Here’s another NYTime trading system update, now that we’re at the end of October.

I wasn’t able to grab the figures for the last day (31st) because the day hadn’t been closed off yet.  Apart from that though, the month has seen moderate profits of around 8.3% return.

Here’s a list of the trades that were triggered, along with their returns:

There were a couple of losses at the end of September which brought our trade risk level down to zero, based on our money management rules.  So, we’re starting the month of October with a zero risk figure – which is a good thing because there was a string of losses early on.  A few profitable days in the middle of the month sees the strategy pull in front to over $1200 on our initial $1000 investment, but that backed off to $1083 by the end of the month.

Our maximum drawdown for the month was 11.6% ($1225.90 dropping down to $1083.13), so we were fortunate to finish reasonably well for the month. Not up to our calculated average return of 12% return per month, but perhaps things will come good in November.

To recap on the strategy:

We use some money management rules to determine how much we’ll risk. This varies between 0% and 4% (reduce by 1% each losing trade, increase by 0.5% each winning trade, jump to 2.5% if we have a win while at 0%)
We look for a break of the high or low of the 9:20am (EST) candle (of more than 2 pips)
We go long if the high is broken, short if the low is broken
The stop loss is placed just the other side of the 9:20am candle
Move the stop once price closes past our first target (where the first target is 1.5 times our initial risk)
The stop moves to 0.4 times our risk, away from our entry price
Close the trade at 1:50PM NY Time (if not already stopped out)

For September, we made a return on our initial investment of about 4.8%.  This is below our monthly average to date, but still a profit.
Based on the trade results during the last few days of August, I calculated that our first trade in September started at 2.5% risk.  We had a loss which reduced our risk to 1.5% for the next trade.  The next was a winner (75 pips) so we made nearly 7% return on that second trade.

Here are the results I calculated:

The “Running Balance” assumes we started off with an account balance of $1000. On the first trade we lost $27.63 which brought our running balance to $972.37. The second trade we made a profit of $67.46 which brought our running balance back up to $1039.83. This continues through the month and we finished off with a balance of $1048.32. So, our return on our initial investment was:
($1048.32 – $1000.00) * 100% / $1000.0
= 4.832%

The ‘Ratio’ column is the %return on that particular trade. You’ll see on the first trade that it’s actually a little more than a 2.5% loss (which was what we were risking), and this is because we’re taking into account the spread in our calculation of the ratio and hence our running balance.

The ‘Stop Loss’ column just shows our last stop loss position in each trade. So, this may be the initial stop loss point, or it could be the trailing stop point if our trade went into profit far enough.

In summary, our results for September were fairly choppy. We had a maximum drawdown of 8.3% (where our running balance dropped from $1039.83 down to $950.21), but we did make 97 pips overall finishing the month 4.8% higher than we started.

Mark Thomas –Trade On Track

This is the last edition of the Time Base Strategy Series- Make sure you read all the articles by clicking here

Having covered the entry, initial stop loss and the money management rules for our time-based forex trading strategy, it makes sense that our exit rules should be time-based too.  In this article I will explain when to move the stop loss to a safer position and also when to exit the position if not stopped out beforehand.

I mentioned earlier on in this article series that too much emphasis is often placed on the entry rules, with little regard to the take profit or exit strategy.  This time-based method is no exception.  If we exit too early or set our profit target too close, we don’t capture as many pips as we could have.  If we leave it too long to exit, our profits may dwindle and we again miss out.  Through many tests, I believe I have an optimal exit strategy worked out for this particular trading method.  It may be something to keep in mind for other intra-day trading strategies on the New York session too.

One thing I did test which didn’t work out as profitable in the long run, is to take some profits part way through the trade.  Many traders like to grab some profits at a mid-way point then move the stop loss to a break-even price, so that they increase their overall win ratio.  Psychologically, we love to be able to lock in some profits and then let the rest ride and perhaps make even more profits.  But, through my testing of this particular strategy, I have found that it’s best to just collect all the profits at the end rather than some part way through and the rest at the end.  I suspect this may be true for many trading methods, so just keep it in mind when doing your own tests.

With the NYTime exit strategy, we do move the stop loss to a break-even point (actually, slightly better) during a certain point in the trade.  This prevents losses from that point on, but we don’t actually take any profits at that time.  We wait until the stop is hit or until our pre-defined exit time.

