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Tf20manual

  1. 1. TREND FOREX 2.0 TRADING SYSTEM | 2 All rights reserved. Except for brief quotations in a review of this publication, no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means – including electronic, mechanical, photocopy, recording, scanning or otherwise – without the prior written permission of the author. Disclaimer and Risk Warning Trading any financial market involves risk. This e-book and the website www.trendforex20.com and its contents are neither a solicitation nor an offer to Buy/Sell any financial market. The contents of this e-book are for general informational purposes only (contents also mean the website www.trendforex20.com and any email correspondence or newsletters related to the website). Although every attempt has been made to assure accuracy, we do not give any expressed or implied warranty as to its accuracy. We do not accept any liability for error or omission. Examples are provided for illustrative purposes only and should not be construed as investment advice or strategy. No representation is being made that any account or trader will or is likely to achieve profits or loses similar to those discussed in this e-book. Past performance is not indicative of future results. By purchasing the e-book, subscribing to our mailing list or using the website you will be deemed to have accepted these terms in full. The author, the website, the e-book, and its representatives do not and cannot give investment advice or invite customers to engage in investments through this e-book. We do our best to insure that the website is available 24 hours per day but we cannot be held liable if for any reason the site is not available.
  2. 2. TREND FOREX 2.0 TRADING SYSTEM | 3 The information provided on this manual is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject us to any registration requirement within such jurisdiction or country. Hypothetical performance results have many inherent limitations, some of which are mentioned below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example the ability to withstand losses or to adhere to a particular trading program in spite of the trading losses are material points, which can also adversely affect trading results. There are numerous other factors related to the market in general or to the implementation of any specific trading program, which cannot be fully accounted for in the preparation of hypothetical performance results. All of which can adversely affect actual trading results. We reserve the right to change these terms and conditions without notice. You can check for updates to this disclaimer at any time without notification. The content of www.trendforex20.com and this manual are copyrighted and may not be copied or reproduced.
  3. 3. TREND FOREX 2.0 TRADING SYSTEM | 4 VERY IMPORTANT – DO THIS FIRST I’ve included ALL the indicators and template used in the Trend Forex 2.0 system. If you followed the download instructions in the members’ area correctly you should have downloaded the INSTALLER that will quickly install these indicators and template onto your MetaTrader4 platform. First, if you haven’t got MetaTrader4 on your computer, you have to install Meta Trader 4 first. The following step will guide you through the installation steps. INSTALL METATRADER4 My favorite forex broker that uses MetaTrader4 is LBSFX. They offer micro lots which are great for very small accounts and if you open a live account they will give you a bonus of up to $1000. Go here to register and download MT4: http://www.lbsfx.com/tradingbonus/ Once you're there, you can sign up for a live or demo account. After you sign up, you'll be taken to a download page where you can download MetaTrader4. Once the installer file has been downloaded, double click on it. A menu will appear for you to select your desired language.
  4. 4. TREND FOREX 2.0 TRADING SYSTEM | 5 Follow the instruction on the screen to complete the set up
  5. 5. TREND FOREX 2.0 TRADING SYSTEM | 6
  6. 6. TREND FOREX 2.0 TRADING SYSTEM | 7 Once you are done, click on the check box to launch Meta Trader 4. Set up a demo account You will be asked for opening an account when running Meta Trader for the first time.
  7. 7. TREND FOREX 2.0 TRADING SYSTEM | 8 Fill up all the necessary information to open a new account and Click Next to continue
  8. 8. TREND FOREX 2.0 TRADING SYSTEM | 9 Choose your trading server and click next
  9. 9. TREND FOREX 2.0 TRADING SYSTEM | 10 Click finish button to complete your account registration process.
  10. 10. TREND FOREX 2.0 TRADING SYSTEM | 11 INSTALL TREND FOREX 2.0 SYSTEM Once you have got Metatrader 4 installed successfully on your computer it is time to install the special indicators for Trend Forex 2.0 trading system. This is a simple process just make sure you follow the instructions step-by- step. You can also follow the video located on the member’s area if you wish. Now, you can start to install and use The Trend Forex 2.0 system To install it, just follow the following procedure 1. You need to close the Meta Trader if you are running it 2. Go to the place on your computer where you save the file trendsystem20.exe, double click on it to run the installer. 3. The installer wizard will start and you have to follow the screen instruction to complete the setup process. The setup process includes the following steps
  11. 11. TREND FOREX 2.0 TRADING SYSTEM | 12 Step 1 You just have to click Next to continue to next step
  12. 12. TREND FOREX 2.0 TRADING SYSTEM | 13 Step 2 Choose “I agree….” and click Next to continue
  13. 13. TREND FOREX 2.0 TRADING SYSTEM | 14 Step 3 Choose the root folder of your Meta Trader and click Next
  14. 14. TREND FOREX 2.0 TRADING SYSTEM | 15 Step 4
  15. 15. TREND FOREX 2.0 TRADING SYSTEM | 16 Step 5 Congratulations. You’ve completed the installation process. All the indicators and template are already installed in your MT4 platform.
  16. 16. TREND FOREX 2.0 TRADING SYSTEM | 17 Load The Trend Forex 2.0 System To load the Trend Forex 2.0 System onto your chart simply right click on the chart and select ‘Templates’ from the menu, you will see a template called “Profitabletrend”, select it.
