The highest price is the maximum of the bullish force over a specified period of time.
The lowest price is the maximum of the bearish force over a specified period of time.
Elder Ray consists of three horizontal screens:
A chart with a 13-period exponential moving average. When the moving average rises there is a bullish trend. When the moving average falls there is a bearish trend.
A chart with a histogram of the Bullish Force.
A chart with a histogram of the Bearish Force.
Bullish / Bearish Force is calculated as follows:
Bull Power = High-EMA
Bear Power= Low-EMA
where
High - the maximum price over the period;
Low - the minimum price over the period;
EMA - exponential moving average.
If the price top is higher than the moving average, then the Bullish Force is above zero, so the bullish trend is confirmed. Otherwise, bulls are weak. If the price low is below the moving average this means that the downtrend is very strong. Otherwise, bears are weak.
Elder Ray Buy signals
Moving average rises and Bullish Force indicator is below zero. The best time to buy is when the Bearish Force first falls below zero and then immediately rises.
If new price highs are confirmed by new Bullish Force indicator highs, then it is a good confirmation of the bullish trend.
I would like to share with you a system that has consistently been successful for me, that I would like to call OzFx System.
What can You expect? This system has a potential of banking 100-800+ pips per trade trading with Daily Chart.
Why Daily Chart? As you could guess by now that this is not a 5 min scalping system. I believe in trading longer time frame simply because first of all rules of technical analysis hold true more often and second I don’t want to sit in front of pc all day long.
Think like this, most of us one day would like to be full time traders; however it doesn’t mean that we spend all that time in front of PC. I would rather go flying and playing golf. So I developed this system thinking of long term and hence it is based on Daily Chart.
See It For Yourself: Let’s see if you can spot the correlation between the indicator and the price action.
I bet you were able to spot that short entry (300+ pips). Tell me that you noticed that every time AC changes color and crosses the 0 line it gives us an entry signal. Am I right or right??
Did you see another short trade towards the left side of the chart?? That trade was worth 835 pips in 5 days.
No Clue So far: I believe 90% of the people will be able to spot the correlation mentioned above. If you are one of the unlucky 10%, then I would recommend to try some other system and not to waste your time on this post.
The reason I say above is that we should trade using strategy that is intuitive and easy to follow. Technical analysis is not perfect science; I believe it is an ART, an ART to pick signals as they happen. I am terrible at spotting Flags, Triangles and Head & Shoulders. Hence I keep away from them and don’t want to spend years to master them.
A Bit Of History: I started with Forex few years ago simply because I like the volatility and leverage. I’ve never traded stocks in my life and no plans to do so ever. The only stock I ever held was given to me by the IT company I worked for.
As most of us I tried systems provided on Forums and also commercial system. I tried News Trading, 5 min scalping and astrology (just kidding), but had no luck. I wasted a fair bit of money and precious time on several systems that were not worth their while.
However the learning that took from that was these systems were complex, had too many indicators (or none) and required a great deal of discretion. So I went and did my own research to see what indicators make sense, what setting works best and what time frame they should be used on.
So What Is The System?
Setup:
Open up a daily chart on EUR/JPY.
Apply Bill Willam’s Accelerator Oscillator (AC).
Apply Stochastic with setting 5,3,3 on top of AC. Use the template if don’t know how to.
Try and use demo MT4 from ODL securities. Every broker has different time when they start a new daily candle.
ODL seems to have the time that works best. I only use their demo account for charts and place my trades on totally different broker.
Short Entry: RED AC below 0 and Stot below 0 Long Entry: Green AC above 0 and Stot above 0 Exit: OppsiteBuy/Sell signal or as per Money Management. Filter: Apply 200SMA. If price is below 200SMA then only take short trades. If Price is above 200SMA then only take long trades.
Money Management:
Trade with 5 Lots with Stop Loss 100 pips away
Take Profit on 1st Lot at 50 pips. Move Stop Loss to Break Even (BE).
Take Profit on 2nd Lot at 100 pips.
Take Profit on 3rd Lot at 150 pips.
Take Profit on 4th Lot at 200 pips.
Let the 5th Lot run until you see an opposite entry signal.
The Risk/Reward ratio turns out to be 1:1 or better depending on your 5th Lot. Since we trade on daily and would only take trades with high probability of success, 1:1 would work just fine.
