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Continue Reading Download Free PDF. You will not find long third upgraded edition. We received a lot of great watery essay type paragraphs here, just feedback about the first and second e-book actionable and easy-to-digest information. thank you! For this new edition we have rewritten This e-book will help you learn Forex trading everything from the ground up. We are pretty skills in the fastest time possible! We made this ebook as the you have.
Our program has shown interesting ultimate learning resource for ourselves and results: people with no previous financial hope you enjoy it too! market experience often delivered better performance than those with the experience! If someone teaches you something and it this fact is confirmed as well. sounds really complex, they probably haven't taken the time to think through how to boil it down.
Be careful with folks like that. There's a diﬀerence between being good at something and being good at teaching it. The currency pair price changes will generate your profits. It is better to invest in the currency of a country that is growing faster and fund it with a currency of a country that is growing slower. When does it work The market is open 24 hours, 5. Read on to uncover deeper secrets about forex timing. Spread point The diﬀerence between the sell quote and the buy quote in pips.
The smaller the spread, the more liquid the currency! Section 01 Introduction and key concepts 5 advantages of forex Make money even in times of crisis While the stock market and commercial bank deposits are in deep depression during the crisis, Forex profits, because any change in currency can be used to make profit.
A falling market is as profitable for Forex trading as a developing one because unlike in stock trading you can short the falling assets. Work while lying in a hammock All you need to start making money is a computer or a smart phone and an Internet connection. Your work space and goals are up to you!
Easy rules Unlike the stock market with tens of thousands of diﬀerent shares, Forex works with 8 basic currencies, which are the center of most trades. Moreover, there are significantly less factors that influence currency exchange rates than in the stock market.
Section 01 Introduction and key concepts 3 main disadvantages of forex Most of other forex learning materials will tell you that forex offers an easy way to make money. High risk to lose the whole position In stock trading, unlike forex, it is very unlikely that you will lose all the money when investing in the stock market. But the truth is, you struggle with finding enought time to do it all.
Emmanuel Follow Follow their activities. This is also a good way to learn Forex strategies in a real-life trading environment. I believe the investors. This was a great opportunity to make money shorting betting that it would decline the euro. This is useful because the larger trade.
Leverage is shown as a ratio, for movement in currency rates can be very small, example profits and losses alike. Leverage allows you to trade with more money Stock market Forex market Maximum leverage from to Varying lot sizes Term Lot In Forex, all transactions can be conducted via standard, mini, and micro lots. Each lot size accounts for a diﬀerent measure of units of the base currency, which in turn presents a diﬀerent pip value.
Below is a simple chart to illustrate the diﬀerences in lot sizes, measured in units, volume for the major pairs where the base currency is USD. Those traders who are looking to get started in the forex market should consider opening a mini account because of the smaller contract sizes.
Term Spread The diﬀerence between the bid price and the ask price is called a spread. Although these movements may seem insignificant, even the smallest point change can result in thousands of dollars being made or lost due to leverage. Again, this is one of the reasons that speculators are so attracted to the forex market; even the tiniest price movement can result in huge profit.
While the high degree of leverage used in forex trading magnifies returns and risks, a few safety precautions used by professional traders may help mitigate these risks. Do you need more than strategy and only those with high risk , US dollars to open the trade? With tolerance should consider using big leverage. If you are a relatively cautious Leverage investor or trader, use a lower level of leverage with perhaps or leverage.
Maximum leverage limits vary in diﬀerent This is the amount that will be used to cover your potential losses. In other words, the countries, varying from to margin is the actual amount that you are Use Stop Loss orders! Stops can be used not risking to lose if the trade goes against you. just to ensure that losses are capped, but also to protect profits.
Section 01 Introduction and key concepts Example: leverage in use Going short on euro Europe has been hit by a crisis, so you expect the euro to fall against the US dollar. nov 1. dec Case B: Leverage Case B: Leverage 1. You open a position of 1 lot, which 1. You were right. Euro depreciates against 2. Euro depreciates against the dollar to 1.
close your trade and take your profits. Result: The euro fell by pips 1. Your profit is x 1 - 1. Section 01 Introduction and key concepts How much should I invest? Traders should look to use an eﬀective leverage of to1 or less. Research shows that the amount of capital in your trading account can aﬀect your profitability.
With smaller investment you will not get enough profits as the average changes in the currency rates are small. If you haven't heard of these terms already, you undoubtedly will as you begin to invest. The terms bull market and bear market describe upward and downward market trends, respectively, and can be used to describe either the market as a whole or specific sectors and securities.
These images will help you memorize which is which. Doji - when the opening and closing price are equal. Long-Legged Doji - after small candlesticks, they indicate a potential trend change. Normally only seen on thinly traded pairs. Your Capital may be at risk. That is, on the most fundamental level, a currency rallies because there is a demand for that currency. Regardless of whether the demand is for hedging, speculative, or conversion purposes, true movements are based on the need for the currency.
Currency values decrease when there is excess supply. Supply and demand should be the real determinants for predicting future movements. However, how to predict supply and demand is not as simple as many would think. Two of the primary factors aﬀecting supply and demand of currencies are interest rates and the overall strength of the economy. There are many factors that contribute to the net supply and demand for a currency and the strength of the economy.
Read on to uncover the main drivers that influence the exchange rates. The number of economic announcements made each day from around the world can be intimidating, so we will focus just on the most important ones. How are they divided The drivers are divided into three major groups: Geo-political, Economic and Market Psychology.
Here they are: Kathy Lien Chief Currency Strategist at Forex Capital Markets LLC. Former Currency trader at JPMorgan Chase. TOP 9 Unemployment NFP or Non Farm 1 Payroll 6 Retail sales Will US employment continue to grow? For example, if the U. trade the U. more dollars flow out of the U. and the value of the U. currency depreciates. ongoing uncertainty for the U. If the deficit is greater than Stretch, London-based head of market expectations however, it can trigger a foreign-exchange strategy at CIBC.
negative price movement. After three straight years of gains, strategists All traderswill find it are forecasting the U. currency will be a world beater again in , strengthening valuable to know when against seven of 10 developed-world peers important economic data by the end of the year, according to the median estimate in a Bloomberg survey. This world keep them flat or lower. economic monetary policy.
Section 02 Key drivers of currency movements Key indicators A closer look at some indicators Stock market Even day and swing traders will find it valuable to keep up with incoming economic reports from the conditions major economies.
Stock markets have a significant impact on exchange rate movements because they are a major place for high-volume currency movements. When foreign investors There are times where sentiment in the equity move their money to a markets will be the precursor to major moves in the forex market.
If the stock equity market is particular stock equity rising, investment dollars generally come in to seize the opportunity. Alternatively, falling equity market, they convert markets could prompt domestic investors to sell their capital in a their shares of local publicly traded firms to take advantage of investment opportunities abroad.
domestic currency and To understand this further, let's imagine that the push the demand for it UK economy is booming, and its stock market is higher, making the performing well. Meanwhile, in the United States, a lackluster economy is creating a shortage of currency appreciate. investment opportunities.
In this type of environment U. investors will feel When the equity more inclined to sell their U. dollars and buy British pounds to participate in the markets are outperformance of the UK economy. When they elect to do so, it results in the outflow of capital experiencing recessions, from the United States and the inflow of capital however, foreign into the United Kingdom. pushing the domestic currency down.
