ebook forex - Freedom Trades Manual by randiwibowo6

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									By Dr. Barry Burns
 FREEDOM TRADES: TRADING PATTERNS FOR PRODUCING HUGE PROFITS

 Dr. Barry Burns
 Copyright 2007
 Wealthstyles LP

 IMPORTANT-READ CAREFULLY:

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 Wealthstyles LP
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 (805) 491-3541

  This publication is sold with the understanding that neither the publisher or author are engaged in rendering
legal, accounting, investment or other professional services. Trading and investing involves substantial risk.
Financial loss, even above the amount invested, is possible and common. Seek the services of a competent
professional person before investing or trading with money.

  By accepting this trading course you agree that use of the information of this course is entirely at your own
risk. Neither the author nor the publisher is a registered investment advisor or a broker dealer. You
understand and acknowledge that there is a very high degree of risk involved in trading options, futures and
securities. Past results of any individual trader are not indicative of future returns by that trader, and are not
indicative of future returns which may be realized by you. Neither the author nor publisher assume
responsibility or liability for your trading and investment results. This course is provided for informational and
educational purposes only and should not be construed as investment advice. The author and/or publisher
may hold positions in the stocks, futures or industries discussed here. You should not rely solely on this
Information in making any investment. The information in this course should only be used as a starting point
for doing additional independent research in order to allow you to form your own opinion regarding
investments and trading strategies.

  It should not be assumed that the information in this manual will result in you being a profitable trader or that
it will not result in losses. Past results are not necessarily indicative of future results. You should never trade
with money you cannot afford to lose.

 The information in this product is for educational purposes only and in no way a solicitation of any order to
buy or sell. The author and publisher assume no responsibility for your trading results. There is an extremely
high risk in trading.

 This course is sold "AS IS," without any implied or express warranty as to its performance or to the results
that may be obtained by using the information.

 Factual statements in this course are made as of the date the course was created and are subject to change
without notice.

 HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT
LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT
REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED,
THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF
CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN
GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF
HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO
ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.




                                                         2
  TABLE OF CONTENTS
Ex Con Trading                           4

Reversal Patterns                        8

Simple Retrace Trend Continuation        13

Complex Retrace Trend Continuation       17

Mega Trends                              18

Channel Trading                          19

Conclusion                               21




                                     3
“Ex Con Trading”

One of the most powerful trades in a pro’s quiver is to trade the expansion/contraction
cycle.

It takes patience because you may get stopped out once or twice before finding the right
direction. It also takes perfect money management to keep loses small and to let the
winners run and run.

The advantage is that you can get in at the beginning of a new trend and ride it for very
large profits. The risk/reward ratio is phenomenal if you have the patience to ride the
trades for their full reward.

In the Foundations Course #1 we studied the up/down Cycles in the market. But there is
a more powerful Cycle at work, and that is the Cycle of expansion and contraction of
volatility (I call it “Ex Con” for “Expansion/Contraction”).

Plus, the Ex Con was always looking to “breakout” of jail, just as we are watching
for these chart patterns to breakout of consolidation!



Contraction can be measured and seen in the markets in various ways:

       Bollinger Band Squeeze
       ADX < 15 (put your favorite number here)
       Triangles
       Narrow Channels
       Flat 50 MA

While most traders hate contracting markets … we LOVE them! We know they
present a unique opportunity to potentially reap huge rewards.

So we look for clues to get in early.

Since momentum often leads price, it’s one of the primary tools we look to for clues
BEFORE price makes its move and everyone else jumps on board.

Here’s what to look for:

    1. Price in consolidation (look for any of the chart patterns above and especially that
       price is not making Higher Highs and Higher Lows or Lower Lows and Lower
       Highs.
    2. Draw trend lines connecting the Cycle Highs and Lows.
    3. Only trade in the direction of the next higher time frame’s Cycle Indicator
       (generally %D, unless %K is giving you an early indication of a change about to
       occur in %D).
    4. Look for a shift of momentum on the short-term chart (watch the direction of
       DAD, but especially look for a commitment of MOM since it’s her that can lead
       price).



