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FOREX TRADING:

13 EXCLUSIVE PRO TIPS

FOR USING CHART SETUPS

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CONTENTS
Simply click the topic you’d like to read, to go directly to it.

1 Know Your Setups

2 Selecting Your Currency Pair is Part of Your Set-up

3 The Art of the Chart – Some Damn Good Technical Setups

4 The First Step – Know Your Market Type

5 Use a Trend Filter to Befriend the Trend

6 Some Useful Trend Filters

7 Chart Patterns, Trend Lines, Support and Resistance Levels:

The Basis of Excellent Setups

8 News-Based Setups

9 Some Damn Good Fundamental Setups

10 You Don’t Need to Be an Expert to Try Expert Setups

11 Some More Damn Good Setups

12 Here’s What to Do Next

13 A Last Bit of Advice

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Foreword
Trading is an incredibly hard past time, but it doesn’t
have to be. Education is key to your development but
with so many websites, videos, and general material
it’s hard to know what will help, and what will lead to
information overload. In my experience it’s always
best to stick to the basics, I’ve seen so many examples
in my career of traders who have jam packed charts
with indicators, or learnt the ins and outs of various
complicated trading strategies without understanding
the basics of risk management, stops and limits, even
in some cases how to actually place a trade.

The eBooks on offer here give you that information, they give you the basics and then look to build on that
base knowledge to leave you in the best position to continue, or begin your trading journey. The information
provided is not just for the novice either, the eBooks go a long way to cater for traders with different skill sets.
I myself am a qualified technical trader, the information provided in this series is not just your bog standard
technical analysis it’s in depth enough to give the experienced trader useful tips, but digestible enough to be the
perfect help for the beginner.

James Hughes

Chief Market Analyst

AxiTrader

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The secrets to success are not really secrets at all!

Traders who succeed in the forex market are those

who have developed a sucessful strategy. And such
These learnings have been shared with a single
strategies can be replicated and taught.
objective – To empower you with the knowledge

This ebook is the second in a series of five that focus that can make the difference between success

on Building a Successful Forex Trading System. In and failure in forex trading.

this series of ebooks, you’ll find information that’s

based on several years of studying top traders and
the application of their principles.

In this ebook, you’ll learn about identifying a trading strategy or chart setup that best suits your trading style.
You will also get to know some great technical and fundamental setups, how to select the currency pair and
market type, using trend filters and recognizing chart patterns and trendlines

Others in the Series to Help You Build a Successful Forex Trading System

FOREX TRADING: FOREX TRADING: FOREX TRADING: FOREX TRADING:

7 LESSONS FOR UNDERSTANDING HAT TRICK! 3 EASY ENTRY 3 WAYS TO ACHIEVE YOUR PANIC OVER - 3 RESCUES FOR WHEN
THE FOREX MARKET TYPES AND EXIT STRATEGIES OBJECTIVES WITH POSITION YOUR SYSTEM STOPS WORKING
SIZING AND SYSTEM MONITORING

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“Although the cheetah is the fastest animal

in the world and can catch any animal on
the plains, it will wait until it is absolutely
sure it can catch its prey. It may hide in the
bush for a week, waiting for just the right
moment. It will wait for a baby antelope,
and not just any baby antelope, but
preferably one that is also sick or lame;
only then, when there is no chance it can
lose its prey, does it attack. That to me is
the epitome of professional trading.”
MARK WEINSTEIN

Yes, you need not only the keen vision of a cheetah but also the patience to wait for just the right moment be a
successful trader. Fortunately, in the forex jungle, you can rely on automated tools to generate trading signals,
based on the trading strategy of your choice. However, the first step is to zero in on a trading strategy or setup
that best suits your trading style.

As a beginner, all those amazing indicators and charts seem mesmerising, especially given that they aid you in
predicting the future of the forex market. The reality is that they are amazing, but only for those who learn to
use them. This is where demo accounts prove invaluable, giving you a glimpse of the real world and allowing you
to test out different trading setups till you find the one that best suits yo

Finding the right setup is a process of trial and error. The key is to know what you are doing and why, and then
analysing the results. Testing your setup is the best way to understand how to minimise risk and make the most
of trading opportunities.

