Vladimir Ribakov – The Classic Boundary Breakout Strategy

Vladimir Ribakov – The Classic Boundary Breakout Strategy

Description

In this lesson I’d like to present to you one of the simplest and most profitable strategies.

I’ve first encountered this strategy 2 years ago, and frankly it was during a vacation…

We’ve met a genius who traded Forex and stocks for 10 years. This guy’s motto was: „what isn’t simple, isn’t”. He said that trading must be as easy as possible. If you turn your chart, which represents simple price action, into something that looks like a Picasso painting, you will turn your account into a zero…

One must admit it’s a very interesting and refreshing theory. Even more, I found that my trading was much better after meeting him.

Now, let’s examine this system:

First of all, forget all chart types you’ve known up until now. The only chart you’ll need according to this strategy is a simple line chart.

This chart:

Without Japanese ornaments or candlesticks. Only a line chart.

Please note that this chart only displays the closing rates of each bar.

This chart can be displayed using the toolbar button at the top of your MetaTrader screen.

The only indicator you’ll need is the RSI.

Why?

Because RSI is the best indicator of relative market power during breakouts at trade boundaries.

This is how you complete your chart should look:

Now let’s go over some simple concepts you need to understand:

Support level, resistance level, RSI50 level and a trend line.

Resistance levelThis is a price point that is above the current market. It is determined (put in place) when the buyer’s power runs out and a top is seen. As soon as the market returns to this top, or in its correct name, Resistance level, there will be a „war” between buyers and sellers. If the sellers win the market will return to the Resistance level.

The more visits the market pays in this level, the more it’s considered strong and valid.

This is an example a Resistance Level:

You will be amazed at how often the market touches the exact spot.

Support level: Similar to a Resistance level, but below the market price. It is determined (put in place) when the seller’s power runs out and a bottom is seen. As soon as the market goes down again to this bottom, or in its correct name, Support level, there will be a „war” between buyers and sellers. If buyers win, then the market will stop at this level.

The more visits the market pays in this level, the more it’s considered strong and valid.

This is an example support level:

It’s important you remember that once a Resistance level is broken and the market continues above it, which is what happens when the buyer’s power increases – that Resistance level turns into a support level.

Trend Line: A rising trend line connects multiple bottoms. Each bottom is greater than the previous one, and each top exceeds the previous one.

Here’s an example of a rising trend line:

A falling trendline is a line connecting several tops. Each top is lower and each bottom is higher than the last top.

Here’s an example of a falling trend line:

The last concept I’d like to introduce is the test level of the Relative Strength Indicator (RSI).

RSI’s test level is 50. When the indicator breaks the 50 level from below to above, it might signal us we’re facing an up move in the market. When the indicator breaks the 50 level from above to below, it might signal us we’re facing a down move in the market.

You should also know that RSI can have both support and resistance lines.

These are some examples from the RSI indicator.

Now, after you understand all the basic concepts, let’s see when to enter and exit trades.

Get it now Vladimir Ribakov – The Classic Boundary Breakout Strategy

There are many options:

Support level on the chart is broken down, and there’s a break down of the 50 level.

This is how it looks in our charts.

Here, we have a respectable 60 pips movement. And it’s on a 15 minutes chart!

Same principle applies for an upward move.

Resistance level on the chart is broken up, and there’s a break up of the 50 level.

I’d like to stress a point here: it’s possible you will see a break of the support or resistance, and the RSI will break even before that. This is acceptable.

It also goes the other way around: if a support or resistance is broken and RSI broke after several bars, it’s still ok, as long as price remains above the resistance (in case of a break up).

Here are some examples:

As you can see, the RSI broke first and the support level was broken only after that.

Once it was broken, RSI was below 50 so it’s a valid setup.

You can see above that the RSI broke right before the resistance level.

Once it was broken, RSI was above 50 so I’m good with it. The My opinion is that trend lines are the most reliable entry signal.

If a trend line is broken, whether it is rising or falling trend line, and along with the break we see a break of the RSI’s own trend line.

Below are some examples to help make it easier to understand.

It is evident that the market trend line was broken and the falling trend line of the RSI as well. It is possible for the market to make a strong turn.

Here’s another example:

That’s it, my friend.

The Strategy is simple. You only need to have two events simultaneously: A break in both the price chart or the indicator.

This is my take on Stop Loss and Take Profit.

I place a stop above or below the previous high (for buy or sell) and take profit at the next support or resistance.

After your breakout, you should strive for 20.-50 pips profitable move.

The most recommended pairs are EURUSD, GBPUSD and USDCAD. Chart timeframes: M15 and H1 (either 15 minutes or an entire hour).

It’s a good way to exploit the current market which somewhat lacks long term trends, but moves strongly in the short term.