Simple Forex System Trading

The divergence appeared at around 7 AM GMT, so I entered a buy limit at 95.70.  I usually think the Dollar Yen pair is insane and I normally don’t trade this pair.  But somehow I changed my mind and thought I’d give it a shot.

The order was never touched.  The price continued to climb higher.  I missed it.  Didn’t I say this pair was insane?  Actually, it behaved very well.  It did exactly what it should be doing.  When the price set lower lows, the Awesome Oscillator did not.  Therefore, the price should rebound.  And it did.

The divergence occurred at around midnight GMT, but I decided not to take any action, because it was the Japanese Yen – Dollar pair.  I rarely trade this pair because by nature, this pair is insane.  Although it could produce a nice 50-pip profit if one did enter the trade – buy at around 97.70 and exit at around 98.20.  However, if I had set it up as the normal 100 pips profit / stop loss targets, I would have probably exited with a 10-pip profit by now because I would move the stop loss to 10 pips above the entry point after I was 40 to 50 pips into the profit zone.

I received an email from my broker regarding the changes in forex trading.  I personally don’t use Hedging as a strategy, but wondered if this change had something to do with the recent economy down turn.

Dear Customers:

Interbank FX, along with all FCM’s, has received information from the NFA that we wanted to pass along to our customers. All registered FCM’s have received a new Compliance Rule 2-43 regarding forex trading. On May 15, 2009, forex customers will no longer be allowed open “hedged” positions in their accounts. Please see an excerpt from the new NFA rule below. If you are currently using Hedging as a trading strategy, we would encourage you to use the Interbank FX Demo accounts over the next month to help modify your trading strategy. Also, for those of you who utilize hedging strategy with your “Expert Advisors”, we would encourage you modify your code and test your advisor on the Interbank FX Demo servers as well. In order to assure a smooth transition for our customers to the new NFA Compliance Rule, Interbank FX has set May 8, 2009 as the last date that customers will be able to Hedge open positions.

I opened a sell limit at 1.5015 which was filled at midnight GMT.  And the price went as high as 1.5068 before it reversed.  The take-profit and stop-loss was 100 pips.  The price started to head south after London opened.  The target, 1.4915, was hit at around 9:25 GMT.  It’s a good day.  100 pips of profit.

Looks like we have a divergence here in British Pound – Dollar pair.  Let’s see if the 1.5015 to 1.5040 holds.  If it does, I’ll enter a sell order.

4/16 Updates