Transcript of "Forex trend master system and trading strategy"
FOREX “TRENDMASTER” SYSTEM MICHAEL SELIM, WWW.SUPERIORFXSIGNALS.COM
Forex TradingFOREX trading is all about trading foreign currency. The currency of one country isweighed against the currency of another country to determine value. The value ofthat foreign currency is taken into consideration when trading stocks on the FOREXmarkets. Most countries have control over the value of that countries value, involvingthe currency, or money. Those who are often involved in the FOREX markets includebanks, large businesses, governments, and financial institutions.What makes the FOREX market different from the stock market?A forex market trade is one that involves at least two countries, and it can take placeworldwide. The two countries are one, with the investor, and two, the country themoney is being invested in. Most all transactions taking place in the FOREX marketare going to take place through a broker, such as a bank.What really makes up the FOREX markets?The foreign exchange market is made up of a variety of transactions and counties.Those involved in the FOREX market are trading in large volumes, large amounts ofmoney. Those who are involved in the FOREX market are generally involved in cashbusinesses, or in the trade of very liquid assets that you can sell and buy fast. Themarket is large, very large. You could consider the FOREX market to be much largerthan the stock market in any one country overall. Those involved in the FOREXmarket are trading daily twenty-four hours a day and sometimes trading iscompleted on the weekend, but not all weekends.You might be surprised at the number of people that are involved in FOREX trading.In the years 2004, almost two trillion dollars was an average daily trading volume.This is a huge number for the number of daily transactions to take place. Think abouthow much a trillion dollars really is and then times that by two, and this is the moneythat is changing hands every day!The FOREX market is not something new, but has been used for over thirty years.With the introduction of computers, and then the internet, the trading on the FOREX
market continues to grow as more and more people and businesses alike becomeaware of the availablily of this trading market. FOREX only accounts for about tenpercent of the total trading from country to country, but as the popularity in thismarket continues to grow so could that number.From the studies over the years, most trades in the forex market are done betweenbanks and this is called interbank. Banks make up about 50 percent of the trading inthe forex market. So, if banks are widely using this method to make money forstockholders and for their own bettering of business, you know the money must bethere for the smaller investor, the fund mangers to use to increase the amount ofinterest paid to accounts. Banks trade money daily to increase the amount of moneythey hold. Overnight a bank will invest millions in forex markets, and then the nextday make that money available to the public in their savings, checking accounts andetc.Commercial companies are also trading more often in the forex markets. Thecommercial companies such as Deutsche bank, UBS, Citigroup, and others such asHSBC, Braclays, Merrill Lynch, JP Morgan Chase, and still others such as GoldmanSachs, ABN Amro, Morgan Stanley, and so on are actively trading in the forexmarkets to increase wealth of stock holders. Many smaller companies may not beinvolved in the forex markets as extensively as some large companies are but theoptions are stil there.Central banks are the banks that hold international roles in the foreign markets. Thesupply of money, the availability of money, and the interest rates are controlled bycentral banks. Central banks play a large role in the forex trading, and are located inTokyo, New York and in London. These are not the only central locations for forextrading but these are among the very largest involved in this market strategy.Sometimes banks, commercial investors and the central banks will have large losses,and this in turn is passed on to investors. Other times, the investors and banks willhave huge gains.
Forex can help you earn a lot of money. But there are certain conditions to followbefore trading in Forex. Firstly, one must have a thorough knowledge about thetrends in the stock market, the basics of trading and risk-taking ability. You will getall the help you need for attaining these conditions very easily.There are many sites on the internet which can help you clarify your basics and helpyou brave rough weather. A good reason why Forex trading can be considered is thefact that there are frequent fluctuations in currencies, though in percentage terms itmay be small.You gain if the fluctuation favors you and the reverse holds true as well. No one canaccurately predict the trend of the currencies. Liquidity is another reason why Forextrading is so popular.Now the most important part – in Forex, you can make huge sums of money even ifyour initial investment is on a lower side. You can invest as little as $50,000. Richpeople have no upper cap to the amount of investment. So remember that even witha nominal investment, the earning ability is undoubtedly very huge.Most of the great businesses are connected to the world of internet today, and Forextrading is no exception. You can deal in foreign currencies right from your home. Infact, it is fully conducted online. You have the liberty to choose when you want totrade, and you don’t need to meet any deadlines.Basically, you can be your own boss. The process of online trading is fairly simple foranyone to understand. You just need to open an account for Forex trading with arecognized broker and they will complete the rest of the formalities. The only bit youneed to do is get ready with your investment amount.So, it is thus clear that Forex trading can be one of the best businesses to earn money.Though there is a level of risk attached to it, but it can be avoided with due care andan alert mind!
