16.Best forex strategy - Good morning Asia strategy

Forex strategy - Good morning Asia strategy

A fair number of traders prefer to trade the U.S. and Europe sessions of the forex market because they feel that the market tends to be more exciting at those times. These traders consider the Asian session boring and quiet most of the time.

However,  many part-time retail traders who are based in the United States and Europe miss out trading opportunities in the U.S. and Europe sessions because of work or business commitments.  The only time they can trade happens to fall within the perceived boring and quiet Asia session.

Thankfully, now we all know that the forex market is open 24 hours a day. When there are trade-related activities,  there are opportunities.

This time period can provide numerous opportunities for traders located in different time zones across the world, whether they are part time or full time. I hope that it will greet you like the bright morning sun.

Time Frame for forex strategy

The good morning Asia strategy works with the daily candle  (D1). This means that each candle represents 1 day of price movement.

Indicators for forex trading strategy

We use only pure price action, and no indicators are used for this strategy.

Currency Pairs

This strategy applies only to the USD/JPY.

Strategy Concept

Opening hours of the Asian market begin after the U.S. market closes. The direction of the Asian market tends to take its cue from the previous day’s performance on the U.S. market because the U.S. market is the largest economy in the world.

If the  U.S. market closes with a  bullish sentiment,  the  Asian market usually starts the day bullish. If the U.S. market closes with a bearish sentiment, the Asian market usually starts off bearish.

During the early-morning  Asian hours,  the best currency pair to take advantage of this phenomenon is none other than the  USD/JPY,  as the Japanese yen is the only Asian major currency.

This strategy allows you to position yourself just before the opening of the Asian market—hence the name good morning Asia.

The entry time for this strategy is right after the U.S. market closes at 5 P.M. If the previous daily candle is a bull candle, we ride along the momentum to go long on Asia opening. If the previous daily candle is a bear candle, we follow the bearish flow with a short on Asia opening.

We take the low or high of the previous candle as the stop loss. The risk to reward for this strategy is 2:1. If the stop loss is 80 pips, the profit target is 40 pips.

Long Trade Setup forex strategy

For this strategy, the opening and closing of the daily candle correspond to 5 P.M. New York time, which is the closing time of the U.S. market.

Here are the steps to execute the good morning Asia strategy for long:

1. Ensure that the previous day’s candle is a bull candle (i.e., the closing price of the candle is higher than the opening price). (See Figure 10.15.)

FIGURE 10.15    Previous Day’ s Candle Must Be a Bull Candle

FIGURE 10.16    Set Stop Loss and Profit Targets

2. Enter at the opening of the next candle. This is the entry price.

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Forex trading strategy 15: GUPPY BURST

Best forex strategy for M5 with GDP/JPY

The first step in developing a mechanical trading system is to understand and describe market behavior. The next step is to figure out the rules for entries and exits. The guppy burst seeks to exploit trading profits when the market  is quiet.

There is  a window of around  three hours  between the  close of  the U.S.  market  and  the  opening  of  the  Asian  market.  The  forex  market  is relatively quiet during  this  time and  tends  to move  in a  gentle  yet predictable manner.

The market then springs to life again when the Asian market opens. The guppy burst seeks to identify the trading range during this 3-hour window and anticipate a potential breakout of the trading range.

To take full advantage of this potential breakout, I have selected one of the most volatile crosses, the GBP/JPY, commonly known as the guppy among forex traders.

Forex trading Time Frame

The guppy burst method works with the 5-minute candle (M5). This means that each candle represents 5 minutes of price movement.

Indicators

We use only pure price action; no indicators are used for this strategy.

 Currency Pairs

The guppy burst method applies only to the GBP/JPY.

 Forex Strategy Concept

After the trading range is identified, we place pending long and pending short orders. The entry price for the pending long is at the resistance level while the stop loss is located at the support level. The entry price for the pending short is at the support level while the stop loss is at the resistance level.

