This system I’m about to share to you isn’t really something new. Still, I was inspired to share it by Forex Ninja as a way to giving back to the community! Whether you’re a seasoned trader or a newbie, I think the ABB (Asian Box Breakout) system is a good addition to your strategies.
I say addition because you can’t really trade exclusively on this system. You can find as many as 5 setups per month, but there will be months when you can’t find any at all. The setups that you take using this system are mostly high probability though, so I think this is a system worth learning.
From my experience, the system works best on major currencies.
[B]Tools:[/B]
- 15-minute charts of EUR/USD, GBP/USD, EUR/JPY, and GBP/JPY.
- Vertical lines on Asian session Open (4pm EST) and Asian session close (4 am EST)
- Horizontal lines on Asian high and Asian low
- A forex events calendar
Basically what you’re looking for are consolidation periods. You try to find out where the market is undecided so you can jump in when it has finally picked a direction. This usually happens during the Asian session when the market is thin or illiquid and prior a major economic report.
[B]Entry:[/B]
I enter a 10-15 pips (depending on the pair) above the Asian high in case of an upside break and a few pips below the Asian low in case of a downside break.
[B]Exit:[/B]
I usually exit when I feel the breakout is over. How do I know this? It’s hard to pinpoint exactly, but with experience and a good eye, you can guess. Spotting exhausted candlesticks (dojis, shooting stars, pin bars) is a good way to do this.
Typically, I place the stop below or above the box to allow my trade enough room to breathe. In practice, however, this isn’t always the case. The reason behind this is that the ranges of the Asian boxes can vary greatly.
There are times that the box is just 20 pips, but sometimes it goes up to 60 pips. Putting a 30 pip stop is okay, but more than 60 pips for a day trade is just too big for me.
I also move my stop from time to time as I know that candlesticks also give the wrong signals.
Here are a couple of examples of Asian boxes:
[B]EUR/JPY[/B]
The first one is EUR/JPY. It was trading within a 33-pip range before it started to make new session lows. Using my ABB system, shorting at 114.45 would have been a good idea. Your stop could have been above the high at 114.95.
Notice that the pair was unable to break support at 114.00. Perhaps you could’v e already moved your stop to breakeven to make this a risk-free trade. Towards the end of the day’s trading, you could’ve taken profit at 113.90 at the retest of 114.00.
[B]GBP/USD[/B]
Next I have GBP/USD which was stuck in a 40-pip range during the Asian session. Buying 10 pips above the high with a 50-pip stop (it would have been below the range), your trade could’ve yielded a return-on-risk ratio of over 2:1 if you took profit at 1.6365 when a three-bar reversal candle pattern formed at GBP/USD’s previous resistance.
You could’ve just moved your stop at breakeven when the par hit around 1.6300 when a bearish candle formed and made your trade risk-free.
