Succeeding with Forex Trading

 This e-book was created by traders and for traders with the aim of equipping
traders with the right skills of earning big returns from trading forex online.
With the help of this comprehensive and easy-to-follow e-book, you will soon
be equipped with enough knowledge to start a fulfilling career in the foreign
exchange market.
LESSON 1: THE BASICS OF FOREX
TRADING

 HIGH RISK WARNING:

Foreign exchange trading carries a high level of risk that may not be suitable
for all investors. Leverage creates additional risk and loss exposure. Before
you decide to trade foreign exchange, carefully consider your investment
objectives, experience level, and risk tolerance.

You could lose some or all of your initial investment; do not invest money that
you cannot afford to lose. Educate yourself on the risks associated with
foreign exchange trading, and seek advice from an independent financial or
tax advisor if you have any questions.

ADVISORY WARNING:

We provide references and links to selected blogs and other sources of

economic and market information as an educational service to its clients and
prospects and does not endorse the opinions or recommendations of the
blogs or other sources of information. Clients and prospects are advised to
carefully consider the opinions and analysis offered in the blogs or other
information sources in the context of the client or prospect’s individual
analysis and decision making.

None of the blogs or other sources of information is to be considered as

constituting a track record. Past performance is no guarantee of future results
and we specifically advise clients and prospect to carefully review all claims
 and representations made by advisers, bloggers, money managers and
system vendors before investing any funds or opening an account with any
Forex dealer. Any news, opinions, research, data, or other information
contained within this website is provided as general market commentary and
does not constitute investment or trading advice.

We expressly disclaim any liability for any lost principal or profits without
limitation which may arise directly or indirectly from the use of or reliance on
such information. As with all such advisory services, past results are never a
guarantee of future results.

 What is Forex trading?

Forex trading or currency exchange as it relates to individual retail investors

and investors refers to the trading of international currencies against one
another in a worldwide, decentralized financial market that operates
throughout the day, apart from weekends.

How does one profit from Forex trading?

Apparently, buy low and sell high is the trick here! The prices of currencies in
the foreign exchange market often fluctuate; that is, rise and fall. As such, the
profit potential comes from these changes in currency prices.

Online trading cuts out the need for intermediaries (such as banks). And, yes,
it can be a very rewarding experience. But like any other business, you must
be properly prepared. The most important preparation you must do for your
trading business is get the proper training.

How does one start trading currencies?

If you wish to commence a career in Forex trading, you will have to register
with a Forex brokerage firm and then deposit the amount you want to use in
your trading account. Once you have completed the depositing process, you
are ready to begin trading.

Since there are many trading arenas a person can choose to start trading in,
making a proper choice through careful evaluation is necessary.
 Advantages of online Forex trading

Simplicity

Online Forex trading has low barriers to entry, making it easily accessible to
all traders with internet access. Traders can access the market 24 hours a
day, from their desktop and mobile device.

Flexibility

With online trading, you are not limited to one market. You can trade Forex,
indices and commodities. It’s all available to you within the style of trading you
choose to adopt.

Transparency

With online trading, there are no surprises. Since you have full control to
monitor your trading status, you know how much you can lose and how much
you can make. This let’s you trade with ease and in a relaxed mode, which is
the way you should always be when trading money.

 How are currencies traded in the Forex market?

 In the currency market, currencies are traded in pairs. It is important to note
that a currency pair is made up of the base currency and the quote currency
or the counter currency. For example, the quotation EUR/USD, EUR is the
base currency whereas the USD is the quote currency. The currency pair
points out the amount of the quote currency needed to buy one unit of the
base currency. As an example, if EUR/USD is trading at 1.3900, then it
means that you’ll need 1.3900 dollars to purchase 1 euro.

Thus, the quote currency is what gives your profits or losses for each
transaction you engage in while trading in the foreign exchange market.

So, what are pips?

Pips are the units of calculation used by Forex traders to calculate the profit or
loss from the trades they make. If you look at any currency quote starting from
the left and count 4 places, then the 4th place is the pips value in a quote. For
example, when a currency pair moves from a value of 1.4022 to 1.4026, then
it has moved by 4 pips. And, when a pip has a value of $10, then the profit is
$40. To calculate the value of pips, traders usually use the following pips
formula:
The asking price for the currency trade
Divided by 1 pip
Multiplied by the value of the trade
The result of this gives the value of the number of pips gained or lost in a
trade.

What is bidirectional trading?

In the foreign exchange market, there are always two currencies being traded.
One currency is bought while the other is simultaneously being sold. For one
currency to rise in value, then the other currency must fall in value. As a
result, either the base currency or the quote currency will always be rising in
value, which means there is always the possibility to profit.

