Building a trading strategy based on the time factor
A great deal of operations in the foreign exchange market include the American dollar. The BIS estimates the volume of USD-transactions at 85-87% of the daily turnover. There are various factors which affect the rate of currencies. For example, macroeconomic statistics. The US statistics are released during the American Forex session, namely between 12 and 2 pm, Greenwich Time. Based on important releases, big traders decide during this period on the eventual direction of such instruments as EUR/USD, USD/JPY, GBP/USD, USD/CAD, AUD/USD, and some others. With this information at hand, we can start developing a trading strategy.
The Big Dog trading strategy is based on trading channels. The first line is plotted through the opening price of the bar that starts forming at 12 pm GTM. The second line - through the closing price of the bar which forms 2 hours later, at 2 pm GTM. The extremums of this time period are drawn in the chart too. The strategy may be referred to as scalping. The main time frame is 15 minutes, so the box we’ve plotted contains 9 bars.
Big Dоg box in the chart of AUD/USD
Big Dog, a breakout trading strategy
The authors think that the narrower the range is, the more chances that the strategy will bring profits. If the range exceeds 50 points, the probability of success is lower than with a range of 10-45 points. In my opinion, much depends on the volatility of Forex instruments. At the end of 2010s it dropped to its historical lows, so a range of 25 points and more can be considered to be dangerous. If volatility grows in the future, this range can be enlarged.
BUY STOP and SELL STOP pending orders are placed at the maximal/minimal value of the range. As soon as a position is opened, place a protective order at the opposite limit of the price range. In the example of AUD/USD, we have 13 points. One more time: it’s a scalping strategy and the “buy and hold” principle is inappropriate here. We need to take the profit the market offers, with an approximate profit factor of 2 to 1. For example, the Australian dollar grew against its American counterpart from 0.675 to 0.6776 and allowed the trader to earn 26 profit points.
Big Dog strategy in AUD/USD chart
Like in any other breakout strategy, there may be false breakouts here. I think they are even a stronger signal. Let’s recall one of the principles of candlestick analysis: if the market isn’t moving in an expected direction, it’s very likely to be moving in the opposite direction. That’s what happened exactly to USD/CAD . The trader built a time channel in accordance with the rules of the strategy, but after a breakout from below there appeared a popular pattern of VSA analysis on the 15-minute time frame - an upthrust. The quotes rushed down and a stop loss order worked out, but the situation could still have been exploited.
Big Dog box in the chart of USD/CAD
It would have been wise to open an opposite position: to sell the USD against the CAD placing a protective order at the level of 16 points. Considering the 2 to 1 profit factor, one could not only have clawed back the previous loss, but also have earned from USD/CAD’s fall.
Big Dog strategy in USD/CAD chart
Basically, Big Dog is a no-indicatorstrategy, but it can be used simultaneously with MACD, stochastic or RSI. The result is what matters.
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Price chart of AUDUSD in real time mode
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