Point Zero

Trading Solutions

Trend Following Suite

Trading guide (v3.0)
Trend following is a proven trading strategy that outperforms any other type of traditional investment.
It is the ideal home-based business: there is no inventory to store in warehouses, no cold calling, no
working schedule and no marketing. You don't have any physical stock that needs maintenance, no
franchise fees, no employees and no lawyers to keep the retainer. Yet, profit margins can run well
over 90% and are absolutely scalable over time. All you need is the right tool, the right mindset and a
certain amount of starting capital.

Trend following works because you don't outthink the market. You wait for the market to move, and
follow it. You are a follower, not a predictor. Trend following doesn't argue with markets nor tries to be
right. You watch chart lines, not headlines. You choose which instruments and timeframes to trade
based on objective reasons, not subjective preferences. You don't have the slightest clue about what
price action will do in the future, and you don't care.

Trend following is widely used by successful traders, hedge funds and financial institutions. In the
meantime, hundreds of thousands of unexperienced traders are lured by brokers and financial
magazines into the nonsense of trading 5M charts.

This document will teach you how to become your own profitable hedge fund using our trend
following system and obtain exceptional returns trading financial markets.

The PZ Trend Following Suite has been created to enhance your trading activity by simplifying the
two most difficult aspects of trading, which are finding trading opportunities and position
management. You will be able to trade four or five times more markets than before, without giving up
any of your precious time or hiring any trading staff.

Furthermore, you won't need to lose your money to deceptive brokers any more, pay outrageous
commissions to mutual funds or watch your savings being inflated out of existence by a bankrupt and
debt-junkie government.

We hope our trading system helps you to achieve your financial goals soon.

Sincerely,

Arturo Lpez Prez

Trader, speculator, investor and software engineer.
Developer of Point Zero Trend Following Suite
http://www.pointzero-trading.com/
 If a market is going up you go long, if it is going down, you go short.
The only reason to take a trade is because the market is doing something.
- Michael Covel

You can mix trend following with fundamental analysis. You can also mix it
with astrology, tarot, four-leaf clovers or chicken bones. But why would you?
- Michael Covel

Trends in motion will stay in motion and persist, until they stop and reverse.
- Point Zero team

All markets rally, flatten, reverse and crash. In that order.

- Point Zero team

The best estimate of tomorrow's price is today's price.

- Edward Seykota

Trading is a waiting game. You sit, you wait, and you make a lot of money all at once. Profits come in
bunches, the trick when going sideways between home runs is not to lose too much in between.
- Michael Covel

If we lived a free market -which we don't- it would be very hard to be a speculator. Currencies are floating
abstractions which are continually debased by bankrupt governments, causing huge distortions in the
marketplace and making speculation a profitable activity.
- Doug Casey

A new trader approached an old bold trend follower and asked, 'What's your objective on this trade?'.
He replied: 'For it to go to the moon'.
- Michael Covel

You can't change the direction of the wind, but you can adjust your sails.
- Chinese proverb

What matters can be measured, so keep refining your measurements.

- Charles Faulkner

Don't guess how far a trend will go, you cannot. Prices make the news, not the other way around.
A market is going to go where the market is going to go.
- Michael Covel
Table of contents
1) What is trend following?........................................................................................................................5
1.1) What trend following is not........................................................................................................... 5
1.2) The advantages of trend following.............................................................................................. 6
2) The right trading mindset..................................................................................................................... 7
2.1) Trading is a business......................................................................................................................7
2.2) Good trading habits....................................................................................................................... 7
3) The indicators......................................................................................................................................... 8
3.1) The PZ Levels Indicator ................................................................................................................. 8
3.2) The PZ Bars indicator..................................................................................................................... 8
3.3) The PZ Oscillator indicator ........................................................................................................... 9
3.4) The PZ Dashboard Indicator ...................................................................................................... 10
4) The PZ Manager Expert Advisor.........................................................................................................12
5) Trading setups..................................................................................................................................... 13
5.1) The trend change ........................................................................................................................ 13
5.2) The pullback.................................................................................................................................. 16
5.3) The short ride............................................................................................................................... 17
5.4) The Reversal..................................................................................................................................18
6) Assembling your trading portfolio..................................................................................................... 20
7) Other considerations.......................................................................................................................... 21
7.1) Trading stocks............................................................................................................................... 21
7.2) Currency pairs are the paradise of trend followers................................................................. 21
7.3) Let the market tell you which timeframe to trade................................................................... 22
7.4) Have a financial plan.................................................................................................................... 22
8) Recommended reading...................................................................................................................... 23
9) Free trading scripts.............................................................................................................................. 23
10) Visit our website................................................................................................................................ 24
1) What is trend following?
Trend following is a form of trading that seeks to maximize trading profits and minimize risk by reacting to
market trends.Trades are hold as long as the trend continues: a few days, weeks, months or even years. But
before going any further, let's first separate the idea from what it is not.

