About Us

We are a team of seasoned, successful veteran traders

with over a decade of experience in forex and fintech
development.
Through out the years, we revolutionized Forex Trading
for thousands of traders, using our own statistical
trading methods combining both fundamental &
technical analysis. We analyze the markets 24/7,
observe the world economy, and provide accurate
trading signals every day.

Our goal is to deliver an unparalleled trading

experience providing our clients with signal services
that offer the most competitive trading conditions
available in the market.

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 About Us

At MegaFX Signals, we thrive to provide high-

performance market analysis and accurate trading
signals. Our professional traders relentlessly analyze
the Forex markets 24/7 searching for the best trading
opportunities.

Whenever a potentially profitable trade is entered our

clients receive a telegram message update with all the
key details; entry price, stop loss and take profit, etc.
Our clients then simply copy the signals we provide
and place risk-free, profitable trade on their trading
account.

By joining our Forex signal service you will be able to

exactly follow the Forex trades of highly experienced
traders.

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 Introduction

If you want to develop a deeper understanding of

the forex markets and learn from industry experts
how you can earn an income from trading the
currency markets, then you have come to the right
place. You will develop all the necessary skills and
strategies you need to help you trade the forex
markets consistently and successfully and learn how
to create another source of income for yourself.

In this eBook- Forex Mastery: Newbie to Pro- we will

guide you through the basics, all the way to
advanced understanding. So that you can finally hit
the markets yourself – fully equipped with the tools
you need to succeed and secure your own financial
freedom.
However, it is important to keep in mind that this is
not a get rich quick scheme! In fact, it is quite the
opposite. In order to be a successful forex trader, you
must have the right skills, but you must also have
the right mindset and a whole lot of discipline.

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 CONTENTS

Forex Basics.............................................................. 01-55

What is Forex...................................................................01
Who trades Forex.........................................................03
Why trade Forex............................................................05
How to trade Forex......................................................08
Understanding the market.....................................10
When can you trade Forex?...................................17
Currency correlations.................................................32
Currency Types...............................................................37
Trading styles...................................................................42
Ways to analyse the market.................................49
Understanding the market..............................56-90
Trades....................................................................................56
Understanding Pips....................................................60
Understanding Lots....................................................65
Terminology.....................................................................76
Leverage.............................................................................85

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 CONTENTS

Technical Analysis Basics..................................02-55

Trends....................................................................................91
Trends & channels........................................................98
Candlesticks.....................................................................115
Advanced candlesticks...........................................124
Technical Analysis..............................................128-177
Technical Analysis.......................................................128
Moving averages..........................................................133
Relative Strengthen Index...................................144
RSI Divergence.............................................................148
MACD...................................................................................152
Fibonacci...........................................................................156
Double bottom & double top...............................161
Triple bottom & triple top......................................166
Head & shoulders........................................................170
Triangle patterns..........................................................173

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 CONTENTS

Mindset.....................................................................175-219
Creating a trading plan...........................................175
Risk management basics......................................183
Stop-loss............................................................................189
Take-profit........................................................................195
Risk vs reward..............................................................200
When & when not to trade..................................208
Consistency when you trade.........................,,....216
Economics.............................................................220-233
Fundamental analysis............................................220
Economic Indicators................................................226
Non-farm payroll........................................................229
Start Trading.......................................................234-240
MetaTrader 4................................................................234
Brokers..............................................................................239
The End.............................................................................240

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Forex Basics
 What is Forex?

For those of you who are complete newbies to Forex

trading and are trying to learn the ropes, it can often
be an overwhelming and daunting world, but it
doesn’t have to be.

To put it very simply, Forex, otherwise known as

foreign exchange (FX), is simply the practice of
exchanging one currency for another.

Have you ever been on a trip abroad and had to swap

your Dollars (USD) for Euro (EUR)? Or how about
exchanging your British Pounds (GBP) for Australian
Dollars (AUD)?

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 What is Forex?

If you answered yes, then guess what? You’ve already

had your first experience as a Forex trader, although
it’s pretty likely that you didn’t make any money in
this trade.

The Forex market that you are here to learn how to

trade is made up of a huge decentralized trading
network that allows you to trade currencies from all
over the world.

And when we say huge, we mean enormous.

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 Who trades Forex?

Central banks are a very big player in this space as

they must try to regulate and control the price
fluctuations of their own currency. The central bank’s
decision making, such as their interest rate policies,
can bring huge price swings and fluctuations in the
market. Their main aim is to stabilize inflation and to
stimulate their own economy via the Forex markets
and their currencies market value. Commercial and
investment banks are also huge players in foreign
exchange. They have their own trading desks where
they try to capitalize on price fluctuations and they
also hedge their own portfolios.

Corporations are also heavily involved in Forex

markets. When they conduct business on a global
scale, companies will typically import and export with
countries using different currencies than their own.

And then there is the retail trader. Psst, that’s us!

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 Who trades Forex? (Cont'd)

There are many different strategies that individual

investors employ when trading Forex, but the main
objective is typically to gain a profit by correctly
forecasting market movements and price
fluctuations.Something to bear in mind – there is a
big difference between who trades Forex and who
successfully trades Forex, this is particularly true for
retail traders. With the aid of this course, we will
hopefully be turning you into the latter.

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 Why trade Forex?

Forex is the biggest trading market in the world in

terms of daily trading volume – and by some
distance, too. Being the largest market in the world,
there is almost always liquidity on a wide range of
currency pairs, giving traders almost limitless
opportunities to profit.

This liquidity means that you can trade with

confidence, knowing that you will always be able to
buy and sell your chosen currency pair with ease.
This high liquidity also means it is much harder for
market prices to be manipulated and it also benefits
traders with very low transaction costs.

The other reason Forex is so popular is that you can

trade it 24 hours a day, 5 days a week. It’s one of the
most openly available markets in the world.

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 Why trade Forex? (Cont'd)

This allows traders the opportunity to fit their trading

around their full time or part-time jobs, unlike the
stock exchange where their working hours would
likely overlap.

Combining all of these factors together, it gives

people the opportunity to make money from
wherever they are in the world. It can help people to
secure their financial freedom and gives them
opportunities that they would not normally have
access to.

As long as you have the drive, the will, and the

determination, anybody can become successful in
the Forex markets – and with the help of this course,
we can take you there.

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 How to trade Forex?

Simply put, when you trade forex, you are buying one
currency and selling another.This always happens
simultaneously, when you buy one, you are
immediately selling another. This is the reason why
currencies are always quoted in pairs.Here are the
top 5 forex currency pairs based on their trading
volume:

Euro/Dollar (EUR/ USD)

Dollar/Japanese Yen (USD/ JPY)
British Pound Sterling/US Dollar (GBP/ USD)
US Dollar/Swiss Franc (USD/ CHF)
Australian Dollar/US Dollar (AUD/ USD)

Currency pairs will always rise and fall against each

other for a varying number of reasons.For example, if
there is a particular political turmoil in one country,
then the value of their currency may plummet –
think GBP after Brexit was announced.

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 How to trade Forex?

Forex produces price fluctuations each and every day

in a wide number of currency pairs. These price
movements are usually caused due to either
fundamental or technical reasons, but we will go into
these in much detail later on in the course.It is these
fluctuations that give traders opportunities to make a
profit by correctly forecasting the direction that the
price changes will move in.

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 What do you need to trade forex?

The beauty of the forex markets is that anybody can

trade them. All you need is an internet connection, a
device and enough cash to open up an account (this
depends on the website or broker that you decide to
use).You can register a trading account with as little
as $10 in most cases. However, as with anything, the
more you put in the more you get out.

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 Understanding the market

What moves the price and why?

Being the largest financial market in the world, Forex

presents many opportunities for traders looking to
make profits on the price fluctuations that occur
each day. This is done by simply selling your currency
for higher than your buy price if you are buying, and
vice versa if you are selling.

The key to success in trading is consistency. It is vital

that traders can routinely forecast market
movements with high accuracy and post winning
trades whilst keeping losses to a minimum.

This plays down to one major factor, market

understanding. If we know how and why the market
moves, then we can more easily predict these
movements and eventually profit from them.

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 Understanding the market (cont'd)

Supply and demand

Like all markets, forex is at the mercy of simple

supply and demand economics. If there are more
people buying a currency then there are selling, then
that currency is in demand and the price should
rise.Conversely, if there are more people selling than
there are buying, then the currency has a lower
demand and the price should fall.

Note: This is with the assumption that supply remains

the same throughout.Let’s break this down even
further.

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 Understanding the market (cont'd)

What is driving demand?

Demand for a currency can be driven by the
perceived prospects for the currency’s nation as a
whole. This is, of course, an extremely complicated
set of factors that are very hard to break down,
however, there are two main areas of focus.

One of them being the political landscape of the

country at present and the other being the
conditions of their economy.

In general, if these factors are considered to be

positive, then demand will increase. If they are
negative, then demand will fall. There are many
factors that can come into play here, and some
currencies are more sensitive to political news while
others to economic.

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 Understanding the market (cont'd)

As a very general rule of thumb, the most popular

currencies with the highest trading volumes are more
sensitive to economic data than the political
landscape. This is due to the fact that the nations of
these currencies are usually quite stable and would
not be too affected by political news. Of course, this is
not always the case.

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 Understanding the market (cont'd)

What causes currencies to fluctuate?

As we touched upon, there are many things that
may cause the market to fluctuate. Here are the
main areas that.
Interest Rate Changes
One of the biggest factors affecting the forex market
is interest rate changes that are made by the central
banks, specifically the eight global central banks.
When these banks change their interest rates, it can
lead to sudden and very volatile price changes.

Generally, central banks will raise their interest rates

in an attempt to stifle the inflation of their currency.
On the other hand, they will normally cut rates to try
and stimulate their economy and by encouraging
banks to lend.
If an interest rate in one currency is higher than in
another, then that usually generates demand. The
higher the interest rate, the higher the rate of return
is and the higher the profit.

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 Understanding the market (cont'd)

What causes currencies to fluctuate?(cont'd)

Economic and Political News
As mentioned earlier, the economic and political
news can be huge factors in driving demand.Some
of the main factors influencing price include; the
consumer price index (CPI), retail sales, quantitative
easing, gross domestic product (GDP), and
employment rates.These are all big indicators to the
health of a countries economy and its stability.
Trader/Market Sentiment
When it all boils down to it, it is really the institutional
investors and traders that will move the price most
heavily. Sometimes, all the political and economic
news can suggest that the market will move in one
direction yet the price does the opposite.

While this is unlikely, it is by no means rare.

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 Understanding the market (cont'd)

What causes currencies to fluctuate?(cont'd)

Trader/Market Sentiment
As we will touch upon heavily in this course, there
are many technical indicators that present buy and
sell signals that a lot of traders will be reacting to.
This creates massive intraday trading opportunities
for short term scalps and profitable day trading
positions.

In these short term instances, the political and

economic landscape of the currency’s country does
not hold as much weight – in other words, the
macroeconomics become less important. When we
look at shorter time frames, it is better to have one
eye on the fundamentals while paying closer
attention to the market trends, support and
resistance, moving averages and other technical
indicators that can help determine the future price
movements.

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 When can you trade Forex?

Unlike Wall Street, the Forex markets are open 24

hours a day, 5 days a week. This provides traders with
a huge window of potential trading time to work
with, which can be both a blessing and a curse.

Many new traders get hooked to the screen,

morning, noon, and night searching for every small
edge they can find and entering hundreds of
positions each and every day.

While this can be a profitable strategy, it is highly

unlikely that it can remain profitable over the long
run as you will inevitably run into trading burnout.
As always in life, quality over quantity.
With that being said, the main appeal of forex is its
availability and accessibility on a global scale.No
matter where you are in the world you will likely be
able to trade the foreign exchange during sociable
hours – something which cannot always be said for
the other international markets.

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 When can you trade Forex?(Cont'd)

Opening hours
The major trading centres for forex around the globe
are London, New York, Tokyo, and Sydney. The
diversity of these geographical locations is what
makes forex a 24-hour market.
Each of the four regions have their own official hours.
It is important to be aware of these as it can affect
the volume traded and the volatility of the currency
associated with that nation’s currency.

Let’s take a look at these four trading centres and

their opening times. All times are in GMT (Greenwich
Mean Time).
London – 08:00 – 17:00
New York – 13:00 – 22:00
Sydney – 22:00 – 07:00
Tokyo – 00:00 – 09:00

NOTE: These times vary throughout the year based

on daylight savings times.

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 When can you trade Forex?(Cont'd)

Forex trading sessions

As you can see from the times above, there are
overlaps between the opening hours which is what
leads to forex’s 24-hour market. However, not all of
the 24 hours in the day are made equal when it
comes to forex.

When it comes to trading, it is important to take note

of volatility. This what traders thrive off as it means
the price is moving around aggressively and thus
there are more opportunities to take advantage of.

Each of these opening hours signifies the start of a

new trading session. During these official hours,
trading the currency associated with each region
brings increased volatility and bigger price
movements.

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 When can you trade Forex?(Cont'd)

Forex trading sessions

Here are the currencies associated with each trading
session.
UK & Europe – British Pound (GBP),
Euro (EUR), Swiss Franc (CHF)
US & Canada – US Dollar (USD), Candian Dollar
(CAD)Australasia – Australian Dollar (AUD), New
Zealand Dollar (NZD)Japan – Japanese Yen (JPY)s.

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 When can you trade Forex?(Cont'd)

When is the best time to trade Forex?

Forex prime time is typically thought to be between
13:00-17:00.

This is considered to be the best time of the day trade

the foreign markets as this is when five of the major
currencies are all being actively traded
simultaneously – GBP, EUR, CHF, USD, and CAD.

When there is more activity there is more volatility

which provides a greater number of profitable
trading opportunities that we can take advantage of.

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 What is a currency pair?

Okay, time to bust some jargon and take it down to

the basics. When you look at the tickers on any
Forex website or brokerage, you will see currencies
in pairs.
They look like this:

Let’s take GBP/USD from this example. As we can

see – GBP/USD is trading at 1.31152. In simpler terms,
all that this is telling us is how much of the second
currency we can buy with the first currency.
In this instance, £1 will buy you $1.311.

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 What is a currency pair?

Now let’s say that the market strengthens due to

some good news coming out about UK
employment statistics. The pound strengthens. The
rate now goes up to 1.36.

This means £1 will now buy you $1.36 – simple

stuff!The first currency in the pair is referred to as
the QUOTE currency, with the second being the
BASE currency.

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 Understanding currency

Trading is all about information. The more of it you

have, the more informed your decision is on where
the market is going to move and thus the higher
the likelihood that your trade will be a successful
one.

It’s worth taking a bit of time to go over the main

forex country profiles so you can understand how
they may react to news and events that occur while
you are trading.

Here is a quick overview of the main currencies

nations/regions and what to look out for.

