Simple Forex System Trading

Unfortunately, a profitable order turned into a losing trade today because of the wide spread.  Since the system still has 6 wins this month, I placed a limit buy and a limit sell.  You can find out why I change from the normal breakout buy and sell to the limit buy and sell here.  (Had we placed a stop sell today at 122.58, that order would have been a loss anyway.  It would have been filled at 8:30 EST and stopped out within seconds.  And that would bring the Euro Yen 30/30 breakout system down to 5 wins this month.)  The limit buy was placed at 122.58.  I placed the trade on FXCM and Oanda.  FXCM gave us a profit.  At 8:30 EST (16:30 GMT), the limit buy was executed, and within a minute, it hit the profit target of 122.88.  However, the same order was not filled on Oanda at around the same time because Oanda had widened the spread to 10 pips.  The lowest ask price at that time was 122.61.  Had Oanda not widened the spread and remained the same 3 to 4 pips spread, the order would have been filled and produced a profit.  Unfortunately, it wasn’t so.  Instead, the same order was filled at 10:36 EST  (18:36 GMT) on Oanda, and quickly turned into a 30-pip loss.

Since the performance stats on this blog are always based on the Oanda results, I am going to call today’s trade a loss.  Today’s example perfectly illustrated how important spread was in our trading.  Some time ago, I wrote a post about searching for another Forex broker, in which I mentioned spread and commission as some brokers now do charge commission in each trade such as Interactive Brokers and Gain Capital.  As the market continued to be volatile, brokers would widen their spreads unexpectedly.  This is an additional risk we have to be concerned about.

Today I did something a bit different.  Normally, I’d place two stop orders - one stop buy and one stop sell and wait for the breakout to happen.  I decided to place two limit orders today.  Why?  Because the stop buy / stop sell strategy registered 6 wins this month so far had we always placed trades every day.  Based on the historical statistics, when this method hits 5 wins in a month, it will begin to incur losing trades.  So I thought I’d place buy limit and sell limit orders instead of the regular stop orders.  It’s totally based on probabilities.

The buy limit order was placed at 120.95 with a profit target of 121.25 and a stop loss of 120.65.

The sell limit order was placed at 123.64 with a profit target of 123.34 and a stop loss of 123.94.

It turns out that we yet have another break-even day.  The sell order incurred a 30-pip loss while the buy order produced a profit.

I have remained on the sideline for a long time, mostly because the spread has been wider than normal.  During the past month or so, the spread of the EUR/JPY pair stayed between 6 to 10 pips on Oanda.  So I thought I’d just keep myself out of the market and see how things unfold before me.

Last night was the first time I re-entered the market after a long period of idle time with two orders, stop buy at 123.43 and stop sell at 122.30.  The stop buy actually produced a profit.  The 30-pip profit target was reached.  However, the sell order produced a 30-pip loss.  So, we are break-even today.