Greetings to all Forex traders! Today we will introduce you to the profitable trend trading system Gambit, which was invented by the famous trader and chess player Walter T. Downs. The essence of this chess strategy is to sacrifice an important piece in order to gain a tangible advantage over your opponent. In Forex, you can draw the following analogy with the Gambit chess strategy. You are sacrificing the opportunity to earn extra money for more profit. That is, you enter into no more than one trade per week, but the profit on it exceeds all those small trades that you could open during this week. And this is not to mention the high accuracy of signals from the Gambit Forex strategy, which is 85-90%. At the same time, the take profit is several times higher than the stop loss, which makes this trading system very profitable and effective. See also our rating of Forex brokers.
Gambit strategy. Confident attack on the foreign exchange market
The author and developer of the Gambit system is Walter T. Downs, who proposed a description of this strategy back in 2010. Subsequently, he improved and refined the trading method, experimented with indicators, and as a result, today we have a reliable strategy that provides high-quality signals for speculative operations. So, what results did the honored trader manage to achieve? Let's consider a more or less average interpretation of this trading idea, which can now be easily found on the Internet.
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Walter T. Downs recommended using currencies with increased volatility as a trading instrument. These are the British pound, Japanese yen, New Zealand, Canadian and Australian dollars. You can work with them both among themselves and in combination with USD and EUR. A combination of Bollinger bands with the same period but different deviations is used as a trading indicator. Walter T. Downs indicated D1 as his working time frame, although it must be said that now the younger generation of traders is using Forex Gambit on H4 to increase the number of trading signals.
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Forex Gambit Basics
It uses currency pairs with increased volatility : JPY, AUD, GBP, CAD, NZD. All these pairs can be combined with EUR and USD.
The trading indicator of this Forex strategy is Bollinger bands, which have the same period, with different deviations. The author of the new interpretation indicated the time frame D1, although it can also be used on H4 , since the number of trading signals in this time period will be greater.
The settings of this indicator will be as follows:
- Bollinger Bands with a period of 30, no shift applied, deviation 1, apply to close, red line color;
- Bollinger Bands with period 30, shift not applied, deviation 2, apply to close, line color green.
Strategy Graphic Elements
Before dealing with practical examples, let's remember some important concepts of foreign exchange markets and graphical elements in particular. In order for the Gambit strategy to be applied in trading, refresh your memory of the basic aspects of Japanese candlesticks:
- High — maximum prices of each bar of the current chart;
- Low — minimum prices of each bar of the current chart;
- The range of a candle is the price distance between the High and Low of each bar of the current chart;
- The candle body is the price distance between the opening and closing prices of each bar on the current chart.
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Useful recommendations for applying a profitable Gambit forex strategy
It is highly undesirable to use exotic currency pairs for trading. The assets of this group have a low level of liquidity, which significantly increases the likelihood of deposit loss. More information about the main currency pairs on Forex can be found here.
If desired, the Gambit forex trading strategy can also be used on charts with a shorter time interval. However, for profitable trading you need to experiment with the indicator settings. Increase your rejection rate to avoid entering a trade prematurely.
For successful trading using the Gambit forex strategy, develop a balanced risk management system. For beginners, the best option would be to invest no more than 2-3% of the total deposit in one transaction. This technique allows you to insure the trader against premature withdrawal of the deposit.
Sell trading signals
To enter a trade, you must follow clear rules. Selling speculation opens when the following conditions occur:
- The average line of the indicator, which is essentially a regular moving average, should have a downward trend over the last 10 bars;
- The High of the last formed candle must be higher than the High of the previous one;
- Low of the last one – higher than Low of the previous one;
- The closing price of the last formed candle must be lower than the middle of the range of the previous one;
- The last closed candle (signal) should be as close as possible to the middle line of the Bollinger Bands. The further the closing price of the “signal” candle is from the middle line, the riskier the transaction.
Strategy based on bollinger bands. Rules of application
As you can see, with a minimum of indicators on the chart, we have as many as 5 conditions for generating a signal, which, of course, affects the human factor of decision-making, especially for novice traders. However, if we abstract from categorical conditions, then in fact we are looking for an established upward trend with a fading correction for it, therefore, according to the original idea of Walter T. Downs, we enter the market at the opening of the bar after the appearance of the “signal” pattern at the moment when the price is as close as possible to the Bollinger Moving Average.
