How To Make 600 Pips In 2 Days With A 10 Pips Stop Loss?

As a swing trader, you should always check the daily economic news calander. Whenever there is a monetary policy statement announced by the central bank, expect big action. Now sometimes the market reacts big time and sometimes the market doesn’t react at all. So you should be prepared for both eventualities. This is what we have learned through experience. Did you read our last post on what happened to EURUSD when ECB President Mario Draghi announced a big stimulus? We did not trade this ECB press conference. When there is no clear signal stay away from the market. This is what we did. EURUSD first went down and then shot up meaning the market first reacted in one direction and then changed direction and reacted in the other direction. We could have traded this news release but we didn’t. But sometimes you get lucky. Read this post in which we made 400% in just 14 days trading GBPUSD.

Always keep this mind, central banks are the biggest players in the market. Central banks have the sole power to move the market. Central banks have many tools up their sleeves that they can use to move the market in the direction that they want. Central banks can start new trends. So always keep an eye on what the central bank is doing. Japanese Yen is a currency that is tightly controlled by the central bank. So expect big action whenever their is a monetary policy announcement. Take a look at the following USDJPY daily chart.

USDJPY

As you can see in the above daily chart, USDJPY rallied up and found resistance just below the red arrow when it touched EMA 50. This was 2 days before the BOJ Monetary Policy announcement. Then you can see to very big candles. This was the results of the BOJ announcement that it will keep its policy of negative interest rates steady and there will be no monetary stimulus in the shape of the helicopter money. We don’t need to go into the details of the monetary policy being followed by the Bank of Japan. It is simply irrelevant for us. What we need to know is that today Bank of Japan is going to announce the monetary policy. That’s all. We need to know the time. We can easily know the time by checking the Forex Factory Daily Economic News Calendar. Just looking at the daily chart we know that the market will try to retest the resistance level that it met just below the red arrow in the above screenshot. The resistance level is 111.889.

Now keep this in mind that trading is all a game of probabilities. You can never be 100% sure how the market will react. You just trade on your hunches. Sounds dangerous? Yes if you don’t follow strict risk management. We have this hunch that price will try to retest the resistance level what has been show by the line in the screenshot of H4 chart below.

USDJPY

In the above screenshot, you can see the yellow line that has drawn to indicate the resistance level that we expect the market to retest. So we enter a pending order 24 hours before the BOJ monetary policy announcement. This is sell limit order with entry at 111.840 and stop loss at 111.940. We use only 1 standard lot. The risk is only 10 pips. So we are ready to lose $100. That’s all. We don’t need to be greedy. We don’t know how the market is going to react. It can break the resistance level in which case we lose $100. We are ready for that. We have $10K in our account so our risk is only 1%.

We know the market is going to react when BOJ will make its announcement. We don’t need to sit in front of the computer to watch how the market is going to react. We have risked $100. We think that the market is going to go down. If it goes down 200 pips, we make $2K. If it goes down 400 pips, we make $4K. We are looking for 200 pips movement downward. This gives us a reward to risk ratio of 20:1 which is excellent. This is what our trading strategy is. We try to catch 200-400 pips move with a small stop loss of 10-20 pips.

So we have pulled the trigger. Now the market needs to react. It can react unexpectedly and take out the stop loss. We lose $100 and make nothing. We need to be right at least 50% of the time with our strategy. We just need a winrate of 50% to make 1000 pips every month. That’s what we do.

Market reacted big time. When we checked 1 hour after the announcement, USDJPY was falling like a knife. We had anticipate correctly. USDJPY did test 111.889 level but then it fell down like a stone. We entered a take profit target of 106.00. Take profit target was hit next day and we bagged 584.

So it was a great trade. The reward to risk that we had anticipated was 20:1 but the actual reward to risk turned out to be 60:1. Now this is how we trade. We open a trade when we expect the market to move 200+ pips. We use a pending buy limit order or a pending sell limit order. That’s all. Keep your trading simple.

0 Comments