  17. 17. TREND FOREX 2.0 TRADING SYSTEM | 18 Your chart should now change and look like the one below:
  18. 18. TREND FOREX 2.0 TRADING SYSTEM | 19 Introduction – Welcome to PTFS Welcome to the Profitable Trend Forex System (further referred to as PTFS throughout the rest of this book). Let me be the first to congratulate you on your choice to work towards a future with Forex. With PTFS on your side you have the tools you need to earn Forex profits consistently and leave that dreaded day job behind. Before we get you there though, we’ve got some work to do (or you’ve got some learning to do – however you want to put it). Throughout this manual we will give you all of the tools you need to get started with your Forex profits. We’ve tried to write this manual so that it will work for both new and experienced traders. From that, we will walk you through the knowledge you need to start, and then move into the PTFS system; the trading system that will ensure you stay profitable for years to come. In the first three chapter we will cover some of the basic knowledge you need. The chapters are title “Precursors to Trading” and they’re named that way because all of it is information you need to know and understand before you trade using PTFS (or any trading system for that matter). For many newcomers to Forex their first instinct is just to get trading. The urge is there to start so that those profits start rolling in. Here’s the big secret though: without a good knowledge of the basics, you won’t succeed even with the best trading system. Yes your PTFS package includes a complete indicator set and a well laid out system of rules to ensure you earn profits. But, if you don’t know the basics of Forex, of Money Management, and even of the indicators themselves you will find it much more difficult to maintain larger profits. For that
  19. 19. TREND FOREX 2.0 TRADING SYSTEM | 20 reason we highly recommend that if you don’t have years of experience with Forex trading that you take the time to learn the information we lay out for you in the first few chapters – before you ever make a live trade. If you do want to do some trading as you learn: Download a copy of Metatrader (download from your favorite broker), use the installer that came with the system to ensure you have the right indicators and then watch the videos that came with your package. This will allow you to familiarize yourself with PTFS while learning some of the basics. And, it will get you familiar with the trading rules before you ever put your own money on the line. Even if you’re an experienced trader, we suggest reviewing the material that is laid out for you in the first few chapters. Not only will this be an excellent refresher for you, but it will also help you to get familiar with the indicators used in PTFS. . Really, some of the most profitable traders out there started with simple practice accounts and they used those free accounts for months before even putting a dollar of their own money on the line. Working this way will help to ensure you aren’t sweating bullets when you make your first live trade, and that you don’t end up making bad trading decisions because of it. However you choose to learn, one thing is quite certain. If you follow the guide we have laid out for you, and learn to use PTFS the way it was intended to be used, you could make a fortune with Forex. We’ve given you all of the tools you need right from start to finish. All that’s left is for you to learn, and then to start trading. With that said, let’s get started!
  20. 20. TREND FOREX 2.0 TRADING SYSTEM | 21 Wishing you Profits Galore, John Chen & Associates
  21. 21. TREND FOREX 2.0 TRADING SYSTEM | 22 Precursors to Trading Part 1 - It all Starts with the Basics To begin our journey into the world of Forex profits we need to start somewhere. In this case, we just need to start with the basics. In this chapter we will cover some of the need-to-know topics that will ensure you get the right start with Forex. Even for the experienced traders who use this manual, it is suggested that you at least review the material in this chapter. The money-management section especially is important to staying profitable with any trading system. One note before we move one: Forex is a very large and complex topic. If you’re brand new to trading and don’t yet know what a PIP is, what a long trade or a short trade is, or how to trade in general – I’ve included some links in the conclusion section of this chapter to help you out. Having a clear understanding of the basics will help you to ensure you get off to the right start, and also that you understand the material we will cover over the next few chapters.
  22. 22. TREND FOREX 2.0 TRADING SYSTEM | 23 Some Basic Rules for Trading Okay so you’re ready to start trading. Maybe you’ve heard from a friend about the money they made in Forex, or possibly you read a news article that touted the benefits of trading. However you decided to get into Forex there are a few things we need to cover before you start trading. Since you’re reading a book on trading systems, I’ll assume that you at least know what a pip is, what it means to go long, and what it means to enter a short trade. Even with your prior knowledge though, we need to cover some more of the basics. Mostly we need to talk about how to calculate profits, how to calculate per-pip values, and we need to discuss a little about the right way to get started. To begin let’s just talk about a five rules that you should keep in mind as you make your way into putting real money on the line in the world of Forex. Rule #1 – Don’t Trade with Money you can’t afford to Lose The first rule of trading with real money is simply don’t trade with money that you can’t afford to lose. It isn’t that you should expect to lose money, but there are some real problems with using money that you can’t afford to lose. Consider for a moment: If you begin trading with $5,000 that you saved for the purpose of trading alone, then you can trade without a lot of stress. Sure, five grand may be a lot of money to you at the moment, but because you set it aside for the
  23. 23. TREND FOREX 2.0 TRADING SYSTEM | 24 purposes of trading with it you aren’t under an extreme amount of pressure to profit from your trades. On the other hand, if you mortgaged your house, quit your job, and now have everything on the line (yes there are those who have done this) with Forex you suddenly have a huge amount of pressure to succeed. Without profiting from your trades your second mortgage won’t get paid and your family won’t eat. With huge amount of pressure comes poor trading decisions and emotionally charged trading. This is really a sure-fire way to fail at trading. You haven’t allowed yourself any room to learn and grow as a trader and you will have trouble making informed trading decisions when your next meal rides on earning money right now (emotional trading is very bad). I won’t set guidelines to how much you should start with when you do begin live trading. What I will say is that you should start with money that won’t hurt your finances if you lose it. Rule #2 – Get Confident with Your Trading System before You Trade The next rule of active trading with a live account is that you should become comfortable with any trading system before using it. Yes, we have tested our trading system extensively and we do profit from it every month. In fact we know this system so well, all it really takes is a glance at a chart and we know how we’re going to enter the trade. On the other hand, you don’t have that experience with the system yet. Work to learn PTFS well before you start putting your own money on the line. This will help you to ensure that you follow entry and exit rules properly and in turn profit consistently.
