Tf20manual

TREND FOREX 2.0 TRADING SYSTEM | 2

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VERY IMPORTANT – DO THIS FIRST
I’ve included ALL the indicators and template used in the Trend Forex 2.0
system. If you followed the download instructions in the members’ area
correctly you should have downloaded the INSTALLER that will quickly
install these indicators and template onto your MetaTrader4 platform.

First, if you haven’t got MetaTrader4 on your computer, you have to install
Meta Trader 4 first. The following step will guide you through the
installation steps.

INSTALL METATRADER4

My favorite forex broker that uses MetaTrader4 is LBSFX.

They offer micro lots which are great for very small accounts and if you
open a live account they will give you a bonus of up to $1000.

Go here to register and download MT4:

http://www.lbsfx.com/tradingbonus/

Once you're there, you can sign up for a live or demo account. After

you sign up, you'll be taken to a download page where you can download

MetaTrader4.

Once the installer file has been downloaded, double click on it.

A menu will appear for you to select your desired language.


Follow the instruction on the screen to complete the set up


Once you are done, click on the check box to launch Meta Trader 4.

Set up a demo account

You will be asked for opening an account when running Meta Trader for the
first time.


Fill up all the necessary information to open a new account and Click Next
to continue


Choose your trading server and click next


Click finish button to complete your account registration process.


INSTALL TREND FOREX 2.0 SYSTEM

Once you have got Metatrader 4 installed successfully on your computer it
is time to install the special indicators for Trend Forex 2.0 trading system.

This is a simple process just make sure you follow the instructions step-by-
step. You can also follow the video located on the member’s area if you
wish.

Now, you can start to install and use The Trend Forex 2.0 system

To install it, just follow the following procedure

1. You need to close the Meta Trader if you are running it
2. Go to the place on your computer where you save the file

trendsystem20.exe, double click on it to run the installer.
3. The installer wizard will start and you have to follow the
screen instruction to complete the setup process. The
setup process includes the following steps


Step 1

You just have to click Next to continue to next step


Step 2

Choose “I agree….” and click Next to continue


Step 3

Choose the root folder of your Meta Trader and click Next


Step 4


Step 5

Congratulations. You’ve completed the installation process. All the
indicators and template are already installed in your MT4 platform.


Load The Trend Forex 2.0 System
To load the Trend Forex 2.0 System onto your chart simply right click on the
chart and select ‘Templates’ from the menu, you will see a template called
“Profitabletrend”, select it.


Your chart should now change and look like the one below:


Introduction – Welcome to PTFS

Welcome to the Profitable Trend Forex System (further referred to as PTFS
throughout the rest of this book). Let me be the first to congratulate you on
your choice to work towards a future with Forex.

With PTFS on your side you have the tools you need to earn Forex profits
consistently and leave that dreaded day job behind. Before we get you
there though, we’ve got some work to do (or you’ve got some learning to
do – however you want to put it).

Throughout this manual we will give you all of the tools you need to get
started with your Forex profits. We’ve tried to write this manual so that it
will work for both new and experienced traders. From that, we will walk
you through the knowledge you need to start, and then move into the PTFS
system; the trading system that will ensure you stay profitable for years to
come.

In the first three chapter we will cover some of the basic knowledge you
need. The chapters are title “Precursors to Trading” and they’re named that
way because all of it is information you need to know and understand
before you trade using PTFS (or any trading system for that matter).

For many newcomers to Forex their first instinct is just to get trading. The
urge is there to start so that those profits start rolling in. Here’s the big
secret though: without a good knowledge of the basics, you won’t succeed
even with the best trading system.

Yes your PTFS package includes a complete indicator set and a well laid out
system of rules to ensure you earn profits. But, if you don’t know the basics
of Forex, of Money Management, and even of the indicators themselves
you will find it much more difficult to maintain larger profits. For that


reason we highly recommend that if you don’t have years of experience
with Forex trading that you take the time to learn the information we lay
out for you in the first few chapters – before you ever make a live trade.

If you do want to do some trading as you learn: Download a copy of
Metatrader (download from your favorite broker), use the installer that
came with the system to ensure you have the right indicators and then
watch the videos that came with your package.

This will allow you to familiarize yourself with PTFS while learning some of
the basics. And, it will get you familiar with the trading rules before you
ever put your own money on the line.

Even if you’re an experienced trader, we suggest reviewing the material
that is laid out for you in the first few chapters. Not only will this be an
excellent refresher for you, but it will also help you to get familiar with the
indicators used in PTFS. .

Really, some of the most profitable traders out there started with simple
practice accounts and they used those free accounts for months before
even putting a dollar of their own money on the line. Working this way will
help to ensure you aren’t sweating bullets when you make your first live
trade, and that you don’t end up making bad trading decisions because of
it.

However you choose to learn, one thing is quite certain. If you follow the
guide we have laid out for you, and learn to use PTFS the way it was
intended to be used, you could make a fortune with Forex.

We’ve given you all of the tools you need right from start to finish. All that’s
left is for you to learn, and then to start trading. With that said, let’s get
started!


