Five-candle Breakout Strategy

The Five Candle Breakout Strategy is traded on the lower time-frames, wherever a range can be defined by support and resistance levels.

Traders who trade this strategy seem to prefer the 5m, 15m, 30m or H1 charts.

What do the candles tell us?

Because the five-candle strategy is a break-out trading strategy, the candles inside the support and resistance lines indicate a resting, coiling or ranging phase. A resting phase can be the result of market indecision or a wait-and-see phase, where traders wait for news or information that will move the market, while the breakout candle indicates that the resting phase is over and momentum is about to resume.

Strategy

  1. Shorter time-frames;
  2. Wait for momentum to occur;
  3. Define a range (coil of candles or rest phase) in the momentum;
  4. Mark support and resistance levels;
  5. After break-out from support or resistance in the direction of the preceding momentum, wait for 4-5 candles;
  6. Enter a buy or sell order above the highest or below the lowest candle (including candle shadows) plus spread, in the direction of the momentum;
  7. Stop is 2-5 pips plus spread away from the breakout level, depending on the direction of the trade;
  8. Target is between 5 and 20 pips depending on time-frame;
  9. Close the trade before the end of the session;
  10. Honour your risk management rules.

The 5 candles after the breakout actually form a ranging retest of the breakout, so there is no need to treat the five candles as a range and wait for a retest.

Master candle trading strategy