Asian Break Out Strategy 5

Over the last few months I have had numerous letters like the one below.

Hello Graham,

I've read your posts about the Asian Breakout Strategy and I wanted to thank you for sharing this strategy and all the data of your trades.

I was just wondering if you still applying that strategy with similar results? If so, what do you do when the price already break the range at 8:00 GMT?

What is your discretionary exit strategy?

Have you made any updates to this strategy?

Thanks for sharing your thoughts and knowledge all your posts and articles are helping me a lot!

Best Regards,
Dan

Click Charts to enlarge

The two main questions I have had over the months from many traders are!
What do I do when the breakout occurs during the period between the Frankfurt and London opening ?

What do I do when the breakout misses the target and retraces?

Over the months I have worked on refining the system somewhat in order to avoid the false breaks. I imagine there are numerous indicators available that can act as a filter to ensure we only trade the correct breakout and ignore the false one.

Obviously no system is infallible but these few simple indicators have certainly helped a great deal with improving the profitability of the system.

I have added a 120 period ema (red) that acts as my long term trend indicator, a 5 ema (black) and a 21 ema (blue) as well as a standard 12,26,9 MACD line indicator.

The above eur/jpy charts are 1 hr and 15 min. We can see the market was clearly long at the time of the breakout on the 1 hr chart. Price was above the 120 ema and the 21/5 ema cross was also long. The MACD had also signalled a long. My obvious choice was therefore also to watch for and trade the breakout long. The 15 min indicators confirmed my thinking.

Shortly after entering the market retraced slightly and bounced at the 120 ema and then carried on long without threatening my stop.

The entry for the trade was at 167.58 with my stop 40 pips below at 167.18 and profit target 168.18. As we can see price only went as high as 168.11 then retraced. 168.11 was also at a previous high in the market and therefore alerted us to the fact that it was possibly the end of the run.

Whilst I don't recommend a 15 pip trailing stop at the entry point as this would inevitably close out the trade on any small retracement, once it was 50 pips up and at resistance then a trailing stop would ensure closing out the trade with the bulk of the profit in tact. Alternatively we could have closed out when the ema's and MACD crossed short at 167.84.

There is no doubt that simple indicators can improve the results and filter out the false breaks.
If therefore the breakout occurs prior to the London opening in the direction of my long term indicators on the 1 hr chart then I will take the trade, If it is in the opposite direction then I will ignore it and assume it is only a retracement.

The same strategy applies to the breakout of the London opening, I will only trade the breakout in the direction of the indicators. If the 1hr and 15min indicators disagree then I will wait till they are in sync before entering the trade.

The Pivot Point can also be a useful indicator as price often heads to the PP then continues.

Summary

• Establish the overnight Range
• Confirm the trend on 1hr using a long term trend indicator like a 120 period ema
• When 15 min indicators concur then trade breakout in direction of 120 ema
• If 1hr and 15 minute do not concur exercise patience until they do.
• If target is not realised then add a trailing stop at support or resistance or close out when indicators turn

Asian Break out Strategy 4

This will probably be the last post on this strategy otherwise I will start sounding like a stuck record. As a last post I will include today's trades on the Gbp/Usd, Gbp/Jpy and Eur/Jpy



Once again the shaded area is the Asian/Pacific session with the high at 1.9901. The trade was entered at 1.9911 and within 2hrs reached the 50 pip target making a high at 1.9972.

The Gbp/Jpy broke out after the open of the london session at 212.49. The trade was entered at 212.39 and again hit the 70 pip target within about 2 hrs. At time of writing it had run 140 pips plus for the day.




As has been the case the past few weeks the Eur/Jpy proved to be the poor relation struggling to hit the 50 pip target but at the same time not causing any stress on the trade. The breakout also occured after the London open at 160.39, the trade was entered at 160.29.

At time of writing the US session has just opened and I closed out the trade for a 40pip profit. Add this to the monthly tally of 2110 pips and the total now stands at 2270 I don't know many traders who have those sort of figures month on month neither can I guarantee that the strategy will produce these results consistently.

The past four months though have all ended positive. As this is very much a mechanical system that requires 10 min a day to set up, limiting the exposure has helped on the days where it has not worked.

Remember three orders are being places simultaneously and when all three go wrong at the same time and you are overexposed in the market then it is going to hurt.

Asian Break Out Strategy 3

For the month of Feb I have been recording the breakout trades on three currency pairs, the GBP/USD, GBP/JPY and EUR/JPY. The EUR/JPY has gone from being the most consistant to the worst performer for the month.
If I look at the monthly candle for the EUR/JPY it is still an inside candle well within the January range.


EUR/JPY 1 hr Chart Click to Enlarge

The Blue shading is the Asian Pacific trading time and the candles above and below are the breakout trades. Whilst I have tried to aim for 60 pips a day, some days the market only ran 30 to 50 pips and I have locked in profits or closed out at break even.