The profit target is set at twice the amount of the stop loss. As an example, if the stop loss is 50 pips from the entry price, the profit target will be 100 pips. This is a risk to reward ratio of 1:2.

Long Trade Setup for forex strategy

The reference candle for this strategy is the one that corresponds to 5 P.M.

New York time, which is the closing time of the U.S. market.

Here are the steps to execute the guppy burst strategy for long:

1. Identify the trading range in the first three hours after the U.S. market closes by referencing the highest high (resistance) and the lowest low (support) in these three hours. (See Figure 10.1.)
2. Place a pending buy stop order with entry price at the highest high (resistance).

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Forex strategy 14- SIAMESE TWINS

In  late  2007,  China overtook  Japan to become  Australia’s  largest trading partner.  In  2009,  China became  Australia’s  largest  export market,  consuming commodities  such  as  iron  ore,  coal,  gas,  and  wool in  record amounts.

According  to  Australia’s  Department  of  Foreign  Affairs and  Trade, Australia’s  total  trade with China  in 2010 was $105 billion, almost 24% more than the previous year. It was the first time that Australia’s two-way trade with a single nation topped the $100 billion level. Forty years ago, two-way trade between China and Australia was  less  than $100 million.

For this reason alone, Australia’s economy tends to move in tandem with  China’s  economy.  When  hina  reports  good  numbers  on  the Purchasing  Managers  Index  (PMI),  gross  domestic  product  (GDP)  or the  trade  balance,  Australia’s  currency  tends  to  rise.  Similarly, when China reports disappointing figures, the Australian dollar tends to  fall as well.

This strategy seeks to take advantage of the movement of the AUD/ USD by taking cue from China’s reported figures and monetary policies. It is especially useful since we are not able to freely trade the Chinese currency (yuan) yet.

 Time Frame

The Siamese twins method works with the daily candle (D1). This means that each candle on the chart represents 1 day of price movement.

 Indicators

No indicators are used for this strategy.

 Currency Pairs with forex trading strategy

This strategy is applicable only to AUD/USD.

 Strategy Concept with forex trading strategy

When China announces good data, such as high GDP and high PMI numbers, the AUD tends to strengthen for two reasons.

1. China will start to  import more  raw materials  from Australia. This increase in business gives rise to a stronger AUD because China has to pay  for such materials in AUD.
2. Good data from China tend to increase speculation on higher-yielding currencies. This is  because  China  is  largely  seen  as  a major  global player, and good numbers from China tend to have a knock-on effect on the world economy. This positive effect on the global economy encourages the appetite for risk, which in turn strengthens the AUD because its interest rate remains one of the highest among the G20 nations.

We take  a  long position  on  AUD/USD  immediately after  China announces better-than-expected data. Similarly, we take a short position on AUD/USD  immediately after China announces worse-than-expected data.

I call this strategy Siamese twins because the economies of China and Australia are  joined at  the hip. When China does well,  the Australian economy flourishes, and vice versa.

 Long Trade Setup with forex trading strategy

Here are the steps to execute the Siamese twins strategy for long:

1. Look for any major news from China. On November 30, 2010, we see how China cut the banks’ reserve requirement ratio for the first time in three years. This frees up more cash, which encourages banks to lend.

The effect is seen as positive because it spurs economic growth in China.

2. Go long on AUD/USD immediately. (See Figure 9.23.)
3. Set the stop loss below the previous low.
4. The trade will have two profit targets with a risk to reward ratio of 1:1 and 1:2 respectively. (See Figure 9.24.)

