Professional Breakout System Explained

September 26, 2017


The Professional Breakout Trading System is a Forex intraday mechanical strategy which aims at capturing big volatile and explosive moves on most traded currency pair eur-usd.  Why this pair? Because more than 25% of daily Forex turnover belongs to it. It has the tightest spread, the best market fills and the lowest slippage.  See below one of the best moves the system has caught recently:



How exactly we generate the trades:

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  1. First step we make is to determine the direction of the short-term trend. Since we want to trade intraday we need to know where is more likely the market to go with short-term perspective in mind. We have tried to monitor intermediate-term and long-term trends instead of short-term  but it appeared clearly that short-term focus  is the most appropriate. We want to trade only when the odds are in our favor. Going against the trend is very dangerous and unprofitable.

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We have developed a custom trend indicator, which can be set up to track short-term trend.It has two options – bullish and bearish. When blue dot is appearing on last closed candle we want to go long on the bar and vice versa for a short position. The trick here is that the indicator takes into consideration most recent volatility and we demand bigger moves against the trend for its change during volatile times and smaller moves when eur-usd is in a quiet mode. It adapts automatically to ever-changing Forex conditions.

  1. On the second step we are examining where it is most appropriate to join the market on long side if the market is trending up or joining short side if it is down heading. This level depends on the most recent price action. Once the price exceeds this point our odds increases dramatically and we are in a position. At this point we want to see the market moving strongly in our predeterminated direction. The system is buying on strength and selling on weakness.
  2. Once we are in a position it`s time to set up our Stop Loss order. The system always use on market placed  SL, whose level is known at the moment of entering the market. We want to preserve our capital and to be confident in our trading. The question here is how wide or narrow the SL should be? The answer is: it depends on the most recent volatility. See the graph below:

As you can see sometimes we need to use a very narrow SL when the market is quiet and very a big one during the wild times like 2008. It can be 10 times  difference between the size of the stops in both occasions. So we should pay attention to most recent volatility in order to be in sync with the market. Using a small SL in volatile market is sure road to losing.

  1. We exit at the end of day if we have an open position. The system is intraday, so we don’t want to hold a position for a very long time. Whatever the profit or loss we have at the end of day, we exit the market.

As you can see the strategy is very simple, it not complicated with a lot of trading rules incorporated in it.  Simple systems are not subject to overfitting.  You won’t see a chart with a dozen fancy indicators with long names. Simple stuff is much better for long-term trading success.

Professional Breakout Trading System is backtested on Metatrader 4 for a 16 years period. We believe that the more time a system shows a profit and good performance, the more likely is to be successful in the future.  During  these 16 years eur-usd has gone through lots of different  market conditions like trending and non trending cycles, volatile and quiet market and so on. A robust system must survive all market tests before it is considered for real trading.

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As a final test we change the system`s inputs a lot in order to see if it will continue to be profitable or not. Usually if you have found a good market pattern to trade around which you have created a mechanical system, you have to see profitability with different settings.

If changing the system`s inputs cause a deterioration of equity curve, then you have a classic example of curve-fitted strategy which wont` be profitable in real time trading. We have done a research by changing 220% the strategy`s inputs with very good looking equity curves.

In conclusion, it should be mentioned that the system trades very infrequently – only 1.34 trades on average per week. So you won’t see jumping in an out every few hours. It just passionately waits for its time and then enters into the market.

By – See our Breakout System