If the base currency is falling in value, then it means that the quote currency is
strengthening. Thus, bidirectional trading in the Forex market enables you to
place trades regardless of the direction of the market.

 Leverage

Leverage is a common practice in currency trading, and allows traders to

greatly magnify the speed and impact of the trades they place. Leverage is
what has transformed Forex from just another form of trading to a highly
exciting but also highly volatile activity.

It is of essence to note that leverage is a double-edged sword. This means

that you can magnify both the profits potential and loss potential of your
trades. For example, if a trader opens a trade with a margin of $50 and a
leverage of 200 times, then it means that the actual trade value will be 50 x
200 or $10,000. If the trader records a gain, the profit will be 200 times greater
than it would otherwise have been. On the other hand, if the trader
experiences a loss, then the loss will be 200 times more than it would
otherwise have been.

Because leverage can have such a dramatic impact on your trading, it is very
important to set clear limits and targets for your trades in order to reduce the
risk of a meltdown in your account.

Trade model

Let’s say you want to open a trade on EUR/USD. You think the market will
rise, and the EUR will strengthen, so you decide to buy the EUR/USD. The
rate is 1.4000 and you are willing to invest $100 from your account.

You decide on a leverage of 100 times. Thus, the amount of the trade will be
$10,000. Your margin is 1%, that means that if the value of the pair drops by
1% then you will lose your trade margin and your trade will be closed.

However, if the markets go in the direction you expected, then on a gain of

1% you will profit by $100. You can then close the deal and bank the $100
you earned and the $100 you invested.

How does one carry out analysis of the market?

There are two main ways of undertaking market analysis: technical analysis
and fundamental analysis, you will learn about both of them in the next lesson
 LESSON 2:
MARKET ANALYSIS

Welcome to the Market Analysis course! In this course, you will learn simply,
quickly and interactively about using fundamental and technical analysis when
trading. Remember that you can watch each individual lesson as often as you
would like. Let’s start whenever you are ready…

 There are two main types of market analysis:

o Technical analysis
o Fundamental analysis

Technical Analysis

To succeed as a Forex trader, it is essential you undertake a detailed analysis

of the market before placing any trades on the trading platform. Analysis of
the market involves forecasting the market behavior to identify the best places
to enter and exit trades.

Technical analysis is a strategy of forecasting future market movements by

studying historical price patterns and trends in the foreign exchange market.
 Whereas technical analysts may use various tools and theories in attempting
to predict correctly market moves, the most common instrument used by all is
the chart.

There are three main principles in technical analysis:

o Market action is the king

Followers of technical analysis hold that all the fundamental conditions

that could affect the behavior of a currency are already reflected in the
price movements.

o The market movement follow trends

Technical analysts hold that the rise and fall of currency prices in the
foreign exchange market occurs in an orderly manner, which is both
systematic and easy to forecast. The three major types of trends are
upwards, downwards or sideways.

o History tends to repeat itself

The movement of currency prices in the foreign exchange market has

been tracked for several years. And, a lot of studies have revealed a
number of repetitive patterns that often appear on charts. Therefore,
technical analysts believe that patterns that appeared in the past are
likely to appear in the future.

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 Fundamental Analysis

Fundamental analysis is a type of market analysis that involves examining the

economic, social and political factors and their influence on the value of
currencies. Traders using fundamental analysis as the basis for making
informed decisions on when and how to trade currencies believe that the
value of a currency in the Forex market is reflected by its macroeconomic
condition. This means that a currency of a country with a strong economy will
have a higher value than a currency of a country of with a weak economy.

It is important to mention that economic news as well as important political

events have the power to trigger big movements in the Forex market. As
such, by analyzing them, you can better understand how the market is likely
to move in the future.

When examining economic data on an Economic Calendar, you should study

the previous results and forecast results, and then compare them with the
actual results. Movements in the market happen when there is a difference
between market expectations – based on the previous and forecast results –
and the actual result.
 Here is a description of some of the key economic data that
often cause movements in the Forex market:
o Interest rates

Interest rates are regarded as possibly the most significant mover of

currency prices in the foreign exchange market. It is of essence to note
that each currency has a daily interest rate determined by the nation’s
central bank.

Lower interest rates can cause the value of a nation’s currency to

weaken and higher interest rates can cause the value of the currency
to strengthen. If a central bank of a country makes its interest rates to
be high, this would increase the yield of holding the currency; therefore,
the currency would become more attractive to hold as weighed against
its counterparts. As a result, its value would rise.

Conversely, if a central bank of a country decreases the interest rates

of a country, then this would make the currency less attractive to hold.
As a result, its value would come down.

o Growth indicators

Growth indicators exhibit the status of the economy of a country. If the

indicators are positive or increasing, it usually suggests good overall
economic condition of the country. Naturally, this would attract foreign
investors and make the value of its currency to appreciate.

