Forex trading strategy #7 (Simple breakout System)

Hi Edward,
I would like to elaborate on wide channels problem.
Commented on September 26, 2007 - 04:26 by user... No name there :)

From my understanding a wide channel means that the market didn't calm down before the Frankfurt and later London open while we would like it to squeeze in as much as possible to produce a strong breakout, right?

I've tried using BB (12, 2) to measure bands with against 1 am channel width. If bands are thiner than a 1 hour channel - that's a sign that a market has squeezed the way we want, thus I would trade a breakout as you've suggested.

If it is wider - I would use reverse strategy offered in a post by User on September 26, 2007 - 04:26.
I set another BB (12, 3) and once a full bar closed outside the 1h channel and it is still inside the BB (12, 3) I enter a trade towards the channel. S/L below BB (12, 3).

Good luck trading!
Diego

Just wondering if anyone could comment on the winning percentage of this system. By system I mean the simplest one as described at the top of this page. Winning 20 losing 20 just based on the candles outside the 1 hour range.

thanks,

Bob

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.

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 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.

Thanks Ed
Jimmylew

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.

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 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!

Hi,
Yes, it means we don't have a valid entry signal; at least we won't be using current system for the day.
On Nov 22 this year we had Thanksgiving Day in US and Canada. Therefore, trading volume in the Forex market was poor.

Regards,
Edward.

Hi Ed,

If we never get a candle to close outside the channel, does it means that we do not enter a trader at all? Like today?

SP

Yes, for GMT zone it will be from 6:00am to 7:00am.
However, we don't wait till 8:00am to get into a trade. Starting from 7:05am we are ready to open a position once requirements on 5 min chart are met.

Regards,
Edward.

So, if i may ask; we get the high and low of 6:00am GMT to 7:00am GMT and enter at 8:00am GMT when a 5 minute candle closes above the high or low?

Thanks

Sure, it can be done so; and logically it's the only right choice. However, when a tunnel is too wide one may consider a smaller stop loss value.

Hi there, isn't a 20 Pip Stop Loss a little bit on the short side. Would this strategy work if you used the other side of the tunnel as a Stop Loss, whatever the amount.

Thanks.