XYZ Breakout Strategy

XYZ-Breakout  &8211; Breakout trading strategy is one of the simplest trading methods when it comes to using the concept of trading break outs. The 1-2-3 method is basically a measured move trading set up, where future price is projected based on past retracements. It is also referred to as the “X-Y-Z” pattern.

Strategy Set up

This trading strategy is pure price action and therefore no indicators are required. For those who do need help, using a Fibonacci tool can be helpful.

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XYZ Breakout Strategy Rules

Long Set up:

  • In an uptrend, &8220;X&8221; marks the start of an uptrend, which is usually strong
  • The &8220;Y&8221; marks a resistance level which shows the start of a retracement. The retracement is usually limited to 38.2 &8211; 50%
  • The retracement end marks the point &8220;Z&8221;
  • Buy on break of point &8220;Y&8221; with a 1:1 risk reward ratio with stop loss placed just below the point &8220;Z&8221;

Short Set up:

  • In a downtrend, “X” marks the starts of a downtrend which is strong
  • The “Y” point marks a support level that starts a retracement. The retracement is limited to between 38.2% &8211; and 50% Fib level
  • The retracement ends the point “Z”
  • Sell on break of “Y” with stops just below “Z” and a total risk reward of 1:1

Strategy Examples

Long Set Up

1_xyz-long

  • Point XY marks the strong uptrend before the retracement
  • Z marks the end of retracement
  • A long position is take at Y with a 1:1 Risk reward
  • Stops are placed a few pips below “Z” with the trade resulting in a profit

Short Set up

2_xyz-short

  • Point XY marks the strong down trend with Z showing the end of the retracement
  • A short position is taken on break of “Y” with a 1:1 Risk reward ratio
  • Stops are placed just above “Z” with the trade resulting in a profit

Conclusion

The XYZ or 123 trading strategy is a relatively simple price action based breakout trading strategy. It works on the concept of measured moves and is a good way for beginners to learn to understand trading with support/resistance and break out.

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