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Fx5m

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FX5M - TRADING SYSTEM Trade forex by the minute

A simple system that works

Disclaimer
Forex Trading is a high risk investment and may not be suitable for all traders. You could lose or make money depending on the actual market activities. Trade only with money you can afford to lose. Beside money, you could also lose your sleep and hairs. The contents and information used in this e-book is gathered through the internet and the author past experiences. There is no warranty of any kind. The author is not responsible for the loss of money, sleep or whatever you have. Use at your own risk.

By Kent www.fx5m.com 2011 All Rights Reserved

Contents
PART 1

The Basis of the system Secret of successful trading Why trade 5min chart Why we use MT4 Which Currency pair Money and Risk management News event and time to trade

1 2 3 4 5 6 7

PART

The FX5m system FX5m MT4 Indicators Trade Setup Trade Size Stop loss & Exit Filters Pro & Con Final Checklist Appendices

8 9 10 11 12 13 14 15

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Chapter

1
The Basis of the system
Before you proceed further, basic knowledge in forex is required. Technical analysis and MT4 indicators knowledge are also required.
The FX5m system is a system based on trading high probability setup. Of course, we understand that we cannot win in every trade, it is normal to have a few losers. The key to successful forex trading is to minimize the loss and keep a bigger profit for each trade. Mathematically, with this FX5m system there will be profit at the end of the day due to carefully selected trades and a good reward to risk ratio. The FX5m system is designed such that it is trend following while anticipating a breakout to maximize the profit and minimize the loss when you are wrong. We will trade only when the FX5m setup occurs, no setup means no trade. Most traders always wonder; when to buy or when to sell? In the FX5m system, there are rules for entry, exits, stop loss and filters. There is no guess work. For FX5m system to work, you just have to follow the system rules mechanically without fail.

es! Finally, there is a day trading system that works consistently. Well, if you have the discipline to follow the rules, I believe it will work for you too.

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Chapter

2
Secret to success in trading

DISCIPLINE
DISCIPLINE.

Yes, there is only one word, trust me. If you cannot control yourself then your trades will be a disaster. If you cannot follow the rules, there is no point using a system. You are gambling, trading based on hope and luck. Before you read further and start trading, you must understand the importance of

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Chapter

3
Why we use MT4

T4 is a popular platform for forex trading. There are thousands of customized indicators written for MT4. If you do not know, what is MT4 by now and how to use it, you should just google for Forex MT4 and read up.

The main advantage of using customized indicators is you can attach all your preferred indicators into one single chart. You can make your trading decision from the signal that your indicators generate on this single chart. The entry, the exit, stop loss, filter can also be easily identified on the chart. You can sign up for a MT4 DEMO account with online brokers to familiarize with the software. For Live trading, I would suggest that you sign up for a micro-lot account so you will receive real prices feed without delay. You will be trading from the signals on the MT4 chart, so it has to be accurate. For myself, I will trade from another trading account from a STP broker with very low spreads, 1 to 2 pips.

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Chapter

4
Why trade 5min chart

hy we trade 5min chart? We want a system that we can day trade for a living. The Fx5m setup occurs on every trading day. With the 5min chart, we can also hit our daily trading target of 20 to 50pips per lot. With a shorter timeframe, we can monitor the chart more closely for an earlier entry in the early stage of a trend and keep a smaller stop loss if we are on the wrong side of the trend.

With MT4, we can use a multi-timeframe indicator to show the long term trend. Hence we only need to monitor the 5min chart. You can always open another 1H or 4H chart if you need it.

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Chapter

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Which currency pairs

Or this trading system, we will choose a currency pair that trend well, has a low spread and a big ATR. The reason is obvious, since this is a trend following system. We want to reduce our cost from the spread and currency that moves far enough for us to hit the profit targets.

EUR/USD GBP/USD AUD/ USD


Trading these 3 pairs should be enough to make a living. From experience, this system is not suitable for pairs that range and are noisy. Avoid Yen pairs and its crosses due to regular government intervention.