From the long example in Figure 9.25:

Entry  price  =  1.0000

Stop  loss =  0.9600

Profit  target  1  =  1.0400

Profit  target  2  =  1.0800

China cuts bank reserve requirement ratio for the 1st time in 3 years (30 Nov 2011)

FIGURE 9.23   News Release

Forex strategy - SIAMESE TWINS

FIGURE 9.24    Set Stop Loss and Profit Targets

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Forex trading strategies 13b: COMMODITY CORRELATION (PART 2)

FOREX TRADING STRATEGY GOLD, XAU/USD- COMMODITY CORRELATION (PART 2) - a day trading strategy

The correlation coefficient is a number that describes the extent to which two instruments are correlated to each other. The number oscillates between –1 and +1.
Commonly mistaken as a momentum oscillator, the correlation coefficient is instead a number that moves from periods of positive correlation to periods of negative correlation. Located on one end of the spectrum, +1 is considered a state of perfect positive correlation between the two instruments. If the number is anywhere between 0 and +1, the two instruments move in the same direction but with varying degrees of positive correlation.
On the other end of the spectrum, –1 is considered a state of perfect negative correlation between the two instruments. If the number is anywhere between 0 and –1, the two instruments move in the opposite direction but with varying degrees of negative correlation.
For much of 2011 and 2012, the correlation coefficient for gold and the dollar index was between –0.6 and –0.8. This means that if the dollar index was up, there was a 60% to 80% probability that gold prices would come down.
In contrast, if the dollar index was down, there was a 60% to 80% probability that gold prices would go up.
Here we explore how to trade spot gold using the U.S. Dollar Index as a reference. The U.S. Dollar Index is an exchange-traded index that represents the value of the U.S. dollar in terms of a basket of six major foreign
currencies. These are:

Euro (57.6%)
Japanese yen (13.6%)
UK pound (11.9%)
Canadian dollar (9.1%)
Swedish krona (4.2%)
Swiss franc (3.6%)

The price action of the dollar index gives us an idea of how the U.S. economy is performing compared to other major world economies.
On August 15, 1971, the United States unilaterally terminated the Bretton Woods system of having the U.S. dollar pegged to gold at USD35 an ounce. At the same time, the U.S. dollar became a reserve currency.
The U.S. Dollar Index was started in March 1973. Its beginning value was 100.000.
Historically, from 1967 until 2012, the Dollar Index averaged 98.51, reaching a historical high of 164.72 in February 1985 and a low of 70.698 on March 16, 2008, during the global financial crisis.

Gold prices, however, have steadily been climbing. The end of 2011 marked the eleventh straight year of gold’s spectacular bull run, hitting a record high of USD1920 an ounce on September 16, 2011.
This strategy seeks to exploit the inverse relationship between the Dollar Index and the price of gold. According to the World Gold Council, “While holding all else equal, gold tends to rise when the US dollar falls.”
In November 2010, Federal Reserve chairman Ben Bernanke announced a second round of quantitative easing (QE2) by injecting USD600 billion into the financial system. The added supply of US dollars in the system caused gold prices to hit record highs within a month.
In September 2012, in a move widely touted as “QE3,” the Federal Reserve said it would expand its holdings of long-term securities with open-ended purchases of USD40 billion of mortgage debt a month. The announcement caused the price of gold to hit a 7-month high. With central banks worldwide taking unprecedented measures to ensure ample liquidity in the global financial system, the inverse relationship between the Dollar Index and gold prices looks set to continue.
Let’s see how this strategy works.

forex trading strategy time Frame

The commodity correlation strategy works with the daily candle (D1). This means that each candle on the chart represents 1 day of price movement.

forex trading strategy indicators

We use the ATR indicator.

 forex strategy currency Pairs

Use spot gold or XAU/USD only, with the price action of the Dollar Index as a leading indicator. Strategy Concept

The price action of the Dollar Index is used as a reference to trigger a trade on the XAU/USD. Technical levels of support and resistance on the Dollar Index chart are used to spot long and short trades on XAU/USD. If a candle
closes below support on the Dollar Index chart, a long trade is triggered on the XAU/USD the following day. Similarly, if a candle closes above resistance on the Dollar Index chart, a short trade is triggered on the XAU/USD
the following day.
The risk to reward ratio is set as 1:3. A bigger target is employed to allow the trade to run its course.