For our stop loss move rules, we have two things to consider:
At what point (when) do we move the stop
To what price do we move it

To answer the first part:
We move the stop loss once price closes past our first target.
Our first target is defined as 1.5 times the risk, away from our entry price.
The risk is the difference between the entry price and the initial stop loss position.

Example 1: If we have a long trade where we enter at 1.2345 and we’re risking 20 pips, our first target point will be 1.2375 (which is 1.2345 + (1.5 * 20pips)).  If during our trade we have a 5 minute candle close ABOVE 1.2375, then we will move our stop loss.

Example 2: If we have a short trade where we enter at 1.3542 and we’re risking 15 pips, our first target point will be 1.35195 (which is 1.3542 – (1.5 * 15pips)).  If during our trade we have a 5 minute candle close BELOW 1.35195, then we move our stop loss.

So, as soon as we enter the trade and we place our initial stop loss, we can calculate when we will have to move our stop loss (because we know our risk at that point).  You can draw a horizontal line on your chart at this “first target” point to make it easier to track.  Once you have a 5 minute candle which closes past that first target, you know you have to move the stop loss.

The second thing to consider was WHERE to move the stop to.  Through lots of testing I have found the most effective place to be:
0.4 times the risk away from our entry price.

Example 1: Using the same example as above, we enter at 1.2345 and our initial stop is at 1.2325 (20 pip risk).  We will move the stop once we have a close above 1.2375 and we will move our stop to 1.2353 (1.2345 + (0.4 * 20)).  That is, we lock in 8 pips of profit.

Example 2: We entered short at 1.3542 with an initial stop at 1.3557 (15 pip risk).  Once price closes below 1.35195 we will move our stop to 1.3536 (1.3542 – (0.4 * 15)).  That is, we lock in 6 pips of profit.

Great, we now know when to move the stop and to lock in some profits.  But, when do we exit the trade?

We exit at exactly 1:50pm NY Time.  So, wait for the close of the 1.45pm 5 minute candle, then close the trade if it hasn’t already hit the stop loss.  Why 1:50pm?  Because that’s the time that works best historically across the last 25 months that I’ve tested.  Maybe all the big bankers have gone to lunch by then and price struggles to make it any further for the rest of the session.  I don’t know the exact reason, but that seems to be the optimal place before price starts to pull back and consolidate a bit before the next session.  Yes, you will get lots of days where price peaks at 10:00am or 11:00am or 3:00pm or anywhere else, but on average: 1:50pm is the best time to exit.

So, if during the day your trade has not yet hit the stop loss, you must exit at 1:50pm.  In most cases this will be a winning trade, but not always. It’s quite possible for price to just meander along for the whole morning and not get very far.  It may not get far enough for you to move the stop loss to lock in profits, and it might not move back far enough to knock out your initial stop loss.  So, win or lose, exit at 1:50pm.

Well, that wraps it up for NYTime.  I’m happy to take any questions you have, just post them on this blog and I’ll respond as soon as I can.  In the next article I will discuss trading discipline, which is critical for implementing a strategy such as NYTime or any other trading method.

Here’s where things get really interesting. The advanced money management rules used in the NYTime time-based forex strategy make the difference between a system that wins some of the time and a system that can keep producing consistent profits.

Most traders hear the term “Money Management” and assume it’s going to be the same old “only risk 2% of your account per trade” rule. I’m not saying that’s a bad rule, because it is very good and I use it myself on the majority of my trades. Also, it’s certainly a lot better than throwing 5% at a trade and if that doesn’t win, then throwing 10% at the next trade to try to recover your losses on the first one! This type of trading equals “account blow-up” in next to no time. No, the NYTime MM rules are much more interesting …

Before getting into the details, let me cover the bases first, so that new traders understand basic risk management. It is good practice to only risk a certain amount of your trading account balance on each trade. Let’s say we only want to risk 2% per trade. The way you achieve this is to either alter the position of your stop loss OR alter the number of lots (or mini-lots or micro-lots) you are trading so that if your stop is hit, you only lose 2% of your account. There are many online calculators which let you work this out quickly, here’s a quick/easy one: www.forexcalc.com.

