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Triad Trading
F O R M U L A
Training Manual
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tabLe of contents
i. weLcome to the triad trading formuLa | p. 5 trend finder | p. 8 squish-squash | p. 10 target breakout | p. 12 ii. system #1: trend finder | p. 14 trend finder explained | p. 15 indicators | p. 17 trading with all trend finder indicators | p. 25 trend finder trade signal | p. 26 the setup | p. 27 the entry | p. 29 the stop loss | p. 31 the exit | p. 33 trend finder trading rules | p. 35 trading trend finder: long example | p. 36 trading trend finder: short example | p. 40 final thouhts on trend finder | p. 44 iii. system #2: squish-squash | p. 45 squish-squash explained | p. 46 indicators | p. 48 the setup | p. 55 the entry | p. 56 the stop loss | p. 58 the exit | p. 59 squish-squash trading rules | p. 60 trading squish-squash: long example | p. 61 trading squish-squash: short example | p. 65 best time to trade | p. 69 using squish-squash to trade news announcements | p. 70 final thouhts on squish-squash | p. 72
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iV: system #3: target breakout | p. 73 target breakout explained | p. 74 indicators | p. 82 the setup | p. 83 the entry | p. 85 the stop loss | p. 87 the exit | p. 89 target breakout trading rules: long trades | p. 91 target breakout trading rules: short trades | p. 92 trading target breakout: long example | p. 93 trading target breakout: short example | p. 97 final thouhts on target breakout | p. 101 V. money management and parting words | p. 102 Vi: bonus trading systems | p. 104 friday special | p. 105 gpb/usd trend system | p. 126 the carry trade | p. 149
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Introduction
by Jason Fielder
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market is doing. For example... What do you see on the chart below? How many possible trades do you see? How would you trade it and what type of system would you use?
Ill show you what I see There is one area of the chart where the market was trending down somewhat sharply... This is followed by a period where the market was moving sideways (i.e. in a countertrend direction)...
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Then, there was a breakout from the counter-trend market that seems to be pushing higher...
In my experience, most traders would have only traded the trend and missed out on five other trades. In fact, I counted a total of seven trades in all. How many trades did you see?
Well talk more about the theory of Triad Trading before this course ends, but for now lets take a break from that and look at the three systems that make up the Triad Trading Formula.
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If youll look closely at the chart, youll see that this particular move (which you can tell was identified by Trend Finder because of the characteristic green arrows) accounted for almost 700 pips of profit! Not too shabby for one move... But this is where the hype stops. The truth is that every system, no matter how good, will be wrong at some point. The beautiful thing about trading the Triad Trading Formula, however, is that when you have a bad trade, most likely there will be in another trade that will hedge your position. For example, when you enter a trend trade that turns out to be wrong, thats usually because the system triggered on a false breakout that was really just a ranging, choppy market.
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Fortunately, your counter-trend system will also detect this choppy market, and any profitable trades it generates should more than offset the one bad trade your trend system got you into. Thats the beauty of Triad Trading!
This brings us to the 2nd trading system in the Triad Trading Formula ... Squish-Squash.
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However, as we have seen previously not every trade is a winning trade. The last countertrend trade in this example was a 103 pip loss which occured when the market broke out to the downside.
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If you were only trading a counter-trend system, then you would have lost 103 pips on the last counter-trend trade when the breakout occurred. Youd still be well up, but why give back money when you dont have to? And when youre Triad Trading, you dont have to... By trading with the Triad Trading Formula, when the market broke out you would have made 58 pips from our breakout system, which is the third and final system in the Triad Formula.
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Trend Finder trade) and the cycle of profiting from different market movements would continue over and over again. And at each point in the cycle, youll be able to pull profits out of the market while all the other traders are sitting on the sidelines half the time. Alright, now that you have a good grasp on the theory of Triad Trading and how it functions in real-world trading, lets get into the nitty-gritty and start learning the systems themselves...