1.1) What trend following is not

Trend following is not buy-and-hold investing
Buy-and-hold investing involves the fundamental or economic analysis of market cycles, business
sectors, and individual companies with the intent of buying solid companies or undervalued
commodities. The aim of this strategy is to realize long-term capital gains and the motto would be the
following: Buying a great company at a fair price. The holding time of a buy-and-hold position is
usually measured in years.

Trend following is not position trading

Position traders rely on the technical analysis of price charts rather than fundamental analysis of
companies, but rather that positioning themselves within already established trends, their aim is to buy
bottoms and sell tops. Position trades are normally measured in months and can last a year or longer.

Trend following is not overnight trading

The overnight trader is someone who relies on technical analysis and tape-reading skills, along with
intraday news breaks, to take a quick two-day position in a stock. The overnight trader normally enters
the position late in the day and sells before the close of the following day.

Trend following is not scalping or intraday trading

Scalping is a form of intraday trading inasmuch positions are held for only one trading day, and all
positions are exited prior to or at close of the trading day. All scalpers go home flat at the end of each
session. Scalping succumbs to decreasing profit potential and increasing broker's commissions, and
represents over 80% of the broker's earnings -no wonder why most marketing is oriented towards
intraday trading-.
1.2) The advantages of trend following
Trend following provides the greatest amount of return for the least amount of work of any other trading style,
and decreases trading commissions to just a tiny fraction of your business expenses.

Returns tend to be higher than what a buy-and-hold investor would expect, even over what positions
traders expect, making trend following the ideal way to trade for a living.

Trend following requires just a little of your time each day. It allows you to hold a full-time job or do
other things with your time rather than squinting at pixels all day.

Trend following does not require a high level of expertise or patience.

You don't need to worry about poring over financial statements, catching precise tops and bottoms or
seeing the bulk of your profits evaporate on overnight gaps.

Trend following isolates you from the madness of fundamental investing in a fiat-currency based
economy. Since the currency supply is virtually unlimited, capital flowing to one asset class or sector
does not mean it is being taken from other sector or asset class, and supply and demand fundamentals
are difficult to track under these conditions. A trend following approach allows you to profit when all
these accumulated distortions and miss-allocations of capital reveal themselves.

And of course, trend following allows you to profit in bull or bear markets.
2) The right trading mindset
News flash! Anyone can become a profitable trader. Trading is not rocket science: it is a rather simple
business, much easier than any other existing business model. The only reason why people fail, once they've
got the right approach, is their mindset and psychology.

2.1) Trading is a business

When you trade, you are managing your own business and you should treat it as such. Trading is not a
personal activity, it is not a hobby and it is not gambling. Your mind must tune itself to this approach to obtain
exceptional returns:
Stop thinking about losing and winning. Those terms have a direct emotional impact on the quality of
your decisions. Think about income and expenses instead.
Respect your trading plan: you must do whatever the hell your system tells you to do, regardless of
your personal opinion. Avoid thoughts like: The market has been in a 3 month rally and I am already
late: I rather don't take this trade.
Good business have good records: you must write down every trade. Why did you take this trade?
What timeframe did you based your decision on? Which was the entry price and timeframe?

