OFS Trading System English

Disclaimer The content of this e-book is purely intended for informative purposes and I therefore dont accept responsibility
for the possible consequences of any kind of activities, which are based on or caused by this book. Trading currencies, cfds, forex, futures or any other financial product might involve a high risk. Before deciding to invest in stocks and shares you should sufficiently inform yourself in advance and carefully realize the feasibility of your objectives, the extent to which you are ready to take risks and the degree of your knowledge of these products. Theres always the possibility that you could lose part of the assets you invested or in the worst case you could go bankrupt. So dont invest more assets than you are prepared to lose. Copyright 2011 Nothing in this publication is allowed to be reproduced or to be distributed by means of lending out, printing, copying, automatized data files or in any other way without written approval of the author. When illegally using or distributing this e-book, the violating party will have to pay a fine of at least 1.000 (thousand euro) without prior notice. After the violating party has been informed he/she will be indebted to a daily fine of 50 (fifty euro) during the length of the copyright violation.
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Table of Contents
Disclaimer & Copyright ........................................................................ Welcome at the training of the OFS Trading System Introduction of the OFS Trading System ...................... 1 3 4 5 7 9 12 14 16 19 21 24 28 29 30 33
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Chapter 1: Looking for a healthy trend Looking for a healthy trend ............................................................. Simple Moving Averages as a support .................................................. Examples of conditions for the benefit of a healthy trend ...................... Chapter 2: How to determine the right entry point Choosing the right entry point .............................................................. Using Moving Averages to determine the price reaction area ......... Previous swing highs and swing lows ................................................... Summary of a healthy trend, price reaction area and entry ................... Chapter 3: Entry, Stop Loss, Take Profit and Risk/Reward ratio Entry, Stop Loss, Take Profit and Risk/Reward ratio .............................. Examples of entry, stop loss, take profit and risk/reward ................... Chapter 4: The real foundation of your success as a forex trader The real foundation for your success as a forex trader ................... Handling a good risk management ................................................... The right mind-set to gain results in forex trading .............................. Conclusion .............................................................................................
Welcome at the course of the OFS Trading System!

First of all welcome at the course of the OFS Trading System! After having read this e-book, youll have the possibility to trade profitable using the OFS Trading System. This e-book concerns the basic version of the OFS Trading System and has been especially written for the benefit of beginning forex traders. In principle you dont need any preliminary training to be able to understand the course material from this e-book, but of course it would be easier when you're familiar with the basics of forex trading. For this purpose you can go to the strategy page of Online Forex Strategy. If you should encounter a forex term in this e-book, which doesnt sound familiar to you, you can look up the meaning of this term in the forex glossary. The OFS Trading System is a trading system, which is suitable for online forex trading as well as for online binary options trading. In this e-book Im explaining how to use the OFS Trading System on the forex market. In case you want to use the OFS Trading System for online binary options trading youre advised to also read the article "OFS Trading System for online binary options". In this e-book the basic version of the OFS Trading System is comprehensively discussed, however the OFS Trading System still offers a lot more possibilities! After having examined this e-book, youll also be able to read the strategy articles about the extensive version of the OFS Trading System for even more trade setups and a higher win ratio. Read the following articles to take even more advantage of the OFS Trading System. Optimal route and realistic expectations of the OFS Trading System Phase 1: Basic version of the OFS Trading System Phase 2: Gaining more in-depth knowledge of the basic version Phase 3: Choosing currency pairs and timeframes Phase 4: Extensive version of the OFS Trading System Phase 5: The route to perfection
My advice for beginners is to apply the OFS Trading System in the beginning to the 4-hour chart, daily chart and/or week chart. These time frames are the most reliable, because there is less noise and random price action. When you have mastered the basic version, you can also choose to apply the OFS Trading System on other time frames. Finally Id like to wish you a lot of success with this course and if you should have any questions, you can email me at info@online-forex-strategy.com. Best regards, Paul Verheij ()-----------------------------------www.online-forex-strategy.com---------------------------------3--
Introduction of the OFS Trading System

The OFS Trading System is a simple, but very effective trend trading system, which is suitable for both beginning and advanced forex traders. The purpose of the OFS Trading System aims at having the odds in your favour by trading in the direction of the trend and by having the optimal benefit from a trend, as a result of which your potential profits could be far more substantial. As the OFS Trading System offers you the opportunity to trade only high quality trade setups, you should be able to reach a high success rate. By combining a high success rate with favourable risk/reward ratios, using the OFS Trading System offers a fair chance to earn a nice return. The OFS Trading System is mainly based on technical analysis and consequently is very suitable for beginning forex traders. Fundamental analysis is a profession of its own and thats why I advise you not to open positions right from the start in case of an eventful news publication. This way youll avoid your stop loss from getting needlessly hit by the short term effect caused by an important news release. Attention please! Its very important not to open positions as from the half hour period before an important news publication is being released up to and including two hours after this important news publication has been released. Youll find a survey of the important news publications, including a detailed clarification, on Forex Factory. Its anything but difficult to master the OFS Trading System as youll have to repeat the same simple rules all the time and trade the same established patterns. Besides this system is very suitable for you to use as a set-and-forget system, as you can enter an order without being compelled to keep on sitting behind your screen all the time. Employing the OFS Trading System, youll have to go through the same step-by-step plan over and over again as follows: First you need to find a healthy trend and then youll have to test whether this trend meets all the important conditions. Its very important that a trend is healthy, this condition being the foundation for trade setups of good quality. Having found a healthy trend, youll have to look for the right moment to get into the trade. Making this choice, youll have to use a fixed pattern, which frequently repeats itself within a trend, consequently offering a high success rate. Once having determined the right entry point, youre ready to determine the stop loss, the take profit level, but also a potential second target to be able to take optimal advantage of a trend. Then you can open a position.
Apart from the above mentioned step-by-step plan, you are also going to learn how a good risk management should function properly and how you ought to approach forex trading in a psychological way to be successful in the long term. ()-----------------------------------www.online-forex-strategy.com---------------------------------4--
1.1 Looking for a healthy trend

