One of the better ways to earn from the forex market is to understand the currency pairs market cycle in relation to its main markets. This is because, by understanding the currency pairs market cycle, cycle stages may present inefficiencies due to the cycle itself, which we could capitalize on.
Knowing that we could assess market contractions and expansions on the intra-day level easier, let us explore one of the inefficiencies of the USDJPY pair on this level.
Market cycles are dependent on the time of day the main markets of the pair are on. For this currency pair, the US and Tokyo market are the ones we will be looking at, and their cycle goes with the rising and setting of the sun in both markets. Because of this, constant inefficiency presents itself. This inefficiency is during the time when both markets are closed. During this time, it is very predictable that the market would go into a contraction phase. As the usual market cycle, the next phase would be a rapid and violent expansion. As the next major market of the pair opens for business, this rapid expansion phase kicks in quickly which could usually cause strong momentum.
After the New York market closes, there is a three-hour window when no major market is open for the USDJPY pair. During this time, the market enters into a contraction phase. Then, as the Tokyo market opens, a rapid market expansion occurs.
How to trade with Tokyo Daybreak Forex Trading Strategy?
To work well this trading strategy, you have to identify the time of the correct 1H candle that represents the first hour of the Tokyo session. It varies from broker to broker. Then, mark the three candles prior to this candle. These candles represent the time after the close of the New York session but prior to the Tokyo session. Bracket the high and low of the three candles to represent our range. The breakout of this range would be our market direction.
Currency Pair: USDJPY only
Timeframe: 1-hour chart
- Bracket the high and the low of the market on the three hours prior to the Tokyo open
- Set a buy stop order three(3) pips above the high
- Set a sell stop order three(3) pips below the low
Set the stop loss at the opposite end of the range
- For the buy stop order, set the stop loss at the low of the range
- For the sell stop order, set the stop loss at the high of the range
Trail the stop loss as the market moves in the direction of the trade until stopped out
- For buy trades, trail the stop loss at the low of every 1-hour candle at candle close
- For sell trades, trail the stop loss at the high of every 1-hour candle at candle close
How to download and install an indicator?
In order to install the indicator on your MT4 platform, you need to follow these steps:
- Click on the “Download Indicator” button located at the bottom of the screen.
- Save the file to your computer.
- Extract and move the files into the MT4>Indicator folder of the MetaTrader4 software file directory.
- Restart your Metatrader platform.
- Navigate to “Indicators.”
- And select the “Tokyo Daybreak Forex Trading Strategy” template to apply it on the chart.
Note: This indicator was developed by T. Morris. AtoZ Markets does not carry any copyrights over this trading tool.