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Chapter

6
Money & Risk Management
Accident does happen. Thats why you should not risk your entire fund in a single trade. A general guide will be 2% to 5% of the total amount for each trade. This way, youll live to trade another day without blowing up your account. In the FX5m system, we will trade 2 min-lots or multiple of that (even lot size). The hard stop loss is 50pips per lot; total risk is maximum 100pips for 2 lots per trade. Well, that sounds like a lot of money to risk. But I will show you later that this is a hard stop for unexpected news events or terrorist attack or some freak events that dont happen every day. Normally, you will close your trade long before hitting the hard stop level. As for the Risk of using leverage, I will recommend a leverage of not more than 5:1. The ideal case is 1:1.

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Chapter

7
News Event & Time to trade

Here is a time to work; there is a time to rest. Although forex market opens 24 hours on a trading day, we only start work (trading) from the London sessions to the New York session. The reason is obvious; this period is the time when the market starts to move and has more liquidity. If the market is quiet, our trade will not be profitable or less profitable due to many false breakouts. Almost daily, during the few hours after the London market opens, there will be a breakout (50sma band) opportunity.

Another critical time to take note is when there are news event such as the NFP report, GDP, CPI, CB Interest rates revision. You can check the economical calendar from most forex broker websites for the date and time of the news release. We do not trade news events due to the whipsaw. Avoid opening new trade; protect your trade one hour before the news. Especially for the NFP, there will be big spikes and whipsaws, most likely your stop will be hit.

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Chapter

8
The Fx5m system

F
rules.

inally, you have come this far. Here, I will show you a simple trend following system for day trading. The FX5m system is designed to follow a few important trading

1. The trend is your friend, follow the trend. 2. Cut loss fast and let profit runs 3. Trade mechanically, avoid emotional trading 4. No signal, no trade (Buy, Sell or Stay out) 5. High probability and reliable setup 6. Good Reward/risk ratio > 1 7. Simple to understand and execute. Only thing youll have to do is Discipline Yourself to follow all the system rules.

50SMA Band

SELL EXIT

FX5M TREND

FX5M FILTER

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50SMA Band

SELL

FX5M TREND FX5M FILTER

BUY

50SMA Band

FX5M TREND

FX5M FILTER

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Chapter

9
The Fx5m MT4 Indicators

Asically, there are only 3 main MT4 indicators required in the fx5m system.

1. 50 SMA Band This is a 50 simple moving average with a band of price high and price low. We always scan for a currency pair (AUDUSD, EURUSD, and GBPUSD) that approaches the 50 SMA band; this is the setup we want. 2. Fx5m Trend This is an indicator for the identifying the current trend. Our trade direction will be in the same direction of the fx5m trend; red for sell and blue for buy. 3. Fx5m Trend Filter For a higher probability trade, we will use the FX5m Trend filter to decide if we want to make the trade. This is a longer timeframe trend indicator. 4. Other auxiliary Indicators There are other indicators such as Pivot level, Trend-line, momentum, etc, that are also useful to include in the chart for information, and it depends on your own preference.

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Chapter

10
Trade Setup

n the 5min chart, for the setup, we will scan for a currency pair that moves toward the 50sma band. Once the candle enters into the band, we will pay attention to the price movement closely. When the candle closed outside the band, this is the signal that we want. Below band, look for sell entry; above band, look for buy entry. But before we enter the trade at the new candle open, we need to check the trend (Fx5m Trend indicator). If the trend is contradicting to the 50sma band signal, we will not trade.

We will enter the trade only in the direction of the Fx5m Trend, (as below) Buy Trade
50SMA BAND

Price closed above 50sma band. If fx5mtrend is BUY, we will buy at the open of this red candle.

FX5m Trend

Trend is UP, (Blue), Buy only trade

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Sell Trade

50SMA BAND

Price closed below 50sma band. If fx5mtrend is Sell, we will sell at the open of this red candle.

Trend is down (Red), Sell only Trade

FX5m Trend

FX5m TrendFilter
Trend is more bullish (more blue than red), Trend is changing to bearish. (more red than blue)

Please note that the Trendfilter is a visual tool to judge the tendency of the overall trend. Avoid selling when it is totally BLUE or buying when it is totally RED.

* Please refer to more Trade setup charts in the website.

