Aug 31 2009
If the trade goes wrong, you know exactly how much you are going to lose. The beauty of this trade is that your risk is limited and determined. Remember that money management should always be at the forefront of your trading decisions. Pulling of this trade requires identifying the setup, knowing the forex broker game plan and staying one step ahead of them. First practice on your
forex demo account. Get good
forex training.
How do you identify the setup? Look for one way trending market. Overbought readings and obvious targets of round numbers! Know your forex broker’s game plan. You know that the forex broker wants to trip stop losses above say 1.5000 GBP/USD price level and collect some quick pips. As soon as the stops are tripped the price will quickly drop back to the previous levels. Learn
swing trading.
How are you going to set your orders? Sell order lot#1 at 1.5000. Sell order lot#2 at 1.5005. Sell order lot#3 at 1.5010. Set the stops for all these three lots at 20 pips above the figure or 1.520. Set take profit for 2/3 of these lots at 5 pips below the figure or 1.4995.
You will want to ask at this point what happened to the money management rules that are so important for traders. It is better to take quick profit rather than risk losing it all waiting for a deeper correction because of the high probability of the trade working out in your favor.
Remember you are trying to take advantage of the forex broker’s actions and not predicting the future. The expected price action is a spike meant to trip stops than a quick decline and that is what you are going to exploit.
Now let’s use an example to make clear how the big figure trade works. Suppose the forex broker makes a quick move beyond 1.5000. The stops go off. The price trades briefly over 1.5000, only a couple of pips to print a high of 1.5006. Only two of your orders get filled. The price quickly drops under the big figure.
When the price reaches 1.4995, your profit take order for the two lots is quickly executed. You make a quick sure shot profit of 15 pips. Not bad for ten seconds of work.
Be prepared ahead of time in order to trade the big figure. Get out if the trade does not work out immediately say something like 15 minutes. The price action is telling you that it is being supported by some real money demand rather than a broker in such a case.
Although the moves are similar near most round numbers, this trade works best at the end of an overbought intra day trending move coupled with psychological numbers like 1.2, 1.5, 2.00 etc.
Remember that you are not trying to predict the future like a reversal or continuation. You are only trying to ride the coat tails of your forex broker. The spike might continue higher for another 50 pips. It might top out and collapse.
You are only in the trade for a low risk profit of 10-15 pips that the forex broker is generous enough to cough up for you. Generally try to trade only close to the big figure since that is the one hiding stops.
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