Advanced Module

Copyright Information

REPRODUCTION AND OR TRANSLATION OF ANY PART OF THIS WORK BY

ANY MEANS ELECTRONIC OR MECHANICAL INCLUDING PHOTOCOPYING
BEYOND THAT PERMITTED BY COPYRIGHT LAW WITHOUT THE PRIOR
WRITTEN PERMISSION OF THE PUBLISHER IS UNLAWFUL.

Copyright © 2007 Adam Burgoyne & Oleg But

Revision 2.12, October 2007

Authors : Adam Burgoyne & Oleg But

Website : 5emas-forex-trading-system.com
E-Mail : [email protected]
Publisher : Adam Burgoyne

NOTE ABOUT CURRENCY:

Unless otherwise stated in this book, all numbers preceded by the “$” sign
refer to amounts in U.S. Dollars.

DISTRIBUTION OF THIS E-BOOK IS

ANY FORM STRICTLY PROHIBITED

Reward for Reporting Offenders

i
 TABLE OF CONTENTS
PREFACE ..............................................................................................1
Understanding the rules: .......................................................................... 2
Summary of indicators and their settings: ................................................ 2

ADVANCED METHOD 1: 5EMAS BREAKOUT SYSTEM .......................................3

5EMAs Breakout Rules .............................................................................. 6
Breakout Rule 1........................................................................................ 6
Stop Orders: 7
Breakout Rule 2........................................................................................ 8
Breakout Rule 3........................................................................................ 8
Breakout Rule 4........................................................................................ 9
Conclusion for Advanced Method 1 ......................................................... 16

ADVANCED METHOD 2: 5EMAS STANDARD ON A DAILY BASIS “A” .................18

ADVANCED METHOD 2: 5EMAS STANDARD ON A DAILY BASIS “B” .................22

ADVANCED METHOD 3: 5EMAS - STANDARD AND CUSTOM INDICATORS ...........27

Disclaimer and Risk Warnings

Trading any financial market involves risk. The content of this e-book, its
various associated websites and all related correspondence are neither a
solicitation nor an offer to purchase of sell any financial instrument.

Although every attempt has been made to assure accuracy, we do not give
any express or implied warranty as to its accuracy. We do not accept any
liability for error or omission. Examples are provided for illustrative
purposes only and should not be construed as investment advice or
strategy.

No representation is being made that any account or trader will or is likely

to achieve profits or losses similar to those discussed in this e-book. Past
performance is not indicative of future results.

By purchasing the e-book, subscribing to our mailing list or using the

website you will be deemed to have accepted these terms in full.

Oleg A. But (author), Adam Burgoyne (publisher), the website, e-book,

and its representatives do not and can not give investment advice or invite
customers to engage in investments through this e-book.

We do our best to insure the website is available 24 hours per day but we
cannot be held liable if for any reason the site is not available.

The information provided in this e-book is not intended for distribution to

or for use by any person or entity in any jurisdiction or country where such
distribution or use would be contrary to law or regulation or which would
subject us to any registration requirement within such jurisdiction or
country.

Hypothetical performance results have many inherent limitations, some of

which are mentioned below. No representation is being made that any
account will or is likely to achieve profits or losses similar to those shown.

i
In fact, there are frequently sharp differences between hypothetical
performance results and actual results subsequently achieved by any
particular trading program.

One of the limitations of hypothetical performance results is that they are

generally prepared with the benefit of hindsight. In addition, hypothetical
trading does not involve financial risk and no hypothetical trading record
can completely account for the impact of financial risk in actual trading.

For example: the ability to withstand losses or to adhere to a particular

trading program in spite of trading losses are material points which can
also adversely affect trading results. There are numerous other factors
related to the market in general and to the implementation of any specific
trading program, which cannot be fully accounted for in the preparation of
hypothetical performance results, all of which can adversely affect actual
trading results.

We reserve the right to change these terms and conditions without notice.
You can check for updates to this disclaimer at any time without
notification.

The content of this e-book and all related websites and correspondence
are copyright and may not be copied or reproduced.

U.S. Government Required Disclaimer

Commodity Futures Trading Commission Futures and Options trading has

large potential rewards, but also large potential risk. You must be aware of
the risks and be willing to accept them in order to invest in the FOREX,
futures and options markets. The past performance of any trading system
or methodology is not necessarily indicative of future results.

ii
Preface
Many clients have repeatedly asked us two specific questions:

• Can the strategy be improved to get more trades?

