EURUSD Day Trades – Late US Session

Continuing to experiment with the “envelope strategy” (initially introduced here and in later posts) at times other than near the US open, on February 20 the strategy would have also worked well in the late US session.

While the strategy uses an indicator, ultimately the strategy is about reading price action and noticing tendency in the price.

One major difference between trading in the late US session compared to near the open is that volatility is much less as the day progresses. Therefore, 0.012 envelopes may have to be dropped to 0.01 or even 0.009. If the price is consistently not reaching the outer band on pullbacks, the envelope may need to be narrowed. If the pullbacks are blowing way past the outer band, the envelopes need to be expanded.

This is balanced with realizing that sometimes the price just won’t pullback enough to provide an entry, and some losing trades will occur when the price blows through the band.

Typically during the late US session there is a lot of sideways movement in the EURUSD, but on February 20 there was a trend.

Figure 1 shows the late US session in blue. Yellow marks the overlap period between London and New York, so when it turns blue that means London has closed.

Figure 1. EURUSD 1 Minute Chart

At the left of the chart the trend is down; if trading at that time I would have been looking for a short position right after London closed. That trade would have been a loser, as the price started to rally aggressively. By the time the price reaches the horizontal blue line (and even a wave before it) we are now most assuredly looking for longs. But the price does not pullback to the lower band (even at 0.009) to signal an entry.

The first entry occurs during a consolidation and is marked with an arrow. Since the trend is up the expectation is higher. The price is moving mostly sideways at the time of entry, but was preceded by a strong rally, therefore, once in the trade our target is above the current range. A Fibonacci extension tool is used to get an approximate exit. Usually 61.8 or 100 are used (the Fibonacci levels). In this case 61.8 is right near the former higher….since we assume the trend will continue the target can be placed at a level above the recent swing high. I use 100 and it is marked with a check mark for a successful exit.

This trade took roughly 30 minutes, although moved onside almost immediately. Those trading binary options should allow at least a few minutes for the price to get out of the purchase area and “into the money.”

After that the price didn’t pullback enough to fill any of my orders, although if a trader was watching closely they could have quickly bought when the price got very close to the outer (lower) band. On a nice trending afternoon like this it, where the price is respecting the lower band (not moving through it), it would have worked out well. On other days taking that slightly pre-mature entry can mean a loss, when waiting for a bit bigger pullback could mean a win. Therefore, I personally stick to my rules and don’t deviate from them.  Sometimes that means letting a great trade slip away–and there were a couple on the way up.

I should point out that a 3.5 pip stop always goes out when I enter a trade. That was quickly moved up to just below the sideways consolidation once I was filled and price moved up. This brought the risk down to almost zero, and resulted in a 7.2 pip profit.  Since the price was still moving fairly well, I opted to use the 3.5 pip stop I usually use near the US open. If the price was not moving as much this would be adjusted, possible to 3 or 2.5 pips, based on what my expected profit is (based on volatility) so I can keep my reward about 1.5 times larger than my risk. Basically, stops and targets change based on volatility and market conditions.

Whether this strategy works well at this time and is consistent is yet to be seen. I have only utilized this strategy at this time of day on a couple occasions. For the most part, I use it in the vicinity of 2 hours prior to the US open, till about 2 hours after the US open–and will only usually trade for about an hour out of that 4 hour span, based on how the price is moving and when the most high probability trades start occurring.