Trading Concept: Inside Trading Days

This morning the British pound (GBP) is dropping due to increasing unemployment and jobless claims (as well as a decrease in hourly earnings for those who are employed).

The GBP/USD and GBP/JPY just broke uptrends on the hourly chart and are still headed south.

This is also causing EUR/GBP to be the top % gainer on the day so far at 1.68%. GBP/JPY is the biggest loser on the day so far at -1.80%.

EUR/CHF pierced its lows on the “inside day” trade and has since gone back inside its range. Now let’s see if it takes another “stab” at heading lower since many carry trades are headed south this morning…it could influence this one out of its sideways range as well.

Sean Hyman

www.forextradingblog.com


Tags: blog, carry trade, CHF, EUR, forex, forextrading, gbp, jpy, lower, pound, Sean Hyman, time, trades, trend, unemployment, uptrend, USD
Email this • Digg This! • Stumble It! • Share on Facebook • Save to del.icio.us

Topics: What To Look At In The Market | No Comments »


Trading Concept: Inside Trading Days
By Sean Hyman | April 21, 2009


One concept that short term traders look for are “inside days”. What is this? It’s where a completed candle’s high/low of the day is within the range of the previous day’s high/low. See the chart below and I think you will see what I mean. Notice that the current closed candle is within the boundaries of the previous day’s high/low (blue lines).



When there are one or two “inside days” from a previous candle, it means that the volatility is compressing (or coiling up). When this happens, there is a huge chance of a sizable breakout to one side or the other.

The strategy is to put an order on either side of the breakout with a reasonable limit (15-20 pips). When one of the order triggers, cancel the order that would be in the opposite direction to ensure that it doesn’t get hit too.

Yesterday, I noticed that there were two “inside days” on the daily charts. Remember, you have to wait until the candle closes at 5pm EST before you can say it’s closed. EUR/CHF and AUD/NZD were the two pairs. Since AUD/NZD has a much smaller spread to overcome, I’d favor the EUR/CHF pair.

Place an entry order on either side of the pairs previous day high/low by 1 to 2 pips. Also, include a limit order at that time too and a stop. The limit would need to be 10-20 pips (something near term). That way, any real spike could trigger your limit. You’d want a wider stop (you decide…but something wide enough to handle the volatility…maybe 50-60 pips). The thought being that there should be much more of a likelihood of the limit hitting than the stop, therefore making the wider stop worth its distance.