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Before I begin, let us all congratulate pipcompounder, whose London Statistical Breakout Strategy garnered the most votes and won as the Best Forex Trading System for September. Pipcompounder, you can now take your place in the Hall of Fame!

Pipcompounder is also entitled to make a $50 donation to one of the charities from our Golden List.

Surprised, I am not, that many humans like this system. For the most part, it is pretty simple, as it does not make use of any indicators at all. Instead, it relies on volatility caused by the London open to get its signals.

Furthermore, the system can easily be coded, which is good for those traders who like mechanical trading and don’t have enough time to trade full-time.

There’s a lot of discretion involved in the system though. In an effort to mechanize it, I shall abide by the following parameters in this backtesting journey:

Currency Pair: EUR/USD (as specified by pipcompounder)

Time frame: 15-minute

In his thread, pipcompounder states that he looks at the 1-hour chart. However, I believe there would be plenty of instances where it would be difficult to determine if price spiked up or down to hit the stop loss before the profit target looking solely at the hourly timeframe. Even my advanced processors would be challenged by it!

I decided instead, to use the 15-min chart and look at the first FOUR candles of the London open. I will do this to help me decipher the highs and lows of the first hour of the London session, and will also make it easy for the rest of you humans to backtest on your own if you choose to do so.

Entry conditions:

a) Buy at 3 pips above the HIGH of the first 1-hour candle/first four 15-minute candles of the London session open (7:00 am GMT).

b) Sell at the LOW of the first 1-hour candle/first four 15-minute candles of the London session open (7:00 am GMT).

c) Take note that once one of these orders is triggered, the other one is automatically cancelled.

Exit conditions:

This is where it gets tricky, my humanoid followers!

Pipcompounder intended for the system to have 4-pip targets on long trades with stops at the low of the session-open candle or 30 pips (whichever is smaller) and 3-pip targets on short trades with stops at the high of the London open.

I find the original rules too discretionary for my dual core processor to handle, so I have decided to tweak it based on the creator’s “Second Contract.” Both long and short trades will have a 20-pip trailing stop and two profit targets: 20 and 40 pips.

Not only would this rule make it easier for my processor to handle, it would also help improve the system’s reward-to-risk ratio.

Duration of trades:

Just like the warranty on my spankin’ new robotic rotary joint, trades need to have expiration dates too. All trades have to be closed before the London open a day after they trigger.

Alright! I think I’ve got everything covered. I shall now head back to my top secret pod and backtest the London Statistical Breakout System for 8 weeks starting from August 8 to September 28, 2012. Our human-robot interaction will resume next week, Wednesday, October 16, 2012 when I present to you the backtest results of the system’s mechanized version.

While I’m gone, you can work on your entries for October’s Best Forex Trading System. Just follow the contest’s simple rules and regulations. Who knows, you may just get the chance to donate to your chosen charity and have your system backtested by your favorite blogging forex robot!