There is some reasoning behind doing things this way:

1. It means you’re consistently risking the same amount trade after trade. Without consistency you have the potential to lose on your bigger positions and win on your smaller positions, thus losing money overall.
2. A number of losing trades in a row shouldn’t wipe out your trading account. For instance, if you’re risking 2% per trade and you have 10 losses in a row, your account will be down 20% (roughly). You can recover from this if you start to collect some nice wins again, but it’s much more difficult to recover from losses of 60% or 70% or more.
3. Forex trading is not about making a million dollars overnight. A mentality of reckless risk to try to attain large profits can quickly lead to ruin. You’re much better off risking a little each trade with the aim of making a little more.

I first tested NYTime using a fixed risk level per trade. The results in year 1 were quite different from the results in year 2. This was understandable because the number of pips caught in year 1 was 587, while the number of pips caught in year 2 was 2006. On average this is still quite good, but was a little too inconsistent for my liking. Here are the monthly results using a fixed 2% risk per trade:

The Running Balance is calculated using a starting account balance of $1000. You can see that there was quite a large drawdown in year 1 (39.3%), but it did finish up in profit. Year two was very profitable with reasonable drawdowns.

Many traders would be more than happy with these results and you may like to trade the NYTime strategy using a fixed 2% risk per trade yourself (or even higher). I was looking for something a bit more consistent from year to year so I altered the strategy somewhat to make that happen. The MM rules I use have a variable risk level based on whether you’re currently winning trades or you’re losing trades. The system works as follows:

Starting risk: 2.5%
If a trade loses, the risk is reduced by 1.0% for the next trade.
We keep reducing by 1% until we get to 0. Yes, we go as low as zero which means we’re not risking anything at that point.
If we win a trade and the current risk level is 0, then we jump straight back up to 2.5% risk for the next trade.
If we win a trade but we’re not currently at a 0 risk level, then the risk increases by 0.5% for the next trade.
We keep increasing the risk by 0.5% for each winning trade until we get to a maximum of 4%.

This may sound a little complex but it’s really quite logical. If the strategy starts losing, then it tends to lose several in a row. If this starts happening, we back off quickly, by reducing risk by 1% for each loss. If we’re back into winning trades, we gradually increase our risk level up to 4%, which is still reasonably conservative considering we only get to that if we have 4 or more winning trades in a row.

I once read a trading psychology book that had the quote “If you’re hot, you’re hot. If you’re not, you’re not”. This is so true in trading, even with a strictly mechanical system like NYTime. If the system is winning, it wins well (like the 2nd year). If it’s losing, it may lose quite a few in a row. By reducing our risk right to 0%, then we can have any number of losing trades in a row and we still have our trading account intact for when the system starts picking up again.

Remember our year 1 pips were 587 and our year 2 pips were 2006. Have a look at the revised figures once these new MM rules were put in place:

Isn’t that really quite amazing? Year 1 actually had a better return even though it had less than 1/3rd the pips that year 2 had. Our drawdown for both years is kept at a much better value (maximum of 15.57%), and our equity curves for both years are quite consistent. Also, we haven’t really lost anything in terms of dollars made.

These are the MM rules I would choose for myself because they result in better consistency in the long run, with less drawdown. The MM rules themselves also seem to mimic the trading strategy philosophy of cutting losses short (reduce risk to zero) while letting profits run (increase risk up to a reasonable level). It is of course your choice as to what MM strategy you use if you adopt the NYTime system or any other trading system. This article at least gives you two different ways of managing your money and shows you the dramatic affect on overall profits that it can have.

In the next article I will describe when to move the stop loss and when to exit the trade.

Part 1 – Think Outside The Square with Time-based Trading Strategies
Part 2 – Stop Your Losses
Part 3 – The Anatomy of a Profitable Trading Strategy

NYTime – Entry and Stop for Time-Based Strategy

Mark Thomas– Trade On Track

This article follows on from past articles, describing our time-based forex trading strategy based on the NY session. From this point on, we’ll call this strategy “NYTime” for simplicity. In this article I will describe precisely how to enter the trade and where the stop loss should be placed. Please don’t try to take trades using this method yet, as the trade management, exit point and money management factors (all to be explained in future) are critical components to this overall strategy.

