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the day trade forex sytem: six steps to success
The goal of this guide is to instruct and teach potential traders how to day trade the currency markets. The objective of day trading is to trade the intra day market moves to try to gain small to medium sized profits in any given trading day. This is how this guide will help. Most readers will not have the time or resources to ‘position trade’ like the major institutions and banks do. They tend to look at the big picture holding onto trades for weeks or months.
The Forex Profit System is specifically designed for use with the 1, 5 or 10 minute charts, with the goal of taking 5-20 pip profits per trade—closing bad trades out using tight stops, or hedging any losing trades. The following steps will show you how to do this.
Step 1. Choose an online Forex Firm
What to look for in an online Forex Firm:
1. Low Spreads.
In Forex Trading the ‘spread’ is the difference between the buy and sell price of any given currency pair. The lower the spread saves the trader money. Most firms offer 4-5 pip spreads in the Major Currency pairs. The best firms offer clients 3-5 pips.
2. Low minimum account openings.
For those that are new to trading, and for those that don’t have thousands of dollars in risk capital to trade, being able to open a mini trading account with only $200 is a great feature for new traders.
3. Instant automatic execution of your orders.
This is very important when choosing a Forex firm. You want instant execution of your orders and the price you see and ‘click’ is the price that you should get. Don’t settle with a firm that re-quotes you when you click on a price or a firm that allows for price ‘slippage’. This is very important when trading for small profits.
4. Free charting and technical analysis
You need a firm that gives you access to the best charting and technical analysis available to active traders. The firm that I recommend gives clients FREE professional charting services and even allows traders to trade directly on the charts!
5. High Leverage
You want high leverage—the ability to trade a large amount with a small margin deposit. Some of the best firms offer .25% or 400:1 leverage.
6. Hedging Capability
You want the flexibility of opening positions on the same currency pair in opposite directions without them eliminating each other and without margin increase!
Here is a list of some of the main Forex trading Firms on the Internet. After a lot of research and personal experience, the firm that I recommend with the abovementioned benefits is Capital Markets Services LLC (CMS Forex LLC). You can research the rest of the firms listed to see for yourself.
CMS Forex www.cms-forex.com
ACM Advanced Currency Markets
Fairlot Financial Group
Forex Capital Markets
GAIN Capital
GCI Financial, Ltd.
Global Forex
IFX Markets Limited
London Capital
Meridian Forex Pty Limited
MG Financial Group
SaxoBank
Tricom
Step 2. Open a ‘Visual Trading’ Demo Account
The first step to trading the currency markets is to open a demo account. It is important that you learn how to buy and sell the currency pairs, set stop losses, set profit limits, and understand how leveraged margin works when you trade. I found the best way to learn this is by experience.
To set up your FREE charting from CMS, simply go to their website and open a ‘Visual Trading’ Free demo account. The charting package in this demo account rivals, any Forex Professional charting service and you will be able to set up the technical indicators that will aid you in your trading decisions.
A. Go to http://www.cms-forex.com and click on the ‘Sign Up’ tab and scroll down to Visual Trading Demo. Open up a free demo account and you will get your log in information sent to your email address.
B. Now go to the ‘Support’ Tab and scroll down to ‘Visual Trading Manual’. This manual will show you how the trading platform works. You will need to read this before proceeding. The better you know your way around this platform, the easier the next steps will be.
Step 3: Set up your charts:
A. One the left hand side of screen you will be able to choose your chart. Choose EUR/USD (or whatever currency pair you like) , 5 min, line and the chart will appear on the right hand side. Maximize the chart to fill the right hand side.
Your chart should now look something like this:
Now if you want to make the price line darker, you can right click right on the price line and a properties box will appear. You can adjust the thickness of the line. In this example the price line width is set it to 2.
B. Before we add our studies to our charts, I would like you to go to the following links.
Read how to trade the Parabolic SAR here: www.incrediblecharts.com/technical/parabolic_sar.htm
Read about how to trade moving average crossovers here:
www.incrediblecharts.com/technical/moving_averages_three.htm
Read about how to trade Bollinger Bands here:
www.incrediblecharts.com/technical/bollinger_bands.htm
C. Now we will add the Moving Averages to the chart. We will be using the Exponential Moving Average 10, the Bollinger Band Exponential Set at 20, and the Exponential Moving Average 50.
