Forex trading strategy #16 (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 Ed
Jimmylew here. I had a couple of quick questions concerning this system. A: I,m in the Central Time Zone[Missouri] so trading the 7am candle at the US open fits my life, so would the 20 pip stop and profit goal still apply? B: When looking for the trigger candle above or below channel should the entire candle be above/below the channel including the shadows? C: When setting my stops and profit should I include the 4 pip spread in that[24 pip stop-16 pip profit]? D: Are there any days to shy away from with this system[Mon. or Fri.]? I'm sure I'll have some more questions for you in the future so you're kindness is GREATLY appreciated!!! Thanks!
Jimmylew again! Sorry but I thought of another quick question. Does the 3 hour limit on the session begin with the trigger candle or at 7:01 Central? If my trigger candle appears at say 9:30, is that too late to enter [ London closes at 11:00 Central]. On a side note, I wish I had found this site 9 months and a whole lot of losses ago! Thanks!
Hi Jimmylew,
A: yes
B: yes
C: no
D: no
I hope you don't mind me giving short answers this time.. :)
Regarding 3 hour limit, you start counting 3 hours from the moment of actual entry: e.g. if you have a trigger candle at 9:30am you get in without a doubt. Your exit with 3 hour rule should be at 12:30.
Regards,
Edward.
Thanks Ed
Jimmylew
Hi Jimmylew,
absolutely not :), you are welcome to ask as many questions as you have. While comment field is open it says that we are happy to hear from you :)
Yes, if you target only 20 pips while setting 20 pips Stop loss you've got 1:1 risk/reward ratio, which is not the best option. But, for this strategy 20 pips can be claimed as a guaranteed target, while further holding to a position may lead to zero or negative outcome.
What can we do? The simplest solution is to move your stop loss to break even once you are +20 pips and let the trade run for three more hours or till you conclude that your profit objectives are met.
The other option is to open several trades.
Then the first one can be closed at 20 pips,
second will be kept for another 3 hours with a stop loss order moved to break even (we move Stop loss when we close the first trade with 20 pips profit).
Also if price moves against your trade you may hedge a position instead of taking immediate losses. E.g. when, for example, Buy order was initiated, but, instead of seeing profits grow, we observe price moving back into the range and popping out on the opposite side of it signaling to us to take a Short side, we may hedge the trade: leave Buy order open and initiate a Sell order. However, you would need to apply your best knowledge and market analysis skills to be able to exit on time and get rid of the opposite trade with a minimum loss.
In addition, while using this strategy or any other one, I like to define Pivot points and add 200 EMA indicator. Both suggest the areas of support and resistance at which we may see price u-turns or further acceleration.
I realize that my comment in this case doesn't provide a perfect solution to a risk/reward ratio issue, rather some additional recommendations, and I would be glad to hear further comments from our readers.
Regards,
Edward.
Hi Edward,
Is this strategy working in any trading day? When you say the whole candle closed outside the tunnel, does it include the shadows? I don't know if it's just me but I had several losing trades after a successful trade with this one. :( Hope you could give the best time of the month/week to use this strategy.
Hi,
Yes, the whole candle here means a body + shadows.
Avoid trading before and after holidays.
It is believed to be difficult to trade Mondays. Also if there was no clear trend established during the week, it's better to skip Friday trading as well.
These are not rules though, only suggestions.
Regards,
Edward.
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