THE

SIMPLE PIPS GENERATING MACHINE

SECOND EDITION
By EKONYE G. KINGX d_analyst www.loooopfx.blogspot.com

INTRODUCTION
The Foreign Exchange market FOREX as it is popularly called no doubt is the largest Financial market in the world today with transactions worth several trillions of US dollars Exchanging hands on a daily basis. Trading forex might be a highly profitable business venture but I must say this; its not a Get-rich-quick Avenue that any Tom, Dick and Harry could just jump into and hope to become a millionaire overnightit requires a lot of hard work, discipline and patience as well as a touch of sound money management practice for one to be able to see the bright side of Forex at least consistently. I am just a little over 3 years in trading forex however and most unfortunately too, I spent a greater part of those 3 years in a fruitless search for the Holy Grail the one I will love to call Traders Paradise a paradise where price moves in a straight line (no swings), a paradise where every opened position ends in profithmmmvery funny isnt it? It took the latter part of my trading career to finally realize the truth about trading forex profitablybelieve it or not, the most profitable trading systems applied in forex are the simplest that ever existed A good and profitable trading system in my own view should have at least the following Characteristics; 1. Simple 2. Trend following 3. Consistent and 4. Applicable to all pairs The Simple Pips Generating Machine is a very simple trading system, it is trend following, it has potentials for high level consistency in results and can be applied to all instruments traded online be it currencies, commodities, cfds, indexes, stocks etc. As long as the instruments price action can be represented on a candlesticks chart, then of course you can apply my system to trading the instrument.

The Simple Pips Generating Machine was first published on the internet in August 2009. I uploaded the manual in major online trading and discussion forums like forexfactory, sent copies to every online currency trader I know. All these I did for free so that the system can be tested at least for confirmation of its simplicity and potency however, after series of forward testing by all those who got a copy of the manual, lot of comments were posted, lots of questions were asked and lots of suggestions were prescribed too. I want to use this medium to acknowledge receipt of all comments, questions and suggestions sent directly to me through my contact and of course those posted on the various discussion forums I uploaded the document on and I hereby from the very bottom of my heart say a very big thank you to everyone concerned for all contributions made towards perfecting this simple trading system. No doubt a lot of traders will agree that the system is truly very simple as said and with huge profits potentials if the rules are carefully followed. I must confess that I learnt so much from all comments, questions and suggestions I got from the forums, you guys have truly inspired me the more to go back to the drawing board and came up with a revised edition of the Simple Pips Generating Machine and in this edition, I hope to provide detailed explanations on how effective the system can be applied and I also hope to answer all questions asked to the very best of my understanding of your respective questions asked. More detailed chart examples will be displayed here too and I will try my best possible to leave no stone unturned.

Responses from 1st Edition From all the response I got put together when I had the first edition published, I figured out that so many persons had problems with the following; 1. 2. 3. 4. 5. Right buy/sell entry rules Right exit points Best time frame to apply system to Best currency pair to trade with system How to figure out valid signals from false signals and many others.

Walk with me and together lets see how best we can offer possible and lasting solutions to these problems lets get down to business shall we? Of course yeslets go there! SIMPLE PIPS GENERATING MACHINE A lot of persons suggested adding one or two indicators to the setup to help reduced risks of taking false signals however, I do not have a problem with that but in my own sincere opinion, the system is better off left the way it is just as simple and as clear as it is and if the rules are followed carefully, I promise you less problems trading the system. I emphasised in the first edition, the need to add knowledge of trendlines, support, resistance as well as price channels for high potency rate of the system, I have tried it and I got incredible results and we shall be doing just that in this second edition.

SETUP: Now lets set our chart up with the required tools.
TIME FRAME: 30mins, 1hr, 4hrs, daily, weekly and monthly PAIRS: Currencies, cfds, commodities and indexes INDICATORS: 1. SMA 5 (simple moving average set to period 5 applied to close price) 2. SMA 20 (simple moving average set to period 20 applied to close price) 3. MACD (set at default settings)

Your chart should look like the one below however, you have the liberty of setting indicator colours to your own desired choice colour as for me, I like setting sma5 to colour BLUE, sma20 to colour RED, macd histograms to colour BLUE and lastly, the macd signal line to colour RED. One more thing, I love having my charts in plain form without the grid lines also a friend suggested using chart examples with white background and candlesticks in black (bear) and white (bull) so am going to do just that.

