Sunday Breakout Strategy

Trading Systems Free Forex Trading Systems
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Update: July 30, 2010 - This method is NOT working in the current market conditions. I suggest that you DO NOT trade it right now.

I made a ton of money off this in 2008 and 2009 (almost a 30% return in '09), and the backtesting says it’s worked for years before that, but for some reason it’s just not working any longer.

Mechanical systems are like that… They only work in certain market conditions. It doesn’t mean the system was a failure… Far from it! It’s just the natural life cycle of the 100% mechanical system.

I just wanted to put this notice up so newbies don’t waste too much time reading a thread that’s not making profits right now.

When the system starts working again I’ll remove this notice.

Hi guys! This system has been very profitable for me so I thought I’d share it.

I’ve traded this live since late 2008, and I’ve also backtested it manually from Oct. 2004 (as far back as my charts go) to the present day and it has remained profitable all 5 years!!

The Sunday Breakout Strategy

Pair: GBP/USD
Timeframe: 4 hour
Indicators: An ATR(14) on the WEEKLY chart, or use the attached indicator on your 4H chart.

Your broker’s charts MUST include the Sunday 20:00GMT candle for this system to work. Some broker’s don’t put this candle on their charts so make sure yours does! If not use an IBFX demo account, they include the Sunday candle and the demo never expires.

Find the Sunday candle:

  • On a 4H chart find the high and low of the Sunday candle. If you’re backtesting and using MetaTrader turn on the Period Seperator to make finding it easier. Draw a line 10 pips above the high and 10 pips below the low.

Entry:

  • Go long on upper break of the line.
  • Go short on lower break of the line.

SL:

  • For long trades the SL is the Sunday candle low.
  • For short trades the SL is the Sunday candle high.
  • Set SL to break even once your profit has reached 2x your stoploss.

TP:

  • Your TP is � of the weekly ATR(14).

That’s it! A simple system that only takes 10 minutes per week to manage!!

I’ve attached an excel file with my backtesting results and money management projections, as well as a weekly ART indicator at the bottom of this post.

Also, s050399b has made an excellent indicator for this system that computes all the entries, stoplosses, etc and draws all the lines on your screen. You can find the latest version on this post.

We also have an MT4 EA for the system, but it’s new and all the bugs may not be worked out yet. Please test it on a demo account before you use it live! The EA can be found on this post… http://forums.babypips.com/133505-post986.html

Update - Sept. 6 2009 � This thread has grown to almost 100 pages since I posted this 3 months ago. We’ve learned a lot more about the system and I’ve answered a LOT of questions. Here are the answers to the most common questions.

And yes, I know these answers contradict some of the things I said early in the thread. Like I said, we’ve learned a lot since May. :slight_smile:

  1. Why the heck does this system work? It looks like you’re just taking random trades?

Post #27: http://forums.babypips.com/free-forex-trading-systems/23601-sunday-breakout-strategy-3.html#post109500

  1. Can I trade this system on other pairs?

You can, but be careful. Many pairs are closely correlated, so you’ll either win all the pairs, or lose all the pairs.

That being said, I am now trading this on two pairs, GBP/USD and EUR/JPY. I have a slightly different set of rules for EUR/JPY, help help lower the correlation between the pairs. The EUR/JPY rules can be found here… http://forums.babypips.com/free-forex-trading-systems/23601-sunday-breakout-strategy-84.html#post130845

testing some other pairs with slightly different rules to help lower the correlation, but it’s still in the testing phase. I’ll update this if and when we change the “official” Sunday breakout rules to include more pairs.

  1. How many times per week should I trade this system?

Once long and once short. You should never trade this more than twice per week.

  1. What if the trade is still open on Friday?

I would close the trade on Friday if it hadn’t hit my profit target yet. I’ve never had this happen since I’ve been trading live, but I did encounter it once or twice in my backtesting, so it could happen.

  1. When should I cancel the second trade if it’s not triggered?

Never take the second trade after Wednesday, or if the first trade went above 40% of the ATR and then got stopped out.

  1. I was up 200 pips and then lost it all!! Should I have closed out early?

NO!! This system depends on the few big winners to offset the large number of small losers. If you panic and take profit early you will end up losing money in the long run.

However, there are a few times I’ve taken profit early. If you’re a new trader this is a “do what I say and not what I do” situation, but if you’re an experienced trader who is exiting because of a real reversal signal then feel free to exit slightly early.

Please understand what I’m saying here… Price moving in the opposite direction is not a reversal signal! Exiting early is for experienced traders only.