Thats fine for traders who monitor their trades as I do, but for those who place the orders and leave them for better or worse, the figures would differ by 200 pips for the month. The net result would be 290 pips up for the month to date and for those who can monitor trades 490 for the month.

Many days the market has run more than the required 60 pips but that has not been taken into consideration for the above calculations.

There were four outright losing days with two of those days producing losses on both the long and short entries. There were 9 days where the trades produced the full 60 pip profits.

On a number of days the market stopped just short of the 60 pip target and lesser profits were recorded. Some days there were more than 2 trades as price broke through then retraced and broke out a second time.

The daily average for this pair was about 28 pips per day profit. Thats not great but there are many traders out there who would love to make 20 pips per day.

GBP/USD
On this chart I have recorded the maximum run for the day but those figures are not included in the calculation. The daily target on this pair is 50 pips per day with a 30 pip stop loss. For those who trade cable you will know how volatile this pair can be at the open of the European session, yet the pair has performed well on the breakout strategy.

There were only two outright losing days and many days with moves in excess of 200 pips. The 50 pip target was achieved on 14 of the trading days.
The daily average for this pair 33 pips per day.


Gbp/Jpy
One of the most volatile trading pairs, yet the star performer for the month achieving the 70 pip target on 15 occasions. There was only one outright losing day, with 4 losses recorded for the month.

Total profits for the month Gbp/Jpy 1110 pips for an average of 62 pips profit per day.

I have ignored the overnight rule of 80 to 100 pips as sometimes after a large overnight move the trade still produces the required profit and I am not in the market. I have also instituted a mandatory 30 pip stop as it makes no sense to risk the same amount that you stand to lose.

The total profits for Feb for all three pairs 2200 pips or 122 pips per day, must make this simple 10 min a day setup, worth adding to any Forex Trading arsenal.

It is obvious that market conditions change and a pair that performed well previously might not perform as well in the future. There will also be drawdowns and sometimes two losses on a single currency pair on a trading day. This should be allowed for in any trading strategy.

It is only through consistency and good equity management principals that any trading strategy can either prove itself or fail. If we are going to employ a particular strategey then all the trades must be taken, it does not help to do the occasional one as that will inevitably be the losing trade, which will cause us to discard the strategy and go in search of a new one.

I have been using the strategy as part of my trading routine for almost 4 months now and it certainly gets my vote for its simplicity and results.

It does differ from the Power Break strategy in that it involves three currency pairs rather than the two Eur/Jpy and Gbp/Usd employed by the power break system. The Power break system I understand uses a mandatory 40 pip profit limit and 40 pip stop loss with overnight moves larger than 80 pips resulting in a no trade. Other than that I think the methodology is similar.

Asian Breakout Strategy 2

Follow up on the Asian Breakout Trade

As I said in the last post I had a feeling this would not be something new. Some of us just take longer to discover them. I have since had phone calls and emails from other traders confirming they have been trading the system for a while.

Some of them only scalp 15 pips using this entry, still others aim for 40 pips on a trade. Now that the holidays are over and trading is back to normal I have had to change my thinking a bit on the system.

Some of the feedback I got from other traders using the entry method is don't trade this system if the overnight move is more than 60 Pips and others say more than 80 pips. I am inclined to agree with the 80 pip strategy. Don't use this entry method if the overnight move for the Asian and Pacific markets is more than 80 pips.

Another glaring problem is trading both the Eur/Usd and USD/Chf pairs as they are definitely the slowest moving pairs. The correlation between the two means, if you lose on one you are likely to lose on both. Some days you get a good run on both but it seems most days they just don't perform. Having said that I have reduced my entries to 4 pairs.

Two other changes I have made are, firstly only enter after the London opening, not Frankfurt. The hour difference between the two opening times often coincides with news from Germany causing some spikes in the market, picking up the order, only to reverse when London opens.

The second change is on the entry. I have changed that to 10 pips above or below the market.

Here is a look at today's charts using the Asian Breakout Method. All the charts can be expanded by clicking on them. The yellow coloured section is the overnight move, the blue section represents the profitable break out and the red coloured section represents a loss.

The first one is the GBP/USD Pair. Had I taken the trade with the Frankfurt opening it would have resulted in a loss as it just broke through the Asian high then reversed. The next move up easily bagged 50 Pips. The pair in fact continued to run up another 100 pips.

The next chart is the USD/JPY Pair and as you can see it ran 100 Pips down on the day. Another one I can kick myself for, as I closed out with 40 pips profit.

Eur/Jpy the first run down was 70 pips, easily hitting my 60 pip target before reversing. I was fortunate enough to catch this one a second time at 161.25 to go short and the trade is still running 200 pips up.

