Mr. Kobayashi's Guide to the Effective Forex Trading
１． Technical Analysis with Moving Average Line
２． Trend Analysis
３． Formation Analysis
４． Risk Manamgement
１．Technical Analysis with Moving Average Line
[Moving Average] is a line which connects average rate of market (usually closing
rate) during a certain period. There are many combinations of [Moving Average],
the most common is combination of 2 lines, long-term and short-term.
Basically, there's no certain rule in setting the period, but 25 (short term) and 75
(long term) is the most generally used.
Short-term MA (Red line) : 25 period Long Term MA (Blue line) : 75 period
GRANVILLE LAW
BUY SIGNAL
How to predict market using Moving Average, by J.E.Granville
① [Moving Average] line remains flat or moves upward after going down, and daily candlestick
crosses MA upward.
② [Moving Average line is on the verge of moving up, daily candlestick crosses MA downward,
and bounces upward again.
③ When daily candlestick which, after moving up, goes down towards [Moving Average] line (but
the candlestick doesn't cross the MA line)
④ Daily candlestick goes down, while making more distance with downward [Moving Average] line.
(BUY signal in which trader waits for short-term rebound) = trade against trend (not
recommended）
SELL SIGNAL
⑤ [ Moving Average] line remains flat or moves downward after rising for some periods, and daily
candlestick crosses MA downward.
⑥ [Moving Average line is on the verge of moving down, daily candlestick crosses MA upward, and
bounces down again.
⑦ When daily candlestick which, after moving down, goes up towards [Moving Average] line (but the
candlestick falls again before passing MA line)
⑧ Daily candlestick goes up, while making more distance with upward [Moving Average] line.
(SELL signal in which trader waits for short-term rebound) = trade against trend (not
recommended)
①and ⑤ are important signs of trend rebound
BUY Signal using 2 Moving Average lines
 When short term MA has started to rise from downtrend, and crosses
mid/long term MA upward、
This is BUY signal called Golden Cross (sign of BULL trend)
 When short term MA has started to fall from uptrend, and crosses mid/long
term MA downward,
This is SELL signal called Dead Cross (sign of BEAR trend)
Short term MA
Long term MA
Golden
Cross
Pattern of Golden Cross
1.
2.
Short term MA crosses rising mid/long term MA, and the price is above the
crossing point
Short term MA is crosses upward a flat mid/long term MA, and the price is
above the crossing point 。
False Golden Cross signal １
Current price
◎
Long MA
Current price
×
Short MA
Current price
◎
Correct GOLDEN CROSS
If short term MA crosses upward long term MA, but current price is below the
crossing point, bigger chance that it is false signal
If short term MA crosses flat long term MA, and current price is
above the crossing point
Long MA
Short MA
If short term MA crosses upward long term MA, and current price is above
the crossing point
Current Price
×
Correct GOLDEN CROSS
If short term MA crosses flat long term MA, but current price is
below the crossing point, bigger chance that it is false signal
False Golden Cross signal ２
Short MA
Current Price
×
Current Price
×
Short MA Current PriceLong MA
×
Long MA
Current price
×
Long MA
Current price
×
Mid MA
Mid MA
Current price
×
Current price
×
When long term MA is falling, even if mid/short term MA crosses it or the price is above/below
crossing point, it's can't be considered as correct Golden Cross. In the end, among 10 patterns of
Golden Cross, there are only 2 patterns which are considered as the correct ones.
２． Trend Analysis
Trend means a condition where market is moving to a certain direction.
“Trend is friend” is a popular saying. It means, trade by following the
trend (not against it).
4
2
Wave 5
① Uptrend
Choose BUY
Wave 3
Wave 4
Wave 1
Wave 2
A
B
C
3
1
② Downtrend
Choose SELL
③
Sideways
Do not trade
Number 1 until 4 is long term trend. From 2 to 3 (A,B,C) is where the trend
adjust before going back to original direction. In 1938, Ralph Nelson Elliott
finished a theory which is called [Elliott Wave]. The theory describes that
trend repeats itself in 5 uptrend and 3 downtrend (adjustment period) wave
like rhythm.
The above picture shows a complete Elliott Wave cycle with 8 waves. A,B,C
is seen as the uptrend "correction". However, I personally don't use Elliott
Wave theory too often.
Every trader may have different view of the wave. For example, some
traders may not see "wave 1" "Wave 2" "wave 3", but they view the waves
as extension of wave 1.
I usually use Elliott Wave as a sign to help me notice whether the market is
changing its direction or not.
Support and Resistance
Support
5
Resistance
1
Resistance
Support
4
2
2
Support
3
The market backs down without passing High
price (point 3), and if the market falls through
current Low price (point 4), this will form a
trend pattern called "Double Top".
Support
Resistance
4
1
3
Support is a point where
uptrend market falls and
reaches lowest price. It is an
area where a market breaks
off the SELL pressure, and
goes up again.
Resistance
Resistance is a point where
downtrend market rises and
reaches highest price. It is an
area where a market breaks off
the BUY pressure, and goes
down again.
