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The Dynamite TNT Forex System This is not a free ebook. COPYRIGHT Information No part of this ebook may be reproduced or transmitted in any form whatsoever, electronic or mechanical, including photocopying, recording, or by any informational storage or retrieval system without expressed written, dated and signed permission from the author, Clarence Chee. Copyright Š 2007 Clarence Chee – Dynamite TNT Forex System

GOVERNMENT REQUIRED: Risk Disclaimer and Disclosure Statement The information provided in this ebook is of the nature of a general comment only and neither purports nor intends to be, specific trading advice. It has been prepared without regard to any particular person's investment objectives, financial situation and particular needs. Information should not be considered as an offer or enticement to buy, sell or trade. Examples are provided for illustration purposes only and should not be construed as investment advice or strategy. You should seek appropriate advice from your broker, or licensed investment advisor, before taking any action. Past performance does not guarantee future results. Simulated performance results contain inherent limitations. Unlike actual performance records the results may under or over compensate for such factors such as lack of liquidity. No representation is being made that any account will or is likely to achieve profits or losses to those shown. The risk of loss in trading can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. If you purchase or sell Equities, Futures, Currencies or Options you may sustain a total loss of the initial margin funds and any additional funds that you deposit with your broker to establish or maintain your position. If the market moves against your position, you may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice in order to maintain your position. If you do not provide the required funds within the prescribed time, your position may be liquidated at a loss, and you may be liable for any resulting deficit in your account. Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example, when the market makes a "limit move." The placement of contingent orders by you, such as a "stop-loss" or "stop-limit" order, will

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not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders. By purchasing the Dynamite TNT Forex System, you acknowledge and accept that all trading decisions are your own sole responsibility, and the author, Clarence Chee, and anybody associated with the Dynamite TNT Forex System cannot be held responsible for any losses that are incurred as a result. The information provided on this ebook is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject us to any registration requirement within such jurisdiction or country. Hypothetical performance results have many inherent limitations, some of which are mentioned below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and actual results subsequently achieved by any particular trading system. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example the ability to withstand losses or to adhere to a particular trading system in spite of the trading losses are material points, which can also adversely affect trading results. There are numerous other factors related to the market in general or to the implementation of any specific trading system, which cannot be fully accounted for in the preparation of hypothetical performance results. All of which can adversely affect actual trading results. We reserve the right to change these terms and conditions without notice. You can check for updates to this disclaimer at any time at our website: http://www.dynamitetntforex.com/

Use of Charts Please note that all charts used in this ebook are meant for illustrative purposes.

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Table of Contents Introduction to the Dynamite TNT Forex System

6

Theoretical Aspect of the Dynamite TNT Forex System

7

Technical Analysis of the Dynamite TNT Forex System

9 9

Candlestick Charts Technical Indicators: Default MACD (12,26,9)

10

Long MACD (30,60,30)

11

Default and Long MACD

12

Exponential Moving Average Lines as Trend Indicators

13

Parabolic SAR (Stop and Reverse)

15

Stochastic (5,3,3)

17

Exponential Moving Average Lines & Parabolic SAR as Resistance and Support Lines Price Action – Prices move in waves and the need to differentiate these waves

20 22

The Retracement Market Method (One-Hour Chart)

24 26

When a New Trend is Established

25

Examples of Identifying a ‘Buy’ Signal for a New Up-trend

29

Examples of Identifying a ‘Sell’ Signal for a New Down-trend

32

When an Existing Current Trend Continues with Momentum

35

Examples of Identifying a ‘Buy’ Signal for a Continuation of an Up-trend

36

Examples of Identifying a ‘Sell’ Signal for a Continuation of a Down-trend

42

Guidelines for Rejecting Dynamite TNT ‘Retracement’ Trade Signals

48

Identifying Major and Major Retracement Trends

49

Monitoring and Closing of Open Trade Positions

50

Tactical Action of the Dynamite TNT Forex System

The Running Market Method (15-Minute Chart)

51

Why We do not Trade According to the Outcome of the News Release

51

Why We do not Trade the News Upon its Immediate Release

51

How to Trade Using the Running Market Method

52

Examples of Identifying a ‘Buy’ Signal using the Running Market Method

56

Examples of Identifying a ‘Sell’ Signal using the Running Market Method

59

Analysis of the Running Market Trades

62

The Ranging Market Method (One-Hour Chart)

63

Example of a Ranging Market as indicated by the Default and Long MACD

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Example of a Choppy Market as indicated by the Default and Long MACD

64

Example of Identifying Trade Signals using the Ranging Market Method

65

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The Rollover Market Method

67

The Short Swing Method (4-Hourly Chart)

67

Examples of Identifying a ‘Buy’ Signal using the Rollover Market Method – Short Swing Examples of Identifying a ‘Sell’ Signal using the Rollover Market Method – Short Swing

68 72

Converting a Retracement Trade to a Short Swing Trade

74

Comparison between Using an Hourly and a 4-Hourly Chart

74

The Long Swing Method (Weekly & Daily Charts)

75

Steps for Trading the Long Swing

75

Examples of Identifying a ‘Buy’ Signal Using the Rollover Market Method – Long Swing Examples of Identifying a ‘Sell’ Signal Using the Rollover Market Method – Long Swing

77 89

A Comparison between Short Swing Trade and Long Swing Trade

93

How does News Release affect Swing Trades

93

Money Management

94 94

Emotional Management

95

The Disciplinary Aspect of Trading

Professional (Institutional) Traders VS Amateur (Retail) Traders

96

Conclusion

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Dynamite TNT Forex System Introduction to the Dynamite TNT Forex System The Dynamite TNT Forex System was developed because 95% of retail traders lose money in the forex market. With this system, retail traders will be able to consistently profit from the forex market. Hence, the system seeks to address the following main reasons why retail traders lose money in the forex market: 1. Failure to identify whether the current TREND is part of a major trend, a minor retracement, a major retracement, or a secondary retracement, as well as failure to confirm whether a new TREND has sufficient momentum to maintain its direction. 2. Failure to identify whether the TURN made by the current trend is a reversal (i.e. a change in the direction of the major trend) or a retracement (i.e. a technical correction with no change in direction of the major trend). 3. Entering the market at the wrong TIMING especially when the current trend is already exhausted or is due for a retracement. 4. Placing either unrealistic TARGET Profit or TARGET Profit that does not give a reasonable risk-reward ratio. The system is called TNT (i.e. T and T) because it seeks to address the four Ts which are vital for traders to be profitable in the forex market: • Trends • Turns • Timings • Targets Since TNT, short for Trinitrotoluene, is the chemical name for a type of explosive called ‘dynamite,’ hence we named the system in full as “Dynamite TNT Forex System.” In this ebook, we will present the Dynamite TNT Forex System using the 3 TAs: • Theoretical Aspect of the Dynamite TNT Forex System • Technical Analysis of the Dynamite TNT Forex System • Tactical Action of the Dynamite TNT Forex System

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Theoretical Aspect of the Dynamite TNT Forex System Generally, most forex traders rely on two basic forms of analysis which are also used in other financial markets: 1. Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument. 2. Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action which take into account price of instruments, volume of trading and, where applicable, open interest in the instruments. In practice, many forex traders use technical analysis together with fundamental analysis to determine their forex trading strategy. One major advantage of technical analysis is that experienced technicians are able to follow many different markets, whereas fundamentalists usually only familiar themselves with a particular market. The main differences between these two types of analysis are presented on the table below: Fundamental Analysis

Technical Analysis

Focuses on what ought to happen in a Focuses on what actually happens in a market. market. Factors involved are: • Economy and political situation • Government policies • World events

Charts are based on: • Price action • Market sentiment • Transaction volume

The fundamentalist studies the cause of The technician studies the effect of market movement. market movement. We can also differentiate between fundamental and technical analysis in this illustration: In a shopping mall, a fundamental analyst may purchase a product completely base on its specification while a technical analyst may purchase the same product completely base on its popularity. The Dynamite TNT Forex System uses only technical analysis to generate trading signals. It focuses on the effect of the market movement rather than the cause of the market movement. What causes the market to move along that direction is not as important as how the market moves as a result of that cause.

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The following are the reasons why the Dynamite TNT Forex System focuses only on technical analysis: 1. Only technical analysis can show us “visually” on the chart how the market has reacted to the economic data released and which direction the price is moving. 2. Only technical analysis can help us to identify our entry price and at what price should we place our stop loss and target profit. 3. Only technical analysis can indicate to us when the current market trend is going to reverse or retrace. The Dynamite TNT Forex System adopts a set of technical indicators which are able to help traders to identify the following: 1. Which market condition is suitable for trading. 2. Whether the new trend can be sustained with sufficient momentum or the existing trend is due for a retracement or a reversal. 3. When to enter the market. 4. What price to enter the market. 5. Where to place the stop loss and target profit. Only with a right combination of technical indicators, the Dynamite TNT Forex System is able to help retail traders to reap “healthy” or even “huge” profits from the forex market. With this, let us now move on to the next section which is “Technical Analysis of the Dynamite TNT Forex System.”

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Technical Analysis of the Dynamite TNT Forex System Candlestick Charts For technical analysis, the Dynamite TNT Forex System uses candlestick charts of the following time-frame: • Hourly charts for normal market (trending and ranging) conditions. • 15-minute charts for running markets. • 4-hourly, daily and weekly charts for swing trades. Candlestick charts are more visually appealing and easier to interpret compared to bar charts. They enable forex traders to compare the relationship between the opening and closing price as well as the high and low price of a particular period. In our Dynamite TNT Forex System, a green candlestick, where the closing price is higher than the opening price, indicates a rising candle with buying pressure while a red candlestick, where the closing price is lower than the opening price, indicates a falling candle with selling pressure. For hourly charts, each candlestick indicates the price movement within a particular hour. Likewise for 15-minute charts, each candlestick indicates the price movement within a particular 15-minute period. This also applies to the 4-hourly, daily and weekly charts.

Generally, the longer the body of a candlestick, the more intense the buying or selling pressure. Conversely, short candlesticks indicate little price movement and represent consolidation.

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Technical Indicators For technical analysis, the Dynamite TNT Forex System uses the following technical indicators: 1. MACD (12,26,9) – This is the Default MACD which signals a new trend. 1) When the red (signal) line crosses the blue line upward and remains below the blue line, it indicates an up-trend. 2) When the red (signal) line crosses the blue line downward and remains above the blue line, it indicates a down-trend.

The above chart shows the down purple arrows in the Default MACD window indicating down-trend (red signal line above the blue line) while the up purple arrows in the Default MACD window indicating an up-trend (red signal line below the blue line).

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2. MACD (30,60,30) – This is the Long MACD and is used to smoothen the Default MACD so as to identify whether the existing trend is a continuation of the previous trend. 1) The interpretation of the signals is the same as that of the Default MACD. 2) For a new trend, the Default MACD indicates the new trend first while the Long MACD indicates the new trend later due to its lagging nature. 3) The purpose of the Long MACD is to provide a “smoothening” effect on the signals indicated by the Default MACD.

The above chart shows the Default MACD indicating a down-trend first (down purple arrow) in its window followed by the Long MACD (down purple arrow) in its window. Also note that when the red signal line and the blue line of the Default MACD came very close to each other, the Long MACD continues to indicate a clear down-trend. This is what we mean by the “smoothening” effect of the Long MACD.

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4) For a continuation trend, both the Default MACD and the Long MACD indicate the same trend.

The above chart shows the Long MACD indicating a continuation of an up-trend as shown by the up purple arrows in its window. At the same time, the Default MACD is also indicating an up-trend but with a small downward retracement as shown by the one down purple arrow in its window.

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3. Exponential Moving Average Lines as Trend Indicator – This is used to confirm the trend indicated by the Default MACD. For the hourly (60-minute) chart, we will use the 6-Hour Moving Average Line (shorter time-frame) and the 23-Hour Moving Average Line (longer time-frame). 1) When the Shorter Time-Frame Moving Average Line crosses the Longer TimeFrame Moving Average Line upward and remains above the Longer-Time Frame Moving Average Line, it indicates an up-trend with the price candles generally above the Moving Average Lines.

In the above chart, the shorter 6-Hour Moving Average (black) Line is above the longer 23-Hour Moving Average (blue) Line and they are indicating an up-trend with the price candles generally above the Moving Average Lines.

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2) When the Shorter Time-Frame Moving Average Line crosses the Longer TimeFrame Moving Average Line downward and remains below the Longer TimeFrame Moving Average Line, it indicates a down-trend with the price candles generally below the Moving Average Lines.

In the above chart, the shorter 6-Hour Moving Average (black) Line is below the longer 23-Hour Moving Average (blue) Line and they are indicating a down-trend with the price candles generally below the Moving Averages Lines.

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4. Parabolic SAR (Stop and Reverse) – This is used as a guide to confirm the trend indicated by both the Default MACD and the Exponential Moving Average Lines. (Note: The Parabolic SAR is more sensitive than the Moving Average Lines. Hence, there are times when the Moving Average Lines are indicating one direction, the Parabolic SAR is indicating an opposite direction. For us, we will rely more on the Moving Average Lines for trend indication rather than on Parabolic SAR.) 1) When the Parabolic Dots are below the price candles, they indicate an up-trend. See the chart below.

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2) When the Parabolic Dots are above the price candles, they indicate a downtrend. See the chart below.

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5. Stochastic (5,3,3) – This is used to indicate the timing for us to enter the market based on a retracement (for trending market) or a reversal (for ranging market) move. For Trending Market: 1) When the light blue line crosses the dotted red line upward and remains above the dotted red line, this indicates an up-trend whereby a downward retracement has bottomed out. See the chart below where the purple arrows show the light blue line crosses the dotted red line upward which indicates an up-trend after a downward retracement.