Wishing you Profits Galore,

John Chen & Associates


Precursors to Trading Part 1 - It all Starts with the
Basics

To begin our journey into the world of Forex profits we need to start
somewhere. In this case, we just need to start with the basics. In this
chapter we will cover some of the need-to-know topics that will ensure you
get the right start with Forex.

Even for the experienced traders who use this manual, it is suggested that
you at least review the material in this chapter. The money-management
section especially is important to staying profitable with any trading
system.

One note before we move one: Forex is a very large and complex topic. If
you’re brand new to trading and don’t yet know what a PIP is, what a long
trade or a short trade is, or how to trade in general – I’ve included some
links in the conclusion section of this chapter to help you out.

Having a clear understanding of the basics will help you to ensure you get
off to the right start, and also that you understand the material we will
cover over the next few chapters.


Some Basic Rules for Trading

Okay so you’re ready to start trading. Maybe you’ve heard from a friend
about the money they made in Forex, or possibly you read a news article
that touted the benefits of trading. However you decided to get into Forex
there are a few things we need to cover before you start trading.

Since you’re reading a book on trading systems, I’ll assume that you at least
know what a pip is, what it means to go long, and what it means to enter a
short trade. Even with your prior knowledge though, we need to cover
some more of the basics. Mostly we need to talk about how to calculate
profits, how to calculate per-pip values, and we need to discuss a little
about the right way to get started.

To begin let’s just talk about a five rules that you should keep in mind as
you make your way into putting real money on the line in the world of
Forex.

Rule #1 – Don’t Trade with Money you can’t afford to Lose

The first rule of trading with real money is simply don’t trade with money
that you can’t afford to lose. It isn’t that you should expect to lose money,
but there are some real problems with using money that you can’t afford to
lose.

Consider for a moment:

If you begin trading with $5,000 that you saved for the purpose of trading
alone, then you can trade without a lot of stress. Sure, five grand may be a
lot of money to you at the moment, but because you set it aside for the


purposes of trading with it you aren’t under an extreme amount of
pressure to profit from your trades.

On the other hand, if you mortgaged your house, quit your job, and now
have everything on the line (yes there are those who have done this) with
Forex you suddenly have a huge amount of pressure to succeed. Without
profiting from your trades your second mortgage won’t get paid and your
family won’t eat.

With huge amount of pressure comes poor trading decisions and
emotionally charged trading. This is really a sure-fire way to fail at trading.
You haven’t allowed yourself any room to learn and grow as a trader and
you will have trouble making informed trading decisions when your next
meal rides on earning money right now (emotional trading is very bad).

I won’t set guidelines to how much you should start with when you do
begin live trading. What I will say is that you should start with money that
won’t hurt your finances if you lose it.

Rule #2 – Get Confident with Your Trading System before You Trade

The next rule of active trading with a live account is that you should
become comfortable with any trading system before using it.

Yes, we have tested our trading system extensively and we do profit from it
every month. In fact we know this system so well, all it really takes is a
glance at a chart and we know how we’re going to enter the trade. On the
other hand, you don’t have that experience with the system yet.

Work to learn PTFS well before you start putting your own money on the
line. This will help you to ensure that you follow entry and exit rules
properly and in turn profit consistently.


There are two simple ways to get familiar with the system. Trade it on a
practice account for a while. Or, print out some charts (with the
appropriate indicators) and back test everything manually. Use historical
trade data to learn when you should have entered, when you would have
exited, and how much you would have made on each trade.

Rule #3 – Don’t Stop Learning

The next rule I want to share with you is simply that you should never stop
learning Forex. If you really want to make it a career, or even if you’re just
using it as an investment vehicle, the more you know the more informed
you will be when you trade.

By the end of this book you will have a complete trading system, a sound
money management system, and you will have the tools you need to trade
profitably.

Does that make you a Forex master?

The short answer is no. And the simple truth is that the more you know, the
more you will earn. Spend a little time each day reading about Forex. Read
Forex news, read about the latest idea and newest indicators. Learn all that
you can about your new trade. Doing so will ensure you constantly grow as
a trader (and your profits as well).

Rule #4 – Use sound Money Management

The next rule may be the most important idea that you ever learn when it
comes to trading. When you trade Forex, money management matters. In
fact it matters so much that we devoted an entire chapter of this manual to
it (others have devoted entire books to the topic).


Before you are finished this manual, you will have a sound money
management plan. Using it, and never deviating from the rules, will ensure
that you never risk more than you need to. With your risk level always kept
to an allowable level you will ensure that when a losing streak comes (and
it will at times) you don’t drawdown your account to the point where you
can’t recover.

If you looked closely at 100 failed traders, I can almost guarantee that 95 of
those 1000 failed because they didn’t manage their money correctly.

Again – money management matters – learn it, use it, and never allow
yourself to deviate from the rules you setup. This rule is key if you want to
profit from Forex.

Rule #5 – Trust Your Trading Systems – Emotional Traders need not Apply

The final rule sort of builds off the others that we’ve shared so far. It’s
simply that you should trust your trading systems. By the time you are
finished this book, you will have a profitable system to trade with, you’ll
have rules for sound money management, and if your followed rule #2 you
took some time to get confident with those systems.

Now – trust them – keep your emotions out of the trade. You will have
winning streaks and losing streaks. The key to staying consistently
profitable is to trust those system and don’t sweat it if you lose two trades
in a row.