To find high-quality setups offering a substantial success rate, well first have to look for a healthy trend. The OFS Trading System uses a number of simple rules to filter the best trends. If the price of a currency pair shows a substantial long term rise or fall, we call it a trend. When the price is rising its called an uptrend and if the price is falling its called a downtrend. The most important condition for a healthy trend: Identifying marks of an uptrend: Higher swing highs and higher swing lows. Identifying marks of a downtrend: Lower swing lows and lower swing highs.
Definitions of swing high and swing low: A swing high is a candlestick with at least two lower highs on the right side as well on the left side. A swing low is a candlestick with at least two higher lows on the right side as well on the left side.
On the diagram shown below, you will be able to see a healthy uptrend with higher swing highs (SH) and higher swing lows (SL):
A healthy trend has at least to meet this condition, for else a healthy trend is out of the question and you shouldnt go looking for trade setups! Special situation: It can happen that no higher swing high is being reached, but that the new swing high isnt lower either, that is to say its equal to the previous swing high. If the next swing low isnt lower either, but it is at least equal to the previous swing low, we can speak of a deadlock. Formally the trend doesnt meet the most important condition anymore, so its clear that youre not allowed to go looking for trade setups in a moment like this. On the other hand we neither can speak of a trend reversal because no lower swing highs and swing lows are reached either. So in this situation youll have to wait till a new swing high is clearly being reached. From that moment on, youre allowed to go looking for trade setups again. If in the meantime lower swing highs and/or swing lows are reached, this doesnt count of course, the most important condition not being met anymore. Of course the same goes obviously the other way round for a downswing.
1.2 Simple moving averages as a support

Simple moving averages, also called SMAs, are graphical lines which represent the average development of a price during a certain period of time. With the OFS Trading System we use the simple moving averages to watch to judge whether a trend is really suitable for us to be allowed to look for good quality trade setups. The simple moving averages are very easy to be adjusted into the trading platform. First youll have to select technical indicators and then simple moving averages. After that you will be able to select the number of periods and the types of colour. The OFS Trading System uses three simple moving averages to look for healthy trends and at the same time to determine the right entry moment within a trend. These are the 20 SMA, the 30 SMA the 50 SMA respectively. So these lines indicate the average of 20, 30 and 50 candlesticks respectively. By means of these simple moving averages we are able to determine whether a trend is really healthy indeed. In accordance with the simple moving averages a healthy trend has to meet the following conditions: 1.All 3 SMAs have to go in the right order. In case of an uptrend: From below to above; 50 SMA, 30 SMA and 20 SMA In case of a downtrend: From above to below; 50 SMA, 30 SMA and 20 SMA
2. All SMAs have to point to the same direction and preferably also have to go parallel to each other. In case of an uptrend all three SMAs have to go up and in case of a downtrend all SMAs have to go down. They may not go parallel to each other all the time, but a crossover is absolutely not allowed no matter how, nor is a 20 SMA which goes in the opposite direction of the trend! 3.The price has to be on the correct side of the 30 SMA. Sometimes it happens that the price inside a trend moves past the 30 SMA for just a moment and this shouldnt be a problem, provided that the price rapidly returns to the correct side of the 30 SMA and clearly goes into the original direction of the trend!
4. There must be a clear new swing high or swing low. There must be a clear new swing high or swing low, the price being bounced off in the price-reaction-area that is situated between the 20 SMA and the 30 SMA. Close nearby the 20 SMA is also allowed. 5.It isnt allowed that the price doesnt come nearby the 20 SMA for a long period. It often happens that the price suddenly rises or falls and doesnt come nearby the 20 SMA for a long time. Even though all the other conditions can be met, these trends are far from healthy. The same goes for swings, which are clearly larger compared with the previous swings. In case of a healthy trend it so happens that the price will regularly return close to the 20 SMA. Conclusion To find good quality setups, youll have to be sure that a trend is healthy and consequently meets all the important conditions specific to the simple moving averages. If a trend does not meet one of these conditions, you are not allowed to go looking for trade setups!
1.3 Examples of conditions for the benefit of a healthy trend

