Trading strategy: TRADING RANGE FX SCALPER

Description

The Trading Range FX Scalper strategy is a scalping strategy based on trading range break-outs after 15h30. The trading range is calculated on the basis of the highest and  lowest market prices achieved during the first hours of the afternoon. The strategy focuses on the major forex pairs.

The direction of the trade is determined by a combination of three trend indicators. Typical for a scalping strategy, the target is only a few pips.

  
Suitable for : Major forex pairs (EUR/USD, GBP/USD ...)
Instruments : Forex futures and spot forex
Trading type : Day trading
Trading tempo : 1-3 signals per day
Using NanoTrader Full : Manual or (semi-) automated

 

The strategy in detail

The Trading Range FX Scalper strategy draws a trading range in the afternoon based on the highest and lowest prices achieved between 13h00 and 15h30. Within this interval the most important economic numbers are published, often resulting in considerable exchange rate volatility.

Traders who want another trading range, can, as usual, change the parameters in the designer dialog window. 1259 indicates 13h00 and 1529 indicates 15h30.

The parameter TradesPerDay indicates the maximum number of signals per day. The default setting for the Trading Range FX Scalper strategy is 3. The parameters DeltaUp and DeltaDown allow the users to modify the trading range. The standard setting is 0.

The parameters can also be changed via the chart. Click the relevant parameter and enter the value of your choice.

 

When to open a position?

When the market price breaks out of the trading range after 15h30 a position is opened at the market price. The market can break upwards out of the trading range -this is a buy signal- or downwards -this is a short sell signal-.

Not every signal is accepted. A combination of three trend indicators (MACD, SuperTrend and Directional Movement Index) determines if a signal should be accepted or rejected.

When all three indicators are unanimously positive the background of the chart is green. In this case a long position is bought when the market price breaks upwards out of the trading range. When all three indicators are unanimously negative the background of the chart is red. In this case a short position is sold when the market price breaks downwards out of the trading range. When the three trend indicators are not unanimous, the background of the chart is white. In this case every signal is rejected.

When to close a position?

The Trading Range Index Scalper strategy uses a target, a trailing stop and a time filter.

Typical in scalping is the small target. In the case of the DAX index, for example, the target is 3 to 5 points. If the market price does not reach the target the position is closed at the market price at the open of the next candle.

The trailing stop is only there for safety purposes. The stop has a distance of 100 points and is in essence never triggered.

The time filter closes an open position at 14h30 (enter 18h30 for U.S. market indices). This event in essence never occurs.

 

This example shows two profitable trades. The chart background is green. Buy signals (trading range break-out upwards) will be accepted. The first candle closes above the trading range. The position is bought at the open price of the next candle.The profit target (little green line) is reached, even though later the candle closes below its open. The same scenario applies to the second signal.


 

This example shows a profitable trade and a losing trade. The chart background is green. Buy signals (trading range break-out upwards) will be accepted. The first candle closes above the trading range. The position is bought at the open price of the next candle.The profit target (little green line) is reached and the position is closed. The second position does not reach its profit target. Therefore the position is closed with a loss at the open price of the next candle.

The results of the Trading Range FX Scalper strategy depend on the distance to the target. These examples show back-test results for the EUR/USD future over a period of 10 years. Using the NanoTrader Full trading platform it is easy to back-test different combinations of forex pairs, trading ranges and targets.

 

Result on the EUR/USD future with a 3-pip (0,0003) target.


 

Result on the EUR/USD future with a 5-pip (0,0005) target.


 

Result on the EUR/USD future with a 10-pip (0,0010) target.


Tip: traders can use the "multiple targets" function to set different targets for a single  position. For example 3, 5 and 10 pips to close a position in three parts.

Tip: futures are also very suitable for forex trading. The micro EUR/USD future, for example, has a value of only USD 12.500.

Conclusion

The Trading Range FX Scalper strategy trades on a trading range break-out. The direction of the trade is determined by a combination of three trend indicators: MACD, SuperTrend and DMI. The indicators need to be unanimous. Typical in scalping is the small price target. Using a 3-pip target, 77% of EUR/USD trades are profitable. Using a 10-pip target the percentage of profitable trades drops to 52%. The total profit is, however, higher. The lower the profit target, the higher the probability that a trade results in a profit.

Practical implementation

In NanoTrader Full follow these steps:
  • Choose the instrument you wish to trade.

  • Open a chart with the template study "Trading Range FX Scalper".

  • Semi-automated trading? Simply activate the TradeGuard+AutoOrder or the AutoOrder function.