Long Trade Setup with forex strategy

Here are the steps to execute the commodity correlation strategy for long:

1. Identify the support of the Dollar Index chart on the daily time frame.
2. Identify a candle that closes below the support. (See Figure 9.17.)
3. Enter long on gold (XAU/USD) at the opening of the next day’s candle.
4. Set the stop loss at twice the ATR as the previous candle, which is 2,664 pips (1,332 × 2).
5. Set the profit target at a risk to reward ratio of 1:3. In this example, the profit target is 7,992 pips (2664 × 3). (See Figure 9.18.)

From the short example in Figure 9.19:

Entry price = 1291.23
Stop loss = 1264.59
Profit target = 1371.15

FIGURE 9.17 Identify a Candle that Closes Below Support

FIGURE 9.18 Set Stop Loss and Profit Target

The risk for this trade is 2,664 pips, and the reward is 7,992 pips if the profit target is hit. The risk to reward ratio is 1:3, which yields a tidy 9% return if we take a 3% risk.

FIGURE 9.19 Trade Hits Profit Target

Short Trade Setup with forex strategy

Here are the steps to execute the commodity correlation for short:

1. Identify the resistance of the Dollar Index chart on the daily time frame.
2. Identify a candle that closes above the resistance. (See Figure 9.20.)
3. Enter short on gold (XAU/USD) at the opening of the next day’s candle.
4. Set the stop loss at twice the ATR as of the previous candle, which is 8,044 pips (4,022 × 2).
5. Set the profit target at a risk to reward ratio of 1:3. In this example, the profit target is 24,132 pips (8,044 × 3). (See Figure 9.21.)

From the short example in Figure 9.22:

Entry price = 1857.81
Stop loss = 1938.25
Profit target = 1616.49

The risk for this trade is 8,044 pips, and the reward is 24,132 pips if the profit target is hit. The risk to reward ratio is 1:3, which yields a tidy 9% return if we take a 3% risk.

FIGURE 9.20 Identify a Candle that Closes Above Resistance

FIGURE 9.21 Set Stop Loss and Profit Target

Strategy Roundup with forex strategy

Part of the commodity correlation strategy seeks to take advantage of the positive correlation between oil prices and the CAD/JPY currency pair.
Using oil prices as a reference, trades are triggered on the CAD/JPY. This strategy is especially suited to traders who would like to trade oil but prefer not to experience the volatility associated with it.

FIGURE 9.22 Trade Hits Profit Target
Part 2 of the commodity correlation strategy seeks to take advantage of the negative correlation between the Dollar Index and gold prices.
Using the Dollar Index as a reference, trades are triggered on XAU/USD
With the Federal Reserve announcing its plans to keep interest rates low until the middle of 2015, the inverse relationship between the U.S.dollar and gold prices looks set to remain. This strategy is ideal for gold traders all around the world because it provides an objective way to take an entry for gold, using the Dollar Index as an important reference.

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Forex trading strategies 13a: COMMODITY CORRELATION (PART 1)

Why are with this Forex trading strategies?

Oil is one of the world’s basic necessities. Among other things, it is needed to run factories, plants, machinery, ships, and cars. A decline in oil prices is a nightmare for oil producers but a dream come true for oil consumers.

The reverse is also true, when oil prices hit record highs. In July 2008, oil peaked at over USD147 a barrel. Those were the days when oil producers were smiling and oil consumers were sweating.

Canada is a country that exports most of its oil. In fact, as one of the world’s top ten oil-producing nations, its economy is severely hit when oil prices decline. Many traders today also utilize the price of oil to predict the movement of the Canadian dollar.

When  oil prices  are high,  the Canadian  dollar  tends  to  strengthen.

When oil prices are low, the Canadian dollar tends to weaken. Japan, in contrast, is considered a net oil importer. This causes the Japanese yen to weaken considerably when oil prices are high and vice versa.

