1 Hour a Week Forex Trading Strategy
Working full time? Can’t spend 8 hours or more a day watching markets? That doesn’t mean you can’t trade. With Vantage FX’s “1 Hour a Week” forex strategy there’s no excuse to not be trading profitably. Of course, the strategy requires a little footwork and study before you get going, but once you have put in the hours, the strategy can easily be completely automated.
Trade them gaps for easy pips
If you’ve been trading for a little while you’ve probably noticed that the market often “gaps” when the market opens for a new week. You’ve also probably noticed that these gaps get filled a lot of the time. Have you ever actually gone back over your charts and see how many gaps do get filled? You might be surprised with the results.
So how can you make money of this phenomena? It’s simple: the basic idea is to open a trade when the market gaps with a target equal to last week’s close. Some week’s you won’t get any trades and you will get some losers every now and then, but a lot of the time you will make 100 pips on Monday and be done for the week!
Backtesting is integral
Welcome to the footwork. If you want to trade this strategy you’re going to have to spend some time studying charts, but this isn’t about finding trades though – it’s about finding the optimal parameters and best symbols to trade. Every currency pair has it’s own character and a gap trading strategy will work better on some pairs than others. The first thing you need to do is have a look at a few liquid pairs, take a look at the past 20 gaps and record how many were filled and how many weren’t for each pair.
You should now have a pretty good idea of the most reliable pairs to trade this strategy on. How many pairs you choose to trade will depend on your risk tolerance, remember: a lot of these pairs will gap at the same time, so don’t trade too many pairs at once! Easy right?
Well here’s the tricky part: it’s not as simple as blindly trading every single gap. What about your stop loss? Gaps usually fill, but they don’t always fill and often they drift a little further before filling. This part can get a little tedious – you’re going to need to find the optimal stop loss for the strategy. A good idea is to start with a hypothetical stop loss equal to the size of the gap.
Automation saves time backtesting
Finding the optimal stop loss settings over multiple pairs can be a real drag. You can shave off hours of study by making an automated strategy to backtest with. Note your automated strategy doesn’t have to actually be deployed live, the idea here is just to save time backtesting. Having said that, once you have made a basic strategy to test with, it really isn’t that much more work to implement money management and anything else you might need.
The basic logic for this sort of strategy is:
If Weekly Open is Greater Than Last Week’s Close, Then Sell
If Weekly Open is Less Than Last Week’s Close, Then Buy
You should be able to drum this up in some expert advisor design software (no coding required!) in less than half an hour, a few minutes if you’ve ever used the software before. You will also need variables for your stop loss and a minimum distance for the gap. Once you have this sorted, simply use the backtesting and optimization software in MT4 to find the most profitable parameters.
Once you have identified the most profitable pairs and parameters, all you need to do is decide whether you will be trading the strategy manually or will take your automation a little further and get your robot ready to deploy live. Depending on your work schedule and where you live in the world, you may have to go the automated route as you are at work when the market opens each week.
A few pips in spread can make all the difference
Whether you plan to trade this strategy manually at the open each week or automate the entire strategy, a few pips can make all the difference. As such, you should be trading this strategy with an ECN broker like Vantage FX. The last thing you want is to be missing your gap close targets by a couple of pips because the broker you’re trading with has ridiculous spreads. ECN brokers don’t mark up there spreads which means the spreads on liquid pairs can be as low as 0 pips.
The efficient market hypothesis or ‘EMH’ for short is the theory in economics that believes all known information is already reflected in current stock prices. The followers of this hypothesis believe that due to this fact it is not possible to beat buy and hold investing over the long term in returns or even in risk-adjusted returns because the stock market is forward looking and has already priced in all known new information at any given time. A good example of why efficient market hypothesis is believed by so many to be true is how difficult it is for money managers to beat the S&P 500 index. EMH also believes that many of the best fund managers and investors that beat the market are simply lucky and it is not possible to do over the long term. The basic idea of EMH is that the stock market price action and returns are very difficult to predict due to their efficiency of pricing in the future today. The best traders and investors are not trying to predict the future they are following the trend or have a systematic process with an edge that profits from big wins and small losses. The greatest investor in history disagrees with this hypothesis: “I’d be a bum on the street with a tin cup if the markets were always efficient.” – Warren Buffett
Idea: to benefit on interest with positive rollover pairs, such as GBP/JPY, USD/CHF and others. Strategy requires having 2 accounts with different brokers - one with each broker. The first broker should pay interest for carrying the trade, while the second should not charge or pay any interest for carrying trades.I don't know if such type of brokers who don't charge/pay rollover interest exist today. If anyone knows, please advise. the rules are simple: open Long position, for GBP/JPY, for example with a broker who pays interest, and immediately open Sell position with a broker who doesn't charge interest. Buy and Sell positions cancel each other.Hold positions for as long as you like (for month or years) while earning interest everyday on rollover with the first broker. Additionally monitor the account which is on the losing side to make sure there are enough funds to sustain losses, otherwise add funds. The list of positive interest pairs (changes over the time as governments cut or increase rates; also various Forex brokers have their own rollover policies, where they may not pay positive interest on certain pairs. Check with your broker). Positive interest is paid when Buying:USD/JPYEUR/JPYGBP/JPYGBP/CHFAUD/JPYNZD/JPYNZD/USDUSD/CHFUSD/INRUSD/CNY Positive interest is paid when Selling:EUR/GBPEUR/AUDEUR/TRYUSD/TRYUSD/XAGUSD/ZAREUR/HUF So, again, my problem is, I don't know where to look for such brokers that don't apply rollover charges. Good luck!
When a market’s price action falls straight down making lower lows continuously without stopping or bouncing back it is considered a ‘falling knife’ on a chart because of its speed and trajectory. It’s not a good idea to buy into a chart with plunging price action that can’t find support before there is a signal or a good reason to do so. Just because something is falling fast does not mean it can’t go lower or it is an opportunity to buy at lower prices. Low prices can go much lower before finding support with new buyers at key lower price levels. A price falling dramatically is not an opportunity a quantified signal to buy the dip can be. The odds of buying the dip is better when a chart first stops going lower, finds support, and then starts going up. Waiting for a reversal can lead to a little higher entry price but a better chance of success in a reversal. Things fall for a good reason, nobody wants to buy it at current prices so the stock falls looking for the price level the buyers are waiting for. Down trends that are in motion tend to keep going lower as it is the path of least resistance. There is a big difference between buying the dip and catching a falling knife. One can give you a good risk/reward ratio entry the other can cut your account to pieces as it keeps falling. Some charts do go to zero or never go back higher again. Companies go bankrupt, penny stocks can be scams, crypto currencies can be worthless, and option contracts can expire worthless. Even oil futures contracts can go negative. It can increase your odds of success to buy things with built in value that have some intrinsic value. There is a big difference between buying the dip and catching a falling knife. One can give you a good risk/reward ratio entry the other can cut your account to pieces as it keeps falling. Don’t try to catch a knife by its blade while it is falling wait for it to first stick in the ground and then pick it up by its handle.