Being a forex or foreign exchange trader no longer means you have to work for abank in one of the worlds financial centers. These days you can trade on your ownbehalf, from anywhere.Since the rise of the internet many people are doing this from their own homes,making money in their spare time or even making a full time income. But what isforex trading and how does it work?A foreign exchange trader deals in currencies. He or she will sell one currency thatseems to be falling in value, to buy another that seems to be rising. There are alwaystwo currencies involved in a trade (a currency pair) because when you want to buydollars you have to have another currency to exchange for them.In the beginning it is best to be involved with just one currency pair. Most peoplestart out trading in the EUR/USD market, that is the euro against the US dollar. Thisis the biggest forex market. There is plenty of information available for this marketand it tends to have lower costs and be relatively stable.Nevertheless forex is a very volatile market. This means that the prices can rise andfall steeply and quickly. The risk is high. It is easy to lose money. In fact, some lossesare inevitable, so you should manage your account so that you never risk too muchon one trade. You can use stop losses so that your broker will automatically sell if theprice goes a certain way against you. The aim is not to have no losses, but to makesure that your profits are higher than your losses so that you end up with a net gain.You will need access to a computer with a high speed internet connection any timethat you want to trade. Unless you use a robot to control your currency trading, youwill also need time where you can concentrate on learning a profitable system andthen on trading itself. You pretty much need to be able to lock yourself away in aroom to do this, at least for a couple hours a day. It is no good trying to trade fromyour desk at your day job with your boss interrupting you, or using a computer in thefamily den with kids climbing on your knees wanting to play games. You must befully concentrated on the movements in the market or you could miss the rightmoment to either open or close a trade.
If you are a cautious person who likes a solid investment with predictable lowreturns, you should not become a currency trader. Forex traders are people whoenjoy risk and love the challenge of trying to turn a profit in a fast moving market.It helps if you are strongly focused on your goals and not easily swayed by emotion. Itis important not to let fears of losses or dreams of huge wealth divert you from yourstrategy. You also need to stay aware of financial news, not only in your own countrybut in all of the major world powers, because this will affect the forex markets. Withthese characteristics and a good trading system in place, a foreign exchange tradercan reap substantial gains from his or her investment.
About The SystemThis system is an Intraday trading system, works best on the 1 hour chart for allcurrency pairs. However, it would give best results with trending pairs ( currencypairs with strong trend, like JPY pairs ) .In this system we are going to use moving averages to identify the trend – visualguidance only – and we are going to use price/candle patterns to enter the market.Our exit strategy will be based on support and resistance levels.It’s very important to pay attention to news releases and economic announcementsand STOP trading until the market reacts to the news. Usually after 15 to 30 minutes.As an intraday trader, it’s also very important to know what time of the day is best fortrading and NOT to trade anytime of the day, any day of the week.If you’re not an experienced trader, please do not make any changes to this system.Test it on demo account for at least one month and more than one currency pair.Always to remember that Forex trading like any investment is not a sure thing. Justlike any type of investment or investment vehicle there are risks involved. No matterhow much you research your data or how much thought you put into your trading,you can always lose money.There are many people that sign up to trade Forex that don’t understand or take thetime to learn how and why to trade Forex.There are many risks involved in trading any kind of asset, whether it is stocks,bonds or currencies. If you are interested in trading, make sure you understandForex risks.One of the biggest Forex risks is a leveraged buy. Some Forex brokerages allow youto hold a certain amount of money in your account but leverage that amount to up to200 times its worth. While this can be good if you are on the winning side of a trade,this can be devastating if you lose your entire accounts worth plus many times more.Many Forex brokers have special features that can limit your risks such as stop lossand limit orders and no negative balances. If you are interested in trading Forex,before you start to trade, learn and understand the Forex risks involved.