If you choose to do back-testing then take special care for signals from late November to end of Dec. Low volume during this time of the year creates wild swings.
My Challenge To You: Spend 2 mins every day to analyze 8-10 of your favorite pairs. Demo it for 2-3 weeks and post the screen shots of your trades for everyone to see and learn.
What’s In For Me? It is time for me to Give Back. I learned a great deal from forums and thought there can’t be another way to share something that can make us all a lot of money. Plus I hope to learn from others on how to improve this system.
Up Next:
Advance Entry Signals
Advance Stop Loss(SL) and Profit Taking(PT)
What pairs to trade and what corresponding Stop Loss to use?
Reprinted from http://www.babypips.com/blogs/pip-my-system/so_youve_finished_the_school_o.html
About The System
The system is mostly based on the example given in the 11th grade of our School of Pipsology, but I've added a few tweaks that I think will help filter out those whipsaws and increase our win percentage. While the title of the system in the lesson is called the "So Easy It's Ridiculous" system, actually applying it is not. The point I try to stress is that a trading system can be simple and profitable at the same time. This blog will attempt to guide you on the application part of it
The Main Trend Is Your Friend
The main concept of the theory is to catch small trends during the day while avoiding fakeouts. Simple right? Wrong! It's easier said than done. I will be making my trades off of a 15 minute chart, but I will be using a 4hr. chart to give me my main trend. If my 4hr. chart is trending up, then I will only be looking to go long on the 15 minute chart. On the other hand, if my 4hr. chart is trending down, then I will only be looking to go short on the 15 minute chart. By looking at the main trend first, I will have a better chance for a winning trade by moving along with the current market direction.
4hr. Chart Settings:
5 EMA applied to the close
10 EMA applied to the close
Stochastics (10,3,3) (Use slow and simple settings)
RSI (9) (Simple)
The 15 Minute Chart
After establishing the main trend , it's time to look for trade entries on the 15 minute chart. The 15 minute chart looks similar to the 4hr. chart, except for the fact that I have added a MACD histogram. The trade entry rules are simple:
15 Minute Chart Settings:
5 EMA applied to the close
10 EMA applied to the close
Stochastics (10,3,3) (Use slow and simple settings)
RSI (9) (Simple)
MACD (12,26,9) (Exponential histogram)- Make sure the histogram displays the difference between the 2 lines
Long trades:
5 EMA must cross above the 10 EMA (Indicated on my chart by a black candle)
RSI must be greater than 50
Stochastics must be headed up and not in overbought territory
MACD histogram must go from negative to positive OR be negative and start to increase value. (We want to catch trends early so the MACD histogram must be negative)
Short trades:
5 EMA must cross below the 10 EMA (Indicated on my chart by a purple candle)
RSI must be less than 50
Stochastics must be headed down and not in oversold territory
MACD histogram must go from positive to negative OR be positive and start to decrease in value. (We want to catch trends early so the MACD histogram must be positive)
15 Minute Chart Setup:
5 EMA applied to the close
10 EMA applied to the close
RSI (9)
Stochastics (10,3,3)
MACD Histogram (12,26,9)
Stop Losses
There is not a hard number that I use for a stop loss. Instead I use either the most recent swing low (for long trades) or the most recent swing high (for short trades) as my stop loss. Using the examples above, this is where I would place my stops:
In these examples, the stop losses were not that wide. However, there will be times when the most recent swing high or low is several pips away from your entry. This is where you must be careful. If the stop is too wide for you to keep within your money management rules, simply stay out of the market! Trust me, there will always be another trade later. Even if that trade happens to win a gazillion pips, you should never compromise or doubt your decision to follow strict money management.
Exits
Here's where things get a little hairy. You'll have to use your brain for this one. What's that? A trading system that actually requires you to think?! But don't worry; it's really not that hard. Generally 50 and 00 levels will be your targets. What is a 50 or 00 level? It's simply any price that ends in 50 or 00. For example, 2550 and 2600 are examples of a 50 and 00 level respectively.
However, if you are too close to a 50 or 00 level you can also choose to set your target for the same amount of pips you are risking. For example, if your going long and your entry is at 2445 and your stop loss is at 2425 you would be risking 20 pips. You could then set your target for 20 pips away from your entry. So in this example your target would be 2445 + 20= 2465.
