A price bar break trading technique in the currency markets refers to a strategy that uses price bars to determine when to enter a position when you are investing in the foreign exchange market (forex). The basic concepts of the strategy are relatively simple to understand, and price bar breaks create excellent entry points into the market.
Price Bars
A price bar is a graphical depiction of the prices of a financial instrument over a period of time. Most price bars display the open, high, low and close of a financial instrument. Imagine that you drew a vertical line on a piece of paper, and the top of the line was the high, the bottom of the line was the low. You would then place a small dash on the left of your line where the market opened and a small dash on the right side of the line where the market closed. Congratulations, the line that you just drew is called a price bar. In the foreign exchange market, the markets open during the Asian time zone, and close at 5 p.m. Eastern Standard Time. There are numerous currency charting platforms that are available to the public where you can create a chart of a currency's price bar.
Price Bar Break: Entry
A price bar break is a trading strategy where you look for the high of the price bar or low of the price bar to break a specific level. One specific price bar break strategy is to enter into a currency position when the high of the price bar on a given day breaks above the high of the price bar on the previous day. When trading this strategy, you are looking for the momentum created when buyers push the currency pair above the prior days high to continue to push the market even higher. The reverse strategy is used to determine a price bar break when the market is falling. You can enter into a short currency pair position when the low of a price bar for a particular currency breaks below the low of the price bar of the previous day. Again, in this situation, you are looking for continued momentum to benefit from a price bar break.
Price Bar Break: Exit
When trading price bar breaks, it is important to manage the trade that you placed very carefully. Price bar breaks can be excellent entry points, but it is difficult to determine where you should exit your position. A good rule of thumb is to only risk 5 percent of your portfolio on any given trade. Also, if the market moves in your favor, you should place a trailing stop at your entry point. For example, if you purchased EUR/USD at 1.48 which was .0025 above yesterday's high price bar level, and the market moved to 1.485, you could put in an order to sell your position if the market moved back to 1.4800. Price bar break strategies work well if you let your profits run, and cut your losses.
Source - eHow