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 Understanding currency(cont'd)

United Kingdom
Central Bank – The Bank of England
Currency – Great British Pound (GBP)

London is the biggest Forex trading centre in the

world and accounts for around 35% of the worldwide
trading volume – impressive stuff. That suggests that
the market will be most active during UK trading
hours, which are between 08:00-17:00 GMT.

One thing to keep an eye on is the interest rates set

by the Bank of England.

As London is such a huge global centre for trading,

these rate fluctuations and monetary policy changes
can send huge shockwaves through the whole
market.

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 Understanding currency(cont'd)

United States of America

Central Bank – The Federal Reserve
Currency – U.S Dollar (USD)

The USD is part of an estimated 87% of all currency

trades.That is truly staggering when you consider
that the foreign exchange market accounts for $5
trillion of trading volume, per day.

New York is the main trading centre in the USA and is

the second-largest in the world after London. It is for
this reason that you should always pay close
attention to the New York session and be aware of
what is going on in the US news – if you are trading
the US Dollar.

Aside from looking for interest rate changes and

monetary policy updates, one thing to pay attention
to is the New York Stock Exchange (NYSE). This is
heavily correlated to the price of the US Dollar.

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 Understanding currency(cont'd)

The Eurozone
Central Bank – European Central Bank
Currency – Euro (EUR)

At the time of writing, the Euro is the official currency

for 19 out of 28 EU member countries. This makes the
Euro one of the biggest and most widely used
currencies in the world.Even now there are still many
countries seeking membership to the EU and
wanting to use the Euro as their main currency. One
of the main benefits of the Euro is that the European
Central Bank (ECB) must balance the needs of all of
the member nations.This avoids problems arising
from the individual political instability of nations and
makes it less likely that the Euro will be manipulated
or deliberately inflated for the gain of one particular
country.It is for this reason that the Euro is typically
less volatile than some currencies, but not always.

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 Understanding currency(cont'd)

Switzerland
Central Bank – Swiss National Bank
Currency – Swiss Franc (CHF)

Despite it being located right in the middle of

Europe, Switzerland is not a part of the European
Union. A country notorious for its neutrality,
Switzerland is one of the richest countries in the
world.

As you would expect, their main trade is with their

fellow European countries, namely Germany, France,
and the U.K. They also do considerable trade with the
USA.Watch for the price of gold – a quarter of
Switzerland’s cash is backed with gold reserves, so
the prices are heavily correlated with the price of
gold (XAU/USD).

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 Understanding currency(cont'd)

Canada
Central Bank – Bank of Canada
Currency – Canadian Dollar (CAD)

Canada is reported to have the 10th largest economy

in the world, which is not bad for a country of 38
million people. As you would expect, the US and
Canada have strong ties, with Canada exporting 70%
of their goods to their neighbor.

Canada is a massive exporter of crude oil, so as you

would expect, the CAD’s movements is heavily tied to
any price changes or events in the crude oil industry.
Keep an eye on this, especially if you are trading
USD/CAD.

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 Understanding currency(cont'd)

Australia
Central Bank – Reserve Bank of Australia
Currency – Australian Dollar (AUD)

The AUD offers one of the highest interest rates out

of all the main currencies. It is for this reason than the
AUD is often used as part of currency carry trades,
which is where traders try to take advantage of
interest rate differences between currencies.

The main premise of a currency carry trade is to sell a

currency with a low-interest rate and then use those
same funds to buy a currency, such as the AUD, that
has a higher interest rate. This is usually done with
leverage.

The AUD is a typically stable currency, with the

central bank aiming to keep inflation at 2%. The AUD
is heavily tied to gold as it is one of the biggest
exporters of gold in the world.

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 Understanding currency(cont'd)

Japan
Central Bank – Bank of Japan
Currency – Japanese Yen (JPY)

A true powerhouse, Japan is ranked at number three

out of the world’s largest economies.As the Yen is
known to offer typically low-interest rates, it is often
used in currency carry trades. This makes it especially
important to pay attention to the Bank of Japan’s
monetary policies and interest rate updates.

There is plenty of volumes traded on the Yen, so you

will never be short of liquidity. In fact, the USD/JPY is
the 2nd most traded currency pair in the world.

It would be best to keep in mind how China’s

economy is performing as China is one of Japan’s
largest trading partners.

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 Currency correlations

When trading forex, it is vital that we are aware of

something called currency correlation. This is the
relationship between two or more currency pairs, and
how when one pair moves it usually signifies a move
in the other currency pair.

However, it does NOT always mean that the

correlated currency pair will move in the same
direction.We have three types of currency correction,
these are:
Perfect positive currency correlation
This signifies that every time the currency pair moves,
the second pair will move in the SAME direction 100%
of the time.

Perfect negative currency correlation

This signifies that every time the currency pair moves,
the second pair will move in the OPPOSITE direction
100% of the time.

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 Currency correlations ((cont'd)

Zero currency correlation

This signifies that there is NO correlation between
the two currency pairs and that the movements
between them are totally random.

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 Currency correlations ((cont'd)

What does this mean for our trading?

More knowledge means that we have a higher
likelihood of being able to develop more
profitable trading strategies as a result.

In Forex, it is entirely plausible to trade positions

that effectively cancel each other out. If two
currency pairs have a negative correlation with
one another, then their moves will directly
counteract one another, and it will leave you at a
loss

Can be used to show how much risk we are

exposed to. If we have several currency pairs
trading at the same time and they all have high
positive correlations, then we will be overexposed
and often doubling or even tripling our risk.

You can effectively hedge and manage your

existing positions.

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 Currency correlations ((cont'd)

Currency Pairs that typically have a positive

correlation (SAME direction)

EUR/USD and GBP/USD

EUR/USD and AUD/USD
USD/CHF and USD/JPY

Currency Pairs that typically have a negative

correlation (OPPOSITE direction)

EUR/USD and USD/CHF

GBP/USD and USD/JPY
GBP/USD and USD/CHF

This signifies that there is NO correlation between

the two currency pairs and that the movements
between them are totally random.

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 Currency correlations ((cont'd)

Correlated Commodities

One important thing to bear in mind is how certain

currencies can be heavily correlated with
commodities.

Some country’s economies rely heavily on exports of

a certain commodity, so if they particular industry
takes a hit then you can pretty safely assume that the
currency will follow in the same direction, and vice
versa.

Two famous examples of this are:

AUD and Gold
CAD and Crude Oil

Knowing which currency is tied with what

commodity can give traders an advantage and can
help you understand why the market moves the way
that it does.

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 Currency Types

When we talk about currencies, we can break them

down into three main categories; Major, Minor and
the Exotics.Let’s look at some examples in each
category and dive a little deeper into what each
category means.

Majors

As we have defined several times in this course so

far, there are seven major currencies in Forex. For
clarity, these are:
USD
GBP
EUR
JPY
AUD
CAD
CHF

Some people also include New Zealand Dollar (NZD)

in this list, too.

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 Currency Types (Cont'd)

As you know from earlier in the course, we only trade

forex using currency pairs.A major currency pair is
any of the major currencies paired with the US
Dollar. For example, GBP/USD, EUR/USD or USD/JPY.

As USD cannot be paired with itself, we only have six

major currency pairs, or seven if you include the
NZD.

You will find that all of these pairs benefit from near-
constant liquidity due to their high levels of trade
with the U.S. A lot of the money you will see on the
market will be from importers and exporters as well
as speculators and investors.

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 Currency Types (Cont'd)

Minors

Minors are any two of the major currencies listed

above (that are NOT USD) paired with each other.
For example, GBP/EUR or GBP/JPY.

Here is where the liquidity starts to drop off, but you

can still find substantially liquid and busy markets in
the minors. Look for countries that regularly trade
with each other for the most liquid markets. Minors
such as GBP/EUR, AUD/JPY and GBP/CAD.

There will be others with far less liquidity as the

countries may have no real trading relationship.

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 Currency Types (Cont'd)

Exotics

As you may have guessed, exotics are any of the

currencies that aren’t listed above. The Exotic
currencies are always traded in a pair with Major
currency.

Typically, most of the exotic pairs have low volume, a

large spread and can be extremely volatile due to
their lack of market depth – but that is the very
reason why a lot of people enjoy trading them.

However, there are still plenty of Exotics that are

widely traded and have high trading volumes. These
are usually the larger economies that do plenty of
international trade.

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 Currency Types (Cont'd)

Here are some of the most popular Exotic

currencies:

Norwegian Krone (NOK)

Brazilian Real (BRL)
Mexican Peso (MXN)
Singapore Dollar (SGD)
Indian Rupee (INR)
Chinese Yuan (CNY)
Turkish Lira (TRY)
South Korean Won (KRW)
South African Rand (ZAR)
Danish Krone (DKK)

Forex may be the only place where you would get

away with calling Norway and Denmark exotic!

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 Trading styles

There are three (or possibly four) main trading

methods for you to choose from when you are
looking to enter a position. These are scalping, day
trading, swing trading, and position trading.

For the sake, of course, we will be looking at the first

three methods just mentioned. This is because
position trading involves holding a position for
months and possibly even years – it’s a buy and hold
method that doesn’t really qualify as active trading.

With that being said, let’s break down the three

individual methods and explain what each one
entails.

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 Trading styles (Cont'd)

Scalping

Scalping is a highly active and fast-paced trading

style. The idea of scalping is to take 10’s or 100’s of
small profits each day, aiming to take advantage of
tiny market movements.

Typically, a scalper will be in and out of the market

within a few seconds up to a maximum of a few
minutes.

It is for this reason that a scalper will predominantly

be looking at the charts on very low time frames,
such as the 1 minute, 5 minute, and the 15 minute.
Some traders even prefer to go lower than that.

To be a successful scalper you must be able to react

quickly to market movements and have a high level
of discipline. You must know when to take your
profit and know when to cut your losses.

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 Trading styles (Cont'd)

One small blip can ruin a whole day of successful

scalping, which can be very frustrating. If you can
maintain high levels of focus and can concentrate
for long periods of time without getting distracted,
then scalping may be a good option for you.

Screen time: High

Number of trades per day: 25+
Timeframes: M1, M5, M15

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 Trading styles (Cont'd)

Day trading

As the name suggests, day trading is the opening

and closing of trades within the same day. Day
traders normally scan the market for a trade, set up
a position, enter it, and then close it all on the same
day.

You don’t need to have the same laser focus and

concentration that a scalper would, however, it does
still require discipline.

Typically, day trading is best suited to those of us

who don’t like to keep our trading positions open
overnight. If you prefer to get a good night’s sleep
without worrying about what your trade is doing,
then day trading is probably your best bet.

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 Trading styles (Cont'd)

This is the reason why day trading is so popular –

you can open your positions, make a profit, close
your laptop down, and the job is done.

Screen time: Medium

Number of trades per day: 0-5
Timeframes: M30, H1, H4

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 Trading styles (Cont'd)

Swing trading

Last but not least, we have swing trading. This is very

similar to day trading however the positions are kept
open overnight and can be held anywhere between
two to six days – sometimes even a few weeks.

As this is a more hands-off approach, it is best suited

for people who don’t want to be staring at a screen
all-day yet don’t mind having open positions.

The markets tend to fluctuate quite a lot, so swing

positions may be at a loss for days at a time before
finally turning into profit. This requires a certain
mental toughness and the discipline to stick with
your trade and to trust your own analysis.

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 Trading styles (Cont'd)

This is a very popular form of trading as it does not

require a lot of time to manage, however, it does
leave traders at risk during the weekends and
during market closes, which upon reopening can
produce volatile and abrupt market movements.

Screen time: Low

Number of trades per day: 0-3
What timeframes: H1, H4, D1, WK

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 Ways to analyse the market

When we are trading, we never enter the market

blindly. No successful trader has ever made a living
out of trading based on gut instinct.

We must analyse the market, the currencies and

their countries in order to best predict how the
market will behave and where the price will move.

There are two main types of analysis when it comes

to trading, these are; fundamental and technical.
Let’s break each one down.

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 Ways to analyse the market (Cont'd)

What is fundamental analysis?

Fundamental analysts are concerned with the

macroeconomic forces that can influence a country
and its currency value.

The three main areas that fundamental analysts will

look towards are the political, economic and social
factors that influence the currency they are looking
to trade.

To put things simple, if a country’s economic

indicators are looking good, such as low
unemployment rates, growing GDP, and low
inflation rates, then their currency should
strengthen. On the other hand, if these things aren’t
looking so good then that could point towards a
slightly bleaker future for that currency and it should
weaken.

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 Ways to analyse the market (Cont'd)

Naturally, fundamental analysis is more commonly

used in traders that open long-term trades, such as
position trades. Swing traders should also be
mindful of the fundamentals as any significant news
could heavily impact their open positions.

Here are some of the key areas that fundamental

analysts pay close attention to:
Interest rate changes

Inflation rate
GDP
Retail sales
CPI (Consumer price index)
Unemployment rates
Political stability and key election dates

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 Ways to analyse the market (Cont'd)

What is technical analysis?

Technical analysts focus on how historical price

movements and previous market behaviours may
help to predict where the market will move next.

This is the main type of analysis that scalpers, day

traders and swing traders use, and therefore it is the
main form of analysis that we will cover in this
course.

There are a vast variety number of technical

indicators to pick from, each of which uses historical
data obtained from the market to try and determine
where the market will move next.

History does tend to repeat itself, so using data

obtained from this analysis can prove very profitable
to those who implement it wisely.

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 Ways to analyse the market (Cont'd)

The vast majority of the technical analysis is done by

computers and the algorithms that can be found in
trading and charting software. The skill is not in
obtaining the data, but more in how that data is
used.

Here are some of the top trading indicators that are

most commonly used in the forex markets:

Support and resistance

Price action
Fibonacci
Moving averages
Moving average convergence divergence
(MACD)Relative strength index (RSI)
Bollinger band

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 Ways to analyse the market (Cont'd)

Technical vs fundamental analysis

It seems that there is always debate over which type
of analysis will produce the best trading results. You
will often hear technical traders saying that
fundamental analysis is unnecessary as all of the
information is already factored into the price.

On the other hand, you will get fundamental

analysts claiming that none of the technical
indicators work and that trading based on technical
analysis is futile.

As always, the truth lies somewhere in between.

There are a lot of technical indicators that are not

worth their salt, in fact, the majority of them are
quite useless.

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 Ways to analyse the market (Cont'd)

However, there are some indicators that give

extremely valuable information that provides a great
insight into the market dynamics and allow us to
make high probability trades. We will be covering
these key indicators in this course.

Similarly, it is never a bad thing to have an eye on

the fundamentals. It definitely pays to be aware of
key dates and how each country’s economy is
performing and its current political situation.

The more information you have, the better.

For the sake of scalping, day trading, and swing

trading, it is recommended to focus upon the
technical analysis and supplement that with a solid
understanding of the fundamentals. There is no
need to become an expert economist, but a
rudimentary knowledge of what is going on with the
currencies and their nations will go a long way.