Some of the growth indicators closely monitored by currency traders

include Gross Domestic Product (GDP), Gross National Product
(GNP), Consumer Price Index (CPI), construction indexes, capital
expenditure, and government spending.

o Inflation rates

Inflation alludes to the general increase in the prices of goods and

services within a certain territory over a specific time period. Inflation
indicators like PPI (Producer Price Index) in a country are usually
employed as a means of measuring its underlying economic growth. As
such, central banks normally have checks and balances to ensure
inflation rates do not go out of control.

A country with a high rate of inflation has a low purchasing power and
thus a poorly performing currency. To increase the strength of such a
currency, the government may decide to raise the country’s interest
rates.

o Employment indicators
 Employment reports provide a sign of how the economy of a country is
performing. If the number of individuals getting jobs in a country is
increasing on a regular basis, then it means that the economy is
expanding. Conversely, if there is no remarkable growth in a country’s
employment rate, then it indicates that its economy is not performing as
expected and can cause its currency to also weaken.

For instance, the Non-Farm Payrolls report, which is an employment

report released on a monthly basis from the U.S., plays a vital role in
determining the strength of currencies in the foreign exchange market.

o Balance of trade reports

Balance of Trade (BOT) means the difference between the imports and
the exports of a country. If a country has more exports than imports,
then this usually translates to it having a strong currency. The opposite
is also true.

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 How does one trade news and events?

Trading the markets based on important news events is a popular

fundamental trading strategy that is practiced by several traders around the
world. News traders attempt to anticipate how the market will react to events
and time the biggest movements.

Fundamental traders watch for surprising news that differs from the market
expectations and can result in substantial price changes. It is of essence to
note that news results can have a surprising impact on the market, so
fundamental traders need to beware of this. Worth mentioning, key economic
news releases from the world’s largest economies often trigger price
movements in the currency market. And, following the most important news
releases with the greatest market impact is one fundamental strategy for
trading the Forex market.

Therefore, you should learn which releases to look out for, when they are due
out, and how to trade based on the observed results. This trading style
requires considerable research, but allows well-informed traders to reap
significant rewards. It is important to remember that market movements based
on news events can only last for a few minutes, so watching news as it occurs
is crucial to this strategy’s success. And, you should beware of a contrary
market impact when trading key events in the marketplace.

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LESSON 3: THE PSYCHOLOGY OF
TRADING
(page 15)

Welcome to the Psychology of Trading course!

In this course, you’ll learn all about the decision making process of trading:
simply, quickly and interactively. Specifically, we will discuss some of the
common psychological obstacles to trading and provide some solutions to
them. Remember that you’re free to watch each individual lesson as often as
you’d like. So now, if you’re ready, let’s get started…

 Fear of loss (page 16)

Fear is what often gets in the way of successful trading. That’s why
understanding and controlling your fears is so important. So, how do you stop
your fears from controlling your trading? The answer lies in developing a
trading plan. As the old adage goes “Failing to plan is planning to fail”, your
plan is what will help you in navigating the Forex waters with profit. As such,
your plan should clearly set your trading goals and identify the price levels
and strategies you’ll focus on. If you don’t yet feel like you know enough to
plan in this way, then you might want to focus on practice trading for some
 time or seek out more traders’ education before starting to trade on a real
account.

How to overcome fear of loss

Success as a trader requires overcoming your fears and developing

confidence to learn from your mistakes. To realize long term success, you’ll
need to believe in your ability to make more money than you lose. Further,
you should always stick to your trading plan regardless of the conditions of the
market. That makes it easier for you to continue to place trades, even after a
string of losing positions. And, in the long run, you’ll emerge a victor.

 Greed (page 17)

Most traders know what it feels like to hold on to a trade for too long, and see
significant profits go down the drain due to this. When this happens, it’s often
the trader’s greed that’s to blame. Greed changes the way you think and act,
and can cause you to make mistakes in the market, which can cost you
dearly.

A lot of new traders imagine that it’s possible to earn returns of 100 or 1000
times their initial investments from just a few days of trading. Add a high
leverage rate into the mix and you have a sure fire recipe for disaster –
courtesy of greed. It is important to note that success in Forex trading requires
determination, hard work, and discipline.
However, greedy traders always think that this business is not based on any
rules and they end up placing trades without proper analysis. The result?
Massive devastations on their trading accounts.