Chart-1

The chart above is exactly how I expect your chart to look though colour may differ but it doesnt matter what matters is that you have your sma5 (close), sma20 (close) and MACD (default) all uploaded and you are sure fully armed to the teeth for pips hunting. WHY THE COMBINATION OF SMA5, SMA20 AND MACD? Good question if you ask me. Moving averages have been seen as very good trend following indicators and am very sure that many traders can testify to that and among the full pack of moving average types there is, a lot of traders including myself prefer to use simple moving averages (SMA) though slower to react to price action, it has been tested and proven by many to be smoother and produce more reliable buy/sell signals when different periods are combined for instance sma5 (period 5) and sma20 (period 20). The sma5 in terms of periodicity is swifter to react to price action compared to sma20 which is far much slower so the big questionhow do we take advantage of the fast response of sma5 and the sluggish response of sma20 to price action respectively? The answer is not far fetchedwe simply trade their crosses. Now here is the deal, the two MAs are both trend following and as such when sma5 crosses above sma20 it suggest that price is likely to trade above sma20 for a while or until sma5 crosses back below sma20 the same case applies to when sma5 crosses below sma20. See screen shots below.

Chart-2

Nice smooth crosses if you ask meso beautifulbut I must point out the bitter truth and am very sure 99.99% of you guys reading this will definitely agree with me that it is not always as smooth as this more especially under real-time market conditions, it is not easy to tell which cross will last and which wont. Lets take some examples of such scenarios. Chart-3

Hmmmquite some very bad irregular crosses of sma5 and sma20 we have there on the chart displayed above and that I tell you believe it or not are five consecutive loosing trade setups and surely no one including myself would like to experience such trades. Lets see some more examples of such unproductive trade setups of sma5 crossing over sma20 too frequently within very short space of time. Chart-4

Those are yet other good examples of such bad unfavourable crosses of sma5 and sma20 and worst still, you could have even more than five bad setups in a rowvery possible. There is also the issue of late signals due to waiting for sma5 to cross over sma20 suggesting a change of trend and this can lead to late entry while waiting to set an entry after a convincing divergence between sma5 and sma20, this of course is what I would love to term as jumping into a moving bus. It is very possible you get badly hurt and not only that you may be faced with the problem of where to set your stop loss and even when you are able to spot a good point to set your stop loss, it might just be way too far away from your entry and should such stop loss gets triggered the loss may not be one you could accommodate so easily. Lets see some good examples of what I am trying to point out.

Chart-5

The chart example above is a very good case of taking an entry way too late into the move as a result of waiting for a clear cross of sma5 over sma20 and at a reasonable divergence between the two. By my calculation, that entry will be about 200pips into the move and if you ask me that is a lot of pips to waste in the name of waiting for clearer coast. Lets see one more example. Chart-6

As you can see in the chart example above, possible safe entry after cross of sma5 and sma20 availed itself way into the move and this particular one came after about 160pips into the moveanother late entry with possibility of very wide stop loss. Do not get me wrong, I am not saying this late entries may not end profitably the point am stressing here is the risk involved due to very wide stop loss level. We have seen from a few examples above on how sma5 and sma20 crosses could produce very good buy/sell signals however, we also saw that there seem to be a few challenges that comes with those buy/sell signalswe have issues of possible rather late entries and of course possibility of very wide stop loss levels. It really wont make much sense take for example an intraday trader taking trades off 4hr charts and targeting about 100pips and then risking a very l-a-r-g-e 160pips all in the name of stop loss. Doesnt look good to me and am sure it doesnt to you either. To help remedy the ugly situation, lets introduce the third and last member of the gang that forms the simple pips generating machineMACD. Let us first of all study the characteristics of signals provided by macdyes lets go there! REVERSAL SIGNS The macd gives a reflection of early signs of reversal via the macd bars (histograms) forming below the red signal line suggesting a downward reversal or sell signal and when it forms above signal line, that shows signs of upward reversal or buy signal. Such signals are fully confirmed when bars starts forming below macd 0.00 line level for sell signals and above 0.00 line level for buy signals. The chart examples below explain more. Chart-7

