Forex Simplified SystemTm

What is a system (dictionary definition)?

A procedure or process for attaining an object: as

a systematic procedure, technique, or mode of inquiry employed by or proper to a

particular discipline or art
a systematic plan followed in presenting material for instruction
a way, technique, or process of or for doing something
a body of skills or techniques
a discipline that deals with the principles and techniques of scientific inquiry
a fully developed or carefully formulated method often emphasizing the idea of
rational orderliness
orderly arrangement of parts or steps to accomplish an end: A means or manner of
procedure, especially a regular and systematic way of accomplishing something:
combination of methods, of processes, intend to insure a defined function or to
produce a result
an organized or established procedure
An organized and coordinated method; a procedure
The approach used to do something in an orderly logical effective arrangement
usually in steps

Why these definitions? The major reason trader loose is that they rely on feeling. They
trade emotionally. Your success depends on using a system. Without a system it is your
emotion that dictates you the trade. The system is there for you. The system is there to
show you when to trade.

Although this system is extremely simple, it is very effective and can generate consistent
wins. Do not try to dissect it, to modify it, to combine it with an other method. This
system is complete in itself. You will learn how to trade with a step-by-step, black and
white trading system. No more relying on “gut” feelings, or emotional trading.

I do not suggest that you start trading with real money immediately. Test the system on
a demo first, and experiment until you can generate at least 7 consecutive win. You will
gain confidence and when you will get the feeling of trading with confidence every
aspect of your trading will be aligned for good move and for profit.

This system is design to catch a minimum of pips per trade with a maximum of lots in a
minimum time frame. This will greatly reduce to minimum the risk and your emotions.

1
The set up: preparing your workspace

The charts:

To pick up the right trade and understand the market you will need 4 charts disposed in
an clear format so you can have a clear view of all 4 in the same time.

1. Daily
2. 1 hour chart
3. 5 minute chart
4. 15 minute chart

The daily chart is for the big picture of the market.

On the 1-hour chart, 5-minute chart and 15-minute chart you will install your
indicators.

2
The tools

Indicators:

To analyse your trade you will need technical tools. These tools will help predict possible
directional movement of the market and help identify buying and selling opportunity.
Used alone these indicators will give you buying and selling signals.

A system uses a combination of many indicators and many charts in the same time to
give you clear entry point.

Warning! Their accuracy depends on their setting which control how they interact with
each other. It is important that you set them correctly (Colour and value) and that you
know how to read them. It is also important that you adhere to a colour code and that
you stick to it. Some system will give you different colour for the same indicators, some
charting system allow a limited choice of colour for your line. The colour you chose is not
important, what is vital is that you always use the same colour for the same line in your
indicators and that you recognise them correctly and rapidly.

For example when I say ‘‘The Blue line it is because I chose this colour to represent the
fast moving average, the leading indicator. It is the line that gives buy and sell signals
when it crosses the Red line.’’ Understand that if you interpret the colour in any other
way you will get an other signification of the signal. My code is set according to my
preference and I know how to read it.

First indicator: Moving average indicator MVA

Moving average indicator MVA is combined of 2 lines constantly crossing themselves

and the candles
The Blue line is the fast moving average, the leading indicator. It is the line that gives
buy and sell signals when it crosses the Red line, depending on the direction of the
market.
The Red line is the slow moving average, the lagging indicator.
The signal is stronger when the separation between them is least 2 pips.

Setting:

(To be installed in this specific order on the 1hour, 15 minutes and 5 minutes charts)
Indicator Order Colour Period
MVA exponential 1 Red 25
MVA exponential 2 Blue 10

3
Second indicator is the Stochastic.

Stochastic is made of 2 lines %K, and %D constantly crossing each other. The indicator
works within a 0% to 100% boundary monitoring an overbought / oversold environment.
The two extreme indicate a potential reversal. 0 is the bottom line indicating a potential
reversal and oversold environment, the 100% is the upper line indicating a potential
reversal and overbought environment. The 80% and over may result in a sell signal
(overbought) 20% and under may result in a buying signal (oversold).

A signal is given when the %K (Black) crosses %D (Green) and when the Green crosses
20% - 50% - 80% both lines heading in the same direction

Buying signal
A buy signal is given when the %K (Black) crosses %D (Green) and when the Green
crosses 20% or the 50% and both heading up

4
Selling signal
A sell signal is given when the %K (Black) crosses %D (Green) and when the Green
crosses 80% or the 50% and both heading down

The corrects setting for this indicator are:

1 hour chart 2 pair of stochastic

First pair %K %D Period

Colour Black Green
Setting 24 4 3
Second Pair %K %D Period
Colour Black Green
Setting 9 3 3

5 minutes and 15 minutes charts

Pair %K %D Period
Colour Black Green
Setting 9 3 3

5
Third indicator is the RSI

The RSI is a rapid indicator and is used on the 1-hour chart and work well with the 9-3-3
stochastic. It is faster than the stochastic and can indicates in advance the direction that
the stochastic will take. Remember that you use it only to confirm stochastic signals. So
wait for stochastic to take place before making your decision.
The RSI is made of 1 lines set at 14, and works within a 0% to 100% boundary
monitoring an overbought / oversold environment. The overbought limit is from 70% to
100% and the oversold limit is from 0% to 30% with a 50% delimitation which divide both
zone.