Record Keeping
I will have a dedicated post that will constantly be updated as we go along. I'll list total number of trades, number of wins/losses, average winners, average losers, max drawdown, and max winning streak. That way we can track the progress of the system as we go along.
Conclusion
If you're sharp, you may have noticed that I use RSI and Stochastics which both measure overbought and oversold extremities. Referred to as multicollinearity, it's often frowned upon to use 2 indicators that pretty much tell you the same thing. However, in this case I am using RSI as more of a trend confirmation tool rather than an overbought/oversold tool.
I also must mention that I will only be trading the GBP/USD. If you're starting out in the Forex, it's best that you stick to one pair so that you can focus all of your concentration on it. After a while, you'll start to get a feel for its movements, and it will help build your "intuition" on future moves. This is something that will come in handy as you become a more experienced trader.
I will never trade a news candle or the candle before it. If I am in a trade and a major news event is coming up, I will exit my trade before the report is released. I will however trade a candle after the news provided all my criteria are met.
I will close my trade whether I'm in the money or not at 4pm ET because market volume is very low at this time. Trade signals that you see before 12 am ET (midnight) should be taken with discretion because market volume is also low at this time. Optimal signals usually come after 1am ET.
Rules are made to be broken! Yes it sounds like a direct contradiction of what we preach but you have to remember that you are not a robot. There will be times when you will have to adjust to the market conditions and *gasp* break your rules. In the rare occasions that this happens, I will put out an update post to let you know of any split decisions I have to make and why I made them.
In conclusion, I wanted to give this system a name. After all, I don't just want to refer to it as the "So Easy It's Ridiculous" system since we've already established that applying a system to the Forex is far from simple. So as I thought about it, I tried to come up with a name that is relevant to the system's characteristics and at the same time, have it be a really cool name. Since the system attempts to ride the waves of the market I thought it would be appropriate to name it using the language of the surfers. So without further ado...I present to you:
Detailed below is a comprehensive trading system/methodology that I use to trade the forex markets. it can however be applied to any liquid market across any sector.
It is a comprehensive trading system/methodology that incorporates both with and against trend trading, and although I employ it intraday on the lower time frames, it can be applied across any sensible combination of time frames.
In posting it here I am opening it up for discussion/observation/improvement.
Please be aware that this trading system/methodology will not be for everyone but it suits my present trading temperament/tolerances (these may change.) I believe it's essential technical elements detailed and discussed in the docs are widely used to whatever extent by a large number of technical traders.
There is also another pdf giving some basic help concerning the MT4 charting you will need to operate the Trading System/Methodology, this and the indicators and chart templates you will need to operate the system/methodology are attached to the post below.
Article from http://www.financeadvisors.org/articles/FOREX-TRADING-102:-Learning-the-Forex-Trading-Strategies-.html
If you’re a potential investment player who’d like to make it big in the business and financial world, then you go for forex trading. The FOREX, also known as the foreign exchange market is one of the largest financial markets in the world with and estimate of $1.5 trillion turn-overs every day. Here are a few strategies on how to make it big in the forex market.
Strategy One: Know your market. The best way to get advantage, earn profit and minimize losses is to familiarize yourself with the market and how the whole system works. In the forex market, the players are usually commercial banks, central banks and firms involved in foreign trade, investment funds, broker companies and other private individuals with large capital. With the speed and high liquidity of asset, most companies engage in this business than in any other trading venture. Transactions are done in a jiffy; there are no membership fees and there is always the allure and promise of big, big profit.
Trading is done in pairs. The most commonly traded currencies are usually the US Dollar, Japanese Yen, Euro, British Pound, Canadian Dollar, Australian Dollar and the Swiss Franc. The more commonly traded currency pairs are the US Dollar and the Japanese Yen, the Euro and the US Dollar, the Swiss Franc and the US Dollar. In Forex trading, everything is speculative and virtual. There is no actual product being sold or bought. The activity mostly consists of computed entries made on the value of one currency against another. Say for example, you can buy Euros with US Dollar, hoping that the Euro will increase it value. Once its value rises, you can sell the Euro again, thus earning you profit.
