Trading breakouts in market ranges is a solid principle on which to base a Forex system. The concept behind breakout trading is to profit from a market move beyond the boundaries of a prior range or key level which has been set in the market.
Trading such a strategy offers the potential to earn a high level of profits. Ranges are indicative of constrained price action. In other words a price range will form as a result of buyers and sellers in the market competing for directional control of the currency pair.
The range forms when there is no clear reason for either side to push the market beyond the set boundaries. However as soon as the range starts to break momentum builds. This is as a result of traders liquidating their position and open new positions in the direction that the break occurred. In most cases one a market range has broken it will be viewed as a new support or resistance level, depending upon the direction of the break.