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GBP USD Strategy: 12:00am – 07:00am Rectangle Breakout
Strategy based on the range of the Asian trading session, ignoring tails, just solid candle sticks.
Step 1: Identifying the Trading Range (Rectangle)
This strategy begins by defining a specific time period, from 12:00am to 07:00am, which we’ll call the “Rectangle.” During this time frame, we’re interested in identifying the high and low prices based on the bodies of the candles. This means we won’t consider the candle wicks (tails) in our range calculation, only the main body of each candle.
Step 2: Breakout Conditions
After the 07:00am mark, we wait for a specific price movement to occur before entering a trade. There are two potential scenarios for entering a trade:
- Long (Buy) Entry: If the price moves above the high of the Rectangle by at least 5 points, we consider this a potential bullish breakout. In this case, we’ll look to enter a long (buy) trade, anticipating further upward movement.
- Short (Sell) Entry: Conversely, if the price moves below the low of the Rectangle by at least 5 points, we consider this a potential bearish breakout. We’ll then look to enter a short (sell) trade, expecting further downward movement.
Step 3: Applying a Stop Loss
To manage risk, a 20-point stop loss is implemented for all trades. This means that regardless of whether we go long or short, we’ll set a stop loss level 20 points away from our entry price. The stop loss is a risk management tool that helps limit potential losses in case the trade doesn’t move in our desired direction.
The 20 point stop loss is not random, I have analysed 18 months worth of charts to find the perfect stop loss for this strategy.
By following these steps, we aim to capture potential breakout opportunities within the specified time window, while also ensuring that we have a predefined risk management strategy in place to protect our capital.
Win and Lose Charts
Win and Lose Charts
I hate the fact the majority of authors who discuss a trading strategy ONLY always include winning examples for the strategy.
Each strategy I come up with I manually test… No back testing script automation, I do it all manually on the charts. I do this because it makes me understand the strategy and gives me more insights into when the strategy doesn’t work.
Losing Chart
As you can see below the strategy:
- Triggered a long around 8:30am
- The trade ran 18 points in profit
- Finally been stopped out around 1:00pm for -20 points
NOTES: I could have taken 18 points profit but this does not meet my profit target requirements. Intraday it gave me the opportunity to enter SHORT around 1:45pm for a profit of 46 points – which I would have taken.
All my charts are from my broker TD365.