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Understanding
the market
 Trades

Whenever you are trading in any sort of market you

will likely come across the terms “going long” and
“going short”. But what exactly do they mean?

Buy/ Long

To “go long” in forex is to BUY a currency with the

expectation that it’s value will RISE so you can then
close your trade for profit.The aim – Buy low, sell
high.

Sell/ Short

To “go short” in forex is to SELL a currency with the

expectation that its value will FALL so you can then
close your trade for a profit. The aim – Sell high, buy
low.

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 Trades (Cont'd)

How does a trade work?

Whenever we make a trade, we can also call it

entering a position. A position is the amount of
currency that you own that is subjected to market
exposure and thus its value will fluctuate against
other currencies in the market.

Important: Every currency trade that we make

involves a pair. This means that you will always be
going long on one currency while simultaneously
going short on the other.

In other words, when we enter a long position, we

are hoping that the base currency strengthens
against the quote currency.

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 Trades (Cont'd)

For example, we buy EUR/USD at 1.114 – This means

that we are long on the Euro while simultaneously
being short on the US Dollar.

In its essence, we are betting that 1 EUR would be

worth more than 1.114 USD at the end of the trade.

This may seem complicated, but this is in fact how

all of the trading markets work across the globe.
Let’s take an example from the London Stock
Exchange.

Let’s say we buy some shares in

GlaxoSmithKline(GSK) at £18. This means we are
going long on GlaxoSmithKline against GBP – in
other words, we are going long on GSK shares while
shorting GBP because we feel that the value of the
GSK shares will grow in value faster than GBP will.
If this was a forex currency pair we would call it
GSK/GBP.

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 Trades (Cont'd)

Shorting Explained

While longing is a relatively straightforward concept,

people tend to have a harder time understanding
the concept behind shorting.
At its most basic level, shorting is the exact opposite
of longing, but for the sake of clarity let’s clear it up
here.

When you short a currency pair, the base currency is

SOLD while the quote currency is bought. This is
what gives the simultaneously longing and shorting
in every trade.

Example:
Shorting USD/JPY = selling USD and buying JPY.
We are effectively betting that the USD will decrease
in value against JPY

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 Understanding Pips

What is a pip?

If you have done any research on forex before or if

you have spent some time looking over the markets
already then you will surely have come across the
term “pip” (sometimes referred to as a “point”).

Note: It’s vital that you understand what a pip is as

this will be the fundamental unit that you measure
your forex trades in. When we make a trade, we
normally target a predetermined number of pips for
our entry points and stop losses.

A pip (percentage in point) is the unit of

measurement that we use to express the change in
value between the currencies in our currency pair.

To be exact, a pip is a standardised unit and is the

smallest amount that any currency pair quote can
change. Because of this, a pip is usually the last
decimal place in a currency pair.

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 Understanding Pips (Con't)

As a rule of thumb, most of the currency pairs in the

forex market are quoted to four decimal places. In
this instance, the fourth decimal place is the pip, as
shown below.

In fact, all of the majors are quoted to four decimal

places, except for when the Japanese yen is the
quote currency. In those instances, there are only
two decimal places, and yeah, you guessed it, the
last decimal place is the pip, as shown below.

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 Understanding Pips (Con't)

Pips in action

Let’s take a look at some examples of market

movements in terms of their pip value.
Example: one pip move
If the value of the GBP rises against the dollar by one
pip then we would see a move like this.

In this example, the value of GBP has risen by 1 pip

against USD. If we were longing on this move, we
would have made a 1 pip profit.

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 Understanding Pips (Con't)

Example: 100 pip move

If the value of the GBP rises against the dollar by 100

pips then we would see a movie like this.

Average pip movement in the market

On average, forex markets usually move anywhere

between 80-100 pips per day. Of course, this differs
between each market but that is a reasonable
average to draw from.
Now, this may not seem like much, and on the
grand scheme of things it isn’t, but when we include
the use of leverage and margin trading, we can
profit quite significantly from these kinds of moves
in the market. More on that later in this unit.

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 Understanding Pips (Con't)

Pipettes

If you go on to your brokerage and see that the Yen

is trading with three decimal places or if you see
GBP/USD trading to 5 decimal places, don’t worry.

As a rule of thumb, if there are five decimal places

displayed, then the fourth decimal is the pip. If there
are three decimal places, then the second is pip.

In these examples, the 5th and 3rd pips would be

what we refer to as pipettes and are not particularly
important in terms of our trading strategies.

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 Understanding Lots

When you first begin trading, one of the most

important things that you will need to wrap your
head around is the idea of your lot sizes.

When you enter a position in forex, you will be

buying in a predetermined number of units, also
known as a lot. There are three commonly used lot
sizes in forex, these are displayed in the table below.

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 Understanding Lots (Cont'd)

Historically, forex has only ever been traded in these

predetermined lot sizes.

Due to the rise in popularity of forex and the

increasing competition brokers have begun adding
more lot size options and have become much more
flexible in order to enhance the trader’s experience.
Good news for us!

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 Understanding Lots (Cont'd)

Choosing your lot size

The best way to look at lot sizes is to think of their

value in USD per pip.

Most beginner traders will not start off trading with

one lot unless they have a large starting trading
capital. However, even if this is the case it is advised
to stick to smaller sizes until you learn the ropes.

Luckily, most if not all brokerages will allow you to

choose your own lot size so that you can trade freely
and set your own levels of risk.

One standard lot (commonly referred to as just “one

lot”) is 100,000 units of the base currency. This is
typically the benchmark that we will work with for
our trades.

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 Understanding Lots (Cont'd)

If we trade with one lot (100,000 units) then each pip

will be worth $10.

Here are some common lot sizes and what one pip
value would equate to.

5 lot = $50 Per pip

2.5 lot = $25 Per pip
1.00 lot = $10 Per pip
0.10 lot = $1 Per pip
0.05 lot = $0.5 Per pip

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 Understanding Lots (Cont'd)

Why is choosing the correct lot sizes important?

Choosing the correct lot size is vital when it comes

to foreign exchange trading. If you want to trade
correctly then you must consider your lot size
carefully.

The size of the lot you buy directly impacts how

much exposure your account has to the market and
how market fluctuations will affect your overall
account balance.

Too big of a lot size and you will be overexposed,

causing your account to be at increased risk. The
larger the lot size, the more that each pip movement
will affect your account.

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 Understanding Lots (Cont'd)

As a beginner trader, it is very easy to overexpose

yourself and trade at too high a position size. This is
the easiest way to blowing your account and
becoming a losing trader.

Trading is a marathon, not a sprint.

Let’s take a look at some pip movements and how

our lot size would affect our overall trading account.

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 Understanding Lots (Cont'd)

Lot size risk management

Note: Lot size risk management is one of the most

vital components of becoming a successful forex
trader. We cannot stress this point enough.

Some may even argue that this is the single most

important factor in becoming a profitable foreign
exchange trader and protecting yourself from
blowing your account. Please take your time to
thoroughly read and understand this part of the
course.

The journey to becoming a successful trader is a

difficult one – you will almost certainly make some
mistakes along the way. If you stick to the
information you learn in this course and manage
your risk effectively with optimal lot-sizing then you
will be well on your way.

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 Understanding Lots (Cont'd)

Lot size risk management

As we mentioned, risk management is there to help

you protect you from blowing your account.
However, it also protects you from being too
cautious.

Even if you have the greatest forex strategy in the

world, a poor risk management system will almost
certainly end in you trading unprofitably.
With that being said, here are our risk management
guidelines.

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 Understanding Lots (Cont'd)

Lot size recommendations

Luckily, it’s pretty simple to figure out your lot size.

Here are the sizes we recommend.For every $1,000
you can trade with a 0.4 lot size.

So why do we recommend these levels?Imagine you

have a trading balance of $1,000 and you decide to
trade with a 1.0 lot.

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 Understanding Lots (Cont'd)

We know that a 1.0 lot equates to a pip value of $10

and as we mentioned earlier, the average currency
pair can easily move 100 points in one day.

-100 pips x $10 = -$1,000

As you can see, if you open a trade without a stop
loss and it goes against you, you could wipe out your
entire account in one single day.

If you stick to the recommended lot sizes in the

table above then you will drastically reduce the
chances of losing your account. The losses that you
will inevitably face will become much easier to
manage.
For example, with the same $1,000 we would
recommend using a 0.1 lot size which has a pip value
of $1.
Let’s now use the same scenario as before
.-100 pips x $1 = -$100

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 Understanding Lots (Cont'd)

In the same trade, we have cut the potential loss

down by 90%. In order to blow your account, you
would now have to lose ten trades in a row which is
extremely unlikely, even if you have a poor win rate.

You may already be thinking that even though this

minimizes our losses, it also reduces our potential for
profit. While this is true, account preservation and
protecting your capital is one of the most important
skills a trader can learn.

After all, you cannot trade if you don’t have any

money in your account.

Tip: Make sure you apply these rules EVERY single

time you trade, with no exceptions. It’s a tool that
will protect your overall account balance while still
giving you enough room to make some nice profit.

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 Terminology

When you first hit the markets it likely that you will
come across a lot of jargon and unfamiliar
terminology that you don’t quite yet understand.
Don’t worry, this happens to all of us.

However, it is important that you get to grips with

the industry lingo as quickly as possible so that you
can understand what is going on in front of you.

Below we will cover the key terms that you need to

know before you start forex trading.

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 Terminology (Cont'd)

Bid and ask

When you look at any of the currency pairs you will

always see two different exchange rates at any one
given time. This is the bid price and the ask price.
This can often be slightly for new traders, but there is
no need to be.
The bid = the highest price that somebody is willing
to pay for the currency
The ask = the lowest price that somebody is willing to
sell the currency for

Naturally, the bid price is always lower than the

asking price as people are trying to get the best value
for their trade. However, when these two prices meet
in the middle, that is the moment when a transaction
occurs.
Note: You may sometimes see the ask price being
referred to as the “offer price”, depending on your
brokerage.

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 Terminology (Cont'd)

Spread

The spread is simply the difference between the bid

price and the ask price and is usually measured in
pips.

It is often a key indicator of the liquidity of the market

– the smaller the spread, the more liquid the market
is, and vice versa.

For example, the spread on one of the Major currency

pairs is typically very low due to its huge trading
volume when compared to the spread on a lightly
traded Exotic currency pair.
The spread can often widen during times of
increased volatility and uncertainty in the market.

This can discourage traders from entering new

positions as it becomes more expensive and the
likelihood of a profitable trade diminishes as the
spread increases.

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 Terminology (Cont'd)

This can discourage traders from entering new

positions as it becomes more expensive and the
likelihood of a profitable trade diminishes as the
spread increases.

When we are using a brokerage, the spread is

typically the area where they will make their profit.

Here is an example of a bid/ask spread.

From this we can calculate the spread in pips by

deducting the ask price from the bid price.

Spread = 13033 pips – 13031 pips = 2 pips

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 Terminology (Cont'd)

Competition between brokers is fierce. Having a low

spread is one of the main fronts that the brokerages
compete on. You will often see them quote their low
spread prices in their advertisements to try and
attract new traders.
The spread quoted in their advertisements is usually
for the EUR/USD as this is the most heavily traded
pair on the market and therefore tends to have the
lowest spread.

This is the main reason for brokers introducing the

5th decimal place as it gives them more opportunity
to compete. For example:

Spread = 11174.2 pips – 11173.4 pips = 0.8 pips

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 Terminology (Cont'd)

Slippage

Slippage is what occurs when you place an order in

the market at once price but it eventually executes at
a different price.
This is due to low execution speeds and usually
occurs during times of high volatility when the price
is moving around a lot.

It’s a relatively common thing to happen to you as a

trader and there is normally no need for concern.
Sometimes you will get slippage in your favour and
you will receive a better price, and other times it may
go the other way.

If you are trading the Majors and currency pair with a

lot of trading volume and considerable market depth,
then slippage usually isn’t an issue.

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 Terminology (Cont'd)

Margin

Margin is what you need in your trading account in

order to access leverage. It can sometimes be easier
to look at margin as if it were collateral or a deposit
for a loan.

In order to access leverage you must have a margin

account, which is different to standard brokerage
account, however, the vast majority of trading
accounts in forex are margin accounts.
If you are trading using a margin account then
“margin” is the word used to refer to balance that you
have in your account.

Let’s say you want to enter a £1,000 position with a 5:1

leverage
£1,000/5 = £200
In this instance, your required margin would be £200.
In other words, you need £200 in your account in
order for you to execute this trade.

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 Terminology (Cont'd)

Account currency

One thing to keep in mind is the currency that your

account is kept in. More often than not, this is the
currency that you will have loaded your account with
originally.

When you are trading pairs that do not include your

default account currency then you will usually have
to exchange it to the base currency of the currency
pair that you are trading. From that point you can
execute your trade as normal.

Any profits and losses are typically exchanged back

to your account currency, too. This is normally not a
problem, however some brokerages may take a small
fee for this which may eat into your bottom line over
a long period of time.

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 Leverage

From what you’ve seen so far in the course, you must

be wondering how on earth people manage to make
a considerable income trading forex when the values
for each pip are so small, especially when we use
proper risk management.

People often think that you need vast sums of money

and a huge trading capital to begin trading forex, but
that is simply untrue.Welcome the wonderful world
of leverage trading

Leverage is a tool that allows you to trade with

amounts substantially higher than the amount that
you have in your trading account by using your
account balance as margin. Leverage is expressed as
a ratio and is used to show the amount of money you
have in your account and how much money you can
actually trade.

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 Leverage (Cont'd)

For example, if you have $1,000 in your account and

you have the possibility to leverage 30:1, then your
maximum trading balance is $30,000.

Let’s use a real-world example from the property

market to show the power of leverage and how it can
drastically improve our bottom line.

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 Leverage (Cont'd)

A real-world example of leverage

Imagine you have £40,000, and you want to buy a

property with your money. However, you want to buy
something a little more expensive than your current
budget allows.

You have your eyes on a £200,000 house and go to

the bank to see if they can provide you with a
mortgage.

The bank offers you the mortgage as long as you

make a 20% down payment of the property value
upfront.

This means that you are paying £40,000 in advance

and the bank will loan you remaining £160,000.
In this example, you have bought the property using
leverage of 5:1.

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 Leverage (Cont'd)

Fast forward by two years. Your property has

increased in value to £300,000. This is an increase of
50%.

Now let’s take a look at the difference between

leveraging and not leveraging in this scenario.
Imagine that instead, we bought a £40,000 studio
apartment with our money and this also increases in
value by 50%. How would our profits compare?

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 Leverage (Cont'd)

As you can see from the table above, using the same
money we have managed to make an extra £80,000
profit by using the power of leverage.

