Trading on 1 hr chart is a swingtrading style based on Bollinger Bands. And as you know, swing trading is much different thanday trading.
Day Trading requires much deeperconcentration since each trade lasts for few minutes to a maximum offew hrs at the most. So, you need to be quick in identifying thetrading opportunity and reacting to it. Swing trading on the otherhand will give you some breathing space to
trade.
Entering the trade
a. Currency pairs – All USD basedcurrency pairs.
b. Indicators used –
• Candlesticks
• Bollinger Bands – 1. setting of 20period with deviation 2,
2. setting of 10 period with deviation of2.
• Stochastic RSI – setting 18, 2, 2
• 200 EMA
For stochastic RSI, even the 14,3setting would have worked well, But after testing more than 50settings, I felt that 18,2 work the best.
Here are the rules of the trade fortrading on a 1 hr chart, which are quite
1. The low of current candle andprevious two candles should not be the lowest point in the last 30candles.
2. The current or the previous 2candles should have created a lowest low in the last 7-8 candles, butshould not have the highest value in last 7-8 candles.
3. The Difference between highest pointand lowest point in last 10 candles should be 45 or more Pips.
4. Confirmation Indicators –
• The Stochastic RSI oscillatorshould have value of 40 or below
• The 10 period UPPER bollinger bandshould be Inside (or let us say “Below”) or should have samevalue as the 20 period Upper Bollinger band
As soon as you find a setup which meetsabove rules, we’ll enter the trade after below mentioned guidelineis met -
We can enter the trade as soon as theprice goes past the mid-point of range of last 3 candles.
IMP: This cross of the midpoint of therange should happen within next 3 candles for the trade to be taken.Else the setup is not Valid and you must wait for next setup.
Just to mention again, “range” hereis calculated as difference between highest high of last 3 candlesand their lowest low.
So for example if in last 3 candles,the highest high has been 1.4000 and lowest low is 1.3940, then rangeis 60 pips. As soon as price crosses range’s mid point which is60/2 = 30 pips, we can open a trade.
If you look at above chart, Point A andPoint B present good trading
conditions.
But if you look at Point C, it doesn’t.Why?
Because Point C made the lowest low inlast 30 Candles and also the stochastic RSI is not below 40. Infactit is more than 60.
The above chart shows 3 trade setups –
1. The 1st trade set up starts at pointA where all the entry rules as values of confirmation indicatorsmeet.
As soon as trade is entered, the stoploss is placed 25 pips below the low of the candle at that time.
As soon as the trade is 35 pips inprofit, the stop loss is moved to entry price.
So from now on your trade can never endin loss.
From there on keep moving stop lossevery 20 pips towards the direction of trade.
This trade would have ended at point 1with 20 pips profit.
2. Same rules as above. The trade wouldhave opened at point 2.
This trade would have made 210 pips andwould have ended at point 2 where the market would have hit thetrailing stop loss.
3. The 3 rd trade setup is at point Cwhich would have ended at point 3 with
60 pips profit!
As you can see the system is highlyreliable and is very straight forward in use. Once you practice withfew times, you’ll start spotting the trade setups in matter of30-35 seconds!
The above chart covers 2 trades onUSD/JPY currency pair.
1. The 1 st trade is marked at point Ameets all the trading rules. It exits at point A when the markettouches the trailing stop loss. It ends with 120 pips profit!
2. The 2 nd trade ends starts at PointB and finishes at point 2 with amazing 260 pips profit.
Remember, such high profits arepossible only when you adhere to the money management principle whichis a key to have profitable trades!
Money Management Rules.
Here are the money management rules fortrading on 1 hr chart. Please go through these carefully –
1. As soon as you open the trade, placethe stop loss 25 pips below the entry price. But your stop lossshould not be more than 55 pips away from entry price.
2. Once you are 35 pips in profit, moveyour stop loss to entry price.
3. From there on, keep moving yourtrailing stop loss every 20 pips in the direction of trade.
4. You can exit the trade by followingany of these exit strategies –
a. 1 st Exit strategy can be that assoon as you reach profit of 90 pips you can close the trade
b. The other exit strategy is that youcan keep your trade running and till the time market reverses andhits your trailing stop loss
Note: A quick note I’ll make here isthat I would recommend you to use exit strategy 2 since on 1 hr chartthere can be some runs that can fetch more than 200 pips!
Also, be careful when the marketreaches 200 EMA. If there is any sign of reversal when currency pairtouches 200 EMA, close the trade immediately.
