Forex Systems Research Company-Guide to Profitable Forex Day Trading pt2_2003(1).pdf

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Contents
Chapter1 - Pivots ------------------------------ 2
Chapter2 - FibonacciLines ------------------------------ 7
Chapter3 - Indicators ----------------------------- 10
Chapter4 - Money Management ------------------------------ 16
Chapter5 - Contents ofa Trading Plan --------------------------- 20
Chapter6 - Trading Psychology ------------------------------ 21
Chapter7 - CITrading System ------------------------------ 22
Chapter8 - Putting ItAllTogether ------------------------------ 28
Conclusion ------------------------------ 33
Disclaimer ------------------------------ 33
1
Copyright¨ 2003 Forex Systems Research Company
Allrights reserved worldwide
Chapter 1
Pivots
Pivot Points
Pivotpoints indicate reversals in the market
PivotHigh PivotLow
buy
sell
A pivotis a candle orbarwhich has one candle orbaron each side,higherorlowerthan the middle
candle orbar.
Some traders buy ata pivotlow when the price moves 1 pip above the high ofthe middle candle orbaras
the 3 barpivotis confirmed when price moves above the high ofthe middle bar. They sellata pivothigh
when price moves one pip below the low ofthe middle candle orbar.
Candlestick Version ofPivots
sell
buy
2
Copyright¨ 2003 Forex Systems Research Company
Allrights reserved worldwide
184810030.002.png
Pivot Lines
Pivotlines are lines ofsupportand resistance and are very usefulin todayÓs forex markets as they
increase yourprofitability. The lines letyou anticipate todayÓs high orlow. You have a roadmap for
upcoming price action. Ifone ofyourentry setups is neara pivotline,you willhave more confidence in
buying orselling.
The new dayÓs pivotlines are calculated from the High (H),Low (L)and Close (C)prices ofthe previous
day (Justuse the daily charts from yourchartprovider). Download the free pivotcalculatorfrom our
website at www.forextechniques.com Itcalculates R1,R2,R3,P,S1,S2,S3.
The PivotPoint = P = (H+L+C)/3
Firstarea ofresistance = R1 = 2P-L
Second area ofresistance = R2 = (P-S1)+R1
Third area ofresistance = R3 = 2P+ (H-2L)
Firstarea ofsupport = S1 = 2P-H
Second area ofsupport = S2 = P-(R2-S1)
Third area ofsupport = S3 = 2P-(2H-L)
Ifthere is no significantnews to influence the market,price willusually move from P to S1 orR1. On the
EUR/USD the S1 orR1 pivotlines have been crossed during 86% ofthe trading days since August1989.
When the direction ofthe currency has set,the targets are typically the nextpivotsupportorresistance
line. Sometimes the currency willeitherreverse orconsolidate when the pivotsupportorresistance line
has been reached. Price tends to hesitate around a pivotline. Price can come back to a pivotline and test
itbefore moving on. When a consolidation occurs,the nexttargetis the nextsupportorresistance pivot
line. In a strong trend,price willslice though a pivotline and keep going.
Sometimes price willstop justbefore reaching a pivotline and then reverse. On otheroccasions,price
willgo slightly pasta pivotline. Allow a bitofleeway.
Price can failto reach a pivotline ifa significantFibonaccipointortrendline stops it.
Take care as the targetcan also be a significantFibonacciline. Sometimes where there is 61.8% fibonacci
retracementline ora 161.8%projection,this willbe the strongertarget.
In summary
Ifprice is atP,watch fora move to R1 orS1.
Ifprice is atR1,expecta move to R2 orback towards P
IfPrice is atS1,expecta move to S2 orback towards P
Ifprice is atR2,expecta move to R3 orback towards R1
Ifprice is atS2,expecta move to S3 orback to S1.
R3 and S3 are a good indication ofthe maximum range forthe day butcan be exceeded occasionally.
3
Copyright¨ 2003 Forex Systems Research Company
Allrights reserved worldwide
In this chartnote how the differentPivot
lines and Fibonaccilevels came into play
On the move up note how the Euro stalled
at61.8% retracementthen came back to
retestThe PivotLine before carrying on to
R1.
The Euro wentup testing the PivotLine before going down to
S1. Note S1 was notreached firstup butwas reached on the
second attempt,afterwhich the E reversed rapidly
The chartabove shows how the majorlines interactwith the PivotLines. In some cases the PivotLines
willdominate and in othercases they willnot. This highlights the need to putin allrelevantlines so you
willnotbe surprised when the currency pairsuddenly stops and reverses. There is always a reason why
the currency pairstops,consolidates orreverses ata particularpoint. The chartabove illustrates this
point.
Often the currency willtouch a PivotLine then move away and come back to retestthe line before
continuing with the main trade
4
Copyright¨ 2003 Forex Systems Research Company
Allrights reserved worldwide
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