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Triad Trading
F O R M U L A
Trend Finder
by Jason Fielder
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but a few unprofitable trades. Unfortunately, they also cut out a fair bit of profitable trades so that the system became more or less worthless. As with most things, an ideal balance must be reached. During the research I conducted to build Trend Finder, I tested over 120 different filter combinations. Ultimately, I settled on a combination of 5 indicators that, based on extensive back-testing and forward-testing, performed the best. But this just gets us the ENTRY to our trade... I havent even begun discussing EXITS and the research that was conducted to locate the ideal exit-point for this system. But Ill save that discussion for a later point in this course. For now, lets look at the indicators that make up the Trend Finder system...
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But again, you dont have to trade with all these indicators unless you want to
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the setup
For the setup, we are looking for all the Trend Finder indicators to turn green at the same time (or for a green or red arrow to appear if you are using the FXI_Trend Finder Trade Signal). When this occurs we have a setup for entry.
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short entry
We are looking for all the indicators to turn red, SOI below -0.341, the stop loses to be above the price, and the previous close needs to be below the PAC signal for a sell short entry.
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short exit
The short exit occurs when one of the stop losses is hit or when two or more of the indicators turn red.
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Long Entry:
Buy at the open if setup occurs. When using the Trend Finder Trade Signal, buy when a green arrow appears.
Long Exit:
Exit a long trade when you are stopped out or two or more of the indicators have turned red. When using the Trend Finder Trade Signal, exit when a green arrow fails to appear.
short trades
Short Setup:
We are looking for all the indicators to turn red, SOI below -0.341, the stop losses to be above the price, and the previous close needs to be below the PAC signal for a buy entry.
Short Entry:
Sell short at the open if setup occurs. When using the Trend Finder Trade Signal, sell short when a red arrow appears.
Short Exit:
Exit a short trade when you are stopped out or two or more of the indicators have turned green. When using the Trend Finder Trade Signal, exit when a red arrow fails to appear.
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long entry
The entry for this long trade is at the open when we have a setup, as indicated on the chart below by the green arrow.
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long exit
As you can see from the chart below, the exit occurred when there were no more arrows at the open of the new bar.
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short entry
The entry for this short trade is at the open when we have a setup, as indicated on the chart below by the red arrow.
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short exit
As you can see from the chart below, when the arrows no longer appear at the beginning of a bar, that is yor signal to exit.
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Triad Trading
F O R M U L A
Squish-Squash
by Jason Fielder
squish-squash expLained
Heres a little piece of trivia that you may find interesting. (I know I did the first time I heard it) Did you know that the markets trend only about 35% of the time? Thats right, nearly 2/3 of the time the market moves sideways, which has always been a huge frustration to trend and breakout traders who only know how to make money when the markets move. Now dont get me wrongI love massive moves as much as the next guy, and few things on this earth can match the feeling you get when you jump in at the bottom of a trend and then ride that baby all the way to the top! But lets be honest, how often does that happen? Well, if my research is correct, the answer is only 35% of the time. And even if you catch every single opportunity that comes your way (which is highly unlikely even with a rocksolid trend system like Trend Finder), that still leaves a whopping 65% of the time where youre left on the sidelines. I dont know about you, but that doesnt sit too well with me So thats why I began work on a counter-trend system that would capitalize on the 65% that almost every other trader was ignoring! Out of this concept was born the Squish-Squash Trading Method The Squish-Squash Trading Method has been in development for the past three years. The first two years were spent creating the Squish-Squash indicator and the additional year was spent creating filters to complete the system. When it was finished, I had a system that could adapt to the ever changing Forex market, including the quick moves during news announcements as well as the different personalities of the major pairs.
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In the pages that follow, you will learn about the indicators that make up the SquishSquash Trading Method: Squish-Squash indicator Linea Planus indicator, and the Strength Oscillator indicator You will learn what they do and how they function together to signal trades. In addition to learning the Squish-Squash trading method, I have also included market research that will help you determine the best times to trade for the maximum profit. (This one page alone is probably worth the investment you made in this training.) Im confident that the Squish-Squash Trading Method will give you the skills and confidence you need to trade when most people dont know what to do. And let me tell youthats an incredibly powerful feeling. Lets get started
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indicators
The Squish-Squash indicator is the foundation and trigger of this trading method. It identifies and filters the extreme conditions within a market so you are able to recognize and profit during counter-trend conditions. The Linea Planus indicator identifies the mode and direction of the market. The Strength Oscillator indicator distinguishes between trending and sideways markets. Now, lets go through each of them one-by-one
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This addition of momentum was the second big leap in creating a counter-trend system that actually works. The example below shows how the indicator tracks a sideways market. I have circled the extremes where the prices touched or broke through the Squish-Squash bands. Note that in a high-volume market, the addition of the momentum filter would eliminate many of these signals
Inputs
The Squish-Squash indicator has several settings so you can tweak it based on your own trading style. On the following page is a screen shot of the Squish-Squash inputs with my default settings in place...
