Asia Mirror Revival – The Strategy Explained

Forex Strategy

This is the first of a two-part article. I would appreciate feedback from everyone.

In an earlier life, I was a moderator for Winner’s Edge’s Asia session trading room. That was a few years ago. Because the Asia Forex session is a bit slow sometimes (well, OK, most times), we had a lot of time to socialize and dream up great strategies. One of the great strategies that came from that time was the Asia Mirror Strategy. We used this  strategy quite profitably for a couple of years, in fact, we had an EA that would trade the strategy. But then, for some unknown reason, it just stopped working. I’ve mentioned before that markets change and formerly awesome strategies will no longer be quite so awesome. (tweet this) We never took the time to try to understand why it stopped working or what we could do to fix it. And that, my friends, brings us to where we are today.

I haven’t thought about that strategy until just the other day. Nathan and I were brainstorming about ideas for strategies and I mentioned the Asia Mirror. We thought, if we could put a small team together, we might be able to revive a great strategy. So, with our readers’ help, that’s what we’re going to do.

How You Can Get Involved

Our plan is to try and revive this strategy and make it profitable again. I’m going to build a team of 10 Winner’s Edge subscribers who can help me with this project. The team will meet via Skype on a certain day and time that works for everyone and we’ll discuss improvements and ideas, etc.

  • Study the strategy and understand it.
  • Try it out on a demo account.
  • Try it on different pairs.
  • Understand what parts of the strategy are working and what parts aren’t.
  • Decide what can be done to make the strategy great once again.

Get Involved in our Strategy Team

I’ll start by explaining the strategy as it worked a couple years ago and then we’ll go from there.

 

How the Asia Mirror Forex Strategy Works

The Asia Mirror strategy is based upon a characteristic action of several Forex pairs. During the Asia session, these pairs would “take a breath”. They would retrace a portion of their New York session moves before moving on – sometimes in the late Asia session – but more often in the London session. We identified about  seven pairs on which this action occurred. Later, we dropped a few under-performing pairs and added a few other pairs. We were getting a pretty adequate hit rate on the strategy and making quite a bit of profit from it.

During the slow time between the close of the New York session and the open of the Euro zone session, we anticipate that the market will drift in a retracement or “mirror” of the prior day’s trading. We use this drift to set ourselves up for the Euro zone and New York traders to push the price back in the same direction as the prior day.

The following is from a PowerPoint presentation I did of the strategy a few years ago:

The Rules:

1. We define the “prior day” as 5 pm yesterday to 5 pm today, NY Time (Winter= GMT-5, Summer=GMT-4)

2. There must be at least 20 pips of movement from open to close on the prior day to provide a definitive direction.

3. We enter the pending positions 10 minutes after the Tokyo market open unless there is news at a later time. If there is later news, enter positions 5 – 10 minutes after news release.

4. The price action must not be in or near the “Strike Zone” when we enter the trade.

5. We take the trade Monday – Thursday nights (NY Time.)

The Execution:

Asia Mirror, Forex Strategy

1. Mark an hourly chart with vertical lines at 5pm yesterday and 5pm (all times are NY Times) today.

 

 

Asia Mirror, Forex Strategy

2. Measure the distance in pips between 5 pm yesterday’s open (NY Time) and 5 pm today’s close.

 

 

Asia Mirror, Forex Strategy

3. Pull your Fibonacci in the same direction of the open-close from the high of the day to the low of the day. In other words, if the day closed higher than it opened, pull the Fibonacci from the low of the day to the high of the day. If the day closed lower, then pull Fibonacci from the high of the day to the low of the day.

 

Asia Mirror, Forex Strategy

4. Mark the “strike zone” – the area between the 38.2% Fibonacci level to the 61.8% Fibonacci level.

 

 

Asia Mirror, Forex Strategy5. Calculate your position size (we’ll discuss that a little later.)

 

 

 

Asia Mirror, Forex Strategy6. Place your pending orders a few pips ahead of the 38.2%, 50% and 61.8% Fibonacci levels in the direction of the prior day.

 

 

Asia Mirror, Forex Strategy7. Set your stop loss on all your pending orders 4 or 5 pips behind the 78.6% Fibonacci levels.

 

 

 

Asia Mirror, Forex Strategy8. Set your take profit on all your pending orders 4 or 5 pips ahead of the prior day’s low/high (depending on trade direction.)

 

 

Remove any unfilled pending orders around 9 am NY time on the next day. If you get one or two positions filled and they hit the target, close the unfilled pending orders at that time.

Trade Management

Give the trade time to work. If you have positions that have filled, are in profit and, by the start of the NY session, you see they may be stalling or reversing, take your profit. Close a couple of the positions and use a stop that will give you a few pips profit on the last position. Don’t let a profitable trade stop out negative.

If it’s time to put on another Asia Mirror trade and you still have one open, look at it. Watch it.

