Forex gambit strategy: peculiarities and usage
There is always some uncertainty in the market. The higher it is, the higher volatility is, and vice versa. In a time of small volatility of quotes and a clear bullish / bearish trend, traders only need to hold what they bought / sold. But during high volatility periods, they need to be prepared for sharp market fluctuations. Volatility helps us choose the right work strategy and that’s why volatility-based indicators are popular with traders.
Let’s take Bollinger Bands. Its dynamic support/resistance lines are built using standard deviations. They get larger automatically when volatility is high and they get narrower when the market gets stable.
Bollinger Bands is the basis of many trading strategies. We are going to examine one of them - Forex Gambit. Its author is Walter T. Downs. In chess, a gambit is the sacrifice of a figure or a pawn with the hope of improving position. Traders must be ready to lose some money hoping that the market will finally go in the necessary direction and their positions will improve.
The main factors of this strategy are 30-period Bollinger Bands with 1-2 deviations and a signal bar. The latter must comply with the following conditions in a bullish market:
- the minimum is lower than the previous bar’s minimum;
- the maximum is lower than the previous bar’s maximum;
- closure above the central line of Bollinger Bands;
- closure below the upper line of Bollinger Bands with deviation 1;
- closure above the middle of the previous bar’s trading range.
A trader had a chance to get prepared for a trade when signal bars had appeared twice in the H4 chart of USD/CHF.
Appearance of signal bars in USD/CHF chart
To open a long position, a pending order is used. It’s activated at the level of the signal bar’s maximum. A protective stop order is placed at the level of the signal bar’s minimum minus a few points. The author recommends that a position be hold 2 days at least, or 8 hours for the H4 time frame. If a long position hasn’t got positive, exit it “at market”. A stop order must be moved to a breakeven point three days later (12 hours later for the H4 time frame).
A long position should be closed after the currency pair has reached the upper line of Bollinger Bands with deviation 2 and a bar closed on the lows has formed there.
Forex gambit strategy in USD/CHF chart
The main characteristics of a signal bar in a bearish market are as follows:
- the maximum is higher than the previous bar’s maximum;
- the minimum is higher than the previous bar’s minimum;
- closure below the central line of Bollinger Bands;
- closure above the lower line of Bollinger Bands with deviation 1;
- closure below the middle of the previous bar’s trading range.
Signal bar in USD/JPY chart
A signal to sell USD/JPY occurred when the quotes fell below the signal bar’s minimum. Then a stop order got activated at the level of its maximum plus a few points. Twelve hours later, the stop order moved to a breakeven point. According to the rules, a trader was supposed to fix profits once a bar closed on the highs formed near the lower limit of Bollinger Bands with deviation 2.
Forex gambit strategy in USD/JPYchart
Forex Gambit belongs to trend recovery strategies. Traders consider actual market volatility and run insignificant risks because a stop order is narrow.
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Price chart of USDCHF in real time mode
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