A breakout is when currency price passes through and stays through an area of support or resistance. Price breakouts usually follow major economic releases (see Economic Calendar for release schedules) when the market absorbs the new economic data and adjusts the currency pair price accordingly which creates a sharp surge in volatility from a very low level just before the new data release to very high level just minutes or even seconds after the release.
Bollinger bands is one of the most popular technical indicators used for evaluating price volatility - narrow, horrizonal bands indicate a low volatility level, while wide,upward/downward sloping bands indicate a rise in volatility.(see chart below)
A trader does not need to know details of the released information. He/She has to be aware that the currency price might breakout upwards through the resistance or downwars through the support. Therefore two entry orders should be placed for each secenario. A BUYorder should be placed a few pips above the resistance level in case the price starts an upward rally and a SELL order should be placed in case prices drop following the release.The following strategy should be applied:
Long 10 minutes before the scheduled release of new economic data (8:30 EST for most of US data) place a BUY order 5-10 pips above the upper Bollinger band Place a protective STOP 10-15 pips(depending on how much you are willing to risk) below the entry price and place a LIMIT at 20-30 pips above the entry price.
Once the trade move in your direction you can trail your STOP or take 20-30 pip profit.
Short 10 minutes before the scheduled release of new economic data (8:30 EST for most of US data) place a SELL order 5-10 pips below the lower Bollinger band Place a protective STOP 10-15 pips(depending on how much you are willing to risk) above the entry price and place a LIMIT at 20-30 pips below the entry price.
Once the trade move in your direction you can trail your STOP or take 20-30 pip profit.
10 minutes before the scheduled release of new economic data (8:30 EST for most of US data) place a BUY order 5-10 pips above the upper Bollinger band 