EUR/GBP Cross Rate Trade

Entry Logic

• Entry triggers on a divergence between the EUR/USD and GBP/USD.
• Confirmation requires the RSI (14) to show divergence with price on the 4-hour chart.
• Timeframe is the 4-hour chart.
• Location is at a key support or resistance level.
• Market condition is typically a ranging market.

Exit Logic

• Profit target is the midpoint of the recent range.
• No scaling out.
• Trailing stop is not used.
• Exit on signal failure if the price breaks the support/resistance level.
• Exit on an opposite signal from a new divergence in the opposite direction.
• Exit on time expiration after 48 hours.
• Exit on momentum loss if the price fails to move for 8 hours.

Stop Loss Structure

• Hard stop is placed 25 pips beyond the support/resistance level.
• No soft stop is used.
• Maximum dollar loss is 0.5% of account equity.
• Maximum percent loss is 0.5% of account equity.
• Structural stop is placed beyond the support/resistance level.

Risk Management Framework

• Risk per trade is 0.25% of the account.
• Maximum daily loss limit is 1% of the account.
• Maximum weekly loss limit is 3% of the account.
• Maximum drawdown allowed is 10%.
• Risk-reward ratio requirement is a minimum of 1:1.5.

Position Sizing Model

• Sizing is based on a fixed fractional model (0.25% of account per trade).
• No volatility adjustment is used.
• Conviction sizing is not used.
• No scaling in.
• No scaling out.

Trade Filtering

• Avoid trading during major UK or Eurozone news releases.
• Requires a clear divergence between EUR/USD and GBP/USD.
• Instrument is EUR/GBP.
• Can be traded at any time.
• Avoid trading in strongly trending markets.

Context Framework

• Trend direction is not a primary factor.
• The focus is on the relative strength and weakness of the two currencies.
• Moving averages are not used.
• Location is a key support/resistance level.
• Higher timeframe (daily) should show a ranging market.

Trade Management Rules

• This is a mean-reversion strategy.
• Take profits at the target.
• Do not add to the position.
• Be patient and let the trade play out.

Time Rules

• Optimal trading window is during the London and New York sessions.
• Avoid trading during the Asian session due to lower volatility.
• EUR/GBP is most active during the European session.

Setup Classification

• A+ setup: Clear divergence at a major support/resistance level with RSI confirmation.
• A setup: Clear divergence at a minor support/resistance level.
• B setup: Divergence without RSI confirmation.
• C setup: Trading in a strongly trending market.

Market Selection Criteria

• Instrument is EUR/GBP.
• Requires a ranging market.
• Volatility should be low to moderate.

Statistical Edge Metrics

• Expected win rate is 65%.
• Average win is 1.5R.
• Average loss is 1R.
• Profit factor is 1.92.
• Expectancy per trade is +0.3R.

Failure Conditions

• Strategy fails when a strong trend develops.
• Avoid trading when there is a major fundamental shift in either the UK or Eurozone economy.

Psychological Rules

• Be disciplined to trade against the short-term momentum.
• Trust the mean-reverting nature of the cross rate.

Advanced Components

• The divergence between EUR/USD and GBP/USD is the key advanced component.
• No other filters are used.
• Multi-timeframe alignment with the daily chart is helpful.

Location

• Strongest in ranging markets.
• Weakest in trending markets.
• The market condition is the most important factor.