Section 02 Key drivers of currency movements Key indicators The most overrated indicator GDP is no longer a big deal GDP report has also become one of least important economic indicators on the U. calendar, as it has led to some of the smallest relative movements in the EURUSD. One possible explanation is that GDP is released less frequently than other data in our study it comes out quarterly versus monthly , but in general, the GDP report is more prone to ambiguity and misinterpretation.
For example, surging GDP brought about by rising exports will be positive for the home currency; however, if GDP growth is a result of inventory buildup, the eﬀect on the currency may actually be negative. Also, a large number of the components that comprise the GDP report are known in advance of the release. Section 02 Key drivers of currency movements Most volatile news reports That traders should follow closely Volatility and profits in forex are measured in pips.
The bigger the volatility the more pips and money a trader can make from a certain trade. Keep this chart by your side and make sure to mark these reports in your calendar! Unemployment indicator, showing if U. employment is growing or not. interest rates. Inflation indicator. for month prior to the release of the report. Section 02 Key drivers of currency movements Economic indicators What you need to know about them Part 1 What are Economic Indicators?
Economic indicators are snippets of financial and economic data published regularly by governmental agencies and the private sector. These statistics help market observers monitor the economy's pulse - so it's no surprise that they're followed by almost everyone in the financial markets. With so many people poised to react to the same information, economic indicators have tremendous potential to generate volume and move prices. It might seem like you need an advanced economics degree to parse all this data accurately - but in fact traders need only keep a few simple guidelines in mind when making trading decisions based on this data.
Mark Your Economic Calendars Watching the economic calendar not only helps you consider trades around these events, it helps explain otherwise unanticipated price actions during those periods. Consider this scenario: it's Monday morning and the USD has been falling for 3 weeks, with many traders short USD positions as a result.
On Friday, however, U. employment data is scheduled to be released. If that report looks promising, traders may start unwinding their short positions before Friday, leading to a short-term rally in USD through the week. Know exactly when each economic indicator will be released.
You can find these calendars at the New York Federal Reserve Bank's site. What does This Data Mean for the Economy? You need not understand every nuance of each data release, but you should try to grasp key, large-scale relationships between reports and what they measure in the economy. For example, you should know which indicators measure the economy's growth gross domestic product, or GDP versus those that measure inflation PPI, CPI or employment strength non-farm payrolls.
Not All Economic Indicators can Move Markets The market may pay attention to diﬀerent indicators under diﬀerent conditions.
That focus can change over time and from one currency to another. For example, if prices inflation are not a crucial issue for a given country, but its economic growth is problematic, traders may pay less attention to inflation data and focus on employment data or GDP reports.
Section 02 Key drivers of currency movements Economic indicators What you need to know about them Part 2 Watch for the Unexpected Often the data itself may not be as important as whether or not it falls within market expectations. If a given report diﬀers widely and unexpectedly from what economists and market pundits were anticipating, market volatility and potential trading opportunities may result.
At the same time, be careful of pulling the trigger too quickly when an indicator falls outside expectations. Each new economic indicator release contains revisions to previously released data.
Don't Get Caught Up in Details While your macroeconomics professor may appreciate all the nuances of an economic report, traders need to filter data to focus on the numbers that can inform their trading decisions. For example, many new traders watch the headlines of the employment report, for example, assuming that new jobs are key to economic growth.
That may be true generally, but in trading terms non-farm payroll is the figure traders watch most closely and therefore has the biggest impact on markets. Similarly, PPI measures changes in producer prices generally - but traders tend to watch PPI excluding food and energy as a market driver. Food and energy data tend to be much too volatile and subject to revisions to provide an accurate reading on producer price changes.
There are Two Sides to Every Trade Just remember that no trader's knowledge can be complete all the time. You might have a great handle on economic data published in Europe - but there are times when data published in the U. or Australia might have a surprising impact on your currency market. Doing your homework before trading any currency can help you make better decisions. unemployment rate is expected to increase. Imagine that last month the unemployment rate was at 8.
With a consensus at 9. economy, and as a result, a weaker dollar. They will go ahead and start selling oﬀ their dollars for other currencies before the actual number is released. What the heck! This is because the big players have already adjusted their positions way before the news report even came out and may now be taking profits after the run up to the news event.
The market players thought the unemployment rate would rise to 9. Now that the report is released and it says something totally diﬀerent from what they had anticipated, they are all trying to adjust their positions as fast as possible. This would also happen if the actual report released an unemployment rate of The only diﬀerence would be that instead of the dollar rallying, it would drop like a rock!
Since the market consensus was 9. looks a lot weaker now than when the forecasts were first released. Instability in the world likelihood of Clinton becoming the next market prods investors to pull out of their president, Lim Say Boon, chief investment financial positions, leading to currency oﬀicer at DBS Bank Ltd. in Singapore, wrote depreciation. in a report. The Super Tuesday results are being seen as "an outcome for continuity over the disruption threatened by Trump and Sanders," he said.
You must remember that investors hate uncertainty! Similar eﬀects have occured with Clinton and Obama. For Trump the upward trend was also there due to his promise to lower taxes and increase government spending on infrastrucure.
Section 02 Key drivers of currency movements Market psychology The golden rule of economic indicators The currency rates often start moving even before the actual data comes out due to forecasts and market sentiment!
Sentiment analysis is a kind of FX analysis that concentrates on indicating and consequently measuring the overall psychological and emotional state of all participants of the foreign exchange market. This kind of Forex analysis strives to quantify what percentage of FX market participants are bullish or bearish, in other words being optimistic or pessimistic. If the forecast promised a positive growth and the actual data comes out even better than forecasted, it amplifies the rise of the currency even more.
Overlap between two The Foreign Exchange market operates 24 hours a day, making it nearly impossible sessions for a single trader to track every market Generally, whenever there is an overlap in movement and respond immediately at the market e.
In period. For instance, every morning during order to devise an eﬀective and London Open session. Euro pairs are active time-eﬀicient investment strategy, it is and if you have a good strategy, you could important to understand how much get pips. liquidity there is around the clock to maximize the number of trading opportunities during a trader's own 2. Are you habitually putting your foot in your mouth?
Or do you respond with educated answers and arguments? As a trader, you must engage in a conversation with the market and your response can either be ignorant or intelligent. If you are disciplined enough to think before you speak, you will probably find success in trading. However, if you insist on speaking before you think, the market will allow you to prove your ignorance. Do you think before you act or act before you think?
The conscious and subconscious parts of your mind are your greatest assets and your greatest liabilities. The conscious mind dissects, considers, and categorizes everything you see and hear.
If action is needed, the conscious mind thinks through how it will execute the action. If action is taken, the subconscious mind records the thought with the action and matches the two for future reference. In the future, all we have to do is think that thought, and the subconscious mind stands by to automatically execute the exact action that matched the thought. That is how a habit is formed. Think about it once, do it once, and you have started a habit. Think about it three times, do it three times, and you now have established an automatic habit—good or bad.
That is both good news and bad news. If you are involved in any unproductive actions that have turned into bad habits, you are unconsciously incompetent. That is when your mind is working on destructive autopilot and you need to regain control. You need to become conscious again in order to recognize your bad habits and admit they are not benefiting you. When you recognize your bad habits, you are able to learn a new skill or a new habit to replace the unproductive one.
Learning a new, productive skill or habit is the first step to managing your success. When you learn a new skill, you usually have to think through each step of the action. Thinking through that action and success- fully executing it is called conscious competence. When you are disciplined enough to consciously repeat it when the situation requires, your subconscious mind automatically replaces the previously recorded action associated with the thought and forms a new habit.
