Pisco Sour Strategy for Forex

Pisco Sour Strategy for Forex

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Updated: Aug 24, 2022
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Intermediate
10 min read

Today I am going to make a small but valuable contribution to forex trading and it is the Pisco Sour Strategy , which is nothing more than the application of the concept of operating in congestion zones embodied in a currency trading system. I gave it this name in honor of the “Pisco Sour” which is a delicious Peruvian drink based on Lemon and Pisco and it would not be bad if some could taste it afterwards. Please, do not think that I am encouraging trading with cups hehe; As some students of the course have very cleverly let me know and although it made me laugh a lot, it is not the objective. Health.

I. Instruments to use

  • 233 period EMA
  • EMA of 3 periods (which will represent the price)
  • Locate a Congestion Zone of several days in graphs greater than or equal to 4 hours.

II. Purchase (entry)

We must necessarily be facing a Rally (in this case bullish). Therefore the EMA of 3 should be well above the EMA of 233. This will give us a pretty good idea that we are in the right trend. If the pair is lateralizing it is better to see it from the outside since it would be guessing and we are forex traders not magicians. You are standing on May 15th and you should definitely NEVER buy there. What an efficient trader does is to buy in the future in a fairly low zone where the price was “congested” for several days or (in this case) without wanting to fall further. I am talking about buying in a CONGESTION ZONE which is the blue rectangle on the graph. The zone is defined from the days in which the price was “without wanting to go lower”; I call that “DURATION”, and in this case it was 6 days of congestion or duration. The longer the “my Zone” duration exists, the more it will be respected, therefore the chances that the price “falls and rebounds in said zone in the future are higher”.

Another criterion to define the zone is that the rectangle can at least cover the lower candlesticks (including the lower wicks) where the price could not fall further. The rectangle has a height of 120 pips, which means that any point in it could be a good possible purchase entry in the future. Logically it is more convenient to enter the middle or lower third of the rectangle (if the price allows it).

Determined the Zone we define the Stop and the Limit. That is, how much I am willing to risk and when I aspire to win. After several Backtesting with this method and speaking specifically for the GBP/USD pair and also observing this graph (this is very important) we came to the conclusion that you could risk 100 to 150 pips and look for between 300 to 450 pips. A 1:3 ratio.

III. Purchase (output)

On May 15, the price makes its first fluctuations and whims. We will only wait for you downstairs to buy and leave according to our system. As you can see, it is a medium-term method, not suitable for operators who love to trade for trading. This is a method that is with the trend and ride it when it hits the zone. Another important observation when buying is to see that our fundamental data continues to give us the information of “being in the right trend”. In other words, if we are trading the GBP/USD, knowing that the present and future data from England will not substantially modify the trend (I am interested in the pound continuing to rise) and the same with the USA and its impact on the dollar (I am interested that the dollar continues to depreciate).

I emphasize, I am not asking you to begin to guess the future or devour hundreds of reports, that is fruitless. Not at all, just that they know how to enter a context where the fundamental information goes hand in hand with the trend. Simple.

Congestion zone: buy exit

And that’s what I also like about this method, that it doesn’t make you technically dependent. Good. As the days passed from May 15, the price fell in our area (where we waited for it to buy) between May 27 and 29. We entered buying and the pair started to rise. As I said before, there is no “indicator” that tells us where we should buy. There is the analysis of the area, the prices have memory and this is a faithful test. For those who like a little more risk, the price fell again and then rose again. I particularly would have closed according to my plan (win triple the risk) and then see how it continues to perform, plus 300 pips (or a little more) is not a derisory amount, it is an interesting profit. Greed makes us play tricks. Be responsible.

IV. Sale (entry)

Again we seek to know if we are on the right trend. For this, the EMA of 3 periods must be well below the EMA of 233 periods. How much should the distance be? We could propose a distance between 400 to 800 pips. This data based solely on experience and on the assumption that we operate in a highly volatile and sensitive market. We are stopped on the 3rd of September looking at the past and observing where we could go in the future. Obviously well above to sell in an optimal zone, high congestion and that the price falls again.