First we are going to look at two examples, so you will be able to properly understand the difference between a healthy trend, which is suitable for trading using the OFS Trading System, and trends which are by definition not suitable for trading. Example 1:
On the chart shown above, you can see a clear downtrend. To look whether this trend is healthy, well have to check all conditions a healthy trend has to meet. The most important hallmark of a healthy trend is the presence appearance of lower swing lows and lower swing highs in case of a downtrend. As you can see regarding to point 1 up to and including point 4, there is a matter of lower swing lows and regarding A up to and including D, you can see there is also a matter of lower swing highs. The second step is to look if the conditions of the moving averages are met likewise. As you can see the moving averages are going smoothly downwards parallel to each other while crossovers are out of the question. Although the 20 SMA sometimes goes horizontal during a short time, its not going into the opposite direction of the trend. The price is staying neatly on the proper side of the 30 SMA and its clearly visible, that new lower swing lows and new lower swing highs are being reached. Apart from that the price frequently returns to the area between the 20 and 30 SMA. Consequently in this case we may speak of a healthy trend, based on the conditions of the OFS Trading System. ()-----------------------------------www.online-forex-strategy.com---------------------------------9--
Example 2:
On the chart shown above you can see an uptrend. To observe whether this trend is healthy, we again have to go through all conditions which a healthy trend should meet. The most important identifying hallmark of a healthy trend is that an uptrend is characterized by higher swing highs and lower swing lows. To begin with we speak of a sound uptrend when it is this conditions that matters. From number 1 up to and including number 3 higher swing highs are being reached and from A up to and including C higher swing lows are being reached as well. At number 4 however no higher swing high is reached. It so happens that the number 3 swing high isnt being broken through. From that moment on you are not allowed to look for a trade setup any more, because it is obvious, that first a new swing high has to be reached. From point 4 its a question of temporarily being in a deadlock and youll have to wait and see how the situation is going to develop further on. However the swing low at letter D is subsequently lower than the previous swing low at letter C, as result of which from that moment on a healthy trend is out of the question!
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The second step is to check if the conditions regarding the moving averages are met as well. Up to and including point B all important conditions regarding the moving averages are met, but after that we can tell, also based on the moving averages, that the trend isnt healthy any more. First of all the price comparatively still needs a long way to return to the 20 SMA level, as a result of which the possibility of a trend reversal could be getting too big. In the second place the price at point D is getting underneath the 30 SMA during a period which is too long and moreover the 20 SMA goes into the opposite direction of the trend, resulting in a crossover with the 30 SMA. Conclusion: If you are going to look for the trend, its very important for you to judge a trend based on all these conditions, as a healthy trend is THE foundation for a high success rate. In the next chapter we shall take a close look at the ideal moment of getting in.
2.1 Determining the right entry point

Now having obtained all the knowledge you need to go looking for a healthy trend, the time eventually has come to determine the right moment of entering the market. In this chapter you will learn to determine the price reaction area based on the moving averages and on the previous high or low, so you can enter the trend at the right moment on account of this information. By verifying whether a trend is really healthy, youre already laying a very important foundation for a high-quality setup and a high success rate. The second step is aimed at finding the right moment to enter into the trend. The price of a currency pair never goes upwards or downwards in one single straight line. It so happens that inside a trend several small corrections (also called retracements) are frequently taking place. When a retracement occurs, one part of the traders is closing its profitable positions, while another part of them is closing its loss-making positions. After a temporary retracement, the price will return to the initial direction of the trend.
The ideal moment of entering the trend and to be able to take maximum advantage of it, is at the peak of a retracement (see point 1 and 2 on the chart). At that moment the retracement is meeting its end and the price is returning into the direction of the initial trend.
However, the question is to what extent the price will be going to retrace, in other words, what will be the size of the correction? You gladly would prefer to enter the trend at the peak of the retracement, but of course you dont know beforehand to what extent the price will be going to retrace exactly. Its for sure that we are going to try to determine the price reaction domain the best as possible using the OFS Trading System. The price reaction area is the area of which we can reasonably expect that the price will return in the direction of the trend, that is to say at the end of the retracement. In the next sections of this chapter we are going to examine how to determine the price reaction area using the moving averages and the preceding swing high or swing low.
2.2 Using moving averages to determine the price reaction area

We have already seen that moving averages are very suitable to determine whether a trend is healthy, but moving averages are also perfect to determine the price reaction area. We are now going to examine how you can use the moving averages to determine the price reaction field. A condition for a healthy trend is that the price should regularly return to the area between the 20 SMA and the 30 SMA, or at least close to the 20 SMA, then returning in the direction of the trend. For that reason we call this area the price reaction area. On the chart shown below, you can clearly see how the area between the 20 SMA and the 30 SMA serves as a price reaction area.
As the price in a healthy trend regularly retraces to the price reaction area of the moving averages, its obvious that the ideal moment of entering into the trend is also located in this area. It so happens that the target is to enter into the trend at the peak of a retracement and this peak often corresponds with the price reaction area of the moving averages.
Important: In accordance with the OFS Trading System, its only allowed to take a position when the price is getting close to the 20 SMA or when the price is in the area between the 20 SMA and the 30 SMA. This rule needs to be used as a precaution to prevent you from entering into a trend too early. Entering too early involves the disadvantage that your stop loss will be hit too frequently, also causing too little space to gain a considerable profit. Conclusion By waiting to take a position until the price is close to the 20 SMA or between the 20 SMA and the 30 SMA, we take care of minimizing our losses and maximizing our profits. Doing so, at the same time we are creating a favourable risk/reward ratio.
2.3 Previous swing highs and swing lows

