Getting Started with Forex - www.forextrader.za.

net

Part 4 Long Term Big Winners

Part 4 Today we will look at longer term trading, where fewer

hours are spent each day on the markets. There are
very few entries given and the rules are quite strict, but
the trades are much larger than the scalping systems.
Patience is definitely a requirement with this system.
The system I am teaching you today, is a combination
of two systems which work very well together. Either
can be traded on their own, but combined you will
pick up more trades since they use two different sets of
rules.

Part 1 – Finding important price levels

Firstly, you will want to load up your chart with your preferred colour scheme, and NO INDICATORS. Yes, that’s
right, no indicators. I even like to go as far as to remove the background grid, this can be removed under the
chart properties setting (F8). Untick the box next to “Show grid”

You want your graph to look as clean as possible, and with colours that makes sense to you and is easy on the
eye. This is not just to look nice, but because we aren’t using indicators you need to rely on your ability to read the
market and determine price levels as efficiently as possible.

Now to find important price levels. This system is based on a methodology of trading called Price Action. The
fundamental concept of it, is exactly what it’s called. Price Action determines important levels, and not so much
with formulas or Fibonacci. So what we are ideally looking for are previous prices where the market bounced off
on more than one occasion. It’s a little tricky at first, but once you start getting the feel for it you can find these
prices very quickly. Here is an example of a chart with just one line drawn in.

Page: 1 of 7
 Getting Started with Forex - www.forextrader.za.net

This is drawn on the weekly time frame, but daily and 4 hour works as well. What we have picked up here are two
strong lines of resistance. So we draw the line in and keep an eye on it in weeks to come. With a Daily you will be
able to trade more, but the smaller the time frame the less reliable it is. After some time, we came across a
decent looking candle that formed around that price range.

We’ll get to which candle formations we deal with later. I’m sure you have seen this one before (If you’ve been
reading the notes!). For now, you should have a look for these price ranges on a demo account at some random
point in history, then scroll forward and see how often history repeats itself. Keep in mind, that previous support
often becomes new resistance and visa versa.

As with most systems, it’s a good idea to keep in line with the general direction of the market and find the best
possible entry points. This reduces risk and maximizes profits. That’s exactly what we want. Because we are trading
the larger time frames already, we can’t really look at bigger ranges. So what we do is look at how the lows and
highs have been forming.

The definition of a confirmed low is simply when you see a low candle that sticks out and the two candles to either
side are higher than it, then it’s a confirmed low. Visa versa for a high. For example, that candle you see
highlighted above would be a confirmed high.

Page: 2 of 7
 Getting Started with Forex - www.forextrader.za.net

So what we look for on the chart, are higher highs and/or higher lows to confirm a long trend, or lower highs
and/or lower lows for a down trend. Here is an example of a very obvious long trend.

Keep this chart handy, we will be coming back to it.

You can clearly see a series of higher lows, so we would be looking for long positions by the third marked. So by
this point we would most certainly be looking for long positions and long positions only. You will see that the short
positions that do occur go for fewer pips than the long positions, so our risk/reward is better looking at longs and
this is a key point for our money management.

So now you know what price levels to look for based on SR (Strength Resistance) lines and how to pick which
direction you should be trading in. Now let’s find what sort of candles we are looking for to get good entry points.

The two that yield the best successes are the pinbars and engulfing patterns. Pinbar is a new term in this training, it
is a simplified (but stricter) application of the hanging man, shooting star, hammer and inverted hammer. The
engulfing candles are the same with the bearish engulfing bar (BEEB) and bullish engulfing bar (BUEB).

The pinbars are the most popular and generally work the best. The third type we can use is the Harami. It is more
unreliable than the Pinbars and Engulfing patterns so I won’t be covering it but you can look up the Day 2 notes
and get the Harami out of it.