TREND INDICATORSMA ( smooth moving average ) :Period 200Shift -5Apply to : weighted closeYellowSMA :Period 50Shift -20Apply to : weighted closeRedTargets and StoplossSupport and resistance. If you don’t know how to work with support and resistancelevels, please take some time to read about it and understand it before you start usingthis system.Support and resistance levels are identified based on the price patterns and priceturning points that took place in the past. Support levels try to stop falling price as itattempts to drop even further. Resistance levels resist to the rising price thatattempts to go even higher.Support or resistance levels that were tested by the price and sustained the pressureby not allowing market to surpass them, are considered as strong levels. If Supportlevel is broken it becomes future resistance level. If resistance level is broken it playsa role of support for future market moves.
Entry PointsWe are going to use pin bars to enter the market.The pin bar means that the price is going to move in the opposite direction towhere the nose is pointing. In screen above, the nose is pointing up so the tradershould expect prices to move down.
A pin bar must:• have open/close within the first eye,• protrude from surrounding prices (‘stick out’ from surrounding prices); itcannot be an inside bar.A good pin bar has:• a long nose (and a long nose relative to the open/close/low),• a nose protruding a long way from the prices around it (it ‘sticks out’),• the open / close both near one end of the bar.
System RulesThe first thing to do is to know the direction of the trend according to the trendindicator. If it’s a down trend, then we only enter sell trades. If it’s up trend then weonly enter buy trades.The next thing to do is to draw the support/resistance levels. We are going to usethose levels for targets.BUY SIGNAL1 – Up Trend2 – Pin Bar Pattern ( pointing downwards )Stop Loss : 30 pips below the low of the pin bar.Target : Next resistance level.SELL SIGNAL1 – Down Trend2 – Pin bar Pattern ( pointing downwards )Stop Loss: 30 pips above the high of the pin bar.Target: Next support level.
ExamplesUSD/JPY – 2009/07/08Down Trend – Sell signalNotice that the pin bar pattern takes 3 bars to complete. So we enter the marketwhen the 4th bar opens.In the example above there was 2 patterns, we don’t have to open 2 trades here if wedon’t need to. So we opened a trade according to the first pattern and ignored thesecond.
EUR/USD – 2009/17/07In the example above we notice a pin bar pattern while the main trend is up trend.We enter the market according to the buy signal. Placing the stop loss 30 pips belowthe pin bar. and placing our target at the next resistance level.Our entry point was the next candle open, right after the 3 candles of the pin barpattern were closed and the pattern was confirmed.
Entry FilterTo get the best out of this system, you could add a filter to separate false pin barsetups and true pin setups.This filter is Stochastic indicator, settings are :%K : 5%D : 3Slow : 3MA method: SimpleLevels : 30 – 70Colors: Main=None Signal=Red
Ho to use the Entry Filter ?The Pin bar setup must happen when Stochastic signal line is at the level 30 or thelevel 70. Or at least just turning from one ( 30 line means overbought level – 70 linemeans oversold level)With Buy signals, the setup must happen when Stochastic is at/or just turning fromthe level 70.With Sell signals, the setup must happen when stochastic is at/ or just turning fromthe level 30.
ReversalsSometimes, price would move in the opposite direction of the current trend for awhile before it reverses back.Usually, it’s not recommended to trade in this case and just wait until price reverse.But .. for experienced traders there is another option: trading reversals!Example:EUR/USD - 1 Hour ChartThis kind of trades are risky, and only recommended for experienced traders only.It’s also recommended to follow other strong reversals signs besides the pin barpattern, like double tops/bottoms or heads and shoulders.