This works in the same way in the forex market.

As with all things in life, there are some pro’s and

con’s attached. Let’s take a look at some of the
benefits and risks of using leverage in forex trading.

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 Leverage (Cont'd)

Benefits of leverage

We can get a higher exposure to the market,

which in turn allows us to profit at a much higher
rate when our trade wins.
Low margin requirements.
Leverage is interest-free. Technically, leverage
could be considered a short term, interest-free
loan.

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 Leverage (Cont'd)

Risks of leverage
Having a higher exposure to the market is a
double-edged sword. If we have access to higher
profits, it also means we have access to more
significant losses.

When trading at very high leverage, we can run

into something called a margin call. This occurs
when the value of your margin account falls
below the broker’s required threshold. This gives
the broker the right to immediately liquidate your
portfolio, as well as any current trade trades and
effectively wipe out your account.

A margin call can be easily avoided if we always trade

sensibly, stick to our stop losses and employ an
optimal risk management strategy.
Note: Leverage is not some magic formula that will
lead you to make massive profits. It merely magnifies
our trading position size and subsequently our gains
and losses.

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 Technical
Analysis Basics
 Trends

As we mentioned several times throughout this

course, consistency is key to profitable trading.

The vast majority of this consistency will rely upon

your ability to quickly and accurately identify trends
and then position your entry and exit points
effectively within them. Remember, “the trend is your
friend”. It’s cliche, but it’s true.

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 Trends (Cont'd)

What is a trend?

Okay, so first things first, we need to define what a

trend is before we can spot one.

At its most basic level, a trend is the general

direction in which the market is moving.

There are typically three main trends in which we

would look to identify, an uptrend (bullish), and
downtrend (bearish), or a sideways/flat trend.

There is no set time for which a market must be

moving for it to be considered a trend, however, the
longer a trend remains valid then the more solid and
qualified the trend becomes.

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 Trends (Cont'd)

How do you identify a trend?

The simplest way of identifying a trend is to pull up

the chart and watch the price action of the currency
pair.
Price action is shown on most charts in the form of
candlesticks. These candlestick display historic price
movements of an asset over a given time frame and
are plotted on a chart.

This allows us to easily visualise trends and

determine what general direction the market is
moving in. For most, if not all of our trading
strategies, we will be looking to trade in uptrends or
downtrends.
There are certain situations in which you may enter
into a sideways market but these are few and far
between and have a lot more risk attached. It’s
better to stick to clear uptrends and downtrends and
enter your positions with more confidence in the
direction the trend is moving in.

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 Trends (Cont'd)

Let’s break each one down and look at what qualifies

as an uptrend or a downtrend.

Uptrend

As I am sure you have already guessed, an uptrend

describes the price action of the market when the
overall direction is considered to be upwards.

If you can see that the price is clearly moving up over

a period of time, then the chances are you are
looking at an uptrend in the market.

The fully qualify as an uptrend, each peak and trough

of the price action should be higher than the
previous peaks and troughs. In other words, we
would need to see a series of “higher highs and
higher lows”.

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 Trends (Cont'd)

As you can see from the example above, the peaks

of each movement in the price action are higher
than the previous highs. We can also see that each
low is higher than the previous low.

This indicates an upward momentum and the

market is being pushed higher. In general, we
should be looking for opportunities to go long and
try to ride the trend out.

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 Trends (Cont'd)

Downtrend

There are no points awarded for guessing what a

downtrend is. Yep, a downtrend is what describes the
price action when the overall direction is considered
to be downwards.

When we see that the price is clearly falling over a

given period of time, you will most likely be looking at
a downtrend. In direct contrast to an uptrend, we
identify a downward trend by spotting “lower highs
and lower lows” in the market.

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 Trends (Cont'd)

We are looking for when each trough drops a little

lower than the previous low and when each high
looks to be weakening when compared to the last
high.

This signifies that the market may be running out of

steam and we have hit some buyer exhaustion. The
market is now bullish and the trend is downward.

In general, we should be looking for opportunities to

short the market on this occasion and ride the trend
downwards.

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 Trends & channels

Trend lines

As you may have noticed already, the market does

not move in perfect straight lines. It is always
fluctuating and oscillating, creating new highs and
lows all the while.
It is for this reason that we must learn how to draw
trend lines on a chart so that we can have a better
chance at predicting where the new support and
resistance zones will be.

Trend lines are likely the most common out of all the
forms of technical analysis that you will see forex
traders use. They are simple but very effective.

The two most common trend lines that we will draw

on our chart will be on the uptrends and
downtrends that we spot in the market – that way
we can more easily visualise the trend.

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 Trends & channels (Con't'd)

How to draw a trend line?

Luckily this is pretty simple. All you have to do is find

two major tops or two major bottoms in the market
and connect the two points. It really is as easy as
that.Here are a couple of examples:

Uptrend

For an uptrend, we draw the trend lines underneath

the structure along clear support points that we
observe the price to rebound from.

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 Trends & channels (Con't'd)

Downtrend

In a downtrend, we draw the trend lines on top of

the market structure along the clear resistance
points that we observe the price to rebound from.

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 Trends & channels (Con't'd)

Not all trend lines are made equal

It is important that you understand the validity of

the trend lines that you’re drawing. Just because
you have connected two points in the market it
doesn’t mean that this will be an obvious point of
support or resistance.

In fact, most traders would not consider the trend to

be valid until the price hits the trend line at least
three times. Here are some simple rules to keep in
mind when assessing the validity of your trend lines:

The more times that the trend line is tested and

successfully holds, the more valid it becomes.
Imagine that the line becomes stronger each
time it successfully resists the price movements.

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 Trends & channels (Con't'd)

You need two clear tops or bottoms to draw a

valid trend line, but this is the weakest possible
trend line you can get. It takes at least three to
form a valid trend line

Horizontal lines are the strongest. The steeper

the trend lines become, the less likely the are to
hold their level.

TIP: Do not force trend lines onto your chart. Far too
often people will draw trend lines to try and support
their own theories. These should be OBJECTIVE
lines that clearly fit onto the chart. If you’re forcing it,
then it almost certainly is not a valid trend line.

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 Trends & channels (Con't'd)

The trend is your friend

We have already mentioned this famous cliche once

in our course, but it’s worth mentioning again. The
trend IS your friend – seriously.

Many novice traders will try to predict moments of

market reversals by constantly trade AGAINST the
market. As trading is technically a zero sum game, it
may seem counterintuitive to “follow the crowd”
and trade with the trend but that is exactly what
you must do if you are to be successful.

Typically, traders will see that the market is rising

and will assume that this cannot and will not
continue for much longer. If it is going up, it must
come back down. And while that is true, it is
exceptionally hard to pick a point of a reversal.

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 Trends & channels (Con't'd)

Put it this way, it is extremely difficult to predict a

trend in advance when compared to identifying one
that is already there.

This often goes against a lot of traders grains, which

is potentially why so many people end up losing
money in the market.

Experience shows that it is MUCH easier to profit by

taking advantage of a current market trend rather
than trying to accurately predict a new one. Why
make it harder for yourself when you don’t have to?

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 Trends & channels (Con't'd)

Channels

When we draw a trend line, we are simply drawing

one line on the chart to identify and uptrend or
downtrend.

To create a channel, we draw two lines for the same

trend, these act as the upper and lower trend lines.
These upper and lower trend line signify the market
support and resistance zones.

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 Trends & channels (Con't'd)

We use channels to gain a better perspective on the

market structure and it will usually signify logical
points to enter and exit our trades. These can be
some of the easiest and most profitable trading
situations that you encounter, you just have to be
able to spot them accurately.

Note: For a channel to be valid, both of the trend

lines must be parallel to each other. Most chart
software will have a channel drawing tool to help
you do this.

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 Trends & channels (Con't'd)

Support & resistance

When it comes to technical analysis, two of the most
important and most commonly used terms are
without a doubt “support” and “resistance.
These simple, yet effective ideas are fundamental to
many trading strategies and often give us key entry
and exit points for our trades. It is common for most
new traders to underestimate or even ignore the
importance of support and resistance levels when it
comes to technical analysis.

Most newbie traders will be tempted to dive straight

into more complicated strategies and will focus their
attention towards the advanced indicators such as
Fibonacci levels and Bollinger bands, for example.
When they do this, they are missing out on some
key information in the market that could drastically
improve their bottom line and overall trading
success, and the bonus is, it’s all pretty easy to
understand.

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 Trends & channels (Con't'd)

Support
Okay so let’s start with support. As the name
suggests, support is a price point in the market that
will usually give the market some stability and act as
a support structure for the current price.

It is essentially holding/ supporting the price up to

where it currently is. In theory, If it falls back down
and hits the support it should be more likely to
rebound off it and continue back upwards.

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 Trends & channels (Con't'd)

Where would I see a support?

When the price action hits a new low point, or if the
price is continually bouncing off of a similar price
point when in a downtrend then this will usually be
considered support.

This support area normally arises due to an

increasing concentration of demand in the market.
There are more buyers than there are sellers at the
support zone, so naturally, the market is driven back
up. If the market is in a downtrend, it is usually
expected for the downtrend to pause and
potentially reverse at these support zones.

Note: The more times support/resistances have

been tested the stronger it is considered to be.

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 Trends & channels (Con't'd)

Resistance
Resistance acts in the exact same way as to support,
except that it acts as a ceiling that the price must
breakthrough in order to continue its uptrend.

When the price action reaches a resistance point, it

is expected to slow down, pause and potentially
reverse into a downtrend as the concentration of
supply increases and demand reduces.

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 Trends & channels (Con't'd)

Where would I see a resistance?

Resistance points are found when the price reaches
a new high and then retraces back. This will typically
signify a new area of resistance as it failed to break
this price point previously.
If the price repeatedly fails at the same point and
keeps getting rejected during an uptrend, then we
can consider this a resistance too.

Note: Most traders operate on the premise that each

support and resistance zone will not be broken and
that it will in fact hold.

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 Trends & channels (Con't'd)

Breakout
As shown in the previous example the price can
move through a support or resistance point, this is
called a breakout. The price has pushed through the
imaginary obstacle, hence the name breakout.

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 Trends & channels (Con't'd)

Old floor, new ceiling & old ceiling, new floor

As the market is always moving, so too are the
support and resistance zones. When the market
makes new lows and highs, these will become the
new support and resistance zones.

The old floor becomes the new ceiling (the old

support becomes new resistance)

The old ceiling becomes the new floor (the old

resistance becomes new support)

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 Trends & channels (Con't'd)

Market psychology
Market psychology plays a huge role in the market
movements. In a way, indicators and key market
levels such as support and resistance only exist
because everybody expects them to exist at the
same time.

The vast majority of people place their longs at

support zones and people place their shorts at
resistances. This makes support and resistances
somewhat of a self fulfilling prophecy.
Traders watching the market will remember what
has happened in the past and will anticipate future
movements based on that information. This is
definitely something to keep in mind when you are
trading the market yourself.

Some other areas that may act as resistance points

include round numbers, intersections with moving
averages and trend lines. More on this later.

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 Candlesticks

Okay so before we continue any further, we had

better clear up exactly what candlesticks are and
how you should interpret them.

They may only seem like a small insignificant red

and green lines on a chart, but each one of them
tells a whole story that we should be paying
attention too. So what exactly is a candlestick?

To put it simply, candlesticks are a type of chart that

we use to easily display the high, low, open and
close of a particular time period. Whatever time
frame the chart is that you’re trading, that signifies
the length of time it takes to form each candle. For
example, If you are looking at five minute chart,
then each candle represents five minutes.

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 Candlesticks (Cont''d)

You will sometimes see these referred to as

Japanese candlesticks, which is where the idea
originated from back in the 1700’s. They were
originally created so that the Japanese people could
monitor the fluctuations in the prices of rice.

It is only in relatively recent history that these have

come back and become synonymous with trading
the global markets.

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 Candlesticks (Cont''d)

Anatomy of a candle

Each candle can be broken down into several

smaller parts, each one giving us some valuable
information as to what the price did during that
particular period of time. Here is an image of a
labeled candlestick.

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 Candlesticks (Cont''d)

Open

Every candle must start somewhere, this is what we

call the open. The open is located where the close
was of the previous candle and signifies the starting
point of this candle’s given period of time.

Close

This is the exact point at which the candle closed

when the set period of time expired.

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 Candlesticks (Cont''d)

Body

The body is the area between the open and the

open and close points on the candle. This is also
referred to as the “real body” of the candle.

If the close is above the open, that means that

the price moved up during the candle
formation. This will typically form a white or a
green candle.

If the close is below the open, that means that

the price moved down during the candle
formation. This will typically form a black or a red
candle.

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 Candlesticks (Cont''d)

Wicks and shadows

As you can see from the image, there are two lines
either side of each candlestick. This signifies the
high and low of each candle, or the upper and lower
shadows.This simply displays the high point/low
point that the price got to during the candlestick
formation.

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 Candlesticks (Cont''d)

Bullish

Using the information that we gain by looking at

each candlestick we can come to some
assumptions about the market sentiment.

There are many ways in which we can do this, but

one of the easiest to spot is by looking at the length
of the body of the candle and it’s colour. At its most
basic, a green(white) candle is considered to be
bullish one, after all, the price has moved up.
If it has a long green body, then we consider this to
be a STRONG bullish candle. If it only has a small
body then we could consider it to be a WEAK bullish
candle – simple stuff.

These bullish candles show us that there were more

buyers than sellers during this time period and it
also shows us the strength of this buying power.
The stronger it is, the larger the candle body.

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 Candlesticks (Cont''d)

Bearish

On the other hand, a bearish candle demonstrates

when the bears have a hold of the market and are
pushing the price down.
If a candle has a red(black) body then it is
considered to be a bearish candle. The price is going
down.

Again, If the candle has a long body then we would

consider this to be a STRONG bearish candle. If the
candle only has a short body then we would
consider this to be a WEAK bearish candle.

The longer the candle, the more bearish the market

is and the more the sellers have overpowered the
buyers.

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 Candlesticks (Cont''d)

Bullish & bearish (Shadows & wicks)

Similarly to the real bodies of the candles, the

shadows and wicks can tell us a lot about how
bullish or bearish the market is.
For example, if there is a large wick on the upside
this is usually an extremely bearish sign and is what
we would typically call a price rejection.

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 Advanced candlesticks

What we have just previously covered is the

absolute basics of candlestick chart reading. For us
to become more accurate traders, we need to add
advanced candlestick reading to our trading
arsenal.
Don’t worry, it’s pretty straight forward as all you
have to do is remember what each of the candle
formations mean.

A good tip is to print out a candlestick cheat sheet

and have it in front of you at all times while you are
trading. That way you have a quick reference of
what you are looking at on your trading screen and
you will help you to memorise each of the
candlestick types.

