The (Almost) Forgotten Method That Generated a 1000 pips last month

“What you now hold in your hands reveals the “forgotten method” of Forex trading... This method seperates the winners from the losers.. And you are a few of the lucky ones that has it... Use it wisely.. And it will make you a very rich man. Use it wrongly and you may just be the cause of another financial turmoil...Its dangerous stuff”

You actually believed in the hocus pocus above? Gotcha!

Back to the subject...

“I am not a professional author. If you read for style, or for literary quality, be warned ahead of time that you will find grammar mistakes and run on sentences. I was never an “A” student in school and English was definitely not my favorite subject...”

The method, which I will outline generated more than a thousand pips (EUR/USD) last month (Oct) partly due to the bull move.. No... I do not have a magic indicator where I click a button and it reveals a Price or Level to Buy or Sell...

Actually what I am about to share with you is no secret...but an almost forgotten method. This method is practised by successful Traders of today.. This method serves as a reminder that the basic rules governing Forex trading will always be the foundation of a positive Forex account..

I do not claim copyright or ownership of this method in any way. I am sure many people “invent” the same system on a daily basis; nevertheless I would like to share it with you as I have achieved some success with it.

The Rules are circled around what I do everyday, Intraday trading. You could be a Strategic or Position trader, Swing Trader but what ever you call yourself, the Rules still apply... though the variables may have to be changed a little...

Will continue...

The (Almost) Forgotten Method of Forex Trading or any other forms of trading is to “Buy Low Sell High”. Thats it! What else do you think it is?

Buying low and selling high is something every trader knows, every traders talking about it but not every trader is doing it or doing it right. Are you doing it? Are you doing it right? Those not doing it are still looking for that “ magic pill” perhaps and I say good luck to them. Those not doing it right
is because they are over complicating a simple process, maybe?

Below are the Rules for the Method.. It looks simple but its the execution of the Rules most traders are having problem with...

Rules

 Find a trend... And follow it
 If its an uptrend, wait for a dip in the price to buy
 If its a down-trend, wait for it to rally to sell
 Place your risk
 Place a target of at least 1.5 times your risk
 Trade management: Shifting to Break-even, liquidating partial holdings, trailing stops etc... I
dont do any of those.
 Kill the 2 Enemies affecting your trading using your good friend “Know”
 Rinse and repeat

I will briefly elaborate the Rules above

 Rule 1: Find a trend... And follow it

The usual term “Follow the Trend” or "The Trend is your Friend" applies here and this basic and simple term have been responsible for the thousands of pips I have accumulated during my course of trading. And yet it remains a “mystery” to most traders as determining trend seems to be the hardest thing for them to do. One rule of thumb that allowed me to be almost right most of the time is this... “When In Doubt, Stay Out”.

Look for a trend. There are numerous ways to do that. One of the way is just letting the charts tell you. See chart below. What does it say?

http://img824.imageshack.us/img824/1366/77077528.jpg

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Thats right... It just told you its an uptrend
What about this?

http://img573.imageshack.us/img573/4247/downya.jpg
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No brainer right?

A simple tool is to use a 200MA

http://img412.imageshack.us/img412/78/up200.jpg
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Or for a down trend...

http://img12.imageshack.us/img12/2528/down200.jpg
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What about this?

http://img3.imageshack.us/img3/483/whipe.jpg
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I dont know what was that but one thing I know is not to even bother when I see charts like these.. Remember? "When in doubt stay out". this will ensure you stay on the right trend all of the time...

Rule 2:
Waiting for a dip to buy

Will be continue...

Rule 2: Waiting for a dip to buy

I will use BUY for illustration and convenient purposes.

This is the tricky part. Most would ask: “if its an uptrend... how low will it go before it bounces up again?” or “What if its a reversal?”. Well, I did say this is the tricky part. There are a few ways to do this. We can never be 100% sure but as long as we follow Rule-1, we can be sure we will be right more than wrong... Also remember this again... “When In Doubt, Stay Out!”

I use a another Moving average to determine “Dips” to buy... The100MA. See chart

http://img838.imageshack.us/img838/4814/200100ma.jpg
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As seen from the chart above, we had 6 opportunities for a Buy. Prices dip to the Moving Average and bounces off and then dips again and bounces off... 6 times. Do you see the picture?

Wasn't that simple? Basically its just waiting for Price to do just that, Dip! Its like fishing... You got to be patient and wait for Price to dip before taking action.

Rule 3: Placing your Risks

There is no hard and fast rule. Some traders manage their risks by just placing a "hard stop" of X pips but not advisable because this risk management offers no logic.. For this method, place the risk just below the 200 Moving average. The logic being if price crosses down the 200 Moving Average signifies a probable change of trend and you dont want to be caught in that...

http://img39.imageshack.us/img39/3536/200100mabuy.jpg
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The Red-dotted line is where you should place your Stop. As can be seen from the chart, some of the Buys got Stopped out because price indeed touched the Red-dotted lines before bouncing off again. We will never be 100% right about this. That leads us to the more important question regarding risks.. “How much to risk?”. A rule of thumb is 2% or below. That should keep your account healthy with enough muscles to fight the next fight should you lose. Risk whats affordable... Get it?

