Prices are always moving as the battle between buyers and sellers drive prices up and down creating peaks and valleys. This movement creates patterns, these patterns are basically a record of human behaviour. Spotting recent highs and lows within a tight range is one of many patterns to look out for.
There are many ways of finding when a market is in a tight range but what this method does is do away with all indicators and looks only at what matters. The price! It is pure price action trading which i argue is the best way to trade.
What makes markets breakout?
Markets breakout for several reasons. News, weather reports, unexpected earnings reports, businesses going bust etc. Price is drawn to previous highs and lows, by knowing these levels a trader can be positioned ready for some good moves.
There is a lot of pent up energy when markets range tightly. When there is a set barrier that these levels reflect it draws a lot of attention to itself. Every time price reaches that level traders will react and place stops around that area. If these levels get hit then these stops will be taken out and fuel momentum in the move. If enough traders liquidate and switch their positions this can cause market to break a previous trend and start a new one.Know when price is in a tight range primed and ready for breakout
Know when price is in a tight range primed and ready for breakout
Using the input panel we can adjust to whatever range we want to get an alert on. If we set our Range Analysis input to 200 then if the previous high and low are within a range of 200 points and the price breakouts these levels out we get a signal.
There are 2 types of breakout. The early morning breakout for example on EURUSD this is 7am where usually price ranges tightly through the night before breaking out as more trades come in for the new trading day. And the other breakouts are within the more active trading hours where if we get a tight range these are congestion areas where energy is penting up and usually will breakout out of a previous high or previous low.
This pattern is really a congestion area in price. These congestion areas are like a small coma in a sentence, a sort of short pause before prices move again. Also note the longer the tight range the more likely a good move will occur.
This is a leading indicator with no lag
Let me show you how price action trading gets us into a move fast as opposed to waiting for an indicator that lags behind the price before a signal occurs.
A seen here we see an ADX line which is good at letting you know the price is in a tight range ready for breakout but, if we compare this to looking at purely recent highs and lows its the price action observation that will get it right most often. The lagging ADX will get us in but often too late. You can see all this for your self through backtesting.
Try them out here!
For The HiLo Breakout MT5 EA Click Here!
For The HiLo Breakout MT4 EA Click Here!
Increase accuracy by only signaling when volume is rising on breakout
A breakout of recent highs or lows is more likely when accompanied by rising volume. If volume is dismal as price reaches the high or low then breakout likely wont be strong. However if volume is increasing the odds are higher that it will break through with enough momentum to keep going. Breakouts involve new traders entering the market, scared traders covering positions and even more traders reversing their positions. When this all happens at once the move can be strong. If volume is weak it means not everybody is getting involved and so the move is weak. Meaning the price could go either way and so is a
low probable trade.
Its similar to a car going uphill its more likely to make it to the top if the petrol is full rather than the petrol empty. Heavy volume means price is more likely to move. So, from this ive included a volume filter within to only signal on heavy rising volume.
Fine tune using a timer to only trading the best times of day when breakouts will occur
Markets through the night tend to be quiet and so often longer tight ranges will occur and often as soon as the early hours of the morning start we start seeing action in price and breakouts occur. So hence is why i’ve added a timer to only allow the signals to be made at these active hours. By default the timer is set at 8 start time and 15 end time. This is because this is default set to trade the EURUSD when this market is most most active. I say 1 hour before at 8 rather than 9 as i like it to be positioned ready for breakout.
This will spot 2 types of breakout. 1) The opening break that occurs when the markets have been in a tight range through the night then as activity increases the breakouts occur. 2) The tight range areas that occur during the day where energy is pent up and ready to breakout. Both are worth watching for.
Added Panel Showing you how often signals get it right
I’ve included a panel to reveal the strike rate of the signals. I class a win trade when price reaches half way between the distance of previous high and low. So if within 200 points the price target will often be 100 points from the break. This happens at an impressive rate as shown on the panel. Its simply there to help the trader verify the validity of the pattern.
I will say as a mantra to my trading beliefs that you should always learn to “code your pattern”. Proving that your not fooling yourself and have validity in the predictive quality of your pattern.
Remember The HiLo Breakout is one of the high probable patterns that can give us an edge to our trading. You can prove it yourself with panel and backtests.
Im always there to answer any questions you might have. I have a track record of following coding requests such as addons to a product.
Remember The HiLo Break Offers The Following :
- A way of gauging when market is in a tight range and ready for breakouts.
- Choose how tight you want the range to be
- Choose to trade rising volume for improved strike rate
- Choose the time of day you want signals to appear
- We have a panel showing strike rate proving system efficacy
- Its based on one of the well know successful patterns with a decent predictive quality
You can see all this for your self through backtesting.
Try them out here!
For The HiLo Breakout MT5 EA Click Here!
For The HiLo Breakout MT4 EA Click Here!
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