Strategy Two: Learn the language. There are three concepts you need to know in the currency market. Pips refer to the increase of one hundredth of a percent of the value of the currency pair you are trading. Usually each pip has a value of $10 or $1. Volume is the quantity or amount of money being traded at one particular time in the market. Buying is the acquisition of a particular currency. A trader buys with the hopes that the price of the currency will increase. Selling is putting a currency up for grabs in the market because of a potential or possibility of a decrease in its value. There are also two techniques of analysis usually used in this business – the fundamental and the technical analysis. Technical analysis is usually used by small and medium players. Here, the primary point of analysis revolves on the price. Fundamental analysis, on the other hand, is used by bigger companies and players with higher capital as it involves looking at the other factors affecting the value of a particular currency. In this type of analysis, the player also looks at the situation of the country, particularly issues like political stability, inflation rate, unemployment rate, and tax policies as these are seen to have an effect on the currency’s value.
Strategy Three: Develop a sound trading strategy. Your trading strategy would depend on what kind of trader you are. The basic thing with developing a trading strategy is to identify what kind of forex trader you are. A good trading strategy should lessen, if not, eliminate losses. Plan also the size of your transactions. It is better to conduct many different trades than one huge transaction. Not only does it develop discipline, but it also lessens any possible loss as only a fraction of the capital is affected. Part of a trading strategy is developing the values of discipline and proper money management.
Strategy Four: Practice. Try paper trading, a great way to practice your skills, see how the market works and get acquainted with the software and tools being used. There are online brokers who allow free paper trades, which allows practice and experience before doing it with real money.
Strategy Five: Choose the right forex dealer. Make sure that they are regulated by the law. Take not of dealers with investment schemes that give out too-good-to-be-true-just-false-hopes promises. Look at investment offers before getting started.
Forex trading may seem easy and manageable. But the emotional stress, the demands and challenges of being a forex trader requires more than just the knowledge of the market. It requires more than just a keen and sensible head for business. It’s all about a gameplan, a strategy.
Buy a copy of School of Pipsology for $49 in PDF format
Buy and download a printable and easy-to-read PDF document containing the ENTIRE School of Pipsology. The PDF is an exact copy of the School section, over 250 pages (pictures included), minus advertisements and chapter-ending quizzes. Read it on-screen or print it so you can take it with you on the road.
When you buy the PDF you'll receive an email within minutes with (1) a DIRECT LINK to download the PDF and (2) a PASSWORD to open the PDF. You MUST have the password to open the PDF.
*Please add INFO@BABYPIPS.COM and SERVICE@BABYPIPS.COM to your SPAM whitelist/safe-sender list.
I agree to be charged $49 for one copy of "School of Pipsology" in PDF format. PAYPAL is the only form of payment accepted. I understand I'm purchasing a single copy for myself and I won't make copies of the book or distribute it to anyone else. If someone else wants a copy I'll encourage them to purchase their own. I also understand that I will need a password to open the PDF each time.
Let’s get into our favorite part of trading…creating your own trading system!
If you do a simple search in Google for “Forex trading systems” you'll find many many many people out there who claim to have the “Holy Grail” system that you can purchase for “only” a few thousand dollars.
These systems supposedly make thousands of pips a week and never lose. They will show you supposed “results” of their perfect system and it will make your eyeballs turn into dollar signs as you sit there and say to yourself, “Wow I can make all this money if I just give this guy $3,000. Besides, if his system making thousands of pips a week, I’ll be able to make my money back in no time.”
Slowww down cowboy. There are some things you should know before you give them your credit card number and make that impulse buy.
The truth is that many of these systems DO in fact work. The problem is that traders lack the discipline to follow the rules that go along with the system.
The second truth (there's such thing as a second truth?) is that instead of paying thousands of dollars to buy a system, you can spend your time developing your own system for free, and use that money you were going to spend as capital for your trading account.
The third truth is that creating systems is not even that difficult. What is difficult is following the rules that you set when you do develop your system.
There are many articles that sell systems, but we haven’t seen any that teach you how to create your own system. This lesson will guide you through the steps you need to take to develop a system that is right for you. At the end of the lesson, we will give you an example of a system that we trade just so we can show you how awesome we are! (Insert evil laugh here.)
Goals of your trading system
I know you’re saying, “DUH, my goal of my trading system is to make a billion dollars!” While that is a wonderful goal, it’s not exactly the kind of goal that will make you a successful trader.
When developing your system, you want to achieve 2 very important goals:
Your system should be able to identify trends as early as possible.
Your system should be able to avoid you from whipsaws.