Yes, when it happens it sucks. But I guarantee if you get upset about it and
decide to take revenge on the market by entering stupid trades to try and
earn back the money you lost on that three-loss streak – you will lose
more!


Trading Forex – Some Basics

With some basic rules out of the way let’s just cover a few calculations that
you will need as we move forward. First we need to know how to calculate
a per-pip value. That is, the amount that one pip of any currency pair is
worth.

The formula is actually quite simple, it looks like this:

(1 pip with proper decimal placement/exchange rate) * lot size = pip value

To use it in an example, assume for a moment that the USD/JPY is currently
quoted at 124.56.

(0.1 / 124.56) * 100,000 = $8.03 USD per pip.

If you were trading mini lots instead of full lots, it would look like this:

(0.1 / 124.56) * 10,000 = $0.803 USD per pip.

It should be noted here that this formula is only required when the USD is
on the left side of the currency paid (USD/JPY, USD/CHF, USD/CAD, etc).
When the USD is quoted on the right side the number always works out to
$1 per pip for mini-lots and $10 per pip for full lots.

Let’s demonstrate this with another example. If the EUR/USD was currently
trading at 1.1563, then using our formula we get:

(0.0001 / 1.1563) * 100,000 = $8.64827 (we aren’t finished yet so we don’t
round to the nearest cent yet).

In this case though we have calculated the per-pip value in EUR. To get back
to USD we need to multiply by the exchange rate.

8.64827 * 1.1563 = $10 per pip.


You’ll find this to be the same with any currency pair that quotes the USD
on the right side of the pair.

This calculation can be used whenever you need to calculate profits/losses,
and it should be used in your back testing. It can also be used to calculate
stops with other trading systems (PTFS will determine the stop for you). For
our purposes we will use it to calculate risk, and then adjust our trade sizes
if need be.

Another area that needs some discussion before we move on to money
management is leverage. Remember our rule #1 – don’t trade with money
you can’t afford to lose? With increasing leverages some traders take this
rule to mean start with just a few hundred dollars and use higher leverages.

Just because you can only afford to lose $200 right now, doesn’t mean that
you should open a 500:1 leveraged account and start trading today. You’ll
be much better off starting with a higher initial balance and using 100:1 or
at the most 200:1 leverage. The idea of leveraging can work against you just
as it works for you.

In case you don’t understand the concept here let’s just discuss it for a
moment. Currency is traded in lot sizes of 100,000 units of a currency pair,
or in mini-lot sizes of 10,000 units of a currency pair.

If you were trading with 1:1 leverage that would mean you need to put the
full dollar amount on the line. With $10,000 on the line for a mini lot and
each pip being worth only $1, you would need to make 100 pips profit for
only a 1% return on your account. If that were the norm in the world of
Forex it likely wouldn’t be so attractive to so many people.

What makes Forex so attractive is leverage. Instead of having to put
$10,000 on the line to trade $10,000 of currency you only have to put a
small portion of that money at risk.


With 100:1 leverage you would need 1% of 100,000, or $1000 on the line to
trade a full lot of currency.

If you were using 200:1 leverage you would only need 0.5% of the $100,000
($500) to trade a full lot.

Now we’re talking profits. With the 200:1 leverage, if I made a trade with 1
mini lot of currency, I only have to risk $50 to trade $10,000. If that trade
moved in my favor by 100 pips, I earn $100. Since I only put $50 up in the
first place, that’s a 100% return on my investment.

The problem is that most new traders forget to look at the opposite end of
the spectrum. If that same trade went against me I also lose $100. That’s a
200% loss!

Where things get really scary is when new traders come into the world of
Forex and decide to open an account with $200 and 500:1 leverage. The
numbers can be attractive. You only need to risk 1/500 = 0.002% to make a
trade. Suddenly with your 500:1 leverage you have the power to move 2
full lots of currency. That is, you can trade $200,000 with only $200 on the
line.

The problem is that if that trade moved only 10 pips against you, your
entire trading account would be erased. Using large leverages is a sure way
to become discouraged before you ever really give Forex a chance.
Anything more than 200:1 is risking too much. I personally don’t trade with
more than 100:1 leverage.

Limiting risk is important, and it will be the topic of the entire next chapter.


Precursors to Trading Part 2 - Talk about Money
Management

One area that needs some attention before we begin trading is money
management. We won’t spend a lot of time here. Rather we just want to
cover some of the basics and give you a real system you can use to ensure
you are always working to limit your risk and maximize your profits.

With many trading systems your money management system would define
your stops, your take profits, and even your trade sizes. With PTFS the
system itself defines most of that for you; so all we really need to cover
here is managing risk and calculating risk based on the stop you will set.

Money Management in a Nutshell

To begin with, let’s just talk about why money management is so
important. This is really a lesson in drawdowns, but it should add clarity to
why managing risk matters.

Let’s assume for a moment that you have a live trading account. To start
out you have a $10,000 account, and your account leverage is 100:1. With
that amount of money you have the power to trade ten full lots of currency
(or in other words $1,000,000)

Now let’s say you make a trade. We don’t really have any money
management rules at this point so we just decide to trade off of our gut.
Your trading system is giving a buy signal and you know this one is going to
be a money maker. So you enter with 2 full lots of currency (to keep things
simple we’ll trade EUR/USD so that each pip is worth $10 x 2 lots).

