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41# Proactive Order Trading System

Submit by Janustrader 03/04/2011

(Strategy by Kathy Lien pages 140-141 Day Trading and Swing Trading)

 

Time Frame: 5 min

Pairs Majors

Long

1. Enter into a position no more than 20 minutes before a major news

report will be released.

Rule #1 gets you into the position when spreads are still relatively tight.

Taking the trade 20 minutes before a release also gives you the

opportunity to focus on the event risk and not any other news.

2. Place a stop 10 pips below the range low or 30 pips below your entry

price, whichever is closer. The range is defined as the past two hours

of price action, but if the range is too small, look for the more obvious

swing high or low.

Short

1. Enter into a position no more than 20 minutes before a major news report will be released.

2. Place a stop 10 pips above the range high or 30 pips above your entry

price, whichever is closer. The range is defined as the past two hours

of price action, but if the range is too small, look for the more obvious

swing high or low.

3. Take your profit on half of the position when it moves in your favor by

the amount risked.

4. Trail stop on the remainder of the position by the 20-day SMA or set a

hard stop of three times risk.


Rule #2 keeps the risk low.

3. Take your profit on half of the position when it moves in your favor by

the amount risked.

Rule #3 is to bank profits when you have them and play only with the

house’s money on the second half of the position.

4. Trail stop on the remainder of the position by the 20-day simple moving

average (SMA) or set a hard stop of three times risk.

Rule #4, using the 20-day SMA, allows you to capitalize on as much of

the move as possible.


On February 8, 2008, the Canadian employment

report for the month of January was due for release at 7 a.m. New

York time. We believed that the number was going to be strong, because

the Canadian economy had been performing very well thanks to skyrocketing

oil prices. The leading indicators of Canadian employment that we

follow also suggested that the number was going to be very hot. The market

at the time was looking for employment to increase by only 11K after

having dropped by 18K the prior month. Therefore, our trade recommendation

was to go long Canadian dollars and short U.S. dollars (or short

USD/CAD) 20 minutes before the number was to be released at 7 a.m., as

indicated by Figure 9.28. Our entry price at the time was 1.0081. The high of

the range for the past few hours was 1.0085, so our stop should be placed

at 1.0095 (range high plus 10 pips), putting our risk at only 14 pips. Please

note that this risk is actually quite small, because usually the stop is between

25 and 30 pips away from the entry price. As soon as the trade was

initiated, we placed the target or limit on half on our position at 1.0067 (or

1.0081 minus 14 pips). To some people this may seem conservative, and it

is, but one of the cardinal rules that we follow at BKForex Advisor is to

never let a winner turn into a loser, which is why we always take profits

quickly on half of our position and trail our stop on the remainder of the

position.

 

The Canadian employment report came out at 7 a.m., and it quadrupled

expectations by increasing 46.4K. This led to an immediate sell-off in

USD/CAD. Our take profit was hit instantaneously as the currency pair fell

from 1.0075 to 0.9983 (90 pips) in a matter of minutes. As soon as the first

half of our position was closed, we moved our stop to breakeven on the

remainder of the position and trailed the stop by the 20-day SMA on the 5-

minute charts. The rest of the position was eventually exited at 0.9970 for

a total gain of 125 pips or an average gain of 62.5 pips.

Trading news is based on the idea that when an economic number deviates significantly from the consensus forecast, there is usually a knee-jerk reaction accompanied by

decent follow-through. However, there are many different ways to trade

news releases, and if done incorrectly, it can lead to more losers than winners.

The first strategy that I use is to place a trade before the number is

released, the second is to take the trade only after the news release hits the

wires, and the third is to do a combination of both.

One of the biggest advantages of proactive trading is the risk-to-reward

ratio, which is usually very good because the strategy entails entering into

a position 15 to 20 minutes before the number is released. The reason we

do not wait until 5 minutes before the release is because spreads usually

widen, and some brokers will make execution difficult. Once the economic

number is out, the spike that is driven by the data creates an opportunity

where profits can be taken on a portion of a position or the entire position.

The biggest problem with proactive trading, however, is the difficulty

of predicting economic data. BKForex subscribers benefit from having

some of the work done for them with the weekly Event Risk Calendar,

but unless you have a strong background in economics or years of experience

trading fundamentally, it is hard to figure out whether a piece of

data will increase or decrease from the prior month, let alone beat or miss

expectations.

 

 

 

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