FREE FOREX STRATEGIES

Advanced system #1 (Midnight setup)

Ready to dedicate your midnight hour to Forex trading? This strategy can be your winner.

Trading strategy setup:
Currency pair: GBP/USD or any other.
Time frame: 1 day.
Indicators: None.

Trading Rules:

This system is based on the fact that most of the time you won't find same size candles for 2 consecutive days on a daily chart. What does this mean for us – only one thing: the price is moving steady either up or down with almost no price "noise" which is always present on smaller time frames.

FOREX TRADING SYSTEM


Entry:

At 00:00 (your local time) or rather: according to the time set on your trading platform, with newly formed daily candle find highest and lowest price of the day for the previous daily bar.

If the price bar (including shadows) is less than 90 pips long we will not open new trades the next day. (This is our requirement for GBP/USD pair, it can be changed/adjusted for other currency pairs).

If the previous day bar turns out to be an Inside bar, Inside bar trading

be cautious about entries the following day. While an Inside bar candle implies a good breakout opportunity the following day, it can also be a dual whipsaw breakout - a break in both directions - the most unwanted scenario for our trading system.

If we've chosen to trade the next day, set a Buy Stop order at the top of the previous day candle — the highest price +5 pips, and Sell stop order at the bottom -5 pips.

Put your stop loss order for a Long entry at the lowest price of the previous day -3 pips.
Put your stop for the Short order at the top of the highest price of the previous day +3 pips.

These additional pips for entries and stops can also be adjusted once you learn the behavior of a chosen currency pair over the time.

Exit:

Now, when one of the orders is filled – stay in the trade for the whole day. At midnight with the new daily candle open, adjust your orders and stops according with the previous daily candle following the same routine; keep trading position open until you get +100 pips, then you may close current position to reward yourself. Rewarding is a very powerful tool, use it.

An alternative money management approach would suggest to enter with two trading positions, where the first one will be closed once we are +100 pips in profit, while the second one will be left to run till we get stopped out, thus allowing us to collect everything the market is willing to offer.

Close you current open positions (with either profit or loss) if a daily candle becomes a Doji candle or is almost a Doji. What we mean by "almost" is that for the true Doji you need open price = close price, while "almost Doji" can have some distance between open and close (but no more than 10 pips).

Also close your open trades if you've met a Shooting Star candlestick in an uptrend or a Hammer candlestick in a downtrend.

shooting star candlestick Forex Hammer candlestick Forex Doji candlestick Forex

Below is an example (no screen shot) to illustrate how we navigate in time:

On May 1st at 00:05am, we opened a daily chart and it was a downtrend.
We set our orders (both Buy and Sell) according to the previous candle (April 30th). The same day our Sell order gets filled. The day has passed and the price made some further progress down. At 00:05am, May 2nd with a new daily candle appearing we change our stop loss for a current Short position according to the high of the previous bar (from May 1st), from that point we can either continue to stay in the trade or lock in profits. Also we reset our Buy order which is now going to be just above the highest high of the May 2nd candle.

This system also gives an opportunity to be constantly in a trade and at the same time it requires very little observation and takes only 5 minutes a day to set all positions and forget about Forex till the next midnight. You will see losing trades with this system from time to time – it is a part of any trading, but the overall result will be very positive.

Let’s look at the screen shot now and examine our trading in greater details:

FOREX TRADING SYSTEM

Next is a detailed candle-by-candle explanation of the trading on the chart above.

We will number candles starting form 1, so number 1 is a circled candle.

1st candle (high – low = over 90 pips) which allows entries the next day. We set entry orders.

2nd candle – the price didn't get above or below the 1st candle, no orders filled. Midnight: the 2nd candle is over 90 pips long, we're going to reset orders according to the 2nd candle’s high and low. The second candle is also an Inside bar, so if we decide to trade, we should keep in mind that our risks at this stage will be higher.

3rd – our buy order is filled. Midnight: day ended negatively, but didn't trigger the stop loss, we keep our position open and adjust stop loss below the low of the 3rd candle and minus additional 3 pips. The 3rd candle is also less that 90 pips long and we wouldn’t trade the next day except that for now we have already one position running.

4th – went in profit and we rewarded ourselves closing position at the end of the day with just over 100 pips (you can actually set your target lower than that, or use 2 entry orders as suggested above).

Choosing a profit target for the day becomes easier when you know a daily range average for a particular currency pair.

For example,
GBP/USD daily range average is 180-200 pips
EUR/USD daily range average is 110-120 pips
USD/JPY daily range average is 80-90 pips
USD/CHF daily range average is 120-130 pips

Taking about a half of it can determine your daily profit targets.

Update: from now on to get data about Daily range average over the past month (20 days, excluding Saturdays and Sundays, you can use the following custom indicator for MT4: Daily_Range_Calculator.mq4) Attention: with 5 decimal platforms you have to disregard the 5th digit. On 4 decimal platform no adjustments needed.

