Trading Secrets Unleashed

Trading Secrets
Unleashed
Practical Guide to Meteoric Trading Success!
Page 1
Trading Secrets Unleashed 2009 All Rights Reserved ChartSecret.com
Table of Contents
Introduction ... 3
FOREX Market; The goal of this book; Trading methodology and its basis;
Chapter 1: Foundations of Trading Success ..... 4

Importance of the proper mindset; false beliefs that prevent achieving trading success; System and
solid rules for trading; Effect of quality of trades on performance;
Chapter 2: The Basics of Charting ..... 8

Support and Resistance levels; Trendlines; Breakouts and Pullbacks; How to confirm pullbacks and
bounces with Candlesticks; Examples;
Chapter 3: Money Management ... 25

Universal rules of Money Management; Do not change your trade size; Effect of losses or gains over
trade size;
Chapter 4: Chart Patterns .. ..... 28

Chart patterns we will trade; How to trade Channels; How to trade Triangles; How to trade
Megaphones and Asymmetric Megaphones; Examples for each pattern;
Chapter 5: Trade Management ..... 54

What is Trade Management; Common methods of Trade Management; Using 4HiLo indicator to
trail Stop Loss;
Chapter 6: Trader Evolution ... 59

Learning curve of traders need for experience; Ways of speeding up learning; Trading Journal;
Practice on historical charts and patterns;
Conclusion ........ 61
Page 2
Introduction
The world of trading has witnessed an enormous change in the last decade. The rapid
development in field of computers and internet now allow private traders to
participate in the world largest financial market the FOREX market. This market
exchanges over 1 Trillion Dollars each day and provides the sophisticated trader
countless opportunities to profit. This is done via analysis of price, also known as
Technical Analysis.
Once a secret art used by gifted traders, Technical Analysis had turned into public
knowledge, allowing traders to profit from market movements from the comfort of
their own homes. Nevertheless, the mass of knowledge also created a need to filter
the excessive information into clear signals buy and sell. This book aims to teach
the practical side of Technical Analysis from identification of patterns to exact entry
points.
This book is written exclusively to help you to achieve your trading goals, whether
you are a beginner at the markets or have traded for years. Technical Analysis has
many more faces and tools to guide your way, and this book does not pretend to
cover all these. However, if you are seeking clear, straight-forward rules for trading
without wasting time and money this book is for you.
The main trading methodology is based on Charts and Price. These were proven to be
the most consistent trading signals in the long-term, and have given traders early
signs of trends since the beginning of the 20th century. The patterns you will learn
here have occurred repeatedly for decades and will appear forever. This is what
makes them so powerful.
Nevertheless, the exact rules for trading chart patterns are a mystery to most
traders. Traditional charting books lack the definition of entry points, and give merely
a general definition of patterns. These books do not provide the essential knowledge
needed for consistent and profitable trading of chart patterns which is even more
crucial when trading intra-day. In this book you will find specific and clearly defined
entry-points, designed to maximize your profits with low-risk trades.
Page 3
Chapter 1:
Foundations of
Trading Success
In this chapter I will describe the most important foundations of a successful trader.
These are also the elements which most people (95%, to be exact) fail to
comprehend and implement in their trading. After reading this chapter you would
have made a great step into becoming a successful, consistent winner.
Success Element 1: The Trader Mindset

Most failing traders believe that the reason for their failure is analytical skills that are
not fully developed. Some think that the reason is lack of equity, and with more
funds they can be more successful. It is rarely true.
In fact, the major reason for failure in trading is improper mindset. Self-sabotaging
mindset is the key for all trading illnesses. How many times did it happen to you that
you deviated from your system for no reason, just to later realize that sticking to it
would have yielded much greater profit? How many times did you close positions
early or enter not according to your rules? Numerous times, for sure. A trader with
proper mindset can achieve great results with a simple trading system and a very
small equity and gaining this mindset should be your primary goal.
What is a trader mindset?

