Forex Trend Breakout System only uses one indicator, a 21 period Simple Moving Average.
Time Frame daily.
Currency pairs: majors.
This strategy suited for any currency pair that is currently in a trend. You will be much better off working with 7 or 8 currency pairs to identify the strongest trends and the best trade setups. When you look at the end of day data, using more currencies will allow you to choose the best trades. When you start with this system trade 2 or 3 currencies, but as you learn it well start checking all 8 charts each day.
Entry Signals and Stops
Entry signals for the Trend breakout system are based on the candles or bars themselves. What we are looking for is an inside bar. That is the bar (or candle if you use candle charts) for the day must be inside the bar from the day prior
the smaller blue bar closed the day inside the prior day’s bar. The high for the day was lower, and the low for the day was higher than the previous day – making the small candle engulfed by the prior day. This is our entry signal for this system. If we are currently in a downtrend, then our entry point would be set to five pips below the low point of the inside bar. If we are in an uptrend our entry point would be set to five pips above the high of the inside bar (smaller bar in the screenshot).
To summarize our entry rules: 1. Use only daily charts and identify inside bars with end of day data (looking at a chart in the evening when the bar has closed)
2. Identify the trend using the SMA 21. We only trade in a trend and not when the line is flat. 3. Look for an inside bar that is engulfed by the previous day’s bar.
4. For a long trade in an uptrend- Set your entry point 5 pips above the high of the inside bar when in an uptrend
5. For a short trade in a downtrend - Set your entry point 5 pips below the low of the inside bar when in a downtrend.
6. One last rule – don’t use a Sunday bar as an inside bar – these bars do not count.
Stops for this trading system we are going to use stops based on the currency pair we are trading. This allows us to set stop levels that fit with the typical daily range and allow us breathing room when we enter our trades. At the same time, these stop levels allow us to manage our risk to an acceptable level.
For the EUR/USD use a 50 pip stop
For the USD/JPY use a 50 pip stop
For the USD/CAD use a 60 pip stop
For the EUR/JPY use a 90 pip stop
For the GBP/JPY use a 100 pip stop
For the USD/CHF use a 50 pip stop
For the AUD/USD use a 50 pip stop
For the GBP/USD use a 60 pip stop
Exit Rules The exit rules for this trading system are also quite simple. When we set our entry point, and our stop level, we also set a take profit level. The take profit level should be set to 2 times whatever your stop was. For example if you were trading the GBP/USD and you set your stop at 100 pip, you would set your take profit at 200 pips. Of course you can adjust your stop and let the trade run a bit when you near your take profit level, but in my experience setting a take profit level with this system works the best. By setting your profitable exit point at twice what your stop level is, that means you only have to win on 33% of your trades to stay profitable. In many cases using both the suggested stop and the two times rule for take profits, your trades will get entered automatically in the morning, and when you check them that night you will already have hit your take profit level.
Trade Examples To add clarity to this trading system let’s look at two trade examples. We will cover a long trade and a short trade to give examples of each. This trading system is quite simple as long as you can identify trends and identify the inside bars.
Long Trade Example In the USD/JPY chart show below, the currency is currently in a strong uptrend (and if I could show more chart it has been for a while). We have an inside bar forming after the currency pair had climbed for three days straight.
Looking at the bar, the high for the day was 126.29. From our entry rules we set our entry point five pips above the high of the inside bar at 126.34. We are trading the USD/JPY so we set our stop at 50 pips behind the entry point: 126.34 – 0.50 = 125.84. We set our take profit at 2 times the stop. In this case its 50 x 2 = 100 pips, and 126.34 + 1.00 = 127.34
Short Trade Example Looking at a short trade example, in the USD/CHF screenshot below we have an inside bar formation, and we are currently trending down. This is a fairly new trend, but after the SMA has been flat for a time it is now pointing down, and the last 7 days closed below the SMA. We do identify this as a strengthening of the trend. The inside bar had a low of 1.2450. Our entry point is set 5 pips below that at: 1.2450 – 0.0005 = 1.2445 We are trading the USD/CHF so we set a 50 pip stop: 1.2450 + 0.0050 = 1.2500 We set our take profit at 2 x 50 pips, or 1.2450 – 100 = 1.2350
إرسال تعليق