We look at our platform and we see that approximately between August 19 and 28 approx. EUR/USD couldn’t go any higher and then fell in the following days. You will notice that my rectangle generously covers even the highest candles of August 22nd. I take that liberty since this congestion zone had 9 days where the price resisted going up and it gives me more confidence to take a bigger stop. Otherwise I wouldn’t.

sales area

V. Sale (output)

It should be clear that I will be waiting for the price between the 1.4760 and 1.4910 zone, therefore the closer to 1.4910 (if possible, we do not have to force the situation either) we enter the sale, the better. Well, we are on September 3, the only thing we know is that we will wait for the EUR/USD in the zone and we will sell when it touches it (that is up to the client’s taste) or when it is at least halfway there. And indeed that happens on September 23 where the price touched the area and even rose to half the height of the rectangle (passing 1.4850). We enter the sale (let’s say at 1.4800) according to the system we place a stop that could be between 100 to 150 pips in order to seek to win 300 to 450 pips. And then we sat down to wait.

With the confidence that the price will respect the zone and with the conviction of trusting our probabilities. For the following days, the EUR/USD was in complete decline, earning more than projected, with which we could also run the stop while the price continued to fall. For those new to the world of forex, trailing the stop means locking in profits. In other words, if I already win 300 pips, I guarantee 100 and if the price turns against us, the position is closed, winning at least those 100 pips. Here for example the price fell 800 pips in the first instance, so I could have insured 600 and wait if the price continues to fall. So it happened and in the end the EUR/USD fell close to 1,300 pips. Reward for a patient and intelligent trader.

Sales area: exit

VI. Pisco Sour Strategy applied to XAU/USD (Gold/Dollar)

After a well-deserved vacation, we return again to this exciting world of currency trading that always brings lessons and surprises of all sizes. Observe, until before the month of July the XAU/USD (or better known as the Gold/Dollar) had had a strongly upward trend movement that came from February of this year with more than 2000 pips of travel: Interesting raw material to think about apply the Pisco Sour strategy. Observe the Congestion Zone (ZC) marked that came from April 27 to May 21 (ie about 25 days) where the pair could not break below the area of 1.156 approx.

Pisco sour with gold - July 1

Personally (and I mention it as an anecdote) I had the area marked several days ago because a trader wrote to me commenting on an operation that he was developing with this pair and he asked me where I thought he could bounce XAU / USD and resume the uptrend again.

> “The marked area (indicate) seems to me to be a congestion area that could provide interesting support”. If the USA begins to produce a string of data that depreciates the dollar and gold continues to maintain its refuge status in contexts of uncertainty and after seeing all this great bullish rally, then thinking of buying the pair in the ZC seemed logical and reasonable to me. .

Pisco sour to gold - July 28

For July 27 we went on vacation (which definitely always come in handy) and the price touched the ZC. And with the honesty that characterizes us, I’ll tell you that we didn’t open it in the real one because the holidays were stronger and the distractions contributed to the forgetfulness that just having it in the demo did. Nor is it to make dramas, because in the end what I intend with this article is that you see how the price respects the ZC very well, helped by the bad fundamentals that were published uninterruptedly week after week for the North American economy.

Pisco sour al oro - 5th August

Then you touch the entry at 1,163.50 on July 28 and 29 (homeland holidays in Peru and I was already in another topic) the pair rose again a little more than 400pip’s. Beyond all, if you had made the entry:

1. Given the current context in the USA, would you close your position now, and if not, where would you plan to close it?

2. Would you run your stop to secure some pips?

Nothing to get euphoric or lose perspective. Be humble when operating. It will be a pleasure to read your opinions and continue crossing information. You learn by reading, commenting and operating. Take heart, this is forex!


Sources & references
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James Knight
Editor of Education
James is a lead content editor for Invezz. He's an avid trader and golfer, who spends an inordinate amount of time watching Leicester City and the… read more.

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3. Stop Loss Strategy
4. Pisco Sour Strategy
a. Pisco Sour Strategy for Forex
5. European Open Strategy
8. News Trading Strategy
9. FX Trading with CFDs
10. MACD Strategy
11. Countertrend Strategy
12. Martingale
13. Soldiers Strategy
15. Trendline Strategy

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