Many  traders  ask  me  for  a  “magic”  strategy to  trade  oil.  However,  I don’t particularly  like  to  trade  it because oil prices  can be very volatile.

An  easier  improvisation  of  trading  oil  directly  would  be  to  utilize knowledge of oil prices to trade the CAD/JPY currency pair. As Canada is a net oil exporter and Japan is a net oil importer, the price of oil becomes a leading indicator for the movement of the CAD/JPY currency pair.

Informations for start with this forex trading stategy

Time Frame

The  commodity  correlation  method  works  with  the  daily  charts  (D1).

This  means that each  candle  on  the  chart  represents  1  day  of  price movement.

 Indicators

We use the average true range (ATR) indicator to set the stop loss for this strategy.

Currency Pairs

This strategy is used with CAD/JPY only, with the movement of oil prices  acting as a leading  indicator.

Strategy Concept

The price movement on the oil chart  is used as a  reference to trigger a trade on the CAD/JPY. Technical levels of support and resistance on the oil chart are used to spot long and short trades on CAD/JPY. If candles close above resistance on the oil chart, a long trade is triggered on the CAD/JPY the following day. Similarly, if candles close below support on the oil chart, a short trade is triggered on the CAD/JPY the following day.

The risk to reward ratio is set as 1:3. A bigger target is employed to allow the trade to run its course.

Long Trade Setup with this forex strategy

Here are the steps to execute the commodity correlation strategy for long:

1. Identify the resistance of the oil chart on the daily time frame.
2. Identify a candle that closes above the resistance. (See Figure 9.11.)

Forex trading strategies: COMMODITY CORRELATION (PART 1)

FIGURE 9.11    Identify a Candle that Closes Above Resistance

Forex trading strategies: COMMODITY CORRELATION (PART 1)

FIGURE 9.12    Set Stop Loss and Profit Target

3. Enter long on CAD/JPY at the opening of the next day’s candle.
4. Set the stop loss at twice the ATR of the previous candle, which is 154 pips (77 x 2).
5. Set the profit target at a risk to reward ratio of 1:3. In this example, the profit target is 462 pips (154 x3). (See Figure 9.12.)

Forex trading strategies: COMMODITY CORRELATION (PART 1)

FIGURE 9.13 Trade Hits Profit Target

From the long example in Figure 9.13:

Entry  price  =  80.10

Stop  loss =  78.56

Profit  target  =  84.72

The risk  for this trade is 154 pips, and the reward is 462 pips if the profit target is hit. The risk to reward ratio would be 1:3, which yields a tidy 9% return  if we take a 3% risk.

 Short Trade Setup with this forex strategy

Here are the steps to execute the commodity correlation strategy for short:

1. Identify the support of the oil chart on the daily time frame.
2. Identify a candle that closes below the support. (See Figure 9.14.)
3. Enter short on CAD/JPY at the opening of the next day’s candle.
4. Set the stop loss at twice the ATR  of the previous candle, which is 234 pips (117 × 2).
5. Set the profit target at a risk to reward ratio of 1:3. In this example, the profit target is 702 pips (234 ×3). (See Figure 9.15.)

Forex trading strategies: COMMODITY CORRELATION (PART 1)

FIGURE 9.14    Identify a Candle that Closes Below Support

Forex trading strategies: COMMODITY CORRELATION (PART 1)

FIGURE 9.15    Set Stop Loss and Profit Target

From the short example in Figure 9.16:

Entry  price  =  80.34

Stop  loss =  82.68

Profit  target  =  73.32

Forex trading strategies: COMMODITY CORRELATION (PART 1)

FIGURE 9.16 Trade Hits Profit Target

The risk  for this trade is 154 pips, and the reward is 462 pips if the profit target is hit. The risk to reward ratio is 1:3, which yields a tidy 9% return if we take a 3% risk.

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Forex trading strategies 12: SWAP AND FLY

Why is with Forex trading strategies: SWAP AND FLY?