Mindset is simply what you believe in your beliefs regarding trading, success, and
consistency. In order to ensure a proper and effective trading mindset, we will now
instill helpful trading beliefs and remove the ones that cause you to fail.
Limiting Belief 1: A winning trader wins 100% of his trades

This is a common belief that prevents many traders from achieving trading success. It
Page 4
is a false belief as no trader wins 100% of his trades. I want to emphasize this idea
as it is crucial: No traders win 100% of his trades.
The reason for this lies in the fact that trading is an endeavor that involves
probabilities. Each trade has two outcomes - win or loss, and each outcome has a
probability for occurring. A winning system simply has more probability of winning
than losing, and it by no means wins 100% of the trades it signals. Any news event in
a remote country can affect the market and your trade and you can do nothing
about it. There are many hidden variables involved in each trade which you cannot
predict, and each one can cause you to lose.
What is the good news? You don't have to win 100% of your trades to be profitable.
The solution to this apparent paradox lies in quality of your trades - the amount you
lose versus the amount you gain in each win. If you win twice the size of your losses,
you will be profitable even if you do not win 100% of your trades. The next example
will demonstrate it.
Let's assume you are risking 1% of your equity of each trade, and gaining 2% on each
win. Let's assume you have an average win probability of 50%. If you had taken 10
trades, you will now be with 10% gain on your equity. You see how the high quality of
the trades (which will be later defined as Risk:Reward Ratio) compensated on the
mediocre win percentage. Remember this example:
Trade Result
1 +2%
2 -1%
3 +2%
4 -1%
5 -1%
6 +2%
7 +2%
8 -1%
Page 5
Total: +4%
Fig. 1: Result of trading with 50% win percentage
The belief that a trader has to win 100% of its trades to be considered profitable
causes many traders to lose confidence in their system, usually at its first loss. Many
traders may change or alter their winning system, due to momentary losses that have
nothing to do with their profitability.
A good friend of mine suffered from this belief. He traded a system I instructed him
to (which will be described in the following chapter), but ended up losing money. He
began by winning several trades, but a few losing ones totally wrecked his
confidence, and he discarded the system as ineffective. Had he realized the fact that
some losses are inevitable, he would continue trade this system and next profits
would have covered his losses and much more. Beware of such perfectionism in
trading it usually does more harm than good. Perfectionism is good as long as you
channel it towards thorough study of past trades and improvement.
Another unfortunate result of this false belief is constant, infinite search for the
perfect trading system, referred as the 'Holy Grail'. Trader may possess a very
profitable system but will stop trading it as he believes that it is not profitable
enough.
Helpful Belief 1: Losses happen. It is a part of the business and does not influence
my system.
From now and on, you must accept your losses as 'part of the game'. It is hard to
continue trading a system that produced losing several losing signals, but this is what
consistent traders to on daily basis. This is the essence of consistent profits in the
market sticking to your system.
It is not easy to remain detached from markets or systems that cause you to lose
money. It is very tempting to add more indicators or confirmations to your system, or
even to ditch it completely, looking for the next Holy Grail. Please don't do that.
Accept losses as being the cost of making business, and remain completely confident
of your system.
Page 6
Success Element 2: The System
The second most important element of a winning trading career is the System. Trader
must have solid rules for entering, exiting, taking profits and setting stop loss for each
trade he takes. He must have iron-solid characteristics for determining what signals
are weak and should be discarded, and what are the best signals he must take
without hesitation.
'Why do I need a system? I just trade based on what I see on the chart'.
Common mistake.
A trader in his early career has no means to analyze the markets properly, due to lack
of experience. Any discretionary trade he will take is of high risk and his chances of
losing are very high. Only after 1-2 years of chart experience, one may develop a
'feel' for the markets.
Until then, I advise you not to trade discretionary trades. Restrict yourself to trading
patterns which you know well to identify and trade. I will teach you strong chart
patterns in the next chapters.
It is important to realize that any attempt of trading discretionary trades without

thorough experience is practically doomed. I know many people who struggle
endlessly with the charts, trying to get the 'feel' for the markets. Eventually, some
may get it, but the process is very slow. It would be much easier to learn the markets
while executing a simple strategy and earning a living.
A few words about trading systems: I don't believe in indicators. I have traded and
tested almost all indicators available, and almost none seem to work for the long-
term. MACD, RSI, and CCI - they all seem nice in retrospective but when one trades
with them, his account will suffers. That is why the system I am going to teach you is
based solely on charts. The chart patterns I am going to teach you are as old as the
markets themselves. They appeared from 1900 to this very day, and have proven
themselves as the most profitable method of trading and speculating in the world
markets.
Page 7
Chapter 2:
The Basics of Charts
In this chapter I will teach you the basics of charting the very foundation we will
build on in the next chapters.
You will learn:
What is Support and Resistance
How to draw Support and Resistance levels correctly
How to draw trendlines
What are Breakouts and Pullbacks
How To Time Entries
Support and Resistance