  24. 24. TREND FOREX 2.0 TRADING SYSTEM | 25 There are two simple ways to get familiar with the system. Trade it on a practice account for a while. Or, print out some charts (with the appropriate indicators) and back test everything manually. Use historical trade data to learn when you should have entered, when you would have exited, and how much you would have made on each trade. Rule #3 – Don’t Stop Learning The next rule I want to share with you is simply that you should never stop learning Forex. If you really want to make it a career, or even if you’re just using it as an investment vehicle, the more you know the more informed you will be when you trade. By the end of this book you will have a complete trading system, a sound money management system, and you will have the tools you need to trade profitably. Does that make you a Forex master? The short answer is no. And the simple truth is that the more you know, the more you will earn. Spend a little time each day reading about Forex. Read Forex news, read about the latest idea and newest indicators. Learn all that you can about your new trade. Doing so will ensure you constantly grow as a trader (and your profits as well). Rule #4 – Use sound Money Management The next rule may be the most important idea that you ever learn when it comes to trading. When you trade Forex, money management matters. In fact it matters so much that we devoted an entire chapter of this manual to it (others have devoted entire books to the topic).
  25. 25. TREND FOREX 2.0 TRADING SYSTEM | 26 Before you are finished this manual, you will have a sound money management plan. Using it, and never deviating from the rules, will ensure that you never risk more than you need to. With your risk level always kept to an allowable level you will ensure that when a losing streak comes (and it will at times) you don’t drawdown your account to the point where you can’t recover. If you looked closely at 100 failed traders, I can almost guarantee that 95 of those 1000 failed because they didn’t manage their money correctly. Again – money management matters – learn it, use it, and never allow yourself to deviate from the rules you setup. This rule is key if you want to profit from Forex. Rule #5 – Trust Your Trading Systems – Emotional Traders need not Apply The final rule sort of builds off the others that we’ve shared so far. It’s simply that you should trust your trading systems. By the time you are finished this book, you will have a profitable system to trade with, you’ll have rules for sound money management, and if your followed rule #2 you took some time to get confident with those systems. Now – trust them – keep your emotions out of the trade. You will have winning streaks and losing streaks. The key to staying consistently profitable is to trust those system and don’t sweat it if you lose two trades in a row. Yes, when it happens it sucks. But I guarantee if you get upset about it and decide to take revenge on the market by entering stupid trades to try and earn back the money you lost on that three-loss streak – you will lose more!
  26. 26. TREND FOREX 2.0 TRADING SYSTEM | 27 Trading Forex – Some Basics With some basic rules out of the way let’s just cover a few calculations that you will need as we move forward. First we need to know how to calculate a per-pip value. That is, the amount that one pip of any currency pair is worth. The formula is actually quite simple, it looks like this: (1 pip with proper decimal placement/exchange rate) * lot size = pip value To use it in an example, assume for a moment that the USD/JPY is currently quoted at 124.56. (0.1 / 124.56) * 100,000 = $8.03 USD per pip. If you were trading mini lots instead of full lots, it would look like this: (0.1 / 124.56) * 10,000 = $0.803 USD per pip. It should be noted here that this formula is only required when the USD is on the left side of the currency paid (USD/JPY, USD/CHF, USD/CAD, etc). When the USD is quoted on the right side the number always works out to $1 per pip for mini-lots and $10 per pip for full lots. Let’s demonstrate this with another example. If the EUR/USD was currently trading at 1.1563, then using our formula we get: (0.0001 / 1.1563) * 100,000 = $8.64827 (we aren’t finished yet so we don’t round to the nearest cent yet). In this case though we have calculated the per-pip value in EUR. To get back to USD we need to multiply by the exchange rate. 8.64827 * 1.1563 = $10 per pip.
  27. 27. TREND FOREX 2.0 TRADING SYSTEM | 28 You’ll find this to be the same with any currency pair that quotes the USD on the right side of the pair. This calculation can be used whenever you need to calculate profits/losses, and it should be used in your back testing. It can also be used to calculate stops with other trading systems (PTFS will determine the stop for you). For our purposes we will use it to calculate risk, and then adjust our trade sizes if need be. Another area that needs some discussion before we move on to money management is leverage. Remember our rule #1 – don’t trade with money you can’t afford to lose? With increasing leverages some traders take this rule to mean start with just a few hundred dollars and use higher leverages. Just because you can only afford to lose $200 right now, doesn’t mean that you should open a 500:1 leveraged account and start trading today. You’ll be much better off starting with a higher initial balance and using 100:1 or at the most 200:1 leverage. The idea of leveraging can work against you just as it works for you. In case you don’t understand the concept here let’s just discuss it for a moment. Currency is traded in lot sizes of 100,000 units of a currency pair, or in mini-lot sizes of 10,000 units of a currency pair. If you were trading with 1:1 leverage that would mean you need to put the full dollar amount on the line. With $10,000 on the line for a mini lot and each pip being worth only $1, you would need to make 100 pips profit for only a 1% return on your account. If that were the norm in the world of Forex it likely wouldn’t be so attractive to so many people. What makes Forex so attractive is leverage. Instead of having to put $10,000 on the line to trade $10,000 of currency you only have to put a small portion of that money at risk.
  28. 28. TREND FOREX 2.0 TRADING SYSTEM | 29 With 100:1 leverage you would need 1% of 100,000, or $1000 on the line to trade a full lot of currency. If you were using 200:1 leverage you would only need 0.5% of the $100,000 ($500) to trade a full lot. Now we’re talking profits. With the 200:1 leverage, if I made a trade with 1 mini lot of currency, I only have to risk $50 to trade $10,000. If that trade moved in my favor by 100 pips, I earn $100. Since I only put $50 up in the first place, that’s a 100% return on my investment. The problem is that most new traders forget to look at the opposite end of the spectrum. If that same trade went against me I also lose $100. That’s a 200% loss! Where things get really scary is when new traders come into the world of Forex and decide to open an account with $200 and 500:1 leverage. The numbers can be attractive. You only need to risk 1/500 = 0.002% to make a trade. Suddenly with your 500:1 leverage you have the power to move 2 full lots of currency. That is, you can trade $200,000 with only $200 on the line. The problem is that if that trade moved only 10 pips against you, your entire trading account would be erased. Using large leverages is a sure way to become discouraged before you ever really give Forex a chance. Anything more than 200:1 is risking too much. I personally don’t trade with more than 100:1 leverage. Limiting risk is important, and it will be the topic of the entire next chapter.