Every forex transaction  involves the  borrowing of  one currency  to buy another. This transaction also forms the basis of why traders can go long or short at any time.

As an example, if you are buying a currency with a higher interest rate than the one you are borrowing, the net interest rate differential will be positive, and you earn interest for every day that the trade open. Conversely, if the interest rate differential is negative, you will have to pay interest for every day that the trade remains open. You may know this as the  carry  trade.

Five  P.M.  in New York  is  considered  the  beginning  and  end  of  the forex  trading  day. Hence,  any  trading  positions  that  are  open  beyond 5 P.M. are considered to be held overnight—or rolled over—and are subject to swap rates. The forex market is closed on Saturdays and Sundays, so no swap rate is incurred or earned over the weekend. However, most liquidity providers still apply the swap rules over the weekend.

To balance  the effect of non-trading activities over  the weekend,  the forex market books three days of swap on Wednesday. Hence, if you hold a trade over 5 P.M. on a Wednesday evening, you will either incur or earn three  times  the normal rates.

The swap and fly strategy is a slow but steady technique that helps you to accumulate interest every day. You can even come out with a positive return after a period of time, even though the trade exits at breakeven.

Figures  9.1  and  9.2  show  how  you  can  track which  currency  pairs give positive swap when you execute a  long or short position  in  the currency market. Do note, however, that figures may be different for different brokers.

Forex trading strategies: SWAP  AND  FLY

FIGURE 9.1    Positive Swap for Long Trades on AUD/JPY

Forex trading strategies: SWAP  AND  FLY

FIGURE 9.2    Positive Swap for Short Trades on GBP/AUD

Time Frame

The  swap  and fly method works with  the daily  candle  (D1)  and weekly candle (W1). This means that each candle on the chart represents 1 day or 1 week of price movement.

Detail abour this forex strategy:

Indicators

No indicators are used for this strategy.

 Currency Pairs

This strategy is suitable for all currency pairs listed on the broker’s platform that have positive swaps for either long or short positions.

Strategy Concept

The main aim of this strategy is to earn as much interest as we can. Hence the first step is to find out which currency pairs on the broker’s platform offer the highest swap rates for both long and short positions.

If a positive swap is given on a long position, we look for a suitable long entry on the chart. If a positive swap is given on a short position, we look for a suitable short entry on the chart.

The next milestone is to shift the stop loss dynamically to the entry price,  also known as the break-even price.  This step is done when the market moves favorably in our direction. After a period of time,  even if our “new” stop-loss level is hit, the trade is exited with a profit because of the swap earned.

This strategy can be used in conjunction with any other high-time frame strategies. To illustrate the effect of this strategy, I am going to use common candlestick patterns, such as three white soldiers and three black crows, to illustrate a long and a short trade.

Three white soldiers is a bullish candlestick pattern consisting of three consecutive bull candles. Three black crows is a bearish candlestick pattern consisting of three consecutive bear candles.

 Long Trade Setup with this forex strategy

We use the AUD/JPY  on the daily time  frame to illustrate  the long  setup.

Here are  the steps  to execute  the swap and fly strategy  for  long:

1. Identify a three white soldiers candlestick pattern. (See Figure 9.3.)
2. Enter long at the opening of the next candle.
3. Reference a recent significant low to set the stop loss. (See Figure 9.4.)
4. Once the market moves in your favor at a risk to reward ratio of 1:1, shift your stop loss to the entry price. (See Figure 9.5.)
5. Trade hits breakeven after 36 weeks (252 days). (See Figure 9.6.)

Forex trading strategies: SWAP  AND  FLY

FIGURE 9.3    Identify a Three White Soldiers Candlestick Pattern

Forex trading strategies: SWAP  AND  FLY

FIGURE 9.4    Set Stop Loss and Profit Target

Forex trading strategies: SWAP  AND  FLY

FIGURE 9.5 Stop Loss Shifted to Entry Price

From the long example in Figure 9.6:

The swap for holding a long AUD/JPY position was AUD12 for every standard lot. This is equivalent to 1.2 pips. The swapper week is 1.2 pips × 7 = 8.4 pips. The swap for 36 weeks is 8.4 pips × 36 = 302.4 pips.