Let’s look at this situation for a moment:


• You have $10,000 to use.

• With one trade you’ve just risked 20% of your capital.

Now assume you were wrong and the trade went against you. With one
trade you lose 50 pips.

Here’s where we are at:

50 pips x $10 per pip x 2 lots = $1,000 you’ve just lost in one trade.

In other words you risked 20% of your account and ended up losing 10% of
the money you had in the account in the first place. No big deal right, 10%
is simple enough to make back.

The problem is that you don’t need to earn just 10%. You now only have
$9,000 to work with so to get back just the $1,000 you lost you need to
make back $1000/$9000 = 0.1111 or 11.1%.

We’re just beginning though. Assume you made the same trade again, and
again you lost $1,000 again. In fact to prove a point let’s just assume we
lost 6 trades in a row. If we risked $2000 each time and lost $1000, the
numbers begin to look like this:

Drawdown Account Balance Percentage Needed to
Recover
10% 9,000 11.1%
20% 8,000 25%
30% 7,000 42.8%
40% 6,000 66.6%
50% 5,000 100%
60% 4,000 150%

In just six trades you’ve lost 60% of your account and to gain back what you
lost you have to earn 150% of the money you now have available. The


likelihood of you earning 150% on anything in a short period of time is
almost nil.

To avoid huge draw downs like this, proper money management is a must.
In this case we are just going to define a % and use that number to
calculate our maximum risk with any give trade.

Defining Your % R

Okay so we know money management is important. How then should we
manage our money consistently? The answer is quite simple we just set a
percentage, and then use that percentage as our maximum risk.

For most traders a good number to start with is 2%. This number will be
called your %R and is the amount you are allowed to risk on any given
trade.

If you had $10,000 in your Forex account, then using your 2%, you could
risk $200 on any given trade. With a $100,000 account balance you could
risk $2,000. By using a consistent %R you always risk the same amount, and
in turn limit your risk to an amount that won’t greatly affect your account
with a single trade.

With a 2% risk level you could lose 50 times in a row before erasing your
account. Even if you traded on a whim, it would be difficult to make that
many losing trades in a row.

We set the number as a percentage so that your risk level is always relative
to your account balance. If your $100,000 account grew to $125,000, your
risk level also grows from $2000 to $2500. On the other side if you lost 10%
of your account your risk level goes down to $1800 (2% of $90,000).

Along with your %R you should also define a maximum risk for your whole
account. Your %R tells you how much you can risk on a single trade, while


your maximum risk defines the total amount you’re willing to risk at any
given time. For most traders a good number to start with is 10%.

If you are an advanced trader you may be comfortable with higher numbers
like 3-4% for your %R and 20-25% for your maximum risk. For the newer
traders though it is suggested that you stick to 2% and 10% respectively.

Throughout the rest of this manual we will be using those smaller numbers
as the suggested risk levels for PTFS.

Trade Size and % R

With some trading systems you would use your %R to define your stop.
With PTFS, since we are trading the trends, those trends determine our
stop levels. So in this case we vary our trade size according to our maximum
risk if needed.

The system itself suggests 3 lot trades (we’ll get to that), but the system
works with variable position sizing so if 3 lots, or 3 mini lots, puts you over
your maximum %R you should change the size of your trade and not the
stop.

Calculating a position size with a % R isn’t difficult. To walk you through it
let’s use an example.

If your trading account had a $100,000 balance, then your maximum
allowable risk is $100,000 * 0.02 = $2000.

Now assume that the PTFS has given you a buy signal on the EUR/USD pair,
and that according to our trading rules your stop level should be set at 55
pips.

We know that each pip with the EUR/USD pair is worth $10, so with each
lot traded you are risking $10 x 50 pip stop = $550.


Since our allowable risk is $2000, we could trade $2000/550 = 3.63 lots of
currency. In this case we round down and trade 3 lots. If your broker allows
you to trade both full lots and mini lots you would trade 3.6 lots (3 full lots
and 6 minis).

Working this way we always stay within our maximum allowable risk. You
should calculate your trade sizes according to your %R and your stop to
ensure that you never go over that magic number of 2%. By doing so, you
will be using sound money management and you won’t risk losing more
than you need to when a trade goes against you.


Precursors to Trading Part 3 – A Few Words about
Scaling

I know you’re waiting to get to the trading system, but we aren’t quite
finished yet. In the last chapter we gave you some simple money
management rules to manage your risk. Now it’s time to take it a little
further and talk about scaling to both minimize losses and maximize on
your winning trades.

The term scaling itself refers to buying or selling with multiple entry points
and exit points. The PTFS system uses scaling so a clear understanding of
this concept is important. It’s important to understand and properly use
Scaling In and Scaling out. These two elements will help you to ensure
maximum profits and at the same time minimize those losing streaks so
let’s cover both.

