Cracking The Forex Code

By: Kevin Adams

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1. Cracking the Forex Code – System 1 (CFC1)

1.1. Indicators used in CFC1:

Exponential Moving Average 5-period (EMA5, Black color in the

illustrations)

Exponential Moving Average 15-period (EMA15, Blue color in the

illustrations)

Exponential Moving Average 60-period (EMA60, Green color in the

illustrations)

These are standard, common indicators and are included in every charting
program. You can use any charting software program you like: E-signal,
MetaStock, TradeStation, MetaTrader….

This system is used for 1-hour timeframe. You can also use it for 4-hour and
daily timeframes. But in that case, you have to tweak the stop loss, profit
target, trailing stop appropriately.

1.2. Rules for Buy Signals (Long Trades):

We must first establish that we’re in a strong uptrend using these 3

rules:
1. EMA60 and EMA15 are both pointing up.
2. EMA5 is above EMA15.
3. EMA15 is above EMA60.

When we have these three conditions, we know that we’re in an uptrend.

We then wait for the price to fall back, and touch the EMA60. When that
happens, we enter with two lots.

- Stop Loss: We place a protective stop loss at -40 pips.

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- Profit Targets: When we have 40 pips in profit we exit one lot.

Move stop loss to break even for the second lot. We then use a trailing
stop of 40 pips for that lot. That means, when we’re 80 pips in profit,
we move stop loss to 40 pips. And so on…

We can also move stop loss to the recent high each time price break that
high. That way, we can follow the trend until the end.
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Buy (Long) Trade Example:

Figure 1 – We know we’re in a strong uptrend because:

EMA60 and EMA15 are both pointing up, EMA5 is above EMA15, and
EMA15 is above EMA60.
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Figure 2 – Price falls back, and touches the EMA60.

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Figure 3 – When price touches EMA60, we enter with two lots

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Figure 4 - We place a protective stop loss at -40 pips

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Figure 5 - When we have 40 pips in profit we exit one lot. Move stop
loss to break even for the second lot. We then use a trailing stop of 40
pips for that lot. That means, when we’re 80 pips in profit, we move
stop loss to 40 pips. And so on…
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Figure 6 – Price continues to move in our favor. We’re still in the trade
with the second lot. (We’re using the trailing stop of 40 pips)
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Figure 7 – We finally exit the second lot for + 200 pips in profit.
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1.3. Rules for Sell Signals (Short Trades):

We must first establish that we’re in a strong downtrend using these 3

rules:
1. EMA60 and EMA15 are both pointing down.
2. EMA5 is below EMA15.
3. EMA15 is below EMA60.

When we have these three conditions, we know that we’re in a downtrend.

We then wait for the price to retrace, and touch the EMA60. When that
happens, we enter with two lots.

- Stop Loss: We place a protective stop loss at -40 pips.

- Profit Targets: When we have 40 pips in profit we exit one lot.

Move stop loss to break even for the second lot. We then use a trailing
stop of 40 pips for that lot. That means, when we’re 80 pips in profit,
we move stop loss to 40 pips. And so on…

We can also move stop loss to the recent low each time price break that low.
That way, we can follow the trend until the end.
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Sell (Short) Trade Example:

Figure 8 – We know we’re in a strong downtrend using these 3 rules:

1. EMA60 and EMA15 are both pointing down.
2. EMA5 is below EMA15.
3. EMA15 is below EMA60.
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Figure 9 – Price then rises, and touches the EMA60

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Figure 10 – When prices touches EMA60, we enter with two lots

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Figure 11 - We place a protective stop loss at -40 pips

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Figure 12 - When we have 40 pips in profit we exit one lot. Move stop
loss to break even for the second lot. We then use a trailing stop of 40
pips for that lot. That means, when we’re 80 pips in profit, we move
stop loss to 40 pips. And so on…
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Figure 13 – We finally exit the second lot for + 200 pips in profit
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1.4. Recommended Timeframes

I recommend using CFC1 in 1-hour, 4-hour, and daily timeframes.

1.5. Recommended Currency Pairs

I recommend using the CFC1 for the following currency pairs:

EUR/USD, GBP/USD, GBP/JPY, USD/CHF, EUR/JPY.

1.6. Money management

Never risk more than 1% of your account on any single trade.

You may use variable posing sizing with this system and vary your position
size depending on your stop loss such that you risk only 1% of your account
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2. Cracking the Forex Code – System 2 (CFC2)

2.1 Indicators used in CFC1:

Exponential Moving Average 5-period (EMA5, Blue color in the

illustrations).

Exponential Moving Average 12-period (EMA60, Green color in the

illustrations).

Parabolic SAR.

These are standard, common indicators and are included in every charting
program. You can use any charting software program you like: E-signal,
MetaStock, TradeStation, MetaTrader….

This system is used for 1-hour timeframe. You can also use it for 4-hour and
daily timeframes. But in that case, you have to tweak the stop loss, profit
target, trailing stop appropriately.

2.2 Rules for Sell Signals (Short Trades).

We enter a short (sell) trade when these two conditions happen:

1. EMA5 crosses below EMA12.

2. Parabolic SAR dot appears above the price candlestick.

Stop loss: We place a protective stop loss at -50 pips.

Profit Target: We exit the trade when the Parabolic SAR dot appears
below the price candlestick.

Alternatively, we can also use a trailing stop of 50 pips to follow the

trend.
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Sell (Short) Trade Example:

Figure 14 - We enter a short (sell) trade when these two conditions

happen:

1. EMA5 crosses below EMA12.

2. Parabolic SAR dot appears above the price candlestick.
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Figure 15 - We place a protective stop loss at -50 pips.

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Figure 16 - We exit the trade when the Parabolic SAR dot appears
below the price candlestick.
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2.3 Rules for Buy Signals (Long Trades).

We enter a long (buy) trade when these two conditions happen:

3. EMA5 crosses above EMA12.

4. Parabolic SAR dot appears below the price candlestick.

Stop loss: We place a protective stop loss at -50 pips.

Profit Target: We exit the trade when the Parabolic SAR dot appears
above the price candlestick.

Alternatively, we can also use a trailing stop of 50 pips to follow the

trend.
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2.4. Recommended Timeframes

I recommend using CFC2 in 1-hour, 4-hour, and daily timeframes.

2.5. Recommended Currency Pairs

I recommend using the CFC2 for the following currency pairs:

EUR/USD, GBP/USD, GBP/JPY, USD/CHF, EUR/JPY.

2.6. Money management

Never risk more than 1% of your account on any single trade.

You may use variable posing sizing with this system and vary your position
size depending on your stop loss such that you risk only 1% of your account
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