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2) When the light blue line crosses the dotted red line downward and remains below the dotted red line, this indicates a down-trend whereby an upward retracement has topped off. See the chart below where the purple arrows show the light blue line crosses the dotted red line downward which indicates a down-trend after an upward retracement.

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For Ranging Market 1) When the light blue line crosses the dotted red line upward and remains above the dotted red line, it indicates an upward move away from the low of a specific price range. 2) When the light blue line crosses the dotted red line downward and remains below the dotted red line, it indicates a downward move away from the high of a specific price range. The chart below shows how the crossings between the light blue line and the dotted red line of the Stochastic, as shown by the purple arrows, indicate the reversals within a ranging market of between the high of 118.95 and the low of 118.22 for the USD/JPY.

In other words, in a trending market, Stochastic is used to indicate retracements, while in a ranging market it is used to indicate reversals.

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6. Exponential Moving Average Lines & Parabolic Dots as Resistance and Support Lines – The Moving Average Lines and the Parabolic Dots can also be used as support and resistance lines. (Note: Unlike the usual support and resistance lines which are straight and static, these Moving Average Lines and Parabolic Dots are curved and dynamic.) For intra-day trading whereby we use the hourly (60-minute) charts, the 6-Hour and the 23-Hour Exponential Moving Average Lines, together with the Parabolic Dots, can to be used as support lines for an up-trend market and resistance lines for a down-trend market. The chart below shows the 6-Hour (black) and the 23-Hour (blue) Moving Average Lines, together with the Parabolic Dots, acting as support lines for the price candles in an up-trend market. Notice that the price candles, most of the time, do not pierce through these support lines. Therefore, we treat these three support lines as our three lines of defense in an up-trend market.

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The chart below shows the 6-Hour (black) and the 23-Hour (blue) Moving Average Lines, together with the Parabolic Dots, acting as resistance lines for the price candles in a downtrend-trend market. Notice that the price candles most of the time do not pierce through these resistance lines. Therefore, we also treat these three resistance lines as our three lines of defense in a down-trend market.

With this observation and understanding, we will treat the 6-Hour (black) Moving Average Line as our first line of defense, the 23-Hour Moving Average Line (blue) Moving Average Line as our second line of defense, and if possible the Parabolic Dots as our third line of defense. (Note: The Parabolic Dots do not always appear as our third line of defense. There are times when the Parabolic Dots act as the second line of defense while the 23Hour Moving Average Line acts as the third line of defense.)

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7. Price Action - Prices move in waves and the need to differentiate these waves. All prices move along a “major trend,” which can last for months or even years. However, prices do not always move in one direction all the time. Due to profittaking, prices do retrace, resulting in them moving in waves. When a major trend retraces for a few days, we call this a “minor retracement.”

When a major trend retraces for a few weeks, we call this a “major retracement.”

Within a major retracement, there are also “secondary retracements,” which each may last for a few days. Furthermore, within these trends and retracements, there are also what we call intra-day retracements which usually last for a few hours. The below diagram illustrates how prices move in waves:

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It is of great importance that we need to be able to differentiate the following: 1. A major retracement from a minor retracement 2. A secondary retracement from a resumption of a major trend 3. An intra-day retracement from a major, minor and secondary retracements Once we are able to differentiate the above trends and retracements, we should be able to identify the current trend, whether it is part of a major trend, a minor retracement, a major retracement, a secondary retracement, or an intra-day retracement. This is how we identify and differentiate between the various trends and retracements: 1. Weekly Charts are used to identify the major trend, and to differentiate a major retracement from a minor retracement, and a secondary retracement from a resumption of the major trend after a major retracement. 2. Daily Charts are used to identify whether the current trend is part of a major trend, a minor retracement, a major retracement, or a secondary retracement. 3. Hourly Charts are used identifying intra-day retracements, and prices for intraday trade entry, stop loss and target profit. The above charts of different time-frames are to be used as a single and continuous process, and not independent from each other. The Weekly Chart is like a telescope for us to see the overall picture from a far; the Daily Chart is like a binocular for us to see the picture at a closer distance; the Hourly Chart is like a microscope for us to see the details of the picture and pin-point them. With this, let us now move on to the next section which is “Tactical Action of the Dynamite TNT Forex System.�

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Tactical Action of the Dynamite TNT Forex System In this section we shall see how the technical indicators mentioned in the previous section are used in the Dynamite TNT Forex System. The Dynamite TNT Forex System provides the trader with the following methods of trading which can be used under different market conditions: 1. The Retracement Market Method – A trading signal is generated by the system from the hourly chart and the trader responds by following a set of procedures to confirm that the new current trend has sufficient momentum to move along that direction and then enter a trade position along that trend after it has undergone a “minor” intra-day retracement. This method can be used for entering a trade: • when the market has established a new current trend, or • when the market shows a continuation of an existing current trend after a “major” intra-day retracement.1 Both the above market conditions require the trader to open a position only after an intra-day retracement is over. Hence, the method is named as “Retracement Market Method.” Most of the current trends identified for trading are either part of a major trend, a major retracement, a minor retracement, or a secondary retracement. These trends can usually last up to 4 trading days. The Retracement Market Method can also be used for intra-day trading.2 However, this may mean that the open position will be closed prematurely within the same day since most of the trends identified actually last more than a day. 2. The Running Market Method – This method is applicable when the market is moving at an unusually fast pace, as a result of any of the following events: • After a news release of an economic indicator which has a significant impact on the forex market. • A concerted profit-taking move by institutional traders. • A concerted move by central banks to intervene the forex market. • Any other unforeseeable events which can impact the financial markets. The trend established, as a result of any of the above events, are either part of a major trend, a major retracement, a minor retracement, or a secondary retracement trend. 3. The Ranging Market Method – This method is only used when the market is trapped within a minimum price range of 60 pips. 1

A minor intra-day retracement is not indicated by the Default MACD while a major intra-day retracement is indicated by the Default MACD. 2 Intra-day trading refers to a style or type of trading where trade positions are opened and closed during the same day.

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4. The Rollover Market Method – This method is used for guiding the trader to enter a swing trade3 which involves rolling an open position over to the next trading day. This trade can last from a few days to a few weeks. The Rollover Market Method is comprised of two secondary methods: • The Short Swing Method uses the one hourly and/or 4-hourly chart to enter a “short” swing trade that can last from one to 2 weeks. The trend identified is usually either part of a major trend or a major retracement. • The Long Swing Method uses the weekly and daily charts to enter a “long” swing trade that can last from a few weeks to a few months. The trend identified is always part of a major trend.

3

A swing trading refers a style of trading that attempts to capture profits from a financial market by leaving the position or positions open for more than a day.

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The Retracement Market Method (One-hour Chart) The Retracement Market Method is used in the following market conditions: • When a new current trend, which can either be part of a major trend, a major retracement, a minor retracement, or a secondary retracement, is established. • When an existing current trend, which can either be part of a major trend, a major retracement, a minor retracement, or a secondary retracement, continues with momentum after a major “intra-day” retracement.

When a New Trend is Established Step 1:

New Trend Signal by the Default MACD

Signals:

When the red (signal) line crosses the blue line upward and remains below the blue line, this indicates an up-trend. When the red (signal) line crosses the blue line downward and remains above the blue line, this indicates a down-trend.

Rationale:

The Default MACD tends to indicate a new trend earlier than the Moving Average Lines.

Step 2:

Confirmation of New Trend by Moving Average Lines.

Signals:

When the shorter 6-Hour Moving Average (black) Line is above the longer 23-Hour Moving Average (blue) Line, this confirms an up-trend. When the shorter 6-hour Moving Average (black) Line is below the longer 23-Hour Moving Average (blue) Line, this confirms a down-trend.

Rationale:

This is to ensure the new trend is not an “intra-day” retracement of the previous trend and has sufficient momentum to continue in that direction.

Step 3:

Confirmation of New Trend by Parabolic SAR (Optional)

Signals:

If it is an up-trend, the Parabolic Dots are below the price candles. If it is a down-trend, the Parabolic Dots are above the price candles.

Rationale:

The Parabolic SAR does not always indicate the same trend as the Moving Average Lines. Hence it is not necessary for it to confirm the new trend. The reason why we still need the Parabolic SAR is because it is useful for guiding the trader in placing the stop loss when it is indicating the same trend as the Moving Average Lines.

Step 4:

Indication by the Stochastic to Enter a Trade at the End of the First “Minor” Intra-day Retracement of the New Trend

Signals:

If it is an up-trend, watch for the Stochastic to indicate an up-trend, i.e. when the red-dotted line crosses the solid light blue line upward with the red-dotted line below the solid light blue line after that. Then check that both the Default MACD and the Moving Average Lines are still indicating an up-trend.

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If it is a down-trend, watch for the Stochastic to indicate a down-trend, i.e. when the red-dotted line crosses the solid light blue line downward with the red-dotted line above the solid light blue line after that. Then check that both the Default MACD and the Moving Averages Lines are still indicating down-trend. Rationale:

The purpose of waiting for the Stochastic to indicate the same trend as the Default MACD and the Moving Average Lines is so that we can enter our trade upon the end of the first “minor” intra-day retracement of the new current trend. This will prevent us from chasing after the price and help us to wait for it to retrace first before entering our trade. (Note: Many traders make the mistake of entering their trades when the price is due for an “intra-day” retracement instead of entering when the “intra-day” retracement has bottomed out for an up-trend or has topped off for a down-trend.)

Step 5:

Entering of New Trade If it is an up-trend, enter to buy at a price as close to the 6-Hour Moving Average Line as possible. (The price can be below or above the 6-Hour Moving Average Line.) If it is a down-trend, enter to sell at a price as close to the 6-Hour Moving Average Line as possible. (The price can be below or above the 6-Hour Moving Average Line.)

Rationale:

Since the Moving Average Lines are acting as the support or resistance lines, and the 6-Hour Moving Average Line is the first line of defense, therefore when we enter a trade, we enter it as close to the 6-Hour Moving Average Line as possible, preferably not more than 10 pips (including the spread) above the 6-Hour Moving Average Line for a buy trade and not more than 10 pips below the 6-Hour Moving Average Line for a sell trade.

Step 6:

Placing of Stop Loss If it is a buy trade, place your stop loss 5-10 pips below the 23-Hour Moving Average Line, ensuring that the stop loss is at least 20 pips but not more than 30 pips. However, if the Parabolic Dots are also indicating the same trend as the Moving Average Lines, then either the Parabolic Dots or the 23-Hour Moving Average Line is acting as the third line of defense. Then the stop loss is to be placed at about 5-10 pips below this third line of defense, and at the same time ensuring that the stop loss is at least 20 pips but not more than 30 pips. If it is a sell trade, place your stop loss 5-10 pips above the 23-Hour Moving Average Line, ensuring that the stop loss is at least 20 pips but not more than 30 pips. 27


However, if the Parabolic Dots are also indicating the same trend as the Moving Average Lines, then either the Parabolic Dots or the 23-Hour Moving Average Line is acting as the third line of defense. Then the stop loss is to be placed at about 5-10 pips above this third line of defense, and at the same time ensuring that the stop loss is at least 20 pips but not more than 30 pips. Note: For the GBP/USD, a larger stop loss of up to 35 pips may be needed due to its higher volatility. Step 7:

Placing of Target Profit The number of pips for our target profit is preferably to be around three times of our stop loss so as to satisfy the “ideal� risk-reward ratio of 1:3 or 33 percent. For example, if our stop loss is placed 25 pips away from our entry price, then our recommended target profit should be about 75 pips. Target profit can be placed at either one of the following key price levels: 1. Daily Pivot Point and its respective R1, R2 and R3 and S1, S2 and S3, which is found on the Hourly Charts. (Note: This is for intra-day trading only). 2. Hourly and Daily Fibonacci Retracement Levels of 23.6%, 38.2%, 50% and 61.8%. 3. Hourly and Daily Historical Resistance and Support levels 4. Previous Week High and Low and Current Week High and Low 5. Previous Month High and Low Current Month High and Low 6. Key Psychological Levels (i.e. prices that ends with 00s or 50s) 7. Key Channel Bands and Trend Lines In the event that the target profit is not reached, we will need to close the open trade position manually, especially when the Moving Average Lines have crossed each other. It is also possible that the target profit may need to be adjusted due to changing market conditions. One can always lower or raise the target profit according to the changing market conditions. (Note: Both stop loss and target profit are to be placed as an OCO (One Cancel the Other) order so that when the stop loss is triggered, the pending order for the target profit will be automatically canceled, and vice versa when the target profit is reached, the pending order of the stop loss / protective stop will also be automatically canceled.)

The monitoring and closing of open trade positions is covered in a later section. Now we shall take a look at some examples from the hourly charts that show trade signals indicating formation of new trends.4

4

Please note that all charts used in this ebook are meant for illustrative purposes.

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Example 1: Identifying A ‘Buy’ Signal for a “New” Up-trend (1)

1. Default MACD indicates an up-trend. (See Red Arrow pointing up.) 2. Both the Moving Average Lines and the Parabolic Dots confirm the up-trend. (See Black Arrow pointing up.) 3. Stochastic crosses upward and this indicates the timing to enter a “buy trade” (See Green Arrow pointing up.) Both the Moving Average Lines and the Parabolic Dots are still indicating an up-trend. Note that at this time, the price has retraced downward and is on the verge to move upward. 4. Buy as close to the 6-Hour Moving Average Line (Black) as possible with the above indicators still maintaining an up-trend signal, say at 1.3020. (See Blue Arrow pointing up.) 5. Place the stop loss 5 pips below the Parabolic Dot, which is at 1.2990, giving a stop loss of 30 pips. 6. Let’s assume that the open trade position is closed when the Moving Average Lines have crossed each other, say at 1.3120. (See Blue Arrow pointing down.) From here, we can see that this trade has the potential to earn about 100 pips over a period of 4 trading days, with a risk-reward ratio of about 30 percent.

