The average daily volatility over the last three week for the EUR/USD is 57.9 pips. The EUR/USD is the pair I typically day trade, but since the spread in the GBPUSD is basically the same, the 68.5 pip daily average movement in that pair is more attractive currently. For real-time stats see Forex Daily Stats.
Therefore, I recently adapted the envelope strategy to the GBP/USD, using a 0.012% exponential envelopes and a 5-minute chart. Stops and targets will vary slightly based daily volatility and how the pair has been acting before I begin trading, but typically we are looking at about a 5 pip stop and 8 to 10 pips targets. Trades all lasted longer than 20 minutes, or four 5-minute price bars, so if trading binary options you’d likely want to choose an expiry 20 to 30 minutes away.
GBPUSD Day Trading
Early in the session the pair is directionless with minimal movement. This is not appealing for day trading purposes, so this period is crossed out.
The price then rallies creating an uptrend and it just barely pulls back far enough for us to enter long at the lower band (first up arrow). A stop of 5 pips a target of 8 pips was placed. It took 50 minutes for that trade to hit the target, but eventually did.
Overall the pair only moved about 44 pips in the whole session (high to low), so it was a very quiet day, and being conservative on the profit expectations was important.
(Click to enlarge chart)
The price moves higher and then pulls back to the lower band. At this point I had no real reason to doubt the uptrend. I went long again at the lower band with a 5 pip stop and was eventually stopped out as the price drifted lower.
By that time the price had created a couple lower swing lows and lower swing highs, so on the next price pullback to upper band I went short. Used a 5 pip stop again, which was never in danger, and about 30 minutes later the target was hit.
About 45 minutes later another short signal developed as the price pulled back to the upper band. The trend was still down as the small recent really was less aggressive than the prior sell-off (see: Interpreting Price Data: Magnitude and Velocity). That short trade lasted about 20 minutes and was also profitable.
We then had a massive green bar which was news related. I don’t have day trading orders out close to news because it is a too much of a gamble. The economic news release spiked the price potentially changing the downtrend into an uptrend. I went long at the lower band on the pullback. Initially the price rallied, but when it created a significantly lower high and then fell back toward the lower band. I got out of the trade with a small profit; it wasn’t acting how it should if the trend was indeed up.
The price continued to chop back and forth for some time, offering no real opportunities since there was no trend. Eventually we got a drop, indicating a renewed downtrend. I went short on the pullback when the price reached the upper band, but once again the price failed to follow through. I bailed on the trade early for a small profit as the price created a higher low and then rallied back toward the upper band. Once again, it wasn’t acting right if the trend was truly down.
Given the prior choppiness and overall slowness of the day, I stopped trading, which was wise because the price continued to do nothing for the next couple hours.
Overall, 5 winners out of 6, but two trades were only marginally profitable. 1 trade hit the stop and 3 hit the target. Overall the envelope strategy seems to work ok on the GBPUSD, but it will take many more days of trading to know if it can be consistently applied to the pair.