Fx5m Forex Trading System

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FX5M - TRADING SYSTEM

Trade forex by the minute

A simple system that works

Fx5m

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Disclaimer

Forex Trading is a high risk investment and may not be suitable for all traders. You couldlose or make money depending on the actual market activities. Trade only with money youcan 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 pastexperiences. There is no warranty of any kind. The author is not responsible for the loss ofmoney, sleep or whatever you have. Use at your own risk.

By Kent

www.fx5m.com 2011All Rights Reserved


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Contents

P A R T 1

The Basis of the system 1

Secret of successful trading 2

Why trade 5min chart 3

Why we use MT4 4

Which Currency pair 5

Money and Risk management 6

News event and time to trade 7

P A R T 2

The FX5m system 8

FX5m MT4 Indicators 9

Trade Setup 10

Trade Size 11

Stop loss & Exit 12

Filters 13

Pro & Con 14

Final Checklist 15

Appendices


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The Basis of the system

Before you proceed further, basic knowledge in forex is required.Technical analysis and MT4 indicators knowledge are also required.

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

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 keyto 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 tocarefully selected trades and a good reward to risk ratio.

The FX5m system is designed such that it is trend following while anticipating a breakout tomaximize 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 tradersalways 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 haveto follow the system rules mechanically without fail.

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Secret to success in trading

Yes, there is onlyone word, trust me.

If you cannot control yourself then your trades will be a disaster. If you cannot follow therules, 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

DISCIPLINE.

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DISCIPLINE


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Why we use MT4

T4 is a popular platform for forex trading. There are thousands of customizedindicators 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 preferredindicators into one single chart. You can make your trading decision from the signal thatyour indicators generate on this single chart. The entry, the exit, stop loss, filter can also beeasily identified on the chart.

You can sign up for a MT4 DEMO account with online brokers to familiarize with thesoftware. 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 MT4chart, 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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Which currency pairs

Or this trading system, we will choose a currency pair that trend well, has a lowspread 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 enoughfor us to hit the profit targets.

EUR/USD

GBP/USD

AUD/ USDTrading these 3 pairs should be enough to make a living. From experience, this system is notsuitable for pairs that range and are noisy. Avoid Yen pairs and its crosses due to regulargovernment intervention.

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Money & Risk Management

Accident does happen. Thats why you should not risk your entire fund in a singletrade. 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 hardstop loss is 50pips per lot; total risk is maximum 100pips for 2 lots per trade. Well, thatsounds like a lot of money to risk. But I will show you later that this is a hard stop forunexpected 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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News Event & Time to trade

Here is a time to work; there is a time to rest. Although forex market opens 24hours 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 startsto move and has more liquidity. If the market is quiet, our trade will not be profitable or lessprofitable due to many false breakouts. Almost daily, during the few hours after the Londonmarket 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 mostforex 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 yourtrade 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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The Fx5m system

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

rules.

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.

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SELL

EXIT

50SMA Band

FX5M TREND

FX5M FILTER


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BUY

50SMA Band

FX5M TREND

FX5M FILTER

SELL

FX5M TREND

FX5M FILTER

50SMA Band


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The Fx5m MT4 Indicators

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

1. 50 SMA BandThis 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) thatapproaches the 50 SMA band; this is the setup we want.

2. Fx5m TrendThis is an indicator for the identifying the current trend. Our trade direction will be inthe same direction of the fx5m trend; red for sell and blue for buy.

3. Fx5m Trend FilterFor a higher probability trade, we will use the FX5m Trend filter to decide if we wantto 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 alsouseful to include in the chart for information, and it depends on your own preference.

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Trade Setup

the 5min chart, for the setup, we will scan for a currency pair that movestoward 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 isthe signal that we want. Below band, look for sell entry; above band, look for buy entry. Butbefore we enter the trade at the new candle open, we need to check the trend (Fx5m Trendindicator). 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)

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Price closed above50sma band. Iffx5mtrend is BUY,we will buy at theopen of this redcandle.

50SMA BAND

FX5m Trend

Trend is UP, (Blue),Buy only trade

Bu Trade


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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.

Sell Trade

Price closed below50sma band. Iffx5mtrend is Sell,we will sell at theopen of this redcandle.

50SMA BAND

FX5m Trend

Trend is down (Red),Sell only Trade

FX5m TrendFilter

Trend is more bullish(more blue than red),

Trend is changing tobearish. (more redthan blue)


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Trade Size

rade size, we always trade 2 lots for a reason. We will set a profit target for20pips 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 aspivot values as initial target. We will exit only when the Trend-line has been broken orreversal signals (Divergence) have appeared. We will hold our position for the 2nd lot aslong 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 canmove 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 pairsbut if you only want to trade one pair, always sell the weakest currency, buy the strongestbase on the price movement on the chart

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Stop loss & Exit

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

1. Hard stop

This is a fix stop loss of 50pips that well enter for every trade.

2. System stop loss / exit signalSystem stop is the stop loss that well use most often. It is a dynamic stop becauseit is determined by the 50sma Band. Most of the time, we will pay attention to thisstop. 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 ourtrade. Exit when the price has moved against our position and the candle closed atthe opposite side of band. We always close the position when this happen. Whetherto open a new trade (somersault) or not, we will check the FX5m trend again forconfirmation.

The key to success in this system is that well always exit our trade when the 50smaband has been broken. No question asked. There is always another trade waitingfor us, always get out of bad trades and protect your fund first. Another advantageof 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 stopThe Trailing stop will apply to the 2nd lot when we are already in profit, we willgradually move our stop to below trend-line, pivot levels, or swing low/high to lock-in the profit.

When we keep our losses small and manage our take-profit well. Even if we have afew bad trades, we can recover from the loss easily.

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Filters

ilters are useful for screening false setup signal, they are useful to increase ourprofitability. 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 termtrend.

Other Useful MT4 Indicators

1. Ehlers Fisher transformerFor our entry point, we can add an oscillator such as Fisher Transformer to identifythe momentum and turning point so we only enter trade in the same direction ofthe indicator..

2. ADXSince the FX5m is a trend following system, we want to avoid entering a new tradein a ranging market. Usually an ADX of 25 indicates the market is trending. Well enter trade when the

ADX is increasing to >25.

3. Pivot levelsPivot level can be used as a resistance/support level.

We avoid selling to a support level and buying near a resistance level.

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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Pro & Cons

Ike any other trading systems, there are pros and cons in every system. Themain advantages of the FX5m system are listed in the previous chapters. Thecon is the FX5m is a manual system; we need to spend time to monitor theprices, 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, andgoods. 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 tryto 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 asFx5m, we can target 20 to 50pips for each trading day while our risk is kept tominimum.

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Final Checklist

Efore you get too excited to count your pips right away, I have some more

advice for you.

1. 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.

2. You should open a MT4 DEMO account to familiarize with the indicators, charts,settings, entering and managing a trade. Practice! Practice! Practice before LIVEtrading.

3. 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 youshould make some changes to overcome these barriers first.

4. There is no prefect trading system; you just need to find a system that suits you. Usea reliable and consistent system that will bring in profit regularly and will not fail youin the long term.

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 toaccess the more detailed contents and tips of using the FX5m system.

Fx5m Forex Trading System

Documents

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