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Example 2: Identifying A ‘Buy’ Signal for a “New” Up-trend (2)

1. Default MACD indicates an up-trend. (See Red Arrow pointing up.) 2. Both the Moving Average Lines and the Parabolic Dots confirm the up-trend. (See Black Arrow pointing up.) 3. Stochastic crosses upward and this indicates the timing to enter a “buy trade” (See Green Arrow pointing up.) Both the Moving Average Lines and the Parabolic Dots are still indicating an up-trend. Note that at this time, the price has retraced downward and is on the verge to move upward. 4. Buy as close to the 6-Hour Moving Average Line (Black) as possible with the above indicators still maintaining an up-trend signal, say at 1.9690. (See Blue Arrow pointing up.) 5. Place the stop loss near the 23-Hour Moving Average Line (since the Parabolic Dot is too far below the buy price), say at 1.9655, giving a stop loss of 35 pips. (Note: GBP/USD requires a higher stop loss.) 6. Let’s assume that the open trade position is closed when the Moving Average Lines have crossed each other, say 1.9750. (See Blue Arrow pointing down.) From here, we can see that this trade has the potential to earn about 60 pips over a period of 2 trading days, with a “high” risk-reward ratio of about 58 percent. 30


Example 3: Identifying A ‘Buy’ Signal for a “New” Up-trend (3)

1. Default MACD indicates an up-trend. (See Red Arrow pointing up.) 2. Both the Moving Average Lines and the Parabolic Dots confirm the up-trend. (See Black Arrow pointing up.) 3. Stochastic crosses upward and this indicates the timing to enter a “buy trade” (See Green Arrow pointing up.) Only the Moving Average Lines are still indicating an uptrend. Note that at this time, the price has retraced downward and is on the verge to move upward. Here it is NOT necessary for the Parabolic Dots to also indicate an up-trend. 4. Buy as close to the 6-Hour Moving Average Line (Black) as possible with the above indicators, except for the Parabolic Dots, still maintaining an up-trend signal, say at 1.2115. (See Blue Arrow pointing up.) 5. Place the stop loss 15 pips below the 23-Hour Moving Average Line (since it is very close to the buy price), which is at 1.2095, giving a stop loss of 20 pips. 6. Let’s assume that the open trade position is closed when the Moving Average Lines have crossed each other, say at 1.2155. (See Blue Arrow pointing down.) From here, we can see that this trade has the potential to earn about 40 pips over a period of 2 trading days, with a risk-reward ratio of about 50%. 31


Example 4: Identifying A ‘Sell’ Signal for a “New” Down-trend (1)

1. Default MACD indicates a down-trend. (See Red Arrow pointing down.) 2. Both the Moving Average Lines and the Parabolic Dots confirm the down-trend. (See Black Arrow pointing down.) 3. Stochastic crosses downward and this indicates the timing to enter a “sell trade” (See Green Arrow pointing down.) Both the Moving Average Lines and the Parabolic Dots are still indicating a down-trend. Note that at this time, the price has retraced upward and is on the verge to move downward. 4. Sell as close to the 6-Hour Moving Average Line (Black) as possible with the above indicators, except the Parabolic Dots, still maintaining a down-trend signal, say at 1.3220. (See Blue Arrow pointing down.) 5. Place the stop loss 30 pips above the sell price at 1.3250 which is at the 23-Hour Moving Average Line. 6. Let’s assume that the open trade position is closed when the Moving Average Lines have crossed each other, say at 1.3030. (See Blue Arrow pointing up.) From here, we can see that this trade has the potential to earn about 220 pips over a period of 4 trading days, with a risk-reward ratio of about 14 percent. 32


Example 5: Identifying A ‘Sell’ Signal for a “New” Down-trend (2)

1. Default MACD indicates a down-trend. (See Red Arrow pointing down.) 2. Both the Moving Average Lines and the Parabolic Dots confirm the down-trend. (See Black Arrow pointing down.) 3. Stochastic crosses downward and this indicates the timing to enter a “sell trade” (See Green Arrow pointing down.) Both the Moving Average Lines and the Parabolic Dots are still indicating a down-trend. Note that at this time, the price has retraced upward and is on the verge to move downward. 4. Sell as close to the 6-Hour Moving Average Line (Black) as possible with the above indicators still maintaining a down-trend signal, say at 1.9540. (See Blue Arrow pointing down.) 5. Place the stop loss at the 23-Hour Moving Average Line which is at 1.9575, giving a stop loss of 35 pips. (Note: GBP/USD requires a higher stop loss.) 6. Let’s assume that the open trade position is closed when the Moving Average Lines have crossed each other, say at 1.9240. (See Blue Arrow pointing up.) From here, we can see that this trade has the potential to earn about 300 pips over a period of 3 trading days, with a risk-reward ratio of about 12 percent. 33


Example 6: Identifying A ‘Sell’ Signal for a “New” Down-trend (3)

1. Default MACD indicates a down-trend. (See Red Arrow pointing down.) 2. Both the Moving Averages Lines and the Parabolic Dots confirm the down-trend. (See Black Arrow pointing down.) 3. Stochastic crosses downward and this indicates the timing to enter a “sell trade” (See Green Arrow pointing down.) Both the Moving Average Lines and the Parabolic Dots are still indicating a down-trend. Note that at this time, the price has retraced upward and is on the verge to move downward. 4. Sell as close to the 6-Hour Moving Average Line (Black) as possible with the above indicators still maintaining a down-trend signal, say at 119.35. (See Blue Arrow pointing down.) 5. Place the stop loss at the Parabolic Dot which is at 119.65, giving a stop loss of 30 pips. 6. Let’s assume that the open trade position is closed when the Moving Average Lines have crossed each other, say at 118.35. (See Blue Arrow pointing up.) From here, we can see that this trade has the potential to earn about 100 pips over a period of 3 trading days, with a risk-reward ratio of about 30 percent.

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When an Existing Current Trend Continues with Momentum This ‘continuation’ trade signal is useful for traders who missed the first phase of an existing current trend as it gives them a second chance to enter a position along that current trend after a “major” intra-day retracement.5 At the same time, the signal also indicates whether there is still sufficient momentum for the existing trend to continue along that direction. The steps taken to follow the trading signals for this market condition, whereby the existing current trend continues with momentum after a “major” intra-day retracement, are generally the same as that when a new current trend is established, except for the initial step. This initial step is to confirm that the ‘major” intra-day retracement, as indicated by the Default MACD, is NOT a new trend. This is probably the case as long as both the Long MACD and the Moving Average Lines continue to indicate the previous existing trend during the period when the Default MACD is indicating the “major” intra-day retracement. (Both the “major” intra-day retracement and the previous existing trend are opposite in direction.) Note: This is where we require the “smoothening” effect of the Long MACD which is still indicating the previous existing trend while the Default MACD is indicating a “major” intra-day retracement. Like the trade signal for the new current trend, we will also use the Stochastic to indicate whether the ‘minor’ intra-day retracement has bottomed out for an up-trend or topped off for a down-trend. It is of vital importance that we need to wait for the Stochastic to cross over first before we enter a trade based on the ‘continuation’ signal. Generally, but not always, if the existing current trend is changing its direction, by the time the Stochastic has crossed over to give a ‘continuation’ trade signal, the Moving Average Lines may have crossed over to indicate this change in direction. When this happens, DO NOT open any trade positions based on the ‘continuation’ signal. Now we shall take a look at some examples of trade signals from the hourly charts which indicate an existing trend continuing with momentum after a ‘major’ intra-day retracement.6 Note: The number of pips made by trades based on the continuation signal is usually less than those based on the new trend signal. The reason is that the former only captures part of the current trend while the latter captures a major part of the current trend.

5

A minor intra-day retracement is not indicated by the Default MACD while a major intra-day retracement is indicated by the Default MACD. 6 Please note that all charts used in this ebook are meant for illustrative purposes.

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Example 7: Identifying a ‘Buy’ Signal for a “Continuation” of an Up-trend (1)

In the above chart, the Violet Arrow pointing up indicates the initial phase of the uptrend. The Red Arrow pointing down in the Default MACD window indicates the downward “major” intra-day retracement of the up-trend. But how can we confirm that this is a retracement and not a change in trend? This is where the Long MACD, together with the Moving Average Lines, will do the job for us. Notice that when the Default MACD is indicating a down-trend, the Long MACD continues to indicate an up-trend. There is nothing unusual about this as the Long MACD tends to lag behind the Default MACD. However, as long as the Moving Average Lines are still indicating an up-trend, together with the Long MACD, this indicates that the downward move is probably a “major” intra-day retracement and not a change in trend. The following are the steps to entering a buy trade based on the “continuation” signal: 1. Default MACD indicates a down-trend. (See Red Arrow pointing down in the Default Window.) 2. Long MACD continues to indicate an up-trend. (See Red Arrow pointing up in the Long MACD Window.)

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3. Both the Moving Average Lines and the Parabolic Dots are still indicating an uptrend. (See Black Arrow pointing up.) 4. Stochastic crosses upward and this indicates the timing to enter a ‘buy’ trade (See Green Arrow pointing up.) Both the Long MACD and the Moving Average Lines are still indicating an up-trend. Note that at this time, the price has retraced downward and is on the verge to move upward. 5. Buy as close to the 6-Hour Moving Average Line (Black) as possible while the Long MACD and the Moving Average Lines are still maintaining an up-trend signal, say at 120.90. (See Blue Arrow pointing up.) 6. Place the stop loss just below the Parabolic Dot at 120.60, giving a stop loss of 30 pips. 7. Let’s assume that the open trade position is closed when the Moving Average Lines have crossed each other, say at 121.70. (See Blue Arrow pointing down.) From here, we can see that this trade has the potential to earn about 80 pips over a period of 3 trading days, with a risk-reward ratio of about 38 percent.

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Example 8: Identifying a ‘Buy’ Signal for a “Continuation” of an Up-trend (2)

In the above chart, the Violet Arrow pointing up indicates the initial phase of the uptrend. The Red Arrow pointing down in the Default MACD window indicates the downward “major” intra-day retracement of the up-trend. But how can we confirm that this is a retracement and not a change in trend? This is where the Long MACD, together with the Moving Average Lines, will do the job for us. Notice that when the Default MACD is indicating a down-trend, the Long MACD continues to indicate an up-trend. There is nothing unusual about this as the Long MACD tends to lag behind the Default MACD. However, as long as the Moving Average Lines are still indicating an up-trend, together with the Long MACD, this indicates that the downward move is probably a “major” intra-day retracement and not a change in trend. The following are the steps to entering a buy trade based on the “continuation” signal: 1. Default MACD indicates a down-trend. (See Red Arrow pointing down in the Default Window.) 2. Long MACD continues to indicate an up-trend. (See Red Arrow pointing up in the Long MACD Window.)

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3. The Moving Average Lines are still indicating an up-trend but not the Parabolic Dots. (See Black Arrow pointing up.) Here it is NOT necessary for the Parabolic Dots to also indicate the up-trend. 4. Stochastic crosses upward and this indicates the timing to enter a ‘buy’ trade (See Green Arrow pointing up.) Both the Long MACD and the Moving Average Lines are still indicating an up-trend. Note that at this time, the price has retraced downward and is on the verge to move upward. 5. Buy as close to the 6-Hour Moving Average Line (Black) as possible while the Long MACD and the Moving Average Lines are still maintaining an up-trend signal, say at 1.9835 (See Blue Arrow pointing up.) 7. Place the stop loss at 1.9800, which is just below the Parabolic Dot, giving a stop loss of 35 pips. (Note: GBP/USD requires a higher stop loss.) 8. Let’s assume that the open trade position is closed when the Moving Average Lines have crossed each other, say at 1.9885. (See Blue Arrow pointing down.) From here, we can see that this trade has the potential to earn about 85 pips over a period of 4 trading days, with a risk-reward ratio of about 35 percent.

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Example 9: Identifying a ‘Buy’ Signal for a “Continuation” of an Up-trend (3)

In the above chart, the Violet Arrow pointing up indicates the initial phase of the uptrend. The Red Arrow pointing down in the Default MACD window indicates the downward “major” intra-day retracement of the up-trend. But how can we confirm that this is a retracement and not a change in trend? This is where the Long MACD, together with the Moving Average Lines, will do the job for us. Notice that when the Default MACD is indicating a down-trend, the Long MACD continues to indicate an up-trend. There is nothing unusual about this as the Long MACD tends to lag behind the Default MACD. However, as long as the Moving Average Lines are still indicating an up-trend, together with the Long MACD, this indicates that the downward move is probably a “major” intra-day retracement and not a change in trend. The following are the steps to entering a buy trade based on the “continuation” signal: 1. Default MACD indicates a down-trend. (See Red Arrow pointing down in the Default Window.) 2. Long MACD continues to indicate an up-trend. (See Red Arrow pointing up in the Long MACD Window.)