A signal is given when the line break his support and resistance and when it crosses the
30%, 50%, 70% lines
70%
support
50%
resistance
Buy Sell
30%

1-hour chart with all indicators

6
15 minutes chart with all indicators

5 minutes chart with all indicators

7
Applying the system, step by step.

1) Draw your inner and outer trend-lines, on the 4 charts to have a clear picture of
the direction of the market.
2) Find recent high / low and supports / resistance
3) Draw your Fibonacci on the 1-hour chart to evaluate the possible movement
range. If 2 opposite trends you could trade in both sense
4) Check the MVA on the 3 charts to see if we are in a sell or buy zone and to know
in which direction MVA is heading
5) Find out if there are any fundamentals
6) Identify the 8h30 EST candle on the 5 and 15 minutes chart. (Timing is very
important. One of the best time to trade is at the opening of the US market.) Be
ready to enter the market at 8h45 am EST.
7) Check the stochastic signals on your 3 charts to get the green light to enter a
trade. What you are looking for is 4 stochastic heading in the same direction.
Remember the green line must be in the same direction as the crossing. If all 4
indicators are in place and the green is not completely in the same direction, wait
the movement is not finished yet. Wait until you get very clear signals. Wait after
the fundamentals before doing anything.
8) When all 4 stochastic are heading in the same direction you have the green light.
Enter with a market order (direct deal). Look on your 1-hour chart for the last low
or high depending of the market direction and place your stop. Never trade
without a stop. The stop is set according to the 1-hour chart to let the market
move without being stopped to soon. You could place a limit at 20 pips if you
wish.

8
1-hour chart buy signal 15 minutes chart buy signal
T

5 minutes chart buy signal

9
 1-hour chart sell
T

15 minutes chart sell signal

T

5 minutes chart sell signal

10
The best signals are:
1. when the green line crosses the 20% on the market direction on the 1-hour chart
and when the signal are at the lowest possible. (buy)
2. when the green line crosses the 80% on the market direction on the 1-hour chart
and when the signal are at the highest possible (Sell)
The signals will not be at the same level on the 1 h 15min and 15 min but must always
be in the same direction and always the lowest or highest possible depending of the
market direction. Always take clear signals and remember the green line gives the
direction it is the most important line.

When the signals are going to engage on the 1 hour chart, you can check on a 30
minutes chart to see if they are already engage (optional). This will confirm that your
1-hour movement is going to take place. The signals on the 15 minutes and 5 minutes
are already engage. Just wait for green light.

Exit and profit

When in the trade, the 5 minutes chart can change direction. This chart is short term.
As long as the signal and the green line on the 15 minutes stays in the same direction as
the signal and the green line on the 1-hour chart, the movement will continue in the
same direction. The 5 minutes show a temporary reversal. The reason is that you see
more candle on the 5 minute chart than in the 15 min chart and 1 hour chart.

If the signal on the 15 min chart and the green line change direction check the
resistance / support level on the 5 minutes and the 15 minutes to exit before the market
reach your stop on the 1 hour chart.

When your are in the profit zone never hesitate to take profit. Set an objective and when
it is reached get out with profit.

If the stochastic on the 1 hour chart are strong and still on the direction of your trade it is
only that the 15 minutes is momentarily reversing and will eventually return to his original
direction. In this situation you have 2 options.

First option: Take your profit and wait until the market reaches the support or resistance
depending of the direction of the trade and come back in the trade for a new ride.
Second option: If your account is sufficient and your emotion is strong it is an opportunity
to double your position when the market bounce on the 15-minute and the stochastic
return in her original direction.

In anyway do not hesitates to take profit. This system is design to catch a minimum of
pips per trade with eventually a maximum of lots in a minimum time frame and the
minimum risk. With this system what is important is to get accustomed to take easily
without effort and stress 10 to 20 pips per trade. When your ability, aptitude, experience
and confidence grows you will only add more lots to each trade for more profit and with
the same 10 to 20 pips. This is how you greatly reduce to minimum the risk and your
emotions and increase your profits.

11
Golden rules

You are working with a system

• Use the system as is

• When the signals are clear do not hesitate to enter in the trade.
• When the market change on the 15 minutes chart do not hesitate to exit the trade
at the first support / resistance to limit your loss
• When there is profit do not hesitate to take it

I read somewhere ‘’ Chance is when preparation meet opportunity’’ Get prepared and
you will see those opportunity in the Forex.
For myself I will not wish you good luck but good preparation.

DISCLAIMER
I feel obliged to offer the following disclaimer to make you aware of some of the risks
involved in margined trading.
Margined trading is one of the riskiest forms of investment available in the financial
markets and is only suitable for sophisticated individuals and institutions. The funds in
an account trading at maximum leverage can be completely lost. Theoretically, an
account could lose more than the equity it contains, if the account is trading at maximum
leverage and positions held in the account swing more than one percent in value. Given
the possibility of losing one's entire investment, speculation in the foreign exchange
market should only be conducted with risk capital funds that if lost will not significantly
affect one's personal or institution's financial well-being. Please also read the
Commodity Futures Trading Commission (CFTC), advisory on Foreign
Currency. Trading in Forex is speculative and may involve loss of the principal,
therefore funds traded in the Forex market, whether in this trade or in general should be
risk capital funds, that if lost will not significantly affect one's personal financial well-
being. This is not a solicitation to invest and you should carefully consider your financial
situation as to the suitability to your situation prior to making any investment or entering
into any transaction. The information provided is for educational purposes only and is
not intended as investment advice. The seller is not a registered investment advisor
and assumes no responsibility for errors or inaccuracies in these materials.

© 2005 forexbag.com All Rights Reserved

12