Systematized Profit in Foreign Exchange
Here are three types of trading systems in the Forex market. Two are based in the GBP, and one is based in volume trading. A GBP/JPY or USD/GBP trader system takes advantage of the tendency of active markets to break out of a morning range.
As customer orders enter the market, the market makers must match those orders with other customer order flow or take/give out of their inventory. If the market makers wind up net short(or long) they will have an incentive to push the market to the next block of order flow to cash in. The key to this system is to trade during times of high volatility.
The JPY pairs, in almost all cases, have a surge of activity starting at 9AM Tokyo time. This system marks the first 120 minutes of activity and sets that as the box. When price breaks above the high, or below the low, trades are taken in the direction of the break.
Knowing that tendency, there are several options. You can try to predict the future, you can take all the trades and apply aggressive money management tactics to the winning trades, or you can stop trading when the average true range falls below a certain level and wait for volatility to pick back up.
The GBP trader system, much like the JPY pairs, has a big push of volatility around the open- 9amGMT. This system takes advantage of breakouts beyond the first 90 minutes of trading with a 1% trailing stop after profit has reached $25. It's a very active system that trades the London session. The critical factors are the trailing stop, and low slippage and commissions. 20 dollars is the breakpoint; above 25 dollars in slippage and the system breaks down. Adding a filter for ATR improves the system's robustness, allowing for more slippage. The system still remains tied to the stop, so it's best described as a scalping system.
A volume trading system takes advantage of the tendency of large markets to reverse after large trading volumes. Professional traders will often use large influxes of volume(trades, not orders) to build positions and maneuver price. However, just looking at the volume isnt enough, as a large influx of trades can just mean a trend continuation. The key here is to look for extremes.
For now, this system is anecdotal- computerized testing has mixed results, due to the nature of computers. The things are literal; if you can't tell a computer exactly what you're looking for, then you won't get an answer. The general idea is to sell when the market is moving up and buy when the market is moving down.
Maceo Jourdan is recognized as an expert trainer, trader and author of three best-selling trading books and Home Study Courses including "How To Get Filthy Stinking Rich Trading The Forex" book and Home Study, "How To Trade The Harmonics of The Foreign Exchange Markets" Vol. 1, 2 and 3. Maceo has trained over 1,300 students in large seminars, one-on-one and small groups. Get Forex Trading information from Maceo at http://www.TheInsiderCode.com.
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