After the eventful week that passed, the internet news is now abuzz with theses echoing my own. Some interesting articles from DailyFX that I found:

Bullish USD

There is another means for the dollar to maintain its bullish projection; but it would be far more difficult to muster. If the world’s reserve currency was able to shake its label as the primary safe haven; it could rise on the merits of its own economic performance. While we have been trending toward this state for some time, it has been very slow. A rapid shift would be difficult to accomplish because of the currency’s place in the world’s financial markets, the prevalence of its Treasuries, the ballooning budget deficit, the fact that it is considered the source of the worst financial crisis since WWII and the very fact that it is used as a benchmark. Nonetheless, data and speculation put this indicator high up on the scale of economic recovery. While the US certainly isn’t enjoying the pace of expansion of its Chinese counterpart; the pace and extent of its recovery are expected to beat the UK, Japan and the Euro Zone (which we will confirm with next week’s GDP numbers). Friday’s non-farm payrolls certainly bolstered this belief after the disappointing details of the 2Q GDP report. Next week’s data will certainly weigh in on this front. A confidence and retail sales report will cover consumer spending which accounts for approximately 70 percent of the economy. The trade report will fill in for global demand and the capital flows it is adds or detracts.

Bearish Swiss Franc

Based on price action on August 7, it appears that the three major “safe haven” currencies have been winnowed down to two, following the surprisingly strong US non-farm payroll results. Indeed, the Swiss franc and the Japanese yen were the weakest of the majors not only for the day, but for the entire week as “riskier” assets like stocks and FX carry trades rallied. The moves were likely very encouraging for the Swiss National Bank, which has made no secret of their desire to prevent the Swiss franc from appreciating against the euro. However, with EURCHF now facing several levels of resistance at 1.5345, 1.5380, and 1.5446, traders may be feeling a little more cautious of assuming that the pair is on a one-way track higher.

Bearish Euro

The euro was one of the weakest major currencies on Friday, but it has little to do with European data. Instead, the release of US non-farm payrolls triggered a surge in the US dollar, which led EURUSD to break out of a tight range and down roughly 200 points. Looking at things from a macro perspective, the US employment numbers have led the markets to price in a greater probability of rate hikes by the Federal Reserve down the line, while the neutral tone struck by the European Central Bank on Thursday has left the euro dead in the water. That said, while 1.4150 offered support for EURUSD on Friday, more substantial support may not come into play until 1.4080, where we have the 50 SMA and a rising trendline connecting the April and July lows.

Bullish Ozzie

The Australian dollar finished the week barely changed against its US namesake, but a surprising shift from the Reserve Bank of Australia and otherwise bullish fundamental developments boosted forecasts for the AUD and sent it to fresh peaks versus the Japanese Yen. Australian central bank officials struck a decidedly positive note on the state of the domestic economy, boosting growth forecasts and pointing to improved conditions in domestic activity. They likewise strongly implied that they view current interest rates as sufficient to nurture growth—leaving the door open for rate increases through the foreseeable future. Markets responded in kind, sending implied December, 2009 interest rates to their highest levels since November of last year. Positive surprises in Employment data likewise boosted sentiment, and bullish sentiment pushed the high-yielding Aussie to fresh 10-month peaks against the safe-haven Japanese Yen.

Lifting my GBPJPY hedge before Wednesday and bolstering my existing dollar longs and european shorts was a timely maneuver as the US payroll and unemployment numbers as well as (I suspect) Swiss and ECB interventions brought both the franc and euro, and squaring off all my existing positions to the profit side.

I feel mildly vindicated by this, but emotional comforts aside, I’m also encouraged that my ongoing strong-dollar thesis is still applicable. The lesson of the past weeks is that playing contradictory theses such as the GBPJPY long hedge against my existing positions is justified not merely as a trade but primarily a protection to core positions, especially when the fact of the matter about trading is that you can never get your timing right most of the time, despite the soundness of the economic argument.

The opposite of this scenario is when the contradictory thesis turns out to be the correct one–in which case the painful part will be liquidating the core position. My only hope is if and when that happens, I’ll also know how to act without hesitation.

Haven’t seen the markets for 2 days straight as I attended a funeral. But before I left town, I took off my GBPJPY hedge and bolstered my Europe shorts and dollar longs. Whilst on my funeral holiday, both ECB and BOE kept rates steady and although these actions were widely expected by the markets, I think they are the catalyst for position liquidations. Employment and payroll reports from the US are due tomorrow night, and like the rate decisions these info could become the proverbial straw that broke the camel’s back.

