Journey Forex GBP/JPY - mostly same day trades
I've been trading a little over a year. The main currency that I trade now is the GBP/JPY. I'm updating my thread and tweaking my trading method a bit to make it even more simple.
The Breakout Method
I wrote this post for anyone to understand from beginner and up. First if you are brand spanking new in trading Forex then you'll need basic education, charts, an economic calendar and a demo account. There are many links that you can google and find free sources. Here are some that I used to get to where I am now. All of these are free sources.
http://www.babypips.com/school/ quality, basic forex ed
http://www.netdania.com/ChartStationDemo.asp basic charts
http://www.forexfactory.com/calendar.php economic calendar
http://fxtrade.oanda.com/ demo account (or any broker that you choose) Look for a broker with low spreads, fast execution, flexible account size and low to hi leverage depending on your choice. The lower the leverage the better in my opinion. Also, google forex reviews and read comments posted by other traders when looking for a broker.
My method is very simple. I trade using support & resistance lines, trend lines, chart patterns and use price action to determine if/when I will enter and exit trades. I don't use any indicators or moving averages. I have tried trading methods using these tools but never could manage to consistently gain profits but would break even at best. I use all time frames from monthly to 15 min to determine where to draw my lines.
CHART SET UP
Support/Resistance lines (S/R) - start from the month chart and work your way down to the 4 hour to see where the price is bouncing at least 3 times. Draw bold lines for the higher time frames monthly, weekly and daily. For intraday time frames use thinner lines so that you will know which lines are the strongest. The more times that the price bounces off of a line, the stronger that line is. These are key levels that I look for to be broken when entering a trade.
Trend lines - I use these the same way as S/R but the key in making these work is drawing them effectively. Look for stronger, more dominant trends zooming in from month to 4 hour. http://www.babypips.com/school/trend_lines.html
This is all there is to setting up the chart.
I call my method The Breakout Method because that's exactly what we are looking for. This is where we will spend over 95% of our time waiting for the price to make certain chart patterns. This will put us on alert to get ready to trade once the price "breaks out" of the pattern. I've seen the price go crazy like 800 pips on GBP/JPY and more but we are just looking for a piece of that.
There are mainly 3 patterns that I look for:
Symmetrical Triangles http://www.babypips.com/school/symme...triangles.html
Ascending Triangles http://www.babypips.com/school/ascending_triangles.html
Descending Triangles http://www.babypips.com/school/desce...triangles.html
After a big move I also look for reversal patterns so be on the watch for these:
Double Top http://www.babypips.com/school/double_top.html
Double Bottom http://www.babypips.com/school/double_bottom.html
Head and Shoulders http://www.babypips.com/school/head_and_shoulders.html
Reverse Head and Shoulders http://www.babypips.com/school/rever...shoulders.html
PUTTING IT ALL TOGETHER
After spotting any of the triangle patterns, what you are looking for is for the price to make a candle outside of the triangle. This will be your first indication that the price is about to make a sizeable move. Don't enter any trades just based on a break of the pattern but wait until the price breaks through the nearest S/R level that it has bounced from several times or until the price has broken out of the channel. For an example look on the GBP/JPY chart May 14th through May 20th. You will see that the price is trading in a sideways channel from 202.41 to 205.00. I will not place any long trades until the price breaks through the 206.00 level (not 205.00) because I have a cluster of trend lines on my chart as a "Do Not Trade" zone and short trades below 202.41.
a) Spot a triangle pattern
b) Then look for the price to make a candle out of the triangle
c) Then wait for the price to break the nearest strong S/R level. This will be your entry. Stop loss (S/L) should be set one S/R behind. Take profit (T/P) should be your next S/R. If the move is big I stay in the trade but trail my stop one S/R behind in case the price moves against me.
This sounds all perfect in theory but the price sometimes does the unexpected. Occasionally my T/P is not hit and the price reverses back to my entry level. So, what I do is open a hedge position once I know for sure that the price is reversing. Example, if your take profit is set for 80 pips but the price hits it's highest level then reverses to within 10 pips of your entry price it is a good time to open a hedge position. I rarely hold my hedge positions for profit but rather for loss protection exiting the positions at break even (B/E). Though you can hold your hedge position and close @ the next S/R level but make sure you close your first position to B/E.
After spotting a reversal pattern, I watch the price and look for a break of the nearest strong S/R level and follow step c) from above. Often times before a trend reverses the price will trade through a sideways channel sometimes for a week or more after a big move.
I will share my trading rules in the next post that make The Breakout Method work effectively.
Trading Rules and Tips for the Breakout Method
MOST of these rules are common sense rules but some come from experience.
*Trade only when there is an opportunity to trade not just to be trading. Even if it takes you two weeks or longer for an opportunity to come to trade you must follow this rule. Otherwise you risk getting yourself into unprofitable trades.
*Avoid trading in sideways channel (ranging market) with this method. Wait until the market decides if it's going to go up or down.
*Aim for a monthly goal instead of a weekly goal in terms of getting pips. Sometimes the market just doesn't have enough volume to give you enough trades during one week but may skyrocket the next week. I estimate since I personally target 400 pips minimum per month, it would work out to 100 pips per week.