The last one was the Gbp/Jpy The first move down was 95 pips that I closed out on 60. Then it picked up the buy for 40 pips but was closed out on 25 pips profit.

The next two charts show the Eur/Usd and Usd/Chf just show how the days profits could have been lost on these two pairs.

The first one is the Eur/Usd that broke the overnight high and barely covered spread before reversing. It then ran down breaking the low yielding about 25 pips then reversing again. The first break was with the Frankfurt opening so it could have been avoided. The second could have been a 15 to 20 pips scalp.

The last one is the Usd/Chf Again this would have resulted in two losses as neither of the original breaks yielded much more than the spread.

This simple strategy yeilded 210 pips today without much effort. Today was also an exception rather than the rule as there are days when 1 or 2 pairs might fail. But overall the strategy has proved extremely profitable yielding more profits than losses.
Recap

• If the overnight move is more than 80 pips be weary as the market might not run to your profit levels.
• Don't trade the Eur/Usd pair and Usd/Chf together or better yet don't use this method to trade them.
• Place entries 10 pips above or below the overnight high and low.
• Only enter positions after the London opening
  

Asian Breakout Strategy

My Day Trading diary for 2008.

I suppose the holiday season is a time to reflect on the years trading activities. I decided to take a bit of a break and only do an early trade each day with the opening of the European Market. The results were pretty good and required very little effort from my side.

I have always taken a discretionary (personal view or judgment) approach to trading, doing my daily analysis, then waiting for the right setup before entering the market. That does not mean I do not have a trading plan, I believe a trading plan, no matter how simple or complicated is vital for any trader wanting to succeed in any market.

Having said that I suppose my methodology is a combination of discretionary, mechanical and fundamental trading. Discretionary in that I wait for the correct setup to occur using mechanical means, Laguerre RSI, Fibonacci, Macd, and stochastic and then if it fits my fundamental view of the direction I think the market should be taking I will do the trade.

Many times my preconceived fundamental view or big picture is wrong and I get my but kicked. This preconception of where I believe the market should be going has resulted in staying in the market for extended periods of time resulting in a disproportionate amount of overnight Interest paid. $35,000 for the year. I have always thought of myself as an intraday trader and most of my trades are opened and closed daily. Though the interest charges for the year only amounted to about 6% of the profits made, I can't help thinking I would be better off with that interest in my back pocket.

On closer examination of the longer trades I found that very few resulted in profits and generally kicked me out on stop loss along with the added interest burden. Now I know that "HOPE" is not a plan and "HINDSIGHT" is an exact science so I am not going to beat myself up over it. I am however going to try and close my positions specially the (losing ones) by the days end.

A few months ago I received a trading article in my inbox, relating to Leverage and decided to browse the authors website (Dr.Forex) The author of "Bird Watching in Lion Country". I read the book a few years ago and found his methods controversial to say the least. None the less very informative and I hate to say it a "must read" for every aspirant or even experienced trader.

As it was borrowed material when I read it I cannot quote from it or use it as a reference source because I returned it shortly after reading it. My browsing though led me to a statement he made on trading indicators where he states that the only trading indicator he uses is what he calls the "Asian follow through Indicator" This peaked my curiosity but I could find no other information on how to implement it.

Trading is an ongoing learning experience and I embarked on a quest to find out more about the indicator. The Author of the book is a highly reputed trader with a solid track record, who, by his own admission does not use indicators for trading. I therefore figured that this would be a method rather than an indicator like a stochastic, or MACD.

After spending hours examining charts relating to all the JPY pairings I was none the wiser and so decided to look at the major pairs as well. My only conclusion at the end of this exercise was that generally the overall market movement during the Asian session was less than the market movement during the European session and for me not the best time to trade.

I then started to isolate the Asian session on my charts by colouring it in each day between the close of the US market and the open of the European Market. This gave me a clear picture of the overnight range on the majors.

The picture that emerged was that the greater movement during the European session generally pushed price beyond the highs and lows of the Asian session generally in the direction of the overall trend but not always.

If we look at the above 1 Hr chart of GBP/USD the yellow shaded area represents the overnight range of the Asian session. The red line shows price first broke above the yellow shaded area, failed to reach the 50 pip profit target, and resulted in a 40 pip loss.

Price then broke out below the bottom of the yellow shaded area and continued short for 230 pips allowing the recovery of the loss and a handsome profit to boot.

If we look at the other indicators on the chart we can see that price crossed below the Laguerre filter line, the fast Lag, slow lag MACD, and stochastic all conformed the move.

With a bit of back testing I found this could be a good entry for a Break out trade above or the below the overnight range. I then concentrated on the GBP/USD pair because of its greater market movement. After a few dummy runs I decided to do a live trade on gbp/usd. Murphy's law states "anything that can go wrong will go wrong"

The European Session opened in the middle of the overnight range on the gbp/usd pair so I placed a buy order above the overnight high and a sell order below the overnight low. As with every good trading strategy I placed a 50 pip stop loss and a 50 pip profit limit on each entry. As the pair had been ranging for a few days I figured a 1:1 risk reward ratio would suffice for the day.