                                             4
With Ex Con patterns we have 3 choices for entry:

       1. Wait for the market to break out of contraction and then enter.
       2. Wait for the market to break out of contraction, then retrace to
          Support/Resistance and then enter (this is getting in on the first retrace in the
          new trend).
       3. Be real aggressive and enter INSIDE THE CONSOLIDATION PATTERN off
          support/resistance BEFORE it breaks out, thus getting in before everyone
          else.

None of these choices is necessarily better than the other. It’s a matter of what you’re
most comfortable with.

Here are the risks/rewards with each:

   1. Wait for the market to break out of contraction and then enter.

               RISK: You will suffer false breakouts.

               REWARD: You catch all expansion patterns that work.

   2. Wait for the market to break out of contraction, then retrace to
      Support/Resistance and then enter (this is getting in on the first retrace in the
      new trend).

               RISK: You will miss many fantastic breakouts that would have reaped
               huge profits, but never retraced.

               REWARD: You don’t have to suffer through false breakouts, and don’t
               enter the market until you have a confirmed trend.

   3. Be real aggressive and enter off support/resistance INSIDE CONSOLIDATION
      BEFORE it breaks out, thus getting in before everyone else.

               RISK: You will sometimes get into choppy conditions. You will often take
               entries that don’t result in breakouts.

               REWARD: When they work, you have the best risk/reward scenario of the
               three choices.

All 3 approaches are valid, but I prefer the third one. It gives me the best risk/reward
scenario simply because I’m getting in at a lower price than the other 2 options.

In addition, there will be plenty of traders buying the market at those other 2 technical
points. By doing so, they are simply bringing in more volume to push my trade further
into profit.




                                             5
6
Below is a Daily Chart on the right and a Weekly Chart on the left.

The Daily is in an Ascending Triangle




                                         7
REVERSAL PATTERNS

W.D. Gann said the “safest place” to enter the market was with the first Higher Low or
first Lower High.

I’m not a Gann expert, but I don’t think that Gann meant it was the safest because it gives
you the best win/loss ratio (what most traders would consider the “safest”) but rather
because it gives you the best risk/reward ratio.

Indeed, when you find true trend reversals, THESE ARE THE SINGLE BEST
RISK/REWARD TRADES THERE ARE.

I scan for these trades every day, because at the end of the month, a large part of my
profits come from these patterns.

However, I like to get into them BEFORE price makes the first Higher Low or Lower High.

We can apply the same principle, but instead of using it on PRICE, we use it on
MOMENTUM since momentum often leads prices.

The idea of momentum trading is to get in early … before the future is revealed in
price (and therefore before everyone else sees it). We get in before everyone else
… then when the pattern becomes obvious to the masses and they start trading it,
their volume drives the chart in our direction.




                                             8
9
Anyone trade the CME? It made some pretty good gains! The momentum reversal
pattern was there for you if you wanted it.




                                     10
You have 5 choices for getting into a new trend (using a long example):

    1. The first Higher Low on Momentum
    2. The first Higher Low on Price
    3. The breakout of the Last High (thus confirming a Higher High as well as a Higher
       Low for more confirmation
    4. The First Retrace After the Cross above the 50 MA, but the 50 MA is flat (this will
       sometimes be the same as the first Higher Low, as it is in the chart below).
    5. The first retrace in the trend.




                                            11
The dynamic is the same as it always is in trading:

        The earlier you get in, the less confirmation you have (giving you an
        inferior win/loss ratio), but the better price you get and more room to run in
        the trade (giving you a superior risk/reward ratio).

        The later you get in, the more confirmation you have (giving you a superior
        win/loss ratio), but the worse price you get since much of the move has
        occurred before you entered (giving you an inferior risk/reward ratio).

Of course everyone wants to know: “How can I get a superior win/loss and a superior
risk/reward on the same trade?”

Answer: You can’t.

It’s simply a matter this: By the time something is a high probability trade (in terms of it
being a winning trade), it’s only a high probability trade because a lot of the action has
already occurred to confirm the situation … and therefore by definition you’re getting in
after a lot of the reward has been eaten up.

There are no sure things, or even “near” sure things in trading. It’s always a matter of
managing risk. The sooner you accept this and choose the style that fits your
personality, the better off you’ll be.




