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Simple time based break out strategy on futures and FX
I'm new to futures.io (formerly BMT) and only recently found out about what this forum has to offer. It has a wealth of content and experience which is great.
My strategy is quite simple. It tries to capture signals based on a particular point in time, when new markets open and there is a change in market participants.
I’m looking at the price evolution of the FDAX for an hour between 8:00 AM CET and 9:00 AM CET, which is when the XETRA DAX starts quoting and the equity markets open. From that point on I am looking to enter into the market. I trade just one FDAX contract since both margin and tick value is relatively high.
At 8:30 AM EST I do the same for the Mini S&P futures and will see whether there is a move, once the US equity markets open. Here I usually take two lots and have automated multiple stops and limits in place.
I also trade Forex, and look at the period prior to the opening in Asia, Europe and the US and also try to find good setups, after these markets open. Here I take several minilots and usually scale out at various levels.
Depending whether I have the time, the signals are either taken automatically through my automated strategy or I will manually place the entry orders. I prefer manually entering as it will give me some more discretion in terms of looking at the overall trend and whether we are in a range or trending market. If it’s a clear trend, I will usually only take signals in that direction. In sideways markets, I am particularly looking for signals when the price is at either extremity of the range, expecting the price to turn and stay in the range.
Closing my positions:
I use the previous day’s trading range and my targets and stops are based on a percentage of that. The risk/reward ratio is normally 1 and I place the first stop/target at 10% of the previous day’s range and another at 30%/40%.
If not all stops/targets are reached, I will usually manually close out the position within 4 hours of having entered.
30/06/2015 Mini S&P short signal
Just after the opening at 9:33 AM EST I get a sell signal on the Mini S&P. I take it The overall trend is sideways, perhaps a little bearish:
so I take the signal and get stopped in at 2063.
The first target (0.10% of yesterday’s range) is hit soon after, at 9:42 AM CET, closed out 3.5 points below the entry. The second lot is still open:
At 10:48, the second target is reached. The second lot is closed out 2052.25, 10.75 points from the entry level:
So a good day today but I will have to see whether this setup is consistent. The back tests on the instruments I trade are quite good, but that's of course not the complete truth. As this is a new strategy for me, I will just have to play it by ear and perhaps make some modifications along the way.
@bastiaan Welcome to futures.io (formerly BMT) and thanks for starting a journal.
Are you looking for a directional signal (long or short) within the 1 hour period before or after the open?
I wanted to trade on the indices today but a lack of time made me only take a trade the EUR/USD after the open in the US. I’ve only recently starting testing this setup on the EUR/USD spot FX so I am only doing some live trades with microlots. If I see an improvement I will gradually increase the order size.
EUR/USD forex trade
Since I missed an opportunity on the EUR/USD at the London opening, I waited for the US open, trying to get in after 9:30 EST. The trend on the 60-minute chart (sub window) shows an upwards trend, with prices staying within the channel after having gapped below at the start of the week. But since the price is hovering so near to the bottom of the trend line, I will be looking for either a long or short signal.
The highs and lows of the day, used as entry levels, are started to be drawn at the open of the opening of the previous market (in this case London 8:00 AM BST/2:00 AM EST). Just prior to the US opening, the EUR/USD is quite close to the daily low (and the bottom of the trend line). If it gives a sell signal, I was hoping for the price to break the trend line and for the EUR to lose some ground.
This did happen at first, almost hitting my first target (distance from the entry level = 10% of yesterday’s trading range):
Around 30 minutes into the position, the first objective was hit, closing out 2 lots with 13 pips profit, but then the market turned, and hit my stop loss (also 10% of yesterday’s trading range), closing out 1 lot with a loss of 13 pips:
Around 4 hours into the trade I was again in positive territory, but didn’t see a whole lot of movement so decided to close out the remaining lot with a profit of 11.5 pips. All in all, a profitable – yet very small – profit made here. However, I keep thinking whether the stop/target idea that I am using, basing on the previous day’s trading range, is the way to go or whether there is a better solution. Would perhaps a 2:1 risk/reward ratio be better? And how important is the higher time frame for determining the overall trend?
On the indices, I track the high and the low of the hour preceding the opening of the equity markets and from that point on, I take the signal when the price breaks out of that range (and if there is no signal for a significant amount of time, I may decide to stay on the sidelines. The strategy tries to capitalize on the change in market participants once the equities start trading. In order to (hopefully) eliminate some false signals I want to use a larger time frame to see what the trend is or whether we're in a range. I haven't really determined whether that will be beneficial but my gut feeling says yes!