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What follows is a brief explanation for each input in case you want to test your own combinations: Basic Bars High: This input determines how far back the Open to High range will be referenced. The larger the number the smoother the line will be. This input makes small changes in the overall calculation. The default is set to 100. Basic Bars Low: This input determines how far back the Open to Low range will be referenced. The larger the number the smoother the line will be. This input makes small changes in the overall calculation. The default is set to 100. Bars Back SS High: This input determines how many overall bars you want to reference. The larger the number the more lag that will be introduced into the calculation. This input makes large changes in the overall calculation. The default setting is 2. Bars Back SS Low: This input determines how many over all bars you want to reference. The larger the number the more lag that will be introduced into the calculation. This input makes large changes in the overall calculation. The default setting is 2. U: This input determines the vertical distance that the bands are from the price. This input makes large changes in the overall calculation. The default setting is one. There are the settings I use on the four major pairs: GBP/USD = 1, EUR/USD = .5, USD/JPY = .5, and USD/ CHF = .5.
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Momentum Threshold: The momentum threshold input allows you to add the current momentum into the calculations. By adding momentum to the calculation, we are adding the current rate-of-change. This effectively eliminates any lag that has been introduced into the equation. If the momentum threshold is set to 0 then momentum is added from the start. If you set the momentum threshold to 100, then there should be no momentum added to the equation. The default settings for the momentum threshold change depending on the time frame that you are trading on. Below are the default settings for the different time frames: 5 Minute: 15 Minute: 30 Minute: 1 Hour: 4 Hours: 1 Day: 1 Week: 2.5 3.5 4.5 5.5 10 25 50
Remember, that if you do not want the momentum added into the calculation then the input has to be set to 100. This will generate the most possible trades. If you always want momentum added to the calculation then the input has to be set to 0. Setting the momentum to 0 will generate the fewest trades, but increase the accuracy of each trade.
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You will use this indicator to identify when the market is moving sideways. We do this in two different ways: 1. The first way to use the Linea Planus indicator to identify sideways markets is by comparing the current bars Linea Planus indicator value with the previous bars Linea Planus value. If the current bars value and the previous bars value are within the predefined range, then the market is moving sideways. The default predefined range for trading on a one hour bar chart or less is 2 points; this refers to the furthest decimal point to the right.
Example: EUR/USD 0.0003 or USD/JPY 0.03. If you are trading on the day time frame or greater then the predefined range is 4 points; example 0.0004 or 0.04.
If you want the most conservative entry parameters for Linea Planus use the predefined range of zero. If the current bars value and the previous bars value are outside of the
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predefined range then the market is in a trending mode. 2. The second way that we use the LPI is to compare where it is in relation to the Squish-Squash lines. If the LPI is in-between the Squish-Squash lines then there is a greater chance that the market is moving sideways. If the LPI indicator is above the upper Squish-Squash line then the market is trending down. If the LPI is below the lower Squish-Squash line, then the market is trending upward.
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the setup
To have the setup for the a Squish-Squash trade, the Linea Planus Indicator line (LPI) has to be within the SSHigh and SSLow lines, the previous LPI value has to be within 3 points of the current LPI value, and the Strength Oscillator Indicator (SOI) has to be within one standard deviation from fair value (again, with fair value being zero).
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short entry
Example of a Short Entry:
The Linea Planus indicator (LPI) is between the Squish-Squash High (SSH) and SquishSquash Low (SSL). The previous bars Linea Planus indicator (LPI) value is within 3 points of the current bars Linea Planus indicator (LPI) value. For this example, the previous bars LPI value was 1.2939 and the current bars LPI value was also 1.2939. When the values are the same, as in this example, it creates the ideal setup. Remember, point value refers to the smallest decimal point to the right. The Strength Oscillator (SOI) is within the one standard deviation lines, therefore we are in a sideways market. When the price touches or breaks through the SSHigh, we sell short.