Easy TargetsI know that sometimes it not easy to spot support and resistance levels or set themcorrectly, especially for new traders.So here is a way to get this done automatically for you, even if you don’t know thedifference between a support a resistance!Here is how to do it:When you set the trend indicator, SMA - Period 50, open ‘’levels’’ input window andenter those levels:100 and -100 200 and -200 400 and -400 600 and -600. Do this for only theSMA 50 indicator, not the SMA 200.Here is how your chart should look like:
How to use those levels ?The SMA 50 and the levels of support/resistance are slow, they will only point to thelast – strong - support/resistance, where price touched one of those levels andreversed.Example ( USD/JPY - 1Hour ) :Please note that forex is not an exact science, sometime price would get really close toone of those levels and turn around before touching it. That’s a validsupport/resistance level! .. here is an example:
Trading ExamplesLet’s now use what we know to make some money from forex market with a simpletrade, and using support/resistance levels.EUR/USD – 4H chart:The major trend was up, we got a buy signal setup ( Pin bar + Stochastic ).We opened an order @ 1.3931 right when the 3rd candle was created. Then we placedour stopl loss @ 1.3860From the last resistance level we set our target @ 1.4028Profit = 97 pips
Another Example, a trade on the EUR/USD – 1 hour chart. Using theSupport/resistance easy targets method:Trend was Up, we spot a buy signal ( pin bar pattern + Stochastic oversold ). And ifyou noticed, you will find a divergence! .. that means this is a good trade to take.We opened a market order @ 1.4106 and set our stop loss level @ 1.4055This time we used the easy targets method to set our targets, Price hit target @1.4166Profit = 60 pips
Another Example, EUR/USD – 1 hour chart:The good part is, you are free to choose the support/resistance targets. You canchoose a small target ( latest support/resistance ) or aim at big targets ( majorsupport/resistance ). Here is an example of a major target.Entry @ 1.4015 - Stop loss @ 1.3972 – Target @ 1.4144Profit ? 129 pips!Before taking major support/resistance as your main target in all trades, you shouldunderstand that the more you are risking to take, the more you are risking to lose.Play it safe.
Dangers of Getting EmotionalGetting emotional in the stock market is the worst thing that can happen toinvestors. The same goes for Forex traders as well. Seeing paper losses in everydaytrade is pretty common.Once to take a decision to buy something and make losses, you still hold on even ifsituations turn from bad to worse, only because you feel that things might turn backin your favor once again. The main problem here is that, the decision to stick to alosing trade for a long time is an emotional one, since you are in no mood to accept aloss and get out of the trade.Forex market is largely influenced by the general market and you must always tradeon what the indications based on the market are, and not just initiate one since yourheart tells you to. At times, you might be so emotionally attached to a given currencyin the Forex market, that most of your exposure to the Forex market would be in thatparticular currency.Nothing wrong with it, as if you have reasonable grounds to believe that the currencywill do well, then you will actually profit from the exchange. The ‘wrong’ thing isopening up a trade in a currency just because your heart tells you to.In the case, if you strongly feel about any given currency, then it’s better to check thereality by having the look at what the market is indicating. That will give you a clearpicture of whether or not you should trade in that currency.The basic thing that is needed to be remembered is that once you have initiated atrade, and are incurring paper losses, and by all indications, things are likely to geteven worse for you, then it is much better to book losses and come out of it ratherthan sticking to it till a time you ultimately are able to see some gains from it.Remember, the markets have little room for emotions.Forex trading is not a win-win situation. Be prepared to lose on some trades as well.That’s the precise manner in which the market works. It is not really a question of
whether you are right or not, the fact remains that markets move in an unexpectedway and they have a knick of surprising people when they least expect it. All thefundamentals and even experience may be thrown into the air when the marketsdecide to do something.So just follow the indications that the market gives you. If you feel that afterinitiating a trade, things are not going the way you had foreseen, book your lossesand get out of it. You can invest the amount in some other trade and make good gainsrather than sticking to your losing trade.It is difficult for Forex traders to realize that the currency market is extremelyunpredictable. As new traders spend a long time trying to learn the mechanics of theforeign exchange trade and focus their time and energy on trying to find a method forpredicting movements, they naturally expect there to be rules governing themovement of the market. This not being the case, many traders find themselves at adisadvantage.While Forex traders have a number of tools at their disposal, which allow them tojudge the right time to open or close a position, many prefer to rely mostly on onetool. So, having opened a position, they watch their favorite indicator and, to a largeextent, base their trading decisions solely on it, ignoring the others.This works well enough until that indicator starts telling them something differentfrom what the others are. Traders caught in a open position which their favorite toolis telling them to hold, will often do so, despite the fact that other tools are tellingthem to close and get off the market, and end up losing money.The basic problem, of course, is that the trader is not looking at the market as is, butthrough the lenses of his own expectations about it and further using his favoriteindicator to reinforce those ideas instead of looking at the bigger picture. And,encouraged by the fact that his chosen indicator is forecasting the profit he wants,the trader is focusing more on money than on the market.If the Forex market was not unpredictable, it would collapse because all traderswould profit all the time. There are many tools that can help traders predict thedirection of the market and they usually do an efficient job. But even in the hands ofthe most experienced traders, the best tools occasionally fail to predict the market’smovements correctly.