                                             12
SIMPLE RETRACE TREND CONTINUATION

Generally when taking a trend continuation trade, you like to see 2 things with regard to
momentum:

   1. Momentum continuing in the direction of your trade
   2. The momentum is not extended in the direction of your trade.




                                            13
Sometimes it will look like momentum is on your side in a trend continuation pattern, so
you decide to take a trade, but the market doesn’t follow-through. This will often be
because rather than market shifting momentum from up to down (for example), it’s really
just “zeroing out.” The shift is really just a reversion to zero.

This is what it looks like when the market starts a Contraction Cycle and there’s no way to
know this ahead of time. Money management is the only thing that will keep you out of
trouble with this occurs.

This is why “First Retrace After the Cross” trades are more risky than “First Retrace In A
Trend” trades.

In the first, the 50 MA is still flat. Since the trend is not confirmed, the market could simply
be consolidating.

In the second, the 50 MA is angling in the direction of your trade, having confirmed the
trend, and therefore it’s much less likely to settle into a Contraction Cycle.




                                               14
15
Sometimes students look at the chart on page 24 that shows how DAD is so much faster
than the 50 MA and they ask, “Why even use the 50 MA if it’s so slow? Why not just use
DAD for trend?”

These examples should help demonstrate why. DAD is a momentum indicator, not a
trend indicator. Therefore when it’s at extremes and turns back toward ZERO, it doesn’t
necessarily mean a change of direction. It could simply mean that momentum is coming
out of the market (“zeroing out”).

Most amateur traders are only interested in “fast” indicators and fail to see the value of
slow indicators that trail the market. The result is that they get “chopped up” following the
fast, but inaccurate indicators.

The best solution is to use a combination of fast and slow indicators as we do with both
stochastics and MACD.




                                              16
COMPLEX RETRACE TREND CONTINUATION

Trend Continuation Trades don’t always follow-through on the first Cycle retrace.
Sometimes the retrace is a “complex retrace” that forms an A, B, C pattern.

If you get stopped out of your first entry, NEVER ABANDON HOPE! Continue to watch
the market to see if it forms a complex retrace. If it does, and gives you another valid
setup for a trend continuation trade that meets all of our rules, don’t let the first loss
discourage you from taking the second entry.

These complex retrace patterns can have a higher probability of following through
and often create bigger moves than the singe retrace patterns, so don’t let your
first loss cause you to give up!

In fact, given the choice, I’d prefer to take a complex retrace trend trade over a single
retrace trend trade.




                                              17
MEGA TRENDS

In extremely strong markets, the chart will often complete a 5 or 7 or even 9 wave
pattern. This doesn’t mean the market will Reverse. This is when Reversal Traders get
killed!

If the market is determined to go higher, it will often take a break and go into a brief
period of consolidation forming an A, B, C or A, B, C. D, E pattern (either a very narrow
range mini down trend or some combination of triangles, channels, etc). The possible
formations are many, but the key is that volatility will come out of the market.

Count these cycles (or “Contraction Waves” if you will), and look for a shift of momentum
at the bottom of “C” or “E” to re-enter in the direction of the trend.

If you’re trading a Reversal during these times, the only thing that will save you is your
money management. This is why our rules dictate that we take off ½ of our position at the
next support/resistance and/or Cycle High/Low even if there isn’t much or any profit there.
It reduces our loss on failed trades, and this will keep you in business.




                                             18
CHANNEL TRADING

When you’ve identified a trading range, or channel, the momentum indicator can help you
determine when the market is likely to bounce off the High/Low and return back into the
range.

A channel is not confirmed until you have 2 equal Highs and 2 equal Lows.

As usual, by this time everyone is seeing the channel and therefore it’s less likely to
continue. So watch for breakouts.




                                             19
20
CONCLUSION:

    1.   Ex-Con Trading
    2.   Reversal Patterns
    3.   Simple Retrace Trend Continuation
    4.   Complex Retrace Trend Continuation
    5.   Mega Trends
    6.   Channel Trades

These 6 patterns can make up a very good trading arsenal. It would probably be too
much to try trading all of them at the same time. I advise you to begin trading just 2 of
them, and then as you become confident with those, add the others one at a time.

By the time you add all 6 to your portfolio of trade setups, you’ll find that you’re able to
take advantage of many of the moves the market makes on a regular basis.




                                               21

								
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