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Long Entry:
Price touched/broke below the SSLow line signaling a buy order.
Long Stops:
Long entry stop loss, take the SSRange (SSHigh-SSLow) and subtract it from the SSLow.
Long Exit:
Price touched/broke the SSHigh line. Possible Exits: If the SOI breaks out of the one standard deviation lines, or if the LPI breaks out of the SSH or SSL lines.
short trades
Short Setup:
The Linea Planus indicator (LPI) is between the SSHigh and SSLow lines. The previous bars LPI value is within 3 points of the current bars LPI value. The Strength Oscillator is within the one standard deviation lines: 0.341 and -0.341.
Short Entry:
Price touched/broke above SSHigh line signaling a short order.
Short Stops:
Short entry stop loss, take the SSRange (SSHigh-SSLow) and then add it to the SSHigh.
Short Exit:
Price touched/broke the SSLow line. Possible Exits: If the SOI breaks out of the one standard deviation lines, or if the LPI breaks out of the SSH or SSL lines.
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long entry
The chart below shows that the LPI was between the SSHigh and the SSLow and the SOI is between the one standard deviation lines; so we have our setup. The long entry occurs when the price breaks below the SSLow line as indicated on the chart.
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long exit
The Linea Planus (LPI) was between the Squish-Squash High (SSH) and Squish-Squash Low (SSL) lines and the Strength Oscillator Indicator (SOI) was within one standard deviation from fair value; for our setup. The price broke below the SSLow line forming our entry. The stop loss was placed at the SSLow minus the SSRange (SSH-SSL) at 1.4467. The long exit occurred when the price broke above the SSHigh line.
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short entry
The Linea Planus line is between the Squish-Squash lines and the Strength Oscillator is within one standard deviation of fair value for our setup. The price touched the Squish-Squash High line resulting in a sell short order to enter the market.
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short exit
The Linea Planus (LPI) was between the Squish-Squash High (SSH) and Squish-Squash Low (SSL) lines and the Strength Oscillator Indicator (SOI) was within one standard deviation from fair value; for our setup. The price touched the SSHigh line forming our entry. The stop loss was placed at the SSHigh plus the SSRange (SSH-SSL) at 117.35 The short exit occurred when the price broke below the SSLow line. This trade resulted in a 123 pip profit.
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EUR/USD = 5:00 pm to 2:00 am USD/JPY = 12:00 pm to 7:00 am GBP/USD = 5:00 pm to 2:00 am USD/CHF = 5:00 pm to 2:00 am The times listed above are conservative. If you want to trade a little bit more aggressively, you can start trading at 12:00 pm instead of 5:00 pm. I would not recommend trading Squish-Squash intraday between 8:00 am and 12:00 pm EST, as this is when the markets are most volatile. If you are going to trade during this time, either trade it in conjunction with a trend and breakout system such as Trend Finder and Target Breakout or make sure the momentum threshold is set to zero.
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To trade the news using the Squish-Squash Trading Method, set the input U to zero and the Momentum Threshold to one hundred. Setting U to zero will move the lines in closer to the price action. Setting the Momentum Threshold to one hundred will insure that no momentum is added into the calculation. This will produce a lot more trades. (See screenshot below)
Start trading at 5:00 pm EST the day before the news announcement up until 8:29 am EST. Trading before a news announcement is best performed on the hourly time frame. You should have several trades making small profits on each. Just remember to stop trading before the news announcement is released.
