I hope you all enjoy the thread. I only trade this on the G/U because its the most profitable. With this system you are almost always in a trade and all that needs to be done is manage the trade every 4 hours. Please asks questions so as to understand the system better. The only 2 indicators that are used are a 5 EMA applied to the high and a 5 EMA applied to the low, all on the 4H chart. Thats it.
1.) Price must go above/below the 5EMA by 5 pips for it to be considered a setup bar. If price breaks the lower EMA you only look for longs and if price breaks the high EMA you only look for short entries. Price cannot touch both EMA's, only one, if it touches both EMA’s it cannot be used for a setup bar.
2.) A proper reversal bar has a lower high for a short or a higher low for a long.
3.) After a proper setup bar has been formed, price has to break the setup bars low by 5 pips for a short to be taken or break the setup bars high by 5 pips for a long position to be taken. In the case of a long entry you will need to include the spread in addition to the 5 pips above the high of the setup bar. In the case of a long setup bar (price below the 5 EMA) if price keeps going lower in the following bar that now becomes the setup bar. The same applies for a short. As long as price keeps going further in a direction you have new setup bars until a reversal bar triggers the trade.
4.) In addition to the reversal bar making a lower low and a lower high than the setup bar, or in the case of a long entry, making a higher high and a higher low, it must also be within 2 bars following the setup bar. If a proper reversal bar does not follow the setup bar within 2 bars the trade is not taken, and you wait for a new setup bar which can be as soon as the next bar. In this case the low of the failed setup bar which is now invalid is not of any importance anymore. The new setup bar only has to meet the basic criteria of piercing the 5EMA by a minimum of 5 pips to be a valid setup bar.
1.) Initial stop placement is 5 pips above the setup bars high in the case of a short, and 5 pips below the low of the setup bar in the case of a long. Most charts use the bid for highs/lows, so in the case of a short the stop must be 5 pips above the high and then add the spread as well.
2.) If you get stopped out you then reverse the trade. If you are long and get stopped out you enter short when you get stopped out. So not only do you have your stop in the market but you also have your order to change the direction of the trade should you get stopped out. Only put a trade to go the other direction in the market after a proper reversal bar closes.
3.) Lets say you got a buy signal and price went 80 pips in your favor and then went against you and stopped you out, at which point you reversed the trade according to the rules. So where would you put your stop? Your stop would be placed 5 pips above the high from when you got in the trade. If you get stopped out of your reversal trade you do not put another reversal trade in the market. Refer to post #485 for a example and a chart explaining it. To put it another way im going to quote viperzz ,"Your stoploss for the reversal order should be placed 5 pips above the high of the initial reversal bar that triggered the buy trade once closed, as new bars are formed from then on and if with a higher high, the reversal order stoploss should then be moved above the most recent candle with highest high until proper setup bar is formed in the opposite direction."
A proper new setup bar could be as immediate as the bar that has triggered the reversal order itself.
1.) Only use this exit, NO exceptions to the rule.
2.) The only exit is when a signal to go the opposite direction is given. If you are short you exit when a long signal is given, and when you are long you exit when a short signal is given. Being that you are exiting BECAUSE you have the signal to go the other way, you not only exit your position but you enter in the direction of the new signal. If short you exit and go long, and if you are long you exit and follow it up with a short entry.
As any system is traded you find new "setups" that need to have a “in case of this, do this rule” and this is that category. I will continue to update this section as those arise.
1.) Trades are not carried into the weekend. Close all open trades 5 minutes before your broker (http://www.forexfactory.com/brokers.php) closes. On Sunday at open put your trade in if nothing has changed. If the gap gives a signal the other direction open the trade in the direction of the new signal.
2.) Example: A proper long setup bar forms and you place your buy stop and stop loss. The next bar makes a lower low and then triggers the buy stop, in that order...where does the stop go now? The stop would go 5 pips below the low of the reversal bar. Essentially the reversal bar is also the setup bar. This is a very rare case but it does happen, and thus we need a rule for it. This happens because we do not watch the market 24/7 only a brief glance every 4 hours once you understand the system.
3.) This rule is here to determine where to put the stop when you have a failed reversal bar. It was taken from post #419. Only apply this rule if the trade hit a max profit of +150 pips or more, otherwise use the original stop when you first intered the trade.
"Since we have no setup bar we have no where to put are stop. In this case you look at the maximum number of pips you were in profit and devide that number by two. So on this trade we went short at 1.7365 and it hit a low of 1.6134 for a max profit of +1,231 pips. You know devide the max pips in half and you come up with 615 pips. So you lock in 615 pips and the new stop is 1.6750. Now of course when we get the next setup bar you will use that but this rule is for when we have a failed setup bar and are in profit and need a stop."
4.) So lets say we have a setup bar to go long and it closes and we put are buy order in the market. During the next bar the market makes a lower low and then goes on to trigger are buy. Do we leave the stop in the original location or move it 5 pips below the new low? Being that this system has its base in support and resistance we move it below where the market just went down and bouced. So in short we would move it 5 pips below the new low.
Please if any rule needs to be written more clearly let me know and I will gladly do it. If I have left anything out let me know that as well. This may seem very complicated but if you trade it for a week and follow this thread for a week I guarantee you will have it down for the most part. The results speak for this system….its worth the effort to learn it!
