A Forex Trade Strategy That Works
There are literally thousands of trading strategies out there. Many of them are heavily dependent upon the operator’s skill in reading the charts. Some just don’t work, and others need a huge amount of discipline or time.
Here’s my favourite get-in-and-get-out quick trade. It is dependent upon the indicator Harmonic ZUP. This is a free indicator, coded by a very clever chap from Russia. Don’t know his name, but if anybody tries to sell it to you, or claims to have a secret system that it’s part of, run. You can download it from my Indicators page. You will need Metatrader to use this indicator. Save it to your Metatrader folder, under Experts\Indicators.
Harmonic trading is based upon Gartley patterns. There is a plethora of information online if you Google “Harmonic Trading”. It is beyond the scope of this blog to get into the science and who cares anyway. The percentage of harmonic pattern success results for each of the harmonic patterns (Gartley, Butterfly, Crab, Bat) is over 80% for all patterns and in some cases over 90%. The following image comes from FxGroundworks.
Source: FxGroundworks.com
As you can see, it clearly shows good success rates with the Gartley, Butterfly, and the Bat and is a systematic analysis of nearly 3000 patterns.. Personally I don’t trade the Crab. There’s usually not enough pips in them.
Basically you load the indicator on a Metatrader chart. For a quick in-and-out trade, you need to load it onto a 5 or 15 minute chart. Don’t use the 1 minute – the action can be very fast and you will miss is.
Always trade with low risk, in case it doesn’t work. The temptation is to over-state the 85% probability of success and trade with higher risk. But 15% of the time the price action is too strong, and the price will punch through the pattern. You must protect your equity!
Here’s an example of a harmonic pattern suitable for trading:
Bullish Gartley
There are a few guidelines:
Don’t place a trade if the price action is very strong – you need a momentum indicator like MACD or Awesome (I personally prefer Awesome).
Don’t place a trade if if is not going to be in the direction of the overall longer term trend (jump up to the next timeframe to check). In other words, if the overall trend is UP, and the pattern is bullish, then it’s ok. If the pattern is bearish, you may not be successful.
The steeper the last leg of the pattern, the more likely a retracement will happen. In other words there’s a massive selloff that is often due to a news announcement, then it runs out of puff because everyone thinks, wait a minute, this is too cheap, and they start buying. You see that in the momentum indicator.
Make sure there are enough pips in the trade. If the pattern is wide and flat, stay away. The higher and narrower, the more likely a strong retracement with plenty of pips.
Here’s where you place your TP and SL:
Bearish Gartley
If you don’t know where to put your SL and TP on the day, put the TP at the mid point, where the wings join. Put the SL just above the top red line at the box.
As you can see from this chart, sometimes the retracement starts a bit after the pattern forms. It keeps forming and then finally, gracefully, retraces. Honour your stop loss. Don’t panic, don’t panic, don’t panic. Don’t get out too early, and don’t EVER move your SL. You want more pips won than lost.
Good luck!