If you have ever observed the daily movements of the various different currency pairs, you will see that you often get some quite substantial early morning breakouts. These breakouts can be very profitable if you spot them early and take a corresponding long or short position at the same time. So what is the best way to actually trade these early morning forex breakouts?

Well for a start I should point out that you have a huge advantage if you are based in the UK or indeed Europe because you can trade these breakouts at a convenient time. This is basically in the hours before and after these markets actually open at around 08.00 AM local time.

This time is basically when the best breakouts take place. In the overnight trading session the price moves on the major currency pairs are generally very small because none of the European or American traders are at their desks actively trading. This therefore creates opportunities for breakout traders later in the day when the major markets open.

The trick is to look amongst the major pairs each day and find those pairs that have traded in a very narrow range between the hours of 12.00 and 08.00 (or 07.00 if you prefer). You can gauge this by looking at the average true range indicator (on the daily chart) and comparing it with the overnight range.

For instance if the average true range is currently around 150 points and the pair has only moved 30 or 40 points prior to the European markets opening, you know that you could get a big move in either direction when the markets open and the price breaks out of this narrow trading range.

Not all breakouts will turn out to be genuine breakouts, but a very high percentage of them will indeed come good. You don't necessarily have to go for huge points gains either because profit targets of 20 or 30 points, for instance, are easily achievable. You could even close half for a certain amount, and let the other half run if you prefer to target bigger gains.

Anyway the point is that trading these early morning forex breakouts can be very profitable. They don't necessarily occur every single day because sometimes the price can move quite a lot overnight, but they do generally give you lots of trading opportunities every single week, which is why it is one of my preferred trading strategies.