These ideas are at the very core of Chartism and Technical Analysis, and almost all
Chart Patterns involves them in some way. We will now define Support and
Resistance and describe the ways they may appear in the markets.
Support and Resistance are psychological levels which price has difficulties to break.
Many reversals of trend will occur on these levels.
When a certain level is difficult for price to cross upwards it is called Resistance.
When a certain level is difficult for price to cross downwards it is called Support.
The harder for price to cross a certain level, the stronger it is and the profitability of
our trades will increase. Try to trade on levels that price stopped on at least twice.
The most basic form of Support and Resistance is horizontal. Examples:
Page 8
Fig. 2: Price bounces off horizontal Resistance level at 1.5800
Fig. 3: Price bounces off horizontal Resistance level at 1.5845
Page 9
Fig. 4: Strong horizontal Support level at 1.5450
Fig. 5: Horizontal Support level at 1.5730
Page
Trading Secrets Unleashed 10 2009 All Rights Reserved ChartSecret.com
Strong horizontal levels are round levels - 1.1300, 148.0, 130, etc. These levels are
usually prone to high activity from buyers and sellers, and therefore usually cause
reversals in price.
An interesting phenomenon can occur when price breaks a psychological level:

Support level can transform into Resistance, and vice versa. This knowledge gives
you the power to predict price reversals. Example:
Fig. 6: Resistance level turned into Support after breakout
Another visual representation of Support and Resistance is dynamic the Trendline.

This is a sloped line which is difficult for price to penetrate. There are support
trendlines and resistance trendlines - depending on their position in relation to
price.
Examples for trend lines:
Page
Fig. 7: Dynamic Resistance trendline in EUR\USD. It is a Resistance level because it is the upper
bound of price
Fig. 8: Dynamic Support trendline in EUR\USD. It is a Support level because it is the lower bound of
price
Page
Fig. 9: Dynamic Support at EUR\USD
Fig. 10: Dynamic Resistance Line
Page
All the chart patterns we will cover in this book consist of trendlines and
psychological levels. Study these examples well and test your knowledge by
identifying trendlines in your trading platform.
Breakout and Pullback

Our trading decisions will be based on actions that price can perform in relation to
trendlines. There are three scenarios that price can perform:
Bounce
Breakout
Pullback
I will now explain each scenario and demonstrate in charts.
Bounces
Bounce occurs when price touches a Support or Resistance level and bounces in the
opposite direction. These are strong signals that we will incorporate in our trading
repeatedly.
Examples for bounces were shown in the last pages:
Page
Page
Price bounced several times on these support and resistance levels. The more
bounces the stronger these levels are. We will only trade on levels that have at
least 2 bounces. Levels with 1 bounce only are not strong enough to serve as trading
signals.
Breakouts
Breakouts occur when price breaks a support or resistance level. They are usually
accompanied with high volume and big movement of price. We will not trade these
signals.
Examples for breakouts:
Page
Fig. 11: Breakout of a dynamic Resistance level
Fig. 12: Breakout of horizontal Support level
Page
Fig. 13: Breakout of Resistance trendline
Fig. 14: Powerful breakout of Resistance trendline
Page
Breakout signals attract many inexperienced traders that mistakenly think that the
Breakout is a profitable signal.
Breakout is usually an unreliable signal whose continuation is doubtful. Price may

appear to break a certain level but will close below it this is known as 'Fakeout'.
This happens a lot, especially when trading in small time-frames (Day Trading). When
trading stocks, you can trade breakouts, though you will suffer from the same
drawback these signals have.
This drawback is the inability of placing a stop loss at a logical location. When
entering on a breakout, we don't know where to place the stop loss, as price can
retrace, touch our stop loss order (closing our trade) and continue in the original
direction. In order to place a stop loss it must be far from price thus decreasing our
profitability.
We will now describe the main signal we will trade, one with highest power and
reliability.
Pullbacks
Pullbacks occur when price re-touches a Support\Resistance previously broken. This