After the ISM demolished my Europe positions, Aussie dollar came back which squared off my EURAUD shorts. Meanwhile the GBPJPY long hedge has worked nicely and cushioned the PNL for the timebeing.

Aussie news coming up this morning as well as USD news later this evening.

Still playing my contradictory thesis, but USD positions are severely underwater. No indications of a bottoming out yet, but my indications for USD strength persist.

A quick follow-up to my contradictory thesis.

ISM Manufacturing Index released just now was both better than forecast and better than previous period. The result was a further deterioration of my dollar longs and europe shorts as money flowed back into equities and drained out of US dollars. Fortunately, my hedge position in GBP/JPY continues to keep me afloat, and I still have time to consider the interplay of factors as they unfold. Clearly the US economy is contracting, but the speed of contraction is slower than expectations. This doesn’t necessarily bode for a recovery, but it does help sway sentiments in the short-term.

Still a payroll report by end of the week, and lots of economic release in between.

I open this chapter in my real-time experiment (in the same vein as George Soros–although nowhere near the same level of sophistication and scale definitely) just to air out the contradictions I’m trading now, which is keeping me a little on edge. Meanwhile apart from the hedge I’ve implemented on the trading, I can’t really say there is more I can do now other than just play out my strategy until further evidence asserts itself.

I’ve been playing a general thesis of stronger US dollar and a weaker Europe, not because I have faith in the US economy, but only because I expected deleveraging to continue driving money into US dollars–and an additional note that I also think that the credit problems in Europe have not been highlighted yet. Further to this, I’ve taken a long position in US Dollars against Swiss Francs, and a short position in Euros against Australian Dollars. When combined, these positions have only been generally a wash, with my losses in USDCHF longs offset by gains in EURAUD shorts. I’m still holding on to this thesis until seasonal lows in August and September, and will reconsider lifting them come October–which is a usual inflection point for many markets.

The strength in commodity and stock markets have been a surprise, as I’ve been expecting a general correction since April, which would have driven demand to the US Dollar (and helped my longs). Given this, I’ve been forced to take a long GBPJPY position–which is contradictory to my prevailing thesis–but it serves as a hedge for now, and also helps keep my position volatility at a minimum while I reconsider next moves.

On the macro level, COT commitment reports still support my strong USD view, although the market has yet to confirm it. In the meantime, I’m keeping my hedge until the expected monthy seasonality presents itself. Either way, all my positions are carry-trade positive, so at least I get a small cushion of interest while I let the markets play away.

More to follow.

From a client folio prepared by Morgan Stanley. Very illuminating analysis on the USD trends:

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Currencies
The Fed’s QE Operations and the Dollar
November 28, 2008

Summary and Conclusions

The Fed has commenced QE (quantitative easing). In this note, we review the concept of QE and analyse the likely impact of this extraordinary operation on the dollar. The upshot is that, since monetary policy, including QE, is a ‘nominal’ operation, the operation itself should not have significant implications for the real value of the dollar. The nominal dollar value should, thus, only be affected if QE alters the outlook of inflation in the US over the medium term. Also, whether QE by the Fed should erode the value of the dollar should be assessed relative to what other central banks do. To the extent that the ECB and the BoE also conduct QE – which is the case – the impact of QE on the dollar is not necessarily negative.

Having said this, though QE per se should affect the dollar through relative inflation as well as inflation expectations, the underlying structural problems that forced the Fed to conduct QE in the first place should alter the fundamental value of the dollar, relative to those of other currencies. The parlous state of the US financial system should, in theory, be reflected in a lower value of the dollar, had it not been for its hegemonic reserve currency status propping the dollar up during this deleveraging phase. The bloated fiscal deficits (which we assume will exceed those of the G7 countries) will further weigh on the intrinsic value of the dollar.

In sum, whether QE by the Fed is negative for the dollar depends on the inflation outlook of the US and the resulting inflation expectations. But at a fundamental level, the dollar’s intrinsic value has indeed deteriorated with its severely weakened financial sector. We maintain our core view that the dollar should continue to appreciate as the world slows – which we assume will last until next summer – but could give back some of the gains when deleveraging stops and the recovery phase for the US economy proves to be more protracted and treacherous than for other economies. The size and vigour of the dollar rally against the majors in the next six months or so are also likely to be more tempered than we have had in mind, in light of the deteriorating fundamentals in the US. Our call on EM currencies remains unchanged.

