Extreme Swing Forex System

Charts required: Day charts with 50, 100 and 200 SMA

and 100/200 Bollinger Band plus 14/7/3 Stochastic

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 to advanced.

This is an extremely powerful trading method which requires only 1-2 hours a day. It is well worth mastering!

Leverage: Low leverage 2:1

The Extreme Swing™ method is designed with several ideas in mind. Firstly, trading should be less time consuming than “office jobs” and therefore an “end-of-day” (EOD) system is ideal for people who want to enjoy a complete lifestyle. Trades are only entered once per 24 hours, at the end of the NY session, and then left to work themselves out for the following 24 hours.

Secondly, the idea is to enter trades less frequently – only on very high probability set-ups. This means the cost of trading (spreads and your time) is minimized and the winning percentage is maximized.Thirdly, in this method, six currency pairs are traded, covering a variety of markets and crosses, thus minimizing the potential for highly correlated pairs being traded together. Although six pairs aretraded, usually the system will only place you into 1-3 pairs at the same time, as entries are highly selective. As mentioned above, six pairs are traded; these being: EUR/USD GBP/USD USD/CHF USD/JPY EUR/JPY , AUD/USD.

The chart setup is as follows:

I use day charts only, one for each of the six pairs traded, and

arranged on your screen with three at the top and three at the bottom.

Each chart has either candles (I prefer this) or bars to denote price

action, plus the following statistical indicators:

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 when the price is touching or has pierced or is very close (say within 20-30 pips) to a major indicator line on the chart. (50,100 or 200 SMA or 100,200 BB)

If the price is not at or near any of the indicator lines, no trade may be considered. In this rule, I am saying the price must be at or near either the 50 SMA, 100 SMA, 200 SMA, 100BB or 200BB. At any other place on the chart, trading is not allowed. These indicators act as zones/levels or probability and they mean that the chance of a reaction has increased considerably.

Important: in the case of the BB’s only – the price can sometimes travel a fair distance through the BB. No matter how far through it has gone, a trade may still be considered. The chart below gives examples of where trades might be considered in this example:

Rule #2: Trade entries may only be considered if/when the 14/7/3 stochastic is overbought (both lines above 80 on the stochastic chart) or oversold (both lines below 20 on the stochastic chart). Further, the stochastic lines must be “turning and touching” Let me explain this with the aid of the charts again: The chart below shows the stochastic approaching the 20 level, but not yet oversold (see the right side of the chart. Note also that the candleis almost touching the 100 SMA, but no signs of reversal. More on that later – just a heads-up for you)

The next chart shows the same stochastic when it has becomeoversold, but not “turning and touching” (Notice the small bullish candle formed on the chart)

Rule #4: There must be a clear reversal candle (or bar) on the chart which occurs at one of the zones of probability and when the stochastic is “touching and turning” I have high lighted some of the common candle patterns in the pages above, and the most important patterns are “spikes” such as dojis, hammers and hanging man candles, engulfing candles, piercing patterns, dark cloud covers, full stops and morning/evening stars. I will discuss more on these later.

Rule #5: The trade risk/reward ratio must be favourable, and the stop loss must be between 50-150 pips and no more.The best way to explain this system is through several examples, and

a step by step trade entry process, so let’s begin with that!

Examples trades

The first chart (USD/JPY) above shows the price is below all three SMA’s and not yet near the lower 100 or 200 BB’s. (the 100BB on thechart is visible at around 117.00) In this case there is no trade. If and when we drop lower towards the BB’s, then I would move onto step 4,

but in this case, there is no further action.Notice, however, that the stochastic is “touching and turning” which means a bottom may be formed in the near future

Notice that in this pair, the price is below the 100 SMA (blue) but above the 200 SMA (purple) The stochastic is oversold, but not yet “touching and turning” (see step 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 to drop closer to the 200 SMA before considering atrade, and therefore there is no action to be taken.

Let’s look at an example where we ARE at a key level and the stochastic is overbought

Here I see the EUR/JPY reaching up through the 200BB (green line)and the stochastic is overbought. This immediately means I cancontinue to consider a trade, and I move on to step 4. Remember thatso far, the stochastic needs to be overbought or oversold, and theprice needs to be touching or piercing, or very near one of the key levels. (SMA’s or BB’s).