is one of the highest quality signals and we will trade them in many chart patterns.
Examples for pullbacks:
Page
Fig. 15: Price broke Support trendline, then re-touched it and continued down
Fig. 16: Pullback after breakout of Support. Note the strength of the movement and the precise
reversal signal.
Page
Fig. 17: Precise pullback after breakout of Resistance trendline
Note that pullbacks should occur at few bars after the breakout. If the pullback
doesn't occur quickly we will discard it as a potential trade. This is because
psychological levels tend to lose their reliability as they became older. Always aim to
trade newest trend lines and discard the old ones.
The pullback is an extremely strong trading signal, which results in frequent winning
trades. This is empowered by the fact that when trading pullbacks, we are actually
trading with the prevailing trend! The breakout that came before the pullback
confirmed the strength of the trend and enhances the quality of our signal.
When Trade is Confirmed

We will now describe a very important subject exact timing of trades. Until this
point we have discussed the scenarios which we will trade (bounces and pullbacks).
Now we will describe when exactly each scenario is confirmed and a trade should
be entered. Do not worry if the rules are not completely understood numerous
examples of these techniques will be given in the following chapters.
Page
Bounce
Bounce is confirmed after:
1. Price created one candle in the opposite direction of previous candle.
2. A second candle passed the low of the previous (for short trades) or high
(for long trades).
Examples:
Fig. 18: Long entry confirmed after the second Bullish candle closed
Page
Fig. 19: Entry prices are marked on chart
Fig. 20: Short entries are marked on chart
Page
Pullback
Pullback is confirmed the same way as bounce.
At all future chart pattern examples, exact entry point will be marked.
Page
Chapter 3:
Money Management
Most people who approach trading discard Money Management as it is less
attractive than indicators, systems, and practical trading techniques. Nevertheless,
this is the core foundation of trading success. Without solid money management it
even the best trading system will cause losses. It is important to know the basic
truths of Money Management as they are the core of any probabilistic endeavor.
The basics of money management are derived from a simple trading truth:
The outcome of any single trade is unknown
The outcome of any single trade is unknown. Each outcome profit or loss has a
certain probability for occurring. The conclusion from this truth is that streaks of
losing trades will occur, even if your trading system is profitable. The purpose of
money management is to make you survive the streaks and able to recover quickly.
First principle of money management:
Risk a constant amount of money on each trade
I recommend risking 1-3% of your money on any single trade. Following this principle,
even if one suffers 10 consecutive losses, he will only lose 10%-30% of equity and
would be able to continue taking trades and eventually recover. Most people risk 5-
10% on each trade. This is a strategy that will inevitably lead to margin call as even
the best traders sometimes suffer from streaks of 10 consecutive losses. When these
streaks occur, it will eliminate profits of many successful months or even years if
improper Money Management is used.
This is an important issue many traders tend to forget. A fellow trader of mine is an
exceptional trader. He had months with 1000 pips profit, and he doubled his account
almost each month. After few months of trading with immense success, he
developed an attitude of a total winner. This was a double-edge sword: It gave him
confidence in his analysis which is crucial for traders, but it also led him to believe
Page
that he is the market. He forgot the main principle of Trading, that each trade is a
probabilistic event. His trade size grew gradually until he risked 30%, even 40% of his
entire equity in single trades. Despite his exceptional trading abilities, he eventually
ended up broke.
I will now describe a popular method of money management that is accepted by