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3. Both the Moving Average Lines and the Parabolic Dots are still indicating an uptrend. (See Black Arrow pointing up.) 4. Stochastic crosses upward and this indicates the timing to enter a ‘buy’ trade (See Green Arrow pointing up.) Both the Long MACD and the Moving Average Lines are still indicating an up-trend but not the Parabolic Dots. Note that at this time, the price has retraced downward and is on the verge to move upward. Here it is NOT necessary for the Parabolic Dots to also indicate the up-trend. 5. Buy as close to the 6-Hour Moving Average Line (Black) as possible while the Long MACD and the Moving Average Lines are still maintaining an up-trend signal, say at 1.3535 (See Blue Arrow pointing up.) 9. Place the stop loss at 1.3505, which is just below the 23-Hour Moving Average Line, giving a stop loss of 30 pips. 10. Let’s assume that the open trade position is closed when the Moving Average Lines have crossed each other, say at 1.3600. (See Blue Arrow pointing down.) From here, we can see that this trade has the potential to earn about 95 pips over a period of 2 trading days, with a risk-reward ratio of about 32 percent.

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Example 10: Identifying a ‘Sell’ Signal for a “Continuation” of a Down-trend (1)

In the above chart, the Violet Arrow pointing down indicates the initial phase of the down-trend. The Red Arrow pointing up in the Default MACD window indicates the upward “major” intra-day retracement of the down-trend. But how can we confirm that this is a retracement and not a change in trend? This is where the Long MACD, together with the Moving Average Lines, will do the job for us. Notice that when the Default MACD is indicating an up-trend, the Long MACD continues to indicate a down-trend. There is nothing unusual about this as the Long MACD tends to lag behind the Default MACD. However, as long as the Moving Average Lines are still indicating a down-trend, together with the Long MACD, this indicates that the upward move is probably a “major” intra-day retracement and not a change in trend. The following are the steps to entering a sell trade based on the “continuation” signal: 1. Default MACD indicates an up-trend. (See Red Arrow pointing up in the Default Window.) 2. Long MACD continues to indicate the down-trend. (See Red Arrow pointing down in the Long MACD Window.)

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3. The Moving Average Lines are still indicating the down-trend. (See Black Arrow pointing down.) Here it is NOT necessary for the Parabolic Dots to also indicate the down-trend. 4. Stochastic crosses downward and this indicates the timing to enter a “sell’ trade. (See Green Arrow pointing down.) Both the Long MACD and the Moving Average Lines are still indicating the down-trend. Note that at this time, the price has retraced upward and is on the verge to move downward. 5. Sell as close to the 6-Hour Moving Average Line (Black) as possible with the Long MACD and the Moving Average Lines still maintaining a down-trend signal say at 1.2240. (See Blue Arrow pointing down.) 6. Place the stop loss at 1.2260 which is just above the Parabolic Dot, giving a stop loss of 20 pips. 7. Let’s assume that the open trade position is closed when the Moving Average Lines have crossed each other, say at 1.2165. (See Blue Arrow pointing up.) From here, we can see that this trade has the potential to earn about 75 pips over a period of 3 trading days, with a risk-reward ratio of about 27 percent.

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Example 11: Identifying a ‘Sell’ Signal for a “Continuation” of a Down-trend (2)

In the above chart, the Violet Arrow pointing down indicates the initial phase of the down-trend. The Red Arrow pointing up in the Default MACD window indicates the upward “major” intra-day retracement of the down-trend. But how can we confirm that this is a retracement and not a change in trend? This is where the Long MACD, together with the Moving Average Lines, will do the job for us. Notice that when the Default MACD is indicating an up-trend, the Long MACD continues to indicate a down-trend. There is nothing unusual about this as the Long MACD tends to lag behind the Default MACD. However, as long as the Moving Average Lines are still indicating a down-trend, together with the Long MACD, this indicates that the upward move is probably a “major” intra-day retracement and not a change in trend. The following are the steps to entering a sell trade based on the “continuation” signal: 1. Default MACD indicates an up-trend. (See Red Arrow pointing up in the Default Window.) 2. Long MACD continues to indicate the down-trend. (See Red Arrow pointing down in the Long MACD Window.)

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3. The Moving Average Lines are still indicating the down-trend. (See Black Arrow pointing down.) Here it is NOT necessary for the Parabolic Dots to also indicate the down-trend. 4. Stochastic crosses downward and this indicates the timing to enter a “sell’ trade (See Green Arrow pointing down.) Both the Long MACD and the Moving Average Lines are still indicating the down-trend but not the Parabolic Dots. Note that at this time, the price has retraced upward and is on the verge to move downward. Here it is NOT necessary for the Parabolic Dots to also indicate the down-trend. 5. Sell as close to the 6-Hour Moving Average Line (Black) as possible with the Long MACD and the Moving Average Lines still maintaining a down-trend signal, say at 1.9710. (See Blue Arrow pointing down.) 6. Place the stop loss at 1.9745 which is 35 pips above the sell price since the 23-Hour Moving Average Line is too close to the sell price. (Note: GBP/USD requires a higher stop loss.) 7. Let’s assume that the open trade position is closed when the Moving Average Lines have crossed each other, say at 1.9625. (See Blue Arrow pointing up.) From here, we can see that this trade has the potential to earn about 85 pips over a period of 2 trading days, with a risk-reward ratio of about 41 percent.

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Example 12: Identifying a ‘Sell’ Signal for a “Continuation” of a Down-trend (3)

In the above chart, the Violet Arrow pointing down indicates the initial phase of the down-trend. The Red Arrow pointing up in the Default MACD window indicates the upward “major” intra-day retracement of the down-trend. But how can we confirm that this is a retracement and not a change in trend? This is where the Long MACD, together with the Moving Average Lines, will do the job for us. Notice that when the Default MACD is indicating an up-trend, the Long MACD continues to indicate a down-trend. There is nothing unusual about this as the Long MACD tends to lag behind the Default MACD. However, as long as the Moving Average Lines are still indicating a down-trend, together with the Long MACD, this indicates that the upward move is probably a “major” intra-day retracement and not a change in trend. The following are the steps to entering a sell trade based on the “continuation” signal: 1. Default MACD indicates an up-trend. (See Red Arrow pointing up in the Default Window.) 2. Long MACD continues to indicate the down-trend. (See Red Arrow pointing down in the Long MACD Window.)

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3. The Moving Average Lines are still indicating the down-trend. (See Black Arrow pointing down.) Here it is NOT necessary for the Parabolic Dots to also indicate the down-trend. 4. Stochastic crosses downward and this indicates the timing to enter a “sell’ trade (See Green Arrow pointing down.) Both the Long MACD and the Moving Average Lines are still indicating the down-trend but not the Parabolic Dots. Note that at this time, the price has retraced upward and is on the verge to move downward. Here it is NOT necessary for the Parabolic Dots to also indicate the down-trend. 5. Sell as close to the 6-Hour Moving Average Line (Black) as possible with the Long MACD and the Moving Average Lines still maintaining a down-trend signal, say at 1.2220. (See Blue Arrow pointing down.) 6. Place the stop loss at 1.2250 which is just the 23-Hour Moving Average Line, giving a stop loss of 30 pips. 7. Let’s assume that the open trade position is closed when the Moving Average Lines have crossed each other, say at 1.2150. (See Blue Arrow pointing up.) From here, we can see that this trade has the potential to earn about 100 pips over a period of 3 trading days, with a risk-reward ratio of about 30 percent.

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Guidelines for Rejecting Dynamite TNT ‘Retracement’ Trade Signals Since the Dynamite TNT Forex System is NOT a mechanical system but a discretionary system, there are situations where we may need reject or ignore any ‘retracement’ trade signals generated by the system for both new trend and existing (continuation) trend. These situations are listed below: 1. If a buy signal is generated by the system and there is a key resistance line within 20 pips above the price candle, we may need to reject the trade signal. Likewise, if a sell signal is generated by the system and there is a key support line within 20 pips below the price candle, we may also need to reject the trade signal. The key resistance and support lines that we need to watch out for are as follows: • Weekly and Daily Fibonacci Retracement Levels of 38.2%, 50% and 61.8%. • Weekly and Daily Trend Lines and Channel Bands • Weekly and Daily Historical Resistance and Support Levels In the event that the key resistance or support level is broken, we will look for any “continuation” signal to enter an open position along the current trend. 2. When there are news release of economic indicators that have significant impact on the forex market within the next 3-5 hours, we should reject any trade signals generated by the system. Usually during this period of time, the market is consolidating or choppy while waiting for the news release and trade signals tend to be unreliable. We can check the timing of news release of economic indicators that have substantial impact on the forex market at the website: http://www.forexfactory.com/. The timing indicated on the calendar can be set to the trader’s own time zone. In the event we have a trade position opened for more than 5 hours before the news release, it is recommended that we have an unrealized (floating) profit of at least 30 pips before we even consider holding our position open through the period of the news release. At the same time we need to ensure that our stop loss or protective stop is well in placed. (A protective stop is used to protect a portion of the unrealized profit.) 3. When there is a trading holiday which may impact a particular currency, we usually avoid trading any currency pair with that currency either as its base or quote (term) currency. For example, if Japan is having a trading holiday, we should avoid trading USD/JPY and EUR/JPY. The calendar of trading holidays is available at: http://www.interactivebrokers.com/en/general/currencyHoliday.php?ib_entity=llc. 4. When the weekly chart shows the Stochastic is at the over-bought level and has crossed downward, we usually reject all “buy” signals when the price is undergoing a major “downward” retracement, unless we can confirm that the current trend is a secondary “upward” retracement with strong momentum. Likewise, when the weekly chart shows the Stochastic is at the over-sold level and has crossed upward, we usually reject all “sell” signals when the price is undergoing a major “upward” retracement, unless we can confirm that the current trend is a secondary “downward” retracement with strong momentum. 48


5. Any trade signals that indicate the establishment of an intra-day retracement, regardless of a minor or major intra-day retracement, should be rejected. Note: The range of a minor retracement trend is usually narrower than that of the major trend or major reversal trend.

Identifying the Current Trend for Trading The table below serves as a “guide” in helping us to identify whether the current trend is a major trend, a major retracement, a minor retracement, or a secondary retracement, and the type of trade signals we are likely to watch for. Trend Up Up

Weekly Stochastic Pointing Upward Pointing Upward

Daily Trend Up Up

Hourly Trend Up Down

Current Trend Major “Upward” Trend Major “Upward” Trend with Intraday “Downward” Retracement

Watch for BUY Signal BUY Signal

Up

Pointing Upward

Down

Up

Minor “Downward” Retracement with Intra-day “Upward” Retracement

SELL Signal

Up Up Up

Pointing Upward Crossed Downward Crossed Downward

Down Down Down

Down Down Up

Minor “Downward” Retracement Major “Downward” Retracement

SELL Signal SELL Signal SELL Signal

Up

Crossed Downward

Up

Up

Secondary “Upward” Retracement

BUY Signal

Up

Crossed Downward

Up

Down

Secondary “Upward” Retracement with Intra-day “Downward” Retracement

BUY Signal

Down Down

Pointing Downward Pointing Downward

Down Down

Down Up

Major “Downward” Trend Major “Downward” Trend with Intra-day “Upward” Retracement

SELL Signal SELL Signal

Down

Pointing Downward

Up

Down

Minor “Upward” Retracement with Intra-day “Downward” Retracement

BUY Signal

Down Down Down

Pointing Downward Crossed Upward Crossed Upward

Up Up Up

Up Up Down

Minor “Upward” Retracement Major “Upward” Retracement

BUY Signal Buy Signal BUY Signal

Down

Crossed Upward

Down

Down

Secondary “Downward” Retracement

SELL Signal

Down

Crossed Upward

Down

Up

Secondary “Downward” Retracement with Intra-day “Upward” Retracement

SELL Signal

Major “Downward” Retracement with Intra-day “Upward” Retracement

Major “Upward” Retracement with Intra-day “Downward” Retracement

Note: We usually do not recommend holding trades overnight when the current trend is part of a minor or secondary retracement, unless the trend is able to demonstrate strong momentum by breaking key strategic (support and resistance) price levels.

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Monitoring and Closing of Open Trade Positions The steps to monitoring and closing of open trade positions are as follows: 1. Once the unrealized profit is equal to the stop loss in terms of the number of pips, move the stop loss to the entry price. For example, if you bought USD/JPY at 1.1980 and placed the stop loss at 1.1960 (20 pips), you should move your stop loss to 1.1980 (entry price) once the price has moved upward by 20 pips to 1.2000. In this way, even if the market suddenly make a move against your open position, you are still able to close your position at breakeven. 2. When the unrealized profit has reached 40 pips, convert the stop loss to a protective stop and place it to protect the first 20 pips of unrealized profit. Continue to do this for every 20 pips of unrealized profit added to the trading account. Likewise, if the initial stop loss is 30 pips, then it will be at every 30 pips that an adjustment of protective stop is to be made. In other words, adjust the protective stop according to the volatility of the market condition when the trade position was first opened. 3. In the event that the market volatility increases, it is suggested that once the stop loss is moved to the entry price, leave it there until the next the Pivot Point Level or Fibonacci Retracement Level is broken. Then and only then do you convert the stop loss into a protective stop to protect a portion of the profit. 4. The open trade position shall remain opened UNTIL whichever ONE of the following has taken place first: • Target profit is triggered and the open trade position is automatically closed. • Stop loss or protective stop is triggered and the open trade position is automatically closed. • Moving Average Lines have crossed each other and this indicate a change in trend, and the open trade position is manually closed. Note: By now you should have realized that from the examples illustrated, that the trends identified by the Retracement Market Method can last for as long as 4 trading days, especially those which are part of the major trend or major retracement.