The subconscious mind does not think, it just recalls and executes the actions that matched the thought. The more you repeat the action—good or bad—the more that habit becomes uncon- sciously automatic. If you are locked into executing bad habits, you are unconsciously incompetent. If you are locked into executing good habits, you are called unconsciously competent.
The road to success involves the recognition of unconscious incompetence, then passing through to conscious incompetence, working your way to conscious competence, and eventually arriving at unconscious com- petence. In achieving this you have purged yourself of your bad habits and have replaced them with productive, automatic, good habits that allow you to perform successful actions without thinking about them. It is like learning to drive a car. That process took about 15 minutes because you had to consciously think through everything you did.
You were consciously competent. Now, if you began to drive and received speeding tickets and got into accidents, you became unconsciously incompetent. It was when you consciously commit- ted yourself to stop speeding and to look in every direction to avoid accidents that you became a consciously competent driver. You have now become unconsciously competent in your successful driving habits.
You probably take about three seconds to pull out of the driveway, probably driving part of the way with your knee as you juggle a cup of coffee in one hand and a cell phone in the other, focusing on the conversation rather than each individual skill needed to drive the car.
Can you see how powerful your mind is and how critically important it is to properly think through everything before you act? When it is time to trade, you must think before you act. If you act before you think and make mistakes, your subconscious mind will take over and record all your ignorant actions and subconsciously create bad trading habits.
That is how you start to lose money or just get by in trading. Successful traders think before they act to execute successful trading habits. Failure is like cancer. If you have to remove the cancer, much of the time it is too late. You treat cancer by preventing it and you treat success by creating good habits from the beginning. This way you are preventing failure.
As you learn to trade, you will need to get in the habit of thinking through all the details potentially involved with that trade. You will need to have checklists that cover all the details. You will need to get in the habit of creating a trading plan and maintaining the discipline of trading your plan. That habit forces you to think before you act, avoiding impulsive, emotional actions that generate unsuccessful trades.
The market has no remorse for ignorance and impulsive action. The ignorant will suffer. Think before you act. Do you manage your emotions or do your emotions manage you? Most financially successful people are very unemotional when it comes to business decisions. Believe it or not, successful business is nothing more than making and executing unemotional decisions that make economic sense.
It is no different than unemotionally figuring out a mathematical equation. Two plus two will always equal four, regardless of how desperately you wanted it to be five—it will always equal four.
For example, holding onto unproductive employees because you like them, does not make economic sense and is a bad business decision rooted in emotion. When it comes to business, you need to make all your decisions unemotionally. Your decision process needs to be educated, logical, and unemotional. Any financial decision made in the heat of negative emotion will hurt you much more than it will ever help you.
When it is time to trade, the more you rely on your emotions to make your decisions, the more money you will lose. The more you rely on your education and logic, the more money you will make. Thinking through problems unemotionally allows you to stay focused on achieving long-term happiness and success. Bad things happen to all of us, and many times we have no control over them. The reality is that we have no control over the cards we are dealt, we only have control over what we do with those cards.
What we do have control over is how we handle the situation—emotionally or unemotionally. Successful traders manage their emotions; unsuc- cessful traders let their emotions manage them.
Are you responsive or reactive? Unsuccessful people usually do. Successful and positive-thinking people are able to process properly the negative things that happen to them, put them into perspective, and move on.
If your emotions control you, you are going to be more reactive than responsive and you will probably go through life with unhappiness, poverty, and mediocrity. As a rule, just about everything negative that happens to us is either self-inflicted or the result of not paying attention to red flags, warnings signs, or details.
Accepting responsibility for our own actions is such a painful event that we find it easier to react and blame someone else rather than analyzing what really happened and responding by creating a sys- tem to avoid that situation again. If you bring your reactive bad habits to the trading table, the mar- ket will know exactly which emotional buttons to push.
When it does, you will run like a scared rabbit being pursued by a pack of hungry wolves. Running scared is not conducive to calming down and thinking through your next move. Reacting versus calmly thinking through the situation and responding eliminates your ability to see clearly what happened.
Reactive trading will cause you to lose all your money, whereas responsive trading will allow you to think through your next move and take advantage of the next opportunity that knocks.
Is your ego more constructive or destructive? Are you more humble or more arrogant? Do you make your decisions based on your pride and ego or based on logic regardless of the consequences to your ego?
Do not go looking for storms as you sail your boat, they will naturally find you! A constructive ego keeps you focused on all the details necessary to avoid any and all storms as you sail through life. A person with a constructive ego believes their mind is like a parachute; it only works when it is open.
A person with a destructive ego thinks he or she already knows everything. Unfortunately, when it comes to trading, the market will teach that destructive ego the true definition of humility. When conflict shows its face to a con- structive ego, the constructive ego, through humility, will in the end fight to be happy rather than right. Are you more positive about life or more negative? How you answer this question will greatly determine your overall happiness in life. Is your glass always half empty or half full?
There is a law that is every bit as much valid as the law of gravity: it is called the law of attraction. The law of attraction stipulates that whatever we think about, those thoughts will radiate out of our being and create circum- stances and events and attract people that align with our thoughts. When we think positive thoughts, that positive mindset will radiate out of us, creating positive circumstances and positive events in our life and, as a result, will attract positive people into our lives.
The flip side of this law is also true. When we think negative thoughts, that negative mindset will create negative circumstances and nega- tive events in our lives, attracting negative people into our lives. The power of this law plays an incredible part in determining your success or failure in life.
Optimists, on the other hand, create positive out- comes via the law of attraction. The simple shifting of your mindset from negative to positive changes your entire world.
Negative people are constantly shifting blame and frustrated about how unfair life is; they walk around with a victim mentality. Positive people accept responsibility for their circumstances and place themselves in a position to figure out how to avoid negative situations in the future.
If you want to become a successful trader, you will have to purge your negative attitude and adopt a positive mindset and attitude. Negativity when trading only creates more negative circumstances, more negative events and financial losses.
Do you fear your mistakes or do you embrace them and learn from them? All people make mistakes, but only wise people learn from them. The only true mistake is the one from which we learn nothing.
Mistakes show us what needs improvement. Without mistakes, how would we know what we need to work on? Avoiding situations in which you might make a mistake could be the biggest mistake of all. When you have the courage to go out on a limb and make a decision, right or wrong, you risk making a mistake. Everyone makes mistakes. Strong people make as many mistakes as weak people—the difference is that strong people admit their mistakes, laugh at them, learn from them, and become stronger.
When you make mistakes, problems usually surface, which creates fear and anxiety. Pessimists live a life fearful of making any mistake because that mistake will create a problem, and just about all problems, in their opinion, have no solution. Optimists can make just as many mistakes as, if not more than, pessimists.
However, when a problem arises for an optimist, they aggressively work on it, believing it can be resolved, and the second they see the solution, the fear and anxiety dissipates.
When life hands you lemons, do you waste time sucking on them or do you learn to make lemonade? Making mistakes is part of being human. Mistakes can be resolved and corrected as long as you believe there is a solution. So when you make a mistake that creates a problem, you need to muster the courage to face the problem head-on until a solution is achieved. As you do this repeatedly, unemotionally, you will develop the skill of effective problem solving.
Remember, failure is not the problem; the problem lies in the time we waste lamenting over the problem rather than focusing in on the solution to the prob- lem. Failure is not falling down; failure is staying down. Learning from your mistakes is critical to your success. Choosing not to learn from your mistakes as you learn to trade will cause you to become a repeat offender.