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 Advanced candlesticks (Cont'd)

Marubozu
A marubozu candle is a candlestick that has no
shadows or wicks visible, all you can see is the real
body of the candle.
This means that the price opened and one point
and them continually moved in the same direction
until it’s close. It also means that it closed at the
lowest/highest point that it reached. A green
Marubozu candle is extremely bullish as it means
the bulls had control during the entire formation of
the candle. On the other hand, If it is a red candle, it
is extremely bearish.

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 Advanced candlesticks (Cont'd)

Doji
Doji candles are easily visible on the chart as they
will typically look like a cross sign. This happens
because a doji has the same open and close price,
meaning that their bodies are very small.

However, dissimilar to the marubozu, a Doji candle

will usually have a shadow and wick as the price has
tried to move in one, or both directions but has
inevitably closed at the same point in which it
opened.

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 Advanced candlesticks (Cont'd)

As you can see from the image above, there are four
types of Doji, neutral, long legged, gravestone and
dragonfly. A doji normally signifies a point of
indecisiveness and struggle within the market. The
price has not moved and it highlights a point of
equilibrium between buyers and sellers.

It is important to consider the candles that

immediately precede and follow the doji candle as it
can give a great insight into where the market is
moving next.

f a Doji is created at the top of an uptrend then it

may signify what we would call “buyer exhaustion”.
This means that there are fewer buyers left at this
price point and it could signify a reversal of the
trend. The same can be said for downtrends, too.

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 Advanced candlesticks (Cont'd)

Spinning Top

A spinning top is very similar to a doji and signifies

pretty much the same thing. They are created when
we see long wicks to both sides of a small candle
body, hence the name spinning top.

They signify that the market may be slowing down

during a trend and that there may be a possible
reversal as neither the buyers or sellers have
managed to gain a foothold during the candle
formation.

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Technical
Analysis
 Technical Analysis

When we trade the forex markets, we are always

looking for the optimal moment to enter our
positions. At the end of the day, trading is all about
timing. If we mistime our trade then we can miss out
on potential profits, or worse, we can take a loss.The
best way to ensure our trades have the best chance of
being timed correctly is to conduct top-down or
bottom-up analysis.

They are both relatively simple concepts, however, you

must make sure that you apply these strategies to the
majority of your trades if you wish to have the best
chance of success.Here’s how each one works.

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 Technical Analysis (Cont'd)

What is top-down analysis?

Top-down analysis is a trading style where you start

your analysis from the larger time frames “the
top”.When you are looking for trade setups, you will be
looking at the higher time frames, such as the daily or
even the weekly. This gives you a very zoomed out
view of the market which allows you analyze it on a
macro scale.
Once you have found your ideal set up, you must then
zoom in and analysis the next time frame down to
make sure that the set up is still valid. Picture it like
zooming in with a magnifying glass to confirm your
initial theory.
As we mentioned in the last unit, the more confluent
reasons you have to enter the trade, the more likely it
is your trade will be successful.If you have found a
trade set up on the daily chart and it is still valid to
enter on the H4 and H1 then you can enter a position
with a higher level of confidence.

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 Technical Analysis (Cont'd)

Benefits

Focus on the bigger picture

Less noise when compared to the lower time
frames
Easier to see the key levels
The levels on higher time frames are typically more
crucial therefore it is vital that we have an
understanding of where they are and how they will
likely impact the market when they reach these
levels.

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 Technical Analysis (Cont'd)

What is bottom-up?

TIf you haven’t already guessed it, bottom-up analysis

is when we start with our eye on the lower time
frames and then work our way up from there.Let’s say
you are scanning the 15 minute time frame chart and
you find a great trading set up. Maybe the price is just
about to hit a huge support that your analysis has
highlighted and you are looking to enter a long
position.Would this be enough information alone to
enter a trade?

The answer is no, it wouldn’t. In this case, it would be

much better to go one-time frame higher to have a
look at the 30-minute chart to see if our trade is still
valid. It would be better yet and much safer to go even
higher and look at the 1HR and 4HR time frames, too.

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 Technical Analysis (Cont'd)

What is bottom-up?

The reason why we do this is to make sure that the

route is clear for our trade. The smaller time frame
may be screaming BUY but on the higher time
frames, there could be a huge resistance in the way
that could seriously impact your trade.

Remember, the trend is your friend. If you are looking

to buy then make sure that the trend on the higher
time frames is upwards, too. You’ll be making your life
a lot easier if you do.

Benefit :
Much easier to spot setups on lower time frames
Helps to avoid over-trading
Ensures that your trades aren’t going to run into
problem areas that are contradicting your setups
It gives you more confidence and will likely see you
maintain a much higher win rate.

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 Moving averages

The moving average is one of the most commonly

used technical indicators, and for good reason. They
are relatively simple concepts to grasp and they give
us a simple view of the market trends and the recent
price history.

So what is a moving average?

A moving average is simply a line on our chart that
signifies the closing price of each candle over a
specific period of time.You will notice that the charts
we view can often seem chaotic with wild price
fluctuations which make the graphs somewhat hard
to read.

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 Moving averages (Cont'd)

Moving averages help to make sense of this by

creating a smooth line that shows the historical price
action.The main purpose of a moving average is to be
able to more easily identify trends and to spot
reversals as they are happening.

When the price of the currency pair is shown to be

above the moving average, this is considered to be an
uptrend.

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 Moving averages (Cont'd)

On the other hand, when the price is shown to be

below the moving average, this is considered to be a
downtrend.

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 Moving averages (Cont'd)

When the trend line is broken, we would consider

this to be a trend reversal.

Note: Moving averages are based on past prices and

are known as lagging indicators.
This means that the information they are displaying
to you has already happened. They can not predict
when a trend reversal will happen, they can only
confirm it once it has happened.

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 Moving averages (Cont'd)

There are a few different types of moving average

that we can use in our trading arsenal. The main two
that we will consider in this course are the simple
moving average (SMA) and the exponential moving
average (EMA). Let’s break each one down in more
detail.

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 Moving averages (Cont'd)

Simple moving average

Let’s say that we are using a 5-day SMA for our chart.
This means that our moving average line will
represent the average closing price of the previous
five days.
For example, if the closing price over the last 5 days
were $1.63, $1.65, $1.70, $1.67, $1.62 our calculation
would look like this:($1.63 + $1.65 + $1.70 + $1.67 + $1.62)
/ 5 = $1.65. So in this case, our 5-day SMA would be at
$1.65.The longer the period of time that the SMA
covers, the less reactive it is to current price changes
and fluctuations in the market.
As each of the price points has equal weighting, the
most recent price action effects the market just the
same as the last price point the SMA uses in its
calculation.
This can be problematic to traders as it means that
the SMA is slower to react to rapid price movements
that may prove to be important.

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 Moving averages (Cont'd)

Exponential moving average

This is where the exponential moving average (EMA)

comes in. The EMA gives more weight to the recent
price movements which in turn makes it more
reactive to the recent events in the market.

This can be beneficial to a lot of traders as trend

reversals can be spotted more quickly as the more
reactive EMA will display shifts in sentiment over the
SMA.

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 Moving averages (Cont'd)

Due to this, when you look at a chart with both the

SMA and EMA visible at the same time, you can see
that the EMA is closer to the actual price and is more
volatile than its counterpart.

When trading, it is much more important to be able to

visualise what is going on right NOW with the price
action rather than what was happening in the market
previously.

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 Moving averages (Cont'd)

Length of the moving average

The period of time that the moving average covers will

make a significant difference to its position on each
chart. That’s why most traders utilise multiple MA’s at
the same time. Here are some of the most commonly
used:

10-20 – Short term trends

50 – Mid term trends

200 – Long term trends

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 Moving averages (Cont'd)

How to trade with moving averages

Moving averages act a lot like support and resistance
lines. As many traders are using them at the same
time, they are often met with a reaction when the
price nears these points. Keep this in mind when
doing your analysis. Look for a bounce or a breakout of
these points and then enter your positions
accordingly.
As a rule of thumb, when the price is below the MA it
will act as resistance for the price to break through.
Conversely, when the price is above the MA it will act
as a support.

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 Moving averages (Cont'd)

Because of this, when the price has successfully

crossed up and over the moving average line, this
would be considered to be a buy signal.On the flip
side, when the price crossed the moving average line
to the downside then this would be considered a sell
signal.

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 Relative Strengthen Index

The relative strength index, or more commonly

referred to as RSI is another momentum indicator that
we use in technical analysis that measures the
strength in the recent changes of price.It is an
extremely popular tool, you will have likely come
across other traders using this tool and often you can
find traders having this as one of their only
indicators.It is relatively simple to comprehend and it
gives some fairly simple signals to follow when
incorporating it into your trading arsenal.

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 Relative Strengthen Index (Cont'd)

What is RSI?

The RSI is depicted as an oscillator on our trading

chart and has a value from 0 – 100 and will look
something like this on your chart.

The blue line that you can see on the indicator

represents the RSI and what level the market is
currently trading at.The RSI will rise when the number
and the size of positive closes increases, and it will fall
as the number and the size of negative closes
increase. As mentioned, the RSI can only fall
somewhere between 0-100, however, there are two
very important levels to keep an eye on when it comes
to picking up trading signals.

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 Relative Strengthen Index (Cont'd)

Oversold

As you can see from the graphic above, we have two

dotted lines displaying “oversold” and “overbought”.

Typically, when the RSI falls to 30 or below, the market

is considered to be oversold. The more oversold the
market becomes, the higher the likelihood that the
market will rebound and the price will strengthen.

Overbought

The opposite is true for when the market is starting to

run out of steam. When the RSI rises above 70, this is
considered to be in overbought conditions and the
market will be more likely to fall back down.

The higher the RSI goes, the more likely the market
will lose strength. What goes up most come down at
some point.

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 Relative Strengthen Index (Cont'd)

Trading signals

RSI is a great tool for recognizing when market

reversals may be ready to happen. If the market
reaches overbought or oversold conditions you should
look for other indicators to give you confluent reasons
to enter a position.

For example, if you see that the market is about to hit

a support at the same time that the RSI hits 30 and is
now oversold, that would be a great time to open up a
long position.

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 RSI Divergence

As you may have noticed, the market tends to move

about quite substantially. In certain currency pairs,
you could see the market dipping into overbought
and oversold territories quite regularly.

If your strategy was to enter a long position when the

market is oversold and to enter a short when the
market is overbought, you would find yourself in quite
a few trades.

For most traders, this simply isn’t enough to go on

and it may not prove to be as reliable as some people
claim.

Luckily for us, the fun doesn’t stop there with RSI. Not
only can we search for overbought and oversold
regions, but we can also look for instances of bullish or
bearish divergence that indicate trend reversals in the
market.

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 RSI Divergence (Cont'd)

What is divergence?

It is worth keeping in mind that RSI is simply a

calculation of what has been going on in the market.
It is a reflection of past market prices and the relative
strength of the price.

Generally speaking, the RSI will follow the price action.

However, when it doesn’t follow the market and we
get different signals, this is what we call divergence
which can be a very powerful indicator indeed.

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 RSI Divergence (Cont'd)

Bullish divergence

A bullish divergence occurs when the RSI hits the

oversold region making a “bottom”, this is then
followed by a higher low while the price action is
showing “lower lows”.

Simply put, the market is still falling to new lows

despite the RSI indicating that it is strengthening.

This is the divergence – two conflicting signals.This

indicates a rising bullish momentum and once the
price breaks out of the oversold territory this is a signal
to enter a new long position.

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 RSI Divergence (Cont'd)

Bearish Divergence

Bearish divergence is the exact opposite of bullish

divergence. It occurs when the RSI reaches
overbought territory and makes a high followed by a
lower high while the price is simultaneously posting
higher highs.

This suggests that the recent upward trend is coming

to an end and the buyers are running out of
steam.This would be an obvious time to enter a sell
position in the anticipation that the market will fall.

Note: RSI divergences are far less common than

overbought/oversold signals but they are arguably
more accurate and can be very lucrative when they
present themselves.

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 MACD

Now that we have got the basics of the moving

averages and relative strength index covered, we can
move on to something a little more complex, the
MACD. MACD stands for Moving Average
Convergence Divergence and it is a trend-following
momentum indicator. Sounds fancy right?

At first sight, the MACD can look a little confusing and

potentially intimidating to new traders but don’t
worry, it doesn’t have to be.

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 MACD (Cont'd)

Let’s break it down:

The horizontal line in the middle is the “zero” line and
acts as our base point.The next line to get plotted is
the “MACD” line which used the 12-day and 26-day
EMA. It is calculated by subtracting the 26-day EMA
from the 12-day EMA. This is the red line in the image.

The next line that is drawn on the MACD is the “signal”

line which is simply a 9-day moving average of the
MACD line.

The red and green bars that you can see on the chat
are what is called the “histogram”. This simply
indicates how far away the two lines on the MACD are
from crossing over with each other. As you can see,
the closer they get to crossing, the closer the
histogram gets to the horizontal “zero” line.

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 MACD (Cont'd)

Bullish or bearish

To put it simply, the market is considered to be bullish

when the MACD and signal lines are located above
the zero line and it is considered to be bearish when
they are both found to be below the zero line. Simple
stuff.

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 MACD (Cont'd)

So how do we trade with the MACD?

Trading with the MACD is simple. We simply wait for a

crossover to occur between the two lines on the chart
and then enter our positions accordingly.

If there is a crossover below the zero line then this

indicates a change in momentum and is a signal for
us to BUY and open up a long position.

If there is a crossover above the zero line, then we

would consider this to be a SELL signal as the trend
may be reversing as the buyers are “running out of
steam”.

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 Fibonacci

Fibonacci is an extremely interesting concept, not just

in trading but in the natural world.There are specific
numbers that we see in nature all the time. Together
we call them the Fibonacci sequence and they look
like this:

1,1,2,3,5,8,13,21,34,55…

As you may have noticed, the sequence is very simple.

The previous two numbers in the sequence add up to
equal the next one.

1+1=2
1+2=3
2 + 3 = 5, and so on.
Now here is the interesting part. When we divide
almost any of the Fibonacci numbers by the one that
comes before it in the sequence (excluding the first
few entries to the sequence), you get the same
number every time – 1.618.

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 Fibonacci (Cont'd)

For example, 144/89=1.618, or 55/34=1.618

This number is now commonly referred to as the

golden ratio and it can be found everywhere across
the natural world.

We can see it in how pine cones are arranged, the

angle at which flower petals are places with one
another, seashells, hurricane formations, human faces,
DNA molecules, and even the way our galaxies are
formed.
So what does all this have to do with forex trading I
hear you say? Well, it turns out that these numbers
also give us significant price levels when it comes to
trading.Using charting software, we can plot a
Fibonacci tool onto our graph which will display
Fibonacci retracement and Fibonacci extension levels
that we can use to enter our long/short position. These
give us great entry and exit points, so it is definitely
worth taking the time to master these tools.