  29. 29. TREND FOREX 2.0 TRADING SYSTEM | 30 Precursors to Trading Part 2 - Talk about Money Management One area that needs some attention before we begin trading is money management. We won’t spend a lot of time here. Rather we just want to cover some of the basics and give you a real system you can use to ensure you are always working to limit your risk and maximize your profits. With many trading systems your money management system would define your stops, your take profits, and even your trade sizes. With PTFS the system itself defines most of that for you; so all we really need to cover here is managing risk and calculating risk based on the stop you will set. Money Management in a Nutshell To begin with, let’s just talk about why money management is so important. This is really a lesson in drawdowns, but it should add clarity to why managing risk matters. Let’s assume for a moment that you have a live trading account. To start out you have a $10,000 account, and your account leverage is 100:1. With that amount of money you have the power to trade ten full lots of currency (or in other words $1,000,000) Now let’s say you make a trade. We don’t really have any money management rules at this point so we just decide to trade off of our gut. Your trading system is giving a buy signal and you know this one is going to be a money maker. So you enter with 2 full lots of currency (to keep things simple we’ll trade EUR/USD so that each pip is worth $10 x 2 lots). Let’s look at this situation for a moment:
  30. 30. TREND FOREX 2.0 TRADING SYSTEM | 31 • You have $10,000 to use. • With one trade you’ve just risked 20% of your capital. Now assume you were wrong and the trade went against you. With one trade you lose 50 pips. Here’s where we are at: 50 pips x $10 per pip x 2 lots = $1,000 you’ve just lost in one trade. In other words you risked 20% of your account and ended up losing 10% of the money you had in the account in the first place. No big deal right, 10% is simple enough to make back. The problem is that you don’t need to earn just 10%. You now only have $9,000 to work with so to get back just the $1,000 you lost you need to make back $1000/$9000 = 0.1111 or 11.1%. We’re just beginning though. Assume you made the same trade again, and again you lost $1,000 again. In fact to prove a point let’s just assume we lost 6 trades in a row. If we risked $2000 each time and lost $1000, the numbers begin to look like this: Drawdown Account Balance Percentage Needed to Recover 10% 9,000 11.1% 20% 8,000 25% 30% 7,000 42.8% 40% 6,000 66.6% 50% 5,000 100% 60% 4,000 150% In just six trades you’ve lost 60% of your account and to gain back what you lost you have to earn 150% of the money you now have available. The
  31. 31. TREND FOREX 2.0 TRADING SYSTEM | 32 likelihood of you earning 150% on anything in a short period of time is almost nil. To avoid huge draw downs like this, proper money management is a must. In this case we are just going to define a % and use that number to calculate our maximum risk with any give trade. Defining Your % R Okay so we know money management is important. How then should we manage our money consistently? The answer is quite simple we just set a percentage, and then use that percentage as our maximum risk. For most traders a good number to start with is 2%. This number will be called your %R and is the amount you are allowed to risk on any given trade. If you had $10,000 in your Forex account, then using your 2%, you could risk $200 on any given trade. With a $100,000 account balance you could risk $2,000. By using a consistent %R you always risk the same amount, and in turn limit your risk to an amount that won’t greatly affect your account with a single trade. With a 2% risk level you could lose 50 times in a row before erasing your account. Even if you traded on a whim, it would be difficult to make that many losing trades in a row. We set the number as a percentage so that your risk level is always relative to your account balance. If your $100,000 account grew to $125,000, your risk level also grows from $2000 to $2500. On the other side if you lost 10% of your account your risk level goes down to $1800 (2% of $90,000). Along with your %R you should also define a maximum risk for your whole account. Your %R tells you how much you can risk on a single trade, while
  32. 32. TREND FOREX 2.0 TRADING SYSTEM | 33 your maximum risk defines the total amount you’re willing to risk at any given time. For most traders a good number to start with is 10%. If you are an advanced trader you may be comfortable with higher numbers like 3-4% for your %R and 20-25% for your maximum risk. For the newer traders though it is suggested that you stick to 2% and 10% respectively. Throughout the rest of this manual we will be using those smaller numbers as the suggested risk levels for PTFS. Trade Size and % R With some trading systems you would use your %R to define your stop. With PTFS, since we are trading the trends, those trends determine our stop levels. So in this case we vary our trade size according to our maximum risk if needed. The system itself suggests 3 lot trades (we’ll get to that), but the system works with variable position sizing so if 3 lots, or 3 mini lots, puts you over your maximum %R you should change the size of your trade and not the stop. Calculating a position size with a % R isn’t difficult. To walk you through it let’s use an example. If your trading account had a $100,000 balance, then your maximum allowable risk is $100,000 * 0.02 = $2000. Now assume that the PTFS has given you a buy signal on the EUR/USD pair, and that according to our trading rules your stop level should be set at 55 pips. We know that each pip with the EUR/USD pair is worth $10, so with each lot traded you are risking $10 x 50 pip stop = $550.
  33. 33. TREND FOREX 2.0 TRADING SYSTEM | 34 Since our allowable risk is $2000, we could trade $2000/550 = 3.63 lots of currency. In this case we round down and trade 3 lots. If your broker allows you to trade both full lots and mini lots you would trade 3.6 lots (3 full lots and 6 minis). Working this way we always stay within our maximum allowable risk. You should calculate your trade sizes according to your %R and your stop to ensure that you never go over that magic number of 2%. By doing so, you will be using sound money management and you won’t risk losing more than you need to when a trade goes against you.
