The Daily ChartTrading System is designed to give you plenty of time to preparefor your trade, time to confirm the reasons for the trade and time toexecute the order. This is perfect for traders who don't have time tosit in front of their computer screen for 10 to 16 hours at a time.This trading system will also absorb most of the reactions fromeconomic news on a daily basis since we are monitoring the dailycharts. You can also hold the trades open through the weekendswithout much concern if price isn't too close to the stop loss level.You also need to consider the logistics of trading on a Daily chart.This will obviously have a major influence on the amount of leverageyou use due to the size of the stop loss placements. It is notuncommon to see stop loss levels in excess of 200 to 300 pips or moreon a single trade. You absolutely must take this into account whendetermining whether you can afford the trade or not. I neverrecommend using more than 5 percent of your account balance on allopen trades... and you must consider that if the trade moves againstyou more than 100 pips or more, this will increase the percentage ofcapital exposed on the trade. Please read the line above again!Understanding the importance of leverage and controlling thatleverage and maintaining a disciplined approach to money managementis one of the most important factors between success and failure. Ifyou have a small trading account and you still wish to trade thedaily charts you need to make an adjustment to the leverage you areusing and keep in mind my recommendation of never using more than 5percent on all open trades at a single time.
Time frames
In this trading system wewill be using a classic system that many successful traders use.
It involves using thedaily chart and the 4 hour chart only.
The daily chart is usedto determine the trend and direction and the 4 hour chart is used totime the entry.
Currency pairs: GBP/USD, EUR/USD, USD/CAD, AUD/USD, EUR/JPY and the GBP/JPY.
Forex Indicators:
This strategy mainlyrevolves around the Donchian channel indicator.
The Donchian channels areadded both to the daily chart and the 4 hour chart.
The setting for theDonchian channel daily chart is 20 and the Donchian channel settingfor the 4 hour chart is 55 which is a typical Fibonacci number.
We will also be using thetypical 200 day moving average (set at the close) for the dailychart. This will help visually determine the trend and the strengthbased on the angle of the moving average and distance of price fromit. The last indicator used in this strategy is the Stochastics onboth daily and four hour charts set at 14, 3, 3.
Step one:
Always trade in thedirection of the trend! (price above the 200 day moving average onthe daily chart, then only trade up and vice versa)
The decision is up to youto determine the strongest trending currency pair. You will noticethe angle of the moving average and the distance of price in relationto the moving average. It is still possible to trade a pair that isnot trending as strong but it is preferred to use the strongesttrending pair. In this manual we have a perfect example of a pair(GBP/USD) that is still in an uptrend according to the position ofprice in relation to the moving average. (please see chart below)
The set up:
In this example we willassume that we are looking for a trade in a up trend and a longposition.
We will also need to usethe A, B, C, price swing method, (not to be confused with ElliottWave).We will be looking on thedaily chart for price to remain above the 200 day ma but touching thelower channel of the Donchian channel indicator. This shouldpreferably occur at the “C” in a pull back during a trend up.(please see chart 1 below)
In chart 1 above, we start looking foran entry when we can confirm that price is above the 200 day ma andstill in an uptrend. When price returns to the lower Donchianchannel, we switch to the 4 hour chart and look for the entry to golong again assuming that the trend is going to remain in tact.
Once we enter the trade from the 4 hourchart, we switch back to the daily chart to manage the trade. In thenext two charts below, we will see a recent (as of this writing)trading opportunity and how we use both time frames.
Chart 2 Recent trading opportunity/example. GBP/USD daily chart
In the chart above, we see that price isstill above the 200 day ma and price has returned to the lowerDonchian channel. This is the first step to identifying a tradingopportunity. Until price touches the upper or lower Donchian channelwe don't do anything but wait or look at another currency pair for atrade. Now we switch to the 4 hour chart and look for the entry.
(please see chart 3 for 4 hour chart)
In the four hour chart above, we cansee that the Stochastics has been in the “extreme” level and isreturning back up. Now we use a Donchian channel indicator set at 55and wait until price touches the upper Donchian channel at the highwhere the arrow is, plus one pip. This would also theoreticallyconfirm the uptrend when price starts to break out to the upsideagain. As you can see this will require a large stop placement.
The exit: (take profit)
We exit the trade when price in thisexample, returns back to the lower Donchian channel on the fourchart.
Trailing stop:
You can move the stop up (in thisexample) when price takes out the last high and makes a new high,then set the stop just below the last swing low. Closing: Trading ona larger time frame like the daily and four hour charts can eliminatethe pressure of intraday trading. This is only good for certainpersonalities. Others prefer constant activity on a hour by hourbasis. No matter which trading style is right for you, you mustconsider the leverage required to trade any method. Obviously we areall looking for as many trading opportunities as possible but I thinkwe would all prefer a method that is comfortable, profitable andprovides a good rate of return.
Below the link for download DonchianChannel indicator Metatrader 4
https://drive.google.com/file/d/0Bwjv2Pbf48iteFZmSG9maVVqbHM/view?usp=sharing