Now I look to see that the stochastic is “touching and turning” In thelast chart example, this was not yet the case. However, at the verynext candle (the next day), the stochastic did exactly that. See chart below:

Reversal candles

The most important (and sometimes most difficult step of all) is to identify the reversal candle which triggers the reversal I want to trade. There are many types of reversal patterns, some of which are identified in the section above on candle charting. I have found over the years that some patterns are more reliable and easier to spot than others and I will tell you all about them in the next paragraph.

There are two simple rules of thumb here:

1. If in doubt – stay out – don’t take the trade

2. Wait for the most glaring, obvious reversals before trading

The most reliable candle patters are these, in order of importance:

• Obvious spike high and spike low (including dojis and shooting stars)

• Piercing patterns and dark cloud covers

• 8-10 consecutive rising/falling days, followed by a reversal day

• Morning/evening stars

• Engulfing patterns

Small doji candles at the 200 BB below in the chart

Piercing pattern and dojis at 100 SMA

Spike low and doji’s at the 200 SMA and 100BB

Spike low and bullish engulfing candle below the 100 BB

Hammer and doji at the 100BB (grey) and below the 200BB (green)

Dragonfly doji at top 200 BB

Doji through and above both BB’s

The trade can be entered as soon as the NY trading day is finished, at the close of the daily candle. This is the simplest method to enter the trade. Remember, I am looking to enter the trade in the opposite direction of the most recent move. In the 10 examples above, you will see that the trade is in the opposite direction to the move that took place before it. For example, in chart 32, the price moved down to the 200BB, and the trade was then to BUY the pair. In this case, the USD/CHF had been moving lower for the past 10-12 days, and thetrade was to BUY USD/CHF. In other words, I want to buy the US Dollar and sell the Swiss Franc.

General rule of thumb:

1. The stop loss must be above/below the daily candle which gave the reversal signal – about 10 pips further.

2. The stop loss must be no greater than 150 pips and no less than

50 pips. If this conflicts with rule #1, then either the position size must be reduced to accommodate the larger stop loss, orthe trade must not be taken.

3. The profit target should be at least 150 pips and preferably 200 pips.

Example of a GBP trade entry off the 200 SMA

This chart example is taken from chart 30 in the section above. Thetrade entry signal was given where the green arrow points to the dojicandle against the 200 SMA. This candle is a daily candle which closedat 5PM EST and then the next candle began to form. Let us say thatthe closing price of the doji candle was 1.7800, and the high of thedoji candle was 1.7930. The rule of thumb above says that the stoploss should be above the high of the reversal candle. This means thatthe stop loss should be at 1.7945 (including the spread) this makesthe total stop loss 145 pips – close to the 150 pip maximum I have determined.

Stops and targets

This system can produce very good profits, but stops are often larger than other systems. In this case the traded leverage should be no higher than 3:1, and ideally 2:1 (See section on money management near the start of the book) With any trading system, the exit is always more difficult than the entry to the trade. Profit targets should be at least 100 pips, and ideally 200 pips or more – especially if the price has reached a major high or low and has already moved a 300-1000 pips in one direction. There are two ways to set targets. Firstly, many traders will set the target at twice the size of the stop loss. For example, if the stop is 80 pips, the target becomes 160 pips. This is a good rule of thumb for the Extreme Swing  method. More experienced traders can use technical targets and/or trailing stop losses.

Example of ratchet-like rally and eventual profit taking by trailing stop in EUR/USD (day chart view)Technical targets, on the other hand, are pre-chosen targets whichthe trade can decide upon using other forms of technical analysis.Once again, this comes with knowledge of basic technical analysis,with the key ingredients being Fibonacci retracements, Support and resistance lines and Trend lines.

Extreme Swing Forex System MT 4 Template with Candlestick Pattern Indicator.

Below the link for download the Extreme Swing Forex System

https://drive.google.com/file/d/0Bwjv2Pbf48itcm1KTWJsak9YQ2s/view?usp=sharing