If you can accomplish those two things with your trading system, we GUARANTEE you will be successful. The hard part about those goals is that they contradict each other. If you have a system in which its sole purpose is to catch trends early, then you will probably get faked out many times.
On the other hand, if you have a system in which its sole purpose is to avoid whipsaws, then you will be late on many trades and will also probably miss out on a lot of trades.
Your task, when developing your system, is to find a compromise between the two goals. Find a way to identify trends early, but also find ways that will help you distinguish the fake signals from the real ones.
Always remember these two goals when you create your system. They will make you a lot of money!
Six Steps to Setting Up Your System
Buy a copy of School of Pipsology for $49 in PDF format
Buy and download a printable and easy-to-read PDF document containing the ENTIRE School of Pipsology. The PDF is an exact copy of the School section, over 250 pages (pictures included), minus advertisements and chapter-ending quizzes. Read it on-screen or print it so you can take it with you on the road.
When you buy the PDF you'll receive an email within minutes with (1) a DIRECT LINK to download the PDF and (2) a PASSWORD to open the PDF. You MUST have the password to open the PDF.
*Please add INFO@BABYPIPS.COM and SERVICE@BABYPIPS.COM to your SPAM whitelist/safe-sender list.
I agree to be charged $49 for one copy of "School of Pipsology" in PDF format. PAYPAL is the only form of payment accepted. I understand I'm purchasing a single copy for myself and I won't make copies of the book or distribute it to anyone else. If someone else wants a copy I'll encourage them to purchase their own. I also understand that I will need a password to open the PDF each time.
The main focus of this article is to guide you through the process of developing your system. While it doesn’t take long to come up with a system, it does take some time to extensively test it. So be patient; in the long run, a good system can potentially make you a lot of money.
Step 1: Time Frame
The first thing you need to decide when creating your system is what kind of trader you are. Are you a day trader or a swing trader? Do you like looking at charts every day, every week, every month, or even every year? How long do you want to hold on to your positions?
This will help determine which time frame you will use to trade. Even though you will still look at multiple time frames (go back to 7th grade if you forgot), this will be the main time frame you will use when looking for a trade signal.
Step 2: Find indicators that help identify a new trend.
Since one of our goals is to identify trends as early as possible, we should use indicators that can accomplish this. Moving averages are one of the most popular indicators that traders use to help them identify a trend. Specifically, they will use 2 moving averages (one slow and one fast) and wait until the fast one crosses over or under the slow one. This is the basis for what’s known as a “moving average crossover” system.
In its simplest form, moving average crossovers are the fastest ways to identify new trends. It is also the easiest way to spot a new trend.
Of course there are many other ways traders’ spot trends, but moving averages are one of the easiest to use.
Step 3: Find indicators that help CONFIRM the trend.
Our second goal for our system is to have the ability to avoid whipsaws, meaning that we don’t want to be caught in a “false” trend. The way we do this is by making sure that when we see a signal for a new trend, we can confirm it by using other indicators.
There are many good indicators for confirming trends, but I really like MACD, Stochastics, and RSI. As you become more familiar with various indicators, you will find ones that you prefer over others, and can incorporate those into your system.
Step 4: Define Your Risk
When developing your system, it is very important that you define how much you are willing to lose on each trade. Not many people like to talk about losing, but in actuality, a good trader thinks about what they could potentially lose BEFORE thinking about how much they can win.
The amount you are willing to lose will be different than everyone else. You have to decide how much room is enough to give your trade some breathing space, but at the same time, not risk too much on one trade. You’ll learn more about money management in a later lesson. Money management plays a big role in how much you should risk in a single trade.
Step 5: Define Entries & Exits
Once you define how much you are willing to lose on a trade, your next step is to find out where you will enter and exit a trade in order to get the most profit.
Some people like to enter as soon as all of their indicators match up and give a good signal, even if the candle hasn’t closed. Others like to wait until the close of the candle.
In my experience, I have found that it is best to wait until a candle closes before entering. I have been in many situations where I will be in the middle of a candle and all my indicators match up, only to find that by the close of the candle, the trade has totally reversed on me!
It’s all really just a matter of trading style. Some people are more aggressive than others and you will eventually find out what kind of trader you are.
For exits, you have a few different options. One way is to trail your stop, meaning that if the price moves in your favor by ‘X’ amount, you move your stop by ‘X’ amount.
