Forex trading strategy #7 (Simple breakout System)
Submitted by Edward Revy on June 18, 2007 - 07:12.
The idea behind this simple Forex trading system is to capture an early move of the price when it starts to establish its new direction/trend for the day.
As we know the Frankfurt market opens at 2:00 am EST (which is 7:00 am GMT), then an hour later the other giant - London market opens at 3:00 am EST (which is 8:00 am GMT). The European session is the first major session for each coming day.
So, what do we do?
We start with 1 hour time frame, preferred pair - GBP/USD and no indicators.
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Hi Edward and all, it seems a lot of times the breakout happens before 2AM EST despite daylight savings. Do most big traders disregard DST?
Alex Liu
I don't know, Alex. May be they do, I haven't paid attention before.
Regards,
Edward
First of all I would like to mention what a great site this is, it's realy a valuable resource for everybody who's interested in trading forex beginner or advanced. I've been forward testing this simple breakout system for some time now and the results are quite good. I've tweaked the original system a bit, first of all I enter a trade when the close of a candle closes outside the channel and not the whole candle, when there's a strong breakout waiting for a whole candle to close outside the channel is not the most efficient entry. Secondly I look at another variable before entering a trade, the width of the channel, in most cases when there's a wide channel the currency pair mostly retraces after your entry and in most cases your stoploss is triggered. Now the question raises how wide is a wide channel ? Well this is the same question as "when is a currency pair overbought" is this 80 or 75 or even 70 ? Usualy you pick a number, for instance 80, and stick to this number. During backtesting and forward testing a channelwidth of 45 seems to give the most return. You could build a variable channelwidth in your tradingsystem and backtest this yourself to see what channelwidt gives the most return.
Greetings and happy trading,
IrSJWoo, the Netherlands,
Hi IrSJWoo,
Thank you for your feedback and a good alternative strategy summary!
I'm sure it does a great job if one sticks to the rules.
Thank you!
Best regards,
Edward
hello can i ask Edward Revy how was the result by using this system is't profitable?
The results were good and the system is profitable.
What else can I add? The concept of the system can be used for any breakout strategy, which gives you a freedom of making whatever rules you may need.
I don't have specific stats for this system, since I trade a set of systems at once.
Regards,
Edward
Hi Edward,
Great credit to you for this system and your continued support of this discussion thread. I am slightly confused though, your very first post says that the London market opens at 3:00 EST (8:00 GMT). But during the British summer months London opens at 7:00 GMT, which is 8:00 British Summer Time (BST). If I understand the rationale for this system it is based on the London open time (8:00) and that should be the focus, rather than a GMT time which will vary during the year as the U.K. moves in and out of its British Summer Time. Does that make sense? Many thanks again. Paul.
Hi Paul,
Both London and NY switch to day light saving time, so the hours shift simultaneously.
No adjustments on traders' side needed.
Regards,
Edward
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