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Chapter

11
Trade Size

rade size, we always trade 2 lots for a reason. We will set a profit target for 20pips for 1 lot and for the other lot; our profit target will be variable depending on the chart. For the other lot, we will use resistance/ support level such as pivot values as initial target. We will exit only when the Trend-line has been broken or reversal signals (Divergence) have appeared. We will hold our position for the 2nd lot as long as we can, to let the profit runs. The 1st lot is your basic salary; the 2nd lot is your bonus. For an AUDUSD, EURUSD, GBPUSD pair that breakout from the 50SMA Band, 20pips is an easily achievable target. As we will be monitoring our trade, after the price hit our 1st target of 20 pips, we can move the stop loss to break even to reduce the risk. You may ask, what if all these 3 pairs give the same trade signal? You can trade all the pairs but if you only want to trade one pair, always sell the weakest currency, buy the strongest base on the price movement on the chart

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Chapter

12
Stop loss & Exit

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1. 2.

Lways trade with a stop loss. In the FX5m system, we have a few types of stop loss.

Hard stop

This is a fix stop loss of 50pips that well enter for every trade. System stop loss / exit signal System stop is the stop loss that well use most often. It is a dynamic stop because it is determined by the 50sma Band. Most of the time, we will pay attention to this stop. We do not enter this stop level into the order sheet. Similarly to our setup entry signal, we will also use the same 50sma Band to exit our trade. Exit when the price has moved against our position and the candle closed at the opposite side of band. We always close the position when this happen. Whether to open a new trade (somersault) or not, we will check the FX5m trend again for confirmation. The key to success in this system is that well always exit our trade when the 50sma band has been broken. No question asked. There is always another trade waiting for us, always get out of bad trades and protect your fund first. Another advantage of this system stop is that the stop level is likely to be near our entry level (50sma band), hence it will be much smaller than the hard stop of 50pips. 3. Trailing stop The Trailing stop will apply to the 2nd lot when we are already in profit, we will gradually move our stop to below trend-line, pivot levels, or swing low/high to lockin the profit. When we keep our losses small and manage our take-profit well. Even if we have a few bad trades, we can recover from the loss easily.

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Chapter

13
Filters

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1. 2.

ilters are useful for screening false setup signal, they are useful to increase our profitability. For this purpose, we have a fx5m trend-filter to display the longer term trend. We can also use a higher timeframe chart such as 1H or 4H chart as long term trend.

Other Useful MT4 Indicators Ehlers Fisher transformer For our entry point, we can add an oscillator such as Fisher Transformer to identify the momentum and turning point so we only enter trade in the same direction of the indicator.. ADX Since the FX5m is a trend following system, we want to avoid entering a new trade in a ranging market. Usually an ADX of <25 indicates the price is ranging, while an increasing ADX of >25 indicates the market is trending. Well enter trade when the ADX is increasing to >25. Pivot levels Pivot level can be used as a resistance/support level. We avoid selling to a support level and buying near a resistance level.

3.

Please note that these are additional supporting indicators to fine tune the FX5m system, basically we only need the 3 main FX5m indicators to make the trade.

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Chapter

14
Pro & Cons
Ike any other trading systems, there are pros and cons in every system. The main advantages of the FX5m system are listed in the previous chapters. The con is the FX5m is a manual system; we need to spend time to monitor the prices, scanning for setup and trade signals. But, isnt it the same for running every other business? We also need to spend time to manage people, customers, and goods. Manual trading has its advantage too; we can react promptly when the market is very volatile. As the system stop is set in your brain, not in the software, no one will try to hunt your stop. Making money is never easy but I think to make money in the forex market is much easier than working as an employee or employer. With a good trading system such as Fx5m, we can target 20 to 50pips for each trading day while our risk is kept to minimum.

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Chapter

15
Final Checklist

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1. 2. 3.

Efore you get too excited to count your pips right away, I have some more advice for you. Basic forex knowledge and technical analysis knowledge are widely available for free, just google for it. Dont be lazy. Learn the basics first for free. Save your money. You should open a MT4 DEMO account to familiarize with the indicators, charts, settings, entering and managing a trade. Practice! Practice! Practice before LIVE trading. Ask yourself these questions, Am I a discipline person? Do I have the patience to wait for fx5m setup; can I follow the system rules? If the answer is No, then you should make some changes to overcome these barriers first. There is no prefect trading system; you just need to find a system that suits you. Use a reliable and consistent system that will bring in profit regularly and will not fail you in the long term.

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Fx5m system will not disappoint you if you follow the system rules. Happy trading and most of all, enjoy your life! Life is much more than just making money.

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Appendices
Customers whose have paid for the FX5m system will be given a password to access the more detailed contents and tips of using the FX5m system.

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