  34. 34. TREND FOREX 2.0 TRADING SYSTEM | 35 Precursors to Trading Part 3 – A Few Words about Scaling I know you’re waiting to get to the trading system, but we aren’t quite finished yet. In the last chapter we gave you some simple money management rules to manage your risk. Now it’s time to take it a little further and talk about scaling to both minimize losses and maximize on your winning trades. The term scaling itself refers to buying or selling with multiple entry points and exit points. The PTFS system uses scaling so a clear understanding of this concept is important. It’s important to understand and properly use Scaling In and Scaling out. These two elements will help you to ensure maximum profits and at the same time minimize those losing streaks so let’s cover both. Scaling In Defined When starting out most traders’ trade single lot-sizes; that is, if they decide they are going to trade 3 lots of currency, then they enter the trade with all three lots and set one stop and one take profit level. If you were using scaling in on the other hand you wouldn’t enter all three lots when you started. Instead you have your first entry point (to be defined by our system), and with that first entry point you enter 1 lot of currency. If that trade moves in your favor then you enter another lot into the trade. If the trade continues to move in your favor then you would enter a third, etc.
  35. 35. TREND FOREX 2.0 TRADING SYSTEM | 36 As you enter more lots, you might move your stop loss to limit your risks. Used correctly this concept allows you to greatly minimize your losses. Let’s clarify this by looking at what happens with a losing trade: A currency pair is trending upwards, and you receive a buy signal from your trading system. Your expectation is that the trend will continue so you enter your 3 lot trade, you set your 40 pip stop and go long. In this case though the trade turns against you and you stop out. You’ve just lost 40 pips x 3 lots traded (assuming that you traded full lots that’s $1200). On the other hand if you were using a trading system that made use of scaling in then you only would have entered one lot. When the trade went against you, it still stops out, but in this case you only lose 40 pips x 1, or $400. Now let’s look at what happens when we enter a winning trade: In the case of a winning trade, using scaling in, your initial trade comes with your first entry signal. At this point you would enter with 1 lot of currency. When the trade moves in your favor and you receive your next entry signal you enter again with another lot (or 2 or 3 depending on the system you’re trading). You now have a 1 lot trade that is profitable, and a second lot that’s just starting out. If the trade continues on in your favor you now have two winning trades. If the second trade moves against you, you still have your first trade that is profitable, so if both trades exit when you hit the stop on the second trade and you end up with a small profit or breaking even. This idea is a very simple way to greatly increase the risk to reward ratio with trading.
  36. 36. TREND FOREX 2.0 TRADING SYSTEM | 37 Scaling Out Defined The next area we need to talk about is scaling out. The idea here is the same, but it is the opposite of scaling in. Instead of using multiple entry points, with scaling in you use multiple exit points. To clarify, let’s just look at one quick example: Assume for a second that you have a 3 lot trade on the EUR/USD. The trade has moved greatly in your favor and your trading system is giving an exit signal. With scaling out, you wouldn’t exit the whole trade. Instead you would exit with one lot and hold the other two until you receive your next exit signal (or until the trade stopped out). Assuming that the trade continued in your favor, with your next exit signal you also close one lot. If it continues on, you would close the third trade on the third exit signal. Used correctly this strategy protects your profits and lets your profits run, and again reduces the risks involved with the trade. Think about it for a moment, if we exited the entire trade with our first exit signal we exit and take a profit. By scaling out though, we maximize on our profits by allowing the trade to continue on. With our other two lots we move the stop to ensure that we keep our profits, but by allowing the trade to continue on we just took extra pips on 2 lots of currency. While we did that we kept our profit levels protected by exiting with 1 lot (the money’s already in your account) and by moving our stop at the same time. Using Scaling with your Trades When you used the PTFS system to trade you will be using scaling. This will help you to ensure that you maximize your gains, and reduce your risks with every trade.
  37. 37. TREND FOREX 2.0 TRADING SYSTEM | 38 This will all become clear as we move into the trading system itself, but we need to talk about some indicators first.
  38. 38. TREND FOREX 2.0 TRADING SYSTEM | 39 Precursors to Trading Part 4 - Indicators Used in the Profitable Trend System When it comes to trading any type of market, Forex included, someone discovered something a long time ago. With stocks, futures, currencies, and other trading vehicles the market prices always tend to move in waves. That is, they will trend one way for a time and then fall back a little. If the trend is strong they prices will usually turn back around and continue on their original journey. Because of this simple fact, one of the best ways to trade anything is by taking advantage of Trends. This is the basis for the PTFS system, and it has kept our Forex trading accounts extremely profitable for years. Of course it isn’t as simple as looking at a chart and saying “yep, it’s moving up, let’s buy”. Trading in that way likely wouldn’t be profitable as it doesn’t account waves, trend momentum, market conditions, or other elements that affect the price. To help our decision-making process, we use indicators to suggest when we should buy and when we should exit. The PTFS system uses four indicators to give you your entry and exit signals, and we are going to cover those briefly here. Since you will be using these indicators regularly it’s important to (at the very least) have a basic understanding of what drives those indicators. For our purposes here I’m not going to bore you with mathematical calculations or tell you exactly how each indicator works (the charts do it all for you). Instead I want you to have an idea of what each indicator does and what it will be useful for with your trading.
  39. 39. TREND FOREX 2.0 TRADING SYSTEM | 40 Guppy Multiple Moving Average The first indicator we need to cover is called the Guppy Multiple Moving Average or GMMA. The GMMA is a trend indicator that was developed by Daryl Guppy. The indicator uses a group of moving averages to determine the general behavior of traders in the market. Put simply, it gives you a simple way to determine the degree and extent of trading activity with any currency pair. With the GMMA on your side you have a simple way to gauge market activity and avoid trading when the trend is about to break or when the market is moving sideways. Exponential Moving Average A moving average is a simple indicator that shows the average of prices over any given time frame. In the PTFS system we will make use of the EMA, or exponential moving average.