Your subconscious mind will take over and will form an unproductive bad habit, costing you money. You must pay attention to your mistakes and embrace them with a posi- tive attitude. Do you focus on what you have or on what you have lost? As you go through life making mistakes, you will inevitably lose things along the way—money, close relationships, personal property, you name it. But how much time do you spend holding onto those mistakes? How much time do you spend calculating your losses and wishing you had back everything you had lost?
The longer you dwell on past failures and losses, the longer you will stay captive in your current state of failure. You must let go of your past failures and focus on where you are going. Have you ever wondered why the rearview mirror is 50 times smaller than the windshield? The windshield is so much larger to help us stay focused on where we are going versus where we have been.
Holding onto past wounds or losses will only stand in the way of achieving your rightful success as a trader. Every trader loses money and makes money as they trade, but successful traders will make more money than they lose. Successful traders spend no time worrying or thinking about their losses; they stay focused on the next opportunity that is knocking.
Holding onto past losses or failures creates a bitter mindset. If you come to the trading table with a bitter mindset or victim mentality, you will bring with you all your past emotional baggage that has stood in the way of you becoming successful at anything you attempted in the past. If you want to be successful at trading, you must focus on what you have gained versus what you have lost. Are you a goal setter or a goal quitter? When you set out to do something, do you persist until you succeed or do you get discour- aged and quit along the way?
One of the most important habits to develop is the habit of finishing what you started. My son recently graduated from high school. At his graduation ceremony, the princi- pal stood up and congratulated everyone for completing 12 years of education.
He also pointed out that during the last year of school, 48 percent of the students in the graduating class had dropped out. They came so close, but they did not persist until the very end. Most people in life are rainbow chasers; they set new goals almost daily.
As a result, they never move forward in any one direction. Setting goals helps you create a road map in life, outlining where you are going. Without that road map you can easily get off track without even knowing it and not know how to get back on.
If you do not create goals as you learn to trade, you will not have any recog- nizable milestones of achievement. Any great achievement will be accompanied by setbacks, but beginning with a clear goal in mind will keep you on track to reach your goals even after you hit a detour. Traders who set goals and persist until they succeed reach their pot of gold at the end of the rainbow. That does not mean you will make money percent of the time, rather, that you consistently make more money than you lose.
Persisting to achieve your realistic goals is nothing more than discipline in action. They are what I call constitution-based versus feeling-based. Successful people have strong convictions. They are very clear about their personal constitution and their purpose in life. They have their priorities in check and have the right perspective and attitude when it comes to facing the internal battle between the two wolves that exists in all of us. Your personal constitution will mirror your trading results.
You have an obligation to your personal future, happiness, health, family, and income to establish a solid personal constitution.
Developing a solid personal and trading constitution is the first step of your journey toward successful trading on Forex. I started this book on trading by pointing out the importance of creating an emotional and psychological constitution before teaching you any technical skills.
What good does it do to teach you technical skills if you do not have the courage to execute them? Why teach you trading rules if you are a rule breaker? There is no point to teaching you how to take advantage of new trading opportunities if you cannot let go of your past mistakes and failures.
Developing a solid personal and trading constitution will be the first step of your journey toward finding your rightful pot of gold in trading. I look forward to accompanying you on your journey to the end of your trading rainbow. Let our journey begin…. I was working out of our office in Sydney, preparing for a class, when I was e-mailed the list of attendees. The registrar told me there were 26 Australians signed up for the class and one Scotsman, named Ian, who had a very strong Scottish accent.
The next morning I started class the way I always do, asking everyone their names, their current occupations, why they want to learn trading on the Forex, and, more importantly, why they chose to get involved with my company, Market Traders Institute, versus another.
We started going around the room introducing ourselves and eventually came to Ian. Ian was an older fellow, perhaps in his late fifties, and in great physical shape. I just happened to be here in Australia for a bit when your advertisements caught my interest.
I called your office and they told me all about you, so I came here because I was told you could teach me how to trade on the Forex and make money. Is that true?
Now pay attention to the question. Can you teach me how to trade on the Forex and make money? Do you know what that is? I will kill you. The best way to learn something and remember it is to teach it to some- one else, so after I teach a concept for about 45 minutes, I instruct the class to teach each other. I have the person on the right teach the concept to the person on their left, and after they are done I have the person on the left teach the concept to the person on their right.
Little did I realize this teaching technique would potentially save my life. When I divided the class into pairs that day, I believe God protected me by having an odd number of students. Looking back, I must say that was one of the most detailed, and perhaps one of the best, classes I have ever given. I am happy to report that both Ian and I are still alive. In fact, Ian is now an active client of ours and has taught me a lot in return.
Two of the greatest things he taught me were how to perform under pressure and, more importantly, how to keep things simple with respect to teaching Forex trading. For example, at one point, Ian could only recognize and understand uptrends.
dollar; when three go up, the other three go down. They have to move in opposite directions to keep the world economy in balance. He keeps his trading simple. HISTORY OF THE FOREX MARKET: HOW IT ALL BEGAN BRETTON-WOODS ACCORD The modern Forex market was established around But the Bretton- Woods Accord of , which was established to stabilize the global econ- omy after World War II, is generally accepted as the original beginning of the foreign exchange market.
It created the concept of trading currencies against each other and the International Monetary Fund IMF. Currencies from around the world were fixed to the U. dollar, which in turn was fixed to gold prices in hopes of bringing stability to global Forex events. All currencies were allowed to fluctuate around that value but only within a narrow trading range. In , the accord finally failed, however, it did manage to stabi- lize major economies of the world, including those of America, Europe, and Asia.
dollar: the Smithsonian Agreement and the European Joint Float. dollar USD , which in turn is anchored to the price of gold as a benchmark also known as the gold standard to bring stability to a volatile global economic situation. All other weaker economic currencies are then fixed against the USD and allowed to fluctuate, or float, no more than 1 percent on either side of the fixed rate.
If the fixed rate moved more than 1 percent, the central bank of that country was required to intervene in the market until the exchange rate was brought back to within the 1 percent band. The Smithsonian Agreement and the European Joint Float agreement were similar to the Bretton-Woods Accord but allowed a greater range of fluctuation in the currency values and widened the band in which curren- cies were allowed to trade. The Smithsonian Agreement was just a modification of the Bretton- Woods Accord, with allowances for greater fluctuation, whereas the European Agreement aimed to reduce the dependence of European currencies on the U.
The free-floating system managed to continue for several years after the mandate, yet many countries with weaker currency values incurred major economic devaluation against certain countries that had stronger currency values. EUROPEAN MONETARY SYSTEM European currencies were among those most affected by the strength of the U.
dollar and the British pound GBP. In July , the European Mon- etary System was created to counter its dependence on the USD. But by , it was clear that this European Monetary System had failed.
Shortly thereafter, retail currency trading opportunities as we know them today started to be enjoyed by smaller investors willing to take similar risks as that of banks and large financial institutions. The devaluation of currencies continued in the Asian currency markets, and confidence in trading the open Asian Forex markets began to fail. However, countries with stable currencies, and the concept of trading currencies, remained unchanged.
The establishment of the European Union in gave birth to the euro seven years later in The euro was the first single currency used as legal tender for the member states of the European Union and became the first currency to rival the historical leaders—the United States, Great Britain, and Japan—in the foreign exchange market by providing financial stability that Europe and the Forex market had long desired.
