Five_Tic_Forex

8/7/2019 Five_Tic_Forex

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Welcome to FiveTic Forex this trading course has been a long timein coming and there were times when I thought it might neverhappen.

But here we are.I sincerely hope it meets your expectations and enables you to tradethe biggest markets in the world Forex.

I look forward to working with you to achieve that goal together.

So let's get started.........

Contents

Disclaimer

Introduction

The Market

Technical AnalysisMaking Money from the Market

FiveTic Method

Examples


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Disclaimer

Whilst every effort has been made to ensure the accuracy of theinformation within this course the author cannot be held responsiblefor any errors or omissions.

Trading of any description involves the certainty of losing money.

Yes losing money IS a certainty. No one on the planet can trade andnot lose money on some trades. Always the key element to beingprofitable overall is to manage your losses and exploit your winningtrades. This course will show you how to do exactly that.

However, we are not responsible for your trading, we are notresponsible for your losses, we are not claiming that trading of any

description is easy; simple maybe, but easy no. It will requirededication and perseverance on your part to win through.

Along the way many, in fact most will give up; trading is a hard thingto do and I make no apologies for pointing this out.

You are trading with your money and only you can know how muchto risk, and what to assign as a trading account. Do not risk moneythat you cannot afford to lose!

This is not just to cover myself trading with money that you may

need at some point will ensure that you end up losing most of it andgiving up trading as something that just doesn't work.

But it only doesn't work for you.

You must have the attitude that the money you're trading with isalready lost you must take losing trades as simply part of the jobthat is trading you must develop a winning attitude.

If you think you can do it you can

If you think you can't do it you can't

Simple.


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Introduction

Trading is the hardest thing most people will ever do!

I have raced motorcycles at championship level, I have run

marathons in under three hours, I have changed careers severaltimes, I have built several houses with my wife with our own hands.

None compare to the challenge of trading successfully.

It truly is a hard thing to do and different to anything else I have comeacross. But get it right and the feeling of success is amazing and worthevery ounce of pain along the way.

Trading is never a matter of just taking money out of the market youmust be prepared to give most of it back and be satisfied with the

remainder. The saving grace is that the markets are so huge that youcan take a lot of money from them, give a lot back, and still have a tidysum left over for yourself.

If you can have that attitude, then trading will be a realistic possibilityfor you. It's a realistic expectation of trading and will therefore beachievable. Expecting to keep most of your winnings is unrealisticand will lead you to eventually lose and stop trading.

My advice would be to trade as small as possible for six months

somehow. Forget making money just trade learn the art and skillsrequired and just plan on breaking even. Once you have mastered thisfirst step, progress to making small amounts regularly and build yourconfidence. Then gradually build on this solid base; most aspiringtraders skip this essential first step and never have any solidfoundations for the future. Taking small steps is essential to success.

I wish you every possible success,

Matt


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The Market

This is not intended for anyone with zero knowledge of the financialmarkets and in this section we'll briefly look at the basics of currencytrading but I will not be covering any aspects beyond that requiredto put FiveTic Forex into practice.

FOREX, or foreign exchange.

In the beginning Joe wanted to buy a cart load of corn from Valentino.Joe lived in one country and Valentino just across the border inanother. Joe's currency is Dollars and Valentino's is Peso's. So Joe andValentino discuss how much this cart load of corn is worth and finallyagree that Joe will pay $200 for the load. If Joe had bought the cornfrom his neighbour he'd have had to pay $250 so he's got a good deal.

Valentino on the other hand could only have sold his corn to hisneighbour for 1500 pesos the $200 he now has will enable him tobuy the new cart he'd like from Joe's country (better quality than hecan get in his country !) If he paid in pesos it would cost him 2000 sohe's got a good deal as well.

And so Fx was born !

Fx has no intrinsic value it is simply an agreement between two

parties as to the relative worth of the transaction at that moment. Youcan't own Fx, you can only trade it. It's merely a number thatfluctuates and you're betting that for a particular period it might goeither up (long) or down (short).

Many factors influence whether it moves up or down and at whatpace. In fact, so many that to try and use fundamentals as a guide inthe short term, is fruitless. We therefore, need to employ technicalanalysis as our tool to decide how to trade. And that of course is whatthis course is all about.


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The Foreign exchange market is vast I think it's a trillion dollars aday are traded around the world. It's dozens of times bigger than allthe stock markets put together. It's traded around the world everysecond of every hour for 24 hours a day.

What does this mean for us as traders?

