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.
Share your opinion, can help everyone to understand the forex strategy.
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