The Forex Profit System is specifically designed for use with the 1, 5 or 10 minute charts, with the goal of taking 5-20 pip profits per trade—closing bad trades out using tight stops, or hedging any losing trades. The following steps will show you how to do this.
Set up your charts:
One the left hand side of screen you will be able to choose your chart. Choose EUR/USD (or whatever currency pair you like), 5 min, line and the chart will appear on the right hand side. Maximize the chart to fill the right hand side. Now if you want to make the price line darker, you can right click right on the price line and a properties box will appear. You can adjust the thickness of the line.
Now we will add the Moving Averages to the chart. We will be using the Exponential Moving Average 10, the Bollinger Band Exponential Set at 20, and the Exponential Moving Average 50.
Click on Moving Average on the left hand side under Studies. Set your first MA to 10, close, exponential and you can make it red with line width 2 under the Color/Style Tab.
Click on Moving Average again and add your MA 50, close, exponential and make this line blue with line width 2.
Now we will add 3 more indicators below the chart to help us confirm the trend, and to help us identify exact entry and exit buy or sell signals. The following indicators give us insight into the momentum, direction and overbought/sold indicators. Used along with the Exponential Moving Averages, Parabolic SAR and Bollinger Bands—these indicators can be very helpful to the day trader.
MACD Histogram.
Read about how to trade the MACD Histogram here: http://www.incrediblecharts.com/technical/macd_histogram.htm
Relative Strength Index (RSI)
Read about how to trade the RSI here: http://www.incrediblecharts.com/technical/relative_strength_index.htm
Slow Stochastic
Read about how to trade the Slow Stochastic here: http://www.incrediblecharts.com/technical/slow_stochastic.htm
Now add these studies to your charts.
Under Studies click on MACD Histogram and use the default settings (9,Exponential, 12, 26, Close, Exponential) and set the line width to 2. Your study will automatically open under your chart.
Under Studies click on Relative Strength Index and set it to 14 and set the line width to 2. Your study will automatically open under your chart.
Under Studies click on Slow Stochastic and set it to (5,3,3, Exponential) and make the %K line blue with line width 2, and the %D line red with line width 2.
Your chart, with all the studies on it should now look like this (example of USD/CAD 10 min chart): I clicked on the zoom in button a couple of times.
**tip: If you are in a winning trade, you can move your stop to your entry level, so that if your trade moves against you, the platform closes your position without any losses.
**tip: You should be comfortable setting your stop Order at 15-20 pips. If you can’t handle a 15-20 pip loss, then you are need to trade smaller amounts. This will help you from over leveraging your trading account.
Limit Order: Is a price you enter into an open position for the trading platform to automatically close your position at a profit.
For example, you might set your limit order at a 15 pip profit. If the exchange rate never hits that level, then the Order doesn’t get filled.
When to Enter and Exit Your Trades:
We will be looking at 3 different ways to day trade the Forex Markets. In a trading session, you may look for 1 or more of these approaches. The 3 techniques are as follows:\
- Trade the Breakout
- Trade the Trend
- Trading Tops and Bottoms
- Micro Trading
When is the best time to trade?
Because the Forex Market is open 24hrs a day, and traded on a global scale, the question to ask is, ‘when should I trade?’. The good news is that no matter what time zone or hemisphere you live in globally, there are always good opportunities to trade.
The three major trading ‘sessions’ are as follows (all in Eastern Standard Time):
- New York open 8:00 AM to 4:00 PM
- Japanese/Australian open 7:00 PM to 3:00 AM
- London open 3:00 AM to 8:00 AM
The first DayTradeForex.com trading technique we will look at is the easiest to recognize on the charts. We will call it ‘Trade the Breakout’. You can use the 5, 10 or 15 minute charts for this method. The indicators on the 5 minute charts are the fastest. Practice until you feel comfortable with the time frame that suits you best.
1. Trade the Breakout
The principle behind trading the breakout is to enter a trade when the price ‘breaks out’ of a tight range, because often it tends to keep moving in the same direction. We use our Bollinger Bands on our charts to spot this trading opportunity.
The second DayTradeForex.com trading technique uses the same principles, but is less extreme. This trading method is best traded on the 5 or 10 min charts, but can be applied to the 1 minute charts (See the “Micro Trading” strategy at the end of this trading course)
2. Trade the Trend
Trading the trend is just like trading the breakout, except in less volatile market conditions. Start with going to the 15 minute chart of the currency pair of your choice and ask yourself this question: ‘Is the exchange rate line (brown) above or below the EMA 50 (blue)?
**If the price line is currently below the EMA 50, and the EMA 10 and BB 20 are also below the EMA 50, then you will be looking at Selling opportunities in the trading session.
If the price line is currently above the EMA 50, and the EMA 10 and BB 20 are above the EMA 50, then you will be looking at buying opportunities in the trading session.
Often, when you are ‘trading the trend’, you will notice that the price line will bounce off the EMA 10 or the middle BB line or the EMA 50. These lines sometimes act as supports and resistances in a trading session. Therefore you can look to sell shorts when the price line bounces down off the EMA 10, BB 20 or EMA 50, or buy longs when the price line bounces up off the EMA 10 BB 20 or EMA 50.
When you trade the trend, it is important to trade with the Parabolic SAR, MACD, RSI and Slow Stochastic all signaling together.
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