*Adjust your trading to the momentum of the market. Momentum is best on GBP/JPY during the first four hours of the London session but you can get good moves during the Asian session at open and U.S. at open sometimes too. If you can, shoot for the London session or set alarms.
*Do NOT trade 30 min before, during and 30 min after big news announcements like NFP and some of the other major releases especially the U.S. releases. The market could easily move against you hundreds of pips in seconds. This has happened to me !
*Never take a premature trade. If the price is coming close to the S/R line, do not jump in assuming that it's going to break the line. It may bounce and hit your S/L. Let the price move through the S/R line a few pips then place your trade.
*The longer that a trend has been in place and it is broken, the harder the fall or the higher it will climb. Adjust your profit targets to the momentum of the market.
*Trading is 90% discipline and 10% execution.
*Plan your trade and trade your plan. Don't trade emotionally and hope that the market will go your direction. Been there, done that and it doesn't work.
*If your broker stop hunts then add 10 pips plus the amount of the spread to your original stops.
*At times my S/L will be 10 to 20 pips more than my T/P because I place my stops one S/R behind. My stops are hit only 2 out of 10 of my trades so this works well for me. Keep in mind the hedging strategy discussed in the 2nd post. If you don't feel comfortable with the amount of S/L use 50 pips as a basis but remember you don't want to set your S/L so close to the entry that it is hit. Give it some room to move.
This is the basis of my method. I will make live posts of when I'm in and when I exit the market. I like to see price action before I enter trades but I do set limit orders for when I sleep or other times when I'm away from my computer. With my method and any other method, test it out on a demo to see if this style is for you. I'm not responsible for anyone's losses. So anyone taking my live trades, it's at your own risk.
GBP/JPY May 21st, 08
I'm waiting for this to break out of the range of 202.60 - 205.00.
I will go short @ 201.80 break T/P 200.75 S/L 202.60
.....long @ 206.16 break T/P 207.00 S/L 205.00
GBP/JPY May 22nd, 08
The price has finally broken out of the channel but it's headed into my Do Not Trade zone. I will not be taking any longs right now even if it goes up to 206.00. It's trying to break back through an older, stronger trendline from March 16th. I will watch the price as it could blast through this zone or it could bounce very quickly away from this area. However I am noting some good S/R to go short on once the price reverses. If the price does go above 206.00 and reverse I will look to go short on these breaks:
wow nice journal
i like you style
hope your can upload some picture to make it clear
i wish you good luck
GBP/JPY May 23, 08
This bounced yesterday @ 206.56 so I'm looking to go short on 205.00 break if it has enough momentum with it. Target 204.00 though this might go all the way to 203.35. If I set a stop it will be around 206.15 and will trail it as the price moves down. Today is Friday so I will try to be out of any trades by London close.
short @ 204.92
trade closed @ 204.52
GBP/JPY May 26th, 2008
Just to mention, I took profit @ 40 pips on Friday because the volume was so low and I don't like staying in trades late on Friday. Today is Memorial Day so I will not be trading since both UK & US will be closed. From the way that my chart looks now, I will not take any shorts unless the price passes through the S/R breaks mentioned in an earlier post. One that I'm adding, if the price climbs above 205.00 and reverses, I will go short on 204.00 break.
On longs, from the way that the market is now, I'm waiting to see if the price is going to break or bounce from my upward trend line. I have an upward channel running from May 8th to current and a newer downward trend line from where the price touched the line on May 1st then again on May 21st. The up and down trend lines are forming a symmetrical triangle so I'm looking for a breakout in either direction. If trading volume is low, GBP/JPY might be dead until late this week. I pray not though
GBP/JPY May 27th, 2008
Price still choppy. I'll wait for it to break out of the triangle to decide where to go long/short. If it breaks out of the triangle and breaks 204.00 I will most likely go short but depends on momentum. Going long right now still doesn't look too good.
GBP/JPY May 28th, 2008
The price finally broke out of the triangle with good momentum. I am long @ 206.50.
trade closed @ 207.02. I would have held this longer but the price is nearing the top of my up channel so I will wait to see if it bounces or breaks before reentering the market.
GBP/JPY May 29th, 2008
The price looks to be ranging but 209.00 break looks good to go long. That might be a big move since that level has not been broken since the dip in March. 208.00 to 208.50 looks tricky. Each time the price gets to around that level it acts crazy. I will not take any shorts until I see a clear sign of reversal and may enter on the break of 206.15. Other than that, I'm on the sidelines.
GBP/JPY May 30th, 2008
The price finally broke out of my up channel so I will go long on 209.00 break. If the momentum is strong, I'll stay in the trade and trail the stop (next week)
A very good starting journal - hope u keep up posting -
Just came over your thread searching for something else and stayed on to read it from the beginning. VERY IMPRESSIVE and I will check back more often from now on.
Good luck to you, you deserve the results.
Hi Freddy ! Thanks for the encouragement and good luck to you too.
© Forex Factory