2.FOREX STRATEGY: PIRANHA STRATEGY

Forex trading strategies: Piranha Strategy

The forex market spends most of its time either in a trend or in a range. The rapid-fire scalping strategy works best in a trend. The piranha strategy was developed to work when markets move in a range.

Let us get right into the world of the piranhas. Piranhas take small frequent bites off their prey until it is totally devoured. Although a single bite may not cause much harm, the frequency of the bites causes the attack to be  deadly.  In much  the  same way,  the  piranha  strategy was  developed to give scalpers ample opportunities to bite the market and chew off small profits each time.

This strategy is designed specifically for the GBP/USD currency pair, using the 5-minute (M5) time frame. On average, there are about 15 to 20 trading opportunities  for  the piranha strategy every day.

Time Frame

The piranha strategy works with  the 5-minute  (M5)  time  frame. This meansthat each candlestick on the chart represents 5 minutes of price movement.

Indicators

We use this  indicator for the piranha strategy:

One set of Bollinger Bands

1. Period 12, Shift 0.
2. Deviation 2 (default).

Currency Pairs

The  strategy  is  designed  for  the  cable,  which  is  the  nickname  for  the currency  pair GBP/USD.

Strategy Concept

Bollinger Bands are used  to  identify  the  trading band of  the GBP/USD. The Bands help us to mimic the nature of the piranhas by giving objective entries for long and short positions. (See Figure 6.7.)

Forex trading strategies: Piranha Strategy

Long  trades  are  taken when market  prices  touch  the  bottom  band; short trades are taken when market prices touch the upper band.

Piranhas  are  active  in  relatively  calm  waters,  such  as  rivers,  but  not in  the  rough  open  seas with  strong  currents and waves.  In much  the  same way, avoid  trading  this strategy at  times of major news  releases during  the U.S. and U.K. trading hours, as such environments reflect the rough open seas with strong currents and waves. We use the GBP/USD currency pair on the M5 time frame to illustrate both long and short trades.

Long Trade Setup

Here are the steps to execute a  long trade using the piranha strategy:

1. Wait for the market to touch the lower band of the Bollinger Bands.
2. Enter for a long when the market price touches the lower band of the

Bollinger Bands. (See Figure 6.8)

3. Set the stop loss at 10 pips below the entry price.
4. Set the profit target at 5 pips above the entry price. (See Figure 6.9)

Forex trading strategies: Piranha Strategy

Forex trading strategies: Piranha Strategy

From the long example in Figure 6.10:

Entry  price  =  1.5931

Stop  loss =  1.5921

Profit target = 1.5936

The risk for this trade is 10 pips, and the reward is 5 pips. The risk to reward ratio is 2:1, which yields us a 1.5% return if we take a 3% risk.

Forex trading strategies: Piranha Strategy

Short Trade Setup

Here are the steps to execute a short trade using the piranha strategy:

1. Wait for the market to touch the upper band of the Bollinger Bands.
2. Enter  for  a  short when  the market  touches  the  upper  band  of  the Bollinger Bands.  (See Figure 6.11.)

3. Set the stop loss at 10 pips above the entry price.
4. Set the profit target at 5 pips below the entry price. (See Figure 6.12.)

Forex trading strategies: Piranha Strategy

Forex trading strategies: Piranha Strategy

From the short example in Figure 6.13:

Entry  price  =  1.5941

Stop  loss =  1.5951

Profit target = 1.5936

The risk for this trade is 10 pips, and the reward is 5 pips. The risk to reward ratio is 2:1, which yields us a 1.5% return if we take a 3% risk.

Forex trading strategies: Piranha Strategy

Strategy Roundup

At  the beginning  of  this section,  I mentioned  that piranhas attack  their prey until it is totally devoured. In much the same way, once your trade hits a stop loss, the loss is telling you that there is nothing left of your prey and it’s time to look for a new one.

Hence, hitting a stop  loss  is a  telltale sign  that  the market  is no  longer trading in a band and it is starting to move into a trend. So how do you look for  the next prey?