Forex trading strategies: SWAP  AND  FLY

FIGURE 9.6    Trade Hits Breakeven After 36 Weeks

Once the position hits breakeven, there is no more risk for the trade.

Swap is continuously earned for every day that the trade is open.

 Short Trade Setup with this forex strategy

We use the GBP/AUD on the daily time frame to illustrate the short setup.

Here are the steps to execute the swap and fly strategy for short:

1. Identify a three black crows candlestick pattern. (See Figure 9.7.)
2. Enter short at the opening of the next candle.
3. Reference a recent significant high to set the stop loss. (See Figure 9.8.)
4. Once the market moves in your favor at a risk to reward ratio of 1:1, shift your stop loss to the entry price. (See Figure 9.9.)
5. Trade hits breakeven after 35 weeks (245 days). (See Figure 9.10.)

From the short example in Figure 9.10:

The swap for  holding a  short GBP/AUD position was AUD14  per standard lot, which was equivalent  to  1.4 pips. The  swapper week is 1.4 pips × 7 = 9.8 pips. The swap for 35 weeks is 9.8 pips × 35 = 343 pips.

Once the position hits breakeven, there is no more risk for the trade. Swap is continuously earned for every day that the trade is open.

Forex trading strategies: SWAP  AND  FLY

FIGURE 9.7    Identify Three Black Crows Candlestick Pattern

Forex trading strategies: SWAP  AND  FLY

FIGURE 9.8    Set Stop Loss and Profit Target

Forex trading strategies: SWAP  AND  FLY

FIGURE 9.9  Stop Loss Shifted to Entry Price

Forex trading strategies: SWAP  AND  FLY

Strategy Roundup

Short positions on GBP/AUD and long positions on AUD/JPY give the highest positive swaps. For maximum results on this strategy, it is prudent to choose the currency pairs that yield the highest positive swap on the broker’s platform. Do take note that swap rates are not fixed. They move in tandem with central banks’ rates.

Once the trades are executed, the first milestone is to shift the stop loss to  breakeven so  that there  is no more risk  attached to  the trade.

We then allow the trade to remain open every day until the new stop loss is hit. Doing this allows us to earn positive swap every day.

Traders can  also choose  to close  this trade  before it  exits,  provided the risk to reward ratio is favorable. As an example, traders can choose to exit the entire position totally if the risk to reward ratio yields a minimum factor of 1:3.

For the long AUD/JPY trade, the stop loss was 570 pips. Hence, traders could have chosen to exit the trade entirely if the AUD/JPY was at a minimum of 1710 pips (570 × 3) above the entry price.

For the  short  GBP/AUD  trade,  the stop  loss was  725  pips. Hence, traders could have chosen to exit the trade entirely if the GBP/AUD was at a minimum of 2175 pips (725 × 3) below the entry price.

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Forex trading strategy 11: Pendulum strategy

Forex trading strategy: Pendulum strategy

In the previous strategy, we explored a technique that helps us to anticipate a range with the help of the stochastic indicator and also trade it in the early stages of formation. The pendulum strategy comes to the rescue in the later stages of a range formation. In other words, we can still trade the range after it has been formed.
You don’t need any indicators for this strategy, and you can use it to trade a range for as long as the market is swinging back and forth within the range like a pendulum.
Time Frame
The pendulum method works with the hourly (H1) or 4-hourly (H4) chart.
This means that each candle on the chart represents 1 hour or 4 hours of price movement respectively.
Indicators

No indicators are used for this strategy.