2.2) Good trading habits

Keep commissions low: find a good broker and watch him like a hawk.
Risk management is important: always use stop losses.
Capital preservation is your top priority for every trade.
Limit losses and ride profits, no matter what.
The only reason to take a trade is because the market is doing something
No memory trading: you don't care if something is cheap or expensive.
Don't listen to useless news or market forecasts.
Never trade a stock against the market trend.
Never average down an underwater trade.
Never overtrade or get mentally exhausted
Don't take the market home.
3) The indicators
The PZ Trend Following Suite provides a set of four indicators, each one serving a different purpose. Three of
them are combined into the trading template, and the last one is a multi-market and multi-timeframe
dashboard which task is to find trading opportunities for you and stay on top of the market at all times. Let's
review each one of them.

3.1) The PZ Levels Indicator

PZ Levels is a sound trend following indicator based on breakouts of historical highs and lows attenuated by
the current volatility of the market. The purpose of this indicator is to let you know where is the market going
and display trading opportunities for your evaluation.
A Blue Circle (1) announces an uptrend
A Red Circle (1) announces a downtrend
An Orange Circle (2) announces a pullback in the direction of the trend
A Grey Circle (3) announces a breakout in the direction of the trend
Of course, this indicator implements visual, email and sound alerts for every type of signal.

3.2) The PZ Bars indicator

The PZ Bars indicator compares the current bar's price action to previous bar's closing/opening prices to
predict near term price activity. This indicator overrides the default candlestick colors to inform about the short-
term trend and strength. The purpose of this indicator is to let you know what is the short-term price action
doing and help you to trade at the right time.
During an uptrend...
A dark blue bar is a bullish bar (strength)
A light blue bar is a bearish bar (weakness)
During a downtrend...
A dark red bar is a bearish bar (strength)
A light red bar is a bullish bar (weakness)
This indicator is primary, which means that you should never -ever- trade against it.
3.3) The PZ Oscillator indicator
The PZ Oscillator indicator is an accelerometer which measures the strength of the trend by comparing its rate
of change over time. The purpose of this indicator is to keep you out of weak trends, find divergences and
confirm short-term trades.
A blue oscillator announces bullish acceleration
A red oscillator announces bearish acceleration
Additionally, if the main value is above the signal line, the uptrend is strong and vice-versa for downtrends. The
PZ Oscillator is a primary indicator and you should never trade against it. The last three indicators combined
provide a powerful and very informative trading template in which several trading setups can be found. Please,
take a look at the following screenshot and try to find profitable trading patterns before continuing.
3.4) The PZ Dashboard Indicator
The PZ Dashboard indicator is a multi-symbol and multi-timeframe monitor which task is to find trading
opportunities and increase the amount of markets in your trading portfolio. It is fully customizable and
implements screen, sound and email alerts to make sure all trading opportunities are acknowledged by the
trader.
A blue dot means strong uptrend
Both PZ Levels and PZ Bars indicators are bullish
A blue circle means weak uptrend
The PZ Levels indicator is bullish but the PZ Bars indicator is not
A red dot means strong downtrend
Both PZ Levels and PZ Bars indicators are bearish
A red circle means weak downtrend
The PZ Levels indicator is bearish but the PZ Bars indicator is not

The very first thing to do with the PZ Trend Following Suite is assembling your trading portfolio and setting up
the PZ Dashboard in a separate monitor/window to stay on top on those markets and receive trading email,
sound and screen alerts.
To do so, just load the indicator into a chart and type into the Symbols input parameter the markets of your
trading portfolio separated by a semicolon. For instance EURUSD;GBPUSD;USDJPY;XAUUSD;CBOT.YM.
You might want to enable certain alerts to receive for each timeframe and save the template into your
Metatrader4 platform to avoid repeating this process in the future.
With the PZ Dashboard you will be able to stay on top of 40-50 markets very easily.
4) The PZ Manager Expert Advisor
The PZ Manager EA is a position management expert advisor provided with the suite, which only task is to
manage your opened trades for you applying a sound trend following approach. It implements the following
principles:
Capital preservation is top priority
All trades are partially closed as soon as the profits cover the initial risk.
Additionally, the stop-loss can be moved to break-even when this task is performed.