• Can the strategy be adapted to the daily chart timeframe?

In fact, whilst the system has been developed to work optimally using
60 minute charts, it can also be used very effectively with daily charts,
which is a great bonus for traders who are unable to monitor the
markets during the day.

In this “Advanced” module, we cover additional methods of using the

5EMAs Forex System. It includes using the system on a daily basis and
also using other technical indicators with the basic strategy.

1
Understanding the rules:

The advanced methods outlined within this book are based on, and build
upon, the main strategy rules of the 5EMAs Forex System which are
explained in the “Building Millions on FOREX” e-book. Please ensure that
you have read and understand the rules of the standard strategy before
moving to these advanced methods.

Summary of indicators and their settings:

1-Hour Chart
- 5 period EMA of the Highs
- 5 period EMA of the Lows
- 20 period EMA of the Closes
- Stochastic (5,3,3) or 5EMAsAdvanced (24)
- MACD (12,26,9)

Daily Chart
- 5 period EMA of the Highs
- 5 period EMA of the Lows
- 20 period EMA of the Closes
- Stochastic (5,3,3)
- MACD (12,26,9)

2
Advanced Method 1:
5EMAs Breakout System
This method relies on the use of Support & Resistance lines together
with the standard 5EMAs strategy method. You therefore need to
identify a range, with its highest and lowest levels, to trade the
breakouts in addition to trading the pullbacks.

It is important to realize that the 5EMAsAlert EA determines the trend

by following the standard rules of the 5EMAs Forex System i.e. it uses
principally EMAs and MACD. If, however, you apply lines of Support &
Resistance then you’ll gain several advantages. Let’s see what they are:

1. You’ll be able to determine the existence of flat market conditions.

The standard 5EMAs Forex System is not designed to work in
these situations so you can avoid losing trades by switching to a
strategy designed for flat market conditions.

2. You’ll be able to use the 5EMAs system as a Moving Average

crossover system, however, only in terms of providing additional
trade confirmations in our case.

3. The standard 5EMAs Forex System is a trend following system

designed for trading pullbacks, but now you can trade breakouts
too.

Look at the chart on the following page for an example:

3
As you can see from the chart above, there is quite a good move from
about 123.16 down to about 121.26.

If you were using the standard 5EMAs Forex System rules then you
would only get a signal at the 121.86 level and could trade it down to
about 121.08. The result: just 78 pips. In other words, you missed out
on the movement from 123.16 down to 121.86. This equates to 123
pips of lost opportunity & potential profit!

But how could we have gained a greater trading opportunity from this
scenario?

By approaching the market like this:

4
Notice the two red lines at 123.48 and 123.16 – these indicate the
previous price range.

When the market has been ranging after a reasonable sized move, it
indicates that volatility is reducing and a breakout is possible in the near
future.

As you can see from the chart, the breakout happened in a downward
direction. We therefore require trading rules which allow us to capitalize
on this type of scenario which, fortunately, we have!

5
5EMAs Breakout Rules

Breakout Rule 1

We need to determine the highest and lowest levels of a range. For this
we need at least one extreme point for each level and, for drawing lines
of Support & Resistance, we need at least two points for each of the
range boundaries.

Point 1 is at 123.50 and point two is at 123.48. By drawing a line at the

123.50 level (the higher of the two), we have determined the upper
boundary of the range.

6
We now need to determine the lower boundary so look at the following
chart:

Point 3 is at 123.17 and point 4 is at 123.16. We use the 123.16 level

accordingly, being the lower of the two, and draw a trend line.

Stop Orders:

There are many methods for trading breakouts; the most widely used
approach is to place Stop orders 3-5 pips above and below the defined
range boundaries, however, we have our own approach.

7
Breakout Rule 2

We need to wait until a “1 hour” candle/bar closes above the Resistance

level for a long position or below the Support level for a short position.

Breakout Rule 3

For a long position, the 5 period EMA of the Lows must have crossed the
20 period EMA of the Closes from below to above and, for a short
position, the 5 period EMA of the Highs must have crossed the 20 period
EMA of the Closes from above to below.

8
Breakout Rule 4

For a long position, the MACD must be in the positive zone (above zero)
and for a short position, in the negative zone (below zero).

That covers all the conditions for the first part of the 5EMAs Forex
System Breakouts Trading strategy.

9
As you should have noticed, we covered trading rules for both long and
short positions in the first part of this strategy description. Now, let’s
continue with the second part of the strategy, for a short position in this
example.

