Forex Swing Trading Strategy: A Proven Forex Swing Trading System

first up is the long trade blueprint, the first thing is we need to define some of the terminology used in a blueprint first the ll – that’s the lowest low of the past two days the ll 5 is the lowest low of the past five days the ll forty is the lowest low of the past forty days and the lh5 is the lowest high of the past five days the ATR twenty is simply the average true range of the past twenty days and the swing low is any low with at least two higher lows than the swing low day low and to higher highs than the swing low day high on both sides of the swing low day now as we get into the blueprint in the chart application of the trading rules you’ll see these terms come to life now you might think about the setup rules as defining a W pattern that you can visually observe on the price chart and, if you look at point one two and three they form what looks like a W with 0.3 being lower than point one, so keep that in mind as we go through these setup rules alright first we’re going to apply the setup rules to a typical daily Forex candlestick chart and these setup rules then will alert you to get ready to enter the market we’re going to apply these rules to the green candle that’s labeled setup date to see, if indeed that day satisfies all of these rules, so, let’s start with a that’s the lowest low of the last five days from and including the setup day equals the lowest low of the last forty days from an including the setup date and that indeed would be 0.3 as labeled on the chart, so, if you come back 5 days from the setup day and 40 days from the setup day you will find that 0.3 is indeed the low of the last 5 days and the low of the last 40 days, so that’s condition a be the point 3 low is less than a swing low which is 0.1 now point 1 has to be a swing low which is as defined earlier a low who has at least two higher lows on either side and two higher highs on either side of this wing load a and by visual inspection you can see that that is indeed the case now a very important condition is see here where the lowest high the last five days from setup date and that’s labeled on the chart with the letter C that Lois I the last five days has to be greater than the point one low minus one average two range twenty now what does that mean, if you take the point one low and subtract from it one average two range you can easily plot that with any good trading software pick off that point subtract it from the point one low as long as the lowest high the last five days is greater than that level then condition C has been met, then we have D the five-day exponential moving average turns up as shown on the chart with the letter D and E the set up day closed has to be less than the 18 day moving average which is the blue line plotted on the chart, so that when a through e have been satisfied you then have a valid set up date alright now once we have the set up in place we can look at the entry and exit rules first the entry order we’re going to simply buy at the market on the open of the day after set up day and that’s signified on the chart with the green B arrow now for the entry day only we’re going to use an initial stop to sell at the point three low stop close only now what that means is, if we enter the market on entry day and the market subsequently drops in this example and closes below the point three low then we’re going to immediately exit the market on the open of the next day now that seldom happens, but what does happen on occasion is after getting into the market on entry day it will trade lower temporarily, but then close higher on the day and, so we don’t want to get stopped out prematurely, if that happens now after the entry day we’re going to use the follow-up stop to sell at the lowest low the last two days times zero point nine nine nine stop that’s a fancy way of saying we’re going to take one tenth of one percent of that lowest lower the last two days and subtracted from the #NAME? the entire position or half position, if the profit target exit has already been hit and concerning profit target exit what we want to do is exit half the position at the entry price plus one average – range 20 with a limit order and we’re doing this for a couple of reasons one we take a real nice profit immediately we take half the position off the table, so that automatically cuts whatever risk there was on the trade in half and we’re applying the ll2 follow up stop to the remaining half position, and then we update that at the end of each day and move that stop up, so that the market can go as far as it wants to go on that second half position and in this example it gets stopped out at the red arrow towards the top of the chart that big red candle, because it took out the lowest low of the last two days, so you can see how moving that stop up every day immediately reduces the risk on the trade, and then zeros it out altogether, so you have a free trade situation, and then it lets the profits run as far as they want to go locking in profits day after day after day until finally the trade stopped out it’s a very powerful exit strategy that allows you to take full advantage of what the market has to offer on each and every trade, next, I’m going to teach you the short trade rules for the pip reversal method these are pretty much the reverse of the long trade rules first the definitions the hh2 is the highest hide the past two days the hh5 the highest I the past five days and the H h40 is the highest I or the past 40 days the hl5 is the highest low of the past five days the ATR 20 is the average True Range of the past 20 days and a swing highs any high with at least two lower highs than the swing hi-de-hi and two lower lows than the swing high day low on both sides of the swing high day the setup rules well in the case of a short trade what we’re looking for is an M M for money pattern and you can see that on the chart with points 1 2 & 3 tracing out an M pattern now it’s not just any old M patter and it has to be one that meets conditions a through e, so, let’s go through them a the highest I’d last five days must be equal to high side last 40 days and if, so that would define 0.3 be the point three high is greater than a swing high point one in it by visual inspection you can see that point one indeed has at least two lower highs and two lower lows on either side of the point one swing high day, and then see the highest low of the last five days and that is signified by the letter C on the chart is less than the point one high plus one average to range 20 and, so, if you were to add one average true range to the point one high you would find that the highest low the last five days from setup day is easily below that level, and then the five day exponential moving average turns down as of setup date you can see setup day there highlighted on the chart and, if you look at the brown exponential moving average line you see that it turned down on that day, and then condition a the set up day closed has to be greater than the 18 day moving average which is the blue line and clearly it’s well above that average, so all conditions a through E have been met qualifying the red candle that signified as setup day on the chart is indeed a valid set up day and this then alerts you to get ready to enter the market, so once we have a valid set up then we would enter the market by selling short at the market on the open immediately following the close of the set up day and you can see the entry day is signified with an SS read down arrow now for the entry day only we’re going to buy to cover at the point three high on a stock closed only that’s our initial stuff and again that means, if on the entry day the market suddenly reversed and traded higher above the point three high and closed above that high we would exit the trade immediately on the open of the following day now that seldom happens what does happen on occasion after entering the market it can trade higher above the point three high only to reverse, and then closed lower on the day, so we would not want to get stopped out prematurely in that event, and then following the entry day for every day thereafter we’re going to use the follow-up stop to buy to cover it’s a heist I the last two days times 1.001 plus the spread on a stop again this means that we’re going to take 1/10 of 1% of the two-day high and add it to the two-day high, and then add the spread the reason we have to add the spread for you newer traders is in forex when you buy you buy on the ask price when you sell you sell on the bid price and, so here we’re buying 2 covers, so we’re going to be buying on the ask, so we need to add the spread into this calculation now this follow-up stop is updated at the close of every day, so you’re continuously tightening up the stop first zeroing out all the risk on the trade, and then eventually locking in more and more profit, if you just visually look at the chart example you can see going forward that on each subsequent day’s close you would be dropping down that follow-up stop very quickly and eventually you stopped out where the green arrow pointing up says BTC bited closed at a very very nice profit now the way we handle these trades though we don’t know, if the market is going to drop like that or not, so what we want to do is use a profit target exit and exit half the position at the entry price minus 1 average to range 20 on a limit order, so that, if the market only drops a little at least we still get a nice profit and we protect the remaining half position with that follow-up stop, so no matter what the market does this strategy this two-step exit strategy maximizes your profit potential, so there you have it my complete pip reversal method the same method many others have paid a value $500 for now work way back in 2007 it’s been battle tested over the past five years and it still works today.

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