1 Know Your Setups

Before you start testing, you should know that there are 5 primary types of setups:

1. Technical set-ups

2. News-based set-ups

3. Big picture fundamental set-ups

4. Sentiment set-ups, and

5. Expert set-ups

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These set-ups can be used on their own or combined to create high probability, low risk/high reward trade
ideas. But be careful… The essence of a good trading plan is simplicity. Pick and choose only the best set-ups
that suit your trading personality. Doing more than that is a recipe for disaster as conflicting set-ups cause
confusion, indecision and mistakes.

To give you an idea of a good set-up, here’s a look at the EUR/USD chart for May 31, 2018. What happened on
this day was that the Eurozone saw higher than anticipated inflation, which rose from 1.2% in April to 1.9% in
May, well above market expectations of a 1.6% increase. So, the EUR/USD pair opened at about 1.1600, with a
target of 1.1780, indicating a bullish, long stance on the EUR/USD pair. A possible stop-loss could be put in at
about 1.1510 (which, of course, was not reached in the 30-minute chart).

So, a set-up is a scenario that occurs before a trade is executed, rather than the trade itself. The set-up signals a
trading opportunity.

Once the set-up conditions arise, you don’t necessarily enter straight away. You want to time your entry with
precision to increase the risk/reward on the trade.

To continue with the cheetah analogy, once the cheetah chooses its prey using patience (the set-up), it still
needs to execute the kill (the entry). For this, it has a specific routine involving stealth, speed and strength.
The cheetah moves low in the grass using the small rises of the land to disguise its approach. This is followed
by a terrifying burst of speed to get close enough to pounce on its prey. Then the cheetah closes in, using raw
strength and skill to target the prey’s vulnerable areas with its powerful jaw and sharp claws.

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We can illustrate this with an example using a simple volatility contraction set-up on the GBP/ USD, with
breakout entry signals. You can see how volatility contracts on the right-hand side of the chart, which is our set-

Lower Highs

Trigger for Long Entry

Trigger for Short Entry

Higher Lows

By patiently waiting for the right trigger, we might be able to either make profits off a short position or wait till a lo
position is triggered. If you see the daily chart of the GBP/USD, you will see how the price continues to rise following
the trigger for a long entry, giving the trader opportunities to make a profit

However, for any set-up to be successful, you also need to have signals for when to exit the trade. This way, you not
only get triggers to enter a trade but also stop-loss triggers. This will help you manage risks and minimise losses.

Take Profit Here

1.25495

150 pips

1.23995

Stop Loss Here

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As mentioned earlier, online trading platforms give you the tools to automate such signals, based on your
specific set-up or strategy, rather than you having to constantly monitor the markets

“Luck is what happens when preparation

meets opportunity.”
SENECA (ROMAN PHILOSOPHER)

Once you find a good set-up, it is helpful to have a framework for thinking about how you are going to best
exploit it.

Consider as your framework:

What are 2–4 options that can come out of this set-up?

How am I going to make money out of this set-up?

Where are my potential entry points?

Where are my potential profit targets?

What could happen after I enter my trade?

Where can I re-enter if I get stopped out?

Where can I scale into the trade?

To answer each of these questions, let’s take the example of the GBP/USD pair. In this case, our main set-up is a
low volatility sideways market type.

What are 2–4 options that can come out of this? opportunity is the breakout, so it’s best to ignore the
range trade for the moment.
What options do I have for a sideways market?
Typically, it could either breakout or stay within the Where are my potential entry points?
range.
A close above or below the Bollinger Band on the
How am I going to make money out of this? 15-minute charts would be a suitable entry on this
set-up.
In this example, the best risk/reward trade

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Where are my potential exit points?

As prices tend to move towards the clusters of stops

at the highs and lows (represented by the red lines on
Chart 5), these can/could be viewed as potential profit
areas. A stop could be placed on the lower Bollinger
Band, meaning that you’d have a risk/reward of at
least 3:1 on the trade. It’s recommended to also look
to apply the complex exit approach to the trade.

What could happen after I enter my trade?

Once the trade is entered, there are four things that could possibly

1. The breakout continues and a trend forms

2. The breakout fails and goes down and hits my stop-loss

3. There is strong reversal signal

4. The strong reversal signal fails and the breakout continues.

Consider how to handle each option and note it down if it is not already in my trading plan.

Where can I re-enter if I get stopped out?