Scaling In Defined

When starting out most traders’ trade single lot-sizes; that is, if they decide
they are going to trade 3 lots of currency, then they enter the trade with all
three lots and set one stop and one take profit level. If you were using
scaling in on the other hand you wouldn’t enter all three lots when you
started.

Instead you have your first entry point (to be defined by our system), and
with that first entry point you enter 1 lot of currency.

If that trade moves in your favor then you enter another lot into the trade.
If the trade continues to move in your favor then you would enter a third,
etc.


As you enter more lots, you might move your stop loss to limit your risks.
Used correctly this concept allows you to greatly minimize your losses.

Let’s clarify this by looking at what happens with a losing trade:

A currency pair is trending upwards, and you receive a buy signal from your
trading system. Your expectation is that the trend will continue so you
enter your 3 lot trade, you set your 40 pip stop and go long. In this case
though the trade turns against you and you stop out. You’ve just lost 40
pips x 3 lots traded (assuming that you traded full lots that’s $1200).

On the other hand if you were using a trading system that made use of
scaling in then you only would have entered one lot. When the trade went
against you, it still stops out, but in this case you only lose 40 pips x 1, or
$400.

Now let’s look at what happens when we enter a winning trade:

In the case of a winning trade, using scaling in, your initial trade comes with
your first entry signal. At this point you would enter with 1 lot of currency.
When the trade moves in your favor and you receive your next entry signal
you enter again with another lot (or 2 or 3 depending on the system you’re
trading). You now have a 1 lot trade that is profitable, and a second lot
that’s just starting out.

If the trade continues on in your favor you now have two winning trades. If
the second trade moves against you, you still have your first trade that is
profitable, so if both trades exit when you hit the stop on the second trade
and you end up with a small profit or breaking even.

This idea is a very simple way to greatly increase the risk to reward ratio
with trading.


Scaling Out Defined

The next area we need to talk about is scaling out. The idea here is the
same, but it is the opposite of scaling in. Instead of using multiple entry
points, with scaling in you use multiple exit points.

To clarify, let’s just look at one quick example:

Assume for a second that you have a 3 lot trade on the EUR/USD. The trade
has moved greatly in your favor and your trading system is giving an exit
signal. With scaling out, you wouldn’t exit the whole trade. Instead you
would exit with one lot and hold the other two until you receive your next
exit signal (or until the trade stopped out).

Assuming that the trade continued in your favor, with your next exit signal
you also close one lot. If it continues on, you would close the third trade on
the third exit signal.

Used correctly this strategy protects your profits and lets your profits run,
and again reduces the risks involved with the trade.

Think about it for a moment, if we exited the entire trade with our first exit
signal we exit and take a profit. By scaling out though, we maximize on our
profits by allowing the trade to continue on. With our other two lots we
move the stop to ensure that we keep our profits, but by allowing the trade
to continue on we just took extra pips on 2 lots of currency. While we did
that we kept our profit levels protected by exiting with 1 lot (the money’s
already in your account) and by moving our stop at the same time.

Using Scaling with your Trades

When you used the PTFS system to trade you will be using scaling. This will
help you to ensure that you maximize your gains, and reduce your risks
with every trade.


This will all become clear as we move into the trading system itself, but we
need to talk about some indicators first.


Precursors to Trading Part 4 - Indicators Used in the
Profitable Trend System

When it comes to trading any type of market, Forex included, someone
discovered something a long time ago. With stocks, futures, currencies, and
other trading vehicles the market prices always tend to move in waves.

That is, they will trend one way for a time and then fall back a little. If the
trend is strong they prices will usually turn back around and continue on
their original journey.

Because of this simple fact, one of the best ways to trade anything is by
taking advantage of Trends. This is the basis for the PTFS system, and it has
kept our Forex trading accounts extremely profitable for years.

Of course it isn’t as simple as looking at a chart and saying “yep, it’s moving
up, let’s buy”. Trading in that way likely wouldn’t be profitable as it doesn’t
account waves, trend momentum, market conditions, or other elements
that affect the price. To help our decision-making process, we use
indicators to suggest when we should buy and when we should exit.

The PTFS system uses four indicators to give you your entry and exit signals,
and we are going to cover those briefly here. Since you will be using these
indicators regularly it’s important to (at the very least) have a basic
understanding of what drives those indicators.

For our purposes here I’m not going to bore you with mathematical
calculations or tell you exactly how each indicator works (the charts do it all
for you). Instead I want you to have an idea of what each indicator does
and what it will be useful for with your trading.


Guppy Multiple Moving Average

The first indicator we need to cover is called the Guppy Multiple Moving
Average or GMMA. The GMMA is a trend indicator that was developed by
Daryl Guppy.

The indicator uses a group of moving averages to determine the general
behavior of traders in the market. Put simply, it gives you a simple way to
determine the degree and extent of trading activity with any currency pair.

With the GMMA on your side you have a simple way to gauge market
activity and avoid trading when the trend is about to break or when the
market is moving sideways.

Exponential Moving Average

A moving average is a simple indicator that shows the average of prices
over any given time frame. In the PTFS system we will make use of the
EMA, or exponential moving average.


Unlike a simple moving average this indicator gives more weight to the
most current market changes. These types of moving average react quick to
recent market changes and can be a good indicator to show what’s
happening with the prices and the trends.

