PWB Trading System

PWB Trading System Entry Rules

Here are the system rules for entry:

1. A signal is usually given within a few minutes of FTSE opening at 8:00 am

2. The trigger is an x point move away from an early high or low. I recommend using 10 as x, but, once you have more experience, you may wish to use a different value to suit your personal trading style.

3. Where we see an opening high or low the signal is given once FTSE moves x points away from the open and often the best trades are when this happens.

4. More frequently the early action is less direct and FTSE makes other highs and lows away from the opening level. These then become relevant and we need the first x point move away from them to trigger the system. Here are two illustrations setting out how this works. First the simple situation where the opening (0) forms the early high or low. 

You can apply this method also at the currency pairs: EUR/USD, GBP/USD, USD/JPY, AUD/USD.

Now the more common situation where the open does not form the early high or low:

The first chart is straight forward – the market opens and immediately moves up or down 10 points and the system gives a buy or a sell signal.

The second chart covers the more usual situation where the market is less direct and makes a new low and/or a new high before moving that critical 10 points.

In addition the dotted lines shown below the early low and above the early high are where you would place your stop – the stop keeps you safe if the market moves the wrong way.

It is important to understand that we will not know that any tick is an early high or low until we have the 10 point move to confirm the PBW trading signal.

When I trade PBW, speed is of the essence. As soon as the signal is given I want to be positioned.

Here is what I do:

• I use two screens. On one screen is the price action. Two screens are not essential and one will do - however most modern computers (including laptops) will run two screens and you will find an additional screen hugely useful for a whole range of reasons and, importantly, cheap.

• I am in place by 7:58 am at the latest – in the past I have missed good trades by being later than this and hitting some small problem I had not expected. Preparation is essential! The best trades will be usually be fast – if you are delayed those are the ones you will miss.

• Before 8:00 am I open the IG Index dealing box and enter my position size – this means all I need do is click BUY or SELL when the signal is given.

• I watch the official FTSE futures as they open and note (mentally) the opening tick. I then wait to see the signal given – I stay glued to the screen until this happens.

• Usually I use 1 minute bars for this purpose but if I have to eliminate mis-timed   then I will use a tick chart.

• IMMEDIATELY the signal is given I trade.

• DO NOT WORRY ABOUT YOUR ENTRY LEVEL - The best trades will usually be fast – if you worry about a few points here or there those are the ones you will miss.

• But this does not mean going berserk – bear in mind the risk/reward of what you are doing.

The points I make above are important and this short piece outlines why.

Stops

We will now go onto the stops you should use if spread betting this system. There are a range of stops that can be used:

• A simple stop in the market at, say, x (10) +5 (recommended)

• A mental stop

• A trailing stop – for more advanced traders see page 23

The recommended system is to enter as set out above.

Once entered place the stop beyond the early high or low – see “simple stops” page 21

Do not move the stop again until after 12:00

After that move the stop to lock in 50% of the profit.

If you then see 100 points of profit tighten the stop to lock in 90% of the profit.

You then let the market either stop you out or simply close.

Stop and Reverse

If stopped out of the first trade of the day we can then stop and reverse at the exit point of

the first trade with another 15 point stop.

All this means is that…

• We enter trade the first trade as usual

• If stopped out we enter a second trade in the opposite direction

• Our stop is again 15 points away from the entry level

This has proven to be very effective – see track record 27th July and onwards.

IF we have two losing trades (i.e. max loss 30 points) we stop for the day. But if the second trade wins then we stop and reverse again.

Simple Stops

Those who are new to this ought to stick with this option to start with. More complex stops will keep you positioned in more profitable trades but the cost is that you will, on occasion, lose more than otherwise.

Later you will be seeing a detailed track record of PBW and in compiling this I have given x the value of 10 and used a 15 point stop.

• This means that if you enter long your stop would be 15 points below your entry point and 5 points below the early low.

• This means that if you enter short your stop would be 15 points above your entry point and 5 points above the early high. However, these numbers ignore slippage and if you enter 2 points, say, beyond the indicated point then the stop would be 17 points away from your entry point.

It is important to understand that trading, like any other business, is subject to change. To succeed in any business you need to develop your skills and make the key decisions. At the initial stage I can offer guidance but as markets go through their various cycles you will need to develop the

experience and expertise to prosper in these changed conditions. So for now I suggest you do the initial testing and trading using

• X = 10

• A stop of 15 points from the entry point as given using x – meaning if you suffer or benefit from slippage you ignore this for the purposes of the stop. Slippage refers to the fact that your actual entry will frequently not be precisely x points away from an early extreme low or high.

Beginners should place their stop in the market as soon as they are positioned so there is no risk beyond that as controlled by the stop.

Trailing Stops

Trailing stops are used to lock in profit and can be either of the simple or mental variety.

With PBW there are six main variables:

• Which market to trade

• The value of x

• Initial risk control – meaning stop placement

• Taking profits meaning profit targets and trailing stops

• Whether to use PBW at other times of day 

• Moving from mechanical operation onto intuitive operation

In this manual we have now covered the first three points thoroughly and I have given you my suggestions on how to operate PBW if this is your first exposure to a trading system of this type.

With all trading there are three golden rules:

• You MUST operate risk control otherwise the losses will wipe you out

• You MUST let profits run otherwise you will never cover your losses – in any trading losses

are inevitable.