Let profits run

The EA trails the stop-loss for all trades using your desired method.

With the PZ Manager EA, you don't have to spend any time managing positions, which represents a tenfold
increase in the amount of concurrent trades you can have and manage at any given moment. On the other
hand, your mind is allowed to disengage from the position management process, which would test your
emotions and self-control over and over again. Profits will be allowed to run regardless of what you think or
feel about it.
The PZ Manager EA can trail the stop-loss using three different methods:

The ATR Trailing-stop

This method is based on the Average True Range, which is a volatility indicator.
It should be used for volatile instruments and intraday trading.

The Donchian Trailing Stop

A Donchian Channel is formed by taking the highest high and the lowest low of the last n bars.
It should be used to trail the stop-loss on daily and weekly charts.
If unsure, use the ATR Trailing-stop .

The Fixed Trailing Stop

The third method is a fixed trailing-stop in pips, suitable for scalping.

If all these trailing stop methods confuse you, use the ATR Trailing Stop.
5) Trading setups
The three chart indicators of the suite are combined into a very informative trading template, which provides
quite a few trading setups which allow you to ride big trends, profit from range-bound markets and recognize
possible trend changes before they actually take place.

5.1) The trend change

This trading setup is very straightforward: a breakout has taken place and a Blue Circle (1) or a Red Circle
(1) appears on the chart. Don't try to guess if the price will retrace or not, you can't. Instead of trying to predict
the market, use pending orders to take the trade if the price keeps moving. This is the trading setup present
when the PZ Dashboard sends an alert.
Place a buy stop order at the high of the previous bar if...
A Blue Circle (1) appears on the chart
The oscillator is blue and above the signal line
Place a sell stop order at the low of the previous bar if...
A Red Circle (1) appears on the chart
The oscillator is red and below the signal line
The obvious question might arise here... should all signals be traded? The answer to that question is that most
of them yes. But not all: some signals might be sudden and violent corrections of price action which trigger the
breakout threshold and others might not be confirmed by the Oscillator. To understand trend changes properly
there is just one thing you need to know, and it is that a market does not simply reverse and change its
direction.
For a market to reliably reverse, it must have passed through an accumulation/distribution period. In that
sense, the market is like an elastic band: it can only stretch so much before bouncing back. Accumulation
takes place before the price breaks up, and distribution takes place before the price breaks down.
For example, a double-top pattern is a very fast and aggressive distribution period: the big players can't wait to
get rid of their shares. On the opposite hand, a double-bottom is a fast and aggressive accumulation period.
The same can be applied to S-H-S patterns and congestion zones.
A range-bound market is simply an accumulation/distribution period which is taking place very slowly and not
in a recognizable price pattern. But it is intrinsically not different from a double-top or a double-bottom: those
are simply periods when this process takes place faster.
So how should you proceed with trend changes? Well, ask yourself the following. Has price action suddenly
reversed or an accumulation/distribution period has taken place? If it has suddenly reversed, you can be very
confident it is a fishy wild correction and nothing more. If unsure, you can always stay out of the market or
place a buy/sell stop order with just a 1% risk at the high/low of the previous bar and treat that trade very
carefully should the trade be triggered.
On the other hand, if a clear accumulation/distribution period is present and a breakout has taken place, you
can take the trade with plenty on confidence. Remember to always use pending orders to enter the market to
decrease the impact of unprofitable decisions.
5.2) The pullback
This trading setup allows you to hop on an established trend at the perfect time: just after a pullback has taken
place. It is especially useful if you missed the trend change or got stopped out during a retracement or
squeeze.
Place a buy stop order at the high of the previous bar if...
The chart displays an uptrend
An Orange Circle (1) appears on the chart
The oscillator is blue and above the signal line