The ideal situation for the pin bar is for it to be as big or bigger than the previous candle. I.e. if we see a long
pinbar (expecting long position) we would like it to be bigger than bearish (short) candle before it. I must admit I
don’t always follow the “as big or bigger” rule, and as long as the pin bar is of a decent enough size to show a
change in momentum I will take it. This has caused one or two losing trades, but it has also given a few extra
winning trades.

So now we have the three things to look for to confirm an entry on this system
1. Determine general market direction and look for trades that way.
2. Look for important price levels (previous support and resistance).
3. Wait for candle to form (perfectly, none of this “good enough” nonsense) on or around those price levels.

Page: 3 of 7
 Getting Started with Forex - www.forextrader.za.net

If you have ever really looked at a chart in real time, and seen a perfect candle, gone in, and the candle doesn’t
work out, then you know what I’m talking about. Make sure the candle has formed on an important price range
otherwise it’s considered no-man’s land and you may as well flip a coin. We are not aiming for 50% here like a
coin flip, we want at least 70% success ratio so stick to the rules.

So let’s say you have been sitting patiently and you have found a fantastic pin bar on the daily, it’s on an
important line and it’s in the direction we are looking for. Everything looks great, but now we need to find the best
entry from that candle.

Because we are using the daily or 4 hour charts for our candles, you will often use pending orders. Here are the
four types of pending orders

 Pending Order

Pending order is the client's commitment to the brokerage company to buy or sell a security at a pre-
defined price in the future. This type of order is used for opening of a trade position provided the future
quotes reach the pre-defined level. There are four types of pending orders available in the terminal:

1. Buy Limit — buy provided the future "ASK" price is equal to the pre-defined value. The current
price level is higher than the value of the placed order. Orders of this type are usually placed in
anticipation of that the security price, having fallen to a certain level, will increase;
2. Buy Stop — buy provided the future "ASK" price is equal to the pre-defined value. The current
price level is lower than the value of the placed order. Orders of this type are usually placed in
anticipation of that the security price, having reached a certain level, will keep on increasing;
3. Sell Limit — sell provided the future "BID" price is equal to the pre-defined value. The current price
level is lower than the value of the placed order. Orders of this type are usually placed in
anticipation of that the security price, having increased to a certain level, will fall;
4. Sell Stop — sell provided the future "BID" price is equal to the pre-defined value. The current price
level is higher than the value of the placed order. Orders of this type are usually placed in
anticipation of that the security price, having reached a certain level, will keep on falling.

This was taken directly out of MetaTrader’s help. If you ever get confused, just press F1 while in MetaTrader and
search for “pending orders” in the help.

With the Pinbar that we have seen and decided everything is lined up to trade, we want the most amount of
profit with the least risk. That should be true for every single trade you make.

On the next page you will see a diagram of a pin bar which would be ideal for a short position. Keep in mind that
we would only trade this pin bar if the longer trend was short (lower lows) and this pin bar bounces from a previous
support or resistance line.

There are three entry points. The safest is to enter the trade once the market has shorted from the closing price
and broken the nose of the pin bar.

The most common is the immediate entry where the moment the candle closes you enter a short position,

The third is in anticipation of the market rallying against the short position for a while, and waiting for the market to
go long for a bit before turning to the predicted short position. This level is often set at either 50% of the candle
length or on the 61.8% Fibonacci level.

Page: 4 of 7
 Getting Started with Forex - www.forextrader.za.net

My personal favourite is to split the trade in two sections. One pending order with a Sell Stop kicking in when the
price breaks the nose price, and the other 50% is the Sell Limit at 50% of the total candle size.

The Sell Stop at the break of the nose is the most reliable, but the draw back is you have a larger stop loss and you
miss out on a few pips. The Sell Limit gives the smallest stop loss and largest profit, but is often not triggered. If the
price goes the wrong way immediately after the close then only your sell limit kicks in and you have a small stop
loss so the loss is not too big. If the price immediately goes in to profit and keeps going then your Sell Stop kicks in.