Well, it means that unlike much smaller open outcry markets suchas most of the commodities no one has the power to manipulate themarket. It really is pure supply and demand, fear and greed, at work.For these are the power behind the moves in Fx. Someone sees theprice going up and they think there's a quick buck to be made so theybuy in the hope of selling at a higher price in a few seconds, minutes,hours or days. Likewise thousands of other traders do the same, andguess what; because of the sudden rush of buyers the price doesindeed go up. Then the early buyers have enough profit so they sell;

soon others follow and the balance swings in favour of sellers and theprice falls.

And so it goes on.

No matter what time frame you look at there will be swings up anddown, all bought about by traders emotions around the world.

Our challenge as traders is to predict these moves in advance; to

understand the mentality of the crowd that trades and capitalise on it.Every market has a personality and getting a feel for this is asimportant as understanding technical analysis.

There are very few totally mechanical trading systems that actuallywork. Those that do are the result of masterminds of mathematics andstatistics. To obtain one would be a licence to print money and theyare therefore usually only found in the domain of the big institution.

What we, as individual traders need to do is use some tools thatallow us to analyse the market and use our intelligence andexperience to build a bigger picture, and make a decision whether totrade, and if so how.


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We'll now take a look at the technical aspects of the markets.Firstly just exactly what is the market?

Forex, consists of around 30 currency pairs that are traded onelectronic exchanges around the world. For instance, we will betrading the exchange rate between the US Dollar and the BritishPound. Traders call this pair cable (Dating back to the cable first laidbetween US and Britain for telecommunications)

This pair currently trade around 2.1 US Dollars per British Pound

There is also the rate between the Australian Dollar and the NewZealand Dollar. And the British Pound and the Euro, and so on. Nowwith a bit of thought you'll see that in fact every pair is linked to everyother pair.

If the rate between the $ and the changes then the rate between the$ and the Euro must change, if not, then the rate between the andthe Euro must change as all are inter-related. So a news story thataffects the Yen, can easily have repercussions on the rate of the Euro -

v- the $.All of which makes the prediction of price movements interesting.

Having mentioned news it's worth noting that the currency marketsare very much affected by news. The exchange rates are simply a

joint agreement as to the value at any moment a news story canaffect that value much more so than say stocks, where companies dohave a real world value and any news is always tempered by that factsof real life.

So back to cable and a few facts.........We know the current value is around 2.1 $ per . It's actuallymeasured as 2.10000

The smallest measurement is a pipwhich is 0.0001. However youwill see on charts that this can be displayed as tenths of that. As far astrades go you can only enter prices to one pip not the tenths. Don'tworry all will become clear!

A pip is worth $10 per futures contract as each contract is for $100,000(as mentioned this is not intended to be a beginners course so it isassumed that you know what a futures contract is all about)


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So a 10 pip move on Cable is worth $100.Cable moves, on average 140 pips a day.

Cable futures are traded on the Chicago Mercantile Exchange usingGlobex (the global Fx trading system)

To trade Currency futures you require a Margin Account with a brokerwho deals with Fx. There are now dozens on the internet, and all, tomy knowledge, will offer a good service. The minimum account size isusually $5000 and to trade a single contract will require $1000 margin

deposit.When you open a trade, as with any commodity, there is a spread, i.e.

A difference between the selling price and the buying price forCable the spread is usually 0.8 to 1.5 pipsalthough at high volatilitytimes (after an important news release for example) this can increasedramatically.

Charts are available from many sources, and a lot of them are FREE.Many are also real time, that's to say they display the actual price

that you could trade at every second of every day. Beware some donot.

These charts will be able to display from a few ticks per bar tomonthly bars.

We've now covered pretty much all you need to know to move on tolook at how we can analyse a chart and see what methods there arefor predicting where the price is going next.......


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Technical Analysis

There are literally libraries full of books on technical analysis, soanything I write here will pale into insignificance compared to that.However I will cover the major topics that I have found to be useful(much of technical analysis is not useful !)

Firstly I must point out that pretty well all technical analysis isconstrained by being based on history. It's like trying to drive by onlylooking out the rear window you might know that at the moment

you're still on the road, but there's simply no way of knowing whenthe next bend will appear, and you'll only know you're off the road bythe bumps !!

That said, if we think in a more statistical sense, and look at

probabilities rather than certainties, then it is still the best tool wehave.

And that's enough to make trading profitable.

So what are the indicators we can put in our toolbox?

They break down into :-

Mathematical lagging indicators

Mathematical predictive indicators

Visual indicators

Mathematical lagging indicators would include moving averages,overbought and oversold indicators such as Stochastic, and trendingindicators such as ADX. There are of course a whole host of indicatorscreated by traders themselves, usually for specific markets undercertain conditions.