Background Discussion on QE

As inflation falls, and the unemployment rate rises, the Fed is likely to embark on QE to sustain monetary stimulus even when the FFR approaches zero. Broadly speaking, central banks can ease by either altering the price of money (i.e., interest rates) or the quantity of money. While policy orthodoxy these days is focused on the former lever, when short-term nominal interest rates approach zero as inflation falls, central banks could in principle use quantitative channels through which to impart monetary stimulus. Since it is the real interest rate that affects economic activities, the zero bound on nominal interest rates exposes an economy with deflation to persistently positive real interest rates. This was the situation faced by Japan in 2000, that interest rates were cut to zero but there was still not enough demand for money for monetary policy to work. That was an old-fashioned case of a ‘liquidity trap’.

However, for the US, Europe and the UK, the current situation is somewhat different. Interest rates are still above zero. The problem monetary authorities face is not quite deflation and inadequate demand for money (i.e., a deficient aggregate demand problem) – though this problem could emerge if demand slows further. Rather, monetary policies lack traction mainly because there is no longer a smooth transmission mechanism from the short-term policy interest rates to broader monetary aggregates, credit and aggregate demand. As a result, Japan had QE with ZIRP, but in the US, Euroland and the UK, there is QE without ZIRP.

There are essentially three broad channels through which a central bank can conduct unconventional monetary easing. First, a central bank could ‘do things’ (i.e., through communications or QE) to foster the expectation that short-term interest rates will stay low for an extended period of time. Indeed, this was the primary aim of the BoJ during its QE episode between March 2001 and March 2006. The FOMC statement in August 2003 which stated for the first time that “policy accommodation can be maintained for a considerable period” is another example of this type of commitment to monetary easing. Second, a central bank could increase the size of its balance sheet to foster an expectation on the future path of inflation. (Currently, the Fed’s balance sheet is around US$2 trillion, up from US$900 billion in August.) The intuition of this ‘money printing’ method of QE is obvious. Third, a central bank could alter the composition of its balance sheet. Assuming that investors treat different assets as not perfect substitutes, central banks’ purchase operations of selected assets could materially alter their prices. The best example is long-term US Treasuries. In theory, the Fed could purchase large amounts of Treasuries to cap the yields, just as the BoJ did through its rinban operations during the QE period. These three different methods of QE are conceptually distinct but operationally fungible. As the US economy slows further, we expect that the Fed will put all three methods of unconventional easing into practice.

The Fed began expanding its balance sheet in September. It may be useful to consider two motivations for QE by the Fed. The first is to take on market securities in an attempt to ‘jump-start’ the banking system; the second is to take on some of the intermediation duties that the private sector has refused to conduct. We looked at how the expansion in the Fed’s balance sheet compares with the experience of the BoJ during the QE period that spanned from March 2001 to March 2006, during which time the BoJ’s balance sheet expanded from around 13% of GDP to about 22% (we measure the balance sheet by the monetary base for both countries). Due to fundamental differences in the financial systems of the two countries, the Fed’s balance sheet has historically been substantially smaller than that of the BoJ – it averaged around 6% of GDP prior to this crisis. By October, however, the Fed’s balance sheet had been expanded to more than 8% of GDP – a 35% increase.

To properly assess the impact of ‘money printing’ by the Fed on inflation, it is important to track the evolution of broader monetary aggregates, and observe how the ‘money multiplier’ – the ratio between broad money and the Fed’s balance sheet – changes over time. We looked at the trajectories for M2 of Japan and the US. During Japan’s QE period, its M2 expanded from around 125% of GDP to more than 140%. In the US, M2 has expanded from 53% to 57% of GDP since September. While the latter is a sharp surge, M2/GDP is not substantially higher than it was during 2003, when the Fed drove the FFR towards 1.00%. Indeed, most of the surge in the figure comes from the anticipated sharp drop in 4Q nominal GDP. To summarise, while base money has increased dramatically (by 34% since August), M2 has grown by only 2.7%.

The reason for this, of course, is that the ‘money multiplier’ (MM) has collapsed, reflecting a severe breakdown in the ability and the willingness of the bank and non-bank entities in the US to intermediate capital to the extent they had done prior to the crisis. The collapse in the US MM is significantly more severe than in the case of Japan, during which time Japan’s MM fell from around 10 times the size of the BoJ’s balance sheet to around 6.5 times (a fall of 35%). In the US in the last two months, we have seen the US MM falling from more than 9 to around 7 (down 22%).