Look to re-enter in either direction, if there is a similar signal.

Where can I scale into the trade?

If a reversal failure occurs, it’s best to scale into the position on a close over the reversal candle. If a strong trend
develops from a breakout, then that is a new setup that allows me to add another position, in the direction of
the trade. (You would then need to ask yourself the same set of questions about the new set-up.)

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2 Selecting your currency pair is part of your set-up

No doubt you’ve been advised to keep it simple and stick to the major currency pairs, such as EUR/USD or GBP/
USD. While this may be true for some, the smarter trader might decide to trade the cross rates instead.

Don’t be shy to explore the full spectrum of currency pairs that are on offer to see what is going to best suit your
system. The cross rates often have spreads that are very close to the majors, and because less people specialise
in them, you may find that you can develop a nice edge by choosing to focus on them.

3 The art of the chart – some damn good technical set-ups

While technical analysis offers some of the simplest

and best set-ups, your primary guide should always
be price. Ignoring what the price is telling you is just
“The 10-day exponential moving average like ignoring a diversion sign because Google Maps
(EMA) is my favourite indicator to doesn’t tell you it’s there. Don’t ignore the evidence in
determine the major trend. I call this ‘red front of your eyes.
light, green light’ because it is imperative
But there are hundreds of set-ups that you can
in trading to remain on the correct side
potentially use, so let’s help you simplify by selecting
of moving average to give yourself the a few of the most useful.
best probability of success. When you
are trading above the 10-day, you have
the green light, the market is in positive
mode and you should be thinking buy.
Conversely, trading below the average is a
red light. The market is in a negative mode
and you should be thinking sell.”
MARTY SCHWARTZ

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4 The first step – know your market type

Market types make excellent set-ups. You should be aware of the market type you are in before you trade. In
addition, consider using the transition from one market type to the next as the set-up.

5 Use a trend filter to befriend the trend

As mentioned earlier, developing your own trading

system is all about trial and error. Each trade can be a
learning experience, helping you to make systematic
changes step by step, which will improve your results
over time.

A trend filter is a set-up that can be used in this way.

You simply apply a trend-following indicator to a chart
and never trade against it, like Marty Schwartz with
his 10-day EMA. If the price is above the indicator you
never go short; if it is below the indicator then you
never buy.

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The best way to check the effectiveness of a trend filter is through back-testing, either by manually looking a
the charts or by programming a back-test. Again, trading platforms like MetaTrader offer simple ways to set up
back-tests.

However, manual testing is great/useful/preferred since it can offer insights you can’t glean from a computerised
back-test (though the same could be said for the reverse).

6 Some useful trend filters

You would never trade against the 10-day EMA.

10-day Exponential Moving
In this case your entry would be on a lower
Average
timeframe.

Displaced moving average. Try

This indicator was discovered/realised by/through
a 25-period moving average
Joe DiNapoli who recommends displaying moving
displaced by 5 periods for short-
averages to avoid whipsaws experienced by the
term trends or on a higher
typical moving average.
timeframe for long-term trends.

Displaced moving average. Try a

A variation of the 25 x 5 above for use on the main
200 x 5 period moving average on
timeframe you use for the trade.
your entry timeframe.

MACD – Normal settings of You can use this on both your entry timeframe and
12/26/9 on a higher timeframe.

Use this on the main timeframe you use for the

MACD – Settings of 70/200/70
trade.

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Let’s look at an example of how a trend filter works

using the 70/200/70 MACD. In this example, a simple
support and resistance trading system is operating
that sells on resistance in a downtrend and buys on
support in an uptrend. The exit is on the opposite
support/resistance level. Each winning trade has a 3:1
risk/reward ratio.

By trading with the trend filter there are five wins and three losses, but the winners are three times bigger tha
the losers, returning twelve times the amount risked over eight trades. Note this is an idealised example. With
any trend filter, you can experience periods of whipsaws as markets consolidate before a new trend forms

7 Chart patterns, trend lines,

support and resistance levels:
The basis of excellent set-ups

If you love charts and have the foundation of

comprehensive charting knowledge, your carefully
drawn triangles, wedges and Fibonacci levels can all
serve as perfect set-ups. However, don’t be in a hurry
to enter a trade the first time you identify a potential
pattern. Move to a lower timeframe to improve the
risk/reward on the trade.