Suppose that you missed the first trade signal, the breakout at 123.16
(it is impossible to be awake and ready to trade all the time!) so you
want to trade the next opportunity. How do we identify it? For this we
have some tools!

Please note: As long as price remains below both the 5 period EMA of
the Highs and the 20 period EMA of the Closes, we can go short –
conditions would simply need to be reversed (using the 5 period EMA of
the Lows) when looking at a long position.

10
The zone for short trade possibilities is shown by the red rectangle
which is drawn from the 123.16 breakout level across to the candle
indicated by the green comment “First up-close above two EMAs”.

That particular candle also indicates an exit point based on one of the
“exit strategies” in the standard 5EMAs Forex System course.

So, what additional trade(s) can we find, having missed the first one?
Well, look at the next chart:

11
Within the zone of the red rectangle (shorting possibilities) on the
previous chart we have a pullback beginning at 121.87 and ending at
122.33 which has been marked with red lines.

The line at 121.87 is indicating both the end of the pullback and another
breakout level, however, the pullback did not create a trade signal using
the standard 5EMAs Forex System trading rules.

You are probably wondering: “Well, how do I predict the beginning and
end of a pullback?” You simply use the proprietary method that we
developed and will be revealed next. Take special note of it as you will
not find it in any other course.

12
As can be seen on the previous chart:

1. The pullback didn’t extend beyond either the 5 period EMA of the
Highs or the 20 period EMA of the Closes – actually, not even the
5 period EMA of the Lows was totally breached, just overlaid.

2. During the pullback, the MACD remained negative.

These points indicated a failed pullback with the possibility of a second

breakout to the downside (the current main trend direction in this case).

To clarify, the market moved up after a strong downward movement

creating the first white (bullish) candle – it indicates the beginning of
the pullback.

After that, a second white (bullish) candle was formed, followed by a

black (bearish) candle.

All this occurred while price remained below both the 5 period EMA of
the Highs and the 20 period EMA of the Closes and the MACD was in the
negative zone throughout, as shown on the following chart:

13
If you look at the following chart, you will see where (when the move
was almost over) a clear trade entry signal was finally generated using
the rules of standard 5EMAs Forex System:

14
The best possible trade that could have been obtained from the standard
signal was from 121.86 down to about 121.08 – a move of 78 pips.

15
Conclusion for Advanced Method 1

If using only the standard 5EMAs Forex System strategy we would have
identified just one signal and gained a maximum of 78 pips. By using
Advanced Method 1, the entire move from the initial breakout level of
123.16 down to 121.08 was possible – potentially, 208 pips.

So far, we have covered a short (SELL) position. Now let’s look at an

example of a long (BUY) position.

Look at the chart above. All conditions have been met; but in this case,
for a long position. The red Support & Resistance lines indicate the
range as being between 1.3594 and 1.3642, which has finally been

16
broken by the candle indicated (the green line at 1.3654 indicates the
breakout level). Also we see crossover of the 5 period EMA of the Lows
and the 20 period EMA of the Closes from below in addition to the
positive condition of the MACD.

Following this, we can see two pullbacks which resulted in breakouts in

the direction of the original upward breakout and new main trend.

From the example above, it is blatantly obvious that if we had been

using just the standard 5EMAs Forex System trading rules, we would not
have identified a single trade entry signal during the entire upward
move.

17
Advanced Method 2:
5EMAs Standard on a Daily Basis “A”
This method is actually very simple. You just need to lengthen the
timeframe.

Whereas the standard 5EMAs Forex System uses the 60 minute and 15
minute timeframes, here we need to use the Daily and 60 minute
timeframes instead.

Of course, this approach results in a slight “problem”: a longer

timeframe requires a correspondingly larger Stop Loss.

Can you allow yourself (and do you want) to use a 130-200 pip Stop
Loss when trading? – that is a question only you can answer.

Standard 5EMAs on a Daily Basis can be used only to determine the

trend direction. There is one main exception to the standard criteria:
you don’t need to use the “3+ MACD bars” rule for this method, the
MACD simply needs to be positive for a long position and negative for a
short position.

One point to bear in mind - the normal “exit strategies” defined in the
standard 5EMAs Forex System are unsuitable for trading on a daily
timeframe. It is far better to use Support & Resistance levels to indicate
points to exit trades.

That said, let’s see what we can do. For this, we need to look at the next
chart:

18
Just look at the chart and see how many wonderful trades you could
have made by using the Standard 5EMAs on a Daily Basis method.