In our system we will be using the EMA 20-period (EMA20) and the EMA
30-period (EMA30)

It should also be noted that the EMA is the basis for some other trading
indicators (such as the MACD which we will cover shortly).

Hull Moving Average

Developed by Alan Hull, the Hull Moving average (or HMA) is another
average-based indicator, however it is different than an SMA or EMA in one
important way. With other average indicators there is always a lag in the
change. Since they are based on a set period in time in history, current
changes don’t immediately affect the indicator.


The HMA is a much smoother and faster moving average that reacts to
market changes quickly. It is an excellent indicator to show you how the
current market changes are affecting things right now.

In the PTFS system we will be using the HMA 5-period (HMA5) and the
HMA 12-period (HMA12)

Moving Average Convergence Divergence (MACD)

The last indicator we want to cover is the MACD (Moving Average
Convergence Divergence). This indicator was developed by George Appel in
the 1960’s and it is used to determine the difference between a fast moving
EMA and a slow moving EMA. The indicator also used a signal line.


The MACD is very much a trend indicator and it is useful for showing what
is happening with the trends. There are actually different ways to use this
one when you trade, but for our purposes we will be using a MACD
(30,60,30) – we call it long MACD and MACD (3,10,16) as a momentum
indicator - we call it short MACD.


Profitable Trend Forex System Explained

So finally we get to the trading system itself. I know this is the part you’ve
been waiting for so let’s just dive right in.

Before you move on to the system be sure that you have followed the
videos that came with PTFS and that you have Metatrader and the indicator
system installed. This will make it much simpler for you to follow along.

Components of the System Revisited

From the last chapter, these are the indicators we will be using when we
trade.

• Guppy Multiple Moving Average (GMMA) Slow Group (orange color
in my illustrated charts)

• Exponential Moving Average (EMA): EMA 20 (magenta) and EMA 30
(magenta)

• Hull Moving Average (HMA): HMA 5 (blue when pointing up, pink
when pointing down) and HMA 12 (green when pointing up, purple
when pointing down)

• Moving Average Convergence Divergence (MACD): MACD (30,60,30)
– we call it long MACD

On the chart they look like this:


With this system you should always be trading daily, 4 -our or 1-hour
charts. The nature of forex is that it has a lot of noise especially in lower
timeframes. As such, it’s difficult to trade off any timeframes less than 15
minutes. I recommend using the Profitable Trend Forex System on 1-hour,
4-hour, and Daily timeframes.

If you use this system to trade indices such as S&P, you may use shorter
timeframes: 5-minute, 15-minute.Step 1 - Trend Determination

The first thing we need to do when trading PTFS is determine the trends.
We have some simple rules to determine both uptrends and downtrends.

Let’s cover those first.


Step 1 – TREND DETERMINATION

Uptrend

The trend is regarded as up when long MACD has crossed up and both EMA
20 and EMA 30 are pointing upward and the spread between EMA 20 and
EMA 30 is considerably large (the two EMAs are well separated from each
other).

Downtrend

The trend is regarded as down when long MACD has crossed down and
both EMA 20 and EMA 30 are pointing downward and the spread between
EMA 20 and EMA 30 is considerably large (the two EMAs are well separated
from each other).

For clarity let’s look at some charts.

Uptrend Example

In the one hour GBP/USD chart below the long MacD has crossed up and
the EMA 20 and EMA 30 are both pointing upwards. There is also a
separated between the two lines for the EMA’s, so this indicates an
uptrend.


Downtrend Example

In the one hour GBP/USD chart below the long MACD has just crossed
down and the EMA 20 and 30 are both pointing downwards. Again there is
separation between the EMA’s so this is a clear indicator of a downtrend.


Clarification
Why is it required that EMA 20 and EMA 30 are well separated from each
other? Because, if they are close together, the market is probably choppy
and therefore whipsaws are more likely to occur.


Step 2 – LOOK FOR ENTRY SIGNALS

With PTFS we have two types of entry signals, namely Level 1 (L1) signal
and Level 2 (L2) signal. They are described as follows:

L1 signal

Buy (Go Long):

When price is trending up (as defined by our above criteria), we look for a
small stall or retracement, and then enter when the trend resumes. Price
retraces and makes HMA 5 changes its direction from up to down.

We enter when HMA 5 changes its direction from down to up. It signals
that the price has resumed its established trend.

During the entire retracement, however, HMA 12 direction is still up (i.e.
price only retraces a little bit, not enough for HMA 12 slope to change). This
is what distinguishes L1 signal from L2 signal.

For clarity let’s look at a chart.

Looking at the 1 hour GPB/USD chart on the next page.

1. The trend is upward determined by our first step.

2. The HMA 5 turned from Up to Down

3. The HMA 5 turned Upwards again (to go back with the trend)

4. During the retracement of the HM5 the HMA 12 continued to point
up.


This gives us a clear L1 signal and we buy.

Sell (Go Short):

When price is trending down (as defined by our above criteria), we look for
a small stall or retracement, and then enter when the trend resumes. Price
retraces and makes HMA 5 changes its direction from down to up.

We enter when HMA 5 changes its direction from up to down again. It
signals that the price has resumed its established trend.