Resistance
Support
5
The market backs up without passing Low
price (point 3), and if the market rises
through current Low price (point 4), this will
form a trend pattern called "Double
Bottom".
Reversal of Support and Resistance
5
Why can "Support" switch to "Resistance", and
the other way around?
We will try to understand market's psychology
by using the chart on the left.
3
Resistance
1
4
2
Support
Resistance switch to Support
Breakout from previous HIGH
If a trader who has made sell trades in the uptrend market
towards 1, he may feel uncomfortable when the market is now
moving down towards 2. If the market has gone through the
resistance line towards 3, the trader would have negative
positions and may need to cut losses at some point prior to 3,
or the trader keeps holding negative positions, hoping that he
can close the positions close to a point at 4. These
characteristics of the mental state of the participants in the
market results in a number of Buy orders around the
Resistance line. On the other hand, If a trader who bought buy
trades below the Resistance line and closed the positions
around the Resistance line may feel unhappy if the market
has moved up to 3. He may wish to make buy trades around
the Resistance line under the circumstance . This is also one
of the factors that can lead to a number of buy orders around
the Resistance line.
If it has happened twice, then, it will happen again. The
existing resistance line will remain as resistance, and the
existing support line will remain as support.
If the market breaks through a resistance line, it will become a
support line. If the market breaks through a support line, it will
become a resistance line.
How long ago Resistance/Support lines were formed?
How long did the market stay around that level (within a
certain range)?
（How many positions are left around the level?)
How much was the trading volume? Large or Small?
What is Trend Line?
Uptrend Line is a straight line which connects Low Prices which gradually rises
Downtrend Line is a straight line which connects High Prices which gradually falls
1
6
4
3
2
5
2
5
3
1
Draw a line which connects the
first two "valleys". When market
bounces up again at point “5",
this means the trend line is valid
4
6
Draw a line which connects the first
two “mountains". When market
bounces back again at point “5",
this means the trend line is valid
Trend line breakout (reversal)
1
6
3
4
8
2
5
3
7
5
2
4
7
6
8
1
Focus on whether price bounces back or
at the support line.
If the price falls and passes the support
(trend) line, price may bounce back at
resistance point 8
Focus on whether price bounces back
or at the resistance.
If the price rises and passes the
resistance (trend) line, price may
bounce back at support point 8
Trend Channel Line
1
6
3
4
5
2
5
3
2
4
1
Draw Support line along 1-3-5 and
draw parallel line from point 2.
Draw resistance line along 13-5 and draw parallel line
from point 2.
３．Formation Analysis
NECKLINE
SELL sign
DOUBLE-TOP
NECKLINE
BUY sign
DOUBLE-BOTTOM
Double Top
This formation indicates that market may have reach its
peak.
If there's a valley ("LOW" price) between 2 mountains
("HIGH" prices), Double Top is formed.
The two mountains have roughly the same "HIGH" price,
or the second one is lower than the first one. This shows
that market can no longer reach the first "High" price, the
uptrend is going to end.
SELL sign is when price has fallen pass the neckline.
Double Bottom
This formation indicates that market may have reach its
bottom
If there's a mountain("HIGH" price) between 2 valleys
("LOW" prices), Double Bottom is formed.
The two valleys have roughly the same "LOW" price, or the
second one is higher than the first one. This shows that
market can no longer reach the first "Low" price, the
downtrend is going to end.
BUY sign is when price has rises pass the neckline.
Reverse Head and Shoulder
Head and Shoulder
If the Double-Top expands further, it will become Head and Shoulder pattern。
Once the price has fallen pass the
neckline, it will drop further.
Usually, price will drop as much
as head-neckline distance, so
place your take profit target based
on it.
Head
Left shoulder
Right
Shoulder
Neckline
FLAG
It is formed when you draw two parallel lines on the both the support and resistance
points of market, therefore looks like "Flag". When market is in upward trend, the flag
slopes down. When market is in downward trend, the flag slopes up.
Downtrend, so flag is facing up
Upward trend, so flag is facing down
This pattern usually
occurs when market is
"adjusting" itself in the
middle of trend.
Rectangle Formation - will not show until price has pulled out from Triple Top or Triple Bottom
Price moves between two parallel horizontal lines. This shows
that trend is resting temporarily.
When the price falls/rises pass the horizontal line, trend will
occur (fall = downtrend ; rise = uptrend)
Most of the time, market will continue its bullish
trend, but there's chance that it will become Triple
Top, and price will fall.
Most of the time, market will continue its bearish
trend, but there’s chance the it will become Triple
Bottom, and price will rise.
TRIANGLE
Reverse Triangle
Symmetrical Triangle
BUY Signal
Resistance
Resistance
＜PENNANT＞
BUY Signal
＜Megaphone＞
Support
SELL signal
SELL Signal
Support
Descending Triangle
Ascending Triangle
Normally a
BULLISH pattern
Resistance
Resistance line is
horizontal, and Support
line is upward sloping.
BUY chance is bigger
than SELL.