Let’s define zones for both long and short positions...

19
The small rectangle (on the left) shows the “short positions” zone. The
large rectangle (on the right) shows the “long positions” zone.

There is no need to reiterate the standard strategy rules, simply

remember the differences:

• No “3+ MACD bars” rule.

• Support & Resistance levels replace the standard exit strategies.

On a Daily chart, Support & Resistance levels are usually the Low and
High of the previous day.

For instance, if a trade signal occurred on 10th June, Support &

Resistance levels for that day would be the Low and High of 9th June.

20
A short position example:

Look at chart above.

The first trade signal (short position) occurred on 2007.01.16, marked

by the green horizontal line at 1.2976.

As a target, we should use the Low of the previous day – 2007.01.15 -

marked by the red horizontal line at 1.2915.

21
Advanced Method 2:
5EMAs Standard on a Daily Basis “B”
Method 2 (basis “B”) involves using both the 5 period EMAs of the Lows
and Highs to indicate the range for intraday trades.

Trading Rules:

1. The MACD should be positive for a long position and negative for a
short position, as for all 5EMAs methods.

2. Before going short, price should touch the 5EMA of the Highs.
Before going long, price should touch the 5EMA of the Low.

That’s simple enough, so let’s examine a couple of examples, beginning

with the first trade signal of our buying zone closest to the current date.

The goal of this process is to prove that such trade opportunities occur
all of the time.

And so, time to look at the next chart:

22
The buying zone is to the right of the red vertical line (dated
2007.06.27).

The first trade signal we encounter is on 2007.07.10. Let’s magnify the

chart to see things more clearly:

23
We could have used the first candle after the red vertical line and, in
fact, the next candle too, but these were not clear 5EMAs signals.

The candle dated 2007.07.10 and marked with a red rectangle on the
chart is a clear 5EMAs signal for going long.

Ok! Let’s locate this day on the 60 minute chart:

24
On that day, the market opened at 1.3620 (marked by the green
horizontal line) then came down to 1.3594, which coincides with the
5EMA of the Lows on the Daily chart, after which it retraced and moved
back upward.

The range from 1.3594 to 1.3784 can be used as the trading range for
intraday trading on that day – it would be perfect, but remember what
we discussed at the beginning of this section… to use both of the 5EMAs
(of the Highs and Lows) to indicate the trading range. That would make
the range boundaries 1.3594 and 1.3675 (81 pips, not counting the
spread) as shown on the following chart.

25
The range mentioned is indicated by the green horizontal lines on the
chart above.

That’s all. By being familiar with the main rules of the standard 5EMAs
Forex System, you will understand how to apply and use these methods
very quickly.

Now let’s examine an example of how we can combine the 5EMAs Forex
System with other technical indicators or even with custom (non-
standard) technical indicators.

In the next section, we are not going to examine lots of technical

indicators – instead, we will concentrate on just one to illustrate the
point.

26
Advanced Method 3:
5EMAs - Standard and Custom Indicators
In this section we are going to introduce a custom indicator – the
5EMAsAdvanced indicator, which will be used in place of the more usual
Stochastic indicator. Again, when using this method, we don’t need to
adhere to the standard “3+ bars of MACD” rule.

The goal of this section is not specifically to show how the 5EMAs Forex
System works with other indicators – more to demonstrate that
complete trading systems can be successfully combined with other
indicators and/or Expert Advisors to further enhance the quality of entry
signals.

Experimentation is the key to success!

If you have not already done so, please install the 5EMAsAdvanced
indicator as shown in the accompanying user guide.

27
The trading rules are very straightforward...

…using the rules of the 5EMAs Forex System, only:

• enter long positions when the green bars of the 5EMAsAdvanced

indicator are solid (thick).

• enter short positions when the red bars of the 5EMAsAdvanced

indicator are solid (thick).

As previously explained, we don’t require the Stochastic indicator in this

case, but we still need the MACD to be in the positive zone for long
positions and in the negative zone for short positions.

28
On the chart above we have marked the BUY opportunity zones with red
rectangles and a SELL opportunity zone with a green rectangle.

This indicator can serve as great filter for avoiding false entries that are
sometimes generated by the standard trading rules and indicators of the
5EMAs Forex System.

We hope you take time to master these advanced methods and wish you
great success in your trading career.

Sincerely,

Adam Burgoyne & Oleg But

29