OLD: My Intraday Trading Strategy Explained

Many traders have asked me, what’s the secret behind my successful intraday trading? Most are incredibly surprised by the answer that I give them, i.e. that there is NO secret.

The strategy I employ is modelled on the tried and tested pivot points, originally employed by floor traders on equity and futures exchanges to determine critical support and/or resistance levels.

IF you are unfamiliar with pivot points and the various terms, kindly read the following articles for better understanding.

http://www.investopedia.com/articles/forex/05/FXpivots.asp

http://www.investopedia.com/articles/forex/07/pivotpointstrategy.asp

http://www.babypips.com/school/pivot_points.html

Should you already be familiar with pivot points, then by all means read on. You will realise that I've essentially kept my trading style fairly conservative and without any material changes to the basic principles. As they say, "if it's not broken, why fix it?"

Before proceeding further, please be aware like any other trading strategy... mine is not the holy grail! So, sound money management is essential to sustainable and profitable trading. Though I shall not cover in great lengths on the subject, I will share my own money management technique.

On any given trading day, my daily equity at risk is capped at 3%. I further divide this into ten (10) trades, meaning that I risk only 0.3% of my equity on any given trade. Though it has yet to happen *touchwood*... I will be able to sustain 10 consecutive losing trades a day, before walking away for the day to regroup.

Trading Rules

1. This is an intraday trading strategy adapted for trading using the M15 chart. Though I specifically use the strategy to trade only four (4) currency pairs (i.e. EUR/USD, GBP/USD, USD/JPY and GBP/JPY), the strategy can easily be used without material changes to trade any currency pairs.

2. Determine bias by observing the opening price relative to the daily pivot point. If price opens ABOVE the daily pivot point, then bias is bullish/long. If price opens BELOW the daily pivot point, then bias is bearish/short.

3. Determine the immediate trend, by observing the actual price movement (to identify series of higher-highs & higher-lows or lower-highs & lower lows). Alternatively, the immediate trend can easily be determined by just looking at the direction of the 100SMA line and/or MA_Chanels on the M15 chart.

4. The BEST entries for new trades are located within a band 10-15 pips wide off any given pivot line (Daily PP, S1, S2, S3, R1, R2 and R3). For longs (buying supports), ideally entries should be made at or within 10-15 pips above any given pivot line. For shorts (selling resistances), ideally entries should be made at or within 10-15 pips below any given pivot line.


Note:

  • If price at PP, watch for a move back to R1 or S1.
  • If price is at R1, expect a move to R2 or back towards PP (shorts outperform longs approx. 58% to 42%).
  • If price is at S1, expect a move to S2 or back towards PP (longs outperform shorts approx. 56% to 44%).
  • If price is at R2, expect a move to R3 or back towards R1 (shorts outperform longs approx. 83% to 17%).
  • If price is at S2, expect a move to S3 or back towards S1 (longs outperform shorts approx. 83% to 17%).
  • If there is no significant news to influence the market, price will usually move from P to S1 or R1.
  • If there is significant news to influence the market price may go straight through R1 or S1 and reach R2 or S2 and even R3 or S3.
  • R3 and S3 are a good indication for the maximum range for extremely volatile days but can be exceeded occasionally (at R3, shorts outperform longs approx. 97% to 3%; and at S3, longs outperform shorts approx. 97% to 3%).
  • Pivot lines work well in sideways markets as prices will most likely range between the R1 and S1 lines.
  • In a strong trend, price will blow through a pivot line and keep going.
** It is important to understand, however, that these are probabilities and not certainties.

5. Wicks pricking through pivot point levels do not constitute a valid entry. Unless the move past a pivot point level is convincingly rapid, it is advised to enter a new trade only upon the 2nd candle that has its body past the pivot point level.

6. Stop-losses (SL) though highly recommended are not an essential part of the trading strategy, for if Trading Rules no. 4 & 5 are strictly observed... any unprofitable trades will be immediately closed when the opposite entry signal is observed. However, should you require a SL... the recommended level is 20-30 pips (and preferably on the opposite side of pivot point level to your entry).


7. Unless you trade one (1) lot at a time, it is advised that you split your entries into two separate trades.

8. Pursuant to no. 7, the way of exiting trades shall also be split... i.e. one shall be based on your discretion, and the other shall be decided by the market (via a trailing stop about 20-30 pips away).

Well, that's it in a nutshell. Please feel free to review the trading logs posted here to further familiarise yourself with the strategy... and remember, practice makes perfect. Should you require further clatification, you'll most probably find me here (http://www.ircforex.com/chat/) most weekdays.

1 comments:

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