Point Zero: Trading Manual
Point Zero: Trading Manual
Metatrader4 Indicator
Trend following is a proven trading strategy that outperforms any other type of traditional investment. It is the ideal home-based business: there is no inventory to store in warehouses, no cold calling, no working schedule and no marketing. You don't have any physical stock that needs maintenance, no franchise fees, no employees and no lawyers to keep the retainer. Yet, profit margins can run well over 90% and are absolutely scalable over time. All you need is the right tool, the right mindset and a certain amount of starting capital. Trend following works because you don't outthink the market. You wait for the market to move, and follow it. You are a follower, not a predictor. Trend following doesn't argue with markets nor tries to be right. You watch chart lines, not headlines. You choose which instruments and timeframes to trade based on objective reasons, not subjective preferences. You don't have the slightest clue about what price action will do in the future, and you don't care. Trend following is widely used by successful traders, hedge funds and financial institutions. In the meantime, hundreds of thousands of unexperienced traders are lured by brokers and financial magazines into the nonsense of trading 5M charts. This document will teach you how to become your own profitable hedge fund using our trend following system and obtain exceptional returns trading financial markets. Why was this product created? Point Zero Metatrader4 Indicator has been carefully crafted to allow any normal person, with average knowledge about financial markets and trading, to trade and invest his money using a sound trend following system. You won't need to lose your money to deceptive brokers any more, pay outrageous commissions to mutual funds or watch your savings being inflated out of existence by a bankrupt and debt-junkie government. We hope our trading system helps you to achieve your financial goals soon. Sincerely, Arturo Lpez Prez
Trader, speculator, investor and software engineer. Developer of Point Zero MT4 Indicator http://www.pointzero-indicator.com/
If a market is going up you go long, if it is going down, you go short. The only reason to take a trade is because the market is doing something. - Michael Covel You can mix trend following with fundamental analysis. You can also mix it with astrology, tarot, four-leaf clovers or chicken bones. But why would you? - Michael Covel Trends in motion will stay in motion and persist, until they stop and reverse. - Point Zero team All markets rally, flatten, reverse and crash. In that order. - Point Zero team The best estimate of tomorrow's price is today's price. - Edward Seykota Trading is a waiting game. You sit, you wait, and you make a lot of money all at once. Profits come in bunches, the trick when going sideways between home runs is not to lose too much in between. - Michael Covel If we lived a free market -which we don't- it would be very hard to be a speculator. Currencies are floating abstractions which are continually debased by bankrupt governments, causing huge distortions in the marketplace and making speculation a profitable activity. - Doug Casey Brokers lure unexperienced customers into intraday trading: bonus deposits, free learning seminars and real-time market news. However, I have never seen a broker mentioning trend following to their customers. - Point Zero Team A new trader approached an old bold trend follower and asked, 'What's your objective on this trade?'. He replied: 'For it to go to the moon'. - Michael Covel Bad traders want to prove they are right. Good ones just make money. - Point Zero team You can't change the direction of the wind, but you can adjust your sails. - Chinese proverb What matters can be measured, so keep refining your measurements. - Charles Faulkner Don't guess how far a trend will go, you cannot. Prices make the news, not the other way around. A market is going to go where the market is going to go. - Michael Covel How does a trend follower cut losses? Fast. - Point Zero team
Table of contents
1) What is trend following?.....................................................................................................3 1.1) What trend following is not......................................................................................... 4 1.2) The advantages of trend following............................................................................. 4 2) The right trading mindset................................................................................................... 5 2.1) Trading is a business..................................................................................................6 2.2) Good trading habits.................................................................................................... 6 3) Interpreting Point Zero MT4 Indicator................................................................................6 3.1) The trend channel.......................................................................................................7 3.2) The oscillator.............................................................................................................. 7 4) Trading setups................................................................................................................... 8 4.1) The 1st trading setup: Easy in................................................................................. 9 4.2) The 2nd trading setup: Exhaustion........................................................................ 10 4.3) The 3th trading setup: Momentum......................................................................... 12 4.4) Don't trade range-bound markets.............................................................................14 5) How to preserve your capital........................................................................................... 15 6) How to boost your profits................................................................................................. 16 6.1) The Rule of Two........................................................................................................17 6.2) Pyramiding positions................................................................................................ 17 7) The trading strategy in a nutshell.....................................................................................19 7.1) The stop-loss............................................................................................................ 19 7.2) The take-profit...........................................................................................................20 8) Other considerations........................................................................................................20 8.1) Trading stocks.......................................................................................................... 20 8.2) Trading the forex market...........................................................................................20 8.2.1) Currency pairs are the paradise of trend followers........................................... 20 8.2.2) A currency shows weakness in several pairs....................................................21 8.3) Let the market tell you which timeframe to trade.....................................................21 8.4) Have a financial plan................................................................................................ 22 9) Recommended reading................................................................................................... 22 10) Visit our website.............................................................................................................23
These two elements are related to each other. Now, let's review each one of them.
During a downtrend, the oscillator means the following: A red oscillator means the downtrend is getting stronger. A blue oscillator means the downtrend is getting weaker.