Will QE by the Fed Weaken the Dollar?

Our short answer is ‘no’. But whether this answer is right depends on a number of assumptions. (1) Deflationary pressures cannot be dismissed so easily in this cycle. Analysts can have their views on the inflation/deflation debate; however, to us, the fact that, with half a dozen ‘nuclear options’, the world’s policymakers have not yet succeeded at halting or containing the crisis worries us. It is, to us, very difficult to argue convincingly that ‘it’ won’t happen in the US or elsewhere in the world (see Vice Chairman Don Kohn’s speech last week). While the probability of this risk of sustained deflation is not high, it may be too high for comfort. Though the Fed did act much sooner than the BoJ, the underlying problem is arguably more serious and the financial crisis has severely shocked the ‘money multiplier’, forcing the Fed to intermediate on behalf of the private sector. In short, we fear deflation now more than we fear inflation tomorrow, because we simply have no confidence that this will merely be a ‘deflation scare’.

Our guess is that the Fed and other developed country central banks have a similar asymmetry in fear of the two tail risks: this risk-management approach to monetary easing indeed reflects the asymmetry. (EM central banks have lingering concerns about inflation.) In a way, investors realise this and are betting on the G7 central bankers to overwhelm and neutralise the left tail risk, leaving the risk of the G7 ‘overdoing’ (i.e., over-easing) it more prominent than the G7 failing to re-ignite their economies. In other words, the greater the fears of deflation, the more will be done by central banks to avoid that scenario and, as a result, the higher the risk of inflation in the out-years, or so it is thought. (Ironically, it was this stance the Fed had in 2001-03 that arguably sowed the seed for the ensuing credit bubble.) Having said this, this thought process is logical but very subjective, with no clear right answer, in our view. But tactically, we believe it is wise to bet that the deflation scare will be more powerful a market force as the global economy falters and as central banks fight the ‘icing problem’. Whether there will be inflation is a debate for another day, probably three months from now, and it will probably not be reflected in market pricing, we suspect.

Whether the dollar depreciates depends on whether investors believe that there will be runaway inflation in the US over the medium term. Our view is that the Fed will most likely have time to retract on QE in time to keep a lid on inflation. Without inflation, the dollar cannot be weakened by nominal operations, ceteris paribus. Our guess is that, while dealing with a liquidity trap is difficult, removing stimulus when macro conditions normalise should not be a major problem for the Fed. But this discussion also highlights the importance of the Fed having a credible ‘exit strategy’ for its QE operations. This is essentially the view of Minneapolis Fed President Gary Stern.

Further, while many are focused on this question of QE by the Fed and the dollar, we argue that the ECB will likely be forced down the same path soon. The European and the UK banking systems are just as unwilling to intermediate capital as the American banking system. The ECB and the BoE, therefore, will likely be forced to do some of the intermediation on behalf of the private sector, just as the Fed has been forced to do. So if the Fed, the ECB and the BoE adopt QE, what is the net result on EUR/USD or cable? We think it is very unclear that EUR or GBP will necessarily rally, as is presumed by some investors when they think about the Fed.

Ironically, the tug of war between deflation and inflation fears indicates a reverse Dollar Smile mechanism of sorts. Recall that our Dollar Smile framework suggests that the dollar rallies when the US economy is stronger or weaker than the rest of the world. In the intermediate state, which we call the gutter, the dollar is weak. In the deflation versus inflation debate, on the other hand, both these extremes imply a weak dollar, while the intermediate state would foster dollar strength.

The USD’s Fundamental Value Undermined?

While the Fed’s QE operations affect the nominal value of the dollar through inflation, the severe deterioration in the US financial system must have had an impact on the intrinsic value of the dollar. We stress again that exchange rates are a relative concept, so we need to be sensitive to how much structural damage the financial systems of other developed countries may have sustained. This also includes the fiscal burden that these countries have to take on because of this damage. Notwithstanding all the problems in the US banking system, the size of banks’ balance sheet is much smaller in the US than in many other countries. For example, total bank liabilities are around 650% of GDP for Switzerland, 430% for the UK, 320% for the Euroland, 150% for Japan and 85% for the US. Investors should keep this fact in mind.

