Working full time? Can’t spend 8 hours or more a day watching markets? That doesn’t mean you can’t trade. With Vantage FX’s “1 Hour a Week” forex strategy there’s no excuse to not be trading profitably. Of course, the strategy requires a little footwork and study before you get going, but once you have put in the hours, the strategy can easily be completely automated.
Trade them gaps for easy pips
If you’ve been trading for a little while you’ve probably noticed that the market often “gaps” when the market opens for a new week. You’ve also probably noticed that these gaps get filled a lot of the time. Have you ever actually gone back over your charts and see how many gaps do get filled? You might be surprised with the results.
So how can you make money of this phenomena? It’s simple: the basic idea is to open a trade when the market gaps with a target equal to last week’s close. Some week’s you won’t get any trades and you will get some losers every now and then, but a lot of the time you will make 100 pips on Monday and be done for the week!
Backtesting is integral
Welcome to the footwork. If you want to trade this strategy you’re going to have to spend some time studying charts, but this isn’t about finding trades though – it’s about finding the optimal parameters and best symbols to trade. Every currency pair has it’s own character and a gap trading strategy will work better on some pairs than others. The first thing you need to do is have a look at a few liquid pairs, take a look at the past 20 gaps and record how many were filled and how many weren’t for each pair.
You should now have a pretty good idea of the most reliable pairs to trade this strategy on. How many pairs you choose to trade will depend on your risk tolerance, remember: a lot of these pairs will gap at the same time, so don’t trade too many pairs at once! Easy right?
Well here’s the tricky part: it’s not as simple as blindly trading every single gap. What about your stop loss? Gaps usually fill, but they don’t always fill and often they drift a little further before filling. This part can get a little tedious – you’re going to need to find the optimal stop loss for the strategy. A good idea is to start with a hypothetical stop loss equal to the size of the gap.
Automation saves time backtesting
Finding the optimal stop loss settings over multiple pairs can be a real drag. You can shave off hours of study by making an automated strategy to backtest with. Note your automated strategy doesn’t have to actually be deployed live, the idea here is just to save time backtesting. Having said that, once you have made a basic strategy to test with, it really isn’t that much more work to implement money management and anything else you might need.
The basic logic for this sort of strategy is:
If Weekly Open is Greater Than Last Week’s Close, Then Sell
If Weekly Open is Less Than Last Week’s Close, Then Buy
You should be able to drum this up in some expert advisor design software (no coding required!) in less than half an hour, a few minutes if you’ve ever used the software before. You will also need variables for your stop loss and a minimum distance for the gap. Once you have this sorted, simply use the backtesting and optimization software in MT4 to find the most profitable parameters.
Once you have identified the most profitable pairs and parameters, all you need to do is decide whether you will be trading the strategy manually or will take your automation a little further and get your robot ready to deploy live. Depending on your work schedule and where you live in the world, you may have to go the automated route as you are at work when the market opens each week.
A few pips in spread can make all the difference
Whether you plan to trade this strategy manually at the open each week or automate the entire strategy, a few pips can make all the difference. As such, you should be trading this strategy with an ECN broker like Vantage FX. The last thing you want is to be missing your gap close targets by a couple of pips because the broker you’re trading with has ridiculous spreads. ECN brokers don’t mark up there spreads which means the spreads on liquid pairs can be as low as 0 pips.