For example, on the GBP/CAD trade we have a

resistance level on the weekly chart that has held six
times before the breakout finally comes.

After the breakout, rather than rushing to enter the

market, you move to a shorter timeframe to improve
the risk/reward on the trade.

You can see that not only do you improve the risk/reward on the trade by using the resistance level as a set-up
instead of an entry, but also it potentially helps you avoid several failed breakouts.

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8 News-based set-ups

Some people are attracted to Forex trading for the buzz of it. You can spot them a mile away. They have itchy
trigger fingers, they trade big because it gives them a rush, and they tend to lose. Forex trading is not the place
to get your thrills. That part of your psyche needs to be put aside when you trade. Needless to say, this type of
trader is attracted to the thrill of the news announcement. The promise of quick profits is hard for the gambler
inside to resist.

And this presents opportunity.

Where there is a lack of discipline and emotion in the

markets, there is profit potential for the prepared
Most Impactful News Reports
and patient trader. For you to take advantage of 160
this opportunity, you will need thorough knowledge 140

of news set-ups. Some types of news have a much 120

greater impact than others. Here’s a look at the news 100

80
that tends to lead to the most volatility in the forex
60
markets.
40
20
In addition, you should look to answer some key
0
questions before trading on news. Here are some NFP Retail Sales Trade Balance FOMC CPI

important ones.

How has price has reacted to You can get this information from a service such as
this news event in the past? Autochartist’s event impact analysis tool.

Do they come in as expected or is there a typically

What have previous news a variance? How does the market typically react if
results been like? numbers come in over or under? You can see past
results in any decent Forex economic calendar.

Some events move the market more than others.

How important is the event?
Again, you can find this in an economic calendar

The reaction to events can be fleeting or can last for

How long do the moves
months. Try to know how long you can expect the
typically last?
move to last.

You could read your favourite sources of expert

What are analysts’
commentary about what to expect from the news
predictions?
event. Try www.forextell.com.

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Harder to gauge, but see if you can glean from market

Do you think what the
sentiment, analysts’ commentary or chatter if the
market expects has been
market is overly long or short and likely to get caught
priced in?
out.

A powerful set-up can occur if the price reacts the

opposite to how it should. For example, if there is
Is there news divergence?
negative news and the price reacts positively then it
could be a good set-up for a buy.

If it is an interest rate
Some traders read the Central Bank minutes to get an
announcement, what do the
insight into their directional bias.
Central Bank minutes say?

WHEN TWO TRADES DIVERGE

When trading news, you need to make a choice

regarding when to enter a trade:

Do you enter before the new release, or

After?

This decision will influence how you use the news

as a set-up. If you are placing your trade prior to the 8:30 am NFP Release
event, then it is your prediction of what is actually
about to occur that is the set-up.

If you are waiting to see the result of the news release, either for a technical move or for the impact on the forex
market to become apparent, then this is actually your set-up.

9 Some damn good fundamental setups

Most fundamental information is a set-up. Here are two very important fundamental set-ups you could consider
before each trade, especially if you are holding long-term positions.

1. INTEREST RATES

The interest rate differential between countries is one of the best predicators of currency movements.

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Currency trading can be seen to be a form of leveraged fixed interest trading. So, if a currency pair has a higher
rate, then it can be an attractive long-term buy. When there is demand, there tends to be price increases.

In addition, they have a very real impact on your account balance. If you are buying the currency pair with the
lower interest rate, you are likely to have the interest charge subtracted from your account each day.

Chris Lori, a popular American trader, takes this set-up very seriously. He recommends trading only the AUD/JPY
and only buying AUD so that he is always earning interest on his trades.

There is an example of interest rates at work on the following chart. Here you can see the correlation between
the spread on German and US bonds, versus the price of the EUR/ USD.

2. CENTRAL BANK BIAS

It used to be all about interest rates, but after 2008 central banks across several major developed nations
dropped interest rates to close to zero.

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Their main tool became quantitative easing, where

(essentially) they would inject cash into the economy
in exchange for toxic debt. This bias towards easing
had a telling impact on the movements of currency
pairs. Thus, currency traders tune in to the easing or
tightening proclivity of central bankers to get an idea
of the direction they want to trade. You can see the
impact quantitative easing has on the movement of
currency pair on the following chart of the EUR/USD.