In any case, as a rough guesstimate of how the USD major index may be affected by the breakages in the US financial system and the remedial policy actions, we simulated, using our multilateral USD index fair value framework, how the major USD index might be affected by prospective changes in relative productivity, relative terms of trade, relative fiscal positions and the US NFA (net foreign asset) position. Our simulations are centred on the last two variables, as we believe that it is difficult to draw a clear link between the banking sector and relative productivity and the terms of trade.

It looks likely, based on recent developments, that the relative US fiscal position may deteriorate by 2% of GDP, and its NFA position may also deteriorate by 3% of GDP (the US C/A deficit is expected to shrink but will still be large). This scenario maps to a 5.3% depreciation in the fair value of the major USD index, according to our valuation model (the impact of NFA is small due to the small magnitude of the estimated coefficient in our model).

Bottom Line

There are two considerations in thinking about the impact of the Fed’s QE operations on the dollar. First, QE per se can only affect the nominal value of the USD through relative inflation. The greater the inflationary pressures generated by QE, the more the dollar could weaken. Second, the underlying reasons why the Fed has been forced to undertake QE operations may undermine the intrinsic value of the dollar by 5-7%. Thus, while we still expect the dollar to appreciate as the global economy falters, the size of the USD rally against the majors in the next six months will likely be more modest than we had thought. Against the EM currencies, we continue to expect significant USD strength in the next six months.

I’m just writing here my thoughts and strategies about forex trading. I’m not purporting to be an expert but after trading forex for some years several ideas seem to stand out enough to become tradeable principles and guides. All the information here is also a continuing work in progress.

Short-Term Trading

I’m a short-term trader, which is both a function of my limited trading size and the leverage of the forex market, which makes long-term trading difficult to implement, as even an overnight move can destroy a small trading account.

What I mean about short-term is I normally take positions based on 5-minute movements, normally for one to two hours at a time, and rarely keep a position open longer than eight hours.

I’ve read in many trading literature that short-term trading is ultimately prone to higher rates of failure due to the higher number of transactions, which multiply transactional costs compared to medium-term and long-term trading (i.e. based on hourly or daily charts) where positions are kept for days and weeks.

Personally, I can’t argue with that observation, but I also think that the inherent leverage of the forex market also makes it possible to offset the transaction costs of short-term trading. On a 5 minute time frame, it’s possible for forex rates to make up and down moves, which multiplied by leverage, can generate profits–while on an hourly or daily scale, these moves can be quite invisible, because traders on these time frames will often wait for a longer-term signal before they make their moves.

Two Kinds of Traders

When I first started to study and trade markets, I was initially confused at exactly what approaches to take, since there seemed to be a hundred ways to trade markets. However, you read enough books, watch the markets long enough, and talk to enough traders, and you can actually group trading styles and traders into two distinct camps:

• Trend Followers — Those who see an existing trend and trade with that trend expecting it to continue.
• Contrarians — Those who see an existing trend and trade against that trend, expecting it to reverse.

I purposely ignored the traditional grouping of traders into fundamental traders who trade on finance and economic information, and technical traders who trade on price action. In my experience, in order to properly trade the markets, you have to be a combination of both, just like a good doctor will pay attention to a patient’s clinical qualitative symptoms (like coughing) and quantitative statistics (like temperature) in order to make a decision.

In the stock market, fundamental growth investors are trendfollowers—seeking to be aboard fast growing companies. Technical breakout traders are trendfollowers–seeking to jump aboard as prices penetrate a former resistance, or break below a former support. On the flipside, fundamental value investors are contrarians–seeking to purchase good companies at cheap prices, expecting them to recover in due time. Technical overbought and oversold traders are also contrarians–seeking to buy as prices bounce off supports or sell as prices bounce off resistances.

Two Kinds of Markets

Neither trading camps are right or wrong, but what makes it confusing especially for the starting trader is that both camps can be profitable, but at varying times. Whan can be difficult to reconcile for traders is to adopt a single strategy or approach but on the wrong times for a particular market.

By wrong times, I mean that markets can be accomodative to one camp of trading, but be adverse to another. After some years of trading, one realizes that markets often shift between two modes:

• Trending — where prices persist in one direction for an extended period of time.
• Consolidating — where prices zig-zag in opposite directions aimlessly for a period of time.

A trending market will be profitable for a trendfollower, but disastrous for a contrarian bucking that trend, while a consolidating market will be disastrous for a trendfollower expecting extended moves, but be perfect for contrarians who fade every move.