investors and traders, though it is mathematically proven to diminish your account. I
am talking about Martingale also known as Averaging and Doubling-Down. The
basis of this method is doubling the trade size after each loss, so in case of profit, it
will cover all previous losses. This strategy's origins are traced to gambling.
This money management system attracts many novice traders because it seems to be
the magic cure for their trading illnesses. I will now demonstrate how destructive this
method actually is. Let's assume you risk 1% of your equity on a single trade very
conservative approach. For each loss, one doubles his trade size, in order to
compensate for previous losses.
It takes only 7 consecutive losses to drain all money from trading account. It may
seem a distant, improbable event, but even one has 60% win percentage (and most
traders do not), it takes just 245 trades for such an event to happen. Eventually, the
evaporation of money is inevitable.
This leads us to the second principle of money management:
Do not change your trade size
No matter how many losing trades occur one should keep his trade size constant. The
constant trading size will eventually lead to recovery. Most traders, when faced with
streak of losses, will decrease their trade size because of fear, or increase it to
compensate for their losses. I strongly advise you not to follow this course of action.
These are the core foundations of Money Management. Remember these principles
and do not deviate from them, in any circumstances. Even if you change the type of
signals you trade, or choose to follow a system of your own, these principles should
be left intact in your trading arsenal.
Let us summarize them up:
The outcome of any single trade is unknown
Page
Risk a constant amount of money on each trade
Do not change your trade size
Now, when we have the foundations, we shall proceed to learning the core of our
trading system Chart Patterns.
Page
Chapter 4:
Chart Patterns
This is the most important chapter of this book. I advise you to read this chapter
thoroughly before implementing its principles on real account.
Chart Patterns are the foundation of this trading system. Each trade you will make,
no matter on which currency pair or commodity, will be based on chart patterns. The
patterns I will teach you are 100 years old, and have appeared repeatedly on
countless charts of stocks, commodities, bonds, and virtually any traded security.
Their win-percentage is statistically proven and their behavior is predictable. In this

chapter you will learn to harness the power of charts - into meteoric trading success.
Pattern 1 - The Channel

The Channel is one of the most reliable chart patterns. Its very core is a strong, one-
sided trend with parallel support and resistance lines. It is also one of the easily
identified patterns, which makes it ideal for beginners. This is the pattern most of
your trading profits will come from.
Fig. 21: Illustration of Channels
Page
I will focus only on Ascending and Descending channels when trading. Horizontal
channels are trickier to trade and are more often misinterpreted.
I will now teach you the most profitable and least risky method of trading the
channel:
The Pullback
This type of entry is designed especially for beginners at trading, as it provides a

strong and objective entry point.
The steps to trading it are the following:
1. After channel is identified, wait for its breakout price breaking out of one trend
line.
Fig. 22: Channel is identified and price breaks its Support trendline
If it is an ascending channel that broke upwards do not trade it.
2. After a breakout has occurred, wait for a pullback to the trend line that was
broken.
Page
Fig. 23: Price pulls back to the Support trendline
3. Wait for trend to be confirmed (Confirmations of pullbacks are described in

Chapter 2)
Fig. 24: Short trade is confirmed candle is below the low of his previous candle
4. After trade is confirmed, calculate stop loss in the following way:
Page
For short trades: Stop Loss is 1 pip above the highest high of 3 last candles.
For long trades: Stop Loss is 1 pip below the lowest low of 3 last candles.
Fig. 25: Stop Loss is placed 1 pip above highest high
5. Calculate Take Profit: measure the channel size, and subtract this amount from the
breakout place. Channel size is defined the distance between its Resistance trendline
and its Support trendline. It is illustrated in the next chart.
Page
Fig. 26: Target for breakout is measured
6. If the Take Profit divided by Stop Loss is less than 1.5, do not trade. This is called
the Risk:Reward ratio.
7. Enter, set take profit.
Fig. 27: Channel pullback trade result
Page
More examples of trades:
Fig. 28: Channel Trade Example Short trade entered after pullback to the Support trendline
Fig. 29: Channel Trade Example
Page
Fig. 30: Channel Trade Example
Fig. 31: Channel at the AUD\JPY. Price touched the target though it is not shown in
chart. Note that resistance trendline began earlier than the channel itself.
Page
Fig. 32: Channel Short trade
Fig. 33: Long trade on Ascending Channel
Page
Fig. 34: Short trade after breakout of an Descending Channel. Risk:Reward was 1:8.
Fig. 35: Ascending Channel
Page
Fig. 36: Descending Channel
Page
Pattern 2 - Asymmetric Triangle
The Asymmetric Triangle is also a highly reliable pattern, easy to identify and trade.
It consists of two trendlines: One that is horizontal and one that is sloping,
converging into the horizontal one. Its interpretation is also very simple to
understand: Price is converging in a certain direction until its breakout in this
direction.
Do not confuse this pattern with the Symmetric Triangle which is more common, but
not profitable. Its signals are highly unstable, and it rarely reaches its projected target
even when trading a strong signal such as a pullback. Ignore the Symmetric Triangle
you do not need it in your trading arsenal.
Illustration of the Asymmetric Triangle pattern:
Fig. 37: Illustration of the Asymmetric Triangle Pattern
The psychology behind the pattern
Price is creating lower Highs, indicating that sellers are gaining power, while buyers
are staying flat. Eventually sellers win the battle and price breaks the support level. It
is a demonstration of one part of the market which is steadily gaining power over the
opposite, until a breakout takes place and the patterns comes into effect.
Page
This pattern is traded in 2 ways:
1. Trade after bounce from the trendline.
2. Pullback after breakout of the horizontal level.
Illustrations of trading zones:
Fig. 38: Trading zones in the Asymmetric Triangle
Page
Examples of trades:
Fig. 39: Two trades based on the Asymmetric Triangle. The two were on the sloped
trendline itself.
Fig. 40: Two trades based on the Asymmetric Triangle Chart Pattern. The first was a
result of touch at the Resistance trendline bounce that was confirmed. The
second trade is a pullback of price to the Support level. Note that for both trades the
Page
rules of Minimal Risk:Reward ratio is met (Target divided by Stop Loss is greater than
1.5)
Fig. 41: Precise pullback entry after an Ascending Triangle pattern. Price pulled back
to the Resistance level and confirmed a trade after the bullish candle passed the
Bearish one. Note that target was not met in this trade. In these cases the Trade
Management techniques will make sure that profits are safe more on this issue in
the next chapter.
Page
Fig. 42: Very precise short entry after a pullback to Support horizontal line. Price
broke the triangle as predicted and pulled back to the support level. Pullback was
confirmed by candlesticks and short entry was issued.
Fig. 43: Pullback trade at the GBP\JPY currency pair. Even at highly volatile pairs the
patterns still provide leading trading signals.
Page
Pattern 3 - Megaphone
The Megaphones are a group of chart patterns that offer trading opportunities with
high Risk:Reward ratio. There are two types of Megaphones: The Symmetric
Megaphone and the Asymmetric Megaphone.
Symmetric Megaphone
The Symmetric Megaphone consists of two expanding trendlines, creating a shape of