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The Running Market Method (15-minute Chart) As mentioned previously the Running Market Method is applicable when the market is moving at an unusually fast pace as a result of any of the following events: • After the release of a news which has a significant impact on the forex market. • A concerted profit-taking move by institutional traders. • A concerted move by central banks to intervene the forex market. • Any other unforeseeable events which impact the financial markets. However, most of the time we will be using this method for trading after the news release of economic indicators which have significant impact on the forex market. We can easily obtain the timing of the news release of economic indicators from the website http://www.forexfactory.com/. The timing indicated on the calendar can be set according to the trader’s own time zone.

Why We do not Trade According to the Outcome of the News Release 1. We do not know how the market is going to interpret the outcome of the news. 2. When there are more than one news release at the same time and the outcome is mixed, we do not know how the market is going to react. 3. When there are more than one set of news release within a period of two hours, the market may be hesitant to react on the first set of news release as it wants to wait for the second set of news release in order to further confirm the trend. 4. Sometimes the outcome of the news release may be negative but because there is a revision of the previous month data, the net result may become positive which we do not know until much later. The vice versa may also happen. 5. Sometimes the outcome of the news release may be negative but one of the key components in the economic indicator did better than expected, hence the market may choose to react to the news release positively. The vice versa may also happen. Note: The details of the content of the news release can be found at the website http://www.bloomberg.com/.

Why We do not Trade the News Upon its Immediate Release 1. Usually during the time of the news release, the spread may widen; sometimes as much as more than 10 pips. 2. There may also be a price wild swing due to an over-reaction by the market to the news release. This is especially so when the outcome of the news release is a surprise (or a shock) to the market, or when the market is confused by the outcome of the news release. 3. There may be slippage resulting in trades not executed according to the price we want or brokers asking for re-quotes.

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How to Trade Using the Running Market Method Step 1:

Switch the hourly-chart to the 15-minute time-frame and wait for the news release.

Rational:

As we are expecting the market to be on the run once the news is released, we need a shorter time-frame chart to help us to zero into our entry price level. (Note: We do not recommend time-frames smaller than 15 minutes as the Moving Average Lines tend to indicate changes in trend very often.)

Step 2:

Wait for the 1st 15-minute price candle to form and take note of its color.

Rational:

Usually the market stabilizes within the first 15-minute price candle, with the spread returning to normal while the price becomes more directional instead of still experiencing wild swing.

Step 3:

Wait for the 2nd and 3rd 15-minute price candle to form and take note of its color, as well as the trend indicated by the Moving Average Lines.

Action:

Once the second 15-minute price candle is the same color as the first, say green, and if the Moving Average Lines are also showing an up-trend, then wait for the third price candle to appear also as green and once it moves above the Moving Average Lines, open a buy position as close to the 6-Hour Moving Average Line as possible preferably not more than 8 pips above it,

OR Once the second 15-minute price candle is the same color as the first, say red, and if the Moving Average Lines are also showing a down-trend, then wait for the third price candle to appear also as red and once it moves below the Moving Average Lines, open a sell trade as close to the 6-Hour Moving Average Line as possible preferably not more than 8 pips below it. Do not open any trade position if the first two 15-minute price candles are of different colors, or if the color of the candles contradicts the trend indicated by the Moving Average Lines, as this indicates that the market is still mix and indecisive regarding the direction of the trend. Wait for further indication or confirmation. Do not open any trade position if the opportunity to buy or sell as close to the 6-Hour Moving Average Line as possible is missed. Abort the plan to trade if the first four 15-minute price candles are all mixed with no clear indication of a specific trend, or if the trend which the price candles indicate contradicts that of the Moving Average Lines.

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The following tables serve as a guide, but not as a rule, to the opening of trade positions using the Running Market Method: Price Candles st 1 Candle Upon News Release nd 2 Candle rd 3 Candle

Color Green Green Green

Price Candles 1 Candle Upon News Release nd 2 Candle rd 3 Candle

Color Red Red Red

Price Candles 1 Candle Upon News Release nd 2 Candle rd 3 Candle th 4 Candle

Color Red Green Green Green

st

st

Action Wait Wait Buy above the 6-hour MA Line if it indicates an up-trend Action Wait Wait Sell below the 6-hour MA Line if it indicates a down-trend Action Wait Wait Wait Buy above the 6-hour MA Line if it indicates an up-trend

Price Candles 1 Candle Upon News Release nd 2 Candle rd 3 Candle th 4 Candle

Color Green Red Red Red

Price Candles 1 Candle Upon News Release nd 2 Candle rd 3 Candle 4th Candle

Color Green Red Green Green

Wait Wait Wait Buy above the 6-hour MA Line if it indicates an up-trend

Price Candles st 1 Candle Upon News Release nd 2 Candle rd 3 Candle th 4 Candle

Color Red Green Red Red

Action Wait Wait Wait Sell below the 6-hour MA Line if it indicates a down-trend

Price Candles st 1 Candle Upon News Release nd 2 Candle rd 3 Candle th 4 Candle

Color Red Red Green Green

Action Wait Wait Wait Buy above the 6-hour MA Line if it indicates an up-trend

Price Candles st 1 Candle Upon News Release nd 2 Candle rd 3 Candle th 4 Candle

Color Green Green Red Red

Action Wait Wait Wait Sell below the 6-hour MA Line if it indicates a down-trend

st

st

Action Wait Wait Wait Sell below the 6-hour MA Line if it indicates a down-trend Action

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Price Candles st 1 Candle Upon News Release nd 2 Candle rd 3 Candle th 4 Candle

Color Red Red Green Red

Action Wait Wait Wait (due to retracement) Sell below the 6-hour MA Line if it indicates a down-trend

Price Candles st 1 Candle Upon News Release nd 2 Candle rd 3 Candle th 4 Candle

Color Green Green Red Green

Action Wait Wait Wait (due to retracement) Buy above the 6-hour MA Line if it indicates an up-trend

Price Candles st 1 Candle Upon News Release nd 2 Candle rd 3 Candle th 4 Candle

Color Red Green Green Red

Wait Wait Wait Abort the trade

Price Candles st 1 Candle Upon News Release nd 2 Candle rd 3 Candle th 4 Candle

Color Green Red Red Green

Wait Wait Wait Abort the trade

Price Candles 1 Candle Upon News Release nd 2 Candle rd 3 Candle th 4 Candle

Color Red Green Red Green

Price Candles 1 Candle Upon News Release nd 2 Candle rd 3 Candle th 4 Candle

Color Green Red Green Red

st

st

Action

Action

Action Wait Wait Wait Abort the trade Action Wait Wait Wait Abort the trade

Note 1: Always check to see if the trend indicated by the Moving Average Lines is the same as that indicated by the color of the price candles before opening any trade position. Do not open any trade position if the two Moving Average Lines and the price candles are indicating conflicting trends or signals. Note 2: It is NOT recommended to enter a trade position after more than one hour from the time of the news release. Note 3: Be careful if there is another news release within the next two hours.

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Step 4:

Place the stop loss and target profit as OCO order.

Action:

This procedure is the same as that of the Retracement Market Method, except that there is no need to place a greater stop loss for GBP/USD.

Step 5:

Moving of Initial Stop Loss to Entry Price

Action:

This procedure is the same as that of the Retracement Market Method, except here we are using the 15-minute chart..

Step 6:

Converting Stop Loss to Protective Stop

Action:

This procedure is the same as that of the Retracement Market Method, except here we are using the 15-minute chart.

Step 7:

Closing of Trade Position

Action:

The open trade position shall remain open UNTIL whichever ONE of the following has taken place first: • Target profit is triggered and the open trade position is automatically closed. • Stop loss or protective stop is triggered and the open trade position is automatically closed. • Default MACD indicates a change in direction and the open trade position is manually closed.

Note: For the Running Market Method, use the Default MACD in the 15-minute chart for indication of a change in trend instead of the Moving Average Lines which is used in the hourly chart for the Retracement Market Method. In the Running Market Method, the price moves according to the news release and this move tends to reach a certain price level very quickly whereby it becomes exhausted due to profit-taking. At times, the market may overreact and moves to a price level where it is not sustainable. And so there is a need to close the trade position earlier before the price begins to change in direction. Since the Default MACD tends to give an earlier “change in trend” signal than the Moving Average Lines, we recommend the Default MACD to provide the exit signal. For the Retracement Market Method, the trend tends to undergo relatively more intraday retracements than those of the running market. Hence the Moving Average Lines are used to provide the exit signal since the Default MACD tends to indicate more retracements rather than changes in trend in the hourly chart. Now we shall take a look at some examples of trade entries and exits seen from the 15minute charts based on the Running Market Method.7

7

Please note that all charts used in this ebook are meant for illustrative purposes.

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Example 13: Identifying A ‘Buy’ Signal Using the Running Market Method (1)

1. The purple up arrow indicates the price candle when the news was first released. 2. The green up arrow indicates the third green price candle where a buy trade is entered above and as close to the Black Moving Average Line as possible, say at 1.9925. Note that the Moving Average Lines are at the same time indicating an uptrend. (Note: We always ignore the outcome of the news released. The trade is entered based entirely on technical indicators. We have removed the Long MACD and the Stochastic indicators as we do not use them in the 15-minute chart.) 3. Place the stop loss just below the Parabolic Dot, say at 1.9905, giving a stop loss of 20 pips. 4. The red down arrow indicates the price candle where the trade is exited because the Default MACD is signaling a change in trend. Let’s assume the exit price is 2.0050. 5. From here, we can see that this trade has the potential to earn about 125 pips over a period of 6½ hours, with a risk-reward ratio of about 16 percent.

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Example 14: Identifying A ‘Buy’ Signal Using the Running Market Method (2)

1. The purple up arrow indicates the price candle when the news was first released. 2. The green up arrow indicates the third green price candle where a buy trade is entered above and as close to the Black Moving Average Line as possible, say at 1.9765. Note that the Moving Average Lines are at the same time indicating an uptrend. (Note: We always ignore the outcome of the news released. The trade is entered based entirely on technical indicators. We have removed the Long MACD and the Stochastic indicators as we do not use them in the 15-minute chart.) 3. Place the stop loss just below the 23-Hour Moving Average Line (since the Parabolic Dot is too far below the buy price), say at 1.9745, giving a stop loss of 20 pips. 4. The red down arrow indicates the price candle where the trade is exited because the Default MACD is signaling a change in trend. Let’s assume the exit price is 1.9880. 5. From here, we can see that this trade has the potential to earn about 115 pips over a period of 7 hours, with a risk-reward ratio of about 17 percent.

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Example 15: Identifying A ‘Buy’ Signal Using the Running Market Method (3)

1. The purple up arrow indicates the price candle when the news was first released. 2. The green up arrow indicates the third green price candle where a buy trade is entered above and as close to the Black Moving Average Line as possible, say at 1.9860. Note that the Moving Average Lines are at the same time indicating an uptrend. (Note: We always ignore the outcome of the news released. The trade is entered based entirely on technical indicators. We have removed the Long MACD and the Stochastic indicators as we do not use them in the 15-minute chart.) 3. Place the stop loss at 1.9835, which is just below the 23-Hour Moving Average Line, giving a stop loss of 25 pips. 4. The red down arrow indicates the price candle where the trade is exited because the Default MACD is signaling a change in trend. Let’s assume the exit price is 1.9915. 5. From here, we can see that this trade has the potential to earn about 80 pips over a period of 7½ hours, with a risk-reward ratio of about 31 percent.

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Example 16: Identifying A ‘Sell’ Signal Using the Running Market Method (1)

1. The purple down arrow indicates the price candle when the news was first released. 2. The green down arrow indicates the third red price candle where a sell trade is entered below and as close to the Black Moving Average Line as possible, say at 1.9715. Note that the Moving Average Lines are at the same time indicating a downtrend. (Note: The first price candle is green while the second price candle is red. This means we need to wait further until a series of three consecutive price candles of the same color to appear which in this case is red. This confirms that the trend is down. Notice that we ignore the outcome of the news released. The trade is entered based entirely on technical indicators. We have removed the Long MACD and the Stochastic indicators as we do not use them in the 15-minute chart.) 3. Place the stop loss at the Parabolic Dot, which is 1.9735, giving a stop loss of 20 pips. 4. The red up arrow indicates the price candle where the trade is exited because the Default MACD is signaling a change in trend. Let’s assume the exit price is 1.9695. 5. From here, we can see that this trade has the potential to earn about 35 pips over a period of 4¾ hours, with a “high” risk-reward ratio of about 57 percent. 59


Example 17: Identifying A ‘Sell’ Signal Using the Running Market Method (2)

1. The purple down arrow indicates the price candle when the news was first released. 2. The green down arrow indicates the third red price candle where a sell trade is entered below and as close to the Black Moving Average Line as possible say at 121.55. Note that the Moving Average Lines are at the same time indicating a downtrend. (Note: We always ignore the outcome of the news released. The trade is entered based entirely on technical indicators. We have removed the Long MACD and the Stochastic indicators as we do not use them in the 15-minute chart.) 3. Place the stop loss just above the Parabolic Dot, say at 121.75, giving a stop loss of 20 pips. 4. The red up arrow indicates the price candle where the trade is exited because the Default MACD is signaling a change in trend. Let’s assume the exit price is 121.30. 5. From here, we can see that this trade has the potential to earn about 25 pips over a period of 7½ hours, with an extremely “high” risk-reward ratio of about 80 percent.