WHAT IS THE FOREX? Forex is an acronym for foreign exchange, a market where people exchange the currency of one country for the currency of another in order to do busi- ness internationally. Typical situations in which such currency exchange is necessary include payments of import and export purchases and the sale of goods or services between countries. Forex is also called the cash market or spot interbank market. The spot market means trading on-the-spot, at what- ever the price is at that moment.
Prior to , the Forex retail interbank market for small individual speculative investors or traders was not available. A speculative investor, or speculative trader, is one who looks to make a profit on price movement in the market and is not looking to hold onto any currency long-term.
Then in the late s, retail market maker brokers companies that facilitate the trades for speculative traders were allowed to break up the large interbank units and offered individual traders the opportunity to participate in the Forex market as we know it today. The term market refers to a place where buyers and sellers are brought together to execute trading transactions. dollar is traded daily on the Forex. Forex trades nearly four times that volume daily, exceeding the daily combined activity of all the other financial markets.
Forex has no physical location—transactions are placed via the Inter- net or telephone—but is composed of approximately 4, international world banks and retail brokers.
Individual traders wanting to profit by speculating on price changes can only access this market through a Forex broker, such as I-TradeFX. It is a good practice of a speculative trader to only deal with Forex brokers that are regulated by the governmental bodies in their respective countries.
TYPES OF TRADERS Trading currencies involves the fluctuation of one currency in relation to another. That is the main difference between trading currencies and stock trading—you always have to deal with two instruments, or currency pairs, whereas in stock trading you only deal with one instrument.
The definition of a currency pair, or currency cross, is trading one currency for another currency, and you need a currency pair to execute a trade on the Forex.
Speculative currency trading, just like speculative stock trading, involves exchanging one currency for another in anticipation of a price change in your favor. There are two types of traders on the Forex: consumer traders and spec- ulative traders. A consumer trader wants long-term ownership and is not as concerned with daily price movements, whereas a speculative trader is only concerned with daily price movement, as that is where the profit potential is.
Speculative traders are also called scalpers—they are trying to scalp a profit in a small price movement. Long-term position traders enter the mar- ket and stay in for a week, a month, or years. Short-term, or day traders, will enter the market for 5 minutes, 30 minutes, or even 4 hours, and then exit, but they are usually in and out within a hour period.
Although brokers will assure you that Forex trading is commission- free, it is important that you understand there still are costs involved. The spread is the difference between the buy price and the sell price of a specific currency. Envision attending an auction where there are several buyers for a partic- ular item. As bidding gets closer to the asking price, the spread tightens up.
There are spreads between all currency pairs that are traded, and they average 3 to 6 price interest points, or pips, on the major world currencies which are considered to be the U.
dollar [USD], the British pound [GBP], the Japanese yen [JPY], the European euro [EUR], and the Swiss franc [CHF]. Currencies from small countries are called off-brand currencies and can have spreads as much as to 1, pips. The broker retains the spread, which is the difference between the buy and the sell price.
To break even, the market would need to move up 4 pips in your direction. To make a profit, the market would need to move more than 4 pips in your direction.
HOW DO TRADERS GET PAID? Price interest points, commonly known as pips, are usually expressed in decimals. Depending on the pair of currencies being traded, pips are usu- ally the last numbers of the decimal. Most traders on the Forex trade with what is called leverage. When a trader executes a trade on the Forex, the trader is buying or selling currency in units referred to as lots which is a set quantity of money.
There are typically two types of lots that traders will trade. You will see that the currency moved in our favor to 1. Trading can be a worthy full-time profession or a great way to earn sec- ondary income. Either way, you will need to learn the three basic skills of trading as you watch price movement against time.
How to determine the current trend on any time frame 2. How to develop an entry strategy that works consistently 3. How to develop an exit strategy that works consistently Once you master these three skills, you will be in a position to take advantage of the significant profit potential in this market.
BULLS AND BEARS The purpose of a broker is to facilitate the trade. After you open a trading account, the broker gives a trader the right to execute transactions, which includes certain rights and privileges, including the right to be a bull or a bear. The terms bull and bear were created by traders in the stock market in the early s to identify the direction someone was trading in the market. The term bull was derived from the way in which bulls attack or charge, moving upward.
In contrast, bears move downward when they attack or charge. Bulls, therefore, resemble a buying market, because they believe prices will continue to move upward, or rise, whereas bears resemble a selling market, because they believe prices are going move downward, or fall.
Every trader has to make a decision to be either a bull or a bear before entering the market. Bulls enter the market buying first and exit selling second. Bears do the opposite: they enter selling first and exit buying second.
To make a profit in the market, you must always buy low and sell high. Both bulls and bears are trying to do that; bears just reverse the transactions see Figure Remember, there is a bid price and an ask price with a 3- to 6-pip spread on the major currencies the U.
dollar [USD], the Japanese yen [JPY], the British pound [GBP], the Swiss franc [CHF], the European euro [EUR], the Canadian dollar [CAD] and the Australian dollar [AUD].
Traders buy on the ask price and sell on the bid price. If you want to enter buying, you would pay the ask price of 1.
You can enter and exit the market using a limit order, which are orders placed ahead of time to enter the market buying below where current prices are or selling above where the current prices are. They are placed like a limit order at a predetermined price; however, they turn into market orders when the market reaches the predetermined price and may be subjected to slippage. The rule is, when you place a buy order above the current market price it is called a stop order, and when you place a sell order below where the current price is it is also called a stop order.
Every trade should have an entry point, a predetermined exit point for profit, and a well-thought-out exit point for minimal loss should the market not go your way.
The rule is, every buy order should have two sells: a sell limit order for profit and a sell stop order for loss protection. Conversely, every sell order should have two buy orders: a buy limit order for profit and a buy stop order for loss protection. Some trading software programs allow the trader the ability to place an OCO one cancels the other order. This means the moment the market hits either the stop order or the sell order, it cancels the opposite order.
By trading with an OCO order, you are not left exposed with a working order after either your stop or limit has been filled and you have been taken out of the market.
An OCO order offers you the opportunity to set a trade and forget about it. You can literally walk away from your computer and not be concerned with catastrophic results if you have properly quantified your potential losses before you placed the trade.
No one knows where the next pip will go, so the best you can do is plan your trade and trade your plan. One of the most important and productive habits you can adopt is properly educating yourself about the Forex before you begin trading. If you move forward without the proper education, be prepared to lose your money, much like in a casino. Just like the casino, the market will be there to take all your money.
I have learned that to achieve success in trading requires learning to understand the three critical facets of trading: 1. The technical education and trading knowledge 2. The fundamental understanding of what determines market movement 3.
All successful traders learn that working through frustration is the path to success. Knowing what to do when you get frustrated is critical. Strong people make as many mistakes as weak people. The difference is that strong people admit their mistakes, laugh at them, and learn from them, and that is how they become strong. Mistakes are part of being human. We need to appreciate our mistakes for what they are.
Before you begin trading, you need to create your own mission state- ment to help you focus on becoming an educated, financially successful, long-term Forex trader.
I want you to think of your journey toward becom- ing a successful trader as a transformation of thought, a new process of knowledge build-up, followed by: 1. Disciplined thought 2. Disciplined rules 3. Practice first on a demo account to become comfortable with the trading platform before trading with real money. LEVEL 2: THE COMPETENT TRADER You acquire conscious competence. You begin to trade with real money, work through your emotions, and learn to trade within the equity manage- ment rules to achieve a consistent financial return.