During the entire retracement, however, HMA 12 direction is still down (i.e.
price only retraces a little bit, not enough for HMA 12 slope to change). This
is what distinguishes L1 signal from L2 signal.


Let’s look at a chart again. On the 1 Hour USD/CHF chart on the next page
we see that:

• The currency is in a downtrend according to our first step

• The HMA 5 has turned from down to up.

• After retracing up for a time the HMA 5 turned down again and
continued to follow the trend.

• During that retracement the HMA12 continued downward.


L2 signal

Buy (Go Long):

When price is trending up (as defined by our above criteria), we look for a
larger retracement than in L1 signal, and then enter when the trend
resumes. Price retraces and makes both HMA 5 and HMA 12 changes their
direction from up to down.

We enter when both HMA 5 and HMA 12 changes their direction from
down to up. It signals that the price has resumed its established trend.

To clarify, let’s look at a chart. In the 1 Hour GBP/USD chart below, we see
that:

• The currency is currently in an uptrend determined by step 1

• The HMA5 AND the HMA 12 both turned from up to down.

• After retracing for a time both the HMA 5 and the HMA 12 then
turned upwards again to follow the trend.

This is a clear L2 buy signal.


Sell (Go Short):

When price is trending down (as defined by our above criteria), we look for
a larger retracement than in L1 signal, and then enter when the trend
resumes. Price retraces and makes both HMA 5 and HMA 12 changes their
direction from down to up.

We enter when both HMA 5 and HMA 12 changes their direction from up
to down. It signals that the price has resumed its established trend.


Putting it on a chart – in the USD/CHF chart below:

• The currency is currently in a downtrend determined by step 1

• The HMA 5 and the HMA 12 turned from down to up

• The HMA 5 and the HMA 12 both turned again to follow the trend

This is a clear L2 sell signal.


Step 3 – Trade (Exit Signals and Stop Loss
Placement)

With each signal, we enter with three (3) lots.

Stop loss is placed at the last swing high/low.

If the trade goes in our favor, we exit 1 lot at the same distance as the stop
loss. Let’s call this our first target.

For example, if our stop loss is place at -40 pips from the entry price, we
exit the first lot when we have +40 pips (excluding spread) in profit.

As soon as we take the first lot out, we move our stop loss to break-even
for the remaining two lots.

The second lot is taken out when HMA 5 changes its direction against us
(that means in an uptrend we exit the second lot when HMA 5 turns down).

The third lot is taken out when HMA 12 changes its direction against us
(that means in an uptrend we exit the third lot when HMA 12 turns down).

If the trade does not go in our favor, what should we do?

There’s 2 options:

1. We exit all three lots when HMA 12 changes its direction against us
(that means in an uptrend we exit all three lots when HMA 12 turns
down… the opposite applies in a downtrend) or when our stop loss is
hit.


2. We just sit back and let the trade unfold. Don’t touch the trade until
our first target (the same pip value from our entry as our stop loss) is
hit or we’re stopped out.

For clarity let’s look at the above chart. This is a one-hour USD/CHF chart.
Looking at it we see:

• From step 1 we are in a downtrend.

• From step 2 we have just received an L2 sell signal.

• We enter with three lots and set out stop to the level of the
retracement that occurred when the currency retraced (about 30
pips back with this trade).

• The trade moves in our favor 30 pips, or the same amount as our
original stop.


• We exit 1 lot of the currency pair and move our stop/loss level to the
breakeven point.

• The trade continues in our favor, but eventually another retracement
begins and the HMA 5 changes direction to point up.

• We exit the second lot.

• In this case the trade no longer continued in our favor and the HMA
12 changed direction.

• We exit the third lot and end with three profitable trades.


Trade Filter

There are a couple of conditions that we call a filter in which we do not
make the trades. We do not take trades when price has retraced too much
and when the trend has lost its momentum. When one of the following
conditions takes place, we do not put on any trade until a new trend has
established:

• Price closes below GMMA in an uptrend or closes above GMMA in a
downtrend.

• Long MACD crosses down in an uptrend or crosses up in a
downtrend.


For example, let’s look at the chart above, from March 18  March 26,
we’re obviously in a downtrend. However, after that, price retraces so
much that it closes above GMMA. Also, during this time, MACD crosses up.

Because these conditions occur, we do not take any short trades until a
new obvious trend establishes.


More examples

Let’s just cover some example trades to add clarity to everything we’ve said
thus far.

Example 1:

L1 Signal Examples

Step 1 Trend Determination: The first thing we need to identify is the
current trend. Long MACD crossed up, EMA 20 and EMA 30 are pointing
upward and the spread between EMA 20 and EMA 30 is considerably large
--- signifying an uptrend. From there we move on to step two to look for
the entry signals.


We look for a small retracement of price. In the above picture, price
retraced a little bit (two red candles highlighted by the blue bar on the
right), making HMA5 turn down.


The next bar, price resumed its upward direction, making HMA5 turn up
again. We had a L1 long signal and entered with three lots.


First lot was taken out when price moved the same distance as stop loss.
Second lot was exited when HMA5 turned down (indicated by the blue
rectangle).


Final lot was taken out as HMA12 turned down.


