When day trading I like to use a strategy that capitalizes near the session and highs. There are typically stop orders clustered above the session highs and lows from people who placed trades earlier in the session. That means that when the price approaches the session highs and lows with some momentum, it often blasts through (sometimes only temporarily).
This doesn’t mean we just buy at the session high and short at the session low. Do that, and you will often be too late to the party.
When to Trade the “Session High Low” EURUSD Day Trading Strategy
This strategy can be utilized once London has been open for at least 1 hour, and any time during the New York/London overlap period. It is possible to get trades once London closes, and only New York is open, but you want to make sure that the price is still moving. If the price is only moving a few pips on each price swing after London closes, then don’t use the strategy. Don’t use the strategy near the end of the New York session or after it closes.
Trade the strategy after 3 AM EST and prior to 3 PM EST
Session High Low EURUSD Day Trading Strategy Setup
There are multiple variations for this strategy. Ultimately, we are simply looking for price action setups that indicate the price could move to and through the session high or low.
Once the session high or low is set, the price must move significantly away from it. This a requirement.
I use a 1-minute chart.
The session high and is a moving target. At a given point in time, there is only one session high or low. Old ones no longer matter for this strategy once they have been penetrated.
One of the simplest versions of the strategy is to watch for contracting volatility just below the session high or just above the session low. This typically looks like a triangle pattern, but it doesn’t need to look perfect or have nice trendlines. The price swings just need to be contracting (getting smaller with each passing one).
Once the price starts contracting, then watch for a consolidation. A consolidation is when the price moves mostly sideways for at least three price bars.
The price must then break out of the consolidation in the direction (toward) of the session high or session low. This is the trade trigger.
The consolidation must also form on the same side of the contraction as the session high or low. For example, near the session high, the consolidation must occur in the upper half of the triangle/contraction pattern, preferably near the top of it.
This strategy may provide one or two trades a day, but not always. Occasionally it produces more, but some days it produces none simply because the price doesn’t form the right pattern.
As indicated, there are multiple variations of this strategy with slightly different setups. Look at your charts near the session highs and lows and see if you can spot any other patterns that tend to produce favorable results.
For other trades, check out the Technical Turnaround EURUSD Day Trading Strategy.
Session High Low Strategy: Stop Loss and Target
The stop loss part is simple. Put the stop loss on the other side of the consolidation. If the breakout was to the upside (near a session high) place the stop loss 0.2 pips below the consolidation low. If the consolidation breakout was to the downside (near a session low) place the stop loss 0.2 pips (plus the spread) above the consolidation high.
You could use a trailing stop loss, or a fixed reward:risk ratio. This latter choice is the simplest and will likely work best for most people.
Utilize a 2:1 reward:risk, meaning if the distance between the entry and stop loss is 4 pips, then the target is placed 8 pips away from the entry. If the stop loss is 5 pips, place a target 10 pips away.
With a 2:1 reward to risk, you can win 40% of your trades and still be profitable. The goal is to win more than that, but even with a 40% win rate the strategy is profitable. A 60% win-rate is achievable with this strategy; a 50%+ win rate is the goal.
Often you can get away with a larger than 2:1 reward:risk, but it may mean holding through some ups and downs in the price. Start with 2:1, and if you notice that you’re leaving money on the table, look through your results and see what your R:R could have been used. 3:1 is often attainable as well.
Or, if you notice a lot of momentum, or the price is really coiled up and looks like it could explode, possibly look at using a larger target or utilize an aggressive trailing stop loss once the price has surpassed your 2:1 reward:risk target (order not actually placed). In this case, just use a market order to exit the trade once the trailing stop loss is triggered. This is favorable in situations like the following chart example. It shows a 2:1, for a 5.5 pip profit…but the aggressive trailing stop loss would have resulted in a more than 27 pip profit and about a 10:1 reward:risk (if risking 1% on the trade, the accunt would be increased by 10% on this trade alone).
Having trouble sticking to your trading plan or your position sizing? Creating a daily routine can help, as it helps reinforce good habits and reminds us daily of how we should be trading.
By Cory Mitchell, CMT. Join me on Twitter @corymitc.
Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage