Breakout with the Dollar, your great escape starts here!
Tradefair Weekly Update 
/ Simon Denham / 22 August 2008 / Leave a comment
Buzzwords of the week tip #9
When prices are not trending they often fluctuate within a faily clear range. When a move out of a range takes place ( a break out) this attracts a lot of attention. Some traders take positions after a break out, hoping this is a start of a new trend. If prices then turn round and fall back into the previous range (a false break out) then the break out traders tend to exit their trades in a hurry and this can lead to a strong move in the other direction.
Technical tip of the week
If you want to trade break outs or false break outs, on the Tradefair Spreads platform you can add horizontal lines to define a range. Just click on the box "Draw Horizontal Lines" then click on the left button of your mouse to draw the line.
Sterling / dollar takes a dive
When the Sterling/Dollar exchange rate rises above 2 dollars to a pound this usually gets on the national news. On the chart of Sterling / Dollar (sometimes nicknamed Cable) you can see that from early April 2008 to early July this currency pair was fluctuating in a range between about 2 dollars at the top end to a little below 1.94 dollars at the bottom end.
Two horizontal lines have been drawn on the chart to show this range. On 15th July price broke out above the top of this range and traders were buying, hoping for a new up trend. This turned out to be a false break out, and as these buyers exited their trades price moved first back in to the range, then down to the bottom of the range, and finally broke out of the range to the downside in a fast and furious decline.
There was considerable evidence that there had been a false break out by 24th July. By this time price had already fallen back within the old range, and then on this day it also dropped below the lowest point of the previous seven days.
You could have sold Sterling / Dollar at this point at around 1.9900, with a stop** the other side of the top of the range at 2.0100. If you had bet £1 per $0.0001 your risk would have been £200. The initial target was around 1.9400, the bottom of the old range, and if you had closed the bet there you would have made £500 profit. But if you had decided to hold on, continually moving your stop to above the high of the previous day, by 15th August your bet would still have been open, with the stop** now around 1.8700, locking in £1200 profit.
Sell - Sterling/Dollar@ £1 per $0.0001 - (1.9900)* on 24th July
Close out - Sterling/Dollar@ - (1.8700) on 15th August
PROFIT = £1200
* Stop out placed at 2.0100 risk would have been £200
View an example of the case above breaking on the Tradefair Spreads platform.
Tradefair Spreads also offers a number of other currency markets these include:
* GBP Vs EUR
* USD Vs JPY
* GBP Vs AUD
To bet now on any of these markets go the Tradefair Spread Betting Platform.
Happy trading!
The Tradefair Spreads Team