Currency Pairs

This strategy is suitable for all currency pairs listed on the broker’s
platform, especially the seven major currency pairs of:

EUR/USD
USD/JPY
GBP/USD
USD/CHF
USD/CAD
AUD/USD
NZD/USD

Strategy Concept

The pendulum in motion swings back and forth because the force of gravity is pulling it back to the vertical position every time it swings away from it. The pendulum reaches an optimal height before it starts to fall back. However, if the swinging force is too great, the string holding the
pendulum will snap, and the pendulum will fly off.
The ranging market acts in a similar fashion to the pendulum. Every time prices pull away from the midpoint of the range toward the support or resistance, market forces will pull it back towards the mid-point of the range. However, when the market gathers enough momentum, prices will
break the support or resistance of the range and move into a trend.
In this strategy, we wait for the pendulum to reach its optimal height and fall before we enter the trade. We do this by executing a trade only at the 10% mark after prices turn back from either support or resistance. The first target is set at the 50% mark of the range, and the second target is set at the 90% mark of the range.

Long Trade Setup

We use the AUD/USD on the H4 time frame to illustrate a long trade. Here
are the steps to execute the pendulum strategy for long:

1. Identify the resistance and support. Take note when the price goesback to the support again. (See Figure 8.35.)
2. In this example, the range is 269 pips; 10% of the range is 27 pips.
Enter when the price bounces 27 pips above the support (1.0101). (See Figure 8.36.)
3. The first and second profit targets are 50% and 90% of the range respectively, which are 135 pips and 243 pips above the support (1.0101).
4. Use risk to reward ratio of 1:1 to set the stop loss. (See Figure 8.37.)

FIGURE 8.35 Identify Resistance and Support - Forex trading strategy: Pendulum strategy

FIGURE 8.36 Enter When Price Bounces 27 Pips Above Support - Forex trading strategy: Pendulum strategy

Forex trading strategy: Pendulum strategy

FIGURE 8.37 Set Stop Loss and Profit Targets
From the long example in Figure 8.38:

Entry price = 1.0128
Stop loss = 1.0020
Profit target 1 = 1.0236
Profit target 2 = 1.0344

Forex trading strategy: Pendulum strategy

FIGURE 8.38 Trade Hits Profit Target
The risk for this trade is 108 pips, and the reward is 216 pips if both targets are hit. The risk to reward ratio is 1:2, which yields a tidy 6% returnif we take a 3% risk.

Short Trade Setup

We use the GBP/USD on the H4 time frame to illustrate a short trade.
Here are the steps to execute the pendulum strategy for short:

1. Identify the resistance and support. Take note when price goes back to the resistance again. (See Figure 8.39.)
2. In this example, the range is 205 pips; 10% of the range is 21 pips. Enter when the price bounces 21 pips below the resistance (1.6117). (See Figure 8.40.)
3. The first and second profit targets are 50% and 90% of the range respectively, which are 103 pips and 185 pips below the resistance (1.6117).
4. Use risk to reward ratio of 1:1 to set the stop loss. (See Figure 8.41.)

From the long example in Figure 8.42:

Entry price = 1.6096
Stop loss = 1.6178
Profit target 1 = 1.6014
Profit target 2 = 1.5932

Forex trading strategy: Pendulum strategy

FIGURE 8.39 Identify Resistance and Support

Forex trading strategy: Pendulum strategy

FIGURE 8.40 Enter When Price Bounces 21 Pips Below Resistance
The risk for this trade is 82 pips, and the reward is 164 pips if both targets are hit. The risk to reward ratio is 1:2, which yields a tidy 6% return if we take a 3% risk.

Forex trading strategy: Pendulum strategy

FIGURE 8.41 Set Stop Loss and Profit Targets

Forex trading strategy: Pendulum strategy

FIGURE 8.42 Trade Hits Profit Targets

Forex Strategy Roundup

This strategy is applicable as long as the market is swinging back and forth in a range. The power ranger strategy and the pendulum strategy work perfectly together. You can use the power ranger strategy to identify and trade the range in its early stage of formation, then apply the pendulum strategy to trade the later portion of the range.

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