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CONTINUATION SIGNS Macd can also give early warning of continuation of previous trend after showing reversal signs. For example, after giving a buy signal it is expected that the macd bars continues to form above the red signal line and each successive bar formed shorter than previous bar until it starts forming above 0.00 mark of macd however, when a new bar forms and appear to be longer than a previous bar, thats a warning sign and if it continues till a bar forms back below the signal line then it is clear that previous trend (downtrend) might continue. The chart below explains this more.

Chart-9

There are also times when signs of continuation of downtrend may not come so clear in the form explained above rather you see series of bars formed like a sort of flat bottom or broad bottom formation and before you know it a bar takes you by surprise by growing straight back below the signal line. See example below. Chart-10

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I am very sure lots of traders got caught up in that fish net shown above but not to worry, that probably might be the last net you got caught in now that you know when and how it comes. We continueyes o lets go there! Lets see cases of continuation of previous trend after a downward reversal or a sell signal shows on macd. In this case after giving a sell signal it is expected that the macd bars continues to form below the red signal line and each successive bar formed shorter than previous bar until it goes below 0.00 mark of macd however, when a new bar forms and appear to be longer than a previous bar, thats a warning sign and if it continues till a bar forms back above the signal line then it is clear that previous trend (uptrend) might continue. See chart-11. There are also times when signs of continuation of an uptrend may not come so clear in the form explained above rather you see series of bars formed like a sort of flat top or broad top formation and before you know it a bar takes you by surprise by growing straight back above the signal line and at a time like this, sincerely you dont want to hold on to hope. See chart-12.

Chart-11

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Chart-12

Now having seen some of the characteristics of signals provided by MACD now let us try to harmonise it with the sma5 and sma20 crosses and see how it could help us get better entry points if we must trade the SMA crosses. Now lets take a very close look at the relationship between the three indicators on the chart below lets see if we can get any interesting finding or should I call it revelation? Come with me. Chart-13

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Now tell me, did you observe anything? HmmmI urge you to look more closely and tell me what you see. Ok ok ok I will tell you what I see. I found out something very interesting about the whole setup, whenever macd gives its signals there is a subsequent cross of sma5 over sma20 and in the direction macd signal is pointing and one very interesting thing about it all is that the macd signals comes a lot more earlier before actual cross of sma5 over sma20 and so I thought there could be a possibility of working some sort of magic on the period between when macd gives signals and when sma5 crosses over sma20 in the direction macd signalled.

Chart-14

I carefully started observing price action between when the MACD signal shows and when actual SMA crosses takes effect and it didnt take me very long to finally catch what goes down within that period of time. I found out that when macd gives a buy signal, price usually rises to hit sma20 and followed by a bounce back which results to a close of candle below sma5 and this close of candle below sma5 sometimes may not necessarily mean it has to be a one candle affair, sometimes the close comes after two or three candles sometimes four but soon after the close of the candle below sma5, theres usually a sharp price rise most times and closes above sma20 and that is when you start noticing sma5 crossing sma20. Similarly, when macd gives a sell signal, price usually drops to sma20 then a bounce is seen which results to a close above sma5 and just like that of buy signal, it may sometimes take two to three candles after the bounce before an actual close of 13

candle above sma5 but soon after that close, a sharp drop of price is seen which usually closes below sma20 and at that point, you start noticing sma5 crossing sma20. Chart-14

Chart-15

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There are times when there will be a bounce but no close of candle above or below sma5. Chart-16