megaphone which bounds price.
Fig. 44: Illustration of the Megaphone Chart Pattern
The megaphone is a representation of a fierce struggle between buyers and sellers:

each side acts brutally, taking the price in his direction, while the opposite side reacts
by pushing price backwards. This battle between bulls and bears allows traders to
take high Risk:Reward positions at the Megaphone pattern.
Page
How to Trade
We will trade bounces of price on the Support and Resistance trendlines of the
Megaphone. Long trades will be issued on the Support trendline and Short trades will
be issued on the Resistance trendline.
Examples for trades:
Fig. 45: Long entry after a bounce of price off a support trendline, in a Megaphone
pattern.
Page
Fig. 46: Long entry after a bounce of price off a support trendline, in a Megaphone
pattern. Note how the Megaphone initiated the reversal of the previous trend and
ignited a Bullish trend.
Fig. 47: Short entry at bounce of price on the Resistance trendline of a Megaphone
Chart Pattern. Note the exceptionally high Risk:Reward ratio. If you limit yourself to
Page
trade only high-quality trades like these, your equity curve will be much smoother
and general profitability will rise.
Fig. 48: Short entry at the Resistance trendline of a Megaphone.
Page
Fig. 49: Short entry, in which price didn't hit target but stopped on a support level.
Trade Management tools will help us exit with profits even in trades like these. Next
chapter will cover tools for using a Trailing Stop Loss.
Fig. 50: Short trade at GBP\JPY. Note how the Megaphone signaled the reversal of
trend
Page
Fig. 51: Great Megaphone trade in the EUR\JPY pair Long entry issued after 5th
bounce on the Megaphone and resulted in +10% gain in profits. Price continued its
uptrend until it reached the Resistance trendline of the Megaphone.
Note: We will not trade pullbacks to the Megaphone after its breakout, and limit
ourselves to trade only the movement within the trendlines. Breakout trades are very
rare and generally hard to indentify properly.
Page
The Asymmetric Megaphone
The asymmetric megaphone is a pattern that resembles half of a megaphone. It

consists of two trendlines: one that is expanding and one that is horizontal.
Fig. 52: Illustration of Ascending Asymmetric Megaphone
Fig. 53: Illustration of Descending Asymmetric Megaphone
How to Trade
We will trade this pattern in two ways:
Page
1. Bounces from horizontal trendline.
2. Pullback after the sloping trendline is broken.
3. Pullback after the horizontal trendline is broken.
Examples
Fig. 54: Long trade after a pullback on Resistance trendline of Asymmetric