Firstly, with any strategy there’s always a trade-off between risk and possible returns. I’ve tailored this particular strategy so that it is reasonably conservative while still giving a decent return over time. I would also describe this strategy as “mechanical” because there is no discretion on the part of the trader required. If you follow the rules, you will have the exact entry price, the exact time to move your stop and lock in some profits, and the exact time to exit the trade. You’ll also know exactly how much to place on each trade (position size). Some readers to date have been skeptical about strategies, particularly mechanical strategies that can be profitable for an extended period of time. Skepticism is good, it keeps us on our toes and if something looks too good to be true, it usually is. So, I’ll lay it all out on the table now and you can decide whether this is fact or fiction. I have checked, double-checked and triple-checked the figures to the best of my ability, so it is as close to “fact” as I can get.

On to some results. I ended up downloading and testing an extra 12 months of data, so this strategy has now been tested on a full 25 months of historical data. With my conservative money-management regime, the system averages just over 12% return per month. Not bad for a mechanical, relatively simple, time-based strategy that takes just one trade per day on one currency pair. It makes roughly 3 times your investment each year. Start trading $10,000 and you should have around $30,000 at the end of 12 months if traded accurately, without error. (The Usual Disclaimer: Past performance does NOT guarantee future results.)

Remember though, just because the system is profitable overall, it doesn’t mean it makes money every month, there is going to be some losing months. In the 25 months I’ve tested, the best month was a return of 57%, the worst month was a loss of 15.5% which was also the maximum drawdown. In all, there were 20 winning months and 5 losing months. The maximum return in one trade was 32%, the maximum loss in one trade was 4.9%.

Lastly in our summarized results, a figure that might surprise you: there were 225 winning trades and 315 losing trades! “How can we have more losers than winners” you ask? Because we’re using great money management and the old cliche: cutting losses short and letting profits run. Basically, we’re trying to ensure that our good winning trades return MUCH more than our losing trades. Also, through money management we minimize our losses during a losing streak and maximize our profits during a winning streak.

“Expectancy” is a term often used to describe the overall profitability of a system. Expectancy is calculated as: (percentage of wins x average win size) – (percentage of losses x average loss size). A positive expectancy means the system should be profitable, a negative expectancy means the system will most likely lose money over time. In my tests, I get the following figures (based on a $1,000 balance): (41.7% x $37.49) – (58.3% x $16.65) = $5.91. So, if we’re trading a $1,000 account, we could expect to make $5.91 profit per trade. Similarly, trading a $10,000 account, we could expect to make $59.13 per trade.

So, how do we enter this trade? The quick answer is: The entry is made from 9:25am NY time onwards. Basically, you’re looking for a break of the high or low of the 9:20am candle. The initial stop is placed just below the low of the 9:20am candle if we’re going long, or just above the high of the 9:20am candle if we’re going short. How easy is that!

Ok, not so fast cowboy, the devil is in the detail, so I’ll get into the detail of the entry and stop loss now:

Use a 5 minute chart on the EUR/USD – candles or bars, it doesn’t matter.
At the close of the 9:20am candle (IE, at 9:25am), draw a horizontal line 2 pips above the high of the 9:20 candle and another horizontal line 2 pips below the low of the 9:20am candle.
Look for a break of one of these lines between 9:25am and 10:20am. You’ll usually get the break during the 9:25 or 9:30 candle, but it can be longer. If price doesn’t break by 10:20am, there’s no trade for that day.
If price first breaks the upper horizontal line, you want to go long 1 pip above that line. So, your entry price should be 3 pips above the high of the 9:20am candle. Alternately, if price first breaks the lower horizontal line, you want to enter a short trade 1 pip below that line. So, your entry price would be 3 pips below the low of the 9:20am candle. You should be able to place a pending order or two to get in automatically at these prices.
As soon as you’re in the trade, you must place the stop loss. If going long, the stop should be placed 3 pips below the low of the 9:20am candle. If going short, the stop should be placed 3 pips above the high of the 9:20am candle. So, your stop is at the same point that you WOULD have entered if price had gone the other way. This is a very logical place to put it and statistically, it works the best.
Do not deviate from these rules, not even by 1 pip.

I invite you to manually scroll back through your EUR/USD 5 minute charts and mentally go through the entry and stop rules. You don’t know where we’re exiting yet, I get to that in another article, but just imagine price riding nicely through the day in the direction of your trade. Yes, you might find you’re stopped out quite a few times, but at least we have a controlled stop point and therefore we know exactly how much we’re risking per trade.

