The Forex Loophole Rules

The Forex Loophole looks to do two
things;

1.Identify the exhaustion of a trend.

2.Enter a trade in the direction of the
changing trend.

The following section will outline the
rules we use to trade this strategy. Keep in mind all conditions need
to take place for a trade to be considered.

Each night at the close we will look
for this set up. The trade will only take a minute or two to
identify. There is a long set-up and a short set-up.

**Short Set-up**

Condition #1 First step is to grab the
closing price from last week (the last price of last Friday) Then
check today’s closing price...if it is higher than the last weeks
closing

price, we can then continue on to see
if the next set of conditions are met.

Condition #2 We check to see if today’s
close is also above yesterdays close.

If it is then we move on to the next
step.

Condition #3 We check to see if
yesterdays close is higher than the previous days close.

When all three conditions are met, we
look to

**go short**.
Following the steps above, we start off
by looking at Today...if it meets the conditions we move on and look
at Yesterday...if the conditions are met there as well, we can look
to enter a trade the next day.

**Long Set-up**

As you can probably guess the long
set-up is the opposite of the short set-up.

Condition #1 First step is to grab the
closing price from last week (the last price of last Friday) Then
check today’s closing price...if it is lower than the last weeks
closing price, we can then continue on to see if the next set of
conditions are met.

Condition #2 We check to see if today’s
close is also below yesterdays close. If it is then we move on to the
next step.

Condition #3 We check to see if
yesterdays close is lower than the previous days close. When all
three conditions are met, we look to

**go long**.
Following the steps above, we start off
by looking at Today...if it meets the conditions we move on and look
at Yesterday...if the conditions are met there as well, we can look
to enter a trade the next day.

The Forex Loophole Strategy Rules
Continued;

- For trades that are placed at the
Friday open we do not hold them over the weekend. They are to be
exited before the close on Friday.

- Sunday does not count as a day, so
ignore it for all conditions.

- No trade is entered on Monday if the
price has gapped up above the long entry price or below the short
entry price.

**Entry and Exit for The Forex Loophole**

Each night at the close we do our quick
check of the set-up to see if there is a trade for the next day. As
soon as today’s close occurs we look to enter our order if the
conditions were met. Often we can tell ahead of time, say 10-15
minutes if there will be a trade or not. If all the 3 conditions are
in place 10 minutes before today's close by 20+pips it's a good
chance it will remain that way and all we are really doing is waiting
for the close to actually take place because that is what we base our
entry on. We'll show this in the videos in more detail.

**Entry**

We look to enter into a trade once
today’s close has taken place and all conditions are met. We then
add 7 pips to today’s close price and enter that as a buy stop
order for a long trade and subtract 7 pips from today’s close price
and enter that as a sell stop order for a short trade.

Example: Today is Wednesday and the day
just ended giving us a closing price of 1.9943 and a long entry
set-up. We then add 7 pips to Wednesday's closing price 1.9943 + 7 =
1.9950. We then place an order at 1.9950 to go long immediately. We
want to place the order as quick as possible.

We use this to place the entry, stop
and exit/target all with one order. We'll use a buy stop to go long
and a sell stop to go short, and then we enter the stop loss and take
profit prices accordingly. We can also set the order to expire on a
date and time we specify.

**Exits and Stops**

We suggest starting with these targets
and stops. Then as you develop your trading plan you can tweak them
if you wish and look to trade other pairs that might suit your
trading plan.

EUR/USD = 120 pip profit target. 50 pip
stop loss.

USD/CAD = 60 pip profit target. 40 pip
stop loss.

USD/JPY = 70 pip profit target. 50 pip
stop loss.

CHF/JPY = 110 pip profit target. 60 pip
stop loss.

NZD/JPY = 130 pip profit target. 65 pip
stop loss.

Example #1

Now that we have the steps in place,
we'll walk through a trade from start to finish.

The first example we'll look at is a
long trade that triggered on the EUR/USD on May 16/08. On the evening
of May 15th/08 we would be going through these steps to see if a
trade was going to be triggered on the 16 th . We'll use the chart
below and it's labels to walk through the steps.

The blue arrow represents May15/08,
which we'll refer to as “today” for this example. We start by
looking to see if the set-up meets all 3 conditions.

Condition #1 = Grab the closing price
from last week which was May 09/08 (the last price of last Friday).
It is 1.5481 and labeled number 4 on the chart above. If today’s
close price is lower than 1.5481 we can move on to condition 2.
Today’s close price is 1.5458...so we can move on to condition 2.

Condition #2 = We check to see if
today’s close is also below yesterdays close. Yesterday is labeled
2 on the chart above. Yesterdays close is 1.5466. So we can now move
on to the next step.

Condition #3 = We check to see if
yesterdays close is lower than the previous days close. So looking at
the chart above we see that yesterday is labeled 2 and the previous
day to it is labeled 3. The close on day 2 is 1.5466 and the close on
day 3 is 1.5470. That satisfies the 3 rd condition and now we can
prepare to go long on the 16 th . Our long entry on the 16 th will be
placed as soon as possible after the close of the 15 th . This will
all happen within a few minutes of each other and once you get the
hang of it with a bit of practice your orders will take less than 1
minute.

The close of today, May 15 th was
1.5458, so we add 7 pips to that price to give us an entry price of
1.5465.

Example #2

In this example we'll have a look at a
short trade triggered on May 27/08. We'll also look at a different
platform GFT's dealbook 360 and show how to use their P&C orders.

The trade triggered on May 27/08, so
that means we would be watching and waiting on the close price on the
26 th and going through our 3 step check list then. We'll use the
chart below and it's labels to walk through the steps.

The blue arrow indicates Monday
May26/08, which we'll refer to as “today” for the rest of this
example. As usual we start by looking to see if the set-up meets all
3 conditions.

Condition #1 = Grab the closing price
from last week which was May 23/08 (the last price of last Friday).
It is 1.5761 and labeled number 4 on the chart above. If today’s
close price is higher than 1.5761 we can move on to condition 2.
Today’s close price is 1.5779...so we can continue and move on to
condition 2.

Condition #2 = We check to see if
today’s close is also higher than yesterdays close. Yesterday is
labeled 2 on the chart above. Yesterdays close is 1.5761 and today’s
close is 1.5779. It is higher, so we can now move on to the next
step. (Notice that yesterday and last weeks close price turn out to
be the same day...this is fine)

Condition #3 = We check to see if
yesterdays close is higher than the previous days close. So looking
at the chart above we see that yesterday is labeled 2 and the
previous day to it is labeled 3. The close on 2 is 1.5761 and the
close on 3 is 1.5731. That satisfies the 3 rd condition and now we
can prepare to go short on the 16 th . Our short entry on the 27 th
will be placed as soon as possible after the close of the 26 th .
Once you get the hang of it with a bit of practice your orders will
take less than 1 minute.

The close of today, May 26 th was
1.5779, so we subtract 7 pips from that price to give

us a short entry price of 1.5772.

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