Place a sell stop order at the low of the previous bar if...
The PZ Levels indicator displays a downtrend
An Orange Circle (1) appears on the chart
The oscillator is red and below the signal line
5.3) The short ride
The short ride trading setup uses a breakout to enter the market in the direction of the trend during a period of
strength. This trading setup can be used to pyramid existing positions or take sporadic trades lasting just a few
days. The main advantage about this setup is that the stop-loss can be very tight: the lowest of the last two
bars is enough. In other words, the risk-reward ratio of this setup is enormous.
Due to the special nature of this trade and only if you are not pyramiding an existing position, it is advisable to
modify the input parameters of the PZ Manager EA to trail the stop-loss using the lowest of the last two bars.
Place a buy stop order at the high of the previous bar if...
The chart displays ann uptrend
A Grey Circle (3) appears on the chart
The oscillator is blue is above the signal line
Place a sell stop order at the low of the previous bar if...
The PZ Levels indicator displays a downtrend
A Grey Circle (3) appears on the chart
The oscillator is red and below the signal line
5.4) The Reversal
The reversal trading setup is the only one not announced on the chart by a number, but it is extremely
powerful. It takes place when the trend direction and the color of the bars do not match and the oscillator
confirms the current trend is weak or about to reverse. It can be used to capitalize from ranging markets,
exhaustion patterns such as double-top or double-bottom and congestion zones in which a trend line is
broken.
Place a buy stop order at the high of the previous bar if...
The chart displays a downtrend
The current bar just turned from red to dark blue
The oscillator confirms the trend is weak and is above the signal line
Place a sell stop order at the low of the previous bar if...
The chart displays ann uptrend
The current bar just turned from blue to dark red
The oscillator confirms the trend is weak and is above the signal line
6) Assembling your trading portfolio
What you trade is critical. It may just be the most important decision you'll have to make. Here is the catch: you
cannot trade everything, but you cannot trade only one market either. You need to be in position to be following
enough markets that when a market moves you can ride it, as diversification is the only free lunch you get. It
allows you to spread your potential targets of opportunity broadly across currencies, interest rates, global stock
indices, grains, meats, metals and energies. The following is an example of a diversified portfolio that you
could use as a starting point for assembling your own.

Euro Lumber
Japanese Yen S&P 500
American Dollar DJIA
Australian Dollar Russell 2000
Mexican Peso FTSE 100
Euribor IBEX 35
Aussie Bank Bills Nikkei
US 10-Year Note Euro Stoxx 50
US 30-Year Note Hang Seng
Canadian Gov. Bonds Australian SPI 200
German Gov. Bonds Live Cattle
French Gov. Bonds Feeder Cattle
Italian Gov. Bonds Platinum
Japanese Gov. Bonds Silver
Aussie 10-Year Bond Gold
Wheat Copper
Corn HG Copper
Soybeans Aluminum
Soy Meal Nickel
Bean Oil Zinc
Canola Light Crude Oil
Cotton Brent Crude Oil
Sugar Heating Oil
London Sugar Gas Oil
Coffee Uranium
Cocoa Unleaded Gas
Orange juice Natural Gas
That's diversity! How many currency pairs can be found in the above list? Around six, but no more. Those
underlying assets can be easily traded using futures or CFD's and several brokers offer most of them. In other
words, please bear in mind that trading several currency pairs is not diversification. If your portfolio is properly
diversified, you'll find that big trends taking place in some instruments pays off all other little losses and then
some.

7) Other considerations

7.1) Trading stocks

All stocks belong to an index, which allows you to know the market trend. So, if you are trading stocks, make
sure not to trade against the market trend. If the index is bullish, you should pick only long positions among its
stocks. If the index is bearish, you should pick only short positions among its stocks. You should pick the
stronger stocks if the index is bullish, and the weaker stocks if the index is bearish. Never trade stocks against
the market sentiment.

7.2) Currency pairs are the paradise of trend followers

The intention of this document is not to discuss economics, but let me slip a little into it and make an obvious
statement, which explains why currency pairs are the paradise of trend followers.

Currency is not money because it is not a store of value.