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Triad Trading
F O R M U L A
by Jason Fielder
Having a breakout system in your portfolio is vital to making the most amount of money you can in the market in the shortest amount of time. For one, breakout systems will help offset the losses from your counter-trend system as the market moves out of consolidation. In the same manner it will help offset the losses from false starts that are indicative of most trend systems. In developing the Target Breakout System, I had to go back to the basics in a matter of speaking and ask myself some questions. Where is the most likely location to find potential breakouts? What indicator is the best to find this location? The answer to these two questions resulted in the development of the Target Breakout System. To answer the first question, the locations that have the best potential for a breakout are where support, resistance, and/or consolidation have come into the market. And the best indicator to identify these periods in the market isnt actually an indicator at all - its price action! With Price Action were looking real-time at what the price of a currency pair is right now as compared to the last few bars. So in a sense, were looking at the chart itself to tell us what is going on. The upside to trading with price action is that (unlike other indicators) it doesnt lag behind the market. The downside, however, is that it requires you to look closely at the chart itself to determine these areas of support, resistance, and/or consolidation without the aid of traditional indicators. But dont worry...Im not going to make you look at a blank chart and guess where the
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breakouts will occur. I have developed a proprietary indicator called the Target Breakout Indicator that will aid you in trading with price action. But before we get into the Target Breakout Indicator and how to use it, I want to delve into what this indicator is looking for in the market and how it works. As I said earlier we are looking for areas of consolidation, support, and resistance.
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consolidation
Consolidation is an area where price moves into a smaller range than normal and stays at or around the same price for a period of time. This typically occurs at support or resistance areas, however, it can occur at any time. Markets generally consolidate for one of two reasons: 1. The market has hit an area of support and resistance and the buyers and sellers are at equilibrium, causing the price to remain within a range as in the example below...
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2. It could also be that a news announcement is being released soon and the trading is thin, as both buyer and sellers wait to see what the market is about to do. Regardless of the reason for consolidation, there is a higher than normal probability that the market will breakout very soon after consolidation has begun, allowing us to profit enormously. The Target Breakout Indicator (TBI) identifies these areas of consolidation by referencing the Average True Range (ATR). The ATR is an indicator that measures volatility (or price movement). It does this by subtracting the Low from the HIGH for that day (including any gaps that may occur when the markets open). If the ATR is moving lower, TBI will use this information to determine if the market is consolidating.
support
Support is an area where price has moved low enough that buyers have started coming into the market creating more buyers than sellers. When this occurs, the price will typically reverse and start moving back up. The lowest point during this reversal will create an area or price of support. The opportunity for profit comes when the price breaks through this support line as in the example on the next page...
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Because this price has already been tested, one of two things will occur: 1. The market will move to the support price and buyers looking for a deal will flood the market. This causes the price to reverse back up above the support line once again. 2. If buyers do not come into the market, the price will continue to fall. If the market falls fast enough, this could produce a breakout. Obviously when trading breakouts were looking for #2 to occur. There is such a thing as a false breakout, however (which occurs with scenario #1), so its the job of the Target
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Breakout Indicator (TBI) to locate these areas of support while at the same time keeping us out of the false breakouts. TBI locates areas of support by looking for a series of lows within a defined range. If the market is trending up or down, the lows will not be within a range and therefore will not qualify as a support area. If the lows are within a defined range then the Target Breakout Indicator will identify that location as a new area of support.
resistance
Resistance is an area where price has moved high enough that sellers start to enter the market and eventually outnumber the buyers, ultimately causing the market to move lower. The area or price where this occurs is the resistance area or price.
Note: More often than not there will be an area of support/resistance rather than a defined price.
As you may have surmised, just like areas of support, areas of resistance offer a strong potential for breakouts and therefore PROFIT if we have a system that can get us into these breakouts early enough. And just like areas of support, there are two possible scenarios with trading resistance: 1. The market can hit the resistance area and then pull back. If the market moves fast enough and far enough this could signal a breakout in the other direction. 2. The market can continue through the area of resistance to move higher allowing us to make a profit. The Target Breakout Indicator (TBI) locates areas of resistance by looking for a series of highs within a defined range. If the market is trending up or down the highs will not be within a range and therefore will not qualify as a resistance area. If the highs are within a defined range then the Target Breakout Indicator will identify that location as a new area of resistance.