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After opening a sell position, Stop Loss is set 5 points above the High “signal” candle, which, on average, gives us from 100 to 150 points of a fixed level for closing a losing position. This Stop Loss level can be considered small, however, D1 is not the best time frame for working and searching for entry points.
It is also worth noting that the author of the idea drew attention to another point. If, with an open position, candles with a short price range begin to form (hammer, dodge, hanging man, etc.), then this indicates balance and equilibrium in the market and, as a consequence, impending uncertainty. Therefore, the trader needs to consider the possibility of moving the position to breakeven before the stated time, or early forced closure with a smaller profit. This, as we understand, adds factors to the subjective interpretation of the market situation, which cannot be a strong point of the strategy.
System development
This trading system first appeared in the June issue of the journal “Technical Analysis of STOCKS & COMMODITIES”, devoted mainly to trading on the American stock exchange (stocks, commodity futures, etc.), but there is also a small white space for materials about Forex, where the description of the Gambit strategy ended up. It was created by Walter T. Downs, a successful trader, a good chess player and a mathematician who spent a lot of time on scientific research in probability theory.
As the author of this system explains, it is aimed primarily at receiving signals with high accuracy. This allows you to increase the risk in one transaction, deviating from the canons of money management, which, due to the predominant number of reliable trading signals, allows you to quickly increase your deposit, receiving a lot of profit from each placed order.
After creating the Gambit Forex trading strategy, Walter T. Downs did not stop working on it and, during long practical tests, significantly refined it. Describing this trading system in the magazine, the author at that time used a moving average in it, but in the course of constant improvement, he replaced this indicator with “Bollinger bands”.
Trading signals to buy
The trading signal to buy for the Gambit strategy is mirrored to the sell signals, namely:
- The average band of the indicator, which is essentially a regular moving average, should have an increasing trend over the last 10 bars;
- The High of the last formed candle must be lower than the High of the previous one;
- Low of the last one – lower than Low of the previous one;
- The closing price of the last formed candle must be higher than the middle of the range of the previous one;
- The so-called “signal” candle (the last closed one that formed the signal) should be as close as possible to the middle line of the Bollinger Bands. The further the closing price of the “signal” pattern is from the middle line, the riskier the trade.
After opening a buy position, set Stop Loss 5 points below the Low “signal” candle. We transfer the position to breakeven on the 4th or 5th day after the transaction. Take Profit is determined by the position of the upper green curve of the indicator.
When to move a trade to breakeven
You should also know that after completing a transaction, it must be moved to breakeven as soon as the price has passed four days in the desired direction, but still retains the potential for movement. In some cases, a deal opened using the Forex Gambit strategy is transferred to breakeven even earlier. Typically this is done after two days if the market is sluggish and various dojis, crosses and hammers are forming with short bodies and shadows.
In such cases, if there is a small profit, then it would be better to set a breakeven two days later and secure your deposit, since there is a high probability that the entry point did not occur at the point of completion of the correction, but at a place where a trend change could occur.
Brief conclusions
There is a rational grain in the Gambit Forex strategy, since the Bollinger Bands themselves are built on the mathematical laws of the behavior of random variables. And therefore, these laws are more applicable than ever to the foreign exchange market. According to mathematical laws, the currency price should be in the area of the arithmetic mean (moving average), deviating only in the range of the mean square (in our case, the upper and lower curves). Therefore, when the price is at the Moving Average in the presence of an uptrend, then the probability of the price difference to the upper limit of the standard deviation is very high, similarly to the lower limit in the presence of a downward trend.
However, it should be noted that Bollinger Bands are not the best tool for determining correction levels, as well as overbought (oversold) levels. For these purposes, there is a whole line of oscillators, for example, Fibonacci levels, which are quite applicable on D1. Also, as mentioned above, when choosing an entry point on a daily timeframe, Stop Loss of 100-150 points is quite small, but this problem can be solved by entering the market on a smaller timeframe, using, for example, oscillator signals about overbought level zones (oversold).
The binary gambit strategy is especially popular among novice traders. And if you are interested in this method, then be sure to read the reviews of real traders who trade using this tactic. Read about other profitable strategies and tools that allow you to find entry and exit points from the market on our website.
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Additionally
If your temperament does not allow you to be careful, you can try the following options:
- activate transactions even if the “control candle” does not touch the avg. Bollinger Bands;
- During pullbacks, assign equal importance to both the middle and other Bollinger Bands. This way the signal will arrive much more often;
- go to the lower timeframe (5M, 1M).
Does the Gambit vehicle work? Yes, tested by hundreds of traders.