In the video below I run through a few of the trade entry scenarios and how you can find similar strategies yourself in future.

Once again, do not start trading this strategy yet. Even after I describe the complete strategy, make sure you trade it in a demo account first until you are comfortable with it and confident it can make you money. That may mean you need to trade play money for 2, 3 or 4 months before trading it in a live account. Sounds boring I know, but don’t neglect this step, it is important. Also, if any of you are proficient at MT4 scripting, it should be possible to develop an EA for this strategy.

In the next article I’ll explain the money management rules for NYTime.

By Mark Thomas — Trade On Track

Continuing on with our Time-based forex trading strategy, today I’m going to cover some goals that I would like the strategy to meet, as well as an overview of the components forming our trading strategy.

Many traders place too much importance on the entry signal or the “setup” for a trading strategy. A complete trading strategy is much more than just an entry signal. While the entry is important, we also need to consider factors such as money management, the exit, taking partial profits if appropriate and whether or not the strategy is actually suited to the trader.

In developing a trading strategy I like to set some goals in advance. For the time-based strategy that we’re developing, I have defined the following goals:

The trading strategy will be based largely on ‘time’ factors. We’ll try to avoid other indicators and just stick to consistencies or patterns that are time-based.

The strategy should be as simple as possible. It needs to be easy enough to learn and use so that traders can actually pick it up and use in their toolkit. Strategies that are too complex tend to get tossed into the too-hard-basket. There should be tight stop losses in place so as to keep our risk under control. Stop losses were discussed in the last article and we’re going to enforce a rigid stop loss rule with our time-based strategy.

Look for a high reward to risk ratio. This is often quoted as risk/reward, but it’s more appropriate to label it as reward:risk. We’ll be looking for a reward:risk ratio of at least 2:1, meaning we’ll be looking to win at least twice as much on winning trades as we lose on losing trades.

The strategy should have clearly defined entry and exit signals. This fits in with the ‘keep it simple’ philosophy where we want the system to be simple to use with objective (rather than subjective) signals.

We want the system to be profitable in the long term. Not many would argue with this as a goal in a trading strategy.

The profits or outcomes of our trades should be reasonably consistent. We don’t want our return to be jumping around too much – it’s easier to project profits if we can have a fairly consistent win rate.

As I mentioned in the last article, I have actually found a time-based pattern in the charts which I thought might work well. I’ve taken that further now and have developed an overall strategy which meets the above guidelines. The surprising thing was, this strategy actually turned out to be very, very good! I’m extremely excited to be able to bring it to you, completely free, and hope that you treat the learning of the strategy seriously and try to execute it as accurately as possible so as to see some decent returns.

I’m not going to lump all the details onto you just yet because I feel it’s important to understand the process of developing the strategy and the workings of it, so that you can develop your own strategies in future as well.

Here’s an overview of how our time-based strategy works:

It is traded during the New York session. I realize this is not ideal for everybody (including myself because the NY session happens in the middle of the night for me), but I thought it probably suits the majority. It should be possible to find similar setups for the other sessions for those keen to do some research.

There is just one trade per day, maximum. In some cases a trade may not be taken at all, but most days there will be a trade.

The strategy has been developed on just one currency pair, the EUR/USD. I haven’t really looked at whether it will work on others, I’m guessing it will with a few alterations, but let’s just stick with the one for the purposes of our plan.

The strategy doesn’t win every time, but it does produce profits in the long term. For those of you that are new to trading, you need to get used to the fact that not every trade will be a winner. In fact, with this strategy, I have seen up to 11 losses in a row. Please don’t close your mind to the fact that this strategy can still make you a lot of money though, because it can!

The strategy has clearly defined entries, stop losses and exit levels. We try to lock in some profits during the trade when possible. I have developed some very precise rules for doing this to produce the best outcome possible.

We’ll be using some quite advanced money management techniques to maximize profits and avoid big losses. Yes, there may be up to 11 losses in a row, but you’ll see how the money management rules keep things under control for us.
I’ve done some fairly thorough back-testing of the strategy, on two sets of data over the last 12 months. I’ve taken into account reasonable spreads in the testing and have come up with some great results.

