Charts required: Day charts with 50,100 and 200 SMA
and 100/200 Bollinger Band plus 14/7/3Stochastic
Trading times: Once per day at NY close
Currencies traded:EUR/USD, GBP/USD,EUR/JPY, AUD/USD, USD/JPY, USD/CHF.
Skill level required: Intermediate toadvanced.
This is an extremely powerful tradingmethod which requires only 1-2 hours a day. It is well worthmastering!
Leverage: Low leverage 2:1
The Extreme Swing™ method is designedwith several ideas in mind. Firstly, trading should be less timeconsuming than “office jobs” and therefore an “end-of-day”(EOD) system is ideal for people who want to enjoy a completelifestyle. Trades are only entered once per 24 hours, at the end ofthe NY session, and then left to work themselves out for thefollowing 24 hours.
Secondly, the idea is to enter tradesless frequently – only on very high probability set-ups. This meansthe cost of trading (spreads and your time) is minimized and thewinning percentage is maximized.Thirdly, in this method, six currencypairs are traded, covering a variety of markets and crosses, thusminimizing the potential for highly correlated pairs being tradedtogether. Although six pairs aretraded, usually the system will onlyplace you into 1-3 pairs at the same time, as entries are highlyselective.As mentioned above, six pairs aretraded; these being: EUR/USD GBP/USD USD/CHF USD/JPYEUR/JPY , AUD/USD.
The chart setup is as follows:
I use day charts only, one for each ofthe six pairs traded, and
arranged on your screen with three atthe top and three at the bottom.
Each chart has either candles (I preferthis) or bars to denote price
action, plus the following statisticalindicators:
1. A 200 period simple moving average(SMA) (close)
2. A 100 period SMA (close)
3. A 50 period SMA ( close)
4. A 100 period Bollinger Band (BB)(Based on close with 2 standard deviations)
5. A 200 period BB as above
6. A 14/7/3 stochastic.
Entering the trade
Rule #1: Only ever trade whenthe price is touching or has pierced or is very close (say within20-30 pips) to a major indicator line on the chart. (50,100 or 200SMA or 100,200 BB)
If the price is not at or near any ofthe indicator lines, no trade may be considered. In this rule, I amsaying the price must be at or near either the 50 SMA, 100 SMA, 200SMA, 100BB or 200BB. At any other place on the chart, trading is notallowed. These indicators act as zones/levels or probability and theymean that the chance of a reaction has increased considerably.
Important: in the case of the BB’sonly – the price can sometimes travel a fair distance through theBB. No matter how far through it has gone, a trade may still beconsidered. The chart below gives examples of where trades might beconsidered in this example:
Rule #2: Trade entries may onlybe considered if/when the 14/7/3 stochastic is overbought (both linesabove 80 on the stochastic chart) or oversold (both lines below 20 onthe stochastic chart). Further, the stochastic lines must be “turningand touching” Let me explain this with the aid of the charts again:The chart below shows the stochastic approaching the 20 level, butnot yet oversold (see the right side of the chart. Note also that thecandleis almost touching the 100 SMA, but no signs of reversal. Moreon that later – just a heads-up for you)
The next chart shows the samestochastic when it has becomeoversold, but not “turning andtouching” (Notice the small bullish candle formed on the chart)
Rule #4: There must be a clear reversalcandle (or bar) on the chart which occurs at one of the zones ofprobability and when the stochastic is “touching and turning” Ihave high lighted some of thecommon candle patterns in the pagesabove, and the most important patterns are “spikes” such asdojis, hammers and hanging man candles, engulfing candles, piercingpatterns,dark cloud covers, full stops andmorning/evening stars. I will discuss more on these later.
Rule #5: The trade risk/reward ratiomust be favourable, and the stop loss must be between 50-150 pips andno more.The best way to explain this system is through severalexamples, and
a step by step trade entry process, solet’s begin with that!
Examples trades
The first chart (USD/JPY) above showsthe price is below all three SMA’s and not yet near the lower 100or 200 BB’s. (the 100BB on thechart is visible at around 117.00) Inthis case there is no trade. If and when we drop lower towards theBB’s, then I would move onto step 4,
but in this case, there is no furtheraction.Notice, however, that the stochastic is “touching andturning” which means a bottom may be formed in the near future
Notice that in this pair, the price isbelow the 100 SMA (blue) but above the 200 SMA (purple) Thestochastic is oversold, but not yet “touching and turning” (seestep 4) The price is at about 160.70, and the 200 SMA is at 157.80,some 190 pips lower. In this case, I need to wait for the price todrop closer to the 200 SMA before considering atrade, and thereforethere is no action to be taken.