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Once the Target Breakout Indicator has determined that we are in an area of support, resistance, or consolidation, the indicator will look at price action for the next step. Price action determines the direction of the breakout. To determine price action we look at the current price and the High/Low range for that bar compared to the support, resistance, and/or consolidation area. Then we confirm this with the next lowest time frame to make sure they match up. This allows us to confirm that the market is at a support, resistance, and/or consolidating area
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and also allows us to pinpoint our entry. If all this sounds complicated, dont worry! The Target Breakout Indicator does all the math for you, so you dont have to track eight screens with two different time frames while at the same time doing calculations with the ATR just to trade the four major pairs on one time frame. Think about it...would you want to have eight screens open at all times that looked like this?
Im guessing your answer is No, so lets look at the Target Breakout Indicator and see how we use it to trade breakouts...
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short setup
Example of a Short Setup:
In the example below, the short setup is shown as a light red resistance line.
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short entry
We are going to look for a break below the support line by one pip.
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short exit
Like the long exit, the short exit occurs when the trailing stop loss is finally hit.
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Long Entry:
Buy one pip above the resistance line.
Long Exit:
The trailing stop loss will exit the trade for you.
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Short Entry:
Sell short one pip below the support line.
Short Exit:
The trailing stop loss will exit the trade for you.
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long entry
Once you have established that a Target Breakout has occurred, buy one pip above the resistance line.
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long exit
Sell to close the trade when the trailing stop loss is hit. The chart shows our setup, entry, stop loss, and the exit of the trade. Its very important to use the correct trailing stop loss for the time frame that you are trading on. This will ensure that you exit from the trade in the most efficient manner.
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short entry
The red support line is the setup for a short entry. As the chart below shows, the short entry is one pip below the red support line.
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short exit
Buy back to close the trade when the trailing stop loss is hit. The chart shows our setup, entry, stop loss, and the exit of the trade. Its very important to use the correct trailing stop loss for the time frame that you are trading on. This will ensure that you exit from the trade in the most efficient manner.
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Conclusion
by Jason Fielder
Then...
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You now have the knowledge to go and trade no matter how the market is moving, and let me tell you thats a power that few traders even the professionals possess. Im confident that if you apply the systems and strategies in the Triad Trading Formula you will be successful. All you really need to do is TAKE ACTION and start trading. Thanks again for your investment in this training, and as always... Good trading,
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Triad Trading
F O R M U L A
Bonus System 1: Friday Special Bonus System 2: GPB/USD Trend Bonus System 3: Carry Trade
Friday Special
by Jason Fielder
why fridays?
As you may have already guessed Friday Special is only traded on Fridays (the day when most major news announcements are released). By only trading on Fridays you get to take advantage of these news releases and the fundamental impact that they have on the markets. For example, the USD has their employment figures released the first Friday of every month. The Non-farm payroll is part of the employment figures and is second only to a Fed interest rate decision, as far as its ability to move the market. Other key USD news announcements that are released on Friday are the PCE core inflation report, the current account balance, and the advance retail sales. While currently the USD news announcements tend to move the market the most, there are still other countries that also release economic data on Fridays.
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The JPY release their housing starts and leading economic index typically on Fridays. The CAD has their employment figures, GDP, and retail sales release throughout the month on Fridays. The EUR has news releases that occur on Fridays such as the current account report and their CPI report. The effect that these news releases can have on the market is enormous, and the Friday Special takes advantage of these fundamental news releases.
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the setup
For the setup, we are looking for a 10 day high/low channel breakout on a day chart on Friday. (NOTE: I recommend this system be traded on the day time-frame only.) A 10 day high channel breakout occurs when the price breaks through to one pip above the high of the past ten days. A 10 day low channel breakout occurs when the price breaks through to one pip below the low of the past ten days.
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short entry
We are going to look for a breakout one pip below the low of the past 10 days, but only on Friday. We are going to place a sell short order one pip below the ten day low.
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short exit
Like the long exit, the short exit is at the end of the bar.
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Long Entry:
Buy one pip above the high of the past ten days on Friday.
Long Exit:
Sell at the end of the bar.
short trades
Short Setup:
We are waiting until Friday to look for a breakout below the ten day low.
Short Entry:
Sell short one pip below the low of the last ten days.
Short Exit:
Buy to cover at the end of the bar.
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long entry
Once you have established the ten day high and it is Friday, you need to look to enter the trade at one pip above the high of the last ten days.