Example 2:

The first thing we need to identify is the current trend. Long MACD is up,
EMA 20 and EMA 30 are pointing upward and the spread between EMA 20
and EMA 30 is considerably large --- signifying an uptrend. From there we
move on to step two to look for the entry signals.

HMA5 turned down and then up again… So, we’ve got a L1 signal – we
enter the trade.


Here’s where our entry, stop loss, and first target are:

As we see on the picture above, the next bar right after our entry, we hit
the first target. Thus, we exit 1 lot for 199 pips, and move stop loss to break
even for the remaining 2 lots.

Let’s look at what happens next?


When HMA5 turned down, we exit the 2nd lot for 205 pips.

Two bars later, HMA12 turned down, we exit the 3rd lot for 112 pips.


Example 3:

The first thing we need to identify is the current trend. Long MACD is up,
EMA 20 and EMA 30 are pointing upward and the spread between EMA 20
and EMA 30 is considerably large --- signifying an uptrend. From there we
move on to step two to look for the entry signals.

HMA5 turned down and then up again… So, we’ve got a L1 signal – we
enter the trade.


Here’s where our entry, stop loss, and first target are:

As we see on the picture above, a few bars after our entry, we hit the first
target. Thus, we exit 1 lot for 158 pips, and move stop loss to break even
for the remaining 2 lots.

Let’s look at what happens next…


When HMA5 turned down, we exit the 2nd lot for 309 pips.

A few bars later, HMA12 turned down, we exit the 3rd lot for 367 pips.


L1 & L2 Signal Examples

L1 Signal:

We entered at 1.9039, placed stop loss at 1.9010

First lot taken out at 1.9069

Second lot taken out at 1.9137

Third lot taken out at 1.9141


L2 Signal:

We entered at 1.9178, placed stop loss at 1.9138

First lot taken out at 1.9218

Second lot taken out at 1.9331

Third lot taken out at 1.9316


In the same time frame that the trade above occurred, we also had signals
on USD/CHF currency pair. Highlighted in the photo are where we entered:


Profitable Forex Trend System – Advanced Techniques

One last thing we want to cover before we close is Trend Momentum.

When you fire up your charts with the included indicators that came with
PTFS (see the videos if you haven’t done this yet), you will notice a second
MACD indicator – MACD (3,10,16).This is used to gauge the momentum of
a trend.

How to gauge the momentum of a trend?

When a trend is established (based on our criteria), we look for the first
small retracement (L1 signal) and the first larger retracement (L2 signal).
We always take the first L1 signal and the first L2 signal.

However, when price retraces the second time and gives us the second L1
or L2 signal, we must be cautious. We need to determine if the trend still
has enough momentum to resume its original direction.

In our system we use MACD (3,10,16) as momentum indicator. We call it
short MACD.

When an uptrend makes new highs in price and in momentum indicator
(new high in short MACD), it still has momentum to go up. When a
downtrend makes new lows in price and in momentum indicator (new low
in short MACD), it still has momentum to go down.

Therefore, the second L1 signal is valid as long as the previous L1 signal was
successful and resulted in the trend making new high/low in both price and
momentum. Likewise, the second L2 signal is valid as long as the previous
L2 signal was successful and resulted in the trend making new high/low in
both price and momentum.


This method of momentum determination is important. It helps us filter a
lot of false signal.

The following chart illustrates this rule. We observe that the downtrend is
making lower low in both price and momentum after a successful L2 signal.
Thus the second L2 signal is valid.

Using this method we can maximize our profits by taking advantage of the
longer term trend. In the example above you would have entered three
trades successively.

In some cases this idea can be used to scale into your already profitable
trade. In others, your first trades will have closed before you enter the next


trade. But simply by using this idea when trading you will ensure that you
don’t enter on false signals when riding the trend through until it changes.


Timeframes
One other thing that we need to emphasize again is timeframes. When
using the PTFS system you should avoid very short time frames on your
charts.

The nature of Forex is that it has a lot of noise especially in lower
timeframes. As such, it’s difficult to trade off any timeframes less than 15
minutes. I recommend using the Profitable Trend Forex System in 1-hour,
4-hour, and Daily timeframes.

If you use this system to trade indices such as S&P, you may use shorter
timeframes: 5-minute, 15-minute.

Currency pairs

The best currencies to trade with PTFS are currency pairs that have a large
daily range are more suited for this system. Some that you may want to
start out with include:

• GBP/USD

• EUR/USD

• USD/CHF

• USD/JPY

• EUR/JPY

• GBP/JPY.


Of course you’re always free to trade with whatever currency you want. If
you plan to try the PTFS system with a slower moving currency, test it out
on a practice account for a while first. This will ensure your ready for the
differences those types of currencies tend to have.

Conclusion

You now have all of the tools you need to be successful with your trading.
We’ve covered a money management system that will help ensure you
minimize your risk, and we’ve given you a proven system to trade with.

If you take the time to learn this system well, and use it with your own
Forex accounts you could earn a lot of money. Just remember the rules we
gave you, be sure to get comfortable with PTFS first and always remember
to use money management when trading.

Take these steps and you will find a future in Forex.

All the Best,

John Chen & Associates
Trend Forex 2.0 System Team

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