This is a very simple method to follow without the use of any indicators except maybe some lines on the chart. I personally like to use a customized fibonacci extension tool (instead of lines) on the MetaTrader platform with Risk/Reward Ratio set at 1:1. I will explain how to set up the fibonacci tool later. Just as the name of the system suggests, the entry will be at the breakout of the previous candle's high or low. One of the nice things about this strategy is that one can set pending orders and not have to sit in front of the computer watching. The example below is from a daily chart and the date of the "previous" candle (key off candle) is from December 5, 2011. In real time the key off candle would be the most recently closed candle. For the purpose of this example we are using a daily candle from the past to illustrate how the trade played out. In other words this would have been the setup for a trade on December 6, 2011:
As you can see, the low of the candle was broken. Therefore the pending sell order was triggered. The trade ended up reaching take profit about six days later with an R/R ratio of 1:1. The R/R ratio can be adjusted to whatever the trader prefers. Keep in mind that different R/R ratios may have different outcomes. On a daily chart, the length of the trade is obviously going to be longer (on average) than a lower timeframe. However, I recommend trading the higher timeframes because they give the trades more room to "breathe" and lower the probability of getting stopped out because of "noise" (aka random price fluctuations). They also reduce the effect of spreads as compared to lower timeframes.
If pending orders are NOT triggered by the end of day, then cancel them ALL. For convenience of not having to manually cancel orders, pending orders can be set with an expiration time between 18-24 hours. That way you don't have to worry about going back and canceling them. Here is another example... this time a buy entry:
I recommend only having one open trade at a time. I also recommend not risking more than 2% of account balance per trade. To set up the fibonacci extension tool in MetaTrader, right click on the indicator and select "Fibo properties". Select the levels tab and delete all levels except "0" and "1". For risk/reward of 1:1 add levels "-1" and "2". To show the price as level description enter "%$" in the description fields (screenshot below). To hide the dash line connecting levels select "none" for style in the common tab (screenshot below). Lastly, to extend the levels to the far right of chart check off the "Ray" box in the parameters tab (screenshot below).
Optional Filter: Put a 200 simple moving average on the chart. Trade only high breakouts (Buys) if price is above moving average. Vice versa for sells.
Backtest(s): High/Low Breakout Backtest (June/2012)