GBP/JPY Scalping Strategy

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Tobias Robinson

Tobias is a UK director and partner at Investing.co.uk. He provides commentary on the financial markets in the UK and supports the testing team with first-hand observations from over two decades of active trading.

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William Berg

William is an experienced investment writer with a history in forex trading software localization and IPO consultancy. He contributes as an author and fact-checker for established financial websites.

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In this article, we will show traders a simple strategy that can be used to scalp pips from a ranging currency pair such as the GBP/JPY. This currency pair has a wide intraday range, so it is possible to get very good scalping opportunities when the right indicators are used.

Indicators

The indicators used for this strategy are as follows:

a)    The pivot point calculator.

b)    MACD – using the default settings.

c)     The Laguerre custom indicator, which is actually two indicators in one. Laguerre 1 is used to determine trade entry points. Indicator settings are: Gamma – 0.60; levels – 0.15, 0.85, 0.45; bars – 9500; colour – blue.  Laguerre 2 (used for trade exit determination) is set as follows: Gamma – 0.80; levels – 0.15, 0.85, 0.45; bars – 9500; colour – red. Enable Fixed maximum (~1.05) and fixed minimum (~-0.05) in the Common tab under settings before attaching this indicator to the charts. The Laguerre indicators function to detect oversold/overbought areas of the market.

d)    StochHistogram – A modification of the original Stochastics oscillator to obtain a histogram. Default settings of 14,3,3 are used. The histogram is colour-coded, with a green coloured histogram signifying an uptrend and a red-coloured histogram indicating a downtrend.

e)    Bollinger bands – used with default settings.

f)     Exponential moving averages set at 200 day (Red) and 60day (Blue) levels to find support and resistance.

NB: Personal tests of this strategy has shown that it can also be used on other Yen crosses, but the GBPJPY gives the highest profit ratio as a result of its wide intraday price range. The USDJPY gives the lowest profits with this strategy.

Looking at this chart above which shows one long entry and two short entry setups, we can clearly see the following:

The MACD has to cross from positive to negative (short signal) and from negative to positive (long signal).

At the same time, the Stochastics Histogram must also cross from positive to negative (short signal) or from negative to positive (long signal), and both moves are indicated by the respective colour changes.

The Laguerre 1 and 2 must be trending upwards and must perform a cross at or below the 0.15 level, which represents an oversold region for a buy signal. For a sell signal, the Laguerre 1 and 2 must be trending downwards, and must cross at or above the 0.85 point, which represents an overbought region.

These parameters are not used in isolation. The relationship of the currency pair to the lines of the Bollinger band, as well as the positioning of market price relative to the pivot points must be considered. For a long signal, the market price must not only be above the daily pivot point, but must also cut, or has at least touched the lower Bollinger band. For a short signal, the market price must be below the daily pivot and the price action candle of the currency pair must also have touched or cut across the upper Bollinger band.

All these parameters must align together for the strategy to work. Given that the chart used for analysis and entry is the 5 minute chart, the trader can actually use this strategy to make money from the market several times in a trading day. Since there are always opportunities with this type of trade, the trader should not be tempted to force the market but should rather, be patient to ensure that every single parameter is met.

Strategy Modification

The Laguerre 1 and 2 indicators mimic the activity of the Stochastics oscillator in predicting overbought and oversold conditions. If the trader is unable to get access to the Laguerre1/2 indicators, he can substitute them with the Stochastics oscillator, and use points 25 and 75 as the borders for oversold and overbought market conditions respectively.

Here is another example below:

Long Trade Exits

 The following can be used as rules for long trade exits:

a) Both Laguerre indicators crossing at or above 0.85 (currency asset is overbought).

b) Price action approaches any of the resistance levels as defined by the autopivot calculator.

c) MACD indicator crosses from positive to negative, indicating a change in the trend.

d) Stochastics Histogram crosses from positive to negative, changes colour from green to red, again indicating a change in trend.

Long Trade Exits

 The following can be used as rules for long trade exits:

a) Both Laguerre indicators crossing at or above 0.15 (currency asset is oversold).

b) Price action approaches any of the support levels of S1, S2 or S3.

c) MACD indicator crosses from negative to positive, indicating a change in the trend.

d) Stochastics Histogram crosses from negative to positive or changes colour from red to green.

Used properly, you never have to fear trading the GBPJPY again.