If the trade is in the same direction as the positions you are about to put on, you may want to leave it alone and put your positions on.

If it’s headed in the wrong direction, you may want to close it.

The Asia Mirror strategy is a discretionary strategy. It’s not based on meticulously adjusted probability and statistics figures. Use your judgment of the price action to determine when to close the trade and when to let it run. You always have the option of closing a portion and leaving the rest on at break even or a few pips profit.

The pairs we used initially for this strategy were:

AUD/JPY, NZD/USD, CHF/JPY, GBP/USD, NZD/JPY, USD/CHF and USD/JPY.

The most consistently profitable pairs were GBP/USD and NZD/USD.

Money Management

So, let’s say you are willing to risk 2% of your $10,000 trading account. That’s $200 per trade.

Now, you take your $200 and divide it by the number of pips of risk. Since you will be putting 3 evenly spaced positions on each trade, the average risk for your Asia Mirror position will be the difference between your position that’s just ahead of the 50% Fibonacci level and your stop loss which will be a few pips behind the 78.6% Fibonacci level. I’ll show you an easy way of finding that out shortly. Let’s say the average risk is 50 pips.

So you will be willing to risk $200 / 50 pips, or $4 per pip on the pair in question. Now, how do you convert that into your trade size?

It’s easy if the quote currency (the second currency in a currency pair) is the same as your account currency. One Standard Lot (100,000 units) is equal to 10 units per pip of your account currency. A Mini Lot (10,000 units) is 1 unit per pip and a Micro Lot (1,000 units) is 0.10 units per pip.

In our example, if your account currency is USD and the pair in question is GBP/USD, then a trade size of 4 Mini lots or 40,000 units will give you a risk of $4/pip. With different quote currencies, JPY for example, the calculation is more complex. The easiest solution is to use Winner’s Edge’s Risk Calculator here.

OK. Now that we have our total trade size (4 Mini Lots), we divide it by 3 to arrive at our individual position size of 13 micro lots. If your account won’t accept micro lots, round it down to 1 Mini Lot per position. Always round down so as not to exceed your maximum per trade risk parameter.

As mentioned above, now place each of these positions at the appropriate places with the appropriate stops and targets.

Now, look at all the pairs that you are setting up for the strategy. Be sure you have enough margin in your account to allow for all these positions to be open at one time. It’s unlikely to happen, but it may. You could conceivably have 21 positions on at once. The margin required on a 50:1 US-based account for one micro lot of GBP/USD is currently around $32. Be sure your overall margin can handle it. If not, reduce the number of pairs your are trading. I would start with GBP/USD first then add NZD/USD. Next I would choose CHF/JPY, NZD/JPY, USD/CHF, USD/JPY and lastly AUD/JPY.

If you have a small account (there’s nothing wrong with small accounts), you may need to do some margin calculating to know how many pairs to use. Margin is the amount of money you need to have in your account for a given trade size. The easiest way is to use a Margin Calculator like this one.

So, to take the trade on the GBP/USD pair on a platform with 50:1 leverage and minimum size of one Micro Lot, it would cost a minimum of 3 Micro lots at $32.79 ea. for a total of $98.37. Under the same parameters, the NZD/USD will only require just over $49. Be sure you don’t exceed about 50% – 60% of your available margin – assuming you’re not trading any other strategies on the same account.

That’s the Asia Mirror Strategy in great detail. The nice thing about this strategy is that it can use an account that may be fallow during the Asia Session if you are a Euro/NY day trader. Be careful with it, I stopped trading it because it stopped working. But, we have a plan to make it live again. Be sure to tune into our next installment to find out what the plan is and how you can participate.

Let’s open it up for discussion now. Does everyone understand the strategy as I’ve laid it out? Does anyone have any questions before we proceed to part 2?

Get Involved in our Strategy Team

Thanks,

Tim

Click here for Part 2 “Asia Mirror Revival – The Plan”.

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  • Terry Nash

    yes Tim, I’m planning on joining the strat team

  • Terry Nash

    Tim, if you check the AUDJPY NZDJPY CADJPY AUDUSD these are still working most days

  • Chris

    Thanks for the detailed explanation. I’d like to see how this works in various market conditions (trend, range, breakout, etc.). Looking forward to the next post and testing on demo.

  • Temoor

    Hi Tim I will have to try this it will not be easy as i am in uk and Tokyo open 11 pm here.but i will give at a go.
    Temoor

  • Niel Olivier

    I would like to join but I am still a novice in this game, have only been trading since Feb this year. Niel

  • http://www.winnersedgetrading.com caseystubbs

    Tim,

    Is there a trend filter with this strat? Meaning if the pair is currently in an up or down trend does the trade only go in the direction of the greater trend?

  • Chris

    Thank you Tim!! Very interesting :) I will look at it with our trading room members today! :)