Trading a Market Range Break-out
Posted: 05 Feb 2016 16:16
Trading a market range break-out
A market moving sideways will break out at one point in time. Based on highs and lows as well as support and resistance levels it is possible for the trader to determine the sideways range, targets and stops. The trader does not know if the break-out will be upwards or downwards. Both are possible.
Tip: some traders will only trade the break-out which is in the direction of the higher trend, or, if they trade both break-out directions, put less ambitious stops and targets on the break-out against the trend.
This example shows the DAX index in a range. The potential upwards range break-out and the corresponding target and stop levels are drawn in green. The potential downwards range break-out and the corresponding target and stop levels are drawn in red.
Preparing for the break-out
Once he has identified these six level the trader only has ... to wait. Instead of waiting and suddenly scrambling to place the correct combination of orders when the break-out occurs, the trader can use a unique feature of the NanoTrader platform: the OCO Entry.
OCO stands for order cancels other. When an order is executed the other order is cancelled. Unique to the NanoTrader is the fact that OCO can be used for entry orders i.e. orders to open a position. OCO entry can be selected in the order ticket*.
In short, the trader places a stop buy order at the top of his range (for the upwards break-out) and a stop sell order at the bottom of his range (for the downwards break-out). When one of these orders is executed, the other is cancelled automatically. Traders can also instruct the NanoTrader platform to automatically place the stop and target orders once a position is opened. This is done by selecting “Add contingent orders” in the order ticket*.
This example shows the two entry orders in place. One placed at the top of the range and one placed at the bottom of the range. The contingent stop and limit orders related to each entry order are also visible. Compare this illustration with the illustration above. The trader is now 100% ready for whatever break-out occurs.
A market moving sideways will break out at one point in time. Based on highs and lows as well as support and resistance levels it is possible for the trader to determine the sideways range, targets and stops. The trader does not know if the break-out will be upwards or downwards. Both are possible.
Tip: some traders will only trade the break-out which is in the direction of the higher trend, or, if they trade both break-out directions, put less ambitious stops and targets on the break-out against the trend.
This example shows the DAX index in a range. The potential upwards range break-out and the corresponding target and stop levels are drawn in green. The potential downwards range break-out and the corresponding target and stop levels are drawn in red.
Preparing for the break-out
Once he has identified these six level the trader only has ... to wait. Instead of waiting and suddenly scrambling to place the correct combination of orders when the break-out occurs, the trader can use a unique feature of the NanoTrader platform: the OCO Entry.
OCO stands for order cancels other. When an order is executed the other order is cancelled. Unique to the NanoTrader is the fact that OCO can be used for entry orders i.e. orders to open a position. OCO entry can be selected in the order ticket*.
In short, the trader places a stop buy order at the top of his range (for the upwards break-out) and a stop sell order at the bottom of his range (for the downwards break-out). When one of these orders is executed, the other is cancelled automatically. Traders can also instruct the NanoTrader platform to automatically place the stop and target orders once a position is opened. This is done by selecting “Add contingent orders” in the order ticket*.
This example shows the two entry orders in place. One placed at the top of the range and one placed at the bottom of the range. The contingent stop and limit orders related to each entry order are also visible. Compare this illustration with the illustration above. The trader is now 100% ready for whatever break-out occurs.