Another way to exit is to have a set target, and exit when the price hits that target. How you calculate your target is up to you. Some people choose support and resistance levels as their targets. Others just choose to go for the same amount of pips on every trade. However you decide to calculate your target, just make sure you stick with it. Never exit early no matter what happens. Stick to your system! After all, YOU developed it!
One more way you can exit is to have a set of criteria that, when met, would signal you to exit. For example, you could make it a rule that if your indicators happen to reverse to a certain level, you would then exit out of the trade.
Step 6: Write down your system rules and FOLLOW IT!
This is the most important step of creating your trading system. You MUST write your trading system rules down and ALWAYS follow it. Discipline is one of the most important characteristics a trader must have, so you must always remember to stick to your system! No system will ever work for you if you don’t stick to the rules, so remember to be disciplined. Oh yea, did I mention you should ALWAYS stick to your rules?
How to Test Your System
The fastest way to test your system is to find a charting software package where you can go back in time and move the chart forward one candle at a time. When you move your chart forward one candle at a time, you can follow your trading system rules and take your trades accordingly. Record your trading record, and BE HONEST with yourself! Record your wins, losses, average win, and average loss. If you are happy with your results then you can go on to the next stage of testing: trading live on a demo account.
Trade your new system live on a demo account for at least two months. This will give you a feel for how you can trade your system when the market is moving. Trust me, it is a lot different trading live than when you’re backtesting.
After two months of trading live on a demo account, you will see if your system can truly stand its ground in the market. If you are still getting good results, then you can choose to trade your system live on a REAL account. At this point, you should feel very confident with your system and feel comfortable taking trades with no hesitation. At this point, YOU’VE MADE IT!
Setup Your System in Six Steps
Buy a copy of School of Pipsology for $49 in PDF format
Buy and download a printable and easy-to-read PDF document containing the ENTIRE School of Pipsology. The PDF is an exact copy of the School section, over 250 pages (pictures included), minus advertisements and chapter-ending quizzes. Read it on-screen or print it so you can take it with you on the road.
When you buy the PDF you'll receive an email within minutes with (1) a DIRECT LINK to download the PDF and (2) a PASSWORD to open the PDF. You MUST have the password to open the PDF.
*Please add INFO@BABYPIPS.COM and SERVICE@BABYPIPS.COM to your SPAM whitelist/safe-sender list.
I agree to be charged $49 for one copy of "School of Pipsology" in PDF format. PAYPAL is the only form of payment accepted. I understand I'm purchasing a single copy for myself and I won't make copies of the book or distribute it to anyone else. If someone else wants a copy I'll encourage them to purchase their own. I also understand that I will need a password to open the PDF each time.
In this section I will give you an idea of what a trading system should look like. This should give you an idea of what you should be looking for when you develop your system.
Trading Setup
Trade on daily chart (swing trading)
5 EMA applied to the close
10 EMA applied to the close
Stochastic (10,3,3)
RSI (14)
Trading Rules
Stop Loss = 30 pips
Entry Rules
Enter long if:
The 5 EMA crosses above the 10 EMA and both stochastic lines are heading up (do not enter if the stochastic lines are already in the overbought territory)
RSI is greater than 50
Enter short if:
The 5 EMA crosses below the 10 EMA and both stochastic lines are heading down AND (do not enter if the stochastic lines are already in oversold territory)
RSI is less than 50
Exit Rules
Exit when the 5 EMA crosses the 10 EMA in the opposite direction of your trade OR if RSI crosses back to 50
Okay, let's take a look at some charts and see this baby in action...
My ’So Easy It’s Ridiculous’ System
Buy a copy of School of Pipsology for $49 in PDF format
Buy and download a printable and easy-to-read PDF document containing the ENTIRE School of Pipsology. The PDF is an exact copy of the School section, over 250 pages (pictures included), minus advertisements and chapter-ending quizzes. Read it on-screen or print it so you can take it with you on the road.
When you buy the PDF you'll receive an email within minutes with (1) a DIRECT LINK to download the PDF and (2) a PASSWORD to open the PDF. You MUST have the password to open the PDF.
*Please add INFO@BABYPIPS.COM and SERVICE@BABYPIPS.COM to your SPAM whitelist/safe-sender list.
