Hello dear valued visitor, I want to welcome you formally to
my blog and at the same time am hoping that as you read through the contents of
this blog, you will find my posts and ideas useful in your daily trading
activities. Like I mentioned in my blog description panel, this blog was setup
solely for all newbies/inexperienced traders out there looking for useful
trading tools and tips to get started with or add to their trading arsenal. Let
me make it very clear that when I say “newbie” trader, I meant those who have
already gone past the forex basics and are now familiar with common forex
terminologies and more importantly, have a fair knowledge of how to use the
popular metatrader trading platform in terms of setting up charts and placing
trades and orders etc.
What am about to do here is to share with you a simple basic
trading system I developed that will help you make little and consistent
profits on the long term while you still go about getting yourselves well-grounded
with the rudiments of this over 5 trillion dollar a day business. So if you are
here reading this blog post right now and are completely new to forex trading
and are eager to learn, I will suggest you visit this website
www.babypips.com and get yourself familiar
with basic education on what forex is all about with their free on line courses
and then you can return here to try out my system.
Through my years of trading forex, I have come to realize
that the best systems that can guarantee one a fair amount of consistency in
terms of profit making or account growth generally are trend following systems.
There are so many trend indicators out there both basic and custom indicators
but the ones I found most suitable and simple enough most especially for
beginners are moving averages. Moving averages gives you a clear insight on the
direction the market is headed and the good thing about them is that it can
work for any financial instrument you can think of, be it currencies, metals,
commodities etc. another thing is, it will work on any time frame of your
choice.
For beginners, the system am about sharing with you will
work best for you on lower time frames like 5 minutes, 15 minutes and 30 minutes
but I will specifically recommend you start with 15 minutes chart. The system is
simply awesome on the 15 minutes charts.
SETTING UP YOUR CHART
Open a new chart window of any currency pair of your choice,
switch to 15 mins time frame and then add to it a simple moving average period
60 and set to close price (sma60). Make sure the period separators are turned
on and then remove the grid lines (optional). For the benefit of those who do
not know, period separators are vertical broken lines that separate one trading
day from another. Your chart should look just like this one below;
If you scroll back into history, you will observe that on
each trading day, two things are bound to happen;
1.
Price will either trend above the sma60 line or
2.
It will trend below the sma60 line.
Pretty interesting isn't it? I think it is.
Now the question is, how do we use this fine observation to
our advantage? It is simple. Add these 2 other moving averages to your chart
and make sure they are all of different colors.
1. 1. Exponential moving average period 6 set to close
price (ema6) and
2. 2. Exponential moving average period 14 set to
close price (ema14)
Now your chart should look just like mine below;
On the chart, sma60, which is the slowest of the 3 MAs in
terms of responding to price change, plays the role of a dynamic
support/resistance tool. Support and resistance points are very vital points on
any price chart. They mark points where market momentum tends to slow down when
hit and at such points, two events are bound to happen;
1. 1.
Market reversal and change of trend or
2. 2. Price breakouts and continuation of trend.
Remember, a wise trader will sell at resistance and buy at
support. Also, he/she will place stop loss above resistance when selling and
below support when buying.
SETTING UP A POSITION
The ema6, which is the fastest of the 3 MAs, will serve the
purpose of a signaling tool. What this means is that for as long as ema6 stays
above sma60, it is assumed that the market is bullish and it stays that way
until ema6 crossover to below sma60 signaling end of the uptrend and signaling the
beginning of a down trend (downward reversal). Similarly, for as long as ema6
stays below sma60, it is assumed that the market is bearish and it stays that
way until ema6 crossover to above sma60 signaling end of the downtrend and the
beginning of an uptrend (upward reversal). Pretty simple and interesting isn't it?
I believe it is!
WHEN TO BUY (Long position)
This is simple! There are 2 scenarios,
1. 1. When price hit sma60 and ema6 is above sma60 as
shown in the chart below, go long!
Set your stop loss at not less than 5pips below the most
recent valid swing low below sma60 or at a fixed 25-35pips below sma60 (not
entry point) and then set your exit target at not more than 30-50pips above entry
point.
1. 2. When ema6 crossover to above sma60, go long as
soon as price makes a retrace to test ema6 at a point not more than 10-15pips
above sma60. However, most times, this entry scenario can provide multiple
entry opportunities;
a.
When price retrace to test ema6 at not more than
10-15pips above sma60 as mentioned above
b.
