Tuesday, February 2, 2010

Trading Example - GBP/JPY Weekly Pivot Trade

The chart below shows the GBP/JPY hourly. I've noted the weekly pivot point at 144.80. I traded this pair by stacking positions at the open of the week on Sunday night. The pair opened at 143.28 and I started stacking my positions at 144.70 with a limit order to sell at the pivot, 144.80. I added an order to buy at 144.60. 144.50, 144.40, etc., all the way down to 143.80. I like to keep 50 pips or so between the price and my most recent order to give the price a chance to move before opening my positions. I opened up 10 orders at 10 pip intervals each for two units (for example, I trade in 5 mini lot units so each order set above was for 1 standard lot). Over the next few hours half of those positions opened up, then the price fell back to just about the 143.00 level. I used that drop to add 3 additional one unit positions down to 143.50 (I'll discuss stops and why I do not use them with this trading style in a separate post - for now, suffice it to say that margin call is my stop loss in this account).


Starting at about 0600 EST on February 1 the price for this pair started moving up and continued up until the weekly pivot was hit during the 1900 EST hourly bar. On this trade I made 1,460 total pips (counting 130 pips for the last order, 120 for the second to last order, 110 for the third to last, then 200 for the first two unit order [100 pips x 2 for the 2 units traded]). Not bad for a trade that opened and closed in less than one day.

I will deal with the issue of stops and account size in a later post. This has been a very profitable trading method for me. I use it almost every week and have seen great gains. But a word of caution: I spent several months back testing this method before I put a dime of my own money behind it. I suggest that you do the same. It is a volatile trading methodology and will have big moves in both directions. If you trade using too much margin you will suffer losses. Become comfortable with it before you use it and it will, I hope, be as good to you as it has been to me.

Happy Trading!