Megaphone
Page
Fig. 55: Short Trade after price bounced on Resistance trendline. Position closed
when price touched horizontal level.
Page
Fig. 56: Short entry after a precise pullback to horizontal Support level.
Page
Fig. 57: 2 Short trades at the Asymmetric Megaphone. First trade was at touch at
Resistance trendline of the Megaphone closed after price touched the Support
level. Second trade opened after price pulled back to the support level. Target was
calculated via the Measure Rule.
Page
Chapter 5:
Trade Management
From trade entry until the trade is closed we still have control over our trade's stop
loss, take profit position and trade size. In this chapter, we will discuss the methods
of altering these parameters for maximum profit.
Stop Loss
Moving Stop Loss after a trade has been initiated is called Trailing Stop Loss. Its
purpose is to protect the profits already gained. I will now describe several common
methods of trailing stop and the method you will use while trading this system.
Standard Trailing Stop
Standard Trailing Stop is with constant pips amount. That is, Stop Loss is trailed to a
certain amount of pips below the current price. This method is a common yet highly
ineffective way of trade management. It usually results in early exits with small
profits that does not justify the entry to position.
Illustration of Stop Loss position when using Standard Trailing Stop:
Page
Note how many whipsaw signals are shown and how many trades are closed very
early before profits roll in. This is a highly ineffective method and should not be used.
Page
4 HiLo Trailing Stop
This is the trailing stop method you will implement in your trading. This is a less
common way of trailing stop, but a very powerful one, used by many successful
traders. The most famous ones were the Richard Dennis' Turtles.
The basics of this method are simple:
Long trades: Calculate the lowest low of 4 last candles. If that level is in
your profit zone (meaning that if price reaches that level you will still be
in profit), put the Stop Loss 1 pip below.
Short trades: Calculate the highest high of 4 last candles. If that level is
in your profit zone, put the Stop Loss 1 pip above.
The indicator supplied with this book automatically shows the Stop Loss position in
relation to last 4 bars, so no manual calculation is needed. Make sure, however, that
stop loss is always in a profitable price level. Don't put the Stop Loss in a place where
your position is not profitable.
Note the smoother stop loss movement is in the following figures.
Page
Examples:
Fig. 58: Green line indicates Stop Loss for Long trades, and Blue line indicates Stop
Loss for Short Trades.
Page
Fig. 59: Stop Loss should be set for each new candle opened
Take Profit
The second, more common way we will use to close trades is the take profit order.
For every pattern taught in this book a method of calculating the target was supplied.
Use the 'Measure Rule' to calculate target for each pattern you trade and set this in
your Take Profit order.
Once you become confident and have more trading experience, you could take
profits earlier or even later if you sense a big movement in your favor. However, it is
advisable that beginners implement the simple Take Profit and not exit manually.
Manual modification of the trade opens room for psychological failures and emotions
that can harm your trading performance.
Page
Chapter 6:
Trader's Evolution
In the previous chapters we have described the global analysis tools used in FOREX
pairs and commodities Support and Resistance. We also described several high-
performance chart patterns by which you will generate signals. We will now describe
the process of your evolution as a trader, and several ways to speed up your learning
process.
Historic Charts
Despite the solid definition of the ways to identify and trade each pattern, extensive
experience is needed to become consistent in trading performance. This experience
is gained by months of screen-time no shortcuts. Nevertheless, one can gain his
initial experience by easier ways. The simplest one is: Using the past.
Scroll your charts 1 month into the past, and attempt to identify the patterns you
have learned over 1 month time. On each pattern you identify, mark the entry point,
stop loss, and the final result of the trade. After doing so for all the patterns,
summarize the result and witness a positive number: profit. This exercise not only
provides initial charting experience, but also gives you confidence in your system's
profitability. You can expand your search to several previous months in order to gain
more experience and watch more charts.
Keep a Journal
For each pattern you trade or identify, keep a record of the time and place you have
discovered, entered and exited the trade. Make sure to note the reasons for entry
and exit for any pattern you trade. It is highly advised that you save pictures of the
patterns you trade for future analysis. Recording the exact visual representation of
Page
pattern can help you make better trading decisions and enable you to quickly
browse historic patterns. A general fact in trading and the basis for our decisions is
that History repeats itself. By researching how price interacted in previous patterns
you will have a better point-of-view over the current patterns.
Weekly Report
Maintain a weekly report of all your trades. Study your stop loss size, take profit, and
your Risk:Reward ratio. Learn from your mistakes and summarize your conclusions of
any trading week. Be careful not to draw conclusions from single trades. This is a
common mistake many novice traders do. Conclusions should be drawn from several
trades to make sure that they have a strong statistical basis.
Weekly report can help you gauge your overall performance, your win percentage
and your trading style. You may attempt several trade management styles and check
which fits you best. Weekly report is the only way of reaching solid conclusions. Try
not to change your trading style over the week, because of fluctuations in your gains.
Instead, analyze your performance in the longer-term.
Page
Conclusion
You have now gained the needed knowledge to become a consistent winning trader
in any market you choose. It is the time to practice the techniques you have learned
and turn your knowledge into actions. I advise you to gain your initial experience
trading Demo accounts. Do not trade on live accounts until you are profitable for at
least two months trading Demo account.
As a client of ChartSecret.com, you have access to clients-only support forums.

