Advanced system #5 (Trend Lines Breakout System)

Hi Oladokun,

To tune in the current system you have to convert your time to EST time.

GMT + 1 is EST + 6.
Thus for you to convert the time, you need to add 6 hours, you'll get 6:00 am - 10:00 am your local time - it is a 5 candle range to focus on in the morning.

Without altering a current strategy setup you would need also to calculate Pivot points based on the EST time. For your local time zone it will be from 6:00 am to 6:00 am next day.

Next you do same things as described in the strategy: you take those 5 candles and draw trend lines trough appropriate swings high and low.
(The basics of drawing trend lines can be found at http://www.forextrendline.com/ )

You then wait for a breakthrough, enter, and later exit using the rules described in the strategy...

Regards,
Edward

Edward,
Thanks for your reply! I have been following your strategy closely and have been mentally applying on the charts every day; based on which I have following questions for you.
1. If you don’t mind may I ask the philosophy behind this strategy? It may help me in better understanding and applying it effectively to other currencies as well. Also I’m trying to build a safety net around it and trying to create some granular rules for my directive.
2. Price action whiplashes often happen before taking a direction. With an objective to still maintain profitability do you feel stop losses can be adjusted to the previous candle’s high/low or 5 pips for EUR/USD and 10 Pips for GBP/USD or any other number or strategy to filter whiplashes.
3. Do you recommend using this strategy during major scheduled News releases?
4. I understand you use Oanda as your broker. I need to understand how weekend data should be treated. Do we ignore & hide weekend data i.e. between Sat midnight – Sunday midnight.
5. I think use of trailing stops may be useful for locking in some initial profits; if you also consider the same; could you recommend in context to EUR/USD and GBP/USD, what trailing jumps can be taken based on the price action? For e.g. every 10pips of price increase/decrease trail Stop Loss by 5 pips. Based on your experience on volatility of these currencies and only if you consider trailing stops appropriate. Your suggestion will be appreciated.
6. With the time change for e.g. EDT to EST or vice versa. Do we still take same 5 candles into consideration to draw trend lines i.e. from midnight to 4:00 am EST/EDT

Thanks
Chand

Chand,

Thank you for your questions.
1. The theory behind this strategy is based solely on trend line breakout rules where timing (early morning) also plays a key role.
Everything else can be described as mass psychology. Determination among Forex traders to reach certain Pivot levels during first morning hours is added as a psychological phenomenon that allows entries without confirmation, e.g. as soon as the trend line is broken. While 3 hour trading rule is simply a study of how long a momentum can last before the first concern about the necessity of a price correction arises.

2. There are two options about stops that I look at each time I enter the trade. If the nearest swing high/low is pretty close, I definitely prefer setting my stop around it. For all other cases I use a rule given in the strategy - above/below the candle that violated a trend line.

3. The most important news releases come at 8:30 am — 10:00 am EST for the Dollar. I mainly focus on those, for the current strategy I don't apply fundamentals.

4. Yes, I set charts to ignore and hide weekend data. I use weekend start - 17:00 (Friday), weekend end - 00:00 (Monday).

5. I wouldn't support the idea of using trailing stops. In a trade with high winning probability I like to see the action unfolding at its pace and taking as much room as needed. Instead of trailing stops I would rather use 2 orders, where you can close the first one as soon as you saw a big price move and want to keep max pips from it, second - close using the rules.

6. Yes, we still take the same candle range since Europe also shifts to Daylight savings time.

Regards,
Edward

Hi Edward,
Kudos for the wonderful site.Its painful that i'm yet to get this strategy right despite several attempts at it. pls Ed, Can you clarify these questions?
1 Is it compulsory for the valid (swing highs) downtrend line to intersect with the valid (swing lows) uptrend line?
2 When my "supposed" trendlines happen to be almost horizontal lines,is it right? Then when does the break out ever occur?
I'm really confused,need some breakdown.
---Nightfox.

Hi Nightfox,

Your questions are easy to answer.

1. Trend lines intersection does not play any role in this strategy.

2. It is absolutely fine for trend lines to be almost horizontal or even absolutely horizontal. This indicates that a distinctive support/resistance level is in place, breaking through which will create a strong move.

Keep trying, you will succeed!

Regards,
Edward.

Hi Edward

Can we use this method if we have a big news release coming up? For example we see a trend line break and we enter into a trade accordingly. But we also know that after a couple of hours an important release is coming up and we do not know how the market is going to react. How should we tackle this situation? Do we still enter the trade or just not trade for that particular day.

Thank you

Krishna

Hi Krishna,

Quite often a couple of hours after a breakout is enough for the market to demonstrate its potentials; in such cases I enter a trade without hesitation.

You can tighten your stop if you feel that news may turn the market against your position or exit just before the news time. When I have 3 hours till news release, I wouldn't be concerned about news at all.

News aren't always bad friends, they can also help making higher profits. Therefore, I'm always in the market when I have an opportunity to trade breakouts.

Regards,
Edward.

Hi Edward

I am sorry if I am asking too many questions. I encountered with the same problem that I faced yesterday with simple break out system. The 1 hour candle which actually broke the trend line turns out to be a Doji. When the candle violated the trend line it looked a good short signal. But after a hour time I find it a doji. What should I do then? If you like in Europe maybe you could check it out too. The 1 hour candle before this hour is a Doji. Thank you.

Krishna