March 6, by Ed Ponsi. Most forex trading strategies are based on a market tendency. For example, the currency markets have a tendency to form strong trends, and many trading techniques seek to capitalize on this trait.

Other strategies are based on breakouts from an opening range, which are likely to occur during times of high volume and liquidity. One area that has been neglected is the tendency for the currency markets to drift quietly at certain times of the trading day.

This begs the question, is it possible to use this less obvious market tendency to our advantage? This illiquid time of day occurs around 5 p. While it is true that traders from Australia and New Zealand are active at this time of day, the big three centers of world currency trading, Great Britain, the United States, and Japan — lie mostly dormant.

It is during these hours that many currency pairs tend to drift aimlessly, and the low volume environment renders any movement, especially a breakout, highly suspect.

What is the Boomerang Strategy? Why are breakouts that occur on low volume considered unreliable? In all forms of trading, a breakout that occurs on high volume is respected because when traders are willing to put real money into a trading vehicle such as a stock, commodity, or currency, it shows a high level of commitment to that position.

The increase in volume is a reflection of that commitment. While the currency markets are far too vast to allow for the collection of exact volume figures, it is understood that volume normally increases or decreases at certain times of the trading day.

Therefore, breakouts that occur during times that are known to be liquid are more reliable, and those that take place during times of illiquidity are much less dependable.

Since any movement that occurs at this time 5 p. The Concept Since 5 p.

Reg: Boomerang Currency Trader

Eastern time is considered by many to be the beginning of the forex trading day, it is also the time that many market makers have chosen to charge or collect interest. We need to take this fact into consideration, because currency traders who pay no attention to interest charges and credits might be surprised at the amount they are paying, while those who do focus on this aspect of trading are often area able to use interest credits to their advantage.

In order to avoid interest rate charges, orders should be entered just after 5 p. Eastern time when using this strategy. This will equate to Therefore, the time of day for order entry for this strategy will be Why do forex traders use Greenwich Mean Time as a reference point?

Imagine that you are in the western United States, on a conference call with several traders located in London, New York, and Singapore. One participant mentions that important news is expected to hit the wire at 10 am. This can create confusion, because you may not know which participant made the comment, or where that person is located. Therefore, you would not know if that person was referring to noon in London, noon in Singapore, or noon in New York.

However, if a one of the participants states that important news is due to come out at noon GMT, there can be no misunderstanding about the intended meaning. All of the traders on the conference call will be prepared for possible short-term market volatility at the time of the news release. When dealing with short-term strategies, every pip matters and a slightly wider spread can mean the difference between success and failure.

For this reason, trading platforms that feature variable spreads may be problematic, because spreads tend to widen during illiquid times of day. Since the strategy is implemented at a time of low liquidity, a fixed-spread platform is recommended when using this strategy. The Setup The plan entails the simultaneous entry of a sell order above the market and a buy order below the market.

In either case, the trader assumes that any directional movement will be short lived since there is unlikely to be much volume behind it. The short-term movement is most likely caused by an order or group of orders that would not have the power to move the market under normal circumstances. This movement should be followed by a retracement of the exchange rate, and it is this retracement that the trader seeks to capture.

If other currency pairs were eligible for use in this strategy, it would be impossible to use fixed parameters because of differences in volatility and in the spread among the various pairs. For our purposes, the opening price will be the price indicated at 5 pm Eastern time, as described earlier.

Day Trading Futures with Boomerang Day Trader

The protective stop for the buy order and for the sell order will be 15 pips away from the entry point, which creates a risk-reward ratio of 1-to-1 one pip of risk per one pip of reward for this trade. If no orders have executed within two hours after the open, all open orders must be canceled.

The reason why the orders must be canceled at this time is because Asian trading markets tend to become active around Since the strategy is designed for use in a low-volume trading environment, the increased activity from traders in Tokyo, Hong Kong, and other Asian market centers will create a trading environment that is too liquid for this particular strategy.

When this additional liquidity enters the market, any movement in currencies is more likely to have real volume behind it, and therefore may not retrace. A strategy that fades breakouts would be inappropriate under these circumstances, since there is a chance that institutions or other large traders may be committed to the move. The trader places a sell order 15 pips above, at 1.

Within 25 minutes, the exchange rate rises to 1. The trader cancels the buy order, but leaves the stop in place at 1. FXtrek IntelliChart, Copyright Fxtrek.

Immediately, two entry orders are placed, a buy order at 1. Just two candles later, the exchange rate quickly dips to 1. The trader immediately cancels the sell order, but keeps the protective stop in place at 1.

Forex MetaTrader Expert Advisors Live Account Performance Test.

The exchange rate immediately bounces back toward our entry point, and several candles later, at The entire duration of the trade was just 35 minutes. The pair continued to rise after the exit point was achieved see figure 2. The trader places a buy order at 1. The trader also places a sell order at 1.

Just under an hour later, at At this time, the trader cancels the sell order, but the protective stop at 1. One more important point to consider — this strategy assumes that interest will be charged or credited at a particular time of day. While many market makers charge or credit interest at Rules for the payment or collection of interest vary from on market maker to another, so be sure to check with your broker for these important details before attempting to place a trade using this strategy.

Ed Ponsi is the President of EdPonsi. He is a dynamic public speaker who has appears regularly on CNBC, CNN and Fox Business Network. An experienced professional trader and money manager, Ed has advised hedge funds, institutional traders, and individuals of all levels of skill and experience.

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