5 pip breakout - Peanut and butter for hedge fund

There are a lot of players in the Forex market, they use different strategies to make money. In this example, I will explain one of the popular trading ideas hedge fund use. The 5 pip breakout system.

The Idea - We all know there are supports, resistants and psychology levels in currency trading and those are the places traders usually put their STOPs, especially retail traders. If you pay attention to the price movement, there are high probabilities the price will breakout the supports/resistants or it doesn't touch the supports/resistants at all. Case 1, a clear breakout, price break the level with little or no retracement. Case 2, a fake breakout, it price the level about 10-20 pips then move back. It's the second case that most of retail trader get pushout before they see the price move back to their favorate direction because most of them put the STOPs 5-10 pips around the supports/resistants. We often see when price breakout, its momentum last at least 15-20 pips and the movement usually very quick, in a fews seconds. Why? It's very obvious, trader's STOP get trigger, which push the price move further.

The trading setup - Buy/Sell after the pair pass the N pips of the support/resistant/psychology level. Take 5 pips profit. Set the stop loss for 20 pips.
* N: depends on the pair, different pair have different breakout pips, usually EUR/USD is 3 pips.

The Statistic -
Reward: 5 Pips
Risk: 20 Pips
Ratio: 1/4
Probability of winning trade: 85%-90%
Summary: The ratio 1/4 looks odd. It needs 4 winning trade for every loss trade to break even. But through our research in a lot of pairs, the probability of winning in this settup is higher than 80%, which make it profitable in the long run.

Example -
1. EUR/USD: resistant/psychology level 1.50, Buy EUR/USD if it pass 1.5003, take profit at 1.5008, set STOP at 1.4983
2. AUD/USD: support/psychology level 0.94, Sell AUD/USD if it drops below 0.9396, take profit at 0.9391, set STOP at 0.9416.

Thoughts - Determine the resistant/support/psychology level and findout the magic breakout point N for different pairs are two important factors of this system. And pairs, major or cross tend to breakout together, making multiple trades will lower the risk.