Chart-17

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There are also times when after a buy signal is seen on macd, price does rise but doesnt stop at sma20 it goes beyond sma20 and forms a new high and swing back down to test sma20 and then continues to rise. Same thing happens sometimes also when macd gives a sell signal, price drops to sma20 but doesnt stop there it breaks sma20 to form new low and then swings back up to test sma20 and then resumes the drop. I discovered that this exception comes most times due to news release or some fundamental events taking place same time. Here are chart examples of the above explained exceptions; Chart-18

Chart-19

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Having made all these interesting findings, I ran a quick back test on so many pairs and time frames and saw that the system is has this huge profit potential but I wasnt satisfied with just back testing so I went into forward testing for months and eventually concluded within myself that the system is a true master piece. Now to the entry ruleslets go there!

SPGM ENTRY FOR LONG Case-1 There MUST be a buy signal on macd then you MUST wait till price rises to hit sma20 then you MUST wait further for a bounce back downwards and an eventual close of a bear candle below sma5. The open of the new candle after the close below sma5 should be your entry point for a long position. Your stop loss MUST be placed at least 10pips below the most recent swing low. Your exit target should be at any point of your choice between your entry and when macd signals change of trend or gives a sell signal. Chart-20

Note: There are cases where the close below sma5 is close to the most recent swing low and this affords one a tighter stop loss while there are some other cases whereby the close below sma5 could be far above the most recent swing low and this could mean a wide stop loss. Personally, I prefer setups that affords me tighter stop loss so you should use your discretion in choice of setups to trade. 17

Chart-21

Chart-22

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Case-2 This is a scenario where at point of macd signal for an uptrend or a buy, price already broke through and closed above sma20 and ending up not producing a bounce off sma20 and subsequent close below sma5 so in this case, you must wait for price to swing back down to test sma20 (it usually does when theres no bounce off sma20). At the test of sma20, you may take a long position and set your exit at any point of your choice between your entry and when macd signals change of trend. While your stop loss should be at a safe distance of at least 30-50pips below sma20sma20 apart from being a trend indicator, it also doubles as a strong resistance/support line and that is the more reason it has that unique bounce characteristics. Chart-23

Note: You may also wait to take your entry at the close of the candle that tested sma20 when price swings back down after breaking past sma20. Sometimes when price swings back down to sma20 it ends up closing below sma20 but you should watch macd closely if the buy signal is still in tact, you may still long otherwise, stay out.

Case-3 This is where after macd showed a buy signal, priced rose to hit sma20 and there came a bounce off sma20 but no close below sma5 before rising past above sma20. You may treat this case like CASE-2 above or apply some discretion in handling the situation as long as macd signal is still intact. 19

SPGM ENTRY FOR SHORT Case-1 There MUST be a SELL signal on macd then you MUST wait till price drops to hit sma20 then you MUST wait further for a bounce back upwards and an eventual close of a bull candle above sma5. The open of the new candle after the close above sma5 should be your entry point for a short position. Your stop loss MUST be placed at least 10pips above the most recent swing high. Your exit target should be at any point of your choice between your entry and when macd signals change of trend or gives a buy signal. Chart-24

Note: There are cases where the close above sma5 is close to the most recent swing high and this affords one a tighter stop loss while there are some other cases whereby the close above sma5 could be far below the most recent swing high and this could mean a wide stop loss. Personally, I prefer setups that affords me tighter stop loss so you should use your discretion in choice of setups to trade.

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Case-2 This is a scenario where at point of macd signal for an downtrend or a sell, price already broke through and closed below sma20 and ending up not producing a bounce off sma20 and subsequent close above sma5 so in this case, you must wait for price to swing back up to test sma20 (it usually does when theres no bounce off sma20). At the test of sma20, you may take a short position and set your exit at any point of your choice between your entry and when macd signals change of trend. While your stop loss should be at a safe distance of at least 30-50pips above sma20sma20 apart from being a trend indicator, it also doubles as a strong resistance/support line and that is the more reason it has that unique bounce characteristics.

Chart-27

Note: You may also wait to take your entry at the close of the candle that tested sma20 when price swings back up after breaking past sma20. Sometimes when price swings back up to sma20 it ends up closing above sma20 but you should watch macd closely if the sell signal is still in tact, you may still short otherwise, stay out.