  40. 40. TREND FOREX 2.0 TRADING SYSTEM | 41 Unlike a simple moving average this indicator gives more weight to the most current market changes. These types of moving average react quick to recent market changes and can be a good indicator to show what’s happening with the prices and the trends. In our system we will be using the EMA 20-period (EMA20) and the EMA 30-period (EMA30) It should also be noted that the EMA is the basis for some other trading indicators (such as the MACD which we will cover shortly). Hull Moving Average Developed by Alan Hull, the Hull Moving average (or HMA) is another average-based indicator, however it is different than an SMA or EMA in one important way. With other average indicators there is always a lag in the change. Since they are based on a set period in time in history, current changes don’t immediately affect the indicator.
  41. 41. TREND FOREX 2.0 TRADING SYSTEM | 42 The HMA is a much smoother and faster moving average that reacts to market changes quickly. It is an excellent indicator to show you how the current market changes are affecting things right now. In the PTFS system we will be using the HMA 5-period (HMA5) and the HMA 12-period (HMA12) Moving Average Convergence Divergence (MACD) The last indicator we want to cover is the MACD (Moving Average Convergence Divergence). This indicator was developed by George Appel in the 1960’s and it is used to determine the difference between a fast moving EMA and a slow moving EMA. The indicator also used a signal line.
  42. 42. TREND FOREX 2.0 TRADING SYSTEM | 43 The MACD is very much a trend indicator and it is useful for showing what is happening with the trends. There are actually different ways to use this one when you trade, but for our purposes we will be using a MACD (30,60,30) – we call it long MACD and MACD (3,10,16) as a momentum indicator - we call it short MACD.
  43. 43. TREND FOREX 2.0 TRADING SYSTEM | 44 Profitable Trend Forex System Explained So finally we get to the trading system itself. I know this is the part you’ve been waiting for so let’s just dive right in. Before you move on to the system be sure that you have followed the videos that came with PTFS and that you have Metatrader and the indicator system installed. This will make it much simpler for you to follow along. Components of the System Revisited From the last chapter, these are the indicators we will be using when we trade. • Guppy Multiple Moving Average (GMMA) Slow Group (orange color in my illustrated charts) • Exponential Moving Average (EMA): EMA 20 (magenta) and EMA 30 (magenta) • Hull Moving Average (HMA): HMA 5 (blue when pointing up, pink when pointing down) and HMA 12 (green when pointing up, purple when pointing down) • Moving Average Convergence Divergence (MACD): MACD (30,60,30) – we call it long MACD On the chart they look like this:
  44. 44. TREND FOREX 2.0 TRADING SYSTEM | 45 With this system you should always be trading daily, 4 -our or 1-hour charts. The nature of forex is that it has a lot of noise especially in lower timeframes. As such, it’s difficult to trade off any timeframes less than 15 minutes. I recommend using the Profitable Trend Forex System on 1-hour, 4-hour, and Daily timeframes. If you use this system to trade indices such as S&P, you may use shorter timeframes: 5-minute, 15-minute.Step 1 - Trend Determination The first thing we need to do when trading PTFS is determine the trends. We have some simple rules to determine both uptrends and downtrends. Let’s cover those first.
  45. 45. TREND FOREX 2.0 TRADING SYSTEM | 46 Step 1 – TREND DETERMINATION Uptrend The trend is regarded as up when long MACD has crossed up and both EMA 20 and EMA 30 are pointing upward and the spread between EMA 20 and EMA 30 is considerably large (the two EMAs are well separated from each other). Downtrend The trend is regarded as down when long MACD has crossed down and both EMA 20 and EMA 30 are pointing downward and the spread between EMA 20 and EMA 30 is considerably large (the two EMAs are well separated from each other). For clarity let’s look at some charts. Uptrend Example In the one hour GBP/USD chart below the long MacD has crossed up and the EMA 20 and EMA 30 are both pointing upwards. There is also a separated between the two lines for the EMA’s, so this indicates an uptrend.
  46. 46. TREND FOREX 2.0 TRADING SYSTEM | 47 Downtrend Example In the one hour GBP/USD chart below the long MACD has just crossed down and the EMA 20 and 30 are both pointing downwards. Again there is separation between the EMA’s so this is a clear indicator of a downtrend.
  47. 47. TREND FOREX 2.0 TRADING SYSTEM | 48 Clarification Why is it required that EMA 20 and EMA 30 are well separated from each other? Because, if they are close together, the market is probably choppy and therefore whipsaws are more likely to occur.
  48. 48. TREND FOREX 2.0 TRADING SYSTEM | 49 Step 2 – LOOK FOR ENTRY SIGNALS With PTFS we have two types of entry signals, namely Level 1 (L1) signal and Level 2 (L2) signal. They are described as follows: L1 signal Buy (Go Long): When price is trending up (as defined by our above criteria), we look for a small stall or retracement, and then enter when the trend resumes. Price retraces and makes HMA 5 changes its direction from up to down. We enter when HMA 5 changes its direction from down to up. It signals that the price has resumed its established trend. During the entire retracement, however, HMA 12 direction is still up (i.e. price only retraces a little bit, not enough for HMA 12 slope to change). This is what distinguishes L1 signal from L2 signal. For clarity let’s look at a chart. Looking at the 1 hour GPB/USD chart on the next page. 1. The trend is upward determined by our first step. 2. The HMA 5 turned from Up to Down 3. The HMA 5 turned Upwards again (to go back with the trend) 4. During the retracement of the HM5 the HMA 12 continued to point up.
  49. 49. TREND FOREX 2.0 TRADING SYSTEM | 50 This gives us a clear L1 signal and we buy. Sell (Go Short): When price is trending down (as defined by our above criteria), we look for a small stall or retracement, and then enter when the trend resumes. Price retraces and makes HMA 5 changes its direction from down to up. We enter when HMA 5 changes its direction from up to down again. It signals that the price has resumed its established trend. During the entire retracement, however, HMA 12 direction is still down (i.e. price only retraces a little bit, not enough for HMA 12 slope to change). This is what distinguishes L1 signal from L2 signal.
