2Bull Forex Blog

Of course, you can buy one of the numerous mechanical trading systems advertised by vendors (all with simulated track records) or you can use this one – that’s FREE and made users millions. How it works is outlined in this article and it’s a great way to make forex profits.

This system is simple, so simple in fact that you will have no problem understanding how and why it works – don’t confuse the fact that it’s simple with its profit making ability. Some of the world’s top traders have used it and made a killing.

The system was developed back in the seventies, to trade commodity markets by a trading legend – Richard Donchian, who is considered the father of modern trend following.

It was originally devised to take advantage of the four week cycle in commodity markets that also exists in currency markets.

It’s called the four week rule and here is the rule:

Liquidate short positions and open long position when a price exceeds the highs of the previous 4 calendar weeks. Liquidate long positions and open short position when a price falls below the lows of the previous 4 calendar weeks.

How simple is that?

VERY – but back test it and you will see it works well on trending markets and currencies trend well. Its problem emerges when markets don’t trend, so add this filter:

Eenter positions on the 4 week rule and exit the position on a shorter time frame. Time frames that are frequently used are 1 or 2 weeks. You then simply re enter on the 4 week rule.

That’s it!

It works try it – but most forex traders won’t use it – Why?

Because it’s to Simple

Traders dismiss it straight away – but trading legends such as Richard Dennis have used it so you should consider it – if it’s good enough for one of the greatest traders of all time – then its good enough for you.

It’s not trendy

Today we have neural networks, Fibonacci systems, artificial intelligence and there more trendy and buzzy than this simple system. Traders like to think they can beat the markets, with trendy systems – but they can’t.

It’s Not Fussy about Market Timing

True – it doesn’t buy market tops or bottoms and most traders are obsessed with prediction and of course prediction doesn’t work – it’s another word for hoping or guessing. This forex mechanical trading system works on the reality of price change and trades the truth – most traders hate doing this, despite the fact it’s the only way to make money.

It’s Takes Discipline to Follow

Most traders lack discipline and when a forex trading system is so mechanical and so un fussy about timing they can’t do it and throw in the towel.

This mechanical forex trading system works and is based on breakout methodology which is a proven way to make money – if you use it, you will find that you have a free system that will beat 99% of the junk systems sold on the net, with worthless simulated back tested track records.

If you use this forex mechanical trading system you will get a head start on your way to long term profits.

Forex price movement – how and why exactly do prices move? Simple enough you might think but most traders have no idea about how and why prices really move if they did 95% of forex traders wouldn’t lose! Let’s look at a simple equation for market movement.

Here it is but its simplicity is deceptive…

Supply and Demand Fundamentals/News + Investor Perception = Market Price

Now here are some mistakes traders make by not fully understanding the above – If you believe any of the following, you can say goodbye to your equity:

- You can day trade and win
- Markets move to a scientific theory
- Market tops and bottoms can be predicted in advance
- Buy low sell high is a good way to trade
- You rely on trading expert news stories
- You try and trade the fundamentals

ALL the above will see you lose – let’s look at why:

Firstly, trading is an odds game, as humans are illogical and millions make the price.

Their all governed by emotions – you cannot hope to predict what they will do and furthermore – you can’t do so in short time frames and that’s why day traders lose.

Trading the fundamentals is not possible because they are unimportant – its how their perceived that determines the course of events and the price.

So how do you win?

As a forex trader forget about predicting its simply hoping or guessing there is no scientific theory of market movement – if there were, we would all know the price in advance and there would be no market. Forget vendors who tell you they can predict if they could they would be rich and wouldn’t need your money!

Trading is an odds game but that doesn’t mean you can’t win you can.

The easiest way to trade is to use forex charts and simply follow forex price action, trading the reality of price change – no hoping or guessing, just trading the facts.

Fundamental news is discounted instantly in the price and you will see that on the charts – but you will see something more, how investors perceive the fundamentals and that’s the beauty of forex charts.

You see the whole picture as it is, no hoping or guessing just the reality, as it is.

Now human psychology may not be wholly predictable – but human nature is constant and this will show in repetitive high odds chart patterns which occur again and again.

If you spot and act upon them you can make money.

So when looking at forex price movement remember, it is not the fundamentals that are important or the news – but how investors as a whole perceive the news.

If you understand the above, you will see why simply following charts and acting on the reality of price change can make you money.

If you want to make money from global FX, then the best profit potential comes from long term forex trend following and this means catching and holding the mega trends that last for weeks, months or years. You will see them on a forex chart but what the best way to catch them? Let’s find out…

Were going to use a simple 4 step system, if you want to make forex profits it’s worked and has always worked. This forex trading strategy will put the odds on your side and will ensure you catch every BIG move.

This system is simple and you need to understand this fact – all the best systems are.

Forget expert trading systems, neural networks or lots if indicators – simple systems work best as they are robust and with fewer elements to break in the face of brutal ever changing market conditions.

Let’s start with a simple fact:

If you want to make money forget “buying low and selling high” – you will miss all the big moves. Instead look to “buy high and sell higher” and for this you need to understand breakouts.

Breakouts are simply breaks of important support or resistance levels on a forex chart.

Most traders can’t buy these breaks.

They want to hold on and wait for the price to come back to get in at a lower “better” price and of course prices don’t pull back – they continue. The losing trader then watches these moves sail over the horizon and he’s not in!

