I spent this afternoon backtesting morning breakouts on the AUDJPY.
This is based on the 4H timeframe. Basically, I looked for candles at 00:00, with a range less than 1*ATR(6). I use ATR(6) as this gives me the average candle size for the last 6 candles, or the last 24 hours (6*4 = 24 hours). 00:00 = NY Close.
I looked for small candles as this is based on my observation that small candles tend to precede large candles. I entered on the break of the high or low of the small 00:00 candle, with my stop loss located at the opposite end of the candle. Example is below:
(click to enlarge)
Results after 100 sample trades (from early to mid 2013):
It showed promise of profitability, especially with bigger reward-to-risk ratios.
I did a bit of optimisation, and looked at which weekdays performed better. The backtest showed good results, except for Wednesday. If I omitted trades on Wednesday, I get the following results (from 76 sample trades):
This is a significant improvement.
This isn't a trading system (yet), but it's showing some promise.