I agree to be charged $49 for one copy of "School of Pipsology" in PDF format. PAYPAL is the only form of payment accepted. I understand I'm purchasing a single copy for myself and I won't make copies of the book or distribute it to anyone else. If someone else wants a copy I'll encourage them to purchase their own. I also understand that I will need a password to open the PDF each time.
As you can see, we have all the components of a good trading system. First, we’ve decided that this is a swing trading system, and that we will trade on a daily chart. Next, we use moving averages to help us identify a new trend as early as possible.
The Stochastics help us determine if it’s still ok for us to enter a trade after a moving average crossover, and it also helps us avoid oversold and overbought areas. The RSI is an extra confirmation tool that helps us determine the strength of our trend.
After figuring out our trade setup, we then determined our risk for each trade. For this system, we are willing to risk 30 pips on each trade. Usually, the higher the timeframe, the more pips you should be willing to risk because your gains will typically be larger than if you were to trade on a smaller timeframe.
Next, we clearly defined our entry and exit rules. At this point, we would begin the testing phase by starting with manual back tests.
Here are a couple of examples:
If we went back in time and looked at this chart, we would see that according to our system rules, this would be a good time to go long. To backtest, you would write down at what price you would’ve entered, your stop loss, and your exit strategy. Then you would move the chart one candle at a time to see how the trade unfolds.
In this particular case, you would’ve made a massive pip gain.* You could’ve bought yourself something nice after this trade! You can see that when the moving averages cross in the opposite direction, it was a good time for us to exit. Of course, not all your trades will look this sexy. Some will look like ugly heifers, but you should always remember to stay disciplined and stick to your trading system rules.
In this example, we can see that our criteria is met and at this point we would enter short. Now we would record our entry price, our stop loss and exit strategy, and then move the chart forward one candle at a time to see what happens. I’ll bet you a $1000 that I’m right on this trade.
Well, isn’t that amazing?! It just so happens that I’m right again! You can see that we would’ve stayed in this trade until the moving averages crossed again and RSI went back to 50.
We know you’re probably thinking that this system is too simple to be profitable. Well the truth is that it is simple. You shouldn’t be scared of something that’s simple. In fact, there is an acronym that you will often see in the trading world called KISS. It stands for Keep It Simple Stupid!
It basically means that trading systems don’t have to be complicated. You don’t have to have a zillion indicators on your chart. In fact, keeping it simple will give you less of a headache.
The most important thing is discipline. We can’t stress it enough. Well, yes we can.
YOU MUST ALWAYS STICK TO YOUR TRADING SYSTEM RULES!
If you have tested your system thoroughly through back testing and by trading it live on a demo for at least 2 months, then you should feel confident enough to know that as long as you follow your rules, you will end up profitable in the long run.
Trust your system and trust yourself!
Summary
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There are many systems out there that work, but many traders lack the discipline to follow the rules and as a result, still end up losing money.
Your trading system should attempt to accomplish 2 goals:
Be able to identify a trend as early as possible
Be able to find ways to avoid whipsaws (confirm your trend)
If it is profitable, then you trade your system live on a demo account for at least 2 months. This will help you get an idea of how you would trade your system when the market is moving. It is a lot different trading live than manually backtesting.
Once you’ve demo traded your system for at least 2 months and you are still profitable, you are then ready to trade your system live with real money. However, you must always remember to stick to your rules no matter what!
There are 6 steps to developing your system:
Find your timeframe
Find indicators to help you identify trends early
Find indicators to help you avoid whipsaws and confirm your trend
Define your risk
Define your entry and exit
Write your trading system rules down and ALWAYS stick to those rules!
There are 3 phases to testing your system:
Back test- go back and time and move your chart forward one candle at a time. Trade your system according to its rules and record your trades to see if it ends up being profitable.
If it is profitable, then you trade your system live on a demo account for at least 2 months. This will help you get an idea of how you would trade your system when the market is moving. It is a lot different trading live than manually back testing.
Once you’ve demo traded your system for at least 2 months and you are still profitable, you are then ready to trade your system live with real money. However, you must always remember to stick to your rules no matter what!
I am in my mid-forties, an IT professional graduated with BE degree. Career-wise I am in mid-level management role working in a fulfilling job with some traveling in Asian region and some free time available to pursue other interests. I have been trading Forex for the past 4 years. So far, I have busted 2 trading accounts and wipe out $40K SGD. This blog is a record of a renew journey in trading Forex.
(4 Dec 2008)