With the help of the moving averages, we will be able to determine the price reaction area, but as we dont know exactly where the moving averages will be located if the price is going to retrace, we need another tool to be able to determine the right moment of entering the trend more precisely. For this purpose we use the swing high or the swing low of the previous complete swing. To determine the right moment of entering the trend, the OFS Trading System is using the swing high or the swing low of the previous complete swing. The advantage of using a previous swing high or swing low lies in the fact, that we apply a universal rule within the forex trading business, namely: Support is often turning into resistance and resistance is often turning into support! Support levels are price levels to which the price will not easily yield and resistance levels are price levels to which the price will not easily know to surpass. You could compare it with the floor (support) and with the ceiling (resistance) in a house. When a price level has served as support, it will be often going to serve as resistance after it has been broken. The other way around the same counts. When a price level has served as resistance, it will be often going to serve as support after it has been broken. With regard to a trend, we are often seeing this principle again. When it is a matter of a swing inside an uptrend, at first a new high is reached and then a retracement is taking place. Quite frequently it occurs, that the price will be retracing towards the same level as which, prior to this, it served as resistance. In this situation this price level will then serve as support.. The same principle applies to a downtrend. When it is a matter of a swing within a downtrend, first a new low is reached and then a retracement will be taking place. It happens quite frequently that the price will retrace to the same level, which preceding to this has been serving as support. In this situation this price level will then serve as resistance.
On the above shown chart this principle is very clearly reproduced. At point 2 a new high is reached in an uptrend, after which the price is retracing again. As you can see the price is retracing exactly in the direction of the preceding swing high at point 1. This price level, which used to serve as resistance, has now become support. The swing high at point 2 is then broken through and a new high is reached at point 3. Even now the price is retracing exactly towards the preceding swing high at point 2. This price level, which a short while ago served as resistance, has now become support. On the chart you can also observe that the same lines of the preceding swing highs are coming very near to the 20 SMA and the 30 SMA, that is: the price reaction domain, as a result of which the chance of a price reaction to occur is being confirmed once again. You will see the principle of support becoming resistance and resistance becoming support frequently recurring within a healthy trend. Especially in combination with the conditions of a healthy trend, as has been described at great length before, this should be a very reliable pattern to trade.
Using the preceding swing high or swing low as a moment to enter the trend In accordance with the OFS Trading System, we are using the preceding swing high or low as a starting point for our actual entry. At least the main condition is that this entry ought to correspond with the price reaction area between the 20 and the 30 SMA or at least nearby the 20 SMA. Entry in case of an uptrend When its a matter of a healthy uptrend and its clear that a new high is being reached, we will draw a horizontal line at the preceding swing high of the most recent complete swing. When this is about to come together with the price reaction area according to the moving averages, then we will use this price level as entry. Entry in case of a downtrend When its a matter of a healthy downtrend and its clear that a new low is being reached, we will draw a horizontal line at the preceding swing low of the most recent complete swing. When this is about to come together with the price reaction domain according to the moving averages, then we will use this price level as entry.
2.4 Summary of a healthy trend, price reaction area and entry

Now you have learned to go looking for healthy trends, to determine the price reaction area with the help of the moving averages and you can use the preceding swing high or swing low to determine the moment of entry, it would be sensible to summarize all this once again, so that all pieces of the puzzle will fit together. The conditions for a healthy trend may seem rather extensive, however they do shape the foundation for good quality setups, which is the basis to obtain a nice return, using the OFS Trading System. So once more Im going to go through a number of important conditions, which are necessary to be able to guarantee a healthy trend and furthermore Im going to explain the extent of influence these conditions have on the quality of your entry. In any case it needs to be emphasized that higher swing highs and higher swing lows are indispensable for an uptrend and that lower swing lows and lower swing highs are likewise indispensable for a downtrend. This is the most important condition for a healthy trend and if a trend does not meet this condition, looking for trade setups is totally out of the question. The other conditions are meant to filter setups of the highest quality and consequently to be able to achieve the highest possible success rate. Important: Instead of trading moderate setups, you should better not trade at all! It goes without saying that the SMAs need to be going in the right order and into the right direction and that the price needs to be situated on the proper side of the 30 SMA. Especially the condition that the SMAs need to go as parallel to each other as possible, is extremely important. If the SMAs are going neatly parallel, the chance, that the price could fall through around the 20 SMA and sometimes around the 30 SMA, will be considerably more likely. The price reaction area between the 20 SMA and the 30 SMA serves in similar situations as a kind of safety net, into which the price is being catched in order to be able to resume its course into the direction of the trend. In case the SMAs are not going neatly parallel, the chance of a deeper retracement is much more likely. Using the preceding swing high or low as the right entry moment, is consequently becoming less reliable. Even the condition that a new high or low has clearly to be reached, is very important. It happens to be that the entry is based on the preceding swing high or swing low of the most recent complete swing. If a new high or low is not clearly reached, the space between the new high or low and the preceding swing high or swing low will be too small for a normal retracement. Even in this case the preceding swing high or swing low will consequently become less reliable as a proper entry moment, because the chance of a deeper retracement will become too big. ()-----------------------------------www.online-forex-strategy.com--------------------------------19-
If the price is far from coming near or against the 20 SMA, its important that you should not go looking for trade setups. Under these circumstances the size of the retracement can hardly be estimated and the chance of a possible trend reversal is also far too big. The same applies to swings that are clearly bigger in comparison with the preceding swings. In this case the chance of a deeper retracement or trend reversal is also a lot bigger. Conclusion Its very important to clearly understand all the rules and to recognize the interest of their significance. A big pitfall could be caused by the fact that youre not so strict when it comes to complying with following these rules, which could have an enormous influence on the quality of your trade setups and therefore also on your winning ratio. Before you continue with studying the next chapter, Id like to recommend you to start examining the charts of the different currency pairs as well as studying the trends from the past. Please do so by focussing on the conditions for a healthy trend and by thoroughly studying the situation in which a preceding swing high or swing low of the most recent complete swing was valid as a price reaction level. Especially also look at the moments in which a preceding swing high or swing low was not serving as a valid price reaction level. You will then discover, that the conditions for a healthy trend in accordance with the OFS Trading System will frequently be not fully met. This assignment is very useful to learn to understand why these conditions are so important and it also helps you in gaining a lot of insight into the progress of a trend.
3.1 Entry, Stop Loss, Take Profit and Risk/Reward Ratio

