Advanced system #5 (Trend Lines Breakout System)

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.

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

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

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

Hi all,

Pls you all pros can u help me out with this.
I trade from Nigeria which is +1 UTC time and i need an help in starting up ith trading times.

I have a good understanding of the candle stick charts and drawing pivots from 12:00am yesterday to 12:00am today (i.e midnight to midnight).

Please i would like to know how to use this system step by step as a new trader i use FXSOL trading platform or you can also advise me on which platform is easy and good for a starter like me.

Thanks Oladokun,
[email protected]
[email protected]
Nigeria.

Plese you could mail me.

Chand,
That's easy to explain. You said that for a breakout system there should be upper and lower limits for an entry. This is when you are going to enter in either direction after the break.
When I say that there is no downtrend line this morning, this means that we simply won't be placing Long orders today, because we have no upper limit to guide us through. But we can still expect downward moves and set Sell orders according to our uptrend trend line.

The situation when we miss either swing high or swing low isn't rare. That's because quite often the market decides firmly on its direction as early as 1-2 am EST and then it can move without stops and retracements until it meets the first or even second Pivot support or resistance.
In such cases I say that we missed a move today.

Regards,
Edward

Edward,
I will be greatful if you could you explain the statement below in detail as my understanding is for a breakout system there has to be upper and lower limit for entry. An example will be appreciated.

"If a trader sees, for example, no Swings High in the 5-candle range, that means there will be no downtrend trendlines this morning. "

Thanks
Chand

Greetings ,

I use this strategy on 4 currency pairs, trading 3 days per week over a one month period. This is a total of 48 trades for the month. I missed a few breakouts, hence 45 trades.

regards

Terrence Muir

Hi, trend lines must be drawn the way described in the rules. The angle of the trend is not important at all.

Regards,
Edward

Dear Edward
Thx you so much

Could i draw a down/up trend for a previous day and the angle of the trend about 10 or 15?

is the angle of the trend important?

Regards

Hi Phil,
Yes, it is ok.
In fact, my trading approach would stop me out and get into an opposite trade automatically since I don't monitor the price, but rather set two orders: Buy Stop and Sell Stop with an initial stop loss close to the opposite trend line and, of course, before an opposite order (so that I have the stop hit and only then the opposite order triggered) and walk away for a couple of hours or study other charts. If I happen to be around when my order is filled I adjust the stop as described in strategy rules.

All the best in your trading!
Edward.

Hello Edward,
With this strategy, if you're stopped out and price reverses and breaks the other trend line within the 5 candle rule is it OK to reenter again?
I hope this day finds you doing well and thank you for sharing your knowledge with us.

Again, thank you kindly sir! Have a great day

Phil L.

Hi Terrence, out of curiosity how did you get 45 trades out of the month of june? It is a morning breakout 1 trade a day from what I can tell?

Hi Edward,

You are doing an excellent job with your systems. Your kindness is greatly appreciated. With your expertise, I am sure that you are extremely wealthy. I have tried this system for the month of June and the results are phenomenal. Of 45 trades placed, 40 were profitable.

I have found that following the breakout, the price remains above the pivot point at London market opening, you can let the trades run. Today was the perfect example. Following the breakout on the EUR/USD, the market moved 27 pips then remained there for four hours. I moved stop loss to lock in 10 pips (this was above the pivot point) and just waited. The EUR/USD then rallied a further 60 pips. A similar thing happened with the USD/CHF and the EUR/JPY.

I would recommend that after locking in some profits just, leave the trade for the day, unless fundamental data will be released later in the day. I use Fibonacci retracements/extensions to trade, however, pivot points work very well with this strategy. The most important thing is to draw the trendlines properly and accurately. Happy trading.

Terrence Muir

Hi Frank,

Pivot Points are calculated for the whole previous daily range. From midnight (yesterday) to midnight (today).

Regards,
Edward