Markets will switch from one mode to another in varying fashion, and depending on the fundamental information being priced in. A fundamental mindset will help the trader identify potential triggers and catalysts for a market move, while a technical mindset will help the trader enter and exit the market in reaction to the market moves.

The Time To Trade

Being a 24-hour market, I soon learned that the catalysts for price moves were the economic data and statistics pouring out of government and private databases round the clock all over the world. Before I get into my trading for the day, I always check the economic calendar for the day to see the market moving data coming out for the day. I consult the DailyFX Economic Calendar for this.

Although I trade off short-term moves, I don’t trade the markets the whole day. I focus on the European opening up to the European and US overlap hours (8am to 4pm GMT) as this is often the time of critical economic news.

Charts and Trading Signals

Although I’ve used nearly all kinds of chart indicators at one point in my trading life, I’ve settled on a set of simple indicators to watch prices against. I don’t mean these indicators are the ultimate holy grail for trading, however these charts do help me immensely in gauging the ever changing nature of the market.

I already mentioned I use 5 minute charts. Over these 5 minute bars, I overlay simple moving averages:

• A 100 period moving Average
• A 25% channel above and below the 100 period average
• A 50 period moving average

Trend or Fade

What kind of trading will work depends on what kind of market is in force at the time. However, and this is basically the bottomline of any trading strategy, it is quite a tricky thing to identify the market mode at the time and execute your trade in time to take any advantage of it.

My choice of indicators on the charts help me do this. Approaching and during my preferred hours of trading, I watch how current prices are doing against my moving averages. Especially during the hours of critical economic releases, I watch as prices approach the upper and lower channels around the 100 period moving average.

If prices approach the upper channel, and remain above that channel for some time, this is a signal for me that the market is ready to trend upwards, and I take a long position.

How long a trending market will continue to trend is impossible to predict, so my signal that the trend is ending is the 50 period average which chases prices upward. Once prices begin faltering towards the 50 period average, this is a signal for me that the trend is failing or stalling, and I close my position.

The same logic works on the downside. If prices dwell below the lower channel, I take a short position, and close it when the previously downtrending prices approach on the upside the 50 period average chasing it.

Now when prices hit the upper or lower channel lines and quickly reverse once touching it, this is a signal that a sideways market is developing, and I take a position opposite the trend–short if the the market had been rising, long if the market had been falling.

The signal to close the position is when prices approach the opposite channel.

Risk Management

At any time I take a position, I immediately put a protective stop if in case my call was wrong. The protective stop is tight, normally 20 points. I have found that I can afford tight stops like this because once prices approach the channels, they often reveal their desired direction very quickly within minutes, either they begin trending, or reverse.

I don’t use any fancy bet-sizing algorithm for my trading–just a fixed percentage loss of 1%-2% of total capital on any given trade. I keep this percentage fixed until my capital grows by 25% then I recalculate the loss tolerance. I also do the same in case my capital contracts by 10%.

Ongoing Improvement

Apart from these basic elements:

1. Identify what can move the market
2. Identify how a market can move
3. Implement a position
4. Manage risk

there really isn’t much more to trading. However, the biggest obstacle I’ve faced is managing my own emotions and instincts. Although my trading rules are pretty inert and leave nothing to interpretation, I find myself overriding my own rules from time to time, usually to my account’s detriment. Managing a trade truly is a function of managing the trader, and that is really the challenge for anyone who wants to trade for a living.

Update: The Eight-Hour Breakout Strategy

Those familiar with Toby Crabel’s opening range breakout strategy will appreciate it’s application to forex. However, Crabel wrote the system for US-based exchanges, which are only open during US hours, and as such: the opening range being mentioned is the first 15-30 minutes of the US market open.

The forex market, being open 24 hours a day, does not have a real “open” in sense (apart from the start of the week’s trading). I’ve adapted the opening range breakout process to the 8 hour intervals which divide the trading day. From 800-1600 is the Asian-Euro bracket, 1600-2400 is the Euro-US overlap, 2400-800 is the US bracket.

An examination of 8 hour ranges shows that the Euro-US overlaps are by far the most volatile and highest-range of the brackets: (in circles below)

Apply the Crabel strategy entails using the immediately preceding bar, the Asian-Euro bracket as the trigger for the breakout. Buy at break of the previous bar’s high, sell the break of the previous bar’s low. Positions are exited at the end of the session (12 noon New York Time).

It’s also a daytrading system, but one that has some whipsaws which if further risk management criteria is added can be overcome.