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Example 18: Identifying A ‘Sell’ Signal Using the Running Market Method (3)

1. The purple down arrow indicates the price candle when the news was first released. 2. The green down arrow indicates the third red price candle where a sell trade is entered below and as close to the Black Moving Average Line as possible say at 12355. Note that the Moving Average Lines are at the same time indicating a downtrend. (Note: We always ignore the outcome of the news released. The trade is entered based entirely on technical indicators. We have removed the Long MACD and the Stochastic indicators as we do not use them in the 15-minute chart.) 3. Place the stop loss just above the Parabolic Dot, say at 1.2375, giving a stop loss of 20 pips. 4. The red up arrow indicates the price candle where the trade is exited because the Default MACD is signaling a change in trend. Let’s assume the exit price is 1.2315. 5. From here, we can see that this trade has the potential to earn about 40 pips over a period of 6 hours, with a risk-reward ratio of about 50 percent.

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Analysis of the Running Market Trades Running Market Example 1 2 3 4 5 6

Currency Pair

Date

Daily Chart

Hourly Chart

GBP/USD GBP/USD EUR/USD GBP/USD USD/JPY USD/CHF

April 17, 2007 May 23, 2007 June 4, 2007 May 21, 2007 May 29, 2007 June 22, 2007

Up Up Up Up Up Down

Up Up Up Down Down Down

Trade Long Long Long Short Short Short

Profit 125 pips 115 pips 80 pips 30 pips 25 pips 40 pips

Period 7 hr 7½ hr 8½ hr 5½ hr 7¾ hr 6¾ hr

Risk/ Reward Ratio 16% 17% 31% 57% 80% 50%

The performances of the six examples of the Running Market trades illustrated in the previous pages are tabulated above. You will notice that generally when the news release causes the hourly trend of a currency pair to flow along with the daily trend, the move is usually over a relatively wider range (more than 50 pips) compared to when the news release causes the hourly trend to flow against the daily trend. This is because institutional and professional traders do not want to hold any open positions that are against the daily trend over a relatively long period of time. Hence, profit taking tends to take place early for hourly moves that are against the daily trend. Another observation made from the above table is that most trends identified by the Running Market Method, as a result of a news release, can last up to 6 to 8 hours. This timing may be useful as an indication of when to close the trades that are opened using the Running Market Method.

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The Ranging Market Method (One-hour Chart) When the red (signal) line and the blue line of both the Default and Long MACD are ‘flat,’ they are either indicating that the market is ranging or choppy. This is because the trends in both market conditions are not going anywhere, i.e. directionless. Example of a Ranging Market as indicated by both the Default and Long MACD

In the above chart, we see that between April 23, 2007, 1200 GMT and April 26, 2007, 0400 GMT, both the Default and Long MACD were giving “flat” signals when the market is ranging. The price was ranging between a high of 118.95 and a low of 118.22, giving us a trading range 73 pips. In order to be able to trade profitably in a ranging market we need to ensure that the market is able to give us a minimum trading range of 60 pips. The above ranging market met our criteria and is suitable for range trading. Our only main concern is that we do not know when the market will break out from its existing trading range.

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Example of a Choppy Market as indicated by both the Default and Long MACD

In the above chart, we see that between May 24, 1800 GMT and May 28, 0800 GMT, both the Default and Long MACD were giving “flat� signals when the market is either choppy or consolidating. Under such market condition, we do not attempt to open any trade positions. Now we shall take a look at one typical example of a set of trade entries and exits seen from an hourly chart based on the Ranging Market Method.8

8

Please note that all charts used in this ebook are meant for illustrative purposes.

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Example 19: Identifying Trade Signals Using the Ranging Market Method

1. In a ranging market we need to first identify the high and the low of the range. This is identified when the price levels of 1, 2, 3 and 4 are formed. The price level of 1 and 4 formed the lower band of the range while the price level of 2 and 3 formed the upper band of the range. 2. Wait for the indication from the Default and Long MACD to confirm a ranging market condition. Both must give a flat signal like those on the above chart. 3. Draw the upper and lower band of the range as indicated on the above chart by the two red horizontal lines. This is done by joining the price level of 2 and 3 to form the upper band and joining the price level of 1 and 4 to form the lower band of the trading range. 4. Measure the trading range to see if it is more than 60 pips. For this example, it met our criteria as its trading range is 63 pips. Do not trade if the trading range is less than 60 pips.

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5. Check the daily chart to see the direction of the day trend. If it is an up-trend, then always buy whenever the price is near the lower band of the range. If it is a downtrend then always sell whenever the price is near the upper band of the range. The rationale behind this is when the day trend is an up-trend, the price tends to make an “upward” breakout from the trading range, and when the day trend is a down-trend, the price tends to make a “downward” breakout from the trading range. For this example, the daily chart below shows that the day trend is an up-trend.

6. Since in a ranging market, Stochastic is used to indicate reversals, we shall buy when the Stochastic indicates an upward reversal or sell whenever it indicates a downward reversal. For this example, we shall ONLY open a buy position (see Blue Up Arrows) when the Stochastic indicates an upward reversal (see Green Up Arrows) since the day trend is an up-trend as seen in the daily chart above, and close the trade position (see Red Down Arrows) when the Stochastic indicates a downward reversal (see Green Down Arrows). 7. For this example, the price candle eventually did breakout from the trading range with an up-trend move according to the direction of the day trend. Please note that this is usually but not always the case. However, it is highly recommended that in range trading, do not trade against the trend as indicated in the daily chart.

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The Rollover Market Method The Rollover Market Method is for swing trading as it involves rolling the open trade position over to the following day, and the trade can last from a week to a few months. The Rollover Market Method is comprised of two sub-methods: • The Short Swing Method uses the 4-hourly chart to enter a “short” swing trade which can last from one to 2 weeks. • The Long Swing Method uses the weekly and daily charts to enter a “long” swing trade which can last from 2 weeks to 2 months. By using longer time-frame charts, a potentially larger move of the forex market can be identified and captured. This means more profit for the trade. Note: Here “short” and “long” refers to the length of the time-frame used in the chart for entering and exiting the “Rollover” trade. Short refers to the use of the 4-hourly charts while long refers to the use of the weekly and daily charts.

The Short Swing Method (4-Hourly Chart) The Short Swing Method works exactly like the Retracement Market Method, except for the following steps: 1. Instead of using the hourly chart, the 4-hourly chart is used, with the same technical indicators as the hourly chart. 2. The entry price is to be placed preferably not more than 15 pips (including the spread) above the 6-Hour Moving Average Line for a buy trade and not more than 15 pips below the 6-Hour Moving Average Line for a sell trade. 3. The stop loss range is also increased to 30-50 pips. 4. Trading is usually carried out when the current trend is either part of a major trend or major retracement. 5. Target profit can be placed at either of the following key price levels: • Daily Fibonacci Retracement Levels of 23.6%, 38.2%, 50% and 61.8%. • Daily Historical Resistance and Support Levels • Previous and Current Week High and Low • Previous and Current Month High and Low • Key Psychological Levels (i.e. prices that ends with 00s or 50s) • Key Channel Bands and Trend Lines 6. Monitoring of open trade positions shall be done using only the 4-hourly chart and the trade position shall remain opened UNTIL whichever ONE of the following has taken place first: • Target profit is triggered and the open trade position is automatically closed. • Stop loss or protective stop is triggered and the open trade position is automatically closed. • Moving Average Lines have crossed each other and this indicate a change in trend, and the open trade position is manually closed.

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Now we shall take a look at some examples from the 4-hourly charts which indicate trade signals for entering and exiting a Short Swing Trade.9 Example 20: Identifying A ‘Buy’ Signal Using the Rollover Market Method – Short Swing (1)

1. The steps to identifying the “buy” signal are the same as that of the Retracement Market Method. (Note: You may want to do a review on the steps for the Retracement Market Method before continue reading about the Short Swing Trade.) 2. Let’s assume that the entry price is 1.2950, as indicated by the blue up arrow, with a stop loss of 50 pips placed at 1.2900 which is just below the Parabolic Dot. (Note: Stop loss should not be more than 50 pips.) 3. The trade position is closed when the Moving Average Lines have crossed each other. See blue down arrow. Let’s assume the exit price to be 1.3280 which is near the low of the price candle. This gives a potential trading profit of about 330 pips over a period of 10 trading days, with a risk-reward ratio of about 15 percent.

9

Please note that all charts used in this ebook are meant for illustrative purposes.

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Example 21: Identifying A ‘Buy’ Signal Using the Rollover Market Method – Short Swing (2)

1. The steps to identifying the “buy” signal are the same as that of the Retracement Market Method. (Note: You may want to do a review on the steps for the Retracement Market Method before continue reading about the Short Swing Trade.) 2. Let’s assume that the entry price is 1.9000, as indicated by the blue up arrow, with a stop loss of 50 pips placed at 1.8950 which is just below the 23-Hour Moving Average Line. 3. The trade position is closed when the Moving Average Lines have crossed each other. See blue down arrow. Let’s assume the exit price to be 1.9620 which is near the low of the price candle. This gives a potential trading profit of about 620 pips over a period of 12 trading days, with a risk-reward ration of about 8 percent.

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Example 22: Identifying A ‘Buy’ Signal Using the Rollover Market Method – Short Swing (3)

1. The steps to identifying the “buy” signal are the same as that of the Retracement Market Method. (Note: You may want to do a review on the steps for the Retracement Market Method before continue reading about the Short Swing Trade.) 2. Let’s assume that the entry price is 1.3430, as indicated by the blue up arrow, with a stop loss of 30 pips at 1.3400 which is below the 23-Hour Moving Average Line. 3. The trade position is closed when the Moving Average Lines have crossed each other. See blue down arrow. Let’s assume the exit price to be 1.3550 which is near the low of the price candle. This gives a potential trading profit of about 120 pips over a period of 9 trading days, with a risk-reward ratio of about 25 percent.

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Example 23: Identifying A ‘Buy’ Signal Using the Rollover Market Method – Short Swing (4)

1. The steps to identifying the “buy” signal are the same as that of the Retracement Market Method. (Note: You may want to do a review on the steps for the Retracement Market Method before continue reading about the Short Swing Trade.) 2. Let’s assume that the entry price is 121.70, as indicated by the blue up arrow, with a stop loss of 50 pips placed at 121.20, which is below the 23-Hour Moving Average Line. 3. The trade position is closed when the Moving Average Lines have crossed each other. See blue down arrow. Let’s assume the exit price to be 123.60 which is near the low of the price candle. This gives a potential trading profit of about 190 pips over a period of 11 trading days, with a risk-reward ratio of about 26 percent.

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Example 24: Identifying A ‘Sell’ Signal Using the Rollover Market Method – Short Swing (1)

1. The steps to identifying the “sell” signal are the same as that of the Retracement Market Method. (Note: You may want to do a review on the steps for the Retracement Market Method before continue reading about the Short Swing Trade.) 2. Let’s assume that the entry price is 1.3170, as indicated by the blue down arrow, with a stop loss of 40 pips placed at 1.3210 which is just above the 23-Hour Moving Average Line. 3. The trade position is closed when the Moving Average Lines have crossed each other. See blue up arrow. Let’s assume the exit price to be 1.2985 which is near the high of the price candle. This gives a potential trading profit of about 185 pips over a period of 9 trading days, with a risk-reward ratio of about 22 percent.

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Example 25: Identifying A ‘Sell’ Signal Using the Rollover Market Method – Short Swing (2)

1. The steps to identifying the “sell” signal are the same as that of the Retracement Market Method. (Note: You may want to do a review on the steps for the Retracement Market Method before continue reading about the Short Swing Trade.) 2. Let’s assume that the entry price is 120.60, as indicated by the blue down arrow, with a stop loss of 50 pips placed at 121.10 which is above the 23-Hour Moving Average Line. 3. The trade position is closed when the Moving Average Lines have crossed each other. See blue up arrow. Let’s assume the exit price to be 117.20 which is the high of the price candle. This gives a potential trading profit of about 340 pips over a period of 8 trading days, with a risk-reward ratio of about 15 percent.

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Converting a Retracement Trade to a Short Swing Trade 1. During the “retracement trade”, when the price is approaching the target profit or when the Moving Average Lines are going to cross each other, switch the hourly chart to the 4-hourly chart and see if there is any indication for the current trend to continue with momentum. This is usually carried out usually when the current trend is part of a major trend or a major retracement. 2. If the current trend still has momentum to continue, then monitor the open trade position using the 4-hourly chart and change the target profit based on the 4-hourly chart. 3. The trade position shall remain opened UNTIL whichever ONE of the following has taken place first: • Target profit is triggered and the open trade position is automatically closed. • Stop loss or protective stop is triggered and the open trade position is automatically closed. • Moving Average Lines have crossed each other and this indicate a change in trend, and the open trade position is manually closed.

Comparison between Using an Hourly and a 4-Hourly Chart Below is a table comparing the use of the hourly chart and the 4-hourly chart for trading. Hourly Chart 4-Hourly Chart Can be used for intra-day trade and as Can only be used for Short Swing Trade well as converting to Short Swing Trade Stop loss is in the range of 20-30 pips.

Stop loss is in the range of 30-50 pips.

Applicable as long as the current trend is Applicable usually only when the current not an intra-day retracement. trend is a major trend or a major retracement. Trend can last to about 5 trading days or Trend can last to about 12 trading days or one week. two weeks. For intra-day trade, the trend is usually not followed through as the open trade position is often closed prematurely with profit not maximized.

For Short Swing Trade, the trend is usually followed through as the open trade position is often closed with profit maximized.

Relatively more time is needed to monitor Relatively less time is needed to monitor the trade. the trade. Pivot Points, Fibonacci Retracement Only Fibonacci Retracement Levels and Levels and Historical Levels can be used Historical Levels are used for setting for setting target profit for intra-day trade. target profit for swing trade. Relatively lower margin is required due to Relatively higher margin is required due lower stop loss needed. to higher stop loss needed.