LEVEL 3: THE EXPERT TRADER You acquire unconscious competence. You mechanically execute profitable trades with no emotion. THE REALITY OF TRADING The reality of trading is that less than 10 percent of all traders who attempt to trade succeed in the market.
More than 90 percent of all traders who attempt to become successful on the Forex fail. Our professional international team at Market Traders Institute adamantly believes in proper education first. Knowledge is the key that can make a big difference in the success of a trader, providing a necessary edge. I cannot stress this enough: the majority of the world is locked into managing its poverty or mediocrity. Very few people learn how to manage any kind of success because they are not given any sort of manual or instruction guide to success.
Growing up, we learn how to survive finan- cially from our caregivers and circles of influence. But not all mentors are successful, leaving many to learn through trial and error. Thousands of books have been written on how to achieve some sort of success.
I believe that success comes from acquiring the right education about the opportunity; possessing the right work ethic; implementing the right productive daily habits; and believing with focus, concentration, action, and a positive attitude that your dream will come true. Successful people keep things simple. They find beauty in simplicity.
The average per- son, for some reason, tries very hard to complicate things, even the simplest processes or procedures. I, on the other hand, have worked hard to take a very complicated issue, Forex, and simplify it, enabling just about anyone to understand how the markets work and how to trade them. THE DAY, 3 PERCENT RULE The human mind forgets 80 percent of the knowledge it acquires within the first three days of acquisition. During the next 18 days, it continues the loss of information until it settles at 3 percent retention of the new information.
Our focus at MTI is to provide you with productive practical, continued education, enabling you to be trading with percent-plus recall. You must practice them over and over again until they become an unconscious habit. Doctors prac- tice on cadavers first. Pilots fly with instructors long before they go solo. I personally believe that self-empowerment is learning how to fish and that dependency is all about being handed a fish to stay alive. Make no mistake, there is no holy grail!
You cannot buy any indicator or trading system that works percent of the time any more than the airlines can buy an autopilot system that eliminates the need for pilots.
I would think not, because if you could create such a trading system, all you would need to do is walk into any major financial institution like the Bank of America or the Royal Bank of Scotland and show proof that your auto- mated system works. Just as there is no perfect trading system, there is no autopilot sys- tem that works without a pilot. I very much doubt that human beings will ever put their lives on the line with a computer or autopilot system in an airplane without a pilot.
We all have bought enough electronic equip- ment in our lives—TVs, VCRs, cameras, and so forth—to know they all fail eventually. Pilots are educated and trained to fly proficiently before they are even shown where the autopilot system button is. The first time I got into the cockpit with my instructor I asked him where the autopilot button was. I did eventually learn how to engage the autopilot function and will have to say, the autopilot system is not a fail-safe function without the close moni- toring of a pilot.
As powerful as such systems are, when things start to go wrong, they cannot make spilt-second decisions in the best interest of the passengers. They can only do what they are programmed to do, and there are too many variables in flying to program absolutely everything.
Autopilot systems do not work percent of the time, they have their limitations. As a trader, you will learn that, from time to time, the trading environ- ment will be ideal enough to use an autopilot system. That is truly suc- cessful trading. I was sitting in my office at home and had been in a few trading positions for a couple of days on four different currencies. All of a sudden, they all took off like rockets in the opposite direction of my positions.
Thank goodness I was not using an auto- pilot trading system or I could have been financially wiped out that day. I was stopped out on all four currencies and was able to preserve what profit I had made. The reality is that to become a successful trader, you must go through an education process no different than that of becoming a pilot, a physician, or of any profession that requires a specific discipline to be mastered.
I am even more amazed at the massive amounts of people willing to purchase these products. But I am never surprised when they call our office and share their experience of buying a Forex program that failed or disappointed them. These traders are now pleading for help because with their current system, they keep on losing money and have no idea how to make it back.
A fair question is, did the system truly fail or was it the system found between their ears that failed? You must be taught how to use the best tools available for whatever profession you want to pursue.
If you are going to be a ditch digger, you need to be taught how to use a backhoe as well as a shovel and be taught in which situations one or the other should be used.
Learning to trade on Forex, from someone who is already successful at trading, is critical. Finding out which trading tools they use is equally important. Now is not the time to go bargain hunting for tools. Bargain hunting for free or low-cost trading tools is like learning to navigate on the ocean with a compass in a foot canoe—clearly the wrong vessel for the environment. A solid built, 1,foot, state-of-the-art cruise ship with all the latest gauges for weather would be wiser.
With so much at stake, do not take a shortcut on paying for quality trading tools. When it comes to trading on Forex, I highly recommend the MTI 4. These systems can be back-tested over many years instantaneously, allowing a trader to see if their trading strategy is a good one, or if they are working in the wrong direction.
You can create a trading strategy that aligns with your personality, program it into a system, back-test it, and, if it is productive, have the trading system send you alerts via e-mail or cell phone when an entry and or exit signal is triggered see Figure The most important part about a trading system is that it must be simple and easy to use.
Whether it is done visually or created by a trading system, your trading strategy must have three very important components: 1. It must be able to find the current market direction. It must have a consistent entry strategy that works consistently. It must have two very clear exit strategies, one for protecting you against major losses and one for capturing a profit. In Figure , you can see a line that goes above and below the price movement against time that is monitored by a computer creating a candlestick formation candlestick formations are a way of monitoring the open, high, low, and close market prices in any given time period.
This line is called a moving trend line; a visual indicator of market direction or perhaps the current trend. When you turn on your computer and begin to review your charts on any time frame, if the current candle is above that line, the market on that time frame is in a potential uptrend, and if the current candle is below that line, the mar- ket on that time frame is in a potential downtrend.
No matter what time frame you trade in, this simple exercise accompa- nied with this system can help you determine trend direction. Before you use an autopilot program, you need to understand how it has been programmed. Looking at the moving trend line, on any time frame, can help you deter- mine market direction on that time frame. One mistake traders often make is believing that a trading system created for a minute chart will work on all time frames, such as a one-hour chart or a daily chart.
Sometimes it does work, but typically, as you move a trading system from one time frame to another, you may want to adjust the settings of such a system to optimize its performance on that time frame. It is vital to find trading software that will not only allow you to change these settings but also instantaneously back-test the results as found incorporated in MTI 4. Every trader wants the market to move in his or her direction from entry—there is nothing worse than get- ting in a trade and having the market run in the opposite direction.
One of the most important traits of a successful person is that when they are trying to make a productive, empowered decision, they gather facts. The more facts they can gather, the more informed their decision. Trading is 10 percent skill and 90 percent emotion, which is why our emotions frequently stand in the way of making good decisions.
Anytime you need to make a decision, do yourself a favor and do not make it while you are in an emotional state. Take the time to calm down and place your- self in a logical state of mind. If you do that, you will open up the left side of your brain, where all your knowledge is stored, where all your intellec- tual recall is, and you will have access to everything you have learned in your past that is productive. You will begin to make an educated, positive, and productive decision.
Trading indicators can keep you from using the right side of your brain, where all your emotions are stored. You can program buy and sell signals that have no emotion, they just monitor price movement against time.
Using different indicators together can create effective entry points, like the ones found in Figure , but they need to be manually monitored. The trading system you are looking at in Figure is called the MTI Trend Scalper. The two moving lines overlapping the candles are moving trend lines, which can act as buy and sell signals. The line closest to the candles is a moving inner trend line and the other one is a moving outer trend line. In Figure top , you can see that if you used the moving trend lines as your entry and exit signals, right around March 10, , you would have bought the euro at approximately 1.