  50. 50. TREND FOREX 2.0 TRADING SYSTEM | 51 Let’s look at a chart again. On the 1 Hour USD/CHF chart on the next page we see that: • The currency is in a downtrend according to our first step • The HMA 5 has turned from down to up. • After retracing up for a time the HMA 5 turned down again and continued to follow the trend. • During that retracement the HMA12 continued downward.
  51. 51. TREND FOREX 2.0 TRADING SYSTEM | 52 L2 signal Buy (Go Long): When price is trending up (as defined by our above criteria), we look for a larger retracement than in L1 signal, and then enter when the trend resumes. Price retraces and makes both HMA 5 and HMA 12 changes their direction from up to down. We enter when both HMA 5 and HMA 12 changes their direction from down to up. It signals that the price has resumed its established trend. To clarify, let’s look at a chart. In the 1 Hour GBP/USD chart below, we see that: • The currency is currently in an uptrend determined by step 1 • The HMA5 AND the HMA 12 both turned from up to down. • After retracing for a time both the HMA 5 and the HMA 12 then turned upwards again to follow the trend. This is a clear L2 buy signal.
  52. 52. TREND FOREX 2.0 TRADING SYSTEM | 53 Sell (Go Short): When price is trending down (as defined by our above criteria), we look for a larger retracement than in L1 signal, and then enter when the trend resumes. Price retraces and makes both HMA 5 and HMA 12 changes their direction from down to up. We enter when both HMA 5 and HMA 12 changes their direction from up to down. It signals that the price has resumed its established trend.
  53. 53. TREND FOREX 2.0 TRADING SYSTEM | 54 Putting it on a chart – in the USD/CHF chart below: • The currency is currently in a downtrend determined by step 1 • The HMA 5 and the HMA 12 turned from down to up • The HMA 5 and the HMA 12 both turned again to follow the trend This is a clear L2 sell signal.
  54. 54. TREND FOREX 2.0 TRADING SYSTEM | 55 Step 3 – Trade (Exit Signals and Stop Loss Placement) With each signal, we enter with three (3) lots. Stop loss is placed at the last swing high/low. If the trade goes in our favor, we exit 1 lot at the same distance as the stop loss. Let’s call this our first target. For example, if our stop loss is place at -40 pips from the entry price, we exit the first lot when we have +40 pips (excluding spread) in profit. As soon as we take the first lot out, we move our stop loss to break-even for the remaining two lots. The second lot is taken out when HMA 5 changes its direction against us (that means in an uptrend we exit the second lot when HMA 5 turns down). The third lot is taken out when HMA 12 changes its direction against us (that means in an uptrend we exit the third lot when HMA 12 turns down). If the trade does not go in our favor, what should we do? There’s 2 options: 1. We exit all three lots when HMA 12 changes its direction against us (that means in an uptrend we exit all three lots when HMA 12 turns down… the opposite applies in a downtrend) or when our stop loss is hit.
  55. 55. TREND FOREX 2.0 TRADING SYSTEM | 56 2. We just sit back and let the trade unfold. Don’t touch the trade until our first target (the same pip value from our entry as our stop loss) is hit or we’re stopped out. For clarity let’s look at the above chart. This is a one-hour USD/CHF chart. Looking at it we see: • From step 1 we are in a downtrend. • From step 2 we have just received an L2 sell signal. • We enter with three lots and set out stop to the level of the retracement that occurred when the currency retraced (about 30 pips back with this trade). • The trade moves in our favor 30 pips, or the same amount as our original stop.
  56. 56. TREND FOREX 2.0 TRADING SYSTEM | 57 • We exit 1 lot of the currency pair and move our stop/loss level to the breakeven point. • The trade continues in our favor, but eventually another retracement begins and the HMA 5 changes direction to point up. • We exit the second lot. • In this case the trade no longer continued in our favor and the HMA 12 changed direction. • We exit the third lot and end with three profitable trades.
  57. 57. TREND FOREX 2.0 TRADING SYSTEM | 58 Trade Filter There are a couple of conditions that we call a filter in which we do not make the trades. We do not take trades when price has retraced too much and when the trend has lost its momentum. When one of the following conditions takes place, we do not put on any trade until a new trend has established: • Price closes below GMMA in an uptrend or closes above GMMA in a downtrend. • Long MACD crosses down in an uptrend or crosses up in a downtrend.
  58. 58. TREND FOREX 2.0 TRADING SYSTEM | 59 For example, let’s look at the chart above, from March 18  March 26, we’re obviously in a downtrend. However, after that, price retraces so much that it closes above GMMA. Also, during this time, MACD crosses up. Because these conditions occur, we do not take any short trades until a new obvious trend establishes.
  59. 59. TREND FOREX 2.0 TRADING SYSTEM | 60 More examples Let’s just cover some example trades to add clarity to everything we’ve said thus far. Example 1: L1 Signal Examples Step 1 Trend Determination: The first thing we need to identify is the current trend. Long MACD crossed up, EMA 20 and EMA 30 are pointing upward and the spread between EMA 20 and EMA 30 is considerably large --- signifying an uptrend. From there we move on to step two to look for the entry signals.
  60. 60. TREND FOREX 2.0 TRADING SYSTEM | 61 We look for a small retracement of price. In the above picture, price retraced a little bit (two red candles highlighted by the blue bar on the right), making HMA5 turn down.
  61. 61. TREND FOREX 2.0 TRADING SYSTEM | 62 The next bar, price resumed its upward direction, making HMA5 turn up again. We had a L1 long signal and entered with three lots.
  62. 62. TREND FOREX 2.0 TRADING SYSTEM | 63 First lot was taken out when price moved the same distance as stop loss. Second lot was exited when HMA5 turned down (indicated by the blue rectangle).
  63. 63. TREND FOREX 2.0 TRADING SYSTEM | 64 Final lot was taken out as HMA12 turned down.
  64. 64. TREND FOREX 2.0 TRADING SYSTEM | 65 Example 2: The first thing we need to identify is the current trend. Long MACD is up, EMA 20 and EMA 30 are pointing upward and the spread between EMA 20 and EMA 30 is considerably large --- signifying an uptrend. From there we move on to step two to look for the entry signals. HMA5 turned down and then up again… So, we’ve got a L1 signal – we enter the trade.