Case-3 This is where after macd showed a sell signal, priced dropped to hit sma20 and there came a bounce off sma20 but no close above sma5 before dropping past below sma20. You may treat this case like CASE-2 above or apply some discretion in handling the situation as long as macd signal is still intact. 22

PRICE ACTION AFTER SMA5 CROSSES OVER SMA20 We have gone through numerous pages trying to figure out the unique characteristics of price action just after macd signals a buy or sell and right before sma5 crosses over sma20 and so far we were able to make very interesting findings which are bound to lead to highly profitable results if the rules are carefully and well adhered to. Now we have seen what may likely occur just before sma5 crosses over sma20 what about after the cross over? A friend asked me this question and I was in a good position to provide a verifiable answer. What he actually wishes to know as at then was the characteristics of price action after there had been a cross of sma5 over sma20. SMA20 apart from being a good trend indicator, it also posses some good energy that makes it pass for a strong resistance/support line and when sma5 crosses over sma20 that line (sma20) gets broken and price trends afterwards above or below sma20 with respect to direction of cross of sma5 over sma20. After a cross of SMA5 over SMA20, a new swing high/low is achieved, except the macd signal is false or catalysed by some sort of news release or fundamental event which requires corrective moves, First touch of SMA20 after sma5 crosses over sma20 MOST OFTEN RESULTS TO BOUNCE BACK surpassing the previous high/low achieved. The bounce usually completes a nice 1-2-3 formation pattern. Interesting isnt it? I guess it is now lets go there! Chart-28

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The point am trying to make clear here is that someone anyone might be unfortunate to meet a trend initiated by macd signal when it has already taken off, nothing to worry aboutrather than jumping in we could wait for that first touch after sma crosses and take it to probably the recent high/low achieved. As for those who were able to take the first entry then the first touch bounce would be an opportunity to lock in profits and add more lots however, if you miss both then stay off the market. Brotherly advice! Lets now treat some questions, What time frame is safest to take trades? All time frames are safe to apply the system on. But you have to trade the direction of the major or bigger trend by at least checking to make sure the next higher time frame after your favourite is in line with the direction you are anticipating based on setups on your time frame. For instance if you wish to trade a buy setup on 1hour chart, make sure macd on 4hr chart is on buy mode. If you trade 15mins see 30mins, if you trade 30mins see 1hr, 4hr should see daily, daily to weekly and weekly to monthly. There must be consistency for you to dare into the market. I always check all the time frames of my favourite pairs and it pays if you do same. Does the system work on all pairs or just a specific number of pairs? Its a simple system and it is trend following and I believe all pairs move in trend so the system should work on all pairsyes it does work on all pairs. What about exit targetsmust I wait for a reversal signal? Well the choice is yours. I personally do not wait for reversal signals to exit, I trade 30mins, 1hr and 4hr charts and my targets are fixed. 30mins chart I target 25pips, 1hr charts I target 40pips and 4hr charts I go for 100pips. You may also use support/resistance, trendlines and channels as guide to setting your exit targets. What market trading session work best with system? For 1hr and less, London and New York session provides more setups while 4hr and above works good with all session.

Since the system works this good, what percentage of my equity can I risk? Risk not more than 1.5% of equity.