-Sterling
4 Hour 5EMA System
Entry
1.) Price must go above/below the 5EMA by 5 pips for it to be considered a setup bar. If price breaks the lower EMA you only look for longs and if price breaks the high EMA you only look for short entries. Price cannot touch both EMA's, only one, if it touches both EMA’s it cannot be used for a setup bar.
2.) A proper reversal bar has a lower high for a short or a higher low for a long.
3.) After a proper setup bar has been formed, price has to break the setup bars low by 5 pips for a short to be taken or break the setup bars high by 5 pips for a long position to be taken. In the case of a long entry you will need to include the spread in addition to the 5 pips above the high of the setup bar. In the case of a long setup bar (price below the 5 EMA) if price keeps going lower in the following bar that now becomes the setup bar. The same applies for a short. As long as price keeps going further in a direction you have new setup bars until a reversal bar triggers the trade.
4.) In addition to the reversal bar making a lower low and a lower high than the setup bar, or in the case of a long entry, making a higher high and a higher low, it must also be within 2 bars following the setup bar. If a proper reversal bar does not follow the setup bar within 2 bars the trade is not taken, and you wait for a new setup bar which can be as soon as the next bar. In this case the low of the failed setup bar which is now invalid is not of any importance anymore. The new setup bar only has to meet the basic criteria of piercing the 5EMA by a minimum of 5 pips to be a valid setup bar.
Initial Stop Placement
1.) Initial stop placement is 5 pips above the setup bars high in the case of a short, and 5 pips below the low of the setup bar in the case of a long. Most charts use the bid for highs/lows, so in the case of a short the stop must be 5 pips above the high and then add the spread as well.
2.) If you get stopped out you then reverse the trade. If you are long and get stopped out you enter short when you get stopped out. So not only do you have your stop in the market but you also have your order to change the direction of the trade should you get stopped out. Only put a trade to go the other direction in the market after a proper reversal bar closes.
3.) Lets say you got a buy signal and price went 80 pips in your favor and then went against you and stopped you out, at which point you reversed the trade according to the rules. So where would you put your stop? Your stop would be placed 5 pips above the high from when you got in the trade. If you get stopped out of your reversal trade you do not put another reversal trade in the market. Refer to post #485 for a example and a chart explaining it. To put it another way im going to quote viperzz ,"Your stoploss for the reversal order should be placed 5 pips above the high of the initial reversal bar that triggered the buy trade once closed, as new bars are formed from then on and if with a higher high, the reversal order stoploss should then be moved above the most recent candle with highest high until proper setup bar is formed in the opposite direction."
A proper new setup bar could be as immediate as the bar that has triggered the reversal order itself.
Take Profit
1.) Only use this exit, NO exceptions to the rule.
2.) The only exit is when a signal to go the opposite direction is given. If you are short you exit when a long signal is given, and when you are long you exit when a short signal is given. Being that you are exiting BECAUSE you have the signal to go the other way, you not only exit your position but you enter in the direction of the new signal. If short you exit and go long, and if you are long you exit and follow it up with a short entry.
Additional Rules
As any system is traded you find new "setups" that need to have a “in case of this, do this rule” and this is that category. I will continue to update this section as those arise.
1.) Trades are not carried into the weekend. Close all open trades 5 minutes before your broker (http://www.forexfactory.com/brokers.php) closes. On Sunday at open put your trade in if nothing has changed. If the gap gives a signal the other direction open the trade in the direction of the new signal.
2.) Example: A proper long setup bar forms and you place your buy stop and stop loss. The next bar makes a lower low and then triggers the buy stop, in that order...where does the stop go now? The stop would go 5 pips below the low of the reversal bar. Essentially the reversal bar is also the setup bar. This is a very rare case but it does happen, and thus we need a rule for it. This happens because we do not watch the market 24/7 only a brief glance every 4 hours once you understand the system.
3.) This rule is here to determine where to put the stop when you have a failed reversal bar. It was taken from post #419. Only apply this rule if the trade hit a max profit of +150 pips or more, otherwise use the original stop when you first intered the trade.
"Since we have no setup bar we have no where to put are stop. In this case you look at the maximum number of pips you were in profit and devide that number by two. So on this trade we went short at 1.7365 and it hit a low of 1.6134 for a max profit of +1,231 pips. You know devide the max pips in half and you come up with 615 pips. So you lock in 615 pips and the new stop is 1.6750. Now of course when we get the next setup bar you will use that but this rule is for when we have a failed setup bar and are in profit and need a stop."
4.) So lets say we have a setup bar to go long and it closes and we put are buy order in the market. During the next bar the market makes a lower low and then goes on to trigger are buy. Do we leave the stop in the original location or move it 5 pips below the new low? Being that this system has its base in support and resistance we move it below where the market just went down and bouced. So in short we would move it 5 pips below the new low.
Please if any rule needs to be written more clearly let me know and I will gladly do it. If I have left anything out let me know that as well. This may seem very complicated but if you trade it for a week and follow this thread for a week I guarantee you will have it down for the most part. The results speak for this system….its worth the effort to learn it!
-Sterling
Founder of Day Trading Forex Live
