by a red line and 30 level (oversold) by a blue line. When the fast (pink) stochastic line is above 50 and moving in a steep line towards the overbought level, get ready to BUY if you have not done so already. If the fast (pink) stochastic line in below 50 and falling steeply towards oversold levels, get ready to Sell. The slow (grey) stochastic line should also be rising (falling) and be above (below) 50 when you buy (sell).
By watching the stochastic plot in conjunction with price, you get advance warning of a possible break out and can place your orders accordingly. Today, if your limit orders been lying in wait for a break out, you could have captured 178 pips in 15 minutes from GBP and EUR!
Now is a good time to learn how your trading platform allows you to place limit orders that you want executed at a future higher or lower price. If you cannot easily discover this yourself, call the Support desk and ask how you can place LIMIT orders with STOPS.
