Strategy: Trading the Break of the Day

Last month we discussed a price action strategy (I’m partial to price action strategies using near-“naked” charts) using Pin Bars. While I like that strategy and will continue to use it, it requires the trader to be attentive to every chart, every hour. That doesn’t work well for me, as I like to be “done” by 11 AM NY Time and many of the good trades come after that.

The Daybreak Strategy

The Daybreak Strategy allows you to look at the charts once a day, set up the trades, and walk away if you want. I actually watch them a little better than that, only because I don’t want to be in the money and then stop out with a loss. 

Find a pair for which there is no red-tagged news anticipated for the remainder of the day. Look at a 15 minute chart of your chosen pair around 9 AM Eastern US Time (GMT – 5). Be sure the “period separators” are enabled to make it easy to find the beginning of the day (Charts/Properties/Common/Show period separators.) The first step with our strategy is to determine if the pair is trending or ranging. If the pair is trending, pass on it for the purposes of the Daybreak Strategy. We’ll discuss a strategy for the trending pairs later.

Daybreak Strategy: AUD/USD Trending

AUD/USD Trending (20 Sep 17)

Daybreak Strategy: EUR/USD Ranging (20 Sep 17)

EUR/USD Ranging (20 Sep 17)

Setting The Daybreak Strategy Orders

Determine your risk and calculate your trade size based upon a 10 pip stop using a position size calculator. (e.g. http://www.myfxbook.com/forex-calculators/position-size) and place a sell stop order one (1) pip below the LOD and a buy stop order one (1) pip plus the spread above the HOD. If you do not include the spread on the buy stop order, the order will trigger before the chart price pushes above the HOD (assuming an MT4 bid-type chart.)

Daybreak Strategy: USDJPY Orders

USDJPY Orders

I set the expiry for the orders at 5 PM NY Time. Use a 10 pip stop loss and a 30 pip take profit for the trade. At this point you can just walk away from the trade and let it run.

Taking Profit

If I’m around, as with most of my strategies, I lock in the trade at +10 pips (take a portion off to cover trading expenses and set the stop loss on the rest to break even.) As always, if the price action nears the take profit level, I will usually close it early.

I use this strategy on all the major US pairs and some of the major crosses. I try to keep the pair count smallish and will only allow a couple of trades to trigger each day. If I risk ½% on each trade, then I can expect 1% to 1.5% profit per trade. That way I can easily hit my goal of 1% gain/day with one winner and come close to my goal with one winner and one loser. If I get 3 losers in a day, I shut the rest of the orders down and don’t trade any more that day.

Standard Trading Advice

As with any trading strategy, remember, never bet the farm. No single trade should be big enough to make or break you as a trader. Protecting your trading account is your first job as a trader. Without it you’re done. The only way you can be a full-time professional trader is to manage your risk like a professional.

Always have a plan. A plan to get in; a plan to get out. A plan for a win; a plan for a loss. Follow your rules. Discipline, discipline, discipline.

I know you regular peeps are probably tired of hearing this. But do it anyway.

Recommended Reading

These books are not about trading strategies, they are about trading psychology – which I believe is MUCH more important.

Trading in the Zone – Mark Douglas

The Disciplined Trader – Mark Douglas

Available at Amazon.

 

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