The Forex Loophole

The Forex Loophole Rules

The Forex Loophole looks to do two things;

1.Identify the exhaustion of a trend.

2.Enter a trade in the direction of the changing trend.

The following section will outline the rules we use to trade this strategy. Keep in mind all conditions need to take place for a trade to be considered.

Each night at the close we will look for this set up. The trade will only take a minute or two to identify. There is a long set-up and a short set-up.

Short Set-up

Condition #1 First step is to grab the closing price from last week (the last price of last Friday) Then check today’s closing price...if it is higher than the last weeks closing

price, we can then continue on to see if the next set of conditions are met.

Condition #2 We check to see if today’s close is also above yesterdays close.

If it is then we move on to the next step.

Condition #3 We check to see if yesterdays close is higher than the previous days close.

When all three conditions are met, we look to go short.

Following the steps above, we start off by looking at Today...if it meets the conditions we move on and look at Yesterday...if the conditions are met there as well, we can look to enter a trade the next day.

Long Set-up

As you can probably guess the long set-up is the opposite of the short set-up.

Condition #1 First step is to grab the closing price from last week (the last price of last Friday) Then check today’s closing price...if it is lower than the last weeks closing price, we can then continue on to see if the next set of conditions are met.

Condition #2 We check to see if today’s close is also below yesterdays close. If it is then we move on to the next step.

Condition #3 We check to see if yesterdays close is lower than the previous days close. When all three conditions are met, we look to go long.  

Following the steps above, we start off by looking at Today...if it meets the conditions we move on and look at Yesterday...if the conditions are met there as well, we can look to enter a trade the next day.

The Forex Loophole Strategy Rules Continued;

- For trades that are placed at the Friday open we do not hold them over the weekend. They are to be exited before the close on Friday.

- Sunday does not count as a day, so ignore it for all conditions.

- No trade is entered on Monday if the price has gapped up above the long entry price or below the short entry price.

Entry and Exit for The Forex Loophole

Each night at the close we do our quick check of the set-up to see if there is a trade for the next day. As soon as today’s close occurs we look to enter our order if the conditions were met. Often we can tell ahead of time, say 10-15 minutes if there will be a trade or not. If all the 3 conditions are in place 10 minutes before today's close by 20+pips it's a good chance it will remain that way and all we are really doing is waiting for the close to actually take place because that is what we base our entry on. We'll show this in the videos in more detail.

Entry

We look to enter into a trade once today’s close has taken place and all conditions are met. We then add 7 pips to today’s close price and enter that as a buy stop order for a long trade and subtract 7 pips from today’s close price and enter that as a sell stop order for a short trade.

Example: Today is Wednesday and the day just ended giving us a closing price of 1.9943 and a long entry set-up. We then add 7 pips to Wednesday's closing price 1.9943 + 7 = 1.9950. We then place an order at 1.9950 to go long immediately. We want to place the order as quick as possible.

We use this to place the entry, stop and exit/target all with one order. We'll use a buy stop to go long and a sell stop to go short, and then we enter the stop loss and take profit prices accordingly. We can also set the order to expire on a date and time we specify.

Exits and Stops

We suggest starting with these targets and stops. Then as you develop your trading plan you can tweak them if you wish and look to trade other pairs that might suit your trading plan.

EUR/USD = 120 pip profit target. 50 pip stop loss.

USD/CAD = 60 pip profit target. 40 pip stop loss.

USD/JPY = 70 pip profit target. 50 pip stop loss.

CHF/JPY = 110 pip profit target. 60 pip stop loss.

NZD/JPY = 130 pip profit target. 65 pip stop loss.

Example #1

Now that we have the steps in place, we'll walk through a trade from start to finish.

The first example we'll look at is a long trade that triggered on the EUR/USD on May 16/08. On the evening of May 15th/08 we would be going through these steps to see if a trade was going to be triggered on the 16 th . We'll use the chart below and it's labels to walk through the steps.

The blue arrow represents May15/08, which we'll refer to as “today” for this example. We start by looking to see if the set-up meets all 3 conditions.

Condition #1 = Grab the closing price from last week which was May 09/08 (the last price of last Friday). It is 1.5481 and labeled number 4 on the chart above. If today’s close price is lower than 1.5481 we can move on to condition 2. Today’s close price is 1.5458...so we can move on to condition 2.

Condition #2 = We check to see if today’s close is also below yesterdays close. Yesterday is labeled 2 on the chart above. Yesterdays close is 1.5466. So we can now move on to the next step.

Condition #3 = We check to see if yesterdays close is lower than the previous days close. So looking at the chart above we see that yesterday is labeled 2 and the previous day to it is labeled 3. The close on day 2 is 1.5466 and the close on day 3 is 1.5470. That satisfies the 3 rd condition and now we can prepare to go long on the 16 th . Our long entry on the 16 th will be placed as soon as possible after the close of the 15 th . This will all happen within a few minutes of each other and once you get the hang of it with a bit of practice your orders will take less than 1 minute.

The close of today, May 15 th was 1.5458, so we add 7 pips to that price to give us an entry price of 1.5465.

Example #2

In this example we'll have a look at a short trade triggered on May 27/08. We'll also look at a different platform GFT's dealbook 360 and show how to use their P&C orders.

The trade triggered on May 27/08, so that means we would be watching and waiting on the close price on the 26 th and going through our 3 step check list then. We'll use the chart below and it's labels to walk through the steps.

The blue arrow indicates Monday May26/08, which we'll refer to as “today” for the rest of this example. As usual we start by looking to see if the set-up meets all 3 conditions.

Condition #1 = Grab the closing price from last week which was May 23/08 (the last price of last Friday). It is 1.5761 and labeled number 4 on the chart above. If today’s close price is higher than 1.5761 we can move on to condition 2. Today’s close price is 1.5779...so we can continue and move on to condition 2.

Condition #2 = We check to see if today’s close is also higher than yesterdays close. Yesterday is labeled 2 on the chart above. Yesterdays close is 1.5761 and today’s close is 1.5779. It is higher, so we can now move on to the next step. (Notice that yesterday and last weeks close price turn out to be the same day...this is fine)

Condition #3 = We check to see if yesterdays close is higher than the previous days close. So looking at the chart above we see that yesterday is labeled 2 and the previous day to it is labeled 3. The close on 2 is 1.5761 and the close on 3 is 1.5731. That satisfies the 3 rd condition and now we can prepare to go short on the 16 th . Our short entry on the 27 th will be placed as soon as possible after the close of the 26 th . Once you get the hang of it with a bit of practice your orders will take less than 1 minute.

The close of today, May 26 th was 1.5779, so we subtract 7 pips from that price to give

us a short entry price of 1.5772.