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23# Waiting for Real Deal (GBP/USD Strategy) Trading System

This is an intraday technique and is very efficient write by Kathty Lien..

The British pound trades most actively against the U.S. dollar during

the European and London trading hours. There is also active trading

during the U.S./European overlap, but besides those time frames, the

pair tends to trade relatively lightly because the majority of GBP/USD trading

is done through U.K. and European market makers. This provides a

great opportunity for day traders to capture the initial directional intraday

real move that generally occurs within the first few hours of trading in the

London session. This strategy exploits the common perception that U.K.

traders are notorious stop hunters. 

 

This means that the initial movement at

the London open may not always be the real one. Since U.K. and European

dealers are the primary market makers for the GBP/USD, they have tremendous

insight into the extent of actual supply and demand for the pair. The

trading strategy of waiting for the real deal first sets up when interbank

dealing desks survey their books at the onset of trading and use their client

data to trigger close stops on both sides of the markets to gain the pip differential.


Once these stops are taken out and the books are cleared, the real directional move in the GBP/USD will begin to occur, at which point we look for the rules of this strategy to be met before entering into a long or short position. This strategy works best following the U.S. open or after a major economic release. With this strategy you are looking to wait for the noise in the markets to settle down and to trade the real market price action afterward.

 

Strategy Rules

Long

1. Early European trading in GBP/USD begins around 1:00 a.m. New York

time. Look for the pair to make a new range low of at least 25 pips

above the opening price (the range is defined as the price action between

the Frankfurt and London power hour of 1 a.m. New York time

to 2 a.m. New York time).

2. The pair then reverses and penetrates the high.

3. Place an entry order to buy 10 pips above the high of the range.

4. Place a protective stop no more than 20 pips away from your entry.

5. If the position moves lower by double the amount that you risked,

cover half and trail a stop on the remaining position.

Short

1. GBP/USD opens in Europe and trades more than 25 pips above the high

of the Frankfurt and London power hour.

2. The pair then reverses and penetrates the low.

3. Place an entry order to sell 10 pips below the low of the range.

4. Place a protective stop no more than 20 pips away from your entry.

5. If the position moves lower by double the amount that you risked,

cover half and trail a stop on the remaining position.

Examples

Let us go ahead and take a look at some examples of this strategy in action.

Figure  is a textbook example of the strategy of waiting for the

real deal. We see that the GBP/USD breaks upward on the London open,

The next example is shown, we also see

the GBP/USD break upward on the London open, reaching a high of 1.8977

right at the U.S. open. The currency pair then begins to trend lower during

the early U.S. session, breaking the Frankfurt open to the London open

range low of 1.8851. Our entry point is 10 pips below that level at 1.8841.

Our short position is triggered, and we place our stop 20 pips higher at

1.8861 and the first take-profit level at 1.8801, which is double the amount

risked. Once our limit order is triggered, we move the stop to breakeven at

1.8841 and trail the stop by the two-bar high. The second lot gets stopped

out at 1.8789, and we end up earning 40 pips on the first position and 52

pips on the second position.

The third example , we also see the GBP/USD break upward on the London open, reaching a high of

 

reaching a high of 1.8912 approximately two hours into trading. The currency

pair then begins to trend lower ahead of the U.S. market open and

we position for the trade by putting an entry order to short 10 pips below

the Frankfurt open to the London open range of 1.8804 at 1.8794. Our stop

is then placed 20 pips higher at 1.8814, while our take-profit order is placed

at 1.8754, which is double the amount risked. Once the take-profit order on

the first lot is fulfilled, we move the stop to breakeven at 1.8794 and trail

the stop by the two-bar high. The second lot eventually gets stopped out at

1.8740, and we end up earning 40 pips on the first position and 54 pips on

the second position.

0.9023 right before the U.S. FOMC meeting. The currency pair then breaks

lower on the back of the meeting, penetrating the Frankfurt open to the

London open range low of 1.8953. Our entry order is already placed 10

pips below that level at 1.8943. Our short position is triggered and we

place our stop 20 pips higher at 1.8963 and the first take-profit level at

1.8903, which is double the amount risked. Once our limit order is triggered,

we move the stop to breakeven at 1.8943 and trail the stop by

the two-bar high. The second lot gets stopped out at 1.8853, and we

end up earning 40 pips on the first position and 90 pips on the second position.

This Strategy Write by kathy Lien “Day Tading and Swing Trading the Currency Market,120-122.) 

 

 

 

 

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