The time has come to turn our groundwork into a concrete trade plan. Actually we already have shaped a good view concerning the entry as a result of the previous swing high or swing low. We will then going to look at the stop loss, the take profit level and obviously also to the risk/reward ratio. The entry Regarding the entry we take the previous swing high for granted in case of an uptrend and in case of a downtrend we take the previous swing low of the most recent complete swing for granted. If the conditions for a healthy trend are favourable, then it so happens that there will be a big chance that the price is going to retrace to the previous swing high or swing low, before returning in the direction of the trend. Important: The previous swing high or swing low at least ought to correspond with the price reaction area of the 20 SMA and the 30 SMA. So the price should at least be able to touch the 20 SMA or at least it should come very nearby. If this isnt the case, then you shall have to forget about the setup! If it concerns the previous swing high or swing low, you can choose whether your starting point will be the body of a candlestick or the longest spike of a candlestick. On the whole it is safer to start from the body of a candlestick, unless you see that there are several spikes, which have been testing the same price level. If a tiny little spike is concerned, you could take this as a benchmark, especially while frequently a single big spike is less reliable. It also happens regularly, that the price is indeed approaching the previous swing high or swing low, but doesnt exactly touch it. For that reason its permitted to take the entry a bit above the preceding swing high or a bit below the preceding swing low. The stop loss The risk per trade can always be calculated quite easily. Our starting point is the entry and in case of an uptrend we measure the distance to the previous swing low while in case of a downtrend we measure the distance to the previous swing high. We divide the result by two and that represents the number of pips to risk. Important: In this case its rather important that a trade has enough moving space and the stop loss isnt too close to the entry. If these conditions are not met, youd better check the situation once again to conclude if all the required conditions are fully met, because normally youll see that youve got quite a lot of space with this stop loss.
Take Profit The take profit level can also be determined quite easily. At this, our starting point is the most recent high in case of an uptrend and the most recent low in case of a downtrend. Important: It will frequently happen, that this price level is going to be tested once again, even if the trend consolidates or if a trend reversal still takes place. In this case you will be given the opportunity to choose whether you assume start from the body of a candlestick or you assume start from the longest spike of a candlestick. Generally speaking it will be safer to assume the body of a candlestick, unless you see, that there are more spikes which have been testing the same price level. If it is a matter of a very tiny spike, you can safely use this as a standard of measurement, but a single big spike will be frequently less reliable. It also regularly happens that its true that the price approaches the most recent high or low, but it not quite succeeds to touch them precisely in case of a consolidation. For that reason its allowed to place your take profit level a bit below the most recent high or a bit above the recent low. Splitting up your position and working with two take profit levels Its also possible to use a flexible second target to be able to take full advantage of a trend. You then can close for instance half of your position at the most recent low or high. Then you move the stop loss of your position, which is still open, to break even. Second target as a result of the previous complete swing You can determine the second take profit level in different ways. An easy method is measuring the previous swing. In case of an uptrend you measure the number of pips from the swing low up to the swing high of the most recent complete swing. In case of a downtrend you measure the number of pips from the swing high up to the swing low of the most recent complete swing. When adding up this number of pips to your entry, youre going to be able to get a second target. Second target as a result of the 20 SMA You can also use the 20 SMA for a second take profit level. As soon as the price returns to the 20 SMA, you close the remaining part of your position, which is still open. The disadvantage of this method is you will be obliged to keep an eye on the development of the price and consequently you will not be able to enter your second target in advance.
Taking optimal advantage of a trend Using the advantage of a second take profit level, means that your potential return will still be increasing on account of the fact that you will be able to take full advantage of a trend. In addition to this you already you have been securing part of the return and the stop loss of the open position has already moved to breakeven. Because of this a profitable position cannot turn anymore into a loss-making position. Risk/Reward ratio If you are aware of the entry, the stop loss and the take profit level, it will be quite easy to calculate the risk/reward ratio. The risk/reward ratio is the relation between the risk you are taking and the possible return. Important: While determining the potential profit, youll always have to start from the most recent high or low instead of an eventual second target. To get an easy view of the risk/reward ratio, you should divide the expected profit resulting from the number of pips by the risk. Consequently risk/reward ratio = potential return : potential risk. If for example your potential profit would be 100 pips and your stop loss would be 50 pips, then your risk/reward ratio would be 100 : 50 = 2. That means, that the potential profit would be twice as big, compared with the risk. If your potential profit would be 75 pips and your risk would be 50 pips, your risk/reward ratio would be 75 : 50 = 1,5. That means, that the potential profit would be 1,5 times as large, compared with the risk. Important: Your risk/reward ratio should never be less than 1,0! So the risk should never exceed the potential profit. Just in case this happens anyhow, youll have to drop the setup. Its not intended that youre going to screw around with your stop loss or take profit level to make the risk/reward ratio suitable. Conclusion The rules with regard to the entry, the stop loss, the take profit level and the risk/reward ratio are quite simple. However its highly recommendable to have a thorough command of these rules before youre going to start working on a second target. As soon as you have gained some more experience or you have studied the trends comprehensively, you will be able to start working on a second target, because then you can take more advantage of these extra options. ()-----------------------------------www.online-forex-strategy.com--------------------------------23-
3.2 Examples of entry, stop loss, take profit and risk/reward