In other words, the oscillator is used to trade only strong trends, recognize range-bound markets and identify exhaustion patterns easily. You'll learn how in the next chapter.
4) Trading setups
The trend channel and the oscillator are related to each other and provide us with two different trading setups. The second is not very suitable for novice traders: but if you already have knowledge of price action, it'll be a piece of cake trading them.
You can sell when the following conditions are met: A red channel indicates a downtrend. A sell zone appears in the trend channel. The oscillator is red.
You can sell when the following conditions are met: A blue channel still indicates an uptrend. The oscillator is red, announcing the trend is weak -divergenceA clear bearish exhaustion figure is present in the price chart. (Double top or shoulder-head-shoulder)
Illustration 7: We go long, during an uptrend, after a bullish candle has close above the last bar's high and price action is close to the channel.
Illustration 8: We go short, during a downtrend, after a bearish candle has closed below the last bar's low and price action is close to the channel.
You can also get creative and blend this principle with other break-out strategies, candlestick patterns, trading zones or the oscillator. If you pay enough attention, you'll see plenty of trading opportunities, even if you only work 20 minutes a day on daily charts.
Illustration 10: Reaping partial profits when the trend turns weak
Illustration 11: USDJPY (Monthly) has just reversed from a 4-year downtrend.
So, what should you do? You should wait for a buy signal on the weekly chart!
Pyramiding is one of the main reasons we recommend trading daily and weekly charts. Trends last for a very long time, price action is not very volatile and therefore poses little threat to the pyramiding strategy. For better understanding, consider the following graphical example.
Illustration 12: Example of how to pyramid positions. Notice how the oscillator is used to pyramid almost risk-free
Please, take a few minutes to study the last chart. Notice how you only pyramid positions when the new trade can be payed off with the proceeds of the last trade, and how the oscillator is used to pick safe entry points. In the previous example, all long trades should be closed when the double top and oscillator divergence is detected, moment in which we should go short and keep making money. This is how home run returns can be made, even if you take very few trades. The market might bounce for a while, but when it trends, you get paid big time. Lots of traders and even seasoned investors see one or two months down, and panic. They are missing the whole point of trend following: big money. Most portfolio managers usually adapt their strategies to the gut of their customers and not to their financial goals, and pay the price in lower performance.
We recommend to avoid trailing the stop-loss very aggressively, since that practice might stop you out of a profitable trend very easily -which is exactly your goal-. Remember this: Price will fluctuate
Instead, we encourage you to trail the stop-loss using pullbacks as support or resistance.
8.2) Trading the forex market 8.2.1) Currency pairs are the paradise of trend followers
The intention of this document is not to discuss economics, but let me slip a little into it and make an obvious statement, which explains why currency pairs are the paradise of trend followers. Currency is not money because it is not a store of value. So you might think that the change you get in the grocery store is money, but it is not. It is currency: a medium of exchange enforced by a government law, which can't be considered money because it is not a store of value and because the decision of using it does not emanate from the marketplace. Currencies are floating abstractions enforced by bankrupt governments. Furthermore, if the government has a sudden craving for money -which happens a lot-, it
can issue sovereign bonds to the central bank (The Fed, the BCE, etc) and spring more currency into existence. That process constitutes a mortgage for future generations and devaluates the savings of the middle class. This is very bad news, unless you trade the forex market and avoid saving in currency units. This devaluation process is a never-ending loop, which creates trends that can last for many, many years and can make you very wealthy. Just take a deep breath, take a step back from the intraday charts, and look into any weekly or monthly chart. Currency trends can last for years!
Browse all instrument's charts and find the two charts where price action is the most gentle. Is H4 too chaotic? Go daily. Is daily two chaotic? Go weekly. Is weekly to chaotic? Go monthly and look for entry points in the weekly chart. The market rewards those who help it and punish those who don't. Listen to the charts.
9) Recommended reading
Some trading books worth reading: Trading Chaos. Bill Williams. The little book of currency trading. Kathy Lien. Trend Commandments. Michael Covel. Trend following: learn to make millions in up or down markets. Michael Covel. Trend Trading for a living. Thomas K. Carr.
Other books worth reading: Rich Dad Poor Dad. Robert Kiyosaki. The Cashflow Quadrant. Robert Kiyosaki. Crisis Investing. Doug Casey. Profiting from the world's economic crisis. Bud Conrad. This time is different: eight centuries of financial folly. Carmen Reinhard and Kenneth Rogoff.
The dollar crisis. Richard duncan. Extraordinary popular delusions and the madness of the crowds. Charles Mackay. Guide to investing in gold and silver. Michael Maloney. The machinery of freedom: guide to a radical capitalism. David D. Friedman.
If you decide to purchase our indicator, you will receive an User Guide with goes a little bit more into details, usage and input parameters. But before saying goodbye, let me state the most important concept of this manual: Your goal is to take trades on daily or H4 charts in order to ride trends taking place on weekly and monthly charts, and hold the trade for as long as the trend continues.