Click on Moving Average on the left hand side under Studies. Set your first MA to 10, close, exponential and you can make it red with line width 2 under the Color/Style Tab.
Click on Moving Average again and add your MA 50, close, exponential and make this line blue with line width 2.
Here is a shot of the Moving Average Properties window:
D. Now go to the studies on the left hand side of your screen Select Bollinger Bands and set them to 20,2, close exponential. Make the middle band green, line width 2.
E. Add Parabolic SAR to your chart by selecting it on the left and use the default settings. Make the dots darker, by selecting line width 2.
Your chart should now look like this:
You can zoom in and out of your chart using the small buttons in the bottom right
hand side of your screen.
How To Change the Currency Pair and Time Frame:
On the bottom of your chart, you can change the currency pair and right beside it, if you click on the button that says M5 you can change the time frame of the chart. The studies will automatically be added to any new time frame and currency pair that you select.
How to Exit the VT Platform Properly:
To exit the VT platform, click on FILE and then EXIT. The studies that you added to your chart will automatically be up the next time that you log in to your account. Please note that if you click x on the top left hand corner of your chart you will close the chart and reset your settings that you added. If you want to keep your studies and charts intact you can minimize it or just leave always keep it open to keep your settings saved.
F. Now we will add 3 more indicators below the chart to help us confirm the trend, and to help us identify exact entry and exit buy or sell signals. The following indicators give us insight into the momentum, direction and overbought/sold indicators. Used along with the Exponential Moving Averages, Parabolic SAR and Bollinger Bands—these indicators can be very helpful to the day trader.
MACD Histogram.
Read about how to trade the MACD Histogram here:
http://www.incrediblecharts.com/technical/macd_histogram.htm
Relative Strength Index (RSI)
Read about how to trade the RSI here:
http://www.incrediblecharts.com/technical/relative_strength_index.htm
Slow Stochastic
Read about how to trade the Slow Stochastic here:
http://www.incrediblecharts.com/technical/slow_stochastic.htm
Now add these studies to your charts.
Under Studies click on MACD Histogram and use the default settings (9,Exponential, 12, 26, Close, Exponential) and set the line width to 2. Your study will automatically open under your chart.
Under Studies click on Relative Strength Index and set it to 14 and set the line width to 2. Your study will automatically open under your chart.
Under Studies click on Slow Stochastic and set it to (5,3,3, Exponential) and make the %K line blue with line width 2, and the %D line red with line width 2.
Your chart, with all the studies on it should now look like this (example of USD/CAD 10 min chart): Notice that I clicked on the zoom in button a couple of times on the bottom right hand corner to get it to look like this.
Step 4: How to Buy and Sell the Currency Pairs
Now that our charts are set up, let’s learn HOW to open and close a position, or buy and sell on the VT platform. After we learn HOW, we can look at WHEN to enter/exit a trade using the technical indicators. **Please note that this information is in the Visual Trading Manual that you should have already read.
A. Simply move your cursor to the chart and right click. A menu will pop up and at the top it will say buy with the current exchange rate to buy and sell with the current exchange rate to sell. You should Buy if you think the price line will go up on your chart or sell when you think the rate will drop on the chart. Click on buy or sell and an ‘Open Positions’ window will pop up that looks like this:
B. In the Amount per Acct: box you put in how many lots you will trade—1 lot is 100,000 currency units.
Trading with 1 lot EUR/USD is $10 profit/loss per pip
Trading with 1 lot GBP/USD is $10 profit/loss per pip
Trading with 1 lot USD/JPY is $8 profit/loss per pip
Trading with 1 lot USD/CHF is $6 profit/loss per pip
Trading with 2 lots doubles the profit/loss possibility. Trading with .5 of a lot halves the profit/loss possibility. With the CMS universal account you can trade full or partial lots from this window. If you put in .1 of a lot your profit/loss would be $1 in the EUR/USD etc…
C. The trade that you just made will now show up directly on the chart. If you right click your open position on the chart you can choose to add a Stop price and a Limit price, or you can hedge your position—which we will look at later on.
Stop Order: Is a price you enter into an open position, where the trading platform automatically closes your position when the Exchange rate touches that level. If you are in a winning trade, you can move your stop up or down to protect profits. If the exchange rate never hits that level, then the Order doesn’t get filled.