Mathematical predictive indicators include such things as Fibonacci,and Elliott Wave theory


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Visual indicators would be manually drawn trend lines or supportand resistance lines.

Rather than try to explain these in detail here there is a video thatcovers these 3 separate subjects and is available to view HERE.(Obviously an Internet connection is required to view). A summary ofthe video is........

Simple Indicators.

Here we see a chart with a simple 20 period moving average. What's ittell us? The normal expectation is that if the price is below the movingaverage and the line is pointing down then the trend is down and wecan expect prices to continue to fall and vice-versa.

Indicators can become fantastically complex and purport to tell ussomething about the market however, developing a trading methodfrom them is another matter entirely.

Always bear in mind that these things are called indicators and they

are just that. The skill of being able to read the market, albeit helpedby the indicators, is what differentiates winning traders from losers.
http://www.fivetictrading.com/forex/Videos/Ebook1/Ebook1.htmlhttp://www.fivetictrading.com/forex/Videos/Ebook1/Ebook1.html


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Mathematical Predicting Indicators

In this topic we'd include trend lines, as above or Fibonacci and Elliot

wave analysis as below.

Whilst these do have a place in understanding the market, and beingable to read the market, alone they are of little practical use as atrading tool. (Doubtless someone will contact me and tell me they usethese to make millions each year I await your email !)


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There are some other indicators that any of you familiar with FiveTicTrading as applied to the Indices will recognise. These are BollingerBands and moving averages that we've already covered.

Bollinger Bands are used as a statistical measure of the range withinwhich the price should trade for a given % of the time. The upper andlower bands can be adjusted, and are based on the number ofstandard deviations from the mean of the data over the previousnumber of bars set within the indicator. So setting the upper and

lower bands to 1 standard deviation would mean that the price wouldtrade within the bands, statistically speaking, say 66% of the time.Setting them to 2 standard deviations would be 97% of the time.

It gives a mathematically accurate prediction. However, in FiveTicForex we'll be using them in a somewhat unconventional way. Moreof that later!

That's all I want to cover in this section and we'll now move onto waysthat traders actually make money from the markets.


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Making Money from The Markets

There are as many ways to make money from the markets as there arepeople trading them. However, I believe that they fall into a limitednumber of general methods. I cover these in more detail in this video.

1 Let the Trend be your Friend!

Use something to tell you that a market has made a move that

signifies the beginning of a new trend. Open a position and stickwith it till the end of the trend.

Markets trend for, in general, about 30% of the time. For theremainder they move in an apparently random up and down fashion.Of course these smaller moves are the result of traders around theworld being out of balance so for an hour there are more buyersthan sellers so the price slowly rises then for the next 15 minutesthere are more sellers so the price falls, and so on. A trend occurswhen one side manages to stay in command for an extended period

and thus cause prices to generally continue moving in that direction.The problem is that every trend starts out looking just the same as thesmall random moves so you either have to wait for the trend tobecome established (thus missing a proportion of the overall move)or, take every small move as the start of a trend and accept a very highproportion of losing trades.

Add to this the even more difficult subject of when to exit the tradeand lock in your profit. Fear and greed abound here greed makes

you wait for even more profit with the frequent outcome being thatyou give most of the profit available back or fear causing you tojump out with just a tiny fraction of the eventual profit available.

Most systems in this category would see more than 50% losing tradesand rely totally on the 20% of trades that produce good profits fromlong trends.

Psychologically a very tough method to trade.


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2 Overbought and oversold

It is a fact that markets can only move so far in one direction beforemoving for at least a small move in the opposite direction. Now theseterms are relative and after a big news story the market can indeedmove a very long way before taking a breather these tend to be theexception.

This is the category that FiveTic trading uses for the indices.

This type of trading produces many more winners than losers butwith no big winners as winning trades are against the prevailing trendand therefore tend to be relatively small in nature. Additionally loserswill predominate whenever there is an exceptional move thatdoesn't take a breather. So even with this fairly mechanical system anability to read the market is beneficial.

3 PatternsBooks are available on using patterns to trade the markets. One of themost notable is Ken Rogers, who, 20 years ago was using patterns tomake a fortune (and maybe still does for all I know)

As price action is the result of crowd psychology it is inevitable thatrepeating patterns will emerge as the crowd respond in a similarmanner to similar situations.

Some of the patterns used would be, double tops and bottoms, flags,

channels, triangles, and so on. Normally a break of the pattern wouldinitiate a trade which is then managed in numerous differentfashions.

In my experience a reasonably successful method to trade but withthe disadvantage of requiring huge time to learn to recognise thepatterns and everything being subjective.