When price retrace to test ema14 at not more
than 10-15pips above sma60 and
c.
When price retrace to test sma60 itself.
Set your stop loss at not less than 5pips below the most
recent valid swing low below sma60 or at a fixed 25-35pips below sma60 (not
entry point) and then set your exit target at not more than 30-50pips above
entry point.
WHEN TO EXIT LONG POSITION (in the event of a possible reversal)
Exit long position manually if ema6 crossover to below
sma60. Do not wait for your stop loss to get hit. Once reversal is confirmed,
get off the trade! It is better to get off with a 10-15pips loss than to allow
a 25-35pips or more stop loss to hit.
WHEN TO SELL (short position)
This is simply the direct opposite of conditions for taking
a long position.
There are 2 scenarios as well,
1. 1. When price hit sma60 and ema6 is below sma60 as
shown in the chart below, go short!
Set your stop loss at not less than 5pips above the most
recent valid swing high above sma60 or at a fixed 25-35pips above sma60 (not
entry point) and then set your exit target at not more than 30-50pips below entry
point.
1. 2. When ema6 crossover to below sma60, go short as
soon as price makes a retrace to test ema6 at a point not more than 10-15pips below
sma60. However, most times, this entry scenario can provide multiple entry
opportunities;
a.
When price retrace to test ema6 at not more than
10-15pips below sma60 as mentioned above
a.
When price retrace to test ema14 at not more
than 10-15pips below sma60 and
b.
When price retrace to test sma60 itself.
Set your stop loss at not less than 5pips above the most
recent valid swing high above sma60 or at a fixed 25-35pips above sma60 (not
entry point) and then set your exit target at not more than 30-50pips below
entry point.
WHEN TO EXIT SHORT POSITION (in the event of a possible reversal)
Exit short position manually if ema6 crossover to above
sma60. Do not wait for your stop loss to get hit. Once reversal is confirmed,
get off the trade! It is better to get off with a 10-15pips loss than to allow
a 25-35pips or more stop loss to hit as a result of hoping in an obviously
hopeless situation.
EMA-6 vs EMA-14
Apart from taking trades at ema14 soon after an ema6/sma60
crossover, the real role ema14 plays on the chart is to provide full
confirmation of trend change or market reversal. Ema6 provides an early signal
of possible trend change which we are expected to act upon but soon as ema14
follows suit (ema14/sma60 crossover), that indicates a full confirmation of
trend reversal and it also means it is ok to take a walk and let the system do
its work.
Finally, I will like to bring your attention to an important
fact. This system is not some kind of Holy Grail, it has its own bad days just
like every other system out there however, if you stick to the rules I have laid
out for you, I assure you that you will close each trading month in a profit no
matter how little. 3, 5, 8 or 10% return a month, to me, is huge success as
long as it is consistent. What matters most in this business is consistency. As
a beginner, I will also advice you stick to 2 or 3 currency pair for a start in
other to avoid over trading.
If you have any questions or areas of this post you need
more clarity on, please do so using the comment section. All manners of
questions are welcomed.
MONEY MANAGEMENT
Being a successful trader does not just circle around having
a winning system. Experience has taught me that even with a winning system, if
your funds are poorly managed, you will definitely end up losing at the long run.
For those of you who are interested in
setting long term trading goals, here is a simple money management module I prepared,
it’s a 12-phase stage and starting with a $100 investment. Each phase has no
fixed time frame, what you do is keep trading until you double your investment
of $100 and then move to next phase and so on till you complete the full 12
phases. The idea is to grow a $100 to $409,600 at the end of the 12th
phase and it doesn’t matter how long it takes, all it requires is to keep the
focus high and steady. I recommend you open a live account with Instaforex by
clicking on the link below and fund it with $100 and make sure you set the
leverage to 1:1000 for a start so as to fit in for the recommended lot size for
phase-1 and when you get to phase-2 you can reduce the leverage if you so wish.
Now you have a not just a winning system but also a winning
money management plan to go with. Follow the rules, stay focused and I guarantee
you success!
You can bookmark this page and keep the visit regular
because from time to time I will be posting free signals based on my system in
a variety of currency pairs and all for free. Feel free to follow me on the
following social media lets win together;
Twitter: @theblaqxamurai
Instagram: @theblaqxamurai
And don’t forget; leave a comment at the comment section!
Thanks for the visit! Wish you the very best!