But where do you get in if the moving trend lines have already crossed? Do you have to sit there for another three to six months before they cross over again to find another trading opportunity? The answer is no.
You can have two options. You either educate yourself how the markets move without using indicators or you learn to add additional indicators to your trading system like the waving line you see at the bottom of the chart in Figure This indicator, called the MTI Trend Tracker, monitors the waves of the market.
As the market moves, it resembles the waves of the ocean. The greatest part about a trading system is that it is constantly moni- toring the movement of the market, projecting directions with entry and exit points 24 hours a day even while you sleep or work.
Using a trading system allows you to control your trading in the market, rather than the market controlling you, and to come and go, or turn off your computer, without having to do all kinds of new technical analysis of the market to catch up from where you left off.
If the lines overlapping the candles crossed while you were away, the MTI Trend Tracker allows you to enter the market at a price point where the market will more than likely reverse and rally back up in your buying direc- tion from entry, which is what every trader wants. Look at the MTI Trend Tracker indicator where you see the bold up-arrows see Figure , bot- tom.
When the moving line is going south and then U-turns to the north, the market should follow. Look at the price movement of the market and how it began to rally again. This trading system works just as effectively in a downtrend as it does in an uptrend, as you can see in Figure All the rules are the same but in the opposite direction. When the lines overlapping the candles cross from the north to the south, it is time to sell.
Once again, if you turn on your charts and the mov- ing trendlines have already crossed, giving a short signal, you can enter when the MTI Trend Tracker indicator moving north U-turns to the south. Look at the market movement on the charts after the U-turn toward the south. Using trading indicators eliminates a lot of the guessing and allows you to focus on developing a trading strategy that works consistently, on a time frame that suits your personality.
Some traders like fast action and want to turn their computer into a video game—they want to quickly scalp the market. In and out, in and out, perhaps 10 times a day. If you enjoy day trading, use this trading system on one-hour to four-hour time frames, and if you enjoy long-term trading, use this trading system on four-hour, daily, or weekly charts In any of these cases, you let the computer do the majority of the work.
Just like an autopilot system. If it were that easy, however, we would all be living in gated communities and flying our jets to our beach-house estates every weekend.
Most traders make their money during trends and lose it when the market gets turbulent or begins to go sideways. What if you were just starting out and the market began to go sideways, or consolidate, as shown in Figure Just about every time the computer gave a buy signal, the market went south, and just about every time the computer gave a sell signal, the market reversed and went north.
When most people board an airplane and look inside the cockpit, they are intimidated by all the gauges they see. How do I know? Just like when I turned on my computer back in the s and looked at charts, I, too, was extremely intimidated. But believe it or not, sideways movement can potentially offer the trader more trading opportunities than trends.
Envision buying all the lows as seen in Figure and exiting at the highs and then reversing your position, shorting the market by selling all the highs taking a ride across the trading channel and exiting at the lows. It is clear to see by continually repeating this process that there is profit to be made. Conversely, when going short or selling first to enter the market, every sell entry order needs two buy exit orders, one for profit and one for loss. After you enter the market, you need the two exit points, one for profit and one for financial protection should the trade not work out.
The fact of the mat- ter is that no one knows where the next pip will go. The best you can do is to understand how the market works and learn how to go with it. But success comes to those who understand how it works—just look at the people who have been able to create great compa- nies that haul freight, passengers, or oil over the ocean.
After the market has moved in your direction from entry, as planned, the question is where do you get out?
The last thing in the world you want to do is guess what the market is going to do next. Let a simple mathe- matical calculation of price movement against time tell you instead.
Remember the two indicators—the moving trend lines that are overlapping the candles and the MTI Trend Tracker at the bottom of the chart? If you take a long position and want to become a long-term trader, you may want to stay in until the moving trend lines cross over.
However, if you only want to grab a few pips, and you entered using the indicator below, you may want to get out after that line has moved from the south to the north and is beginning to U-turn back south see Figure Some traders use the movement of their indicators as their protective stop loss orders—they let the indicators make their decisions regarding when to reverse their positions.
Your hope and or fear will get the best of you. What is critical is finding and calculating where your pro- tective stop order needs to go as you are making your trading plan. Once you find that location, after you enter the market, place that order immediately and do not move it if you are trading an OCO one cancels the other order. Trading is about keeping your losses small and letting your profits run. The problem with most Forex traders is they hold onto their losses and quickly dump their profits for fear the market will take them back.
They have the definitions of hope and fear backwards. They will hold a losing position for days, sweating it out, walking through the valley in the shadow of death, praying, hoping, promising God and everyone else that will listen to just help them get back to breakeven and once they do, they dump their position after only capturing a few pips.
Some traders will go pips in the red to only exit after a brutal ordeal and capture only 2 pips. Learning where to place your protective stop loss orders and creating a trading plan before you trade is of critical importance as a novice trader. Trade a simple strategy with a clear entry order accompanied by two exit orders trying to capture a profit of perhaps 10 to 20 pips.
Your aim should be to establish the habit of winning more than you are losing. After you get in the habit of winning more than losing, and realizing that losing is just as much a part of this game as winning, you will then be able to move to a larger time frame to capture more pips, perhaps capturing 40 to 80 pips at a time, consistently, 7 out of 10 times with some losses.
After you get the simple basics down of winning more than losing, you can start learning more advanced exit strategies. Take two different time frames, for example, a daily time frame and a four-hour time frame, using the same MTI Trend Scalper trad- ing system on both time frames. Remember the MTI Trend Tracker at the bottoms of the charts, which monitors the wave movement?
Look what happens to the price movement on a four-hour chart when the indicator U-turns on a daily chart, as seen in Figure Remem- ber, prices on a smaller time frame respond to the movement on a larger time frame. This works the same on all time frames and is a great way to trade. The MTI checklist cross-checks important points for your entry and exit. These seven points are graded, indicating the odds of your making money, and include the use of indicators, candlestick formations, Fibonacci Fib numbers, coun- tertrend lines, and more.
Trading needs to be fun and simple. Anyone who tries to impress you with all their knowledge and indicators see Figure will only confuse you. A confused mind is going to take you down a path of financial destruc- tion.
Stay clear from using too many indicators or complicated indicators. Keep it simple! Candlestick formations are the sign language of the mar- ket. They frequently tell the trader where U-turns or reversals are and where the market is going.
Most beginner traders prefer learning how to read charts using what is called a Japanese candlestick, which monitors price movement against time. There are three types of charts traders can refer to: a line chart, a bar chart, or a candlestick chart. Military confrontation had become a way of life in that country as feudal lords fought for control of rival territories. Once somewhat relative peace had been established, several new opportunities for expansion developed.
It was during that the concept of the Japanese candlestick was being explored, tested, and used in monitoring prices in the rice markets. Because there was no standardized currency, the price of rice became the predominant medium of exchange, or currency. In the late s, the Rice Exchange was formed to regulate trading proceedings. By , there were more than 1, rice dealers.
Unlocks access to the leading crypto trading analysis, signals and trading tools. World class development team backed by Quant developers and VC investors. Our Forex trading PDF, it is widely believed that forex is one of the biggest and most fluid or liquid asset markets in the world. Sometimes referred to as FX, currencies are traded 24 hours per day — 7 days per week. In simple terms, refers to the process of exchanging one currency to another — and generally speaking, this will be for tourism, commerce, trading and many other reasons.