So you might think that the change you get in the grocery store is money, but it is not. It is currency: a medium
of exchange enforced by a government law, which can't be considered money because it is not a store of
value and because the decision of using it does not emanate from the marketplace.

Currencies are floating abstractions enforced by bankrupt governments.

Furthermore, if the government has a sudden craving for money -which happens a lot-, it can issue sovereign
bonds to the central bank (The Fed, the BCE, etc) and spring more currency into existence. That process
constitutes a mortgage for future generations and devaluates the savings of the middle class.
This is very bad news, unless you trade the forex market and avoid saving in currency units. This devaluation
process is a never-ending loop, which creates trends that can last for many, many years and can make you
very wealthy. Just take a deep breath, take a step back from the intraday charts, and look into any weekly or
monthly chart. Currency trends can last for years!

7.3) Let the market tell you which timeframe to trade

Most traders decide which instrument and timeframe to trade based in their subjective opinion. Some of them
trade 1M, 5M, 15M or H1 charts and decide that based on their personal preferences. Maybe they want daily
income or like the excitement of 1M charts. And some of them succeed. Most of them don't.
The whole point of trend following is letting the market tell you what he wants. If it wants to go up, help it and
go long. If it wants to go short, help it and go short. But what about the timeframe it wants you to trade? Few
people ask themselves that, and keep trying to figure out a way to become profitable in a certain timeframe
that maybe the market hates.
The key is stop asking yourself what you want, and start wondering what the market wants. All charts want to
tell you something: is up to you to listen. Including what timeframe to trade.
Browse all instrument's timeframes and find the two charts where price action is the most gentle. Is H4 too
chaotic? Go daily. Is daily too chaotic? Go weekly. Is weekly too chaotic? Go monthly and look for entry points
in the weekly chart.
The market rewards those who help it and punish those who don't. Listen to the charts.

7.4) Have a financial plan

Let me finish our trading guide stating that you can trade for a living. But that doesn't mean you should do only
that: as a trader, you can't go on holidays -or get ill- and make money at the same time. That is why you need
a financial plan that makes your money work for you, regardless of the amount of time you spend working. So,
our advise is the following:

Use a 30% of your earnings to buy cash-flowing assets.

In other words, don't reinvest everything you earn into your trading activity. You should be buying high-yield
stocks, investment properties or other businesses which provide you with cash-flow every month, even if you
do nothing at all.
8) Recommended reading
Some trading books worth reading:
Trading Chaos. Bill Williams.
The little book of currency trading. Kathy Lien.
Trend Commandments. Michael Covel.
Trend following: learn to make millions in up or down markets. Michael Covel.
Trend Trading for a living. Thomas K. Carr.
Other books worth reading:
Rich Dad Poor Dad. Robert Kiyosaki.
The Cashflow Quadrant. Robert Kiyosaki.
Crisis Investing. Doug Casey.
Profiting from the world's economic crisis. Bud Conrad.
This time is different: eight centuries of financial folly.
Carmen Reinhard and Kenneth Rogoff.
The dollar crisis. Richard Duncan.
Extraordinary popular delusions and the madness of the crowds. Charles Mackay.
Guide to investing in gold and silver. Michael Maloney.
The machinery of freedom: guide to a radical capitalism. David D. Friedman.

9) Free trading scripts

Placing manual orders and pyramiding positions manually is a lot of work if you want to trade 40 or 50
markets. However, we have developed a set of free trading scripts which will make your trading life much
easier. Downloading and using them is highly recommended.
PZ Progressive Trading Scripts: http://www.pointzero-trading.com/FreeMetatraderDownloads/view/3
PZ Simple Trading Scripts: http://www.pointzero-trading.com/FreeMetatraderDownloads/view/18
PZ Break-Even Script: http://www.pointzero-trading.com/FreeMetatraderDownloads/view/17
10) Visit our website
Our trading manual has just finished, thanks a lot for your attention. If you decide to purchase the Trend
Following Suite, you will receive an User Guide with goes a little bit more into software details, usage and input
parameters.
Visit us at http://www.pointzero-trading.com