Box Break Out Strategy

box-break-out forex strategy
Box Break Out Forex Strategy

The box break out method is a simple, yet surprisingly effective method of trading. Don’t be fooled by the sheer simplicity of this method. Just because it is simple doesn’t mean it isn’t profitable. You do not need complex trading systems to be a successful Forex trader. The one rule of thumb people always forget is “keep it simple”. I cannot emphasize it enough. So many people search for a complex multi-step trading system with 3, 4 or 5+ indicators. This is not the case. Keep it simple.

box-break-out forex strategy

Box Break Out Forex Strategy

 

Setup

At 08:00 EST (New York Time), draw a box enclosing the high and low of the previous hour.

Entry

BUY if the price moves above the box by 20% of the box height.
SELL if the price moves below the box by 20% of the box height.

This signal is only valid for one hour after it is generated.

Exit

Close the BUY trade when the price hits 400% above the box height.
Close the SELL trade when the price hits 400% below the box height.

Initial stop loss for the BUY trade is the bottom of the box.
Initial stop loss for the SELL trade is the top of the box.

Place a trailing stop equivalent to the size of the box to capture the profits gained.

Currency Pairs

This method works best with volatile pairs such as GBPJPY, or GBPUSD.

Variations of the Box Break Out Method

There are many variations of the box break out method. The rules for this method are not set in stone. You can modify the setup to your individual profit, and risk appetites, and still find the method is profitable.

Start Time

The most important aspect of the box break out method is the time to trade. This method works best during the first few hours of a new trading session, when the markets are most volatile.

forex market hours

Forex Market Hours – trading activity

Box Size

Instead of a 1 hour box, you can use a 4 hour box, an 8 hour box, or even a daily box. However, I would not recommend boxes for time periods under an hour. I find the profit targets are less likely to be hit in smaller time intervals.

Buffer Area

Many people choose a set pip size for the buffer area above/below the box instead of 20%. I’ve seen 10 pips, to 20 pips in other variations of the box break out method.

Pros

Very easy to follow. The rules are simple and straight forward.
This method can also be easily automated.
This method is perfect for people with busy lives or a 9 – 5 job. They can set up a 8 hour box, and place pending trades before / after work. Then they only need to check the trade once a day.
This method works best in a trending or volatile markets.

Cons

Doesn’t work well in a ranging market. These conditions can result in entries without enough weight behind them to hit the profit target. However, these losses can be minimized with trailing stops.

Backtesting

link -> backtesting results.

Expert Advisor