Introduction

The system is based on two principles:

1.Detect the trend of the Market on a superior time frame like the four hours or the daily time frames.
2.Search for a trading signal on a smaller time frame like the 15 minutes or 30 minutes time frames and place the trade in the direction of the prevailing movement of the market.

 

After months of research our experienced team came across a very powerful indicator based on the Heiken Ashi Smoothed indicator that is provided by the MetaTrader trading platform. We were searching for an indicator to provide us with the fastest and simplest way to detect trend changes in the forex market. Our purpose was to develop a very simple trading system that could be used with ease by anyone, experienced or not. After a period of 6 months in which we back tested and paper traded different versions of this forex indicator, we perfected one that provided us with incredible results as you will see in the next sections.

As we stated before, this trading system involves 2 basic principles. The first one is based on the oldest saying in the trading markets. This quote is not applicable just in the forex markets but in all markets and it states that "trend is your friend". This means that a trader should always consider and base his trading decisions on the direction of the trend in that moment. If a trader does that he will not only avoid unpleasant losses but on the long term this trend following system will become successful and profitable. That said, it is a well known fact that the best two time frames that should dictate to us the present move of the forex markets are the 4 hours time frame and the daily time frame. A regular swing trader that owns a retail forex account with a relatively small portfolio can't base his trades on signals given on this two time frames because he doesn’t dispose of the necessary funds to cover a good Risk/Reward ratio.

Consider the following example: a trader owns a 100$ mini account with the minimum volume to trade of 0.1 lots per trade which means that every pip values 10 cents. If you look on a H4 chart on the most traded pairs (Eur/Usd, Gbp/Usd, Usd/Cad, Usd/Chf) it will be clear that a decent stop would be placed around 70 to 100 pips away from the open price. On the daily charts this stop level is even wider (around 150-200 pips).

What does this mean in case of a loss? It means that the "unfortunate" trader will be 7 to 20 $ short which represents 7-20% of his total account capital. This is not acceptable considering the fact that the optimum risk/trade that should be adopted is 2% of the account.

This is where the second principle comes in and states that the trade should be taken on a smaller time frame where the trader can set a tighter stop loss that in case of being reached will not ruin the account. We discovered that the most suitable time frame for a maximum of 20 pips stop is the M15 time frame.