This strategy Is very simple and profitable for scalping the market during the London and New York sessions. I have used this system for a long time and it continues to provide great consistency.
It is important to remember that you must not over trade with this system, wait for the right setup at the right time and it will pay off big time in the long run.
Setting up your charts:
Open a 5 minute chart for the EURUSD and add a 10ema a 21ema and a 50ema that’s it, told you it was simple! Choose different colors for each moving average, for the purpose of this article I will use: Blue = 50ema, Green = 21ema and Red = 10ema
The 10ema and 21ema act ask strong support & resistance when the market is trending throughout a session, in a strong trend we can use this to our advantage and scalp the market while insuring we are trading in the direction of the short term trend giving us a good trading edge to take some quick pips.
See diagram below for an example of scalping with the trend.
System Rules:The rules of this system are very simple.
1. Wait for a trend to show on the 5 minute chart, higher highs in a up trend and lower lows in a down trend, look at the 50ema for trend strength and direction.
2. Make sure you are not in the Asian session or at the end of the London or US session.
3. Check there is no major upcoming news about to come out before you place a trade, your broker should have a calendar of this with times.
4. Once price enters half way into the zone open a trade, sell for downtrend and buy for up trend.
5. Set stop loss at 5 pips + spread.
6. Move stop to break even at +5 pips.
7. Set take profit at 10 pips.
Lets look at some examples of the moving averages in action in a good trend.
If you look at the above example you can see that a nice trend was in place making higher highs and returning to the 10ema, when price finds support on the 10ema this generally means that the trend is strong, what we are waiting for is a retrace back between the 10ema and the 21ema, I call this space between the 10ema and the 21ema the ZONE, see picture below for a diagram of the zone.
The Zone is our heads up area, when all conditions are met and price enters the zone be ready to make a trade. The Blue 50ema is our gauge for the strength of the trend, in a good strong trend it should be pointing up or down at about 30 degrees from horizontal.Let’s look at some trade examples and see how to enter and place your stops.
In the above example price shot up at the London open due to a news release. Price eventually made its way into the zone where we are looking to enter into a buy trade. For an entry to be valid price must make it half way into the zone, most of the time it will almost touch the 21ema before taking off again.
Make sure you have your trading platform ready to initiate a trade as soon as price makes it half way into the zone, price will not normally hang around here for long.Our stop was placed 5 pip back + spread so in my case I have a spread on the EURUSD of 1 pip so my total risk on this trade is 6 pips. Take profit of +10 pips was also set as soon as the trade was opened which was hit 15 minutes later.
This session only had one trade setup but there are many session with 2-3 setups, although this is not a set in stone rule I don’t like to take more than 1 trade per session weather it is a win or loss, over trading is a very bad habit to get into and can result in the loss of your account if you don’t control it.
Below is another example of a trade during the London session, the first retrace back into the zone was not quite far enough to be classed as a buy trade so it was not taken. The second retrace was a perfect setup that missed the profit target by 1 pip, the trade then reversed and promptly stopped us out at break even.
If you look carefully at the end of this trend you will notice that they are barley managing to make new highs, this is an early warning that the trend is running out of steam so it may be a good idea to settle for 5 pips profit.
The key to trading this system profitably is to be sure only to trade the London or NY session. You must not take any trade as ether one is opening, you must not make any trades as ether one is closing.Never take any trades in the Asian session.
On the chart below I demonstrate how to spot the perfect trend forming at the beginning of a session. As you can see the Asian session is generally in a range with no trends forming at all, this is the reason we never trade this session. About 1 hour after the London open the 50ema was pointing up and price has clearly broken out of the Asian range signaling a good up trend.
Price came nicely back into the zone for the first buy trade which easily made our target of 10 pips. This is personally the point I stop trading for the day with this system, after 1 trade win or lose I’m finished for the day!
There was a second buy trade if you were still not happy with only 10 pips profit for the day which also resulted in a profit after a shaky start but notice how the trend was struggling to make higher highs! Good idea to take a small profit and get out.
Below is a perfect trend in the NY session with 3 beautiful entries each one hitting its target easily.
Ok so we know when we should be trading now its time to look more at times we should not be trading. Below is an example of a session you do not want to be involved in at all. The 50ema is sidways and you should focus on longer term charts or go out and close your platform.
You will need to keep an eye on the news reports due to be released each day you are trading. You can find this information usually with you broker.
Do not take any trades just before a news item is to be released,normally the best setups occur after a new item has been released.The market tends to take a sudden move when news is released then retrace into the zone before shooting off again.
If you are a patient person you will find yourself excelling with this system. It requires a lot of patience and discipline to not start over trading on every tick of the market. Remember to try and take one trade a day win or lose it does not matter, this will keep you from revenge trading which inevitably leads to loss of capital.
As you get a feel for the system and learn to follow the rules your win % will increase.I would like to point out that you can not expect to trade this system every day; you will have many days with no trend or a weak one.With The Blade Forex Strategies package you will be focusing on the longer term charts mainly for your large pip gains, this little scalping system should only be used when you have a obvious trend in place otherwise stick to planning and using the other core systems.
Below are two tables for the opening and closing times of each session, the first table is if you live in the UK or GMT, the second table is if you live in The U.S or EST.
The advance technique of this strategy will be on my next post…but I strongly recommend that you concentrate on the basic part of the system for a while first before you start using anything from the advanced section on my next post.
Drop your comments below and feel free to ask questions!