**tip: If you are in a winning trade, you can move your stop to your entry level, so that if your trade moves against you, the platform closes your position without any losses.
**tip: You should be comfortable setting your stop Order at 15-20 pips. If you can’t handle a 15-20 pip loss, then you are need to trade smaller amounts. This will help you from over leveraging your trading account.
Limit Order: Is a price you enter into an open position for the trading platform to automatically close your position at a profit. For example, you might set your limit order at a 15 pip profit. If the exchange rate never hits that level, then the Order doesn’t get filled.
Step 5: When to Enter and Exit Your Trades:
We will be looking at 3 different ways to day trade the Forex Markets. In a
trading session, you may look for 1 or more of these approaches. The 3
techniques are as follows:
1. Trade the Breakout
2. Trade the Trend
3. Trading Tops and Bottoms
Before we look at these trading approaches, let’s answer a question that is often
asked by new traders.
When is the best time to trade?
Because the Forex Market is open 24hrs a day, and traded on a global scale, the question to ask is, ‘when should I trade?’. The good news is that no matter what time zone or hemisphere you live in globally, there are always good opportunities to trade.
The three major trading ‘sessions’ are as follows (all in Eastern Standard Time):
1. New York open 8:00 AM to 4:00 PM
2. Japanese/Australian open 7:00 PM to 3:00 AM
3. London open 3:00 AM to 8:00 AM
**Often, the best times to trade is at the beginning 3-5 hours of the above mentioned opening times, because the major currency pairs tend to move the most in a particular direction.
The first DayTradeForex.com trading technique we will look at is the easiest to recognize on the charts. We will call it ‘Trade the Breakout’. You can use the 5, 10 or 15 minute charts for this method. The indicators on the 5 minute charts are the fastest. Practice until you feel comfortable with the time frame that suits you best.
1. Trade the Breakout
The principle behind trading the breakout is to enter a trade when the price ‘breaks out’ of a tight range, because often it tends to keep moving in the same direction. We use our Bollinger Bands on our charts to spot this trading opportunity.
In the above example, EUR/USD 5 min chart, notice how the Bollinger Bands tighten and squeeze together. When this happens you know that there is a Breakout coming. As soon as the exchange rate line (brown), breaks out of the outside Bollinger Bands, it signals your entry buy/sell. In this case if you bought EUR/USD at 1.1815 and Closed your position at 1.1840 , you could have made a fast 25 pip profit.
Notice the confirming indicators: The exchange rate line (brown) is above the EMA 10 (red), the middle BB line (green) and the EMA 50 blue. The Parabolic SAR dots are on the bottom.
The MACD Histogram is above 0 signaling upward momentum. The RSI is above 50 signaling upward momentum, and the Slow Stochastic blue line is above the red line signaling bullish momentum.
Here is an example of EUR/USD 5 minute breakout SELL. You could have sold the EUR/USD at 1.1440 and closed your position at 1.1390 for a 50 pip profit.
Notice the confirming indicators: The exchange rate line is below the EMA 10 (red), the middle BB line (green) and the EMA 50 blue. The Parabolic SAR dots are on the top.
The MACD Histogram is below 0 signaling downward momentum. The RSI is below 50 signaling downward momentum, and the Slow Stochastic blue line is below the red line signaling bearish momentum.
Here is an example of USD/CAD 10 min chart. If you bought this currency pair at 1.3590 when it broke out of the bands and sold it at 1.3620 you could have made approximately 30 pips.
The exchange rate line (brown) is above the EMA 10 (red), the middle BB line (green) and the EMA 50 blue. The Parabolic SAR dots are on the bottom.
The MACD Histogram is above 0 signaling upward momentum. The RSI is above 50 signaling upward momentum, and the Slow Stochastic blue line is above the red line signaling bullish momentum.
Here is a USD/CHF 5 min chart example of a breakout SELL. Notice how the
MACD Histogram went from positive to negative, and how the other confirming
indicators signaled SELL.
The exchange rate line is below the EMA 10 (red), the middle BB line (green)
and the EMA 50 blue. The Parabolic SAR dots are on the top.
