Time Zone Breakout Strategy Using MT5 Indicators
The Time Zone Breakout strategy for binary options is traded at the open of the London and New York time zones, which is when trading activity in the financial markets is at its heaviest.
This trade setup can thus be traded twice a day.
For the purpose of this demonstration, we will describe the New York session setup and then describe the modifications that need to be made for its use in the London session.
This is traded on 15 minute time frame chart.
The Time Zone Strategy
We will use the Call/Put option with this strategy. The New York time zone is the period when the major market economic indicators are released to the financial markets. At the start of this session (which is between 1300 and 1500 GMT or one hour earlier when Daylight Savings Time is on), trading activity in London is met by new trading activity in New York, thus producing heavy market volatility. This causes price action to breakout either to the upside or downside, as market players in the New York zone try to get in on positions to benefit from earlier happenings in the London session.
Free MT5 Indicators Needed
For this strategy, we need two custom indicators:
- ant GU Breakout indicator
This free MT5 indicator demarcates the time period under consideration for the setup of the breakout trade. On the chart, it will paint a different colour to the area where price action will be used to setup the trade. It also draws trend lines on the highs and lows of price action within the zone under consideration.
- i-Paramon Work Time indicator
This free MT5 indicator shows the price action area between 1pm and 3pm GMT. When DST is on, the price action area will shift an hour earlier to 12pm – 2pm GMT.
When you apply the indicator to the chart, adjust the settings as follows:
GMT deviation of the ant GU Breakout indicator: Move the cursor of your computer to the top of a white candlestick or the bottom of a black candle on the chart. A dialog box will show the high, low, open and close price of the candle, and the time that the candle opened. Check this time and compare it with your local time, then check how many hours your local time deviates from GMT. This will help you identify the number of hours that your chart platform deviates from GMT. Click on the indicator settings, and adjust the “GMT shift of your broker” parameter by entering the number you obtained into this space, then click OK to effect the change.
Use the GMT deviation to adjust the time zone, which is marked “Start” and “End”. If the GMT deviation is +2, (i.e. platform time is 2 hours ahead of GMT), then the “Start” hours will be adjusted to 3pm for “Start”, and 5pm for “End”. If the GMT deviation is -1, then Start will be 12pm and End will be 2pm.
Choose colour settings that will make it easy to see the trend lines. You can also use the line tools on the platform to make the lines more visible.
This strategy is only suitable for currency assets, especially USD pairs. So you can trade the EUR/USD, GBP/USD, USD/JPY, USD/CAD and USD/CHF with this strategy.
Open a 15 minute chart for the currency pair you want to trade, and apply the indicators. The strategy is to see if the price action will break out of the horizontal trend lines drawn by the ant_GUBreakout indicator either to the upside or downside, then wait for the price to attempt a pullback on the broken trend line. For an upside break, we will set a CALL trade, or for a downside break, we will set a PUT trade.
- The expiry time for each trade should be 15, 30 or 45 minutes. These expiry times are available on all binary option platforms.
Here we want to see if the price will break below the lower trend line which has been traced by the ant_GUBreakout indicator.
Here, we can see that price broke below the lower trend line. However we have to wait for a pullback to this trend line. The moment the candle touches this area, we execute a PUT option and set the expiry as described above.
Here, the asset broke above the upper trend line, then opened and pulled back to the upper trend line traced by the indicator. This is where the CALL option is set, with an expiry time set as described above.
In both examples, we can see that the indicator settings have been adjusted as shown so that clear visualization of the trend lines (and the prices which correspond to them), as well as the time zones under review can be achieved. In addition, the platform time corresponded to GMT, so the GMT shift was set to 0 and the Start and End times adjusted accordingly.
Please note: Do not be in a hurry to open a trade immediately after the breakout. You must wait for a pullback to the broken trend line to ensure that the best possible entry is achieved, giving your trade a better chance at being profitable.
Few important points to note
1. The strategy will also work during the London session. Simply open both indicator setting areas, adjust the GMT shift as earlier described, and set the time to 7am to 9am GMT as the time zone under consideration.
2. Adjust the colour settings of the indicators to get the best visuals.
3. Signals are only valid for a few hours.
4. Trade currency pairs which will be actively traded during the period under review. For instance, you cannot be trading the AUD/JPY in the New York session; traders in this part of the world will already be asleep. This is to get the best volatility for price movements.
5. You can also add the volume indicator to the chart. If volumes are higher when the breakout is occurring, this is confirmation that there will be enough movement to put any trades you make in profit territory before they expire.Published in Free Strategies