Let’s look at an example where we AREat a key level and the stochastic is overbought
Here I see the EUR/JPY reaching upthrough the 200BB (green line)and the stochastic is overbought. Thisimmediately means I cancontinue to consider a trade, and I move on tostep 4. Remember thatso far, the stochastic needs to be overbought oroversold, and theprice needs to be touching or piercing, or very nearone of the key levels. (SMA’s or BB’s).
Now I look to see that the stochasticis “touching and turning” In thelast chart example, this was notyet the case. However, at the verynext candle (the next day), thestochastic did exactly that. See chart below:
Reversal candles
The most important(and sometimes most difficult step of all) is to identify thereversal candle which triggers the reversal I want to trade. Thereare many types of reversal patterns, some of which are identified inthe section above on candle charting. I have found over the yearsthat some patterns are more reliable and easier to spot than othersand I will tell you all about them in the next paragraph.
There are twosimple rules of thumb here:
1. If in doubt –stay out – don’t take the trade
2. Wait for themost glaring, obvious reversals before trading
The most reliablecandle patters are these, in order of importance:
• Obvious spikehigh and spike low (including dojis and shooting stars)
• Piercingpatterns and dark cloud covers
• 8-10consecutive rising/falling days, followed by a reversal day
•Morning/evening stars
• Engulfingpatterns
Small doji candlesat the 200 BB below in the chart
Piercing patternand dojis at 100 SMA
Spike low anddoji’s at the 200 SMA and 100BB
Spike low andbullish engulfing candle below the 100 BB
Hammer and dojiat the 100BB (grey) and below the 200BB (green)
Dragonfly dojiat top 200 BB
Dojithrough and above both BB’s
The trade can beentered as soon as the NY trading day is finished, at the close ofthe daily candle. This is the simplest method to enter the trade.Remember, I am looking to enter the trade in the opposite directionof the most recent move. In the 10 examples above, you will see thatthe trade is in the opposite direction to the move that took placebefore it. For example, in chart 32, the price moved down to the200BB, and the trade was then to BUY the pair. In this case, theUSD/CHF had been moving lower for the past 10-12 days, and thetradewas to BUY USD/CHF. In other words, I want to buy the US Dollar andsell the Swiss Franc.
General rule ofthumb:
1. The stop lossmust be above/below the daily candle which gave the reversal signal –about 10 pips further.
2. The stop lossmust be no greater than 150 pips and no less than
50 pips. If thisconflicts with rule #1, then either the position size must be reducedto accommodate the larger stop loss, orthe trade must not be taken.
3. The profittarget should be at least 150 pips and preferably 200 pips.
Example of a GBPtrade entry off the 200 SMA
This chart exampleis taken from chart 30 in the section above. Thetrade entry signalwas given where the green arrow points to the dojicandle against the200 SMA. This candle is a daily candle which closedat 5PM EST andthen the next candle began to form. Let us say thatthe closing priceof the doji candle was 1.7800, and the high of thedoji candle was1.7930. The rule of thumb above says that the stoploss should beabove the high of the reversal candle. This means thatthe stop lossshould be at 1.7945 (including the spread) this makesthe total stoploss 145 pips – close to the 150 pip maximum I have determined.
Stops and targets
This system canproduce very good profits, but stops are often larger than othersystems. In this case the traded leverage should be no higher than3:1, and ideally 2:1 (See section on moneymanagement nearthe start of the book) With any trading system, the exit is alwaysmore difficult than the entry to the trade. Profit targets should beat least 100 pips, and ideally 200 pips or more – especially if theprice has reached a major high or low and has already moved a300-1000 pips in one direction. There are two ways to set targets.Firstly, many traders will set the target at twice the size of thestop loss. For example, if the stop is 80 pips, the target becomes160 pips. This is a good rule of thumb for theExtreme Swing method. More experienced traders can use technical targets and/ortrailing stop losses.
Example ofratchet-like rally and eventual profit taking by trailing stop inEUR/USD (day chart view)Technical targets, on the other hand, arepre-chosen targets whichthe trade can decide upon using other formsof technical analysis.Once again, this comes with knowledge of basictechnical analysis,with the key ingredients being Fibonacciretracements, Support and resistance lines and Trend lines.
Extreme Swing Forex System MT 4Template with Candlestick Pattern Indicator.
Belowthe link for download the Extreme Swing Forex System
https://drive.google.com/file/d/0Bwjv2Pbf48itcm1KTWJsak9YQ2s/view?usp=sharing