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 Fibonacci (Cont'd)

Retracements

Let’s start with the most common tool, the Fibonacci

retracement.

When we divide a number by the next one along in

the sequence, we get a number that is pretty close to
0.618. When we divide number by the number two
along in the sequence we get 0.382; three along, we
get 0.236.

Also, when we divide one by two which is located right

at the start of the Fibonacci sequence we get
0.5.Okay, now we have these key Fibonacci numbers,
we can turn them into percentages.

So how can we apply this to our trading? Take your

Fibonacci tool in your chart software and draw a line
from the bottom of the price move you are looking at
to the top.

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 Fibonacci (Cont'd)

This is called the swing low and the swing high.After

you have done that, you can pull down a graphic that
will display the key Fibonacci levels that the price may
retrace to.These levels are said to act as hidden
support and resistance levels in the market and we
can place our entry, exit and stop losses around these
points.

Extensions
We can draw Fibonacci extensions in the opposite
way. Take your Fibonacci tool and draw a line from the
swing high to the swing low and then extend the
graphic to see the key Fibonacci extension levels.

Similar to the retracement levels, the key Fibonacci

extension levels are: 38.2%, 50.0%, 61.8%, as well as the
100%, 138.2% and 161.8% extensions.These levels will
initially act as resistance levels for the price to break
back through again.

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 Fibonacci (Cont'd)

Once the price has broken through, they will act as

support.

Note: Fibonacci levels should be used as a tool to

accompany your other trading strategies and should
not be used alone. If you see that Fibonacci support or
resistance coincides with another indicator, such as a
moving average or RSI divergence, then this may
suggest a good position to open a trade.

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 Double bottom & double top

Okay, now it is time to start looking at some patterns

that we can see on our charts. Double top and double
bottom patterns appear on our charts when the price
action of the currency pair moves in a similar way to
the letter “W” or “M”.

The letter “W” represents a double bottom as it shows

the price rebounding off of the same price point twice.
This indicates a bullish trend reversal.

The letter “M” represents a double top as it shows the

price rebounding off of the same price point twice.
This indicates a bearish trend reversal.

These are very important technical analysis patterns

that we can use as traders to try and predict where
the price will move in the future.

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 Double bottom & double top (Cont'd)

Double top

Here is a diagram of a double top. As you can see, the

market is in a bullish/uptrend and moves on to create a
new high (shown as peak 1 in the diagram). The price then
falls down before bouncing back up again to create
another high (shown as peak 2).

When the price falls after reaching peak 1, the area that it
reaches is referred to as the “neckline”. This is a vital price
point that we will come to in just a moment

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 Double bottom & double top (Cont'd)

Double top

For this to qualify as a double top, peak 2 must not

exceed the heights of peak1. The bullish trend must
try to break new heights but fail and then fall back
down to the necklines.

So how do we trade based on this information?

During a double top, we would enter a sell/short
position when we see the price break the neckline
after the second top.

The breaking of the neckline confirms the double top

and usually signals a bearish trend reversal that we
can capitalize on.

As you can see from this example, we have two clear

peaks and then a clear break through the neckline
following the second peak. This would be our entry
point for a sell.

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 Double bottom & double top (Cont'd)

Double bottom

No points for guessing what a double bottom is. Yep,

it’s the mirror image of a double top. Here is an
example of a double bottom. As you can see, we had
the first bottom followed by a rebound up to the
neckline followed by another rebound to the second
bottom. We should enter a long position when we see
that the neckline has been successfully broken.

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 Double bottom & double top (Cont'd)

Tip: Double tops and double bottoms can be

extremely profitable if we can successfully identify
them. However, if you misidentify one then it can be
very costly.

Make sure you set a tight stop loss and manage your
positions carefully. It may be beneficial to paper trade
these patterns for a while before live trading them so
that you can practice spotting them without putting
your trading capital at risk.

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 Triple bottom & triple top

Similar to the double top and double bottom patterns,

the triple top/bottom works in a very similar way.

It is a pattern that we use in order to identify trend

reversals during market uptrends/downtrends. If we
spot them during an uptrend, then this is a very clear
signal that the market is about to undergo a bearish
reversal.

On the other hand, if we spot them during a market

downtrend then this is a clear signal that the market
is about to undergo a bullish reversal.

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 Triple bottom & triple top (Cont'd)

Triple top

A triple top pattern occurs when we see three

subsequent peaks at very similar price levels. As the
price has tried to break this price level on three
separate occasions and has failed, we can safely
assume that this is an area of resistance.

Similar to the double top, the area that the price pulls
back to is referred to as the neckline. Should this level
break after the third peak then we have a clear signal
to enter a sell.
A clear and obvious area to set out stop losses would
be above the highest peak in the triple top pattern,
which is usually the first peak. If the trade was to break
that price level the trade has become invalid and the
triple top did not form correctly.

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 Triple bottom & triple top (Cont'd)

As you can see from the image above, the price

created three peaks that it failed to break and then
eventually broke out of the neckline support after the
third peak. This was a clear point for us to enter a SELL
position.

Note: We can obtain a clear take profit point when

trading this method by looking for the price to retrace
at least the same distance between the top of the
peak and the neckline. We can use this as a guide to
where to expect the price to reach.

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 Triple bottom & triple top (Cont'd)

Triple bottom

The triple bottom is the exact mirror image of the

triple top. Here is an example.

The exact same principles apply to the triple top, so

just trade it the exact same way that you would a
triple top, except for this time we enter a LONG
position upon the break of the neckline.

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 Head & shoulders

To keep in the theme of the recent lessons, the head

and shoulders pattern is another trend reversal
pattern that we can use to identify when the market
may be about to turn.

This pattern is also similar to the double top/triple top

patterns and we trade it in pretty much the same way,
with only a few variations. First of all, here is an
example of a head and shoulders pattern.

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 Head & shoulders (Con't)

As you can see from the image above, it is very similar

to the triple top, however the peaks are of different
heights and the neckline is not strictly horizontal.A
head and shoulders pattern is formed first by a peak
(the shoulder) followed by a higher peak (the head)
followed by another lower peak (the second shoulder).

In this instance, we draw the neckline by connecting

the two lowest points that are visible from the
pullbacks.
More often than not the line will not be straight, but
don’t worry this is typical for a head and shoulders
pattern.

So how do we trade this? Well, we use the exact same

method as the triple top and double top. Simply wait
for a clean break of the neckline and then enter our
SELL positions. We can expect a pullback to be a
similar distance to the difference between the head
and the neckline.

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 Head & shoulders (Con't)

Tip: Some traders say that the signal is more accurate

when then neckline is a downslope. This would signify
that the market is clearly losing strength and the
possibility of a clean break of the neckline is more
likely.

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 Head & shoulders (Con't)

Inverted head and shoulders

As with most of these patterns, there is always a

mirror pattern that works in the exact same way. Here
is an example of an inverted head and shoulders
pattern.

As you would expect, the inverted head and shoulders

pattern only arises in a downtrend and must meet all
of the same criteria as the standard head and
shoulders pattern.

We simply place a LONG once there is a clear break of

the neckline and the trend reversal is confirmed.

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 Triangle patterns

Last but not least in Unit 4 we have triangle patterns.

These are common chart formations that occur
relatively frequently, so it is important that you get to
grips with them fairly quickly.

Here we will cover the three main types of triangle

patterns and show some examples. They are the
ascending, descending and symmetrical triangle.

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 Triangle patterns (Cont'd)

Ascending triangle
An ascending triangle occurs when there is a clear
horizontal resistance level followed by a string of
higher lows. It should look something similar to this.

As you can see, the price is clearly struggling to break

through the resistance but the market is showing
strength with continued higher lows signifying an
uptrend. Eventually, this will come to a point and the
market must decide where it is going from here – a
breakout is bound to happen.

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 Triangle patterns (Cont'd)

Ascending triangle

In an ascending triangle the price will usually break

through the resistance and breakout to the upside.
However, that is not always the case. You should be
ready for both eventualities.

Wait for a clear break of the pattern and set your stop
loss at the point where the breakout becomes invalid
again. For example, open a BUY order just above the
resistance level and set up a stop loss just below the
support level of the ascending triangle.

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 Triangle patterns (Cont'd)

Descending triangle

Yep, you already guessed it. A descending triangle is

the exact opposite of an ascending triangle. You
should look for a horizontal support line that has
continually held the same level while there is
weakening price action showing a series of lower
highs.
Here is an example of a descending triangle:

Most of the time, the price will break to the downside.

The best way to trade this setup is to set a sell order
just below the support and set your stop loss at the
point of invalidation, which in this case would be
located just above the resistance point of the triangle.

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 Triangle patterns (Cont'd)

Symmetrical triangle

Last but not least, we have the symmetrical triangle.

This pattern is an indication of market consolidation.
This means that the market is not trending in any
particular direction at the moment and could be
prone for a breakout to either side.

These patterns occur when the market is making a

series of lower high and higher low, like this:

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 Triangle patterns (Cont'd)

So how do we trade this? Well as we can be pretty

sure that a breakout is coming in one direction it is
better to prepare for both eventualities. Set up your
long orders just above the triangle resistance line and
your sell orders just below the triangle support line.

This ensures that you will catch the breakout in

whatever direction it goes in. Remember to set stop
loss at the point of invalidation,which will be at the
opposite side of the triangle that you opened your
order.

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 Triangle patterns (Cont'd)

A quick word on indicators and patterns

That about wraps it up for unit 4. It is worth quickly

reiterating the importance of using a combination of
these trading indicators in order for us to be
successful.

If we rely too heavily on one signal then we will

certainly be shooting ourselves in the foot as we won’t
be trading as optimally as we could.

It is advised to use bottom up analysis while looking

for multiple confluent reasons to enter a trade. The
more reasons you can find to enter a trade, the better.

This may mean that you miss out on a number of

winning trades, however, you will vitally avoid those
losing trades that can be so damaging to our trading
balance and to our mentality.“Sometimes the best
trades you make are the ones you don’t take”.

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Mindset
 Creating a trading plan

First things first, we need to create a trading plan. As

the old saying goes, “fail to prepare, prepare to fail.”

If we just hit the markets any time we like without

giving much thought to what our plan is and why we
are doing what we are doing, then you can guarantee
that you will be recording losses before you know it.

Granted, you may get lucky for the first few times, but
eventually, that luck will run out, and the lack of
planning and a clear strategy will undoubtedly show.

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 Creating a trading plan (Cont'd)

A trading plan, not a trading strategy

When we say trading plan we don’t mean that you

need a clear idea of where you will enter and exit a
trade, instead we mean you need to have an overall
sense of what your goals and ambitions are for trading
and what sort of funds and time you can allocate
towards these goals.

The trading plan should be personal to you, honest,

and realistic. This is what is going to help you decide,
what, when, and how much you want to trade.

This should be the foundation of your trading and

should be referred back to when you feel yourself
getting into a rut, or even to stop yourself getting
carried away when you’re on a winning streak.

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 Creating a trading plan (Cont'd)

A solid trading plan should help you to keep a logical

trading mind and keep your emotions in check by
helping you to make more objective decisions and
fostering a trading discipline which is so vital to
becoming a profitable trader.

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 Creating a trading plan (Cont'd)

How to make a trading plan

Here is a template to follow when making your plan,

be sure to include all of these elements and anything
else you feel is important.

1.Write down your main motivation for wanting to

trade :
As with anything in life, it never hurts to stop and take
stock of what we are doing and why it is we are doing
it.Why do you want to start trading? Do you want to
become a full-time trader, add a little extra income to
your full-time job, or do you want to become a fully-
fledged expert, and find a job on Wall Street?
Whatever it is, write it down and keep this in mind
when you are trading. It helps to keep things in
perspective later down the line.

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 Creating a trading plan (Cont'd)

2.How much time can you commit to your new

trading career?:

How much time are you willing to commit to this new

hobby/career? Are you a stay at home parent who can
commit 40 hours per week or do you run five jobs and
have only a few hours spare? Can you trade during
work hours, or not?If you only have a limited amount
of time you need to plan efficiently and make sure you
are fully concentrated when doing so. Set aside some
dedicated trading time and stick to it, no more, no
less.
3.Clearly outline your goals and what you want to
achieve :

Similar to the first point, but this time you should write
down exactly what you want. Use numbers!For
example, “I want to increase my trading balance by
20% within the first 12 months”. That way you can hold
yourself accountable and refer back to your goal when
you need to.

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 Creating a trading plan (Cont'd)

4. How much capital can you raise for trading?:

This is important. Never risk what you cannot afford to

lose. Seriously.This gets said a lot but it is one of the
most important factors in trading. If you are over
invested that you will not be trading efficiency, it is
simply impossible.Losses will be harder to take and
you will likely be trading with scared money which
could lead you to setting stop-losses too tight and
taking profits too soon. Keep it realistic.

5. Risk tolerance :
We will go into this in more detail later on in the unit,
but for now, right down how much you are willing to
lose on one trade. The smaller the better of course.
Somewhere around 1-2% per trade is reasonable.It also
makes sense to have a daily loss limit. If you lose 2% of
your trading balance then call off the trading for the
day. If you don’t you will likely chase your losses and
trade poorly.

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 Creating a trading plan (Cont'd)

6. Pick a currency pair and a time frame: Don’t be the

jack of all trades and the master of none!It can be very
overwhelming to have 30 markets up on your screen
with indicators all over the place.Save yourself the
stress and stick to one currency pair and one time
frame. That way you can quickly learn how that
market behaves and how you can best exploit it.When
you get more comfortable you can branch out when
you are ready.

7. Create a trading diary: Last but most certainly not

least, create a trading diary. Keep track of everything.

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 Creating a trading plan (Cont'd)

There are a lot of great tools that you can use online to
help you keep account of your trades.
Some of the most important things to write down are
the reasons for entering a trade (hopefully there is
more than one), how the trade performed, and a post-
trade analysis.

By doing this we keep ourselves accountable for every

trade and it highly reduces the risk of erratic and sub-
optimal trading.Be sure to go over your diary regularly.
This will help you to highlight any weak points that
you need to improve on.

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 Risk management basics

Forex is all about having a plan and sticking to it. As

soon as veer away from the plan you are unnecessarily
exposing yourself to the market in ways that you
didn’t prepare for.

Whether that be trading with more money that you

are prepared to lose, or using a different strategy than
you have practiced and planned to stick to, straying
from your plan can be costly.

That said, let’s look at some key areas of risk

management for you to follow when trading the
markets.

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 Risk management basics (Cont'd)

Position size

You need to work out exactly what percentage of your

trading balance you are willing to risk on each trade,
once you have that information you can decide what
size of lot you are going to buy and how many of them
you will purchase.

Most professional traders risk 1% or less of their

account every time they enter a trade.

So if you have a $10,000 account then you should be

risking no more than $100.You should keep this
number consistent at all times. Do not risk 4% on one
trade, 1% on the next and then 3% after that.