The MACD Histogram is below 0 signaling downward momentum. The RSI is
below 50 signaling downward momentum, and the Slow Stochastic blue line is
below the red line signaling bearish momentum.
Here was an extreme breakout EUR/USD BUY where you could have held on for a 100 pip morning!
Again, The exchange rate line (brown) is above the EMA 10 (red), the middle BB line (green) and the EMA 50 blue. The Parabolic SAR dots are on the bottom.
The MACD Histogram is above 0 signaling upward momentum. The RSI is above 50 signaling upward momentum, and the Slow Stochastic blue line is above the red line signaling bullish momentum.
The second DayTradeForex.com trading technique uses the same principles, but is less extreme. This trading method is best traded on the 5 or 10 min charts, but can be applied to the 1 minute charts (See the Bonus “Micro Trading” strategy at the end of this trading course)
2. Trade the Trend
Trading the trend is just like trading the breakout, except in less volatile market conditions. Start with going to the 15 minute chart of the currency pair of your choice and ask yourself this question: ‘Is the exchange rate line (brown) above or below the EMA 50 (blue)?
**If the price line is currently below the EMA 50, and the EMA 10 and BB 20 are also below the EMA 50, then you will be looking at Selling opportunities in the trading session.
If the price line is currently above the EMA 50, and the EMA 10 and BB 20 are above the EMA 50, then you will be looking at buying opportunities in the trading session.
Often, when you are ‘trading the trend’, you will notice that the price line will bounce off the EMA 10 or the middle BB line or the EMA 50. These lines sometimes act as supports and resistances in a trading session. Therefore you can look to sell shorts when the price line bounces down off the EMA 10, BB 20 or EMA 50, or buy longs when the price line bounces up off the EMA 10 BB 20 or EMA 50.
When you trade the trend, it is important to trade with the Parabolic SAR, MACD, RSI and Slow Stochastic all signaling together.
The above example is a 5 minute EUR/USD chart. The first thing to look for is
the EMA 50 blue line. Notice that it has been above the price line and the EMA
10 and BB 20. You will now be looking to SELL. Notice how the price line
bounced down off of the EMA 10 and BB 20 right before I circled the chart.
Now look at your other indicators:
The MACD Histogram turned down below zero, RSI turned down below 50
and Slow Stochastic blue line turned down under the red line. This would
have been a good signal to Sell Short—you could have profited at least 20 pips
on this trade.
The above example is a 10 minute EUR/USD chart. The first thing to look for is
the EMA 50 blue line. Notice that it has been below the price line and the EMA
10 and BB 20. You will now be looking to BUY.
Notice how the price line crossed down through the EMA lines prior to the
circles. This would have been a false signal to sell because the EMA 10 and BB
20 were above the EMA 50. If you were looking at buying opportunities then you
could have entered when the price continued to rise where I circled on the chart.
Now look at your other indicators:
The MACD Histogram turned up above zero, RSI turned up above 50 and Slow
Stochastic blue line turned up above the red line. This would have been a
good signal to Buy long—you could have profited at least 30 pips on this trade.
Here is an example of anticipating the trend. The market, previously rejected the
breakout rise in price and turned the other way sharply. If you entered this trade
when the MACD Histogram turned down into negative territory and the RSI
moved below 50, you could have anticipated the trend before the EMA 10 and
the BB 20 moved below the EMA 50.The third DayTradeForex.com trading strategy that we are going to look at in this
guide is:
3. Trading Tops and Bottoms
Trading tops and bottoms can be more risky that the other two strategies
because you are trading against the trend anticipating the market is
overbought/oversold and might turn in the other direction. It is best to use
the 10 or 15 minute charts for this method. It is more risky using the 5 min
charts, but you still can apply the same techniques.
Here is an example of a EUR/USD 15min chart, bottom buy.
Notice how the MACD histogram is starting to rise, and the RSI is turning up
from being oversold and the slow stochastic blue line crossed the red line and
is turning up from oversold.
Here is a 5 minute chart example with EUR/USD. Notice the MACD, RSI and
Slow Stochastic move up from oversold at 8:30. At 10:30 you could have sold
short for a small profit.
Trading tops and bottoms is best in ranging markets.
Here is an example of a breakout SELL and a Bottom BUY in a trading session
watching the USD/JPY 10 minute charts. This bottom BUY is a great example of
oversold indicators with RSI and with Slow Stochastic.