Sunday Breakout.zip (30.7 KB)

1 Like
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Sounds interesting, I look forward to trying it out :). Can I ask, do you only trade the GBP/USD using this system or have you tried it on other pairs too?

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I only trade it on GBP/USD, but I have backtested it on all the majors plus GBP/JPY and it does make money on them all, but it’s most profitable on GBP/USD in the long term.

The other pairs seemed to have good years and bad years, but GBP/USD has a nice, steady profit all the time with the system.

4

Sounds good. You could increase your position size for each stop and reverse to gain a positive outcome for the week.

5

True, but I’d look at the recent weekly ranges first. If the first trade stops out, but the second trade still has a lot of room before hitting the weekly range that could work. But if the first trade ate up a good amount of the range you’d risk getting stopped out on both trades!

6

Phil -

In commodities this type of future orders is called a straddle but I believe forex considers it a hedge and this is being banned by the NFA. Am I correct on this? I suppose one could just note or draw lines at the 10 pip above and below and enter an order when one is hit, assuming one is not sleeping at the time. Maybe an audible alert could be used for this.

Any comments would be most welcome as this is a simple strategy anyone could use and I’m going to set up an IBFX demo and try it. Thank you. d

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You could also call you 4hr bar 1X and then shoot for a 2x take profit. Limit it to 3 trades for the week risking 1%, 2%, 4% until you hit the payoff. Just a thought.

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Hedging involves selling and buying at the same time, this strategy doesnt do that, it only involves selling when the price hit the short position, and if it bounces back to the long position, u close the short position and open a long position, if the long position bounces back to the short position then you will close it and you will wait till the next week. Seems a pretty good swing technique for me and will be trying it.However, thread starter, you said you risk 2 % per trade, actually its 2x2%=4% if you close out both long/short at a losing position. I saw in your backtest results the most consecutive losts was around 6-7 losts, but 1 win make up for those small losses :slight_smile:

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You’re right, technically it is 2% per trade but if you lose both trades for the week then it would be a 4% loss.

And yes, the system does have losing streaks, and a low win rate… Only around 30% of trades are winners, but the risk/reward ratio on the winning trades is so high the wins make up for the losers by far.

You do have to have patience with this system. Because it’s only 1 or 2 trades per week those 6-7 consecutive losses can mean you’ll go over a month without a winner. It’s rare, but it does happen.

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Ryudox is right, it’s not a hedge because the long and short orders are not open at the same time. Long and short pending limit orders on a straddle are still ok, as long as one trade closes before the other opens.

What I do is after the Sunday candle closes I set limit orders for the two entries. Then I put alarms on my charts that go off at 2x profit so I can change my stoploss, and also about 20 pips before my TP so I can watch the trade and maybe get from extra pips if price action is good.

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Thanks everyone for the comments, I understand now how the order placements work. Anxious to try it. d.

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The Sunday candle has closed! Here are the trades for this week…

Long at 1.5947
Short at 1.5899

This week’s trades have a stoploss of 38 pips (I rounded up to 40), and a takeprofit of 240 pips.

If you got your orders set right at the close of the candle you should already be in a short trade. If not it’s only up +15 pips, not too late to jump in.

Remember to change the SL to breakeven at +80 pips! :slight_smile:

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Hey. i can’t find the sunday candle with my metatrader4, i turned my period seperator on and it only shows 25th May candle…

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Which broker are you using? I know for sure that IBFX shows it, and that Alpari does not, but I’ve never tested out any other broker’s MT4 charts.

Here is my current chart to compare to yours. Maybe your broker’s time zone is different than GMT time and the Sunday candle actually closed on Monday.

The orange lines mark the entry points 10 pips above and below the Sunday candle. The short trade is already 40+ pips up!!

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Anyone -

How do you get the breakout line on the exact breakout price? I cannot get the price scale to show .5947 or .5899, I just have to guess. Thanks.

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If you’re using Metatrader you can double click your line to make it editable, then right click it, hit “Horizontal Line Properties”, and then on the Parameter tab you can enter the price of the line manually and it will move the line to that price.

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thank you, d

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This weeks short trade was a loser… -40 pips for me. :frowning:

I doubt the long trade will get triggered because of the strong resistance on the upper side, but if it does I’ll take it.

A lot of people will probably say it lost because of the holiday in the US and UK on Monday, but in my backtesting minor holidays don’t show to be any more risky than normal for this system. Major holidays, such as Christmas, are another story though…

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Long side is coming~~ :slight_smile: maybe it will even out! good luck!