In this forex trading PDF we are going to talk about what forex trading is and some of the commonly used terminology in the industry. Essentially, it is the action of selling or buying foreign currencies. Of course, these are all used by banks, corporations and investors for a variety of reasons like profit, making a trade, exchanging foreign currencies and tourism. One of the major benefits with forex trading is that after opening a position, traders are able to put in place an automatic stop loss as well as at profit levels this closes the trade.
The forex market is a place to buy or sell against each other a variety of national currencies, globally. Wherever two foreign currencies are being traded, you can be sure that a forex market exists regardless of the time zone. In this section of our forex trading PDF, we are going to run through some of the most commonly used forex trading terminologies in the industry.
The pip represents the smallest amount possible a currency quote can alter. For instance, 0. The differentiation between the sale price and the purchase price of a currency pair is known as the spread. The least popular least commonly used currency pairs usually have a low spread.
In some cases, this can be even less than a pip. When trading the most commonly used currency pairs the spread is often at its lowest. The total value of the currency pair needs to surpass the spread in order for the forex trade to become profitable.
In order for forex brokers to increase the number of trades available to its customers, they need to provide capital in the way of leverage. Before you can trade using leverage, you must sign up to a forex broker and open a margin account.
Contingent on the broker and the size of the position, leverage is usually capped at if you are a retail client non-professional trader. Some offshore forex brokers will offer much more than this if you are seeking higher limits. It is because of the aforementioned example that you should exercise caution when using leverage. Should the worst possible scenario happen and your account falls below 0, you should contact your forex broker and ask for its policy on negative balance protection.
The good news is that all forex brokers which are regulated by ESMA the European Securities and Markets Authority will be able to provide you with this extra level of protection, ensuring that you never become in debt with your broker. Margins are a good way for traders to build up their exposure. Put simply, in order for a trader to maintain position and place a trade, the trader needs to put forward a specific amount of money first — this is the margin.
Rather than being a transaction cost, the margin can be compared to a security deposit. This will be held by the broker during an open forex trade. It is commonplace for forex brokers to give their customers access to leverage see above. In order for you to lower your risk of exposure and offset your balance, you might consider hedging. This is a procedure which involves traders selling and buying financial instruments. When there are movements in currencies, a hedging strategy can reduce the risk of disadvantageous price shifts.
The protection of this technique is often a short term solution. Traders often turn to hedge in a panic as a result of the financial media reporting volatility in currency markets. This is usually down to huge events like geopolitical turmoil conflict in the middle east , global health crisis COVID and of course the great financial crisis of To counteract negative price movements, market players will tactically take advantage of attainable financial instruments in the market.
This is hedging against risk in its truest form. Hedging will give you some flexibility when it comes to enhancing your forex trading experience, but there are still no guarantees that you will be totally protected from any losses or risks. While it can take some time to get your head around heading in the forex markets, the overarching concept is that it presents both outcomes.
That is to say, irrespective of which way the markets move, you will remain at the break-even point less some trading commissions. More specifically, the spot trade is a spot transaction, with reference to the sale or the purchase of a currency. Essentially, spot forex is to both sell and buy foreign currencies. A good example of this is if you were to purchase a certain amount of South African rands ZAR , and exchange that for US dollars USD.
If the value of the ZAR increases, you are able to exchange your USD back to ZAR, meaning you get more money back in comparison to the amount you originally paid.
CFD is basically a contract which portrays the price movement of financial instruments. So, without having to own the asset, you can still make the most of price movements, whilst also avoiding the need to sell or buy vast amounts of currency. CFDs are also accessible in bonds, commodities , cryptocurrencies, stocks, indices and of course — forex. With a CFD you are able to trade in price movements, cutting out the need to buy them at all.
This section of our forex trading PDF is all about forex charts. When it comes to a MetaTrader platform, traders can use bar charts, line charts and candlestick charts.
You can usually toggle between the different charts, depending on your preferences, fairly easily. The first record of the now-famous candlestick chart was used in Japan during the s and proved invaluable for rice traders.
These days, this price chart is without a doubt one the most popular amongst traders all over the world. Much like the OHLC bar chart see below , candlestick charts provide low, high, open and close values for a predetermined time frame. Live forex traders love this chart due to its visual appearance and the range of price action patterns utilised. This allows you to gain a better understanding of how live trading works before you take any big financial risks in the market.
As the title suggests, this one is a bar chart, and each time frame a trader is looking at will be displayed as a bar. In other words, if you are viewing a daily chart you will see that every bar equates to a full trading day. With this price chart, traders are able to establish who is controlling the market, whether it be sellers or buyers.
OHLC analysis was the starting block for the creation of the ever-popular candlestick charts please further down. It is a great tool for looking at the bigger picture when it comes to trends. The line chart arranges the close prices at the end of that time frame; so in this case, at the end of the day, the line will connect the closing price of that day.
In this section of our forex trading PDF, we are going to talk about the different ways in which you can sell and buy a forex position as well as things to look out for.
When it comes to forex trading you can trade both short and long, but always make sure you have a good understanding of forex trading before embarking on trades. After all, forex trading can be a bit complex to begin with, especially when mixing long and short trades. In a nutshell, going long is usually a term used for buying. So, when traders expect the price of an asset to rise, they will go long. When forex traders expect the price of an asset to fall, they will go short.
This means benefiting from buying at a lesser value. To achieve this, you simply need to place a sell order. The current exchange rate of a forex pair is always based on market forces.
This will change on a second-by-second basis. As we noted earlier, you also need to take the spread into account, so there will always be a slight variation in pricing. For instance, if you exchange 1 USD for 17 ZAR, the sale and purchase price offered by your forex broker will be either side of that figure. The currency pairs with the most notable supply and demand attached to them will be considered the most liquid in the forex market.
The supply and demand aspect is thanks to the investment of importers, exporters, banks and traders — to name a few. The most liquid currency pairs are therefore the ones in high demand. When you feel you are ready to take the plunge and begin live trading, you need to select a forex trading system.
There is a vast amount of trading strategies for you to pick from. This is because investors, speculators, corporations and banks have been trading for decades. In this part of the forex trading PDF, we are going to explain a few of the strategies available to you. If you want to buy and sell currency pairs from the comfort of your home or even via your mobile device , you will need to use a trading platform.
Otherwise referred to as a forex broker, there are literally hundreds of trading platforms active in the online space. This makes it extremely difficult to know which broker to sign up with. In the below sections of our forex trading PDF, we explain some of the considerations that you need to make. You should also look out for analysis tools available to you. In some cases, this might be embedded, while some offer tools such as technical analysis and fundamental analysis.
This is because it will save you a lot of leg work having to move between different sites and sources of information. Some of the fastest and easiest trading platforms are MetaTrader 5 MT5 and MetaTrader 4 MT4. Crucially, both MT4 and MT5 are fast and receptive trading platforms, both providing live market data and access to sophisticated charts. It is essential before you begin trading seriously that you fully trust the trading platform you intend on using.
This is especially the case if you intend on using a scalping strategy, for example. However, if you like to trade, it is vital for your peace of mind and your finances that you are fully confident with the fast execution of data transfer. This is also the case with the precision of quoted prices, and the speed of order processing.
All of these things are going to help you to have a successful forex trading experience. To enable you to make the most of new opportunities, the ideal forex broker will be available to you 24 hours a day and 7 days a week, in line with the forex market opening hours. To save you from having to request that your broker takes action for you, your forex broker should enable you to manage your account and your trades separately.
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