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long exit
Sell to close the trade at the end of the bar. Since we are trading on a daily time frame, the exit would be at 5:00 pm EST. The chart shows our setup, entry, stop loss, and the exit of the trade. The trade was closed out at the end of the day for a profit.
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short entry
Sell short one pip below the low of the last ten days.
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short exit
Buy to cover at the end of the bar. The chart below shows our setup, indicated by the down arrow. The sell short entry would be one pip below the low of the pivot bar. The stop loss would be placed 100 pips above our entry, as indicated by a black line. The exit is located at the end of the bar.
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by Jason Fielder
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indicators
In the following section, we will cover how to use the price channel indicator to trade the GBP/USD trend trading system. You should have received the price channel indicator with the Triad Trading System, but I will still show you how to create the indicator by hand so you do not need the indicator itself to trade this system.
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the setup
The setup for a Long Price Channel trade occurs when the price moves up to the highest high of the previous five sessions/days. The easiest way to calculate the highest high of the previous five sessions is to ignore the most current session, then draw a horizontal trend line from the highest high starting with the fifth session moving forward to the present session.
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the exit
The exit that we used is a 3 period high/low channel cross. The best way to visualize this is to plot two simple moving averages (SMA). For a long trade, plot a simple moving average of the high of the past 3 periods/days. For a short trade, plot a simple moving average of the low of the past 3 periods/days.
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long exit
Example of a Long Price Channel Exit:
The exit for the five session price channel long breakout occurs when the high is lower than the SMA of the high of the past 3 sessions.
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short exit
Example of a Short Price Channel Exit:
The exit for the five session price channel short breakout occurs when the low is higher than the SMA of the low of the past 3 sessions.
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Long Entry:
Buy one pip above the upper band of the 5 period price channel.
Long Exit:
Sell at the close of the bar if the high falls below the 3 period SMA of the high.
short trades
Short Setup:
We are looking for price to move right down to the lower band of the 5 period price channel indicator.
Short Entry:
Sell short one pip below the lower band of the 5 period price channel.
Short Exit:
Buy to cover at the close of the bar if the low is above the 3 period SMA of the low.
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long entry
Once you have established that the setup has occurred, buy one pip above the 5 period upper band price channel.
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long exit
Sell at the close or open of next bar when the high is lower than the 3 period simple moving average of the high. The chart shows our setup, entry, stop loss, and the exit of the trade. In the example below the trade was closed at the next bars open, after the criteria for exiting was met. The 3 period SMA is shown in red on the chart below.
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short entry
Once you have established that the setup has occurred, sell one pip below the 5 period lower band price channel.
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short exit
Buy to cover at the close or open of next bar when the low is higher than the 3 period simple moving average of the low. The chart shows our setup, entry, stop loss, and the exit of the trade. In the example below the trade was closed at the next bars open, after the criteria for exiting was met. The 3 period SMA is shown in red on the chart below.
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finaL thoughts
The GBP/USD Trend Trading System uses the large moves that occur in the GBP/USD, both within individual sessions and long term trends to allow you to profit. It also uses a time tested breakout entry system used by the Turtle Traders, the Price Channel Breakout, so the fundamental theory of the system is sound. This system uses a tight stop loss to preserve capital. The tight stop loss also allows you to use a smaller amount of money in your account. Or, you may choose to trade this with a non-correlated system using the same amount of money. Basically the stop loss gives you options with your money management. The exit is a quick trigger exit to preserve gains and get you out of the market if the direction changes so that you can be ready for another trade. The accuracy of this system is lower than other trend systems which Im sure will stop newer traders from trading this system. However, I would challenge you to trade this system in a demo-account or micro-account until you have the confidence that I have in this system. I believe that through trading this system you will become a better and more profitable trader, because it will force you to rely on a system that, while it isnt always the prettiest, is still HIGHLY PROFITABLE. I hope youve enjoyed this report, and I sincerely hope you put the system youve just learned into action.
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Carry Trade
by Jason Fielder
This interest rate carry or rollover is all done on an overnight basis, so you are paying the overnight interest rate on the borrowed currency and at the same time earning the overnight rate on the currency being held. In other words, you are either paying out or receiving interest on the position, depending on whether the interest rate differential is for or against you. Trades are done on a trading day basis and so they are technically closed out at the end of each day. If you are holding your position longer than that, however, your broker simply rolls you forward into a new position for the next trading day. Typically this process is
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transparent, but it does mean that you will either pay or receive the interest differential on your position at the end of each day.
