My Favorite Forex Day Trading Strategy (it’s taking place at night!)
It's been a while since I wrote my last official blog post. Vacations and various trips made it tougher to write. At the same time, I started day trading and that alone is taking up a lot of time. Nevertheless, it's time to share my favorite day trading strategy!
Somehow, I wanted to get back to writing blog articles.
I'm coming back with what truly is (for now) my favorite day trading strategy. After researching, testing and planning various ways to trade, I ended up finding a way to day trade that I classify as my #1 way to day trade.
I'm not going to compare swing and day trading here…that's not the point.
Although the article is about day trading, the strategy I'll present is actually traded at night (during the Tokyo session).
My Favorite Forex Day Trading Strategy: Asian Session Breakout
In this article, I'll go over the details of how I trade with that specific strategy. Understand, however, that if you're looking to go further into day trading, my Ultimate Day Trader course might be the thing that will get you unstuck.
But, let's get into it!
Background Information On The Asian Session
I am a strong proponent in the idea that you must adapt your trading to the session you intend to trade. In fact, you most likely wouldn't get any success trading a New York session trend continuation play in the Asian session. Similarly, trading reversals in the New York Session might be challenging. That's part of the trading game.
My favorite Asian session Forex day trading strategy usually takes place around the opening of the Tokyo session (7:00pm EST).
I'll keep a look at AUD/JPY specifically since it is one of the volatile currency pairs during the Asian/Australian sessions.
Prior to 7:00pm EST, the volatility in the Forex market is usually pretty low. As a matter of fact, only the traders in New York were in the market from 12:00pm to 17:00pm EST. You shouldn't be surprised to see consolidations from 12:00pm to 5:00pm.
At 5:00pm EST, traders from Australia start to get in the market, but the movements are usually still weak.
When that happens, you're likely to notice a consolidation period. I define a consolidation as being a sideways movement between 5pm-7pm EST. It doesn't always happen though (sometimes price will be trending at that time).
If the price is trending, then you're not in the right position for a breakout play.
By noticing a consolidation like the one below, I automatically get in the breakout play mode!
As you can see on the chart above, price movements decreased and AUD/JPY started to consolidate. A support appeared starting at 3:oopm EST at 79.00 (a round number). The high of that consolidation was around 79.125.
What's The Next Step?
Simple. Whenever there is a consolidation, I, as a trader, think of buying on a breakout or selling on a breakdown.
I'll usually favor breakouts or breakdowns that take place in the direction of the trend as they are more likely to be sustained (they'll last longer). I'm guessing you'll be able to identify the previous trend, right?
Just in case:
The next step is to wait for a break of the range. It might not happen right at 7:00pm EST and that's alright.
The good thing is, I never experienced an Asian session without a break of the initial range. It is inevitable.
Unfortunately, breakouts and breakdown in the Asian session are very likely to turn into fakeouts.
Quick Trick To Avoid Fake-outs
I wouldn't buy or sell as soon as a candlestick breaks outside of the range in the Asian session. That might be appropriate when the volume traded is higher, such as in the New York Session.
Instead, I'll wait for a small pause after the break to place my entry order.
Here's how price broke out for the example above:
The arrow shows where (at 7:15pm EST) the break occurred.
Upon seeing a breakdown like this, I'll wait for a candlestick that doesn't make a new low, which would mean that the buyers and sellers are taking a small break. Look at the candlestick with an arrow below it (the first one that doesn't make a new low after the breakdown):
Now that I know the buyers/sellers are about to jump in one direction, I'll put a sell order below the lowest low.
If the entry is triggered during the session, great!
If the entry isn't triggered and the price goes back up, I've avoided a bad trade! I'd then cancel the order.
Here's how it unfolded:
I'll usually target a Reward-To-Risk of 3:1 for those types of trades. My stop loss will be placed slightly above the candlestick that broke out of the range.
Some Key Success Factors For This Forex Day Trading Strategy
One thing I really want to point out is that this strategy will work only when a range (consolidation) forms prior to the open of the Tokyo session. If the price isn't consolidating, this strategy can't be used. In these cases, other strategies can be used.
However, from my experience, consolidations prior to entering the Asian session are frequent.
Breaks that occur in the direction of the previous trend have a much greater probability of success. I recommend you adjust your position size accordingly. If you know that your trade has a lower probability of success, why risk more?
Do not cut your profit too early. You definitely want to scale out of those types of trades. When this Forex day trading strategy works, you can expect a big move. However, I'll usually lock in profit progressively to ensure I don't give everything back to the market in the case of a reversal.
Going Further Into Forex Day Trading
I really hope you'll take what's in this article and actually use it. If you want to go further, however, and learn to trade any session of the Forex market, my course the Ultimate Day Trader is definitely a good fit. It is a complete 10-module video course with live trading examples. Alternatively, you get access to all my courses as a member of the DesireToTRADE Academy. I'd be excited to welcome you in (use promo code “open” to get 30% off the membership).
Is this Forex day trading strategy for the Asian session part of your playbook? Have you tried it before? Comment below and let me know. You can also check out our free Facebook group!