The Big Ben strategy

Posted by Anie | 9:08 PM | 1 comments »

Big Ben is a currency-specific trading strategy designed to capture the first directional intraday move that often occurs within the first few hours after the Frankfurt/London market openings, which begin at approximately 1 a.m. ET. The strategy works best with the British pound/U.S. dollar (GBP/USD) rate all forex trading. Currency rates with more continuous, 24-hour trading will have less of a distinct open/close as they pass through the different money centers. For example, the dollar/yen rate (USD/JPY), which dominates forex activity during Asian trading hours (78 percent of volume), still accounts for 17 percent of trading during European hours. Before explaining the specific logic behind the methodology, let’s take a look at what needs to occur for a trade to set up.

The rules
The following rules are for short trades, but the strategy can be reversed to trade on the long side.

Setup :

  1. The pair makes a new range low at least 25 pips (a pip is the forex equivalent of a tick, or minimum price fluctuation) below the opening price after the early Frankfurt/London trading in the GBP/USD rate begins around 1 a.m. ET.
  2. The pair then reverses and trades 25 pips or more above the opening price.
  3. The pair then reverses once again to trade back below the intraday low established in step 1.
  4. Sell a breakout (at least seven pips) below the London low.
  5. Once filled, place an initial protective stop no more than 40 pips above the entry price.
  6. After the market moves lower by the distance between the entry price and the stop, cover half the position and trail a stop on the remainder.
These simple rules position you to profit from common behavior that can occur in the pounddollar when the London/European market opens.

The logic
As mentioned, the pound/dollar rate tends to have lower trading volume outside
European/London trading hours because the majority of GBP/USD spot deals are worked through U.K. and European dealers. This gives the European/British interbank community
tremendous insight into the currency pair’s actual supplydemand picture. The Big Ben trade sets up when interbank dealing desks use this intelligence to trigger stops on both sides of the market, resulting in new intraday highs and lows. Once these orders are cleared from the books, the market is primed for its first real directional move of the day, which is what the strategy is
designed to capture. The logic behind this trade should be familiar to S&Pfutures traders, as it is similar to many opening-range breakout strategies used to capitalize on the first real move of the day after the cash stock market opens in New York. Read More...