EUR/USD Breakout Set up

Upon forming a low of 1.3315 during the NY session on 14 Feb 2013, eur/usd rebounded and traded in a tight consolidation in the Asian session on 15 Feb 2013. During the early trading hours on 15 Feb, it was clear that a support was found, and there was a small base formed. The support was incidentally the previous resistance during NY session at 1.3346.

If you were to buy low, at the low of the consolidation, and aim for high, that would fetch you a handsome profit. Alternatively, you could place a sell limit order below of the low of the range, or above the high of the range to trade the breakout of the consolidation zone.

Unexpectedly, news about interest rates pushed the currency to break above the high of Asian session. However, the high of the breakout was stopped by the previous support turn resistance as seen in the first box on the left.

In this case, it would be good to take profit first, as we will not know for certain if price will continue to break higher. Therefore, protect our profit, and wait for a re-entry on the pullback.

The pullback didn't materialize and instead, it continued to fall below the breakout point. The breakout proved to be a false one as it moved before the London open. London opened pushed the currency down further, breaking below the Asia session's low.

The above example is a good example of a simple breakout trade. Watch out for similar patterns in the future.