There is also a limited number of set-ups in any given time so theavailability of trades is also limited.


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4 Bar Patterns

An uncommon trading method, but one we'll look at more closelylater, looks for specific bar shapes. More often applied using JapaneseCandlesticks rather than routine bar charts but equally valid.

Each bar is in itself a snapshot of the price action during that timeslot.If certain bar shapes emerges in a certain market condition there is astatistical probability of what the market will do next. Again based onhuman psychology.

Normally used within other systems as a trigger signal rather thantraded just on their own.

5 The Rest.

There are now a huge number of wacky ways to trade. I havepersonal experience of using the phases of the Moon to trade (theEarth/Moon/Sun relationship moves oceans so it's not unreasonableto expect it to affect us humans is it?)

I have tried to understand a system that used option price volatility asa predictor of futures price movements. Similarly using one that usedprice in one market segment to anticipate movements in another. All

very difficult to understand and even more difficult to trade with.


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FIVE TIC FOREX THE METHOD !!

Finally we have reached a point where we look at how we use acouple of indicators and bar patterns to trade the Fx markets.

Before we get started I must mention news again. I have alreadyexplained the effect that news can and does have on the Fx markets.

Do be aware of news coming out, you should know when it is comingout and what it concerns and whether it is it expected to have aneffect on the markets.

That's not to say don't ever trade around news releases just take itinto account when doing so.

Overview

For the purpose of this course we are looking at the GBP/USD pair orCable. The techniques will apply to many other markets and feel freeto experiment. You'll need to modify the profit targets and stop lossfigures and maybe even the length used within the indicators, but, asthe method is based on the basic functions that drive the markets youought to find little difficulty in transporting the method.

A 15 minute chart barchart is used this is chosen as a good balancebetween the opposing factors of, price movement, commission

payments, natural volatility of the Cable market, and number of tradesproduced.

You could, if you wished, use a 5 minute chart to produce moretrades, but you would also need to reduce the profit target andstoploss. You would, by doing this, pay a greater proportion of yourprofits in commission. It's all about balance and finding the rightformula for you. If you wished you could apply this to a daily chartand just watch the market once a day for a couple of minutes.


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I believe this is a versatile method of trading and with practice andperseverance can be adapted to suit most peoples wishes.

Chart Set Up (Covered onvideo here)

I use Tradestation as my charting package and trading platform. Thechart I use is above.

For non Tradestation users the indicators should be easy applied to

any package. The exception is the coloured bars which to myknowledge are only available in Tradestation or Supercharts. However,don't worry, they are only used to easily identify particular barformations and can still be recognised without colour. As it's a 15minute chart you'll easily have time to study each bar for a fewseconds to see if it conforms.

The set-up is as follows:-

15 minute bar chart of GBP/USD

Simple moving average of 21 bars using the close price
http://www.fivetictrading.com/forex/Videos/Tradestation/Tradestation.htmlhttp://www.fivetictrading.com/forex/Videos/Tradestation/Tradestation.html


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Bollinger Bands with 9 bar as the length and 0.75 std. Dev. Above andbelow.

UP bars and DOWN bars. These are defined as bars where theopen is in the lower 33% of the bar and the close is in the top 33% (forUP bars).

Trades (Overview of the System on Video Here)

There are 2 distinct categories of trade,

1 The trend initiation

2 The trend continuation

Let me reiterate these are NOT mechanical trades. Yes, you would

take most of the trades, but you can significantly improve on amechanical approach by learning at least the rudiments of readingthe market. Now this is admittedly, half art and half science, but byobservation and utilising the many examples I give later you will beable to improve with time.

No trading system I have ever seen works out of the box. They allrequire learning and dedication to master.

Once achieved, you have a skill that no one can take away and the

satisfaction of knowing that you can make a lot of money, anywhere inthe world, with just an internet connection and a laptop.
http://www.fivetictrading.com/forex/Videos/Overview/Overview.htmlhttp://www.fivetictrading.com/forex/Videos/Overview/Overview.html


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The Trend Initiation Video here

The signal to look for (talking short trade here) is when a DOWN baroccurs that closes below both the moving average and the bottomBollinger Band, AND all 3 lines (moving avg, top and bottom Boll.

Bands) are either level or downThe trade is then taken by placing a sell on a stop at 3 pips below thelow of that bar.

The profit target is set at 15 pips (so 18 pips below the low of the signalbar) and the stoploss is set at 20 pips (so 17 pips above the low of thesignal bar).

Then basically just let it run.

