The entry points are very easy to identify, but I have yet to find a good exit and stop-loss rule. Thus, I could also not yet introduce money management to this method, which would be necessary to call this a complete system.
Here is what I do.
I take a broad look at the market to form an opinion on the general direction that USDJPY is trading in. This includes daily and hourly charts, checking support and resistance points, and major stock indices, in particular S&P500 and the Nikkei 225 because this pair moves a lot in line with general risk appetite or aversion.
I then open a one-minute chart of USDJPY. Indicators are
- LWMA(5)
- LWMA(45)
- Stochastics(5,3,3)
Entry is on a cross of the two LWMAs. Stochastics I use as a filter (was overbought above 80 before I go short or oversold below 20 before I go long). The Bollinger Bands use standard settings, they are not used as an indicator but help me visually to gauge the market situation.
In the attached chart I went short at the vertical red line. Price was wobbling a bit after that as it had actually already dipped into oversold territory on the oscillator, but then started going down.
Exit is the difficult part. I usually put a fairly tight trailing stop of 10 pips to lock in profits, but that of course gets me booted out of the trade quickly. I also have the "trendchaser" EA on the chart, but it usually does not come into play. Frequently I exit by discretion after spike candles, if the pair starts ranging, or when I feel the trade is going against me.
I use this on USDJPY because I find it fairly predictable on very short timeframes and because the pair moves during the Asian and European sessions, which are the ones I trade.
What I would love to get some input on is,
- Has somebody experimented with a similar setup on other pairs?
- Which sessions work for those pairs?
- What is a good exit rule?
- Where should an initial stop loss be placed?
- Because this is on a short timeframe, would it make sense to just stop-and-reverse regardless of overall direction?
- Etc.
Looking forward to everybody's opinions!
Jesper