Before showing examples of the trades, there are several things traders should be aware of. No strategy is perfect, therefore the best outcome is to aim to maximize the good trades, and minimize the losing ones (because they will occur). Here are few guidelines which can be added to the system to aid in its effectiveness:
Figure 1 shows a trade in the EUR/USD. A breakout lower occurred; a signal was given to enter by a bullish engulfing pattern. The trader enters long and the pair proceeds to move in her favor. The first potential exit occurs at the first bearish engulfing pattern. With an entry at 1.4074, and an exit at 1.4120 (top and bottom of engulfing bars respectively) this provides a nice gain. Potential exit number 2 is at a rate where daily averages indicate the pair may run out of steam. At this time the daily average movement was 120 pips/day. Therefore this target is placed 100 pips (always use less as the target is more likely to be hit) away from the low of the day thus far. If other signals have not occurred or the trader has a remaining portion of the position it should be exited before the end of the U.S. session. Stop is at 1.4055.
|Figure 1. EUR/USD 15 Minute Chart|
Figure 2 shows a trade in the EUR/JPY and has a few differences. Our entry is similar except the candle is not an engulfing pattern, yet over two bars we see a strong upward move, erasing prior losses. We enter at 117.70. Stop is placed at 114.50. Trade moves in our direction but a strong downward move (exit 1) gets us out rather quickly with a 10 pip gain. If trading multiple lots, and the stop is not in danger the rest of the position could be exited at the close of the European session around noon EST. At this time, the daily average move was approximately 110 pips. Therefore another target could have been 90 pips above the low at 114.50, providing a target of 115.40. The market did reach this point but not till much later in the day – an order could have been placed here, and stop loss could have been moved up to Potential Exit #1.
|Figure 2: EUR/JPY – 15 Minute|
The forex markets are open 24 hours a day, but there are still times of the day when more participants enter the markets, and these opening sessions can provide great opportunities. By watching for quick changes in direction a trader can join in on a potentially emerging trend, often with a small stop compared to the potential. No strategy is perfect, but by watching for false breakouts, reversals and using multiple exits, the trader has the potential to capture a large portion of the daily average movement.
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