Example 1:
Entry: First of all well have to determine our entry, which, in case of an uptrend, levels the swing high of the most recent complete swing, as you can see at point 1. At this point you can just draw a horizontal line, like it has been done on the above shown chart (by means of the black line).This black horizontal line corresponds with the price reaction area of the 20 SMA and the 30 SMA, as a result of which we can speak of the right entry moment. In this case our entry lies at 1,4032. Stop Loss: To be able to calculate the stop loss in case of an uptrend, we ought to measure the distance from our entry (reproduced by means of the black line) up to and including the swing low of the most recent complete swing. You can see the most recent swing low at point 2 (the red dotted line). Measuring the number of pips is quite simple, using a measure crosshair. You can select this one very easily in your trading platform. You therefore need to position yourself on the entry, while pushing down the left button of the mouse. You ought to keep this button pushed down while measuring the distance to the most recent low. You will then automatically see the number of pips appear on the screen. When you know the number of pips from the entry up to the most recent low, then you divide this number by 2. Next you subtract the outcome of this sum from the entry and on that spot you once more draw a horizontal line, just like the thick red line on the chart. This red line represents the stop loss of this setup. In this case our stop loss has been set at 1,3887. ()-----------------------------------www.online-forex-strategy.com--------------------------------24-
Take profit: The take profit level in case of an uptrend is always at least equal to the most recent high, which you can see on the chart at point 3. You can again draw a horizontal line to reproduce the take profit level, like it is shown on the chart with a green horizontal line. In this case the take profit level has been set at 1,4223. Of course its also possible to handle a second take profit level, as has been explained in the previous chapter. Risk/Reward ratio To be able to calculate the risk/reward ratio, well first have to determine the risk and the potential return profit. The data: Entry: 1,4032 Stop loss: 1,3887 Target: 1,4223 The risk amounts to: 1,4032 - 1,3887 = 0,0145, that is: 145 pips The return amounts to: 1,4223 1,4032 = 0,0191, that is: 191pips To calculate the risk/reward, we use the following formula: risk/reward ratio = potential return : risk, that is: 191 : 145 = 1,31 As this result is above 1,0, that is: your potential return is exceeding the risk, its a matter of a good trade.
Example 2:
Entry: First of all well have to determine our entry, which in case of a downtrend happens to be equal to the previous swing low of the most recent complete swing, as you can see on the chart at point 1. In this case you just can draw a horizontal line like it has been drawn on the chart shown above (the black line). This black horizontal line is coming together with the price reaction area of the 20 SMA and the 30 SMA, as a result of which we are entitled to speak of entering the trend at the very right moment. In this case our entry lies on 83,00. Stop loss: To be able to calculate the stop loss in case of a downtrend we ought to measure the distance from our entry (the black line) up to and including the swing high of the most recent complete swing. You can see the previous swing high at point 2 on the chart (the red dotted line). If you know the number of pips from the entry up to the most recent swing high, you ought to divide this number by 2. Then you have to subtract the result of this sum from the entry and there you have to draw a horizontal line once again, just like the thick red line as shown on the chart. This red line represents the stop loss of this setup. In this case our stop loss lies on 83,38.
Take Profit: In case of a downtrend the take profit level always happen to be the most recent low, which you can see on the chart at point 3. Once again you can draw a horizontal line to reproduce the take profit level, like it has been realized on the chart by means of a green coloured horizontal line. In this case the take profit level lies on 82,40. Of course its also possible to handle a second take profit level, as has been explained in the previous chapter. Risk/Reward ratio To be able to calculate the risk/reward ratio, first of all we need to determine the risk and the potential return. The data: Entry: 83,00 Stop loss: 83,38 Target: 82,40
The risk amounts to 83,38 83,00 = 0.38, that is: 38 pips The return amounts to 83,00 82,40 = 0,60, that is: 60 pips To calculate the risk/reward, we use the following formula: Risk/reward ratio = potential return : risk, that is: 60,38 = 1.57 As this exceeds 1,0, which means that your potential return is larger than the risk, its a matter of a good trade. Set-and-Forget So far you have learned how to be able to determine the entry, the stop loss and the take profit level, as well as the matching risk/reward ratio. A big advantage of the OFS Trading System is, that you will be able to use it as a set-andforget system. As soon as an uptrend is indicating that clearly a new high has been reached and the price is starting to retrace, meanwhile you can already give the order, because at that very moment you are already able to determine the entry, the stop loss and the take profit levels. Of course the same applies to a downtrend when clearly a new low is being reached and the price is starting to retrace. So theres no need for you to keep sitting behind your display till the time has actually come for the situation to be in practice. ()-----------------------------------www.online-forex-strategy.com--------------------------------27-
Chapter 4: The real foundation of your success as a forex trader