Make sure you don’t make the same mistake.

Right lets look how to catch and make forex profits from breakouts.

Step One – The weekly chart

This gives you the big picture look for levels of support that have been tested at least twice (the more the better) and are in two time frames (the wider apart the better), these are levels that are deemed important by the market.

Step Two – Look For the same levels on the daily chart

You are going to time your trading signal off this chart, so look levels that are the same or close to the weekly levels – now wait for the price to break.

Step three – Is the break valid

Not all breakouts continue, some are false, so wait for the break and check momentum. You want to ensure the break is strong.

We don’t have time to discuss momentum oscillators here – but you should use one or two to confirm the break and the stochastic and Relative Strength Index (RSI) are good ones to use. If there in line with the break – go with it.

Step four – Protection and Following the move

The stop loss is obvious – behind the breakout point.

Now when the break occurs, if it is a good one it will accelerate – as stops are hit and fresh buying comes in, as the supply and demand situation changes – WAIT.

DO NOT trail your stop up to quickly.

You want the move underway and you need to ignore volatility in the short term.

Once the move is well underway, start to trail your stop but hold it outside of daily volatility ( if you do not understand standard deviation of price make it part of your forex education now), this means trailing right back – when the move turns, you are going to give back some profit, that’s ok.

If you caught just 60% of every major trending move you would be very rich! If it’s a big move you will have plenty in the bank and you can’t predict where prices go so don’t try.

Simple?

Yes the above is very simple and it works.

Simple forex trading systems work best, as they are robust and they always have.

Complexity has no correlation with forex profits so don’t confuse the two and try and be to clever.

If you try the above and you are patient, you will be forex trend following the right way, catch all the big trending moves and make big forex profits.

Choosing an online Forex trading system is not an easy task. Retail traders are basically spoilt for choice due to the prevalence of so-called ‘systems’ that you can easily purchase online.

This being said however, not all such trading systems are made equal. In this article, I will discuss the things you should look out for, before you decide to hand over your money.

Tip 1 – Make Sure There’s An ACTUAL Track Record

There’s no lack of people selling sub-standard information on the internet today, and things are no different in the ‘Forex trading system’ niche. Unfortunately, this means that all kinds of inferior trading systems will be made available to the public, especially those with no actual record of performance.

Instead of proof of ACTUAL returns, many websites will show you ‘proof’ of SIMULATED returns. This means that the owners of such ‘systems’ don’t have concrete evidence of these ‘systems’ working in live trading.

Needless to say, you should avoid these websites like the plague. If the system developers don’t have the confidence to trade live with it, then neither should you.

Tip 2 – Pay Attention To Track Record Losses

When you DO find a trading system with an actual track record, pay close attention to the losses that the system incurred: you’ll need to make sure there are no excessive losses.

A trading system that enjoys a high winning trading percentage is useless if the losses are large enough… so make sure that most of the individual winning trades are larger than the losses.

A general guideline to follow is to look for individual winning trades that are at least twice the size of each losing trade. This way, you’ll at least enjoy a two-to-one win-loss ratio. Successful trading systems all rely on keep the losses small and letting the profits run.

This post is all about forex scalping for beginners and a key fact you need to learn, if you are thinking of incorporating it in your forex trading strategy – If you don’t understand this fact, you are 100% guaranteed to lose, so here it is…

Forex scalping is based on dumb logic and doesn’t work. Before we look at why, lets dispel the myth that vendors selling scalping systems make money – they don’t. You will always see this with any track record – read it carefully:

“CFTC RULE 4.41 – Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown”.

Personally I think the above should be banned and vendors should NOT be able to present track records that are not real, as they are totally meaningless.

Let’s face it who couldn’t make money knowing the closing prices?

My little Niece could beat George Soros (and she’s only 9) if she knows the closing prices! The problem is we can all be multi millionaires quickly with this info – but trading forex is a little harder, we have to trade not knowing the prices in advance.

Check any forex scalping track record you like and you will see the above or a similar disclaimer. I did see one that printed the vendor’s bank statements as proof the system made money but that profit was probably from selling systems not trading!

Of course there were no supporting broker statements.

So why is forex scalping destined to lose?

Think about how prices are determined:

Millions of traders all with different systems, motivations etc all as a mass group decide the price and you CANNOT Predict what this group will do in a matter of hours.

All short term volatility is random in nature, you cannot use short term levels of support and resistance, so you cannot get the odds in your favor and you therefore cannot win at forex scalping and that’s a fact.

Forex scalping and day trading is an area where you won’t make money, so don’t bother trying. If you must trade short term use forex swing trading – its still short term but you can get the odds in your favor and that’s what you need to win at forex trading.

Today there are many vendors who simply lie about the profit potential of forex scalping and hope the naïve or greedy trader falls for it – make sure you don’t.

Forex scalping always reminds me of the old burger king ad where they claimed to have more beef in their burgers than McDonald’s and in the ad the man picked the burger up and said:

“Where’s the beef?”

In forex scalping terms translated means:

Where is the real audited track record?

To be fair it’s not a fair comparison.

There was of course beef in the McDonalds burger – but you won’t find any profits in the track record of a scalper, just a made up track record done without trading!

So our lesson is in terms of forex scalping for beginners – forget it, try a different way of making money in forex and if you want to trade short term – try swing trading.