Asian Box Forex Scalping Strategy
Table of Contents
The three largest trading exchanges are in London, New York and Tokyo. London is the largest, followed by New York, and then Tokyo.
Though Tokyo session could be considered quiet compared to the other two markets, it has a unique characteristic that tends to set the direction for the whole of the Asian session. An hour prior to the Asian session, no other big markets are open for trading. The US market just closed and London is closed until later in the day. Because of this, only a few securities, commodities, and trade transactions are done during that small window of time. This lack of direction an hour prior to the open causes a jolt to the Asian market as Tokyo wakes up and starts its trading day. Some pending orders that were not filled the prior day gets filled.
Trade related foreign exchange transactions that were not processed gets processed. Western traders wanting some of the Asian stock exchange action buys their yen. These and all other foreign exchange related transactions that were put on hold since the close of yesterday’s session causes a slight jolt on the USD/JPY pair.
The idea behind this strategy is to cash in on that slight jolt. A few pips a day, but with big positions, that might bump the trading account a little.
The Asian Box
The idea here is to create a 1-hour box prior to the open of the Tokyo trading session. We will be marking the start and end of that hour. Then, from their we will be marking the high and the low of that time window. That should make a box with the high and the low marked as the edge of the box.
It is important to note that there would be differences in the time displayed on the MT4 platform since it will be based on the server’s time zone. Try to identify what time zone your broker’s server is in, then try to find out what time is the equivalent of the Tokyo session open. Tokyo Stock Exchange opens 9AM their time. This means you will need to box their 8AM – 9AM. It is better to do this on the lower time frames to make the highs and lows more visible.
This is what it should look like on the 5-minute chart.
The Straddle Strategy
So, you have a box. Now what? How do we trade this? Because the hour prior to the open is quiet, you wouldn’t know which direction the Asian market is gonna take. However, what you know is that it is gonna move. So, you put pending orders both ways.
The straddle strategy is when you are putting two pending stop orders with price sandwiched in between. This is why it is called straddle. To do this, you will be putting a pending buy stop order at the high of the box, and a sell stop order at the low of the box. This way, either way price would go, your order will be filled, as soon as price breaks out of the box.
The stop loss should then be placed on the opposite side of the box. The stop loss for the buy stop order should be placed at the low of the box. And the stop loss for the sell stop order should be placed at the high of the box.
However, there will be many instances wherein the breakout would turn out to be a fake-out. Price could punch through the high or low with a strong candle and then creep back in the box to go the opposite direction. What we will be cashing in is that strong candle that breaks out of the box. For this reason, we won’t be aiming for a high target, instead we will just be aiming for five pips. That five pips target is pretty much easy to achieve.
This is an example of a straddle strategy with the sell stop order being filled.
Notice how the spike occurred a few minutes after the opening of the Tokyo session. The spike did fill the sell stop order on the first candle after the breakout and dropped some more before creating a structure below.
This strategy is a high probability strategy because of the big moves that occur during the open of the Tokyo session and the low target set for the take profit. But it is not perfect. There are times when the spike just barely misses the take profit target before going the other direction, or worse just barely fills the buy stop order before going the other direction towards the stop loss.
Another weakness is the size of the stop losses. Straddle strategies usually use the opposite entry as the stop loss. Because the straddle is based on an hour’s high and low, the stop losses are wide. Often, the risk-reward ratio for this strategy is less than 1:1. However, its high win rate ratio covers up for this low risk-reward ratio. What this strategy is banking on is the high probability that the take profits will be filled due to the spikes. Use this strategy with a sound money management system and you might be growing your account.