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SPGM WITH TRENDLINES, CHANNELS, SUPPORT AND RESISTANCE This part of this book is targeted towards impacting a fair basic knowledge of support, resistance, trendlines and channels into young traders who for some weird reasons do not bother about or have not been applying them on their charts. Trust me on this, if these tools are applied along side the SPGM, greater results are bound to be achieved. I will try my best to make my explanations to be as simple as possible for clearer understanding however, I will still recommend you seek other good forex books on technical analysis for more and deeper knowledge on how best to apply those tools. Support, resistance, trendlines and channels play a key role as regards taking discretional decisions based on entry and exits while trading setups provided by the simple pips generating machine. Price action near those lines is always reflected on the SPGM. SUPPORT AND RESISTANCE Support and resistance represent key junctures where the forces of supply and demand meet. In the financial markets, prices are driven by excessive supply (down) and demand (up). Supply is synonymous with bearish, bears and selling. Demand is synonymous with bullish, bulls and buying. These terms are used interchangeably throughout this and other articles. As demand increases, prices advance and as supply increases, prices decline. When supply and demand are equal, prices move sideways as bulls and bears slug it out for control. What is support? Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. The logic dictates that as the price declines towards support and gets cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and prevent the price from falling below support. Support does not always hold and a break below support signals that the bears have won out over the bulls. A decline below support indicates a new willingness to sell and/or a lack of incentive to buy. Support breaks and new lows signal that sellers have reduced their expectations and are willing to sell at even lower prices. In addition, buyers could not be coerced into buying until prices declined below support or below the previous low. Once support is broken, another support level will have to be established at a lower level.

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Where is support established? Support levels are usually below the current price, but it is not uncommon for a security to trade at or near support. Technical analysis is not an exact science and it is sometimes difficult to set exact support levels. In addition, price movements can be volatile and dip below support briefly. Sometimes it does not seem logical to consider a support level broken if the price closes 1/8 below the established support level. For this reason, some traders and investors establish support zone. Support can be established with the previous reaction lows.

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What is resistance? Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further. The logic dictates that as the price advances towards resistance, sellers become more inclined to sell and buyers become less inclined to buy. By the time the price reaches the resistance level, it is believed that supply will overcome demand and prevent the price from rising above resistance. Chart-33

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Resistance does not always hold and a break above resistance signals that the bulls have won out over the bears. A break above resistance shows a new willingness to buy and/or a lack of incentive to sell. Resistance breaks and new highs indicate buyers have increased their expectations and are willing to buy at even higher prices. In addition, sellers could not be coerced into selling until prices rose above resistance or above the previous high. Once resistance is broken, another resistance level will have to be established at a higher level. Where is resistance established? Resistance levels are usually above the current price, but it is not uncommon for a security to trade at or near resistance. In addition, price movements can be volatile and rise above resistance briefly. Sometimes it does not seem logical to consider a resistance level broken if the price closes 1/8 above the established resistance level. For this reason, some traders and investors establish resistance zones. Resistance can be established by using the previous reaction highs. Chart-34

Support equals resistance Another principle of technical analysis stipulates that support can turn into resistance and visa versa. Once the price breaks below a support level, the broken support level can turn into resistance. The break of support signals that the forces of supply have overcome the forces of demand. Therefore, if the price returns to this level, there is likely to be an increase in supply, and hence resistance. The other turn of the coin is resistance turning into support. As the price advances above resistance, it signals changes in supply and demand. The breakout above resistance proves that the forces of demand have overwhelmed the forces of supply. If the price returns to this level, there is likely to be an increase in demand and support will be found.

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Summary Identification of key support and resistance levels is an essential ingredient to successful technical analysis. Even though it is sometimes difficult to establish exact support and resistance levels, being aware of their existence and location can greatly enhance analysis and forecasting abilities. If a security is approaching an important support level, it can serve as an alert to be extra vigilant in looking for signs of increased buying pressure and a potential reversal. If a security is approaching a resistance level, it can act as an alert to look for signs of increased selling pressure and potential reversal. If a support or resistance level is broken, it signals that the relationship between supply and demand has changed. A resistance breakout signals that demand (bulls) has gained the upper hand and a support break signals that supply (bears) has won the battle.

TRENDLINES Technical analysis is built on the assumption that prices trend. Trend Lines are an important tool in technical analysis for both trend identification and confirmation. A trend line is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance. Many of the principles applicable to support and resistance levels can be applied to trend lines as well.