There are also different issues that could make your carry trade unwind and become unprofitable that you need to keep an eye on. In the following section, we will be learning how to create, adjust, and exit (if needed) a successful carry trade.
inflation rate
Another major issue that you need to take into consideration is the inflation rate of the currencies in your basket. High inflation can counteract the currency appreciation that would normally occur in a high interest bearing currency.
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I consider anything over 4% inflation to be high, though its possible this number could change over time. You will need to keep up with what is considered high inflation and adjust your stratagy accordingly.
NOTE: The Consumer Price Index is a news announcement that monitors and measures inflation.
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risk and limit massive drawdowns in your account that could occur when trading just a single pair. So how many pairs should you place in your basket? Simple: As many pairs as possibleas long as they qualify. And just to review, a qualifying pair is one in which the: 1. Interest rate differential is GREATER THAN 3% for the major pairs and 6% for the exotics 2. Inflation for either currency in the pair is LESS THAN 4%, and... 3. The spread when you trade the pair is LESS THAN 20 pips (only an issue when trading exotic pairs) So in the examples below, all the currencies would qualify: Currency NZD AUD GBP USD CAD EUR CHF JPY Interest Rate 8.25% 6.75% 5.50% 4.25% 4.25% 4.00% 2.75% 0.50% Inflation Rate 3.50% 3.30% 2.80% 2.41% 2.40% 2.56% 2.00% 0.40%
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You also need to monitor the currency pairs that are in your basket for any interest rate or inflation changes. Most if not all of the currencies post well in advance when an interest rate decision will be made. If a rate decision causes one of your pairs to fall out of qualification, then you will need to adjust your positions immediately. Do not wait until the end of the week. Remember that most of the movement you see after an economic news announcement is directly related to how the news might affect the interest rate. In the long term, if the news is good for interest rates then the price of the currency should go up. The opposite is also true in that if the news is bad for interest rates, the price of the currency should go down. The most apparent risk of the carry trade is that the foreign exchange rates will change, and the trader will have to pay back a more expensive currency with less valuable currency. This is why you should have stops in the market and why you MUST monitor your trade weekly. If a pair is disqualified either due to interest rates change or inflation increases, simply exit the position and readjust your overall position so that you are risking only 15% of your account at any one time. If you want to trade this system a little more conservatively, risk only 10% of your account.
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the setup
The currency pair has an interest rate differential of 3% or greater on the majors and 6% or greater on the exotics. The spread is less than 20 pips. The currencies need to have low to moderate inflation. If the inflation is high the pair does not qualify.
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the entry
We are looking for a pair that has an interest rate differential, spread, and inflation rate that qualify. If this occurs, then we are going to sell the lower interest rate currency and buy the higher interest rate currency.
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the exit
You will need to exit your position if the interest rate differential drops below 3% for majors and 6% for exotics. You would also exit if the inflation rate of the currency you bought becomes high. Remember, the carry trade is a long term trade. The example below lasted nearly three years.
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Stop Loss:
The stop loss is placed 250 400 pips below the weekly close, depending on the volatility of the pair. If you want a set standard stop loss, place it at 300 pips. If you are stopped out but the pair remains qualified, you should then re-enter the position when you adjust your basket.
Adjustment:
At the end of the week you need to adjust your carry basket. You also need to evaluate your carry basket to see what percentage of risk you have in the market. If the account went up you need to buy more lots or mini-lots to bring your account to 15% exposure. If you account went down you need to sell lots or mini-lots to bring your account to 15% exposure. Next you need to adjust your stop loss.
Note: I prefer mini-lots because it allows you to adjust your account to a more precise level.
Exit:
If a currency pair in your carry basket falls out of qualification, then exit the trade where it is and adjust you carry basket with the remaining pairs to 15% exposure of your overall account size. To fall out of qualification the currency pairs interest rate differential has to fall below 3% on majors and 6% on exotics or the inflation rate of one or both of the currencies in a pair has to become high.
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