The answer  is  to  look  for a  trade  that  is  in  the opposite direction of your stop-loss  trade. For example,  if you  took a  long trade  that resulted in a stop loss, look to short the GBP/USD at the next opportunity with the same  rules.

This is an important consideration and a neat trick for you to navigate yourself in trending markets. As this strategy was designed primarily for range trading, it fails badly when the market goes into a strong trend.

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1 FOREX STRATEGY: RAPID-FIRE (FOR EUR/USD - M1)

Forex trading stategies: Rapid-Fire strategy

The  strategy 1 was designed with two criteria in mind:

1. The most liquid currency pair in the world
2. The lowest time frame available

This criterion led to the development of the strategy on the minute chart (M1) for the EUR/USD currency pair.

The M1 time frame is fast-paced and exhilarating. If you are not careful, the adrenaline rush you experience can cloud your trading decisions. This problem is compounded by the high frequency of trading opportunities that the strategy presents. On average, there are about 30 to 40 trading opportunities for the rapid-fire strategy every day.

This is the reason why the rapid-fire strategy employs two indicators to assist you in spotting objective trades throughout the day. You can then fire off the trade rapidly once you decide to take it.

Time Frame

The strategy 1 works with the 1-minute (M1) time frame. Each candlestick on the chart represents 1 minute of price movement.

Indicators

We use these indicators for the rapid-fire strategy:

1. Parabolic SAR with default setting:
2. Step 0.02
3. Maximum 0.2
4. Simple moving average (SMA), period 60, and apply to close.

Currency Pairs

The strategy is designed specifically for the EUR/USD, the most traded currency pair in the world.

Strategy Concept

The strategy concept  is a  trend-scalping strategy, which means  it works best in a trend. The strategy combines two trend indicators, SMA 60 and Parabolic  SAR with  default  setting  (step  0.02). The SMA  60  is  used  to identify the direction of the momentum. This means that we look to long EUR/USD  when  the  price  is  above  the  SMA  60.  Similarly,  we  look  to short EUR/USD when the price is below the SMA 60.

The Parabolic SAR is used to give the exact entry signal for both long and short positions. When the price for EUR/USD goes above the Parabolic SAR, we fire off a long trade. When the price for EUR/USD goes below the Parabolic SAR, we fire off a short trade.

Long Trade Setup

Here are the steps to execute a  long trade using the rapid-fire strategy:

1. Look for the market price to go above the SMA 60.
2. Wait for the Parabolic SAR to move above the market price.
3. Once  the market price  goes  above  the Parabolic SAR,  the ParabolicSAR will appear below the market price. This is the signal to enter for long. (See Figure 6.1.)

   

   Rapid-Fire strategy

4. The stop loss is set at 15 pips below the entry price.

5. The  profit  target  is  set  at  10  pips  above  the  entry  price (See Figure 6.2.)
6. 

   

   Rapid-Fire strategy

From the long example in Figure 6.3: 

Entry  price  =  1.2934

Stop  loss =  1.2919

Profit target = 1.2944

The risk for this trade is 15 pips, and the reward is 10 pips. The risk to reward ratio is 1.5:1, which yields a 2% return  if we take a 3% risk.

Rapid-Fire strategy

Short Trade Setup

Here are the steps to execute a short trade using the rapid-fire strategy:

1. Look for the market price to go below the SMA 60.
2. Wait for the Parabolic SAR to move below the market price.
3. Once  the market price goes below  the Parabolic SAR,  the ParabolicSAR will appear above the market price. This is the signal to enter for short. (See Figure 6.4.)
4. Set the stop loss at 15 pips above the entry price.

4. Set the profit target at 10 pips below the entry price.  (See Figure 6.5.)

   

   Rapid-Fire strategy

Rapid-Fire strategy

From the short example in Figure 6.6:    

Entry  price  =  1.2937

Stop  loss =  1.2952

Profit target = 1.2927

The risk for this trade is 15 pips, and the reward is 10 pips. The risk to reward ratio is 1.5:1, which yields a 2% return  if we take a 3% risk.

Strategy Roundup

The Strategy 1 could give you another trade signal even before the current trade exits. It is not uncommon to encounter consecutive trading signals one after the other, simply because of the low time frame used.

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