Wednesday, January 7, 2015

My daytrading methodology

I'll be practising this method for January. This is based on my research that the day's high or low will tend to be established during the first 4 hours of each day (only applies to Asian pairs like USDJPY, AUDUSD, EURJPY etc). If you can identify significant S/R zones that held during this 4H period, there's a good chance you've identified the day's high or low. Trading a rejection off this S/R zone should put you in a good position to exploit the entire day's move. 


5M for entry and exit. 1D and 1H to identify the trend.




1. Check the 1D and 1H timeframes to see if both are trending in the same direction. If so, proceed to step 2.

2. Identify the highest and lowest S/R zones that held during the first 4 hours of each day. Trade the rejection off the S/R zone that is in line with the 1D and 1H trend e.g. if the 1D and 1H trend is down, trade the rejection off resistance and go short.

3. Entry = Break of rejection's high/low 

4. Stop loss = 3-5 pips, although it can be adjusted for volatility. I use a tight stop loss as I anticipate that the break of the rejection's high/low should trigger stops, leading to rapid price movement in my favour. If this doesn't occur, then there is still some strength in the market against me, and I want to be out. 

5. Profit target = 15+ pips, ideally before the next S/R zone. If the next S/R zone is too close to achieve 15 pips, then I'll anticipate that the S/R zone will break and place my profit target beyond that. Max profit will be 50% of the daily ATR(14).

Alternative Method

If price does not return to the S/R zone that you've identified as the potential daily high/low, then enter on the break of the opposite S/R zone.

e.g. The 1D and 1H trend is down. You've identified the 4H resistance zone that is a good candidate for the day's high, but price does not return here, so you're unable to trade a rejection. Instead, enter on the break of the first 4H support zone. If the resistance zone is going to be the day's high, then logic would dictate that the support zone will likely break.

Similar stop loss and profit target parameters will apply. Since I am trading a breakout, I anticipate that stops will be triggered, moving price in my favour rapidly. A tight stop loss will quickly get me out if there's a sign of opposing strength. 

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