5th – no trading as the price didn’t exceed previous candle boundaries. Midnight: candle #5 is less than 90 pips + it is an Inside bar, thus we are not setting any orders for the next day.

6th – we didn’t trade it and for a good reason – price managed to get below and above the previous candle’s high and low, which would have hit our stops, in worst case - twice. By the end of the day we reevaluate the charts and it is a good time to set new trades.

7th - entered Long, our stop loss was below the low of candle #6, this trade is a reward again – more than 150 pips, so we lock it in. At midnight we set new orders again.

We will have systems that will be able to easily allow trades running their positions further relatively safe, but for this one it is important to lock your profits at least partially – the reason is that we move our stop order every day.

8th – no trading opportunities. Midnight: candle #8 is less than 90 pips + an Inside bar (IB) again, means we are not going to trade the next day.
9th - no trading and we were very right about it. Midnight: #9 candle is long enough for us to set targets for the next day.
10th – no orders triggered. Midnight: #10 candle is long enough, but is again an Inside bar, it is risky to trade, looking at previous days traders are now obviously indecisive about the trend. Decide per your own risk appetite.
11th – no trading, but if we did, the day would have ended with a small profit.
12th – no orders triggered. An IB again.
13th – no trading. At midnight set new pending orders.
14th - Bought, but closed negative for the day, although the candle was bullish. We stay in a trade.
15th – we are almost at break even, but nothing to earn, we stay in a trade, stop loss below the latest daily candle.
16th – we got stopped out (not a problem, you shouldn't be worried about such negative days), a short position is filled soon after on the same day. One day later it'll become profitable and so on...

Happy trading!

Edward Revy,
http://forex-strategies-revealed.com/

Copyright © Forex Strategies Revealed

I can't get this strategy to make sense. It says to place a buy at the high of the previous day plus 5 pips. Does this make sense? To place a trade at a price which is higher than the current price? Same is true for the sell order. Help.

Yes. With this trading strategy we are not trying to predict where the price will go the next day. We take the easiest way - trading on the breakout of the previous day highest highs or lowest lows.

Let's look at it this way. The day has set its highest and lowest bounds. If the next day breaks through any of those bounds it has a great potential to make it even further. By placing a buy order higher than the previous high we are making sure that this breakthrough has happen before our order gets filled.

Hope this helps.
Happy trading!

Edward.

1. As I understand, stop loss in this system is a whole previous day trading range. That's a lot - isn't it? If the trade is a success and it goes our way, do we cash-in when we get to 100 pips profit or you just "let it ride" and just move stop-loss. What turned out to be the best solution during your trading (GBP/USD for example)?
2. How do you determine daily range under which you don't trade for a currency pair? In your system it is 90 pips for GBP/USD. How do we calculate it for other pairs?

1. If a trade is a success, I do take my 100 pips profit. After all there is always another day to enter again.

Regarding a stop loss rule, yes, the stop required is usually quite far away, but this is also a very secure option to go with. Of course only if a proper money management is in place.

As a rule if the price decides to change its direction it usually does it slowly, not in one day. As we move our stop every day we are able to bring the trading risks to a safe minimum before the price actually turns against us.

Another option would be to set a stop loss equal or slightly higher than the Daily average Range. You may use the indicator to help you with this.

2. I would suggest taking a half of the daily range average for a chosen currency pair as your approximate target.
My biggest trading experience with this strategy is with GBP/USD pair, for other pairs you'd have to conduct your own study.

Best regards,
Edward

Hi Edward,

Thank you for sharing your strategy. I use a similar method, but on a one hour chart at the opening of the London Market. I would welcome the opportunity to discuss this with you further.

Terrence Muir

i live in vancouver bc canada..and it is PACIFIC TIME..WHEN YOU SAYS LOCAL TIME..DO YOU MEAN MIDNIGHT PACIFIC TIME WHEN THE NEW DAILY BAR STARTS FORMING?
MY DAILY CHART IS EST TIME.
THANK YOU

Go with EST time (the time your daily chart gives you). Thanks.
Edward.

IT'S ME AGAIN EDWARD..
I AM STILL CONFUSED WITH THE 'MIDNIGHT SET-UP'
FOR EXAMPLE...THE PREVIOUS BAR HIGH IS 245.55 AND THE BAR LOW IS 244.55...PLEASE CORRECT ME IF I AM WRONG WHEN SETTING UP.
'BUY STOP IS 245.55 PLUS 5 PIPS MAKES IT 245.60.HOPEFULLY THIS PART I GOT IT RIGHT.
NOW, 'SELL STOP IS PREVIOUS HIGH MINUS 5 PIPS? WHICH IS 245.55 MINUS 5 PIPS = 245.50? OR PREVIOUS LOW MINUS 5 PIPS... 244.55 MINUS 5 PIPS =244.50 PLEASE HELP...THIS IS THE ONLY PART I AM STILL BAFFLED.
THANK YOU IN ADVANCE AND LONGING FOR YOUR ANSWER.
HAVE AN EXCELLENT DAY.
TOMMY.