Last time out I mentioned that I was going to discuss trend trading with the Foltron strategy; I’ve temporarily put that article on hold for a while, so this week instead were going to take some Sominex tonight and sleep! Markets change over time and we’re way overdue for an update with one of my favorite strategies.
My early days of Forex trading involved spending many, many, many hours carefully watching GBP/USD, especially around London open (which, in my neck of the woods, occurs in the middle of the night). While still learning the ropes I started experimenting with placing overnight pending orders on charts and watching what would happen. After a fashion I began observing a certain repeatable price action would occur with great regularity with GBP/USD right after the first hour London open. The idea developed that you could place pending orders above and below the 3 o’clock EST candle and typically price action would not violate that candle; that is to say, pretty much it would move predictably in one direction without backtracking over the high or low of that candle. This actually became very profitable for me, and I very much enjoyed trading it, that is, until BREXIT. After that, GBP/USD became so volatile, and the margin requirements increased so much, I just avoided trading it for some time. Now I’ve gone back to using it again on a more or less regular basis, albeit in a slightly modified form. Instead of basing the strategy on the 3:00 AM EST candle, I now use the 4:00 AM EST candle as the trigger. In so doing, this past week yielded potentially 5 winning trades if traded every day. Let’s look at some of the specifics: look at the chart below, which is taken from May 16th one hour GBP/USD:
The red arrow is pointing at the 4 AM candle; the top yellow line is set 10 pips below the low of the 4 AM candle, and the lower yellow line is low of the 5 AM candle, which formed the low of the day on this chart. Here’s how the strategy works: at the close of the 4 AM candle, we place pending orders above and below the 4 AM candle (a buy stop above and a sell stop below). Currently I like to set these 10 pips distant from the high and low the candle. If price action violates the candle and goes in the other direction, it will usually do that in less than 10 pips. When one of the pending orders is triggered, we close the opposite order and the open trade can run its course. Currently I like a 20 pip take profit on the set up, although it will often yield much more. Of course, the downside of the strategy is that, in order to trade it, you need to be A) awake in the middle of the night looking at your charts like most normal people do or B) use this wonderful thing available to Slick Trade members called the Sominex expert advisor (EA). So what is this Sominex EA and what exactly does it do? An expert advisor, for the benefit of those of us new to Forex, is a software program that automates trading; in the case of the GBP/USD trade, what it will do for us is place pending orders above and below the target candle we identify as a trigger, and when the first pending order opens, the EA cancels the opposite pending order, and manages the trade for us (moves our stops, takes profit, etc.). In my case I am now allowed to, as the dreadful advertising campaign informed us ad nauseam during those dark and faraway days of the 1970s, “take Sominex tonight and sleep! And it works! Not to worry, I don’t dream about little men flying around on magic carpets distributing pills in my sleep…just a pot full of pips waiting for me in the morning!
Now this is all very good and interesting, but the Sominex EA has other uses too, which we will learn about in the second part. Until then have a great day and good luck in the market!