If you have been following me on Twitter (@forexarticles1), you will know that I have been watching the AUD/USD very closely in recent weeks because it has been trading in a very narrow range and has been preparing to break out for quite a while now.
More specifically, if you zoom in on the 4 hour chart and draw a line connecting both the high and the low points, you will see that it formed a nice-looking pennant on this time frame.
So for me it was just a case of waiting for the price to break out of this pennant to herald the beginning of a new trend, and enter a trade in the same position as soon as this happened.
You can see that there was initially a couple of false breakouts, but it’s the candles that actually close above (or below) this pennant that I was most interested in, and although I missed the first one as it occurred in the overnight session, I did manage to get in on the action the second time around after one of the 4 hour candles closed above this pennant at 0.8815.
A perfect pennant breakout would have seen the price break below this pennant in the direction of the underlying longer term trend, so I wasn’t looking for a huge price move.
The obvious natural target was the EMA (200) on this 4-hour chart, and this is where I closed half of my position at 0.8860 for a profit of around 45 points. I have since moved my stop loss to break-even and am currently targeting 0.8900 and a profit of 85 points with the second half of the trade, so we will have to wait and see if this comes to fruition (UPDATE: thankfully it has just hit this price target this afternoon).
Either way, this was a good example of a profitable breakout trade and demonstrates that you don’t necessarily need to use lots of technical indicators. Sometimes sitting on the sidelines and waiting patiently for a breakout to occur using nothing more than price action and trendlines can be just as profitable.