What with the volatility and indecision that has characterised many
of the European trading sessions lately, I haven’t had much success
finding good Bladerunner trades
at the London open. I’ve been experimenting with a new strategy for
these conditions based around the way price zigzags from one edge of a
tight range to the other.
At the moment this strategy is based on my favourite candlestick: The Rejection Bar
or Hammer. I’m looking for rejection bars that form at resistance after
price has moved out of a narrow range. I then sell or buy depending on
the direction of the hammer, with a tight stop not far behind the tail
of the hammer. I aim for a 2 to 1 profit/loss ratio, moving my stop to
breakeven once price has moved in profit equal to the amount of risk I
have in the trade.
The chart below shows the entire day’s trading session here in Asia,
beginning with the start of the week at the extreme left. Note the first
hammer forming as the final candle of last week’s trading. Price gapped
at the open in Asia this morning and mostly drifted sideways. The blue
section towards the right of the chart indicates the open of the
European session.
When
London opened, a hammer rejection formed almost immediately from the
daily central pivot. Note also the succession of failures just to the
left of that pivot. These failures occurred at a level where the weekend
gap in price had been filled, adding conviction to my feeling that
price may reverse from here.
I tried to enter with a limit order two pips below the hammer candle,
but mis-timed my entry slightly and ended up getting in three pips
after the break below the hammer. You can see the tiny horizontal bar
where my stop loss went in the white circle. I set a take profit limit
at the weekly pivot indicated by the blue horizontal line, and was taken
out for the full 2:1 profit quite quickly.
The third circle indicates a possible entry on a bullish hammer after
price had come down and formed a bottom, rejecting three times from a
monthly pivot (the dashed line at the bottom of the chart). As a side
note, it is interesting how often price will come down to one level of
resistance – in this case the weekly pivot – and kind of “eat” through
that to be finally stopped at a second level of resistance. I left this
second opportunity alone, as I’m still testing and observing, rather
than actively trading this new forex strategy.