L. C. Chong's Forex trading system https://lcchong.wordpress.com/ https://www.facebook.com/groups/285121298359919/

1. MY FOREX TRADING
SYSTEMS
7 May 2016
L. C. Chong (http://lcchong.wordpress.com and https://goo.gl/jjkq4P)

2. DISCLAIMER
• This document is
• Mainly for myself
• Educational only
• Does not contain investment advice
• I am not originator or inventor of any rules and methodology that used in this
document. I am just standing on the Shoulders of GIANTS. I stated the source of
ideas and material in bibliography.
• The methodology and rules that I am using definitely not 100% fit you because I
have personalized the methodology and rules to my risk tolerance, capital,
personality and lifestyle.
• You and I may have different opinion, but I respect your opinion.
2

3. CHANGES
• 7 May 2016
• Removed fixed-percentage formula as I actually never use it for long time
• 18 Apr 2016
• Changed design of document
• Removed a rule: Correlation of pairs in limiting the number of open position size
• I have stopped using MT4 since end-2014, so I replaced pictures with my current
charting software: ProRealTime
• Since 2014, I have stopped trading USD/CHF, USD/JPY, and USD/CAD due to lack of
confidence
• I have removed intra-day trading method
• 10 Mar 2012
• The first write-up of my own trading systems.
3

4. REFERENCES
• StockChart’s ChartSchool - http://tinyurl.com/27fu88
• High probability trading : take the steps to become a successful trader
http://amzn.to/1T437lC
• The Universal Principles of Successful Trading: Essential Knowledge for All Traders in
All Markets http://amzn.to/1QUTa5q
• Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading
Methods and Application http://amzn.to/23xf5am.
4

5. CORE PRINCIPLES
5

6. CORE PRINCIPLES
• Trades executed via my trading edge can be defined as:
• “Low risk/reward ratio trades that are back-tested to have a positive expectancy with
predetermined money management parameters.”
6

7. CORE PRINCIPLES (CONT.)
• All executed trades can be defined as a function of the Three Pillars.
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• Trade Setup – A prejudice to either buy or sell
• Trade Plan – The rules for where to enter, place stops, and exit
Methodology with an
Edge
• Ensuring within financial boundary’s risk capital limit
• Check out system stop and see whether methodology’s equity momentum is positive.
• Ensuring the correct position size is used.
Sensible Money
Management
• The glue that keeps the Three Pillars together
• The ability to execute according to the trade plan (discipline).
• Go through positive affirmations to help manage hope, greed, fear, and pain
Strong Willpower

8. MONEY MANAGEMENT RULES
8

9. MONEY MANAGEMENT RULES
• Capital Will Be at Risk
• I will use 60% of my total capital as at-risk capital; the remaining 40% I will keep in a
money market account in case I burn the first 60%
• Risk on Any Given Trade
• I will risk not more than 2 percent of at-risk capital on any trade.
9

10. MONEY MANAGEMENT RULES
(CONT.)
• Position Size Based on Risk
• I practice Fixed-Volatility formula to determine the position size I can trade. If the stop
loss is less than my acceptable risk, I will make a trade. If it is not, I will pass on it
• Market volatility is determined by using 5-day ATR.
10
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐𝑜𝑛𝑡𝑟𝑎𝑐𝑡𝑠 =
𝐹𝑖𝑥𝑒𝑑 𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 × 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝐵𝑎𝑙𝑎𝑛𝑐𝑒
𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑜𝑙𝑎𝑡𝑖𝑙𝑖𝑡𝑦

11. MONEY MANAGEMENT RULES
(CONT.)
• Add Position to an Existing Position
• I will use Fixed-Volatility and Fixed-Percentage formula respectively in different trading
methods
• Risk on All Open Positions
• I will have no more than ten positions on at any time and/or will not have more than 20
percent of my capital at risk on open positions.
11

12. MONEY MANAGEMENT RULES
(CONT.)
• Acceptable Risk/Reward Ratio
• Risk/Reward Ratio must be equal or better than 1:3. I will look for the next strongest
resistance as potential target profit
• Nevertheless, I do not place target profit because I want my profit ride as much as
possible. This is just guidance whether the trade has higher probability to succeed or
not.
12

13. MONEY MANAGEMENT RULES
(CONT.)
• Stop Loss
• Initial Stop Loss
• Trailing Stop Loss
13
Long
𝐸𝑛𝑡𝑟𝑦 𝑃𝑟𝑖𝑐𝑒 − 5 𝐷𝑎𝑦𝑠 𝐴𝑇𝑅 × 2
Short
𝐸𝑛𝑡𝑟𝑦 𝑃𝑟𝑖𝑐𝑒 + 5 𝑑𝑎𝑦𝑠 𝐴𝑇𝑅 × 2
Long
𝑃𝑟𝑒𝑣. 𝐶𝑙𝑜𝑠𝑒 − 5 𝐷𝑎𝑦𝑠 𝐴𝑇𝑅 × 2
Short
𝑃𝑟𝑒𝑣. 𝐶𝑙𝑜𝑠𝑒 + 5 𝑑𝑎𝑦𝑠 𝐴𝑇𝑅 × 2

