105# Cobra Forex Trading System
Submit by Joy22
We only trade in the direction of the trend!
This is central to the whole system. This one basic principle reduces our risk dramatically by limiting us to trades that already have the momentum of the market behind them.
But remember this is a short term trending system, so when I say we only trade in the direction of the trend, I mean we trade in the direction the market has been moving over the last 3 days, broken down over 72 hours on the 1 hour charts.
So we use a 72 period Moving Average line (MA) as a guide to tell us the direction of the current short term trend. A 72 moving average line is simply a line which tells us the average direction of the market over the last 72 candles (in our case the last 72 hours because each of our candles is 1 hour long).
If the real price is above the 72 MA, we take it that the market is trending upwards, so we ONLY take trades in that direction, which means we only buy.
If the real price was below the 72 MA, we would take it that the market is trending downwards so we only take short trades (we only sell the currency)
72 period SMA (Simple Moving Average) applied to the “typical price” (high+low+close)/3.
72 period SMA calculated off the high of each candle.
72 period SMA calculated off the low of each candle.
12 period EMA (Exponential Moving Average) applied to the “typical price” (high+low+close)/3.
12 period EMA calculated off the high of each candle.
12 period EMA calculated off the low of each candle.
14 period ADX (Average Directional Movement Index) applied to the “typical price”.
In the picture below Cobra Forex Trading System in action.
The 72 period SMA is a basic moving average line which calculates and plots the average price over the last 72 candles. So for our system, it’s taking the average from the pervious 72 hours (3 days).
The 12 period EMA is another moving average, but this time it’s calculating the average over the past 12 hours or half a day. And this MA is exponential which simply means it gives a little more weight or importance to the most recent candles over the oldest ones.
The MA’s can calculate the average of any part of the candles. So they can take the average of all the closes, highs, lows, opens, or a combination of them. That’s why you’ll see that I’ve set the MA’s to calculate a slightly different element on each line. (It will all become apparent why as I explain the system in detail).
The Moving Averages tell us the direction of a trend. If the line is moving up, it means there is an up trend, and if the line is moving down, it means there is a down trend.
The ADX is the Average Directional Movement Index, and it really complements the MA lines. This indicator in its most basic form measures the average direction up and the average direction down over a set period (in our case 14 candles or 14 hours) and then smoothes the calculation out by adding a Moving Average line between the two.
The indicator is used to tell us the strength of a trend. It doesn’t tell us the direction of a trend.
The ADX draws a line on a graph underneath our main chart. If the line is moving upwards, it means the trend is strengthening. If the line is moving downwards it means the trend is weakening.
There are also certain levels on the graph. When the line is below a certain level it means there is no trend at all, and when it is above a certain level it means we are in an extreme trend. (Again all this is explained more clearly as I go through the system with you).
And what you have there is everything you need in order to use this system.
I’ve included a template with the system that you can simply upload to your charts software, and it will automatically plot all these indicators perfectly on your charts, so there’s nothing for you to worry about.
See pictures example e read pdf.
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