September 26, 2016

Hourly swing trading strategy for day traders

This is a simple strategy for day traders and is an adaptation of my monthly hi/lo swing strategy.

It uses no indicators - all trading is  a game of probabilities; more analysis does not lead to better results.

Strategy: trade long on breakout above first hour's high with previous hour low as trailing SL.

Risk mgmt: Position sizing takes care of the risk and I recommend a risk per trade of 0.5%.

If you cannot control the risk in a trade, stay away from trading/ take up some other occupation.

Guidelines:
- use 5 min candlestick charts
- wait for completion of first hour candlestick i.e. 10 am
- mark the range formed so far (high low)
- these are your buy above / sell below levels.
- for a long trade, breakout bar close should be near the candlestick high.
- if long, SL is your previous hour's low and vice versa.
- trades to be closed by 3.30 or when your trailing stoploss is hit.

Note:
- sometimes, markets tend to trade within the first hour hi / lo range. In this case, take the first hour hi/ lo levels as breakout levels for the day.
- when a breakout happens, wait for completion of candlestick.
- above is important as a bar in progress can eventually form an hammer/ inverted hammer in which case trade should be ignored.
- this strategy can be used for cash and futures chart... just ensure liquidity is excellent.
- expect half the trades to fail (statistically).

Sample chart



5 comments:

  1. I haven't tested this but 0.5% risk per trade and a stop at the previous hourly high / low, is gonna kill even with a 50% win. Besides, these breakouts get faded a lot so it will be better to trade breakout failures on 5 min charts.

    Thanks,

    ReplyDelete
    Replies
    1. Test this for few weeks and then see.

      I have been using this method for months.

      Delete
    2. Sure, it will give nice profits when the hourly 60M is trending. Thank you, I will give it a try. Regards,

      Delete
    3. All systems will give excellent profits when a trend exists. And whipsaws in a rangebound market.

      That is why risk management is important.

      The trick is in knowing when to latch on to a trend while minimising losses. Most people cannot do this because they have no clear strategy.

      A system like this or using breakout levels (support/ resistance) automates the decision making process.

      Delete