  65. 65. TREND FOREX 2.0 TRADING SYSTEM | 66 Here’s where our entry, stop loss, and first target are: As we see on the picture above, the next bar right after our entry, we hit the first target. Thus, we exit 1 lot for 199 pips, and move stop loss to break even for the remaining 2 lots. Let’s look at what happens next?
  66. 66. TREND FOREX 2.0 TRADING SYSTEM | 67 When HMA5 turned down, we exit the 2nd lot for 205 pips. Two bars later, HMA12 turned down, we exit the 3rd lot for 112 pips.
  67. 67. TREND FOREX 2.0 TRADING SYSTEM | 68 Example 3: The first thing we need to identify is the current trend. Long MACD is up, EMA 20 and EMA 30 are pointing upward and the spread between EMA 20 and EMA 30 is considerably large --- signifying an uptrend. From there we move on to step two to look for the entry signals. HMA5 turned down and then up again… So, we’ve got a L1 signal – we enter the trade.
  68. 68. TREND FOREX 2.0 TRADING SYSTEM | 69 Here’s where our entry, stop loss, and first target are: As we see on the picture above, a few bars after our entry, we hit the first target. Thus, we exit 1 lot for 158 pips, and move stop loss to break even for the remaining 2 lots. Let’s look at what happens next…
  69. 69. TREND FOREX 2.0 TRADING SYSTEM | 70 When HMA5 turned down, we exit the 2nd lot for 309 pips. A few bars later, HMA12 turned down, we exit the 3rd lot for 367 pips.
  70. 70. TREND FOREX 2.0 TRADING SYSTEM | 71 L1 & L2 Signal Examples L1 Signal: We entered at 1.9039, placed stop loss at 1.9010 First lot taken out at 1.9069 Second lot taken out at 1.9137 Third lot taken out at 1.9141
  71. 71. TREND FOREX 2.0 TRADING SYSTEM | 72 L2 Signal: We entered at 1.9178, placed stop loss at 1.9138 First lot taken out at 1.9218 Second lot taken out at 1.9331 Third lot taken out at 1.9316
  72. 72. TREND FOREX 2.0 TRADING SYSTEM | 73 In the same time frame that the trade above occurred, we also had signals on USD/CHF currency pair. Highlighted in the photo are where we entered:
  73. 73. TREND FOREX 2.0 TRADING SYSTEM | 74 Profitable Forex Trend System – Advanced Techniques One last thing we want to cover before we close is Trend Momentum. When you fire up your charts with the included indicators that came with PTFS (see the videos if you haven’t done this yet), you will notice a second MACD indicator – MACD (3,10,16).This is used to gauge the momentum of a trend. How to gauge the momentum of a trend? When a trend is established (based on our criteria), we look for the first small retracement (L1 signal) and the first larger retracement (L2 signal). We always take the first L1 signal and the first L2 signal. However, when price retraces the second time and gives us the second L1 or L2 signal, we must be cautious. We need to determine if the trend still has enough momentum to resume its original direction. In our system we use MACD (3,10,16) as momentum indicator. We call it short MACD. When an uptrend makes new highs in price and in momentum indicator (new high in short MACD), it still has momentum to go up. When a downtrend makes new lows in price and in momentum indicator (new low in short MACD), it still has momentum to go down. Therefore, the second L1 signal is valid as long as the previous L1 signal was successful and resulted in the trend making new high/low in both price and momentum. Likewise, the second L2 signal is valid as long as the previous L2 signal was successful and resulted in the trend making new high/low in both price and momentum.
  74. 74. TREND FOREX 2.0 TRADING SYSTEM | 75 This method of momentum determination is important. It helps us filter a lot of false signal. The following chart illustrates this rule. We observe that the downtrend is making lower low in both price and momentum after a successful L2 signal. Thus the second L2 signal is valid. Using this method we can maximize our profits by taking advantage of the longer term trend. In the example above you would have entered three trades successively. In some cases this idea can be used to scale into your already profitable trade. In others, your first trades will have closed before you enter the next
  75. 75. TREND FOREX 2.0 TRADING SYSTEM | 76 trade. But simply by using this idea when trading you will ensure that you don’t enter on false signals when riding the trend through until it changes.
  76. 76. TREND FOREX 2.0 TRADING SYSTEM | 77 Timeframes One other thing that we need to emphasize again is timeframes. When using the PTFS system you should avoid very short time frames on your charts. The nature of Forex is that it has a lot of noise especially in lower timeframes. As such, it’s difficult to trade off any timeframes less than 15 minutes. I recommend using the Profitable Trend Forex System in 1-hour, 4-hour, and Daily timeframes. If you use this system to trade indices such as S&P, you may use shorter timeframes: 5-minute, 15-minute. Currency pairs The best currencies to trade with PTFS are currency pairs that have a large daily range are more suited for this system. Some that you may want to start out with include: • GBP/USD • EUR/USD • USD/CHF • USD/JPY • EUR/JPY • GBP/JPY.
  77. 77. TREND FOREX 2.0 TRADING SYSTEM | 78 Of course you’re always free to trade with whatever currency you want. If you plan to try the PTFS system with a slower moving currency, test it out on a practice account for a while first. This will ensure your ready for the differences those types of currencies tend to have. Conclusion You now have all of the tools you need to be successful with your trading. We’ve covered a money management system that will help ensure you minimize your risk, and we’ve given you a proven system to trade with. If you take the time to learn this system well, and use it with your own Forex accounts you could earn a lot of money. Just remember the rules we gave you, be sure to get comfortable with PTFS first and always remember to use money management when trading. Take these steps and you will find a future in Forex. All the Best, John Chen & Associates Trend Forex 2.0 System Team
  78. 78. TREND FOREX 2.0 TRADING SYSTEM | 79

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