By now you have learned all the ins and outs of the OFS Trading System and if you stick to the rules of this system consistently, you should be able to achieve a nice return. So far the good news. The bad news involves that the whole trading system isnt worth a penny if the user is handling risk management the wrong way and/or is approaching forex trading from a wrong psychological point of view. This may sound a bit depressing, but the truth is that profitable forex trading consists for about 90% of psychology and risk management and only 10% is dependable on a trading system. Of course you ought to have a lucrative trading system, but in actual practice this often appears to be the easiest part. Not following the trading system rules or putting too much money at stake to try to make up losses, are just a few examples of pitfalls into which many forex traders use to get in with both feet. However a starting point has now been laid down. You are in possession of a profitable trading system with simple and particularly clear rules, leaving you little space for your own interpretation. This is very important, because as soon as a forex trader has to judge every situation again and again by himself, the dangerous influence of emotions may appear and this could cause negative consequences much more often than should be expected. This does not mean that I insist that the OFS Trading System happens to be the one and only perfect trading system. Fortunately thats not the case. Nevertheless the OFS Trading System does consist of the right elements to be able to also approach forex trading in a psychologically well-considered way. The information that you are now about to read, however applies to any forex trader, regardless of the trading system which you are using right now. If you want to become a successful forex trader, youll mainly have to pay special attention to subject matters like risk management en psychological approach. So it is of vital importance that you are strongly convinced of these conditions! To begin with we shall take a close look at a good risk management and after that we shall discuss a psychologically well-considered approach of forex trading. Nevertheless you will notice, that in daily practice, these subjects are frequently overlapping each other.
4.2 Handling a good risk management

A good risk management has to take care to avoid a forex trader going bankrupt and at the same time it has to take care the balance of the forex account having the opportunity to expand. Handling a good risk management is crucial, as it happens to be that without money youll not be able to trade whatsoever. Nevertheless a good risk management also depends on the comfort zone of a forex trader. The probability theory plays an important role in handling an adequate risk management. The risk percentage per trade is based on the possibility to go broke in a less favourable period, while at the same time the comfort zone as well as the growth potential of a forex trader needs to be thoroughly observed. Minimizing the possibility to go broke For instance, if each time you play for high stakes to such an extent that youre risking 50% of your account, there is a fair chance that youll be going broke when having the slightest bit of bad luck. Regardless of the potential of your trading system, theres always the possibility that you could lose a number of trades in a row. Without money youll not be able to trade, so its important that you handle your resources with great care. Guidelines regarding maximum risk percentages per trade In general forex traders risk about 1% up to 5% of their account per trade. With these percentages the chance to go broke should be negligible. The smaller the risk percentage a trader is used to handle per trade, the smaller the chance hes going bankrupt. Growth potential On the other hand of course a forex account has to get the opportunity to grow. If a trader takes a 1% risk each time hes making a trade, consequently the possibility of him/her going broke is very near to zero, but on the other hand the balance on his forex account sure isnt likely going to increase too fast. Handling a risk percentage of 2% per trade still reduces the possibility of going broke to a considerable minimum, but an increasing potential growth is not entirely out of the question anymore. Comfort zone A good risk management however differs from one person to another, as it happens to be especially dependable on the individual interpretation of the comfort zone. That way its possible that a trader might get too nervous by staking 4% per trade and by doing so makes wrong decisions based on emotional motives. However, an opposite reaction could also be possible. If a trader is convinced that 1% is not sufficient, there is a chance that he might become too casual and as a consequence will deviate from the rules. ()-----------------------------------www.online-forex-strategy.com--------------------------------29-
4.3 The right mind-set for forex trading

