Market type suited for : Trending on 1 hour and 15 minute charts.


The Simple Forex System is a wonderful system for the beginning trader to start their exposure to the Forex market. In this trading book, we'll modify our Simple Forex System to include the Fibonacci standard to allow the earliest entry to a position and maximize the exit strategies for maximum profit.

This system in itself may seem easier to utilize but it comes with its own rules and restraints.

Let's go over the restraints first:

1. This system should be utilized on the 1 hour and 1 day charts ONLY.
2. It should be used on the recommended currency pairs: EURO/USD, EUR/JPY, USD/CHF

Not too bad, huh?

Now for the the rules:

1. DO NOT hedge by trading the EURO/USD and USD/CHF simultaneously. It is a silly and dangerous practice.
2. NEVER, EVER, open a position against the major trend. This rule should never be violated. If the major trend line is upward or bullish, never enter a short postion, and vice versa.
3. DO NOT enter a position on Friday. Especially if you are trading the 1 hour charts. I also would suggest exiting your positions prior to the end of market day on Fridays if you are trading the 1 hours.

4.DO NOT open a position if there is more than 50 pips from the bottom of the candlestick, bar, or line on the time interval that the EMA's cross to the next confirming time interval. Why? Sudden movements that result in large changes in the price are often followed by a "pivot response". A large gain followed by at least 1/2 re-tractment. This doesn't mean that this is the case every time, but it is the majority of the time and should be considered prior to opening. (If you are trading charts slower than the hourly, then disregard this rule)

For those of you not famaliar with the Dow Theory of trends, visit IncredibleCharts.com at the address below for further explanation.

http://www.incrediblecharts.com/tech...ory_trends.htm

Now to set up our charts. We'll be using three EMA indicators and the Parabolic SAR indicator to enter and exit our positions. Start out with a 1 hour chart of the EURO/USD pair. Add and EMA indicator set at 8. Add the next EMA set at 21, and finally the third set at 55.

You should use the defualt Parabolic SAR setting of 0.02 and 0.2.



The Method.

Now, staying in line with the major trend we wait patiently for the indicators to give us the entering position. This I cannot stress enough. BE PATIENT. Wait for the indicators to do their job. The biggest problem new traders suffer from is the urge to quickly get into the game. This system does not garauntee daily trades, but it does help get you into a position at the best and safest possible time.

If you are preparing to go long, enter your position as the EMA 8 crosses through the EMA 55 with entering support from the Parabolic SAR. Again, as in the Simple Forex system, never enter a position against the Parabolic SAR.

*If you are trading the hourly charts make sure that the
15 min charts Parabolic SAR is going the same way. Simply click on the arrow
beside the 60 min and change it to 15 min and your studies will automatically
adjust to the new time frame. Never trade against the 15 min Parabolic SAR!

If you are trading the daily charts, ensure your are entering with Parabolic support from the hourly charts.

Unless there is a major breakout, you will almost never see Parabolic support on the 15, hourly, and daily charts at the same time.

Great, now your in. Things are going good. When do you exit? You simply exit your trade when the EMA 8 crosses back down through the EMA 21. If you wait for it to cross through the EMA 55, you could loose precious pips.

Now, it has crossed through the EMA 21 and we have closed our position and locked in the profit, but the EMA 8 fails to cross back down through the EMA 55 and instead turns and continues back upward through the EMA 21. Is it safe to re-enter the trade? Yes. As long as you re-enter with support from the Parabolic SAR.

Now a common question is, "Do I enter as soon as the EMA 8 touches the EMA 55 or do I have to wait for it to cross completely thru?"

Yes. You must wait for it to cross completely through prior to entering. If the pair whipsaws soon after entering, exit your position and wait for the market to settle.

If you are going to trade on the daily chart, ensure you either have adequate equity in your account for what may be 50-150 pip swings, or trade with a lower margin. Such as a 50:1 or 25:1 leverage.


Here is an example of my favorite daily pair. Look at the chart below and notice the deep vallys and high peaks. This pair works extremely well with this system and is one of my favorites to trade.



What about stops? Set your stop loss at the same line as the EMA 21 in the reverse direction.

I originally designed this system for use on the daily charts but realized that it worked fairly well on the 1 hour charts as well. Obviously there is not one system that is foolproof. What we attempt to do is utilize the systems that are winners more often than loosers. However, losses are an inevitable part of life, so deal with them accordingly.

As always, I suggest you study the example charts and test out the system prior to going live with it. Once you are comfortable, trade away!

(For the charts below, EMA 8 is represented in BLUE. EMA 21 is represented in YELLOW. EMA 55 is represented in RED.)