Losing in trade because of predicting the market wrongly is an innate part of Forextrading and traders need to accept it. Besides, they need to learn to avoid getting in aposition where they do not have many choices.For this, the trader needs to accept the fact that the foreign exchange market prettymuch has a mind of its own and the traders have to follow its movements instead oftrying to make it go in the direction they want it to.
Forex Market HoursThe forex market hours stretch from Monday morning in Sydney, Australia to Fridayafternoon in New York. During that time the market is open somewhere around theglobe at all hours of the day or night.However it is not a 24/7 market because it does shut down on weekends. 24/5 wouldbe more accurate.If you need to know the exact times that the markets open and close, you have to taketime zones into consideration. It is very simple when expressed in UTC. This isUniversal Coordinated Time, formerly known as Greenwich Mean Time. This is thestandard (winter) time in Greenwich, London which is the point of zero longitude onthe globe.So, the normal forex market hours are 22.00 Sunday UTC to 22.00 Friday UTC. Thisis 10 pm in the UK in winter time.New York is 5 hours behind the UK so the global forex market opens and closes at 5pm Sunday/Friday in New York, 2 pm on the US west coast, 11 pm in Germany, 8 amMonday/Saturday in Sydney.Things get a little complicated when you start to try to take summer time daylightsaving into account. This makes one hour difference in countries that observe it. Butdaylight saving operates in a different way in the southern hemisphere countriessuch as Australia which have summer time from September to March instead ofMarch to September.The hours of the different major national markets are as follows:Sydney: 10 pm to 7 am UTC
Tokyo: 12 midnight to 9 am UTCLondon: 8 am to 5 pm UTCNew York: 1 pm to 10 pm UTCOr we can express that in EST (Eastern US time):Sydney: 5 pm to 2 am ESTTokyo: 7 pm to 4 am ESTLondon: 3 am to 12 noon ESTNew York: 8 am to 5 pm ESTYou can see that these correspond to 24 hour cover.However, this does not necessarily mean that trading will be good at all of thesetimes. Just after a major market opens, the prices can be very volatile andunpredictable. Many traders will stay out of the forex market for up to an hour fourtimes a day when the financial markets are waking up in these major cities.The US dollar is the most traded currency by a long way, involved in 2.5 times asmany trades as its nearest rival the euro. This means that events in the USA have agreater impact on the financial markets than events in other countries. The New Yorkmarket tends to slow down around 3 pm local time (8 pm UTC) and if you areinvolved in a US dollar pair, this can be a good time to stop trading for the day.So theoretically you can trade 24 hours a day from Sunday night to Friday night.Automated software in the form of a forex robot can even make this physicallypossible. However, a cautious trader will choose his times and will not be activeduring all of the forex market hours.Thanks & Happy Trading...Michael Selim & Superior FX Signals Teamwww.SuperiorFXSignals.com
DISCLAIMER 0BU.S. Government Required Disclaimer - Commodity Futures Trading Commission Futuresand Options trading has large potential rewards, but also large potential risks. You must beaware of the risks and be willing to accept them in order to invest in the futures and optionsmarkets. Dont trade with money you cant afford to lose. This is neither a solicitation nor anoffer to Buy/Sell futures or options. No representation is being made that any account will oris likely to achieve profits or losses similar to those discussed on this web site/ebook. Thepast performance of any trading system or methodology is not necessarily indicative offuture results.CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVECERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATEDRESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVENOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATEDFOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OFLIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TOTHE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NOREPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TOACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.No representation is being made that any account will or is likely to achieve profits or lossessimilar to those shown. In fact, there are frequently sharp differences between hypotheticalperformance results and the actual results subsequently achieved by any particular tradingprogram. Hypothetical trading does not involve financial risk, and no hypothetical tradingrecord can completely account for the impact of financial risk in actual trading.All information on this website or any e-book purchased from this website is for educationalpurposes only and is not intended to provide financial advise. Any statements about profitsor income, expressed or implied, does not represent a guarantee. Your actual trading mayresult in losses as no trading system is guaranteed. You accept full responsibilities for youractions, trades, profit or loss, and agree to hold the authors/publishers and any authorizeddistributors of this information harmless in any and all ways. The use of this systemconstitutes acceptance of our user agreement.