The 30-pips-a-day strategy is a method for trading that is typically used with currency pairs that are known for their volatility, such as GBP/JPY. The reason for this is that in order for this strategy to be effective, there needs to be a lot of fluctuation in the market in order to make the necessary trades to achieve the desired profit margin.
Additionally, volatile currencies tend to have more distinct changes in direction, making it easier to identify when to enter or exit a trade. This strategy is usually executed within a 5-minute time frame.
10-EMA - Exponential Moving Average (apply to close)
26-EMA - Exponential Moving Average (apply to close)
Pairs: GBP/JPY, EUR/JPY
The main concept of this strategy is to use the crossing of two Exponential Moving Averages (EMAs) to identify the trend of the market.
When the 10-EMA crosses above the 26-EMA and continues to rise, it is a sign of an upward trend in the market. This is an indication to buy.
On the other hand, if the 10-EMA crosses below the 26-EMA and continues to fall, it indicates that there is downward pressure on the price, and this is a sign of a downtrend. This is an indication to sell.
The first step in this strategy is to wait for the 10-EMA to cross the 26-EMA. This will give you an indication of the potential direction of the trade. The direction of the trade will be determined by the way in which the 10-EMA crosses the 26-EMA, as outlined in the examples below.
After the EMA crossing, the next step is to wait for the price to move in the direction indicated by the EMAs. This is used to confirm your market interpretation.
Once the trend has been confirmed, you wait for a local correction against the trend. You will open a position at the high or low of this retrace. The intention here is to catch the range that the price will move through after it exits the correction and continues moving in the observed trend.
Examples are provided to illustrate these steps in more detail.
In this scenario, we are looking at the M5 chart of the GBPJPY pair and we can see that the market is in a downward trend. Additionally, we observe that the 10-EMA has crossed below the 26-EMA and continues to move downward. Based on this, we decide to enter a short position, or sell, on this falling trend.
However, instead of selling immediately, we wait for the price to move up in a correction and reach at least the middle point between the two EMAs. This is when we place our sell order.
To protect ourselves from potential losses, we should place a stop loss about 15-20 pips above the level of the sell order. Our target for profit is 30-40 pips.
The same logic is applied to a rising market. In this scenario, we are looking at the M5 chart of the GBPJPY pair and can see that the market is in an upward trend. Additionally, we notice that the 10-EMA has crossed above the 26-EMA and continues to move upward. Based on this, we decide to enter a long position, or buy, on this rising trend.
However, instead of buying immediately, we wait for the price to move down in a correction and reach at least the middle point between the two EMAs. This is when we place our buy order. It is also acceptable if the price drops even lower than the middle point between the EMAs, as long as the retrace is significant enough to give maximum gain before the take-profit is activated.
To protect ourselves from potential losses, we should place a stop loss about 15-20 pips below the level of the buy order. Our target for profit is 30-40 pips away.
Keep in mind that the distance between the Take Profit and Stop Loss levels and the position opening level is substantial. This means that the currency's volatility must be significant in order to reach these levels and make the strategy successful.
However, this approach may also be considered risky due to the same reason. The ratio of Stop Loss (15-20 pips) to Take Profit (30-40 pips) is 1:2, and traders should consider this in relation to their equity and risk management.
In summary, the 30-pips-a-day strategy is an aggressive and potentially profitable approach, but it requires a steady hand. When used in conjunction with standard trend analysis, it can be a valuable tool for traders.