Every trader knows that economic data have a great impact on the Forex market.
FX Strategy 80-20's
The 80-20’s is a day trading strategy suggested by our old friend Linda Raschke, the talented and very experienced trader whose writing we’ve once reviewed in our Book section. The strategy is based on the Taylor trading technique which posits that markets move with a natural rhythm made up of a buy day, sell day, and sell short day.
It was noted that when a market closes in the top/bottom 10-20% of its daily range, it has 80-90% chance of following through the next morning but eventually closes higher/lower in only 50% of the time. This means that there is a chance of a reversal. So, in this article we suggest you taking a closer look at this strategy.
For long trade setup:
1. Yesterday’s candle should be a bearish one. Its opening price should be in the upper 20% of its daily range and its closing price has to be in the lower 20% of its range. Simply divide the chosen candlestick into 5 parts and chose 1/5 of its high and 1/5 of its low range.
2. The next day, the market must trade at least 10-15 ticks below yesterday’s low.
When these two conditions are met, you may place an entry Buy Stop at yesterday’s low. Also, don’t forget to place a protective Stop Loss at 3-5 points below today’s low. Use a Trailing Stop to lock in accrued profits (while defining the distance for your trailing stop you should take into consideration the volatility of the FX market and the currency pair your trade). It’s up to you where to put Take Profit order (for example, at a distance that exceeds from the initial Stop Loss in 2-3 times or with the help of Fibonacci retracement levels of yesterday’s candle).
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