The strategy will require quite a bit of discipline to execute it properly. I’m not saying the strategy is difficult to execute, but you will need to keep your emotions and your trigger finger under control to keep the profits rolling in.

So, where to from here?

In the next article I will describe the entry signal and the stop loss level. I’ll provide a video showing how I found the setup and how you can do the same thing to find and develop your own strategies in future.

Hold on to your hat because I think you’ll be impressed as we get more into this!

By Mark Thomas -Trade On Track

In the last article I talked about developing time-based trading strategies and I gave you a few ideas to think about. Sometimes you just need to see or read about a different way of looking at the markets for it to trigger some inspiration, so I hope the article provided some food for thought.

Eager to take up the challenge myself, on the weekend I spent an hour or so going back through the EUR/USD charts looking for possible trade strategies based on time. I’m pleased to tell you that I found one almost immediately which looks very promising. It’s based solely on time and price action, no other indicators – so it’s very simple to learn and implement. I’m going to write a back-testing script and run it over some historical data to see how it fairs longer-term, so I’ll reveal the strategy as soon as I’m happy with the testing.

In the meantime there are several important facets of an overall trading system which I’d like to discuss. Today I’d like to talk about stop losses.

Stop losses are of critical importance in controlling your risk and exposure to the market. In order for you to stay in this game longer than the average Joe Blow, you must control how much you are willing to lose each and every time you execute a trade. Trading is never a 100% sure thing … make sure you get used to that fact. So, you must be prepared for the times when price goes against you and you must not let it go too far. Remember the phrase “cut your losses short and let your profits run”. This is a very important rule to remember and one that you can implement by using effective stop losses.

Without a firm stop loss in place, it’s all too easy to just let price go against you, further and further, hoping it will turn around and go in the right direction at some time. Even if you have fantastic statistics “proving” that price will eventually turn around and go back into profit, what if it doesn’t? This is a very quick way to wipe out your trading account – by not placing a stop loss. You must treat each individual trade seriously, but remember that your trading is not based on just one trade. Each trade is just a statistic in your overall batch of trades. You have to be prepared for a string of losses and make sure you manage the risk on those losses in order to maintain a healthy trading account balance. Capital preservation is imperative!

A couple of months back I looked through a number of trading strategies that were used in a forex trading competition. There were very detailed descriptions of the strategies including where to place the stop and where to take profits. The results were phenomenal in many cases, even with conservative lot sizes being placed on live accounts. So, I went back through the trading statements that they openly provided – probably something that not many people would actually take the time to do, because there were sometimes hundreds of trades listed on each statement. I manually worked my way through each trade on the statement and looked back at the charts to see how it actually played out. Many of the trades were as per the description of the strategy, but then – some were not! The way that the transactions were sorted cleverly hid a very important fact: that stop losses hadn’t been used or were so wide that they were not hit when they should have been. Yes, with a bit of luck you can get away with that for a couple of weeks or a month, however long the competition runs for, but sooner or later you will come undone, in a big way!

This is basically cheating – cheating in the competition and ultimately, cheating yourself. You will be the one who suffers if you play the “just wait until price comes back because it eventually will” game.

So, the message here is: always use a sensible stop loss. It’s preferable to actually place a stop loss order in your trading platform, but if you don’t – then make sure you stay glued to the screen ready to close the order if price hits your “virtual” stop loss point.

Where should you place the stop loss? Many traders recommend working out how much you can risk on the trade, then calculating a stop loss at that point. Personally, I don’t prefer that method because it’s your available funds that are dictating where your stop goes, totally neglecting the action of the market itself. I prefer to work the other way around, determining where the stop should go first, then calculating position size using that stop level.  I use technical analysis or statistics to determine how much room I will give price to move, while still in the bounds of my trading system rules. If it goes past those levels, then that’s where I will place my stop and cut my losses.  I then calculate my position size based on the stop loss point and the risk level I’m comfortable with. I’ll get into much more detail about risk management and money management in another article, so don’t worry too much if you’re lost on that bit.

Here’s an example of determining a stop loss point:

Here, I’ve entered a long trade at the position of the black dotted line (1.7922).  I’ve placed my stop loss (the red dotted line) at a logical point based on my trading strategy, which is just below the last swing low (1.7792).

From this, I know that I’m risking 130 pips on this trade (1.7922 – 1.7792).  I can then calculate the correct position size based on that figure, my preferred risk level and account balance. (More on this in a future article).