This morning I attempted a morning break out the FDAX, entering long above the high or short below the low formed between 8:00 and 9:00 CET.
I again looked at the longer term picture of the DAX. According to me, it seems like we are still in a downward channel. However, last week the DAX almost broke out so I gave it a shot and was open to both long and short signals today.
Unfortunately, the long position, entered @ 11221.5 didn’t last long and was stopped out just minutes later 31 points lower @ 11190.5… -775 EUR - not a good start to the day…
I have my doubts about using the higher time frame as a filter. Or maybe I am not interpreting that chart correctly. In any case, there is room for improvement!
I then also placed an order on the EUR/USD, looking to enter after the London session commenced.
I wanted to enter with 2 mini lots, which happened at 14:30 (perhaps too late and should have awaited the US open) but entered into a long position. So the position was entered just during the Non-farm payrolls. Maybe I shouldn’t have risked it. 50% of the position was stopped out when the EUR/USD pulled back just after the news, losing around 13 pips. I was left with a long position of 1 mini lot, half of which reached the limit – at equal distance to the stop (a gain of 13 pips). The last remaining half mini lot I manually closed out with a profit of 5.5 pips. All in all, this EUR/USD trade was closed out with a small loss. It’s a small position so risk is limited.
I was planning on trading on the Mini S&P but, looking at the trend, I was only looking at long entries which didn’t happen for me. So no trades there. Hoping tomorrow will be a more successful day!
I modified the strategy in a few ways. Since the markets have been so erratic and I was not able to detect a clear trend, I have not used the longer time frame to determine the overall trend and instead was looking for both long and short signals. Also, I have added a little buffer between the highest and lowest price of the hour prior to the equity markets opening, trying to avoid false break out signals.
The DAX trade was good and the fact that I accounted for a little buffer saved me from entering into the wrong direction:
Here an explanation of how this morning's trade looked like:
I could have got a lot more out of this move, it's a shame the Mini Dax is not yet available, and I could have entered with a multiple lots
Then I did the same for the US open at 9:30 ET on the S&P e-mini. Here also I entered into a short position, but two lots in this case:
The first target reached after about 10 minutes, USD 175 profit on the first lot.
The downtrend continued but I didn't feel confident it would reach my second target so I changed the Daily Range stop into a regular trailing stop:
As you can see, the stop was hit, with a profit of USD 325 for that second lot. Had I been more confident and patient, the second target would have been reached. In hindsight things always seem easier compared to when you're in position!
I didn't get round to posting my trades from yesterday so doing so now. As I was not around much yesterday, I had to automate the strategy. Again, due to a lack of time, I didn't make the European open and only traded the US open, both the S&P and the EUR/USD.
Like I mentioned in my earlier post, I modified my strategy slightly, adding a small buffer above the high and below the low of the period that I am measuring prior to the break out. This has proven to improve the signals in live trading and when back testing so I am going to stick with this and see how I get on.
The S&P trade:
The modifications paid off on the S&P trade, as it avoided the false upper break out. I got a short signal at 9:50 AM EST, 2 lots filled @ 2053.5. The position was initially in negative territory but the stop loss (15% of yesterdays' range) was far enough away. the first target (20% of the prev. days' range) was hit at 11:55 @ 2044.75, almost 10 points profit. The second target was never hit, so the position closed automatically at my set FLAT filter at 13:00 (@ 2051.25, a couple of points below my entry):
The EUR/USD trade:
The EUR/USD was moving up during the course of the European session. Since the price was moving further and further away from the low of the European session, a sell signal was less likely. At 11:12 AM EST I entered into a long position, after it broke the high + my set buffer zone. A long position was taken for 1 contract @ 1.0769. The initial target for half the position was reached quite soon afterward (10% of pev. days' DR @ 1.1091). I was quite lucky the price spiked up like that and hit my target with a few pips to spare. There was quite a big pullback after that, reaching my stop (also 10% of prev. DR @ 1.1063), closing half of the remaining position (.25 lots). The remaining .25 lots were closed at 4:00 PM ET by my FLAT filter @ 1.1070.
So all in all, a loss from a pip perspective (+14 pips, -14 pips, -7 pips) but made a small profit of $17.50.
