Forex Trading Strategy – positioning based on the prior days range
You will learn about the following concepts
- Indicators used with this strategy
- Signals to be looking for
- Entry point
- Profit target
This strategy is based on the past 24-hour trading period of a given currency pair. We shall be examining the 1-hour chart of EUR/JPY. The examined period is 0:00 GMT+3 on June 23rd to 0:00 GMT+3 on June 24th. We need three price levels – the high, the low and the close during this period. For EUR/JPY we have: H 138.80, L 138.20, C 138.66. The overall daily move (high-low) was 60 pips. We place one buy order and one sell order at a distance equal to 25% of the total move away from the closing price. So, 25% of 60 pips gives us 15 pips.
Taking into account the above mentioned resulting distance, we place a buy order at 138.81 (closing price + 15 pips) and we place a sell order at 138.51 (closing price – 15 pips).
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We set the profit target at a distance of 15 pips as well (25% of the prior daily move). This way in case EUR/JPY makes a move equal to, say 40% of the prior days move, we can still gain. For our long position the profit target will be 138.96, while for our short position – 138.36.
We place the protective stops as follows: the stop on our long entry at a distance +10 pips from our short entry, or at 138.61; the stop on our short entry at a distance -10 pips from our long entry, or at 138.71.
These two orders need to be set before the trading session you prefer to trade begins. In our case the sell order was triggered first during the trading day, so we simply cancelled the buy order.