Forums are available at http://www.chartsecret.com/forum/, after easy you will
be able to participate in discussions about trades, analysis and practical use of chart
patterns.
In order to gain access to private forums for clients only, please mail us at
clients@chartsecret.com and write down your forum user name and email address.
Page

Trading Secrets Unleashed

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Trading Secrets Unleashed

Uploaded by

Copyright:

Available Formats

Trading Secrets

Chapter 1: Foundations of Trading Success ..... 4

Chapter 2: The Basics of Charting ..... 8

Chapter 3: Money Management ... 25

Chapter 4: Chart Patterns .. ..... 28

Chapter 5: Trade Management ..... 54

Chapter 6: Trader Evolution ... 59

Success Element 1: The Trader Mindset

What is a trader mindset?

Limiting Belief 1: A winning trader wins 100% of his trades

Fig. 1: Result of trading with 50% win percentage

It is important to realize that any attempt of trading discretionary trades without

You will learn:

What is Support and Resistance

How to draw Support and Resistance levels correctly

How to draw trendlines

What are Breakouts and Pullbacks

How To Time Entries

Support and Resistance

The most basic form of Support and Resistance is horizontal. Examples:

Fig. 3: Price bounces off horizontal Resistance level at 1.5845

Fig. 5: Horizontal Support level at 1.5730

An interesting phenomenon can occur when price breaks a psychological level:

Fig. 6: Resistance level turned into Support after breakout

Another visual representation of Support and Resistance is dynamic the Trendline.

Examples for trend lines:

Fig. 10: Dynamic Resistance Line

Breakout and Pullback

I will now explain each scenario and demonstrate in charts.

Examples for bounces were shown in the last pages:

Examples for breakouts:

Fig. 12: Breakout of horizontal Support level

Fig. 14: Powerful breakout of Resistance trendline

Breakout is usually an unreliable signal whose continuation is doubtful. Price may

Pullbacks occur when price re-touches a Support\Resistance previously broken. This

Examples for pullbacks:

When Trade is Confirmed

Bounce is confirmed after:

1. Price created one candle in the opposite direction of previous candle.

Fig. 20: Short entries are marked on chart

Pullback is confirmed the same way as bounce.

The outcome of any single trade is unknown

First principle of money management:

Risk a constant amount of money on each trade

I will now describe a popular method of money management that is accepted by

This leads us to the second principle of money management:

Do not change your trade size

Let us summarize them up:

The outcome of any single trade is unknown

Do not change your trade size

Their win-percentage is statistically proven and their behavior is predictable. In this

Pattern 1 - The Channel

Fig. 21: Illustration of Channels

This type of entry is designed especially for beginners at trading, as it provides a

The steps to trading it are the following:

If it is an ascending channel that broke upwards do not trade it.

3. Wait for trend to be confirmed (Confirmations of pullbacks are described in

4. After trade is confirmed, calculate stop loss in the following way:

Fig. 25: Stop Loss is placed 1 pip above highest high

7. Enter, set take profit.

Fig. 27: Channel pullback trade result

Fig. 29: Channel Trade Example

Fig. 33: Long trade on Ascending Channel