My short order was picked up shortly after Europe opened and ran about 30 pips my way. I assumed when London opened it would run the extra 20 pips and close me out on a 50 pip profit. However when London opened price immediately reversed and closed me out 50 pips in the red. The buy order was then picked up and ran 37 pips my way, I again I assumed I would at least close out square for the 2 trades. A cable news announcement then caused price to suddenly reverse and I was closed out 50 pips in the red, "double whammy" and not a good way to start my trading day or a new strategy.

Back to the drawing board, maybe I was greedy, as the losses were totally unnecessary. I could have locked in a few pips profit on both positions or at least locked in at break even. The system was not at fault I was. The following day I placed the same orders and my sell order was picked up shortly after the London opening and closed within 20 minutes for a 50 pip profit, cable continued to run another 120 pips for the rest of the day, I had left a substantial amount of profit on the table.

Over the next week I made my 50 pips a day on cable and on one day had a double entry long and short for a bonus 50 pips. It was time to test the strategy on the other majors. I placed 8 orders 4 buy and 4 sell on the major pairs over the next week with varied success, specially on the Euro as it seemed to plod along some days and fly others.

None the less the week closed with only 2 losses which I limited to 30 pips on each of those trades, 1 one on Eur/USD and one on Usd/Chf. The cable pair still remained the most difficult because of its large swings and sometimes closed me out at break even or a few pips profit but I did manage to avoid the fiasco of day 1.

Over the last few weeks I have expanded the system to 6 pairs by adding the Eur/Jpy and Gbp/Jpy placing 12 orders a day at the open of the euro session. No system is infallible and losses do occur, but overall the system is extremely profitable and well worth the few minutes a day it takes to do the analysis and place the orders. The Eur/jpy is the most consistently profitable pair and so far has produced 20 winning trades in a row.


The above 4 hr chart shows the entries and exits for the past 14 trading days. 1 with 1 outright loss and 2 BE days and a number of days with double entries long and short.

No this is not one of those "Eureka" moments as I have no doubt that other traders have probably traded this method long before I did. I cannot even be certain that that this was the original intention of author who's article I read. I also cannot give the Author credit for the method as I had to figure it out myself. What I am certain of though is it works well. If you do not have the time to spend hours monitoring the market then the Eur/Jpy can be an Ideal 5 min a day trade.

For lack of another name I will refer to it as my "Asian Breakout System"

I have tried to find a way of reducing my stop loss but the previous high is sometimes higher than my intended stop of 50 pips or too close to the entry point. So I have just accepted it as a 1:1 risk reward ratio. I do use the Laguerre filter line on the chart and if price reverses and breaks above or below the filter line I will close out regardless of whether or not the profit or stop loss target has been reached. Once the trade is up 20 pips I lock in at BE + 1 and when it is up 30 pips I lock in 10 pips.

On Eur/Usd, USD/Chf and Usd/Jpy I look for 30 pips per trade with a 30 pip stop. Cable, and Gbp/Jpy 50 Pips profit with a standard 40 pips stop. Eur/Jpy 60 pips or I let the latter run for the day with a Standard 40 pip stop.

I have deliberately kept all indicators out of the strategy to keep it simple, It is a breakout trade and must either break the overnight level or it is a no trade. Using other indicators will only confuse things. I enter the trades on the buys spread &1 and on the sells 2 pips below support. This you can adjust to suit yourself.

If one order is executed I leave the other until about 11 am est then cancel it if it is not picked up by then as the US afternoon session is definitely quieter than the morning session.

This 1 hr GBP/USD chart shows Fridays trades using the Asian breakout system The first short trade yielded 30 pips which I closed out with a 10 pip profit as it never ran the required 50 pips. The second long trade yielded the fifty pip profit prior to the Non farm payrolls announcement. I did not trade this pair again during non farm.



This chart shows Fridays trade that was only executed during the news. After the initial run down there was large pull back just missing my stop by 5 or 6 pips before price dropped again and closed out for a 60 pip profit. You will notice the large overnight move on this pair of 112 pips (yellow shading). I have found that when there is a large overnight move 90 pips plus this system is less likely to achieve its target based on this entry method, so maybe a smaller target would be prudent or don't do the trade.

Of the 12 orders placed 2 were not executed, the balance yielded 450 pips on the day. Though I have other indicators on the charts I do not allow them to influence the entry point for the trades. I might use them to to stay in the trade past my preset target but not often.

This is a completely new method of trading for me that has so far has proved extremely profitable. It is still early days yet and only time will tell how consistent it will be.