Trading the Blues - Monday Blues | Forex Factory

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Trading the Blues - Monday Blues

  • #1
  • First Post: Nov 25, 2008 3:32am Nov 25, 2008 3:32am
1. Concept
After a weekend break, market participants may need to (1) warm up and/or (2) wait for news and clues, before committing themselves to substantial positions in the markets. Hence, the price range of Monday may act as a base for the rest of the week. We will attempt to profit from this tendency of market participants by trading a breakout of Monday’s price range.
  • #2
  • Nov 25, 2008 3:33am Nov 25, 2008 3:33am
2. Rules:

Entry: At 0000H (Alpari UK’s server time) on Tuesday, enter a buy order 1 pip above the high of Monday and a sell order 1 pip below the low of Monday. When 1 order is triggered, cancel the other order.

Stop Loss: For the buy order, place a corresponding stop loss order 1 pip below the low of Monday. For the sell order, place a corresponding stop loss order 1 pip above the high of Monday.

Exit: If not stopped out, exit at 2000H on Friday (personal preference). If no trades were triggered as at 1600H on Friday, cancel all orders.
  • #3
  • Nov 25, 2008 3:34am Nov 25, 2008 3:34am
3. Example:

This example uses price data from Alpari UK’s demo server.

For USD/CHF in the week 17th November 2008 – 21st November 2008, the low of Monday was 1.1887 and the high of Monday was 1.2006.

A buy order was placed at 1.2007 with a stop loss order at 1.1886.

A sell order was placed at 1.1886 with a stop loss order at 1.2007.

On Tuesday, the buy order was triggered and we cancelled the sell order. For the rest of the week, the stop loss of the buy order was not triggered and we exited at 2000H on Friday at 1.2230.

Our risk for this trade was 121pips (1.2007 minus 1.1886). Our profits was 220pips (1.2230 minus 1.2007 minus 3 pips spread). In terms of R-Multiples, our profits was 1.8182R (220 divided by 121).
  • #4
  • Nov 25, 2008 3:35am Nov 25, 2008 3:35am
4. Backtest Results

Backtesting was performed manually using 4 hours charts (personal preference). During weeks when Monday or part of a Monday has no trading due to holidays, the price range of the first 24 hours of the week is used.

The backtest has not been checked for accuracy.

The results are stated in R-multiples and are net of spread costs of 2 pips, 4 pips, 3 pips and 2 pips for EUR/USD, GBP/USD, USD/CHF, USD/JPY respectively.
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  • #5
  • Nov 25, 2008 3:36am Nov 25, 2008 3:36am
5. Improvement

Due to news over the weekend or some other reason(s), Mondays can be quite volatile. The price range of such Mondays is big and trading a breakout of a big price range may not be beneficial from a risk-reward standpoint.

Hence, in the above scenario, having a defined technique to filter out trades that will otherwise be taken can improve Monday Blues’ results.

Certainly, if you are an experience trader, you may be able to improve Monday Blues’ performance with other techniques and/or your trading flair.
  • #6
  • Nov 25, 2008 3:37am Nov 25, 2008 3:37am
6. CAUTIONS

1.While Monday Blues has shown itself to be profitable from 1999 till present, it may not be so prior to 1999 or in the future.

2.If you are trading Monday Blues as presented above on the 4 majors only, the drawdowns can be very large compared to the gains. Hence, you may want to trade Monday Blues as one system among your portfolio of many systems for the purpose of smoothing out the equity curve. Or you may want to use Monday Blues to trade more currency pairs or the futures markets or even the stock market to achieve diversification.
  • #7
  • Last Post: Nov 25, 2008 3:37am Nov 25, 2008 3:37am
7. The End

Thanks for reading!
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