In summary, never forget to place your stops, they are an extremely important part of an overall trading plan. When I show you this time-based strategy that I’m developing, you’ll see just what a difference correct stop loss positioning and money management can make.

I am excited to introduce all the readers of Winners Edge Trading to our new contributor Mark Thomas. He will be writing Forex Articles for this site along with me from now on. I have chosen Mark because he does his work and writing with excellence and that is what makes good Forex traders.

Here is Mark’s Bio:

Mark has been trading the forex markets for 5 years. Having worked internationally as a software developer of mission-critical business systems and other web applications for more than 20 years, he has a keen interest in systems and strategies that work. He is passionate about finding logical solutions to problems (including those found during forex trading) and developing the right mindset to help overcome challenges in all areas of life.

Mark is the developer of TradeOnTrack.com, a secure online software application which helps traders manage their trades, identify strengths and weaknesses in their performance, manage risk and improve trading discipline.

Mark lives with his wife and 5 children in Newcaste, Australia.

www.tradeontrack.com

Now to his first article:

Think Outside The Square with Time-based Trading Strategies

As forex traders we’re generally trying to develop trading systems based on patterns we see in price action or in momentum or other indicators. But, what if we took “time” into account as well? Here’s a few time-based ideas to consider while you’re pondering the markets and how you can profit from them.

All traders are looking for that edge. Regardless of what all the hyped-up websites say, forex trading is not an easy game. As individual retail traders, we’re competing against the best minds, the most experienced and skilled traders in the world. If you looked at it logically, they hold all the cards, they have a big-brother view of what’s going on in the markets every minute of the day. Does this mean we don’t stand a chance? Not at all – we just need to be a little bit creative sometimes with our trading systems and we can beat them at this game.

The majority of traders build or buy trading strategies that are based on price action and other indicators. A trend-following strategy often uses the cross-over of moving averages to indicate a signal to enter a trade. A break-out system is usually based on price breaking through a trend line. What if we ignored trend lines, moving averages, RSIs, MACDs and any other indicator which we pollute our charts with? What if we solely looked for patterns in time and we built trading strategies based on our findings?

Here’s a few ideas for you to start with, but feel free to develop your own ideas and blaze your own trail.

1. Look at the first few minutes of the trading session. For instance, if you’re trading the New York session, then look at the first 10 to 15 minutes of the start of that session (8:30 NY time). Do you see any patterns or consistencies from one day to the next? Does price tend to keep moving in the same direction if a push is made during the first 5 minutes or the second 5 minutes of that session? Or, does it tend to move in the opposite direction if a false push is made within the first few minutes. Study the EUR/USD at the start of each session for a week or two and document what you find. Break it down into 5 minute lots to start with and see if you can find any patterns. Then, break it down even further, to 1 minute lots to see if there are other patterns. You only need to find something that happens more often than not. That puts the probabilities in your favor and allows you to develop a profitable strategy from your findings.

2. Look for price movements in the last 5 minutes of an hour. Many trading strategies rely on the closing of a bar (often the hourly bar) to signal an entry. Sometimes price is up and down like a yo-yo during the hour, then it makes a strong push in one direction or the other during the last 5 minutes of that hour. To study this, you might have to zoom into a 5 minute chart and draw vertical lines at each hourly point. See if you can find any common price action that seems to be related to the price action within the last 5 minutes of the hour.

3. If you’re trading a trend, let’s say an uptrend, and you’re attempting to buy at the dips in price, try to also take the time scale into account. For instance, as the trend goes up, price tends to move in waves, up and down, up and down in a steady upwards direction. Count the number of bars separating one wave bottom to another. Do this for at least 3 wave bottoms and calculate an average number of bars. When you’re about to enter at a dip (bottom of a wave), see if it corresponds with the consistency in times that you’ve calculated so far. You might find that you’re entering too early and it’s best to wait a bar or two before entering.

4. Look at how price action flows through from one session to another. For instance, does the movement during the London session tend to continue through to the NY session, or does it go the opposite way?

These are a few time-based ideas for you to ponder while developing profitable trading strategies. I’m not saying to throw away all your chart indicators, but just be aware that you could greatly improve the probabilities of profitable trades by taking “time” into account as well.