Piranha-trading-strategy

Piranha trading strategy (Forex)

Piranha trading strategy (Forex)  is designed specifically for the GBP/USD currency pair, using the 5-minute (M5) time frame. On average, there are about 15 to 20 trading opportunities for the piranha strategy every day.

tag:  Bollinger bands

Introduction

The forex market spends most of its time either in a trend or in a range. The piranha trading strategy was developed to work when markets move in a range. The piranha strategy was developed to give scalpers ample opportunities to bite the market and chew off small profits each time. 

Time Frame

The piranha strategy works with the 5-minute (M5) time frame.

Indicators

All download link (Indicators and Template) is at the end of this post.

Bollinger bands

1. Period 12, Shift 0.
2. Deviation 2 (default)

Piranha-trading-strategy

 

When prices approach the upper band, it is considered to be in an overbought region. When prices approach the lower band, it is considered oversold. At these extreme levels, markets tend to consolidate and move back to the center moving average line.

By setting a higher deviation value, the price volatility measure will be magnified, and you will get a Bollinger band with wider upper and lower Bands.

Strategy Concept

Bollinger Bands are used to identify the trading band of the GBP/USD. The Bands help us to mimic the nature of the piranhas by giving objective entries for long and short positions. (See Figure 6.7 .)
Long trades are taken when market prices touch the bottom band; short trades are taken when market prices touch the upper band.

Piranhas are active in relatively calm waters, such as rivers, but not in the rough open seas with strong currents and waves. In much the same way, avoid trading this strategy at times of major news releases during the U.S. and U.K. trading hours, as such environments reflect the rough open seas with strong currents and waves. We use the GBP/USD currency pair on the M5 time frame to illustrate both long and short trades.

Long Trade Setup

1. Wait for the market to touch the lower band of the Bollinger Bands.

2. Enter for a long when the market price touches the lower band of the Bollinger Bands.

3. Set the stop loss at 10 pips below the entry price.

4. Set the profit target at 5 pips above the entry price.

The risk for this trade is 10 pips, and the reward is 5 pips. The risk to reward ratio is 2:1, which yields us a 1.5% return if we take a 3% risk.

Short Trade Setup

Here are the steps to execute a short trade using the piranha strategy:

1. Wait for the market to touch the upper band of the Bollinger Bands.

2. Enter for a short when the market touches the upper band of the Bollinger Bands.

3. Set the stop loss at 10 pips above the entry price.

4. Set the profit target at 5 pips below the entry price.

The risk for this trade is 10 pips, and the reward is 5 pips. The risk to reward ratio is 2:1, which yields us a 1.5% return if we take a 3% risk.

Strategy Roundup

At the beginning of this section, I mentioned that piranhas attack their prey until it is totally devoured. In much the same way, once your trade hits a stop loss, the loss is telling you that there is nothing left of your prey and it’s time to look for a new one.

Hence, hitting a stop loss is a telltale sign that the market is no longer trading in a band and it is starting to move into a trend. So how do you look for the next prey?

The answer is to look for a trade that is in the opposite direction of your stop-loss trade. For example, if you took a long trade that resulted in a stop loss, look to short the GBP/USD at the next opportunity with the same rules.

This is an important consideration and a neat trick for you to navigate yourself in trending markets. As this strategy was designed primarily for range trading, it fails badly when the market goes into a strong trend.

Download Indicators and template’s Piranha trading strategy (Forex)

> Bollinger bands

> Template

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