Choose your account risk and then stick to that at all

times. Consistency is key.

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 Risk management basics (Cont'd)

Setting stop losses/ pip risk

Now that we know how much we are willing to lose

on our trade we need to calculate where to set our
stop loss.

We will go into much more detail on stop losses in the

next section, but for now just remember that the stop
loss should be set at a predetermined distance from
our entry point that signifies our maximum amount of
risk per trade.

To do this, we must calculate how much one pip

movement is worth to our account and then set our
stop loss accordingly.

For example, if one pip is worth $1 to us and we have a

$10,000 dollar account then the maximum we can
afford to lose using a 1% risk is 100 pips.

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 Risk management basics (Cont'd)

Taking profit

This is secretly one of the hardest parts of trading,

where to exit when we are in profit. We must use ur
indicators and trade research to determine key points
to exit our trades.

We should always enter a trade with a key idea of

where our entry and exit points are, both stop-losses
and profit taking areas.

Again, we will go over this in detail in a few sections

time.

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 Risk management basics (Cont'd)

Keeping disciplined

As we have mentioned many times over this course,

consistency and discipline is vital. Follow your trading
plan, stick to your risk management strategy with
effective position sizes and always place appropriate
entry and exit points.

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 Risk management basics (Cont'd)

Why is it important

Having a solid risk management strategy that you

adhere to is probably one of the most important
aspects of successful trading.

Making a mistake with a trading indicator, placing a

support or resistance incorrectly, or even hitting short
instead of long are all redeemable errors. We are
human, we all make mistakes. However, if we don’t
stick to our risk management strategies, these small
mistakes can wipe out our entire trading balance. This
is exactly what we are trying to avoid.

Good things come to those who wait. Trade patiently,

diligently, and with discipline and you will be half of
the way there.

Note: If you stick to these tips and practice proper risk

management you will likely never put yourself in a
position of wiping out your account.

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 Stop-loss

We have mentioned stop-losses many times in this

course so far, and for good reason, we need them!
Time to dive a little deeper into the specifics.

As you know, the forex market can be volatile and

difficult to predict at times. Even the best traders get
it wrong and find that the market moves in the exact
opposite direction to what they predicted.

Even if all our indicators are pointing in one direction

it is still entirely possible that the market can move
violently in the other. A major economic event, a new
banking policy, and even strong rumors can affect the
price out of nowhere, we must be prepared for this.

A lot of newbie traders will make the mistake of riding

the trade it and hoping (praying) that the market will
turn back in their favor.

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 Stop-loss (Cont'd)

Others will cut their loss immediately as soon as they

see it turn red and unfortunately, both of these
strategies are incorrect.What we need is a stop-loss.
Simply put, a stop loss is an order that we place into
the market that automatically executes when the
price hits a certain level. It removes all the stress and
anxiety from trading without a stop loss and acting
the market run away with our entire trading balance
at risk.

Sometimes it’s best to cut your losses and live to fight

another day.

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 Stop-loss (Cont'd)

Where to place our stop loss

As we touched upon earlier, we can calculate precisely

how many pips we are willing to lose for each trade.

If we know that we only want to risk 1% of our account,

we should calculate how many pips that equate to,
and then we know the maximum point at which we
can place our stop loss. However, this is NOT the best
strategy. We should always set our stop-loss at the
point of invalidation.This means that we should place
our stop loss at the point where the reasons why we
entered our trade are no longer valid.

For example, let’s say that we expect the price to

bounce off a support and reverse into an uptrend.
Rather than setting our stop loss at 100 pips below the
support, we could set it at maybe 10-15 pips below the
support.

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 Stop-loss (Cont'd)

That way, we know that our initial trade theory has

been proven to be wrong (the support did not hold),
and we can exit for a small 10-15 pip loss.

For the sake of this trade, it would be unnecessary to

lose all 100 of our allocated pips based on our risk
management strategy.

This is the MAXIMUM you are willing to lose on a trade,

not how much you should lose each time.

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 Stop-loss (Cont'd)

Trailing stop-loss

Other than a setting a regular set stop-loss we can

also utilize what is called a trailing stop loss.

A trailing stop loss will move based on fluctuations

that occur during the trade.

For example, if you set a BUY order on EUR/USD at

1.1000 with a 50 pip trailing stop at and the market
moved up to 1.1050 then the trailing stop would move
up to 1.1000.

Every-time the trade moves in your favor the trailing

stop loss will trail behind by 50 pips. This is a great way
to lock in profits and attempt to ride successful trades
out for as long as possible.

The stop loss will only trigger once the market has
moved against you by 50 pips.

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 Stop-loss (Cont'd)

Moving your stop-loss to your entry position

One thing that traders like to do is to move their stop
loss to the point of entry when a trade goes in the
favor. This can be a great tactic as it essentially
removes all risk from the trade and it effectively a “free
shot” at making extra profits.

While this can often be a good idea and can real help
remove the stress from a trade it can also mean that
you turn some winning trades into break even ones.

Sometimes the market can fluctuate violently and it

can take out your stop loss before carrying back on its
trajectory.If this happens you can see your trade
closing before you get to your profit taking zone and
you have just missed out on a winning trade.

While it’s okay to do this sometimes, it’s almost always

better to set your stop loss at the point of invalidation.

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 Take-profit

What is a take-profit?
Taking profit is essentially what we want to be doing
each and every trade we take.

A take profit is the place where we set our exit trade to

get out of the market for a profit.Similar to a stop loss,
we should set our take profit trade at a predetermined
place and not just a random point.

Newbie traders often make the mistake at aiming for

a certain price level or a predetermined percentage
gain.

These are just arbitrary levels and are not based on

any sort of technical analysis and will almost certainly
mean that you’re leaving money on the table.

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 Take-profit (Cont'd)

Why is it important?
Taking profit is arguably one of the most emotionally
and technically challenging aspects of forex trading.

People often struggle with taking profits early and

seeing their trade run away on a huge move that they
have now missed out on. This can really test even the
best trader’s mental strength.Mastering the art of
taking profits is crucial for successful forex trading. If
we get out too soon we could see our trade run away
and we have missed out on profits.

On the other hand, if we don’t set appropriate take

profit levels we could see our winning trades become
losing trades if we have unrealistic targets.

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 Take-profit (Cont'd)

Where to set our take profit trades?

There are many methods that we can use to take our
take profit levels, here are a few of the most common:
The key support and resistance levels
MACD crossovers
RSI overbought/oversold levels
RSI divergences
Use your predetermined risk rewards ratio (more
on this in the next section)
Look for critical levels in the market that could prove
as obvious obstacles. If you are in a long position, it
probably wouldn’t be a good idea to set your sell order
above a significant resistance point.

Every trade you take will present a delicate balancing

act between being over cautious and being too
greedy. To eliminate this, set your targets at key levels
in the market that take out the subjectivity in your
trades.

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 Take-profit (Cont'd)

Multiple take profit zones

Some traders find it beneficial to spread out there
take profit orders over two or more areas in order to
take their profit incrementally.

This can really help with the mental side of trading as

once you have reached your first TP (take profit) level
your trade will remain in profit even if it dips below
your initial entry point.

This is usually more common in swing trades that are

targeting larg pip movements over one to a couple of
days. If you plan to do this then it makes sense to set
the TP orders at or just before key levels in the
market.In the next section, we will look at risk-reward
ratios that will help you to set better targets for your
take profit orders.

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 Risk vs reward

What is risk vs reward ratio?

If you have spent some time trading before or if you
have studied other traders then you will likely have
come across the term “risk reward ratio”. This is a
crucial aspect of trading that we must understand if
we are to become profitable in the long run.

The risk reward ratio is simply the amount of capital

that we are risking for the potential gain that we are
targeting.

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 Risk vs reward (Cont'd)

How to calculate R-R-R

Whenever we want to enter a trade we should
calculate our risk/reward ratio first. All we need to
have is our entry price, stop loss price, and our target
price.

Example one:

For the sake of simplicity, let’s use round numbers to

explain how this works. Let’s say we are going long on
a currency with an entry price of $100. First we need to
ask, how much would we lose if we lost our trade.

Next, how much would we profit if our trade won?

From this we can work out what our risk/reward ratio
is 60/20 = 3:1. In this example our reward is three times
the size of the risk. Now let’s use an example using
pips.

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 Risk vs reward (Cont'd)

How to calculate R-R-R

Let’s say we are entering a scalping position trying to
make a 10 pip gain and we set our stop loss at five
pips.In this case we stand to lose five pips if our trade
loses and we win 10 pips if our trade wins. 10/5 = 2:1

In this example, our risk to reward ratio for the scalp

would be 2:1.

Easy enough, right? But what does this mean and

how can it help with our trading?

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 Risk vs reward (Cont'd)

Why is risk vs reward important?

When we know what risk reward ratio we will be
trading with we can easily find out what winning
percentage we need in order to be profitable traders.

This is very handy to know as you can always stop and

take stock of how you are performing and just how far
away you are from becoming a winning trader.

Let’s take a look at what we would need to do to break

even if we trade at some different risk to reward ratio.

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 Risk vs reward (Cont'd)

The problem with too high a RRR

As you can see, the required winning rate drastically
reduces as we increase our risk to reward ratio.

Sometimes when newbie traders see this, their eyes

light up with the sight of the low winning rates, and
they think that it would be easy to attain these levels
and instantly become a winning trader. While there is
some logic to be found in this, there are a few
drawbacks that we need to consider.

Firstly, the higher we go with the RRR, the longer our

trades will last, and the more exposure we have to the
market. As we have mentioned many times
throughout this unit, trading is mostly a mental game.

The longer we expose ourselves to the market, and

the longer we have open positions, then the more
chance there is that our emotions will get the better
of us and interfere without trading.

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 Risk vs reward (Cont'd)

Secondly, if we have a long RRR, we will get stopped

out more often than not, and we will have to
overcome dealing with many consecutive losses,
which can be a tough burden for even the most
seasoned of traders.

Lastly, traders will often cut their trades short when

they are in these types of trades and will take their
profit early. While at first, this may seem like a bad
idea, but what they are actually doing is dooming
themselves to being massively unprofitable.

If they cut their winning trades short every time, they

will not be reaching that four, five, or six times target
that they were aiming for.

That means that they will not be making up for all of

those small losses that they have racked up, and they
will often never reach the high targets that they set.

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 Risk vs reward (Cont'd)

Note: It is entirely possible to be a winning trader

using high risk to reward ratios, but it is much more
difficult. For newbie traders, it is recommended to
stick to a lower ratio while starting out until you can
find your sweet spot.

What RRR should I use?

It all depends on what type of trader you want to be,

however, most traders seem to agree that somewhere
around the 3:1 RRR is somewhat of a sweet spot.

When selecting a 3:1 RRR, you will still hit a large

portion of your trades without getting continually
stopped out and left feeling demoralised.

A 25% win rate using this RRR is definitely achievable

using the strategies that we have already brought you
in this course, you just need to stick to your trading

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 Risk vs reward (Cont'd)

plan and ensure you trade with discipline every time.

One of the main dangers comes with cutting your

winning trades short, so be aware of moving your stop
loss to a breakeven position when you don’t need to.

Constantly manage your trade for signs that your

initial theory has now become invalid. If it has, it is
perfectly fine to exit.

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 Risk vs reward (Cont'd)

Final word on RRR’s

At the end of the day, the risk to reward ratios are not
set in stone. You should chop and change them to fit
in with your trading plan and set your targets based
upon key levels that you identify in the market.

If you want to set a trade up with a RRR of 3:1 but you

see that there is a significant resistance level where 2:1
RRR would be then it would certainly make sense to
adjust your trade to avoid that.

The risk to reward ratios should be used as a tool to

guide us with our targets and help us trade, not to
hinder us from applying solid trading fundamentals to
each trade.

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 When & when not to trade

Most of the information you will find when you begin

your trading journey will be on how to best spot
market opportunities and identify signals when they
present themselves.

While, of course, that is extremely useful information,

it could be argued that it is equally important to know
when NOT to trade and to avoid the market all
together.

Whether it be for a personal reason or due to

macroeconomic events out of your control, there are
certainly moments where you would be better
waiting on the sidelines to trade another day.

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 When & when not to trade (Cont'd)

Personal reasons to avoid trading

First of all let’s look at some times when you shouldn’t

trade due to personal reasons. Some of these may
seem obvious but you would be surprised how many
people ignore these warning signs and blow away
their entire trading capital.

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 When & when not to trade (Cont'd)

Trading when highly stressed/ tired

If you are stressed/tired then you will not be

performing at your best and your decision making will
be sub par. It’s far better to take a rest and come back
when you are feeling fresh again.

If you must do something to do with trading then it

would be far better to use this time to study or to
paper trade rather than using live funds.

During emotional times

Trading is no different to any other job that you may

have in the real world. If you have some serious family
issues or if you are under a lot of mental pressure then
it would be better to take some time off.

If you ever feel like your emotions are getting the

better of you then save the trading for another day.

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 When & when not to trade (Cont'd)

Trading when surrounded by too many distractions

It’s essential that you are 100% focused when you are
trading. You should always be monitoring your
positions for how your trades are performing and how
the market behaves. It’s hard to learn from the market
if you are constantly distracted.

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 When & when not to trade (Cont'd)

Trading when surrounded by too many distractions

It’s essential that you are 100% focused when you are
trading. You should always be monitoring your
positions for how your trades are performing and how
the market behaves. It’s hard to learn from the market
if you are constantly distracted.

When you are at work

This ties in with a few of the aforementioned points. If

you are at work you likely will not be able to focus and
you will be distracted on multiple fronts. Also, we don’t
want you to lose your job just yet! Wait until you’re
bringing in the big bucks first.

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 When & when not to trade (Cont'd)

Fundamental and technical reasons to avoid trading

The market reasons for not taking a trade are

situations that are way out of your control. Certain
events have the potential to send shockwaves
through the market, causing huge swings and periods
of volatility.
Here are a few examples of such events. During these
times, it’s almost always better so sit out and watch
from the sidelines.

Large news events

News often plays a big role in the price fluctuations in

the market. Some currencies are heavily tied to
commodities while others will move depending on
how their stock markets perform or sometimes even
individual companies.

Keep one eye on the news and make sure you

understand what impacts the currencies that you are
trading.

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 When & when not to trade (Cont'd)

Political elections results

This is one goes without saying. Keep an eye on key

election dates as the price can fluctuate wildly based
on election results.

High profile speeches and budget releases

High profile speeches and budget releases can affect

the market considerably. Be aware of when they take
place and wait for them to pass by so you can avoid
the market uncertainty and resulting speculation.

Bank holidays

A large portion of the trading volume comes from the

banks. When they are closed during the bank holiday
it means the markets are far less liquid than usual.
This can cause market stagnation and occasionally
erratic price movements.

