Forex trading strategy #7 (Simple breakout System)

Hi Edward,

Just a quick question. Can we use this system on other currency pairs ? I realise that the stop/limit is tailored to the GBP/USD pair, but presumably this system would work (for the same time frame) for other major pairs (EUR/USD, GBP/JPY,...) as well since the London and Frankfurt markets will trade other pairs with similar enthusiasm.

What do you think ?

Thanks,

Andrew

thank you
Edward for your Good work,

ignatius

Hi Andrew,

Theoretically, you would be right if you opt for tighter ranges. A tight range as a rule produces a more active breakout and allow better conditions for stops.
However, I haven't practiced limiting my trades to tight ranges of 40 pips or less.

Here what I would try to do to filter out some trades:
Add 50 SMA to 5 min charts. Set a breakout entry only in the direction suggested by 50 SMA. E.g. if price trades above 50 SMA, set only Buy orders, if price trades below 50 SMA - only Short orders.
This way you will trade breakout with the trend only.

To get an even better filtering, add 50 SMA to 1 hour chart too.
Now your steps would be:
1. Is price above or below 50 SMA on hourly chart during the required range (1-2am EST)?
2. Is price above or below 50 SMA on 5 min chart during the required range (1-2am EST)?
3. If both are above 50 SMA or both are below 50 SMA, then you will take trades this day.
If, say, 5 min trades below and 1 hour trades above 50 SMA - no trading today.

Regards,
Edward

Hi Edward,

Thanks so much for all these strategies. Very useful - especially for someone relatively new to forex trading such as myself.

I like the limited time frame of this system. It means I can manage trades before I go to work in the morning (I live in the UK so am on GMT).

My question relates to whether to enter a trade or not. Back-testing reveals that I would have had almost the same number of winning and losing trades over the past month on GBP/USD. Coupled with the fact that the limit and stop are the same, this doesn't seem to generate much profit. I'd love to trail stops but haven't really got time before I have to jump in the car.

Is there a good way of deciding when to stay out of a trade ? I was looking at the whole price range 0600 - 0700 (GMT) and perhaps thinking to stay out of a trade if this range was greater than 40 points (indicating high volatility). Is that fair ? Are there better, more established methods that you'd suggest ?

Thanks again.

Andrew

I think the strategy works well. Seems like you did everything right but sometimes the market does not cooperate. I'm thinking of trying taking the time from 11pm-12am PST as the range. Then wait for a candle to open and close completely outside of that range but using a different stop method. Using the boundary as a range works but sometimes you get stopped out too soon. I think if you use 10 pips above/below the most recent swing low/high, that may help in some of those situations when you get stopped out only to see if continue in your direction. I think this strategy is solid, if people post and chat here we may be able to fine tune it some more. I'm also thinking of using a take profit when a doji candle closes on the 5min chart.

From the screen shot, you're doing everything right.
You said you have GMT+1 time, try trading according to GMT - London time.
I use GMT.

Frank G.

I wonder if someone profit from this strategy... My broker time is GMT +1 and as said it will
be for me 07:00 - 08:00 at my broker time. Look at the pictures...Can anyone tell me please do am i doing something wrong ???

I don't know, never tried.
If you test it, let us know about the results.
Thank you.

Regards,
Edward

THANK YOU FOR IDEA
YOU CAN USE THE SAME WITH GBP/JPY AT 22:00 GMT .

Hi Edward,

I'm using it on a 5 min chart.Thank you for sharing your ideas. I've learned a lot of it.

I wanted to use a simple break out system besides
an other system I use. I also use Fibonacci trade system(also learned from this site) A great strategie. Once you know the fibonacci idea, its fantastic.

Regards,

Dennis

Also we can use BB (200, 2) as a new target when 200, 1 is unavailable.
Also, some further observations:

...BB obsession, but anyway.
Just for review:
If we look at both BB (100, 2) and BB (200, 1) on 5 min chart, places where any of BB lines cross become turning points when price gets close to them.
Thus, again, this could be our exit alert.

Regards,
Edward

Hi Dennis,

Would you use BB on 5 min or on hourly charts?
(For simplicity, the role of middle BB can take SMA20)

I think it is a good approach and customization: I agree that strategy's risk management is one of the weakest points here.

What if in addition to your rules we add a rule on profit target and re-entry?

Here is the idea:
Bollinger bands (200, 1) used on 5 min charts often become effective support/resistance during early trading hours.

Thus, the outer bands of Bollinger band 200, 1 indicator (added to 5 min charts) become default profit target levels.

If 5min candle closes on the opposite side of SMA20 while we are in the trade, we exit; and immediately enter with an opposite order and a target at 200, 1 outer BB band.
If due to BB position on the chart our default profit target is not available, then we have some fixed target of 140 pips (or less) or a trading limit of 3 hours.

Again during our second attempt, our position will be closed if a candle ends up closing on the opposite side of SMA20 - our risks for the second chance (second trade) aren't large, since we initially entered near SMA20. No more entries after a second failure.

Some quick documenting of my thoughts this time :)
Hope it is possible to understand the idea.

Regards,
Edward

Hi Edward

great site u have.

this strategy is really amazing. So simple and effective. great job.

Only the ratio 1:1 is maybe little risky. I had run a demo and I came out at 9 wins and 6 losses. So I was thinking: why dont I put a Profit target at 140 pips(or less) and a Bollinger Band(20,1). I close(when do not hit profit target) the trade when the candle closes above BB middle or within 3 hours from the moment I go into the trade.

I put de stop loss at 26 pips(incl spread) and I dont move this until I close the trade.

I try to combine some trade systems. what u think of this???

greetings

Dennis

Hi Alex,

It is not the same, but it uses similar approach to identify trading opportunities, just like any other breakout method that uses timing and price combined.

Regards,
Edward