BUY Signal
SELL SIgnal
Support
BUY Signal
Upward Wedge
Normally a
BEARISH Pattern
Support line is horizontal,
and Resistance is
downward sloping. SELL
chance is bigger than
BUY.
Resistance
Support
SELL Signal
Downward Wedge
Resistance
Resistance
Variation which
support line is also
upward sloping
BUY Signal
SELL Signal
Support
BUY Signal
Variation which
support line is also
downward sloping
Support
SELL Signal
４．Risk Management
How to win the deal
Raise winning percentage What’s needed for this?(Has been explained in Seminar 1 P 7)
Reduce loss What’s needed to achieve this
Currency pair selection Which pair is good? (Has been explained in Seminar 1 P. 4)
Joining seminar is good, but not losing is also important.
Do not just do what others say. Listen to others’market view, and
examine what most of trades think and will do (this is important!)
Trade against market is dangerous! Basic stance should be
follow the trend.
Have some spare funds! Use 1:3 leverage until you’re used to
trading.
Reduce Loss
what’s needed for this?
Have some spare funds to manage risk
Adjust the amount of money used, depending on the period you want to trade and what kind of
trade you want to do.
Money Management
Reduce risk every time you trade.
Make your own rules and stick to them
Do not break your own rule.
Always think calmly before you think. Trade based on your spontaneus decision won’t last long.
Do not afraid of “Stop Loss”
Think the “Stop Loss” as a way to protect yourself.
Let’s explain these further
Lower leverage based on your target
USD/JPY average range is 1.15yen (average of 3497 days）
Using high leverage is not suitable if you want to keep long-term
position.
SELL position on a currency pair which has high interest rates will
impose you to swap payment, and thus lessen your distance to stopout. Not suitable for long-term positioning.
Make BUY position on currency pair which has high interest rates is
one way to profit more. However , if you use high leverage, you may
end up margin called as the distance to stop-out rate will be lessened.
For beginners, prepare 1,000,000 yen of capital,
and use 10% of capital for each trade until you’re
used to trading. Max leverage is 2.4 times. With this,
you can trade 20,000 USD with just 1,000,000 yen
(required margin is 100,000 yen).
Money Management
Overseas Fund make use of money management to limit exposure to risk, and chase
the profit.
Based on 1 year survey conducted on 100 traders who use system trade with 60%
winning percentage, only 5 traders who really made profit. This means that even if the
traders use system with 60% winning percentage, 95% of trades still can't make profit.
This happens because of poor money management. Money management is more
important than buy/sell timing or chart analysis.
Use only 1% of your available capital for each trade
This means if your fund is 1,000,000 yen, keep your stop
loss at 10,000 yen
If you have 10,000 dollar position, Stop loss at 1 yen
20,000 dollar position, stop loss at 5 cent
50,000 dollar position, stop loss at 20 cent
100,000 dollar position, stop loss at 10 cent
If your daily stop-loss is at 30-40 cents, 50,000 dollar position can be considered as too
much.
These amounts may appear too little for you, but if you want to trade long-term, it’s
important to limit your risk for each trade, to maximize your profit.
Make your own rule
Initial fund is 1,000,000, and 2.4 times leverage (each unit of currency
need 50,000 yen required margin)
Use 100,000 yen equity (20,000 dollar worth position).
The money management rule is stop loss at 3% of your fund.
Required margin 100,000 yen x 100% = 100,000 yen
Stop-out is (1,000,000 yen - 100,000 yen) / 20000 = at 45 yen, but if you
have rule of 3% stop-loss, calculate stop-out of 30,000 yen, and you will
get stop-loss at 1.5 yen.
You have to protect your position so that it will not become a significant
loss. Winning trades every day is impossible. Make sure that you avoid
loss that will eat out all of your funds at once.
Wait for stop-out without doing anything is an absolute NO.
If you feel that stop-loss at 1.5 yen is too big, you can try at 1% stop-out (1
yen).
Secrets of Day Trade
Is there any base or evidence that you want to make the position? And can that evidence be used
now?


Examine yourself, are you making decision calmly? Are you not hurrying?
 Have you checked market sentiment and do the technical analysis? At which point of market your
position become dangerous to hold? Have you put stop loss, and where to put?
Use around 2-3 technical chart/analysis, more than that will make you confused!
 What is your trading period? Day trade? Weekly trade? Longer term? Be consistent on your preferred
trading period, as each period has their own styles.
 Market moves the most when there're lots of stop-loss happening. If the stop-loss stops, market
may be back to normal condition, so take your profit during this period.
 Learn to read the mental state of other participants in the market. If you have sold, others have
bought. If you have bought, others have sold.
 Take profit is take profit. Take profit will gain you confidence. There's no people dying because of
take profit. There's nothing you can get from regretting your stop -loss.
 Which direction will market move to? Always trade follow the market.

Don't push yourself to follow the trend if your timing is late. Don't be hurry, market is always there.
Experience based guts and technical is needed. Especially ability to sense danger in market

Don't make a position just because other people ask you to. Don't be swayed by people's opinion.
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