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Uptrend line An uptrend line has a positive slope and is formed by connecting two or more low points. The second low must be higher than the first for the line to have a positive slope. Uptrend lines act as support and indicate that net-demand (demand less supply) is increasing even as the price rises. A rising price combined with increasing demand is very bullish, and shows a strong determination on the part of the buyers. As long as prices remain above the trend line, the uptrend is considered solid and intact. A break below the uptrend line indicates that net-demand has weakened and a change in trend could be imminent. Chart-36

Downtrend line A downtrend line has a negative slope and is formed by connecting two or more high points. The second high must be lower than the first for the line to have a negative slope. Downtrend lines act as resistance, and indicate that net-supply (supply less demand) is increasing even as the price declines. A declining price combined with increasing supply is very bearish, and shows the strong resolve of the sellers. As long as prices remain below the downtrend line, the downtrend is solid and intact. A break above the downtrend line indicates that net-supply is decreasing and that a change of trend could be imminent.

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Validation It takes two or more points to draw a trend line the more points used to draw the trend line, the more validity attached to the support or resistance level represented by the trend line. It can sometimes be difficult to find more than 2 points from which to construct a trend line Even though trend lines are an important aspect of technical analysis, it is not always possible to draw trend lines on every price chart. Sometimes the lows or highs just don't match up, and it is best not to force the issue. The general rule in technical analysis is that it takes two points to draw a trend line and the third point confirms the validity.

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Summary Trend lines can offer great insight, but if used improperly, they can also produce false signals. Other items - such as horizontal support and resistance levels or peak-andtrough analysis - should be employed to validate trend line breaks. While trend lines have become a very popular aspect of technical analysis, they are merely one tool for establishing, analyzing, and confirming a trend. Trend lines should not be the final arbiter, but should serve merely as a warning that a change in trend may be imminent. By using trend line breaks for warnings, investors and traders can pay closer attention to other confirming signals for a potential change in trend.

CHANNELS If we take this trend line theory one step further and draw a parallel line at the same angle of the uptrend or downtrend, we will have created a channel. Up or ascending channel To create an up (ascending) channel, simply draw a parallel line at the same angle as an uptrend line and then move that line to position where it touches the most recent peak. This should be done at the same time you create the trend line. 33

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Down or descending channel To create a down (descending) channel, simple draw a parallel line at the same angle as the downtrend line and then move that line to a position where it touches the most recent valley. This should be done at the same time you created the trend line. Chart-40

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CONCLUSION When prices hit support, an uptrend line or the lower channel this may be used as a buying area. When prices hit resistance, a downtrend line or upper channel line this may be used as a selling area. To apply this to the simple pips generating machine, what you do is observe what macd says when price hit those points and if macd gives a reversal signal then that signal most likely is going to last for a while. You can also use the simple pips generating machine to determine when there is a breakout either a break of resistance, support, trend line or channel. And how do you read this on the macd? Good question. There are times when macd gives you a reversal signal either up or down and not long after, macd bars goes back below or above red signal line signalling a continuation of previous trend and a close above resistance, downtrend line or upper channel line at that instance could mean a valid break towards the upside. Similarly, a close below support, uptrend line or lower channel line at that instance could mean a valid break towards the downside.

FINAL CALL Finally, this is the point where I will like to wrap it all up. I have tried my best within my capacity and even went extra miles just to be able to make this book as simple and as explicit as possible for easy understanding. I hope I have been able to answer most of the questions asked and I sincerely hope you guys will face lesser difficulties in applying the system effectively now that it has even been broken down to smaller piece for easy consumption. One last tip: When macd gives a buy/sell signal, it is safe to long/short to sma20 but you must use your discretion for instance, you need consider how far up or low sma20 lies before making an entry. You can use the cross-hair tool to measureif the distance is less than 30 pips then forget it. I have had 100pips before just trading to sma20 soon after macd gives signal. Also, the bounce off sma20 can be traded till above or below sma5 but you have to apply high sense of discretion in doing this because there are some sma20 bounce that doesnt gets to sma5, some leads to a close above/below sma5, some leads to a continuation and there are some others that dont do bounce at alluse your discretion! Follow the rules and you shall be successful. Good luck to you all. d_analyst

Trading Futures and Options on Futures and Cash Forex transactions involves substantial Risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.

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