When to EXIT trades
The goal of this day trading guide is to teach traders to take 5-20 pip profits at a
time. You can set profit LIMIT orders to achieve this, or you may want to move
your stops as your position becomes more and more profitable.
**Make sure that you don’t let a winning trade become a losing one, by using
trailing stop orders.
How to use HEDGING to your advantage
Hedging can be a useful tool to the Forex trader. When you have an open
position, for example, you are long on a USD/JPY trade and you right click your
trade on the VT platform, a menu will pop up and you have a choice to Hedge
your trade. If you click Hedge, you will automatically open up a position in
the opposite direction at the current market price without canceling out
your other position and without margin increase!. In the above example you
would now have a USD/JPY trade long and short. You will now neither gain or
lose any equity in your account because the gains and the losses will cancel
each other out.
Hedge in an emergency: Hedging a losing trade won’t solve your problems, but
it will 1. Keep you from more losses 2. Give you time to think about what
happened to your bad trade and 3.Give you a second chance. Some traders will
hedge losing trades instead of stopping out there position, because they have a
chance to win back the losses of the original bad trade.
Example: You are looking to ‘Trade the Trend’ so you go long on the
EUR/USD, using the indicators in this guide. The indicators signaled BUY
so you opened up a position. In case of a bad trade, you choose to
hedge instead of using a stop loss (be careful when doing this). Your
‘Trade the Trend’ indicators didn’t work and your position goes against
you, you hedge your trade. Now you have a losing position and a winning
position going in the opposite directions. You didn’t use up any more
margin. What do you do now?
My recommendation: When your position is hedged, you are safe and
you won’t lose any more money in your account. Here is what you should
do:
1. Wait until another chart set up occurs and proceed to step 4. or Exit
the trading platform.
2. Wait till the next trading day or session
3. Look for the DTF indicators the next day.
4. Instead of opening up another position, simply get rid of the bad
position that was hedged. So if the indicators the next day signaled
long in the EUR/USD, like in the above example, then you would get
rid of the short, losing hedge and hope that the price will rise enough
to erase the previous days losses to make a profit.
5. If your position moves against you again you can hedge that position
again and repeat steps 1-4.
Hedge a winning trade: You may also hedge a winning trade to protect your
gains, if you don’t want to completely close your position. When you do this you
won’t gain or lose any more money with that position. The advantage to this would give you the opportunity to keep trading those positions in the future and
give you a break. You can always right click on your position and choose ‘close
with hedge’ to close both positions at once. If you hedge a winning position you
can follow the above steps 1-4 to keep trading your position the next trading day.
** Please note that hedging can get complicated. Try to keep it as simple as
possible and try not to have a web of hedged and unhedged positions open at
the same time—as it becomes exponentially more difficult to keep track of, and
what positions to let go etc...
** Hedging is also optional and you don’t need to learn how to use this tool if you
choose not to. You can be a successful trader by simply using stop and limit
orders.
Understanding Risk Management
Understanding risk management is a very important reality when trading the Forex Markets. Losing trades will happen, and managing those losses are the key to success. A good rule of thumb when setting your stop losses is the 5-7% rule. If your trading account is at $2000, then set your stop loss so that you don’t lose more than 5-7% of the total value of your account. If you used this rule in this case, you would stop out a losing trade when you were down $100-$140. This is important, because if you don’t manage your losses well, you can easily lose 50% of your trading account on 1 bad trade. You do that a couple of times and you will lose all of your risk capital. It is better to take smaller losses and try to maximize your winning trades. So be careful and deliberate when setting your stops on your trading platform.
Step 6. Open a Live trading account
Now that you understand the basics and have been demo trading awhile, you
are now ready to open a live trading account and join the Day Trade Forex
trading team.
If you have found this step-by-step currency-trading guide useful and helpful and
if you decide to open up a live trading account through me (co-owner of
DayTradeForex.com), I will personally give you the customer service and support
to assist you with your new account (my service will NOT cost you any extra
money.) Here is how you open a live trading account.
1. Go to www.cms-forex.com and under the Sign Up Tab on the top, scroll
down to Live Account Sign Up. Under IB-Reffered Individual ( In the circle
on the bottom of the picture) , follow the instructions.