14. MONEY MANAGEMENT RULES
(CONT.)
• Profit Taking – Exit if it hits the trailing stop or trailing stop loss
• Lower Risk Parameters
• If I lose more than 6 percent of my capital, I will lower my risk accordingly. I will resume
trading with normal risk parameter using the particular method if I managed to gain
back over 70% of the 6% drawdown
• Cutoff Point Before Questioning Trading Plan
• If I’m down 35% of my capital since I started, I will stop trading until I review my system,
risk parameters, and trading plan to determine why I am losing.
14

15. TREND TRADING
15

16. PHILOSOPHY AND OBJECTIVES
Philosophy
• In an uptrend, prices need to come down and go up
• In a downtrend, prices need to go up and come down
Objective
• If the market is in an uptrend, then the trader needs to locate a good support
level to enter a long position and catch a continuation of the uptrend
• If the market is in a downtrend, the trader needs to locate a good resistance level
to enter a short position and catch a continuation of the downtrend.
16

17. TIME FRAME
• Primary Time Frame – Daily Chart
• I mainly use this TF to trade
• Secondary Time Frame – H4 Chart
• I will use this TF to trade if I missed the boat in the Daily chart.
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18. WHEN TO AND NOT TO TRADE?
• Trading Time: 6AM to 9AM (GMT+8)
• Avoid Trading
• Two days before NFP announcement
• On the following Monday right after NFP announcement
• Two days before FOMC meeting or Monetary Policy
• On the following day right after FOMC meeting or Monetary Policy
• Bank holidays
• 20 December to 1 January.
18

19. CURRENCY PAIRS
EUR/USD GBP/USD AUD/USD
NZD/USD
19

20. TRADE SETUP – LONG
• 34 EMA on High and Low
• Price above the MA channel.
• Slope of the MA channel indicates uptrend
• ATR – To determine stop loss using price volatility and number of contracts
• Length: 5
• Multiplier: 2
• 200 SMA
• Support
• Prices form a solid support level
• Trend Lines
• Higher Lows.
20

21. 21
34 EMA on High and Low
200 SMA
ATR (Length: 5, Multiplier: 2)

22. TRADE SETUP – LONG (CONT.)
• Bullish Continuation Chart Patterns (H4, D1 and W1 TF)
• Bullish Flag/Pennant
• Bullish Breakout from Symmetrical Triangle
• Ascending Triangle
• Bullish Breakout from Rectangle
• Bullish Price Channel
• Bullish Measured Move
• Cup with Handle
• Bullish Continuation Price Action Patterns (H4 and D1 TF)
• Bullish Breakout from Inside Bar
• Bullish Pin Bar
• Preferably breaks resistance level/zone and form good support level/zone.
22

23. TRADE SETUP – LONG (CONT.)
• Be cautious if the price enters no man’s land
• Be cautious if there is potentially forming bearish reversal chart pattern:
• Double Top
• Head and Shoulders Top
• Rising Wedge
• Triple Top
• Bearish Breakout from Rectangle
• Be cautious if the price is very near to
• 200SMA resistance
• Round Number
• 52-Week High.
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24. 24
Decision Points

25. TRADE SETUP – SHORT
• 34EMA on High, Close and Low
• Price below the MA channel
• Slope of the MA channel indicates downtrend
• ATR – To determine stop loss using price volatility and number of contracts
• Length: 5
• Multiplier: 2
• 200 SMA
• Resistance
• Prices form a solid resistance level
• Trend Lines
• Lower Highs.
25

26. 26
34 EMA on High and Low
200 SMA
ATR (Length: 5, Multiplier: 2)

27. TRADE SETUP – SHORT (CONT.)
• Bearish Continuation Chart Patterns (H4, D1 and W1 TF)
• Bearish Flag/Pennant
• Bearish Breakout from Symmetrical Triangle
• Descending Triangle
• Bearish Breakout from Rectangle
• Bearish Price Channel
• Bearish Measured Move
• Inverted Cup with Handle
• Bearish Continuation Price Action Patterns (H4 and D1 TF)
• Bearish Breakout from Inside Bar
• Bearish Pin Bar
• Preferably breaks support level/zone and form good resistance level/zone.
27

28. TRADE SETUP – SHORT (CONT.)
• Be cautious if the price enters no man’s land
• Be cautious if there is potentially forming bullish reversal chart pattern:
• Double Bottom
• Head and Shoulders Bottom
• Falling Wedge
• Rounding Bottom
• Triple Bottom
• Bullish Breakout from Rectangle
• Be cautious if the price is very near to
• 200SMA support
• Round Number
• 52-Week Low.
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29. 29
Decision Points

30. TRADE PLAN
• Enter the Market
• Enter the market at the market price
• Position Size, Stop Loss and Profit Taking
• Refer money management rules
• Exit Rules
• When the candlestick hit the stop loss
• When the trade doesn’t work out after 4-5 days
• When bullish/bearish shadows happen for 3-4 days.
30

