Posted on blog by Marc on June 26, 2009. Updated (new twist- 29th august).
In the current topsy turvey currency markets it is difficult to know which forex strategies are most likely to work or not. The experienced forex trader has a number of different currency trading strategies he or she will follow. Often the best plan is to simply walk away until the markets resume a tradeable trend.
I have 3 or 4 fx strategies that I have found that enable me to continue trading through the different market phases. All markets go through cycles. January to mid march I made more than 3000 pips from my own 4 hour system. Suddenly mid to late march the markets changed and it became unreliable and then un-tradeable.
I then went back to a simple 15 minute strategy that i have had success with in the past. I really don’t like trading 15 minute charts and yet April 2009 was my best month ever in my 5 year forex career. I made over 1800 pips, many of the trades posted live on twitter. Like to know the strategy? Send no money now ! This forex winning system is free, on the house;
Asian Break out forex strategy
Most forex strategies revolve around support and resistance. Price either bounces off previous areas or breaks through. Fx traders are looking at these areas to see how price reacts and look for clues as to where the price is going next.
This can be on any fx chart; 5 minute through to weekly. There are numerous examples of this here on the blog, mainly referring to trades on 4 hour charts (my preferred time frame).
This strategy that I am going to show you is very simple and relies upon the asian (tokyo) session being relatively quiet (it is most of the time). You need the overnight range to be small compared to the average daily range of the pair. For example, the average daily range of cable is 180 pips at the moment. So if the overnight range is say 50 or less we know that there is a probable potential move of 130 pips. if the Asian range is greater than 30% leave alone.
The price of a pair often becomes trapped & bounces within a small range, between 2 horizontal lines, above and below price (see below);
$/chf trapped between 2 horizontal lines during asian session
As you can see in the diagram above the chf has been trapped in a tight (30 pip) overnight range. The average daily move on the chf in the last few months has been 150 pips. Therefore it is reasonable to assume that at some point (London forex market open or just before is the normal time) the price of this pair is going to set off up or down for a possible 120 pips.
The London open or the hour before is usually the catalyst for this movement. What we need to look for is a break through one of these trend lines AND A PULLBACK.
Eight times out of ten, price will break through this overnight range and then pullback inside. If you dive in at the 1st sign of a break you will lose nearly every time. I have been there, believe me !
Entry is critical on this type of trade. Where you enter depends on your risk tolerance. Under normal circumstances I would take the trade from the pullback to the 34/55 exponential moving averages (the top arrow in the following diagram). If you are new to these emas, check out my free "How to trade forex" ebook that explains all this in detail.
The beauty of entering here is that you would only need to place your stop 15 pips away (just above the asian overnight high). Therefore you have a risk reward of 15 pips to gain a potential 120 ! A more conservative approach is to place your stop 10 pips above the overnight high.
Swiss France breaks out of over Chf/$ break out of over night asian range.
However the reason i used this particular example is that price throughout the night failed to break the (green) 200 ema.
I never take a break out trade that is near to the 200ema.
So on this occasion I would need to look for entry after the break of the 200ema.Either a pullback, which is my preferred entry or a move 5 pips below the closed candle that did break the 200ema ie the 2nd arrow on the chart.
Again the risk reward is excellent. I would place my stop 20 pips away – just above the 34/55 emas with a potential gain of 100+ pips.
This particular break out moved 200+ pips in total. Unfortunately I wasn’t trading and missed it.
There is another great variation to this that made made me a lot of money last year. As with 99% of forex trading strategies it doesn't work all the time, but when it does it can be one of the simplest, low maintenance trades around.
All you have to do is place an OCO order (one cancels the other) order, above and below the asian range trend lines. USA followers will have a problem due to the new NFA rules, however the forexexecutorpro gets around this brilliantly. The strategy is to place a buy order 10-15 pips (depends on the range of the pair) above the asian range high & a sell order 10-15 pips below. If the buy order triggers, the software automatically cancels the buy & vice versa.
Target? If you are at your p.c you can monitor this yourself. If not it really depends on your risk tolerance. Obvious areas for price to stop are fibs and previous support and resistance. An alternative to this is simply choose a nominal number of pips (perhaps slightly more than your stop loss). Best advice is try it on a demo account and see what works best for you.
Caution: remember not to take trades on correlated pairs with this forex strategy. Ie the chf goes the opposite way to the euro 80% of the time (it is virtually the same "bet"). If you don't understand what I mean by correlation, I deal with it in the free ebook.