The best scenario, is when the price goes the wrong way for a bit, kicks in your Sell Limit and then turns your way
kicking in the Sell Stop as well. Now you are in a lot of profit, full position open, and you can move your first order
(Sell Limit) deal stop loss to the nose price and shift your Sell Stop’s Stop Loss to your old Sell Limit entry. Making it
an overall riskless trade. We will work through a few examples in the course to explain it a bit better.

So how do we decide on take profits ? There are several options here again. The simplest is to set your take profit
at twice your stop loss, or twice the amount of pips in the candle you are trading from. This is the simplest, and
works well. The downside of it is that you often don’t get the whole trade, or even half of it. But leaving take profit
at a very high mark might mean your trade reverses on itself and you lose all your profit.

The next method is to look at the market and find other important price ranges where there has been previous
resistance and support, and set take profit on those lines. It’s a smarter option, but sometimes limits your trades
even more depending on the price action in that area.

Page: 5 of 7
 Getting Started with Forex - www.forextrader.za.net

I like to split my trade in to three. The moment my trade has covered the amount of pips of the candle I close 1/3 rd
of the trade and take profit. I find the next resistance level and close 1/3rd there. The final 1/3rd you can set the
stop loss at break even. And then put a trailing stop on it. The trailing stop should be the size of the candle you
used to trade or larger. So if things keep going in your direction you could hold the trade for weeks and keep
profiting the entire way.

That’s the first half of the system done, now for the addition of patterns to grab some more trades. These are
actually two separate systems that can be traded on their own. I combine them because they work in the same
time frames, don’t use indicators and they are both dealing with actual price changes.

Here’s a repeat of one of the earlier charts, with the addition of a rising trendline.

Have a look at the two highs I circled in green, and see what that could signify to us.

The second green circle is a confirmed high, but it’s lower than the previous high. So it’s a lower high, meaning
that we can expect the market to start going short. So at that point we might want to wait for a lower low to
confirm, or we can put our faith in the lower high and start looking for short positions.

With the previous part of the system we were looking purely at horizontal price levels. Now we are opening up
diagonal trends as well. It’s a lot simpler than people expect. All we are looking for are clear lines where the
market has turned. The above is an almost perfect example. You can see three consecutive points that if we
draw a line in, the market turned sharply.

I find that the sharper the turn, the stronger the trend line. Now when the market comes to that price again two
things can happen. It can bounce again, or it can break through. That’s true for all market conditions, but more
so with trend lines. We can take the bounce as an entry point, or if it breaks the trend line we can enter there as
well. It’s best to give it a full 10 to 15 pips before entry. You can enter during a candle without it needing to close
since this system does not rely on candles.

These trend lines can be found on highs or lows. Sometimes both, and then we start seeing patterns. Here are two
examples of potential trade opportunities.

Page: 6 of 7
 Getting Started with Forex - www.forextrader.za.net

This is my personal favourite of the patterns. If you come across a trend on the lows and highs that will lead to an
eventual crossover, we call this a wedge. In this case, it is a falling wedge because it is pointing down. As you can
see, the market is getting squeezed and at some point it is going to break out and we would jump on that.
Because the market is already so squeezed, we would not enter a trade that bounces off the trend line.

When the trend line on the highs runs parallel to the trend line on the lows, we call this a channel. In this case it is a
falling channel because it is trending down. Once a channel has been confirmed we can trade inside the
channel or wait for a breakout. It’s best to trade in the direction of the channel, so in the above chart we would
be trading short positions only. That way we have a higher chance of a bigger trade.

If the wedge or channel is moving long, they would be called a rising wedge or rising channel. If you come across
a rising trend line on the lows, and a falling trend line on the highs, this is what we call a triangle.

Closing Statement
Trading foreign currencies carries a large risk, leveraged positions can work against you as easily as for you. We do
not allow live trading during the training course and will only assist with demo accounts. The decision to trade with
real money is yours and yours alone. However, we cannot ethically suggest or recommend live trading until you
have a good understanding of all the risks involved. It is possible to lose your entire investment so never invest
more money than you can afford to lose.

Page: 7 of 7