You may have a very good trading system at your disposal and indeed in that case you have taken a very important step into the right direction, but in addition to this you need to have the right mind-set to be able to optimally handle this trading system. By mentioning the right mind-set, among other things Id like to emphasize a long term vision and the discipline to comply with follow up your own rules. Having the right mind-set is crucial if you want to become successful in the long term. Lacking the right mind-set happens to be the underlying problem causing the failure of many forex traders. However the right mind-set is a broad concept, which is also related to aspects like probability, simplicity and the handling of a good risk management. Long term vision Probability is an important issue with regard to a trading system. Consequently you know, that youll have a fair chance to make a profit by handling a risk/reward-ratio, at least amounting to 1:1 and your success rate being more than 50%. This principle seems and in fact actually is quite simple, but nevertheless you might experience that in actual practice the result could occasionally be the opposite. Using the OFS Trading System, you will achieve a profitable success rate, but that does not mean that you are never going to experience loss-making trades along the way. Especially during a less profitable period your attitude will be put to the test. To become successful you ought to have a long term vision. In actual practice it frequently happens that a forex trader start to doubt when a lossmaking trade appears and this could easily be deteriorating when a number of loss-making trades happens in a row (one after another within a rather short period). The emotions could take the upper hand and consequently big mistakes could be made like not following the rules anymore or increasing the stakes to try to make up the losses. Unfortunately this often results in even bigger losses. Its a pity that the above-mentioned scenario happens much too often and that could be qualified as a bloody shame. It so happens that it could be prevented quite easily when your mind-set is in good order. Ill be glad to provide you with a number of tools, giving you the opportunity to approach everything in a more abstract way and to develop a clear vision for the long term.
Rely on your trading system and practice the discipline to follow the rules Your trading system is the basis of everything and thats why you should completely rely on it. Youll have to stand behind your trading system and youll have to understand the way it is composed. Besides a good trading system should be simple, it should be based on price action and it should be bound by well-defined rules. Especially the strict rules are used to being underestimated in actual practice, but they are crucial for the trader to be able to create the right mind-set! The OFS Trading System is using very clear rules. Each time youll have to be trading according to the same pattern and each time a trade setup has to comply with the same conditions. There will be no space for second guessing nor for your own individual interpretation. You know that your trading results will be profitable using the OFS Trading System, provided you stick to the rules consistently. Be precisely aware of your goal to be able to create the right mind-set Its very important to keep your goal clear in mind. The purpose of the OFS Trading System is to gain profit in the long term. This purpose is achieved by trading according to fixed patterns, causing the opportunity to succeed turning to our advantage by trading in the direction of the trend at the right moment. All this should be combined with favourable risk/reward-ratios. Lets take as an example a success rate of at least 60%, using a risk/reward-ratio which varies from 1:1 up to 1:3. Of course in actual practice the target is often higher, but with a success rate of at least 60%, combined with favourable risk/reward-ratios, you are still going to achieve a nice return. Important: so the main objective is not to conclude all trades in a profitable way, but to be lucrative on the long run in all market-circumstances! The key to obtain the right mind-set is to be able to understand what the success rate of 60% really involves. What actually is the meaning of this percentage? It means that you will conclude your trades with a profitable average of 60%. When we observe the very short term, this means that, based on an average of 10 trades, you will conclude 6 trades with return and 4 trades at a loss. So is it really alarming when you close 1 trade at a loss? Or when you close 3 trades in a row at a loss? No, it isnt, because you should be well aware of the fact that you will close at an average of 4 trades out of ten at a loss. So it still fits entirely in the line of expectations. So, in fact, why should you bother? ()-----------------------------------www.online-forex-strategy.com--------------------------------31-
The target is aimed at being profitable in the long term under all market circumstances. In that case one single trade isnt important at all and the same goes for a few more trades. The point is whether you will reach your target in the long term, so focus your eyes on that very same term. The mantra Everythings going to pass away Yet for everything counts, that results in the long term are more reliable and that goes for forex trading as well. As a matter of fact the earlier mentioned example of 10 trades isnt in any sense enough representative to measure your results. Not until after having experienced 100 trades youll get somewhat of an image of your actual results and even then it could still be a matter of the usual variance. To let yourself keep seeing everything in a clear perspective and to prevent yourself from aiming at the short term results, you should use the mantra Everythings going to pass away. This applies to less good times, just as well as to real good times! An illustrative example Imagine you managed to conclude all of your first 10 trades in a profitable way. Theres a big chance that youre experiencing an euphoric feeling. You regard the trading system as being absolutely fantastic and your self-confidence is bigger than ever. However, the results of the next 10 trades happen to be nearly the opposite of the previous ones. Its true that two of them are profitable, but the remaining 8 trades are loss-making. Now theres a big chance that your euphoric feeling has completely vanished and it seems quite likely that the same goes for the extent of your self-confidence Now lets try to look at the situation from an objective point of view, disposed of emotional feelings. You concluded 12 of the 20 trades in a profitable way and you concluded 8 of the 20 trades at a loss. This results in a 60% success rate. Isnt this rate exactly the original goal that you had in mind before carrying out the trades? So youve let yourself got carried away by giving in to your emotions, but in the end youre simply still on schedule when it comes to your original goal. So nothing was the matter at all, there was no reason for euphoria, nor was there any reason to go panicking. By using the mantra Everythings going to pass away, youll be able to keep seeing everything in the right perspective and youre not going to end up in a rollercoaster of emotions, which can only lead to negative consequences. It makes no sense to become euphoric when things are improving more than expected and it neither makes sense to go panicking when things are not exactly developing the way you was expecting them to be. Try to look at the situation from a certain distance, like a neutral spectator. You ought to know that you will not be able to pass a representative judgement until a large number of trades has been taken place and you should not at all be preoccupied with this matter in advance. ()-----------------------------------www.online-forex-strategy.com--------------------------------32-
Conclusion
After having studied this ebook, youll have a complete and valuable forex trading system at your disposal including strictly defined rules. This e-book, however, is the basic version of the OFS Trading System that is particularly suitable for novice forex traders. The OFS Trading System is offering even a lot more possibilities to obtain good quality trade setups and by also taking into account other factors, youll be able to score an even higher win ratio. To gain the maximum return using the OFS Trading System, Ive been writing a couple of additional strategy articles. In these articles I discuss different topics, such as expanding the number of trade setups, but also different factors, which can improve your win ratio. Read the following articles to take even more advantage of the OFS Trading System. Optimal route and realistic expectations of the OFS Trading System Phase 1: Basic version of the OFS Trading System Phase 2: Gaining more in-depth knowledge of the basic version Phase 3: Choosing currency pairs and timeframes Phase 4: Extensive version of the OFS Trading System Phase 5: The route to perfection
In case you want to use the OFS Trading System for online binary options trading youre advised to also read the article "OFS Trading System for online binary options". I hope that the info from this e-book and on the website Online Forex Strategy can contribute to a nice forex career! If you should have any questions, you can email me at info@online-forex-strategy.com. With best regards, Paul Verheij

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Welcome at the course of the OFS Trading System!

Introduction of the OFS Trading System

1.1 Looking for a healthy trend

1.2 Simple moving averages as a support

1.3 Examples of conditions for the benefit of a healthy trend

2.1 Determining the right entry point

2.2 Using moving averages to determine the price reaction area

2.3 Previous swing highs and swing lows

2.4 Summary of a healthy trend, price reaction area and entry

3.1 Entry, Stop Loss, Take Profit and Risk/Reward Ratio

3.2 Examples of entry, stop loss, take profit and risk/reward

Chapter 4: The real foundation of your success as a forex trader

4.2 Handling a good risk management

4.3 The right mind-set for forex trading

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