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 When & when not to trade (Cont'd)

Market open/ close

It’s a good idea to try and avoid the market/open close
as it can often bring increased volatility. Traders are
frantically trying to open/close their positions which
can cause erratic price movements.

A word on over-trading

As the markets are open 24 hours a day, five days a

week, there are a huge number of opportunities for
traders to take advantage of. This is both a blessing
and a curse.
Over-trading is one of the major reasons why traders
lose money. You should not be entering a position at
every signal that you see. As the old saying goes,
“good things come to those who wait.”
It pays to wait for clear cut setups where a number of
your indicators are all pointing in the same direction.
Stick to your trading plan religiously, don’t chase your
losses, and keep your trading decisions as objective as
possible.

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 Consistency when you trade

Consistency is absolutely crucial to becoming a

winning trader, especially in the long run. So how do
we achieve this?

Well, we should be aiming to make our trading as

OBJECTIVE as possible. This means we need to take
our emotions out of the trading process as much as
we can by having a clear trading plan and a set
strategy to follow.

This means that a large part of the decision-making

process has been removed from the equation, and we
can simply focus on scanning the market for good
setups, and we can monitor the performance of our
trades.

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 Consistency when you trade (Cont'd)

Consistent risk

One of the most vital areas we must maintain

consistency in is with our level of risk. If we overexpose
ourselves on a trade and end up losing, then we can
wipe out a considerable part of our trading capital.
This is something we want to avoid.

Calculate how much of your trading balance you are

willing to risk on each trade. As we have suggested,
this should be somewhere close to the1% mark.

Once you have this figured out, it is best advised to

trade with consistent lot sizes so that you can keep
your market exposure at the same level each time you
trade.

This way, you will become more comfortable with

trading that lot size until you are ready to increase
your stakes.

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 Consistency when you trade (Cont'd)

Consistent risk-reward ratio

Many people like to trade with a consistent risk-

reward ratio as it allows them to analyse their trades
on a macro level and compare their actual win rate
with their desired win rate.

For example, if you trade with a 2:1 risk-reward ratio,

you know that you need a 33% win rate to break even.
If you keep track of all your trades, you can easily see
how you are performing and just how far above or
below breakeven you are hitting.

If you switch between RRRs, it can become hard to

keep track of your win rate for each ratio. The best way
to overcome this is to keep track of your trades and
write them into your trading journal every time. Make
a note of the RRR you used and record the outcome;
that way, you can split test your results and see which
RRR is performing best for you.

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 Consistency when you trade (Cont'd)

If you stick to one RRR then you will be able to

understand how the market behaves during these
types of trades and this will help you improve as a
trader much quicker.

The skills required to become a great 1:1 RRR trader

are far different than those who trade at a 10:1 RRR –
stick to one area and hone your skills there.

Note: As always, the RRR is not the be-all and end-all.

Set your entry and exit points strategically and be
aware of key market levels.

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Economics
 Fundamental analysis

As we mentioned previously, fundamental analysis is

an approach to analyzing the market by looking into
the social, economic, and political issues that may
affect a country and its currency.

These are all vital components that drastically

influence the supply and demand of the currency, so it
is worth keeping an eye on them for the periods that
you’re trading.

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 Fundamental analysis (Con't)

Fundamental analysis vs technical analysis

The main style of analysis that we have covered in this

course has been technical. This is the use of indicators,
oscillators, as well as the analysis of price action and
candlestick reading.

While this is great for short/medium term trading,

fundamental factors will always have the biggest
effect on the markets.

Truth be told, most traders ignore the fundamentals

of the currencies that they are trading. The general
argument is that they do not need to concern
themselves with macroeconomics while they are
trading the smaller time frames.

While there is certainly some logic to this, it is a flawed

and naive outlook. The more knowledge we have and
the better understanding we have of the markets, the
better.

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 Fundamental analysis (Con't)

Fundamental analysis can help us to identify

potentially turbulent times in the market, shifts in
sentiment, and times of great uncertainty – all of
which are situations we would be better off watching
from the sidelines.

Trading using technical analysis alone is kind of like

trading with one eye open. Eventually, you will miss
something and run into an unpleasant surprise.After
all, the support and resistance lines you draw on your
chart are no match for a central bank adjusting its
interest rate or a shock referendum result (ahem,
Brexit).

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 Fundamental analysis (Con't)

Economic calendar

So how do you keep up with all of these events? Well,

the good news is that you don’t need to be an Oxford
certified economist. After all, this is “fundamental
analysis” not expert, in-depth analysis.

You can simply follow an economic calendar to keep

an eye on all of the key dates and important events
that happen in the forex world.

An economic calendar is one of the most important

tools for traders who wish to keep an eye of the
market fundamentals. It essentially lists all of the
major economic events that occur across the globe in
one easy to read format.Rather than trolling through
all of the news sources yourself and creating your own
diary, you can simply take a look at an economic
calendar and see all of the important upcoming
events for the currency pair you’re trading.

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 Fundamental analysis (Con't)

Some of the things that a good economic calendar

will list are:

Interest rate changes

Central bank announcements
Political elections
Economic indicators (GDP, CPI, employment rates
etc.)Company quarterly earnings reports
Key speech dates
This is a massive time saver. It brings together all of
the information you need in one place. With some
economic calendars, you can even filter the results to
display the exact event you are looking for. Very
handy.

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 Fundamental analysis (Con't)

Tip: Even with the use of an economic calendar it is

still better to stick to one or two currency pairs when
you first start out. It’s easy to get overwhelmed and fall
into a state of analysis paralysis. Save yourself the
hassle and knuckle down on one pair and become a
master of that before you move on.

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 Fundamental analysis (Con't)

News sources

If you really want to get your teeth stuck into the

fundamental analysis by keeping your ear to the
ground on the latest of the forex markets then you will
need to find a good news source.Market news and
data are available through many sources, you won’t be
hard-pressed to find the information. If you prefer to
use the TV to get your news then you will likely find
some around the clock coverage on the markets.

Other than that, the internet is your best bet. Stick to

the larger and more reputable sources for the most
reliable information. Here are some examples of good
sources for forex news.
Bloomberg
Reuters
The Wall Street Journal
UK Investing

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 Economic Indicators

When you’re out there conducting your fundamental

analysis and researching the latest developments on
the markets you are going to come across a lot of
economic indicators. GDP, CPI, employment rates, etc,
etc.

It’s all well and good finding this information, but

what does it really mean and how does it impact the
value of a currency?

In this section, we will break down the main economic

indicators that you will come across and discuss what
each of them signifies and how the markets will
typically react to them.

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 Economic Indicators (Cont'd)

Gross Domestic Product GDP

Let’s start with one of the big ones, GDP. Unless you
have been hiding under a rock or you have never
watched a news channel before, you will most likely
have heard of GDP before.

Gross Domestic Product is the widest measure of the

overall health of an economy. It is a way to measure
the market value of a country’s goods and services.
Because of this, it is used to determine how well or
how poorly the country is performing economically.It’s
such an important indicator that this is what
economists use to determine what stage of the
business cycle we are currently in. If we see two
consecutive months of negative GDP, this is what we
call a recession. As soon as we enter a positive month
the depression is considered to be over.

This is a good indication of the current sentiment

around a currency.

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 Economic Indicators (Cont'd)

If the country’s economy is in a recession then there

will be a higher likelihood that the value of that
currency will fall.

Something to keep in mind.Note: It takes a long time

to compile the data that goes into the GDP
calculations. By the time the data is released most of
the information is already known, so usually, it has
little to no impact on the market. However, if the GDP
figure is far from what is expected then it can certainly
cause chaos in the market.

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 Economic Indicators (Cont'd)

Non-farm payroll

Non-farm payroll, or NFP, is a key economic indicator

for the United States economy. As the USD is by far
the most traded currency in the world, chances are
you will be trading using it at some point in the future.

NFP is intended to signify the total number of paid

workers in the U.S. excluding farm employees,
government employees, private household employees
and employees of nonprofit organizations.

It is one of the most significant economic indicators

for the U.S. economy and the fluctuations in the
market prove that.It is normally released on the first
Friday of every month at 8:30 am EST. You will
definitely want to keep an eye on that date. Even in
the days before the figure is released the market
becomes particularly volatile in anticipation of the
release as there are thousands of traders trying to
second guess the market.

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 Non-farm payroll

There will be a general expectation as to what the

figure will be, but of course, this expectation is not
always correct.The higher the payroll number the
better for the U.S. economy. This is definitely one to
keep an eye out for, but be warned, the markets can
get extremely volatile in these moments.

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 Non-farm payroll (Cont'd)

Consumer Price Index

The consumer price index, or CPI, measures the costs

of goods and services by calculating the average price
of a specific basket of goods or a service.

When the CPI changes this is a reflection of the rate of

inflation which is a very important figure when it
comes to currency trading.

It gives us an objective view of how quickly prices are

rising or falling in the economy. This number is also
released monthly in the United States and in the UK,
so you need to keep an eye on these dates.

This metric is used to determine if the economy is on

track with the projected inflation rates. If they are then
this is good for the economy and will usually attract
investment, if not then the currency may weaken.

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 Non-farm payroll (Cont'd)

Employment Indicators

Employment is one of the key indicators that signify

the strength of a country’s economy and how well the
government’s policies are performing.

There are a number of indicators you can follow to get

employment statistics, one of the most significant is
the NFP.

There is an Employment Monthly Report that is

released once a month that displays the employment
rate and the unemployment rate (given as a
percentage of the total labor force).The lower the
unemployment rate the better it is for the country’s
economy.

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 Non-farm payroll (Cont'd)

Interest Rates & Central Bank meeting

Any change in the interest rates is typically met with a

huge reaction in the forex markets. These rate
changes affect everybody and everything surrounding
the currency; the buyers, sellers, importers and
exporters.

The Central Bank of a lot of the major forex currencies

has regular meetups each month to discuss the
current state of the economy. Sometimes the bak can
make drastic decisions such as altering exchange
rates or implementing quantitative easing strategies.

These are huge events in the forex world and the

markets will usually wait in anticipation during each of
these regular meetings. Unless you have some key
insider information, it’s best to be cautious and avoid
trading around these periods.

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 Non-farm payroll (Cont'd)

Retail Sales

Retail sales measure exactly how much consumers

are spending in stores that sell goods. It counts all the
receipts from our high street spending, grocery store
visits, DIY trips, you name it.

This gives a great insight into how consumers are

behaving and essentially how the economy is
performing. If consumers stop spending money, the
economy will stop working. Money makes the world
go around, after all.Retail sales figures are crucial
indicators to the strength of the economy because if
the consumers are spending, it means the profits of
companies will be up and share prices will follow. This
will attract investment and usually gives a boost to the
country’s currency.

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Start Trading
 MetaTrader 4

Metatrader 4 is a massively popular trading software

that you can download and use for free.It’s a fantastic
tool that forex traders can use to view real time price
movements, open and close positions, view and edit
charts and graphs, and access all of the technical
indicators that we have mentioned throughout this
course.

In the past it was solely for the use of forex trading,

but now you can trade futures, equities, CFD’s, and
more, all using this one platform.

It’s a great one stop shop for everything you need

when you trade, so we highly recommend that you
download it. It’s extremely user friendly and it offers a
massive range of currency pairs – way more than you
would ever need access to.

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 MetaTrader 4 (Cont'd)

How to set it up

Okay, so let’s run through the steps that you need to

take to get started.

Step 1: Download Metrader 4 (MT4.exe) – You can

download it from
https://www.metatrader4.com/en/download

NOTE: You can download MT4 for PC, iPhone, iPad &
AndroidStep

2: Open an account with MT4. Here you can decide if

you want to use a live account or a demo account. If
this is your first time trading then it is recommended
that you start with a demo account to get to grips
with things before going live.

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 MetaTrader 4 (Cont'd)

Registering with MT4 will require that you upload

some identification documents, so make sure you
have those to hand.Make a note of your account
details, username and password for future reference.

Step 3: Now you need to link your broker account to

MetaTrader

4. To do this, simply log in to your brokerage account

from the MT4 interface.

NOTE: For those of you that don’t have a broker yet

then check out or next section for our personal
recommendation and how to get set up.

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 MetaTrader 4 (Cont'd)

How to open a trade

Alright, now that we have our account set up with

MT4 and our broker is linked to the software we need
to learn how to open a trade.Firstly, select the
currency pair of your choice by clicking on the
“Window” tab that you can find at the top of the
interface.

Select the currency pair by clicking on the ‘Window’

tab at the top of the MT4 platform, and then select
‘New Window’. All of the main currency pairs that you
should be trading are there.You can then click ‘New
Order’ on the MT4 toolbar or press F9 to open an
‘Order’ window.

From here it is a relatively straightforward process.

Simply enter the trade size that you wish to open your
position with and then

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 MetaTrader 4 (Cont'd)

choose either “Buy by Market” or “Sell by Market”.

Doing this type of order will automatically fill the order

based on the current market price. While it’s okay to
do this sometimes, it’s far better to enter a “limit”
trade and choose your entry spot carefully with the
technical analysis that you conducted.

To do this, open the drop down list by clicking on

“type” and select “pending order”. Here you can set up
a buy or a sell at specific price points in the market.

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 MetaTrader 4 (Cont'd)

Set take profit & stop loss order

When you place your order you will be presented with

the option to enter the price point for your take profit
and stop loss orders. It is very important that you
know these areas before you trade.

If you have followed our course properly then you will

know the importance of discipline and trading
consistently using the correct RRR. This is the point
where the theory turns into practice.

Every time you open a position, make sure you have at

least a stop-loss order placed at the same time. This
will ensure that your trading account is safe from any
flash crashes or big market swings while you are in
your position.You can enter your take profit and stop
loss orders manually into the field or you can use the
arrows to automatically populate it with the current
market prices.

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 Brokers

In order to trade on the forex markets you need to

have an account with a broker. A simple Google
search will bring up hundreds of different brokerages
all fighting for your custom, but to be honest it is a bit
of a minefield.

It can be confusing and overwhelming for newbie

traders to pick a brokerage, but don’t worry, we have
gone ahead and picked out one of the best for you.

Our personal brokerage recommendation –

- Vantage FX- https://bit.ly/2NnobYa

- Octa FX - https://bit.ly/2NFMot7
- Hot Forex- https://bit.ly/3eG4OG4

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 The End

Congratulations for making it to the end of our eBook.

Now it’s time for you to get out there and put
everything you have learned into practice. If it is your
first time trading then we would definitely
recommend starting with a demo account before
using live funds.

Remember, stick to your plan, trade with discipline

and keep your trades as objective as possible and you
will be well on your way to success. Good luck!

“Don’t ever make the mistake of believing that market

success has to come to you fast. Trade small, stay in
the game, persist, and eventually, you’ll reach a
satisfying level of proficiency.”

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