31. TREND REVERSAL TRADING
31

32. PHILOSOPHY AND OBJECTIVES
Philosophy
• In an established uptrend, prices bubble above the long term trend line. Bubble will burst eventually to start a new downtrend.
• In an established downtrend, prices bubble below the long term trend line. Bubble will burst eventually to start a new uptrend.
Objective
• If the market is in an uptrend, then the trader needs to locate high probability bearish reversal to enter a short position and catch
a beginning of downtrend.
• If the market is in a downtrend, then the trader needs to locate high probability bullish reversal to enter a long position and catch
a beginning of uptrend.
32

33. TIME FRAME
• Primary Time Frame – Daily Chart
• I mainly use this TF to trade.
33

34. WHEN TO AND NOT TO TRADE?
• Trading Time: 6AM to 9AM (GMT+8)
• Avoid Trading
• Two days before NFP announcement
• On the following Monday right after NFP announcement
• Two days before FOMC meeting or Monetary Policy
• On the following day right after FOMC meeting or Monetary Policy
• Bank holidays
• 20 December to 1 January.
34

35. CURRENCY PAIRS
EUR/USD GBP/USD AUD/USD
NZD/USD
35

36. TRADE SETUP – LONG
• Bullish Reversal Chart Patterns (D1 or W1)
• Double Bottom
• Head and Shoulders Bottom
• Falling Wedge
• Rounding Bottom
• Triple Bottom
• Bullish Breakout from Rectangle
• Support
• Prices form a solid support level.
• Trend Lines
• Higher Lows
36

37. TRADE SETUP – LONG (CONT.)
• 34EMA on High, Close and Low
• Price above the MA channel.
• Slope of the MA channel indicates beginning of uptrend.
• Preferably breaks resistance level/zone and form good support level/zone.
37

38. TRADE SETUP – LONG (CONT.)
• Be cautious if the price is very near to
• 200SMA resistance
• Round Number
38

39. 39
Decision Point

40. TRADE SETUP – SHORT
• Bearish Reversal Chart Patterns (D1 or W1)
• Double Top
• Head and Shoulders Top
• Rising Wedge
• Triple Top
• Bearish Breakout from Rectangle
• Support
• Prices form a solid resistance level.
• Trend Lines
• Lower Highs.
40

41. TRADE SETUP – SHORT (CONT.)
• 34EMA on High, Close and Low
• Price below the MA channel.
• Slope of the MA channel indicates beginning of downtrend.
• Preferably breaks support level/zone and form good resistance level/zone.
41

42. TRADE SETUP – SHORT (CONT.)
• Be cautious if the price is very near to
• 200SMA support
• Round Number
42

43. 43
Decision Point

44. TRADE PLAN
• Enter the Market
• Enter the market at the market price
• Position Size, Stop Loss and Profit Taking
• Refer money management rules
• Exit Rules
• When the candlestick hit the stop loss
• When the trade doesn’t work out after 4-5 days
• When bullish/bearish shadows happen for 3-4 days.
44

45. MONITOR
45

46. EYEBALLING
• Eyeballing makes use of the ability to use experience and summarize a chart in the
blink of an eye. This experience comes from looking at many charts every day.
• At first this appears to be a time consuming process, but with practice, it is a fast
and efficient way to find clear simple, profitable trading opportunities.
• I train myself to apply this technique by looking closely at the chart every time I
have cause to look at a pair for any reason.
• Eyeballing remains one of the quickest and most effective ways to find profitable
trading opportunities.
46

47. DAILY MONITORING
1. Identify major support and resistance levels in the daily charts.
2. Identify any chart pattern and candlestick pattern in the daily and H4 charts.
3. Identify whether the market is ranging or trending.
4. Identify potential entry signal for the trading day.
5. Keep a trading journal that documents each trading day’s action.
47

48. WEEKLY MONITORING
1. Identify major support and resistance levels in the weekly charts.
2. Identify any chart pattern in the weekly charts.
3. Identify whether the market is ranging or trending.
4. Identify potential entry signal in the coming week.
5. Identify critical new releases in the coming week.
6. Update correlation heat map of currency pairs.
48

49. MONTHLY MONITORING
1. Identify major support and resistance levels in the monthly charts.
2. Identify any chart pattern in the monthly charts.
3. Identify whether the market is ranging or trending.
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50. WILLPOWER
50

51. DISCIPLINE
• Discipline is the glue that holds money management and methodology together.
• Without sound money management and methodology, there would not be
anything for discipline to glue. Discipline is important for survival and eventual
success.
• All of us know that we have to cut losses, trade less, have a risk management plan,
and do homework, but without discipline it is impossible to put together all these
tools and become a successful trader.
• Discipline is what ensures that all those things are carried out, and it is probably the
single most important tool a trader needs.
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52. TRADING JOURNAL
• I used trading journal spreadsheet to keep my trading journal. The spreadsheet will
generate performance report on my equity curve
• Furthermore, whenever I put on a trade, I capture its charts and mark key signals
that prompted me to act
• Whenever I close a trade, I capture its charts again and mark up those signals that
prompted me to exit
• I may write a few lines on how I first became aware of a potential trade, how I felt
entering and exiting, and so on
• I try not to write a dissertation on every trade, and record only the key factors,
aiming for speed and brevity.
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