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The Long Swing Method (Weekly & Daily Charts) The Long Swing Method, which is sometimes also known as “positional trading”, uses the weekly chart to identify the major trend and its retracement and the daily chart to identify the entry and exit price. Usually the trend identified is always part of the major trend, which can last from a few weeks to a few months. Stop loss is in the range of 50 to 80 pips. Weekly Chart The weekly chart uses the following technical indicators: 1. Three Moving Average Lines: 13, 26 and 52 weeks to indicate the long-term trend. 2. Parabolic SAR 3. Long MACD 4. Stochastic (5,3,3) Daily Chart The daily chart uses the following technical indicators: 1. Two pairs of Moving Average Lines: • 10 and 40 days to indicate the short-term trend • 89 and 144 days to indicate the mid-term trend 2. Parabolic SAR 3. Default and Long MACD 4. Stochastic (5,3,3)

Steps for Trading the Long Swing The steps for carrying out a Long Swing Trade are as follows: Weekly Chart (A) Observation 1. Draw a trend-line to identify the major trend. 2. Check that the 3 Moving Average Lines are also indicating the same trend. 3. Check that the Long MACD is also indicating the same trend. 4. Use the Stochastic to identify the bottoming-out of a major retracement for a major up-trend, OR the topping-off of a major retracement for a major down-trend. (Note: Ensure that for an up-trend, the Stochastic upward crossing is below the 30% level; and for a down-trend, the downward crossing is above the 70% level.) 5. Check that the bottoming-out of the major retracement is supported by any of the Moving Average Lines for a major up-trend, or the topping-off of the major retracement is resisted by any of the Moving Average Lines for a major down-trend. This is to indicate that the major retracement has ended and the market is ready to resume its major trend. 6. Switch to the daily chart to monitor the daily movement of the following week for the timing to enter a trade, as well as to identify the entry price.

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Daily Chart (A) Observation 7. Check that the Default MACD is indicating the same trend as the major trend on the weekly chart. If it is not, wait until it is indicating the same trend as the major trend on the weekly chart. This may take a few more days. 8. Wait for the 2 pairs of Moving Average Lines to indicate the same trend as the major trend on the weekly chart. 9. Wait for the Stochastic to indicate the timing to enter a “buy” trade with an upward crossing at below the 50% level for a major up-trend, OR to enter a “sell” trade with a downward crossing at above the 50% level for a major down-trend. 10. For a major up-trend, enter a “buy” trade when the price candle moves above the 10-Day and 40-Day Moving Average Lines. For a major down-trend, enter a “sell” trade when the price candle moves below the 10-Day and 40-Day Moving Average Lines. 11. When entering a trade, check that the Moving Average Lines and two MACDs are also indicating the same trend as the major trend. However, there are times when the Default MACD may not indicate the same trend. This is alright as long as the Moving Average Lines and the Long MACD are indicating the same trend as the major trend. 12. The stop loss is to be placed between 50 to 80 pips. 13. The target profit is to be placed between 150 to 250 pips. Use the Fibonacci Retracement Levels or Historical Resistance and Support levels for target profit. 14. As usual, move the stop loss to the entry price, once the unrealized profit is equal to the stop loss in terms of the number of pips. 15. Convert the stop loss to a protective stop as the unrealized profit increases by the same number of pips as the original stop loss. 16. Switch back to the Weekly Chart. Weekly Chart (B) Observation 17. Wait for the Stochastic to cross to indicate that the major trend is going to undergo a major retracement. This is usually accompanied by a bearish price candle for that week which is at a distance above the 13-Week Moving Average Line if it is a major up-trend, or a bullish price candle for that week which is at a distance below the 13Week Average Line if it is a major down-trend. 18. Switch back to the Daily Chart. Daily Chart (B) Observation 19. The open trade position is closed once the stop loss, protective stop or target profit is triggered, or when the Default MACD indicates a change in direction. Now we shall take a look at some examples from the weekly and daily charts which indicate trade signals for entering and exiting a Long Swing Trade.10 10

Please note that all charts used in this ebook are meant for illustrative purposes.

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Example 26: Identifying A ‘Buy’ Signal Using the Rollover Market Method – Long Swing (1) Weekly Chart (A): For Preparation to Enter a Long Swing Trade

Weekly Chart (A) Observation 1. The above weekly chart shows that the major trend is an up-trend, as indicated by the trend-line, the 3 Moving Average Lines, and the Long MACD. 2. Note that the dates indicated by the weekly price candles are the first day (Sunday) of each of the weekly candles. 3. At the end of the week beginning on October 15, 2006, (Sunday) the Stochastic shows that it is crossing upward at the 18.2% level (< 30.0%). This indicates that the major “downward” retracement may have bottomed-out. The green price candle for that week confirms the move. 4. Furthermore, the price candle of that week is well-supported by the 52-Week Moving Average Line (Green) and as well as the upward trend-line (Pink). With this, there is an initial indication to enter a “buy” trade. 5. Switch to the daily chart to monitor the daily movement of the following week beginning on October 22, 2006, (Sunday) for the timing to enter a “buy” trade, as well as to identify the “buy” price. 77


Daily Chart (A): For Identifying the Entry Price Level for a Long Swing Trade

Daily Chart (A) Observation 6. The monitoring of the daily charts begins on October 22, 2006 (Sunday). See the Red Vertical Line. On that day, the Default MACD is already indicating an up-trend. 7. Next wait for the two pairs of Moving Average Lines (10 and 40 Days; 89 and 144 Days) to indicate an up-trend. On November 10, 2006, the two pairs of Moving Average Lines indicate an up-trend, with the 10-Day Moving Average Line (Black) above the 40-Day Moving Average Line (Blue), and the 89-Day Moving Average (Black) Line above the 144-Day Moving Average Line (Blue). See the Black Vertical Line. 8. Next wait for the Stochastic to indicate the timing to enter a “buy” trade with an upward crossing at below the 50% level. On November 19, 2006, the Stochastic crosses upward at the 40.6% level (< 50.0%), with the Moving Average Lines and the two MACDs indicating an up-trend. See the Blue Vertical Line. 9. Enter a “buy” trade on November 19, 2006, as close to the 10-Day Moving Average Line as possible, say at 1.2830, and place the stop loss at 1.2750, giving a stop loss of 80 pips, as the 40-Day Moving Average Line is too far below the ‘buy’ price. 10. Switch back to the weekly chart and wait for an indication of a major retracement.

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Weekly Chart (B): For Preparation to Exit the Long Swing Trade

Weekly Chart (B) Observation 11. Based on the above weekly chart, at the end of the week beginning on December 3, 2006, (Sunday): • The Stochastic shows a downward crossing. • The price candle has risen too high above the 13-Week Moving Average Line (Black), hence it has to retrace back to the Moving Average Line. • The price candle turns bearish to indicate a possible major “downward” retracement. The above three signals all indicate that a major “downward” retracement maybe on the way. See the Red Vertical Line. 12. Switch back to the daily chart to monitor the daily movement of the following week beginning on December 10, 2006, (Sunday) for the timing to exit from the trade, as well as to identify the exit price.

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Daily Chart B: For Identifying the Exit Price Level for a Long Swing Trade

Daily Chart (B) Observation 13. The monitoring of the daily chart begins on December 10, 2006 (Sunday). See the Red Vertical Line. 14. The open trade position is closed on the same day, December 10, 2006, say at 1.3185, as the Default MACD is already indicating a change in direction. 15. The potential profit for this long swing trade is about 355 pips over a period of 16 trading days, from November 19 (Blue Vertical Line) to December 10 (Red Vertical Line), with a risk-reward ratio of about 23 percent. Note: The date and time indicated on the chart is based on GMT. So when the date indicates Sunday, it is actually Monday in Asia time-zone. Sunday and Monday are treated as one trading day in Asia time-zone.

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Example 27: Identifying A ‘Buy’ Signal Using the Rollover Market Method – Long Swing (2) Weekly Chart (A): For Preparation to Enter a Long Swing Trade

Weekly Chart (A) Observation 1. The above weekly chart shows that the major trend is an up-trend, as indicated by the trend-line, the 3 Moving Average Lines, and the Long MACD. 2. Note that the dates indicated by the weekly price candles are the first day (Sunday) of each of the weekly candles. 3. At the end of the week beginning on January 28, 2007, (Sunday), the Stochastic shows that it is crossing upward at the 20.9% level (< 30.0%). This indicates that the major “downward” retracement may have bottomed-out. The green price candle for that week confirms the move. 4. Furthermore, the price candle for the same week is well-supported by the 26-Week Moving Average Line (Blue). With this, there is an initial indication to enter a “buy” trade. 5. Switch to the daily chart to monitor the daily movement of the following week beginning on February 4, 2007, (Sunday) for the timing to enter a “buy” trade, as well as to identify the “buy” price. 81


Daily Chart (A): For Identifying the Entry Price Level for a Long Swing Trade

Daily Chart (A) Observation 6. The monitoring of the daily charts begins on February 4, 2007 (Sunday). See the Red Vertical Line. On that day, the Default MACD is already indicating an up-trend. 7. Next wait for the two pairs of Moving Average Lines (10 and 40 Days; 89 and 144 Days) to indicate an up-trend. On February 14, 2007, the two pairs of Moving Average Lines indicate an up-trend. On the same day, the Stochastic also crosses but at the 73.4% level (> 50.0%), which is to be ignored. See the Black Vertical Line. 8. Next wait for the Stochastic to indicate the timing to enter a “buy” trade with an upward crossing below the 50% level. Between February 14 and March 7, the Stochastic crosses but at the 58.1% level (> 50.0%) and again this is to be ignored. Finally, on March 7, 2007, the Stochastic crosses upward at the 38.3% level (< 50.0%), with the Moving Average Lines and the Long MACD indicating an up-trend. See the Blue Vertical Line. 9. Enter a “buy” trade on March 7, 2007, as close to the 10-Day Moving Average Line as possible, say at 1.3140, and place a stop loss of 80 pips at 1.3060, as the 40-Day Moving Average Line is too close to the ‘buy’ price. 10. Switch back to the weekly chart and wait for an indication of a major retracement.

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Weekly Chart (B): For Preparation to Exit the Long Swing Trade

Weekly Chart (B) Observation 11. Based on the above weekly chart, at the end of the week beginning on March 18, 2007, (Sunday): • The Stochastic shows a downward crossing. • The price candle has risen too high above the 13-Week Moving Average Line (Black), hence it has to retrace back to the Moving Average Line. • The price candle turns bearish to indicate a possible major “downward” retracement. The above three signals all indicate that a major “downward” retracement maybe on the way. See the Red Vertical Line. 12. Switch back to the daily chart to monitor the daily movement of the following week beginning on March 25, 2007, (Sunday) for the timing to exit from the trade, as well as to identify the exit price.

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Daily Chart B: For Identifying the Exit Price Level for a Long Swing Trade

Daily Chart (B) Observation 13. The monitoring of the daily chart begins on March 25, 2007 (Sunday). See the Green Vertical Line. 14. The open trade position is closed on May 2, 2007, say at 1.3600, as the Default MACD is already indicating a change in direction. 15. The potential profit for this long swing trade is about 460 pips over a period of 40 trading days, from March 7 (Blue Vertical Line) to May 2 (Red Vertical Line), with a risk-reward ratio of about 17 percent. Note: The date and time indicated on the chart is based on GMT. So when the date indicates Sunday, it is actually Monday in Asia time-zone. Sunday and Monday are treated as one trading day in Asia time-zone.

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Example 28: Identifying A ‘Buy’ Signal Using the Rollover Market Method – Long Swing (3) Weekly Chart (A): For Preparation to Enter a Long Swing Trade

Weekly Chart (A) Observation 1. The above weekly chart shows that the major trend is an up-trend, as indicated by the trend-line, the 3 Moving Average Lines, and the Long MACD. 2. Note that the dates indicated by the weekly price candles are the first day (Sunday) of each of the weekly candles. 3. At the end of the week beginning on March 11, 2007, (Sunday), the Stochastic shows that it is crossing upward at the 28.9% level (< 30.0%). This indicates that the major “downward” retracement may have bottomed-out. The green price candle for that week confirms the move. 4. Furthermore, the price candle for the same week is well-supported by the upward trend-line (Pink). With this, there is an initial indication to enter a “buy” trade. 5. Switch to the daily chart to monitor the daily movement of the following week beginning on March 18, 2007, (Sunday) for the timing to enter a “buy” trade, as well as to identify the “buy” price.

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Daily Chart (A): For Identifying the Entry Price Level for a Long Swing Trade

Daily Chart (A) Observation 1. The monitoring of the daily charts begins on March 18, 2007 (Sunday). See the Red Vertical Line. On that day, the Default MACD is already indicating an up-trend. 2. Next wait for the two pairs of Moving Average Lines (10 and 40 Days; 89 and 144 Days) to indicate an up-trend. On March 22, 2007, the two pairs of Moving Average Lines indicate an up-trend. See Black Up Arrow pointing to the March 22 price candle. 3. Next wait for the Stochastic to indicate the timing to enter a “buy” trade with an upward crossing below the 50% level. Between March 18 and April 10, the Stochastic crosses but at the 51.2% (> 50.0%) and again this is to be ignored. Finally, on April 10, 2007, the Stochastic crosses upward at the 25.9% level (< 50.0%), with the Moving Average Lines and the Long MACD indicating an up-trend. See the Blue Vertical Line. 4. Enter a “buy” trade on April 10, 2007, as close to the 10-Day Moving Average Line as possible, say at 1.9670, and place a stop loss of 80 pips at 1.9590 which is at the 40-Day Moving Average Line. 5. Switch back to the weekly chart and wait for an indication of a major retracement.

