Magic Breakout III

In a previous posting about Magic Breakout I, what's really breakout? and the secret behind false breakout. While in the Magic Breakout II about the entry rules and Practical implementation, now we will discuss about exit rule off magic breakout .

1. Chart set-up
We will use Fibonacci targets in this version. Fibonacci targets are very powerful. We often see that price hits the target and quickly retraces back. MetaTrader 4 set-up:
Click on the tool Fibonacci Retracement:

Place the Fibonacci retracements on the chart as shown below. Connect the swing high with swing low
by dragging the mouse.

You have to modify the default set-up. We will use these targets: 0.0, 1.0, 1.618 and 2.0. Right-click on
the chart and choose Objects List (or use shortcut CTRL+B).

Select Fibo and click Edit. Edit the targets by double-clicking on the Level and Description values. We
will use these Level values: 0, 1, 1.618 and 2. You can choose a custom description for each level value. We recommend to set something like 0.0 @ %$ as a description.  It is a useful trick; the mysterious symbol %$ will be replaced by the price level on the chart (example: 0.0 @ 2.0480)

2. Exit rule
Plan your trade, trade your plan. Let's assume we have opened a long position. We must take care about
the profit target and Stop Loss right after the entry.

• Place the first profit target (sell-limit order) at 1.618 Fibonacci level;
• Place the second profit target (sell-limit order) at 2.0 Fibonacci level;
• Place Stop Loss (sell-stop order) at 0.0 Fibonacci level.

As the price hits our first target, close a half of the position (so we recommend you to trade at least two
lots/minilots/microlots). As the price hits our second target, sell the rest. Place Stop Loss just two pips
below the 0.0 level. The low acts as support and if broken, the trend is probably over.

We can simply create rules to exit from a short position:

• Place the first profit target (buy-limit order) at 1.618 Fibonacci level;
• Place the second profit target (buy-limit order) at 2.0 Fibonacci level;
• Place Stop Loss (buy-stop order) at 0.0 Fibonacci level.

Note: "This is a basic exit rule. You can consistently make money using entries and exits as described  above. But look at the chart: wouldn't it better if we exited later? The trend continues and we are not  in! Wouldn't it better if we could squeeze the trend to the end and earn HUGE profit from one single  trade? “Trend following” from the beginning to the end of the trend is a dream of all traders in the  world. Some individual traders know how to achieve it. They know how to recognize that the trend is  probably going to reverse. They stay with the trend for days, weeks or even months and make millions."

Source: http://www.magicbreakout.com