Will continue with the rest of the Rules soonest...

Very interesting so far,keep them coming.I've read an article about this ma's .Ican't remember the exact name of the article but it was something like that .What institutional traders don't want you to know about..Not quite sure...

Rule 4: Profit Taking
Again, no hard and fast rule but I usually place my Target at the last high or at least 2 times my risks.. Is it going to get there? Well, if you remember Rule-1 and if Rule-1 holds true, than it will get there, maybe not the same day but it will... See chart

http://img59.imageshack.us/img59/1620/67067995.jpg
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The Green-dotted lines are the last high for each of the buys.. As can be seen from the chart above, if Rule 1 holds true, price will meet these last highs.

“Why at least 2 times your risks?” What if it doesn't reach 2 times my risks?

Because of the nature of the swings and by placing the risks below the 200 EMAs, trading this way has always (mostly) allow me to take profit 2 times or more my risks. This allows me to be right 3.5 out of 10 trades and still make a profit

Calculation:
Based on 10 trades | Risk: 1 pip | Target: 2 pips | Accuracy: 35%

6.5 trades lost: 6.5 X -1pip = -6.5 pips
3.5 trades win: 3.5 X 2 pips = 7 pips

See? If you know each time you get in a trade and you don't have to be right all the time and still make money, wouldn't it be easier to pull the trigger. Thats how we control risks...

When I was first stating out, this mental preparation of pulling the trigger helped alot.

Gotta go... We will continue the next time with the Emotional aspect of trading...

what setting is your MA?is SMA OR EMA?

Thanks

Ayour2a

100 & 200 EMAs

Rules 5: Dont let these 2 Enemies affect you..

Who are they? Well, their names are Fear & Greed. The number one factor determining your success or failure at Forex trading are these 2 chaps. They come seperately or as one. Sometimes you can't differentiate between these two but thats not important... Whats more important is you
have Know beside you at all times.

FEAR: This guy is a terror and will appear just before you take the trade and also after you take the trade.. He will plant all sorts of pictures in your mind.. and asks lots of questions. His questions will include “You sure you gonna buy?” “It looks like a down trend.. you sure about this?” “Wait! Lets see if its heading lower before you buy.. Better be safe than sorry right?” Let Know kill this guy. If you know and follow the Rules above, there shouldnt be any reason why you should let FEAR affect
you. Know why you are buying, know that losing is part of the game and know you can "easily afford to lose". Know you need only to be 50% right and you are going tpo be profitable at the end of the day...

GREED: Just like his buddy, he is also an ass who will affect your Profit and Loss and sets you apart between Winners and losers... He always come when you are in the trade... especially when you are in the money. He usually says things like these... “Common bro! You are already 30 pips in the money. Shift your Stops before the thing comes crashing down!” or “Better take your money and leave! Heard that there is some news thats going to be real bad for your trade”.. Or when you are about to be stopped out.. “Dont take it out just yet.. it looks like its reversing man... the markets rebounding and you'll blame yourself
for the rest of your lfe when it does..." Well, again dont let GREED come near you. Know that Trading is a Business...Know that there are plenty of chances to make profits. Know when you are supposed to take out your profits when it reaches there and get out when you are supposed to. Do this until you are experienced enough to know the “levels” and trail accordingly. Know the Rules and follow them.

Conclusion:
That brings us back to Rule 6, Rinse & Repeat.
I believe that is quite self-explanatory?

The above is a method. You can apply what you have learnt from other sources to this method. It is an universal set of rules and they can't go wrong . Its a framework. There are “sub rules” to each indvidual rule. This is where advance knowledge comes in. We have indicators,to show you how to determine trends or levels to buy or sell, Robots to trail your Stops, books on pyschology aspect of trading to contain your emotions, but basically around this framework of Rules.

Finally if you had blazed through this thread in one sitting, then it may not seem like a simple solution to making money trading Forex. I suggest you read this again, if not several times.

Bring up a chart of your favourite currency pair and go back and look at the actual trades from the chart. This will reinforce what you have learned.
Very soon, it will become very simple. Take it easy. Paper trade until you feel comfortable with the rules and conditions of this method. Stay persistent, review the rules and do manual back-testing to gain more confidence.

You have to develop some discipline in both waiting for the trade set-up and waiting for the right time to get in. With any method, you have to play all the good opportunities and correct situations to make up for some inevitable small losses.

Well, that’s all there is to it. I hope I have helped you make your trading experience more profitable and fulfilling.

Hi cashcalf,

Very beautifull and usefull presentation.
Keep in touch,

Folio

Thank you...

Outstanding simple way to learn to trade. thank you very much! Keep posting. Steve

An example of a few trades that could have been traded yesterday...

http://img707.imageshack.us/img707/7334/15eg.jpg

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Patience is the name of the game...

http://img94.imageshack.us/img94/3230/maybel.jpg

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