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Weekly Chart (B): For Preparation to Exit the Long Swing Trade

Weekly Chart (B) Observation 6. Based on the above weekly chart, at the end of the week beginning on April 22, 2007, (Sunday): • The Stochastic shows a downward crossing. • The price candle has risen too high above the 13-Week Moving Average Line (Black), hence it has to retrace back to the Moving Average Line. • The price candle turns bearish to indicate a possible major “downward” retracement. The above three signals all indicate that a major “downward” retracement maybe on the way. See the Red Vertical Line. 7. Switch back to the daily chart to monitor the daily movement of the following week beginning on April 29, 2007, (Sunday) for the timing to exit from the trade, as well as to identify the exit price.

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Daily Chart B: For Identifying the Exit Price Level for a Long Swing Trade

Daily Chart (B) Observation 8. The monitoring of the daily chart begins on April 29, 2007 (Sunday). See the Red Vertical Line. 9. The open trade position is closed on the same day, April 29, 2007, say at 1.9970, as the Default MACD is already indicating a change in direction. 10. The potential profit for this long swing trade is about 300 pips over a period of 15 trading days, from April 10 (Blue Vertical Line) to April 29 (Red Vertical Line), with a risk-reward ratio of about 27 percent. Note: The date and time indicated on the chart is based on GMT. So when the date indicates Sunday, it is actually Monday in Asia time-zone. Sunday and Monday are treated as one trading day in Asia time-zone.

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Example 29: Identifying A ‘Sell’ Signal Using the Rollover Market Method – Long Swing (4) Weekly Chart (A): For Preparation to Enter a Long Swing Trade

Weekly Chart (A) Observation 1. The above weekly chart shows that the major trend is a down-trend, as indicated by the trend-line, the 3 Moving Average Lines, and the Long MACD. 2. Note that the dates indicated by the weekly candles are the first day (Sunday) of each of the weekly price candles. 3. At the end of the week beginning on October 15, 2006, (Sunday), the Stochastic shows that it is crossing downward at the 82.2% level (> 70.0%). This indicates that the major “upward” retracement may have topped-off. The red price candle for that week confirms the move. 4. Furthermore, the price candle for the same week is well-resisted by the downward trend-line (Pink). With this, there is an initial indication to enter a “sell” trade. 5. Switch to the daily chart to monitor the daily movement of the following week beginning on October 22, 2006, (Sunday) for the timing to enter a “sell” trade, as well as to identify the “sell” price. 89


Daily Chart (A): For Identifying the Entry Price Level for a Long Swing Trade

Daily Chart (A) Observation 6. The monitoring of the daily charts begins on October 22, 2006 (Sunday). See the Red Vertical Line. On that day, the Default MACD is already indicating a down-trend. 7. Next wait for the two pairs of Moving Average Lines (10 and 40 Days; 89 and 144 Days) to indicate a down-trend. On November 9, 2006, the 10-Day Moving Average Line moves below the other three Moving Average Lines, with the price candle moving below it. See the Black Vertical Line. 8. Next wait for the Stochastic to indicate the timing to enter a “sell” trade with a downward crossing above the 50% level. On November 19, 2006, the Stochastic crosses downward at the 55.4% level (> 50.0%), with the Moving Average Lines and the MACDs all indicating a down-trend. See the Blue Vertical Line. 9. Enter a “sell” trade on November 19, 2006, as close to the 10-Day Moving Average Line as possible, say at 1.2440, and place a stop loss of 80 pips at 1.2520. Note that all the Moving Average Lines are too close to the “sell” price. 10. Switch back to the weekly chart and wait for an indication of a major retracement.

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Weekly Chart (B): For Preparation to Exit the Long Swing Trade

Weekly Chart (B) Observation 11. Based on the above weekly chart, at the end of the week beginning on December 3, 2006, (Sunday): • The Stochastic shows an upward crossing. • The price candle has dived too far below the 13-Week Moving Average Line (Black). • The price candle turns bullish to indicate a possible major “upward” retracement. The above three signals all indicate that a major “upward” retracement maybe on the way. See the Red Vertical Line. 12. Switch back to the daily chart to monitor the daily movement of the following week beginning on December 10, 2006, (Sunday) for the timing to exit from the trade, as well as to identify the exit price.

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Daily Chart B: For Identifying the Exit Price Level for a Long Swing Trade

Daily Chart (B) Observation 13. The monitoring of the daily chart begins on December 10, 2006 (Sunday). See the Red Vertical Line. 14. The open trade position is closed a day later on December 11, 2006, say at 1.2020, as the Default MACD is already indicating a change in direction. 15. The potential profit for this long swing trade is about 420 pips over a period of 16 trading days, from November 19 (Blue Vertical Line) to December 11 (Red Vertical Line), with a risk-reward ratio of about 19 percent. Note: The date and time indicated on the chart is based on GMT. So when the date indicates Sunday, it is actually Monday in Asia time-zone. Sunday and Monday are treated as one trading day in Asia time-zone.

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A Comparison between Short Swing Trade and Long Swing Trade Short Swing Trade Trend can last up to 2 weeks Stop loss is in the range of 30-50 pips Uses only the 4-hour chart May follow the major retracement trend, as well as the major trend itself Close the open position manually when the Moving Average Lines have crossed each other on the 4-hourly chart. Trading signals appear on an average of once a week.

Long Swing Trade Trend can last from 2 weeks to 2 months. Stop loss is in the range of 50-80 pips Uses both the weekly and daily chart Always follow the major trend Close the open position manually when the Default MACD indicates a change in trend on the daily chart. Trading signals appear on an average of once in 2 to 3 months.

How does News Release affect Swing Trades? Short Swing Trades always follow the major trend or the major retracement. News which are negative towards these trades usually have minimal or temporary impact on them. (Note that when a major trend is over-bought or over-sold, it has to undergo a major retracement. Hence, when a major retracement is taking place, news release which are negative towards it, usually also have minimal or temporary impact on the current trend.) For Long Swing Trades which always follow the major trend, news which are negative towards these trades also tend to have minimal or temporary impact on them. Why is this so? See the â&#x20AC;&#x153;Analysis of the Running Market Tradesâ&#x20AC;? on Page 62 for more details. News which are negative towards the major trend or the major retracement trend, usually move the market against these trends only for a limited range and time. This is because institutional and professional traders do not want to hold any open positions that are against the major trend or major retracement over a relatively long period of time. Hence, profit taking tends to take place relatively earlier for trades that are against these trends compared to trades that are flowing along these trends. This is why for Long Swing Trading, we always ignore any news release, regardless of the outcome of the economic indicators, with stop loss placed between 50 and 80 pips, and target profit between 150 pips and 250 pips, or even more. Any news that are negative towards the major trend will tend to delay the time taken by it to reach the target price set by institutional traders. It will not change the target price, unless the major trend does a reversal. By the same reasoning, any news that are in favor towards the major trend will tend to speed-up the time taken by it to reach the target price set by institutional traders.

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The Disciplinary Aspect of Trading The Dynamite TNT Forex System alone cannot help a trader to be profitable. Discipline in trading is also equally important, if not even more important than having the right system or strategy. Therefore, it is only appropriate that this ebook end with this topic. When come to trading, especially forex trading, there are two aspects of discipline: money management and emotional (or psychological) management.

Money Management The following are 10 simple but important rules of money management (a.k.a. risk management) that a trader need to adhere if he or she wants to be consistent in reaping profits from the forex market: 1. The money that one uses to open a forex trading account should be considered as a risk capital. Even if one loses them, it should not affect his or her lifestyle adversely. In other words, use only money which one can afford to lose for forex trading. 2. Do not trade with a leverage of higher than 200:1 (i.e. a margin level of 0.5%). Leverage level of 200:1 (0.5%), 100:1 (1.0%) and 50:1 (2.0%) are acceptable but not higher than these, as the higher the leverage, the higher is also the risk. 3. When trading, priority should be given to capital preservation, then to minimizing losses, and finally to maximizing profit. 4. Always ensure that a stop loss is in placed when opening a trade position. 5. For every trade, do not risk more than 5 percent of the balance margin. This is computed by dividing the stop loss for the trade with the balance margin. Example: if the stop loss for oneâ&#x20AC;&#x2122;s EUR/USD trade is 20 pips (USD200) and oneâ&#x20AC;&#x2122;s balance margin is USD5,000, then the risk is 4% when trading with one standard lot. 6. Always trade with a risk-reward ratio of not more than 1:2 (50%) in mind. However, the recommended risk-reward ratio is 1:3 (33%). With such risk-reward ratio, even if one is to lose half of the trades, he or she will still end up with some profit by the end of the month. 7. When the market is against your open position, do not add another similar position as you may be actually compounding your losses. 8. Do not over trade. This means do not have too many open positions which your net margin balance is not able support in the event the market is against you. 9. Do not trade unnecessarily. Trade only when the risk is the minimal and the size of the profit is able to justify the risk. (Note: Forex trading is basically about risk management.) 10. Do not accumulate too much profit in the trading account. In other words, do not leave too much funds with your broker. There is always risk in leaving too much funds with a broker.

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Emotional Management Like money management, emotional management (a.k.a. trading psychology) also has 10 simple but important rules that a trader need to adhere if he or she wants to enjoy trading under minimal stress in the forex market: 1. If oneâ&#x20AC;&#x2122;s sole goal is to make money from trading, it is unlikely to provide sufficient motivation for success. One also needs to have a passion for trading. 2. Ensure that one has a trading style or method suited to his or her personality. 3. View stress positively as a challenge and a learning experience. 4. Be risk-averse towards trading and patiently wait for the trade with the greatest riskreward ratio. 5. One should never be emotionally attached to a position. If it is time to close that position, close it even if it is with a loss. 6. Take profits and losses with ease by focusing on the system and follow it with discipline. Learn to appreciate that a loss does not make one a loser. 7. Forget the loss or profit that one may have previously. 8. Having a fear of a loss is good as long as it makes a trader want to avoid losses and maintain caution in trading. However, too much fear may affect judgment and lead to trading paralysis. 9. Cultivate patience and stop having the fear of missing a trading opportunity. 10. Adopt regular balanced and healthy diet accompanied with regular exercise, as a fit individual is better able to cope with stress and other negative emotion.

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Professional (Institutional) (Retail) Traders Trading system focus more on . . . Charts used are of a . . . Tendency is to spend more time in . . . Tendency is to trade . . . Tendency is to be more . . . Focus more on . . . When observing the market, there is a tendency to look for . . . Trading style is usually . . . Entry level is based on . . . Most of the time trying to . . . When in the market, tendency is to . . . Tendency to compound . . . Tendency is to exit the market . . . Most of the time trading . . .

Traders

VS

Amateur

Professional Trader

Amateur Trader

timing longer time-frame analyzing the market with a plan objective in trading preserving capital retracements

accuracy shorter time-frame Searching for trade signals base on hope emotional in trading preserving profit reversals

waiting for the price risk level catch swing movements flow with the trend profits when target is reached with pleasure

chasing after the price price level scalp small movements fight against the trend losses out of fear under pressure

Besides the need to know how to use the trading system well, and to know how to manage oneâ&#x20AC;&#x2122;s money and trading emotion, we also need to adopt the mindset of an institutional or professional trader. Since more than 95% of retail forex traders lose their money to institutional traders, why not adopt the mindset of these institutional traders so that we can also beat them in their own game. The above table differentiates the trading behavior between institutional and retail traders. Study their differences and understand the importance of the need to change our mindset. Without this change in mindset, no matter what trading system we may have, we will still lose money to the institutional traders in the long run.

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Conclusion We have now come to the end of the ebook on the Dynamite TNT Forex System. However, your learning to be a professional and profitable trader has either just begun if you are a newbie, or continues even if you are an experienced trader. As a valued customer and user of the Dynamite TNT Forex System, you get to enjoy a live-time support from us. However, in order for you to enjoy this support, we require you to be a member of our Yahoo Group Community of forex traders. You can register as a member at http://finance.groups.yahoo.com/group/forexclub/. When registering as a member of our Yahoo Group - The Forex Club, please use the email address which you use for purchasing this ebook. Also provide us with your clickbank receipt number, date of purchase of this ebook and your full name. Our live-time support at this time includes the following benefits: 1. Meta Trader 4 Charting Templates with key strategic price levels drawn and updated on a weekly basis will be sent to you via email. (You are free to use other brokerâ&#x20AC;&#x2122;s platform for trading but we require you to use the MT4 Platform, which you can download from http://www.interbankfx.com/Accounts/OpenDemo.aspx for market analysis.) 2. Daily TNT Market Analysis and Updates posted at our Yahoo Group, subject to my availability of time. 3. Fellow traders of the Dynamite TNT Forex System at our Yahoo Group will be there to guide and help you in learning the system. 4. Any queries regarding the Dynamite TNT Forex System and forex trading can also be directed to me or to my representative through the Yahoo Group Message System. 5. From time to time, we may organize online gatherings for users of our Dynamite TNT Forex System using chat rooms at http://www.paltalk.com/ where fellow traders can discuss about the system as well as other matters regarding forex trading. 6. Free updated or upgraded version of the Dynamite Forex Trading System. 7. Any other benefits which we may offer to users of our Dynamite TNT Forex System from time to time. Note: We reserve the right to amend the above benefits at anytime without any notification. May the PIPS be with you! Your friend and mentor, Clarence Chee

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Dynamite TNT Forex System  

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