There are a couple of variations that you can incorporate if you wishregarding the stoploss. If there is a natural level at which to place thestoploss that is around the 20 pip area then use that instead. If, afterthe first bar in the trade, it's a downbar then move the stoploss to 3pips above the high of that bar to reduce risk. Repeat this if thesituation allows.
http://www.fivetictrading.com/forex/Videos/Initiation/Initiation.htmlhttp://www.fivetictrading.com/forex/Videos/Initiation/Initiation.html


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There are a few conditions that should make you wary of taking thetrade:-

A If the price, the moving average, and the Bollinger Bands are allclosely together then stand back and look at the chart. Is there anatural level of support or resistance that the price should breakthrough before trading.

B Is the signal bars low, lower than previous bars by a reasonablemargin. If not then use the previous low (or high) as the entry level.

C Don't forget the news

D Is this really a new trend or just a correction in a bigger trend.Stand back, close the bars together and just make sure that this is not

just a correction.

I actually use a chart with no indicators at all to check this. Indicatorsjust confuse the picture in this situation.

Here's a buy set up

And here's the big picture of that trade notice the trendline I've put

on. It's a good line of resistance at 3 previous points, so I checked thatthere was enough space to get the 15 pip profit before it hit this line.There was actually over 20 so I took the trade.


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The Trend Continuation Trade Video Here

In this set up we are using the fact that markets almost always take abreather at some point in a trend. Our expectation is then that thetrend will resume.

Firstly let's define a trend. For this course a trend is when the upperBollinger Band goes below the moving average. Talking a down trend
http://www.fivetictrading.com/forex/Videos/Continuation/Continuation.htmlhttp://www.fivetictrading.com/forex/Videos/Continuation/Continuation.html


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here, but here's a good illustration of an Up trend.So what we're looking for is the market taking a breather. That, for thiscourse is when a downbar appears in an Up trend. (and vice-versaof course)

The downbar must appear at the right place however.

Ideally we want the situation shown below.

Here we got a successful Trend Initiation trade the market then givesa big Up bar followed immediately by a Down bar. The market hasrun out of steam but given time we expect the trend to resume. Thisis our breather set-up and we now look to get on board the trend.

There are 2 ways of entering this trade.

Firstly buy on a stop order 3 pips above the high of either the Up baror Down bar. OR

Buy on a stop order 3 pips above the lowest high following the Downbar IF there's enough space to take the 15 pip profit without theprevious high being exceeded.

These trades are only valid all the time we are in a trend aspreviously defined. So if the lower Bollinger band fell below themoving average then that's no longer a trend and we don't trade it.

Additionally the price should not go below the moving average ( be


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slightly generous here if it does go below but then the close is wayback above the moving average then that's still OK.)

The profit targets are as for the Trend Initiation trade. That's 15 pipsand a 20 pip stoploss.

Profit Targets verses Trend Following.

There are 2 entirely different schools of thought about profit taking.One says that you take a fixed profit on every trade the advantage isthat on most trades you will make a profit. The downside is that thestoploss probably needs to be bigger than the profit target thus givingcomparatively bigger loses and requiring the win/loss ratio to bequite high. Also occasionally by exiting with just a small profit a bigrun will be missed and the opportunity to make a big profit never

available.On the other hand if you try a ride the trend on every trade you willfind many trades end up as losers, or at best break-even. On theupside, there will be occasions when a big trend is ridden well and alarge profit is obtained.

On balance the former method is preferred as the psychologicaleffects are easier to deal with. No one finds it easy to trade a methodthat has more losers than winners.

There is however a method that gives the best of both worlds.Initially trade the fixed profit method already outlined. Later, asconfidence develops adopt the following method.

Trade 2 contracts on every trade. One is exited at the profit target asabove, the other is left to run with the trend as will be described later.

This has the advantage of pocketing a profit to offset the possible lossincurred by the second position whilst still exposing the possibility ofa big winner by following the trend.


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Here we have a trade of short 2 contracts that initially went against usand got within a few pips of being stopped at the initial stop level. Itthen fell away nicely and hit our 15 pip profit target where we took off1 contract.

At this point the stop is moved to position A. This is 3 pips above themost recent Downbar. When another Downbar occurs the stop iscontinually moved lower to B, C, etc. until eventually at H the pricemoves up through the stop level and we're out. The profit on the tradewas the initial 15 pips plus a further 135 from following the trend !!

Please be warned they aren't all this good! But just this one winnerwould pay for many losing trades and overall will add to theprofitability of FiveTic Forex.

Additionally there would have been 2 Continuation trades that couldhave been taken along the trend and these should be treated exactlyas normal trades.


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