Now, lets look at specifically how to apply this strategy. We will
use chart 1 for illustration purposes, and all times will be
discussed as EST. You go to view the Fundamental
Announcement calendars and see that the US will be making
some announcements (one announcement is ok, but more is
better) for 8:30am tomorrow. Very well then, you go to bed and
make sure to have the alarm set for 8:15am to be awake for the
trading opportunity. It’s a good idea to set an alarm clock 15
minutes before the trading opportunity to make sure you
remember it.
At 8:25 you should have your charts open to the one-minute
candlesticks for EUR/USD (and/or GBP/USD, CHF/USD) and
your Forex broker account opened up and ready to place an
order.
You should notice that prices are gently moving around in a
consolidation pattern waiting for the Fundamental Announcement.
Now here is where you have to act quickly. At EXACTLY 8:29am
you need to look at the candle and see what the high and low
prices are (not open and close). Add 10 pips to the high price and
minus 10 pips from the low price. If the 8:28am candle has higher
highs or lower lows then you may want to use those extreme
numbers instead of the 8:29am candle’s prices
(adding/subtracting 10 pips). Now you create two “entry orders”.
An entry order, unlike a market order to buy/sell right now at the
current price, is an order that only kicks in when your entry price
is touched. For the first entry order you set it to “BUY” when it
reaches the high+10pips price, set your Stop loss for 10 pips
(VERY IMPORTANT) which is basically the same as the high
without the extra 10 pips, and then activate your trade. For the
second entry order you set it to “SELL” when it reaches the low-
10pips price, set your Stop loss for 10 pips (VERY IMPORTANT)
which is basically the same as the low without the extra 10 pips,
and then activate your trade. This should all have happened by
8:30am sharp. OPTIONAL – you could set a profit limit of 20 pips
on both orders.
What did you just do? You took the price range of the currency
pair and stretched it 10 pips up and down to add a little bit of a
safety net. You told the broker that if the price of the currency
pair goes up to that high point then you will “BUY”, and if it goes
down to the low point then you will “SELL”. You also told the
broker to stop you out after losing ten pips incase that should
happen. If you set the optional profit limit to 20 pips then you told
the broker that once the price moves in your favor 20 pips to exit
the trade.
In chart 1 it happened to go “UP”, and you would have ended up
“BUYING” the currency pair. It could have just as well gone
“DOWN”, and you would have ended up “SELLING” the currency
pair. It doesn’t really matter with this strategy which way it goes,
just that it moves a lot of pips.
IMPORTANT – Within 5 minutes one of your two trades should be
off and running. At this point you should cancel the other trade.
Sometimes the market responds with a momentary whiplash
which means both orders could have been triggered, one
resulting in a loss while the other usually goes on for a profit.
Read more about this later in this document.
Let’s review the above chart 1 example. At 8:29am the high was
1.2002 and the low was 1.1999. At 8:28am the high was 1.2000
and the low 1.1998. Since the low of the 8:28am candle was
lower than the 8:29am candle’s low we will use that one. So now
you add 10 pips to the high (1.2002 + 10pips = 1.2012) and you
subtract 10 pips from the low (1.1998 –10pips = 1.1988). So you
place two entry orders, one that if the price goes to 1.2012 you
buy a lot (or multiple lots, or mini lots), but if the price drops to
1.1988 you sell a lot. Then you enter your stop losses (VERY
IMPORTANT – NEVER trade without stops!!!) of 10 pips, so for
your buy position your stop loss would be 1.2002 and your stop
for the sell position would be 1.1998. Let’s say you decided to put
a profit limit of 20 pips then for your buy position it would be
1.2032, and for your sell position it would be 1.1968.
To make calculations simpler for you I have included an MS Excel
spreadsheet that does all the math for you that you can download
from the resource section of my website (see Appendix A). Just
enter in your high and low numbers and it will give you all the
numbers needed.
Back to the example. In this case your “BUY” entry order would
have kicked you in for a buy position at 1.2012. If you used a 20
pip limit then you would have exited at 1.2032 for a nice $200
profit (trading only one regular lot). Not bad for about five minutes
worth of work.
If you are a beginning trader it is highly recommended that you
stick with a 20 pip limit on your trades. Later you can do some of
the more advanced suggestions below.
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