The English breakfast tea method works with the 15-minute candle (M15). This means that each candle represents 15 minutes of price movement.

Transcription

1 STRATEGY 16: ENGLISH BREAKFAST TEA When traders trade a particular currency pair for a long period of time, they may start to observe certain characteristics or behaviors of that currency pair. These characteristics or behaviors could happen during market opening hours, market closing hours, major news releases, Christmas and New Year holidays, financial year closings, and so on. In my years of trading, I have noticed peculiar behaviors in various currency pairs. In this strategy, I share one of my observations about the GBP/ USD during the London opening hours. Time Frame The English breakfast tea method works with the 15-minute candle (M15). This means that each candle represents 15 minutes of price movement. Indicators We use pure price action, and no indicators are used for this strategy. Currency Pair This strategy is applied to the GBP/USD only. Strategy Concept The English breakfast tea strategy is based on an observation I ve had on the GBP/USD for a while now. This occurs before and after the London market opens in the morning. Here s what I discovered: When the GBP/USD trends in one direction from 04:15 hours to 08:30 hours London time, it has a tendency to move in the other direction after 08:30 hours. Hence, we first compare the closing price of the 15-minute (M15) candle that corresponds to 04:15 hours and 08:15 hours London time to determine the direction of the GBP/USD. We then enter a trade in the opposite direction at 08:30 hours London time. As an example, if the closing price of the M15 candle at 08:15 hours is lower than the closing price at 04:15 hours, we go long at 08:30 hours. If the closing price of the M15 candle at 08:15 hours is higher than the closing price at 04:15 hours, we go short at 08:30 hours. The stop loss is fixed at 30 pips, and there are three profit targets for this strategy with risk to reward ratios of 1:1, 1:2, and 1:3. In other words, the profit targets are 30 pips, 60 pips, and 90 pips respectively.

2 Long Trade Setup The 10:30-hour candle of the charts on FXPRIMUS platform is used to illustrate this strategy because it corresponds to London time 08:30 hours. Here are the steps to execute the English breakfast tea for long: 1. The closing price of the M15 candle at 10:15 hours must be lower than the closing price at 06:15. (See Figure 10.9.) 2. Enter at the opening of the candle at 10:30 hours. This is the entry price. 3. Set the stop loss at 30 pips below the entry price. 4. There are three profit targets at 30 pips, 60 pips, and 90 pips above the EP respectively. (See Figure ) From the long example in Figure 10.11: Entry price = Stop loss = Profit target 1 = Profit target 2 = Profit target 3 = The risk for this trade is 30 pips, and the reward is 90 pips if all three targets are hit. The risk to reward ratio is 1:3, which yields a tidy 9% return if we take a 3% risk. FIGURE 10.9 Closing Price at 10:15 Hours Must Be Lower than Closing Price at 06:15 Hours

3 FIGURE Price Three Profit Targets at 30 Pips, 60 Pips, and 90 Pips Above Entry FIGURE Trade Hits Profit Targets

4 Short Trade Setup The 10:30-hour candle of the charts on FXPRIMUS platform is used to illustrate this strategy because it corresponds to London time 08:30 hours. Here are the steps to execute the English breakfast tea for short: 1. The closing price of the M15 candle at 10:15 hours must be higher than the closing price at 06:15 hours. (See Figure ) 2. Enter at the opening of the candle at 10:30 hours. This is the entry price. 3. Set the stop loss at 30 pips above the entry price. 4. There will be three profit targets at 30 pips, 60 pips, and 90 pips below the EP respectively. (See Figure ) From the short example in Figure 10.14: Entry price = Stop loss = Profit target 1 = Profit target 2 = Profit target 3 = The risk for this trade is 30 pips, and the reward is 90 pips if all three targets are hit. The risk to reward ratio is 1:3, which yields a tidy 9% return if we take a 3% risk. FIGURE Closing Price at 10:15 Hours Must Be Higher than Closing Price at 06:15 Hours

5 FIGURE Three Profit Targets at 30 Pips, 60 Pips, and 90 Pips Below the Entry Price Strategy Roundup This strategy is based on a fixed time period every day, specifically geared towards the opening of the London market. The rules are simple and specific because there is no confusion as to the direction of the trade. Going long or short is the first step that new traders normally get confused on when they begin discretionary trading. With its clear-cut rules and mechanical execution, the English breakfast tea method eliminates the guesswork in terms of strategy direction. FIGURE Trade Hits Profit Targets