So, take note of directional biases caused by fundamentals as they can make very good set-ups for longer term
trades.

10 You don’t need to be an expert to try expert set-ups

The good news for beginners is that there is a plethora of information online regarding forex trading. The bad
news is that there is so much advice, it can be difficult for the uninitiated to sort the wheat from the chaff. T
key is to look for expert sources of information on the specific currency pairs that you are interested in

By following experts, you can use their experiences and emulate their trade ideas, rather than trying to reinvent
the wheel on your own. In fact, some online trading platforms even allow you to copy the trades of more
experienced/successful traders.

But beware, don’t go all in on the “hot tip” of an expert. You should treat an expert’s trade idea like you would
any other set-up. It is simply a component to be added into your complete forex trading system.

Why not follow these ideas in full? Because you have your own unique objectives, psychology and motivations,
which if not considered will lead to trading failure.

What will you do if the expert you are following:

Experiences a drawdown
Trades a timeframe that does not suit you
Doesn’t give you a place to put a stop-loss?

And they certainly won’t have a position-sizing model

designed to fit you

So, it is a great idea to track experts but integrate

their ideas into your own set-up rather than blindly
following them. Failing to do so could over time lead
to the incongruences piling up and you ending up
making mistakes that harm your trading account.

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11 Some more damn good set-ups

Set-ups abound. Wherever you can find a Forex trader you can find a new set-up

In fact, entire books have been written on one or two set-ups alone. Here are a few more set-ups that you
should know about.

(Please note that just because these/the examples above are not included, does not mean they are any less
useful or important. It all depends on the trader and the edge they are seeking to find.

See which ones suit you and your trading style. Avoid the temptation to overcomplicate. You must have a
specific reason for adding a set-up into your plan, and then you should rigorously test it like a scientist tests a
hypothesis.

Time of day / The time of day and the session you are trading in can have a big
session influence on the outcome of your trade

Divergence Lookout for indicators that are signalling a change in trend before
the price reverses.

Size of the candle Large candles can signal an important event has happened that
may create a change in the trend.

Information Information about where orders and stops are sitting in the
about the order markets can be excellent set-ups.
flow

Options barriers If market participants are looking to either protect their options
from execution or make sure that an option is executed, then their
actions could move the market.

Sentiment Sentiment trading is a relatively new innovation in the Forex

indicators market. By knowing which way the “herd” is positioned, you can
choose to either follow or fade the trend.

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Correlations Correlations between currency pairs can be important leading

indicators across multiple timeframes.

Upcoming news If you assess the events that you have on the horizon for the
events coming week, you can get a sense of what can move the market
and where.

Why a pattern is If a pattern is formed because of a news event or not.

formed

Seasonality Historically currency pairs may have performed differently based

on the time of the year. You can see an example in this chart where
for the last 5 years USD/JPY has been strong in March.
(chart courtesy of Kathy Lien)

USD/JPY Seasonality Analysis

0.012
0.01
0.008
0.006
0.004
0.002
0
-0.002
-0.004
-0.006
-0.008
-0.01
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Ju

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Ap

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ar

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br

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Ja

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Environmental Such as 9/11, the Japanese tsunami or Russian troops in the Crimea
or geopolitical in 2013 can heavily influence the direction of currency pairs
events

Corporate buyers A large corporate purchasing currency (perhaps due to a merger

and acquisition) can be a powerful set-up.

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12 Here’s what to do next

Smart traders know that the search for the perfect combination of set-ups is a chimera.

As you develop your Forex trading strategy, you will be tempted to spend the lion’s share of your time in this
area.

But don’t be so easily seduced. It’s suggested you choose:

1. A market type
2. A trend filte

Then choose one other setup from those listed above (or one of your own that you already like).

And simply move on. Go and work on other aspects of your system or your position sizing. You can then
experiment with the set-up as a variable as you make changes down the track.

13 A last bit of advice

“By failing to prepare, you are preparing to fail.”

BENJAMIN FRANKLIN

Yes, the world of forex is an exciting place and you might just be itching to try your hand at it. But, as Abraham
Lincoln also said, spend more time on sharpening your axe before you begin cutting down the tree if you want
to succeed.

So, learn as much as you can about the market, work out the set-up that works best for you and use a demo
account before you step into live trading.

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