How to overcome greed when trading Forex

Your decision to invest in the markets should be based on rational analysis.

o Since trading is not gambling, you should never treat it like it.
o Remember that there are a lot of opportunities in the markets, but you’ll
only be able to exploit them if you can learn to control emotions like
greed.
o After all, when you think you’ve spotted an opportunity, shouldn’t you
go all in? Actually, the answer is NO.
o Don’t risk your account in a single trade – it’s the classic mistake of an
inexperienced trader and it means letting your greed control you.
o Always remember that the market can go against you.
o Dance to the tune of the market, do not dance at your own tunes
 Position management (page 18)

In Forex trading, position management involves controlling how you invest

and the amount of money you allocate for entering each trade in the market.
As a trader, your position management strategy is crucial for successful
trading. It’s of essence to note that you may not be able to control the
markets, but you can control how you invest and the amount of risk which you
take.

Your money management strategy should answer these two key questions:

o How much money should I risk on any single trade?

o What size of trades should I be making?

Position management solutions

As a trader, your first goal should be to preserve your capital. If you can stay
in the market long enough to achieve some big wins, then it should cover the
costs of your losing trades and deliver you some good returns on your
investment.

And, you can only achieve this through having a good money management
strategy. Most experienced traders never risk more than 2% of their trading
capital on any single trade. Thus, with a $10,000 account, that means your
maximum potential loss should be $200 dollars on any single trade.
 Risk management (page 19)

It’s no secret that you can’t control the direction of the market, or the extent of
its swings and movements. But there is one way in which every trader can
achieve real control over their trading – and that’s through proper money
management.

Money management is a set of rules and guidelines designed to help you

keep risk at a level where you’re comfortable.

Effective money management asks, then answers these three key questions:

o What should my risk-reward ratio be?

o is the right amount of risk for me to accept per trade?
o how much risk should I take across my account?

These questions sound simple, but getting them right is the key to your
success as a trader. With the right money management strategy in place, you
can be wrong 50% of the time when you trade and still profit overall.

Risk management solutions

The risk-reward ratio helps traders determine the level of risk in a trade. It
shows how much a trader is risking versus the potential reward they can
make if the trade becomes a success. So, how do you calculate the risk-
reward ratio?

It’s simple:
The “Stop Loss” displays your risk, and the “Take Profit” displays your
potential reward. So, if on a specific trade your stop loss is set at $100 and
your take profit is set at $200, then the risk-reward ratio is 100:200 or 1:2. The
larger your risk-reward ratio, the more easily you’ll be able to absorb losses
through time. An acceptable risk-reward ratio for beginning traders is 1:3. Any
number below 1:2 is too risky and the trade should be avoided.
LESSON 4: FOREX TRADING
STRATEGIES

Welcome to the Forex Trading Strategies course!

In this course, you will learn simply, quickly and interactively about a variety of
Forex trading strategies that range from basic to more advanced and complex
strategies. Remember that you can watch each individual lesson as often as
you would like. Let’s start whenever you are ready…


o Day trading

Day trading strategies encompass all trading styles that involve closing
out all trading positions before the end of the trading day. Day traders
usually have a very short term time horizon and take only intraday
positions aiming for a fast profit. Day trading allows Forex traders to
avoid taking overnight risk where their portfolio is exposed to
unmonitored exchange rate movements that occur when they are
asleep or inattentive to the market. Scalping is an example of a day
trading strategy whereby a Forex trader might attempt to buy on or
near the market bid and then quickly sell out the position at or near the
offer side to gain a few pips.

o News trading

News trading strategies involve trading Forex based on the release of

important news events or economic data. News trading is usually a
very short term trading strategy where traders try to predict how the
Forex market will react to the observed news event. When the outcome
differs substantially from the Forex market’s consensus expectations,
the result is often a sharp exchange rate movement that can provide
 news traders with a quick profit. Popular economic releases to trade
include: employment, inflation, growth and retail sales data, as well as
central bank interest rate decisions. Remember that the observed
impact of news can sometimes be counter-intuitive, depending on what
outcome the market was expecting.

o Swing trading

Swing trading strategies typically attempt to profit from both trends and
counter-trend corrections by taking positions that follow the momentum
of the market. Swing trading can be performed in all time frames,
although it is most commonly used as a short to medium term trading
strategy that may involve taking overnight positions. Swing traders
usually employ a combination of technical indicators that asses the
market’s momentum and trend to help them trade and provide trading
signals for taking and then reversing their trading positions. Popular
swing trading momentum indicators include the Relative Strength Index
or RSI. Popular trend indicators include moving averages and Wilder’s
Average Directional Movement Indicator (ADX).

o Trend trading

Trend trading involves first identifying and then following an established

directional market movement or trend. Trend trading can be performed
over any time frame, but it is typically a longer term trading strategy
where traders routinely take overnight positions. A trend trader will
usually identify trending chart patterns like channels and/or employ one
or more technical indicators to assess the strength of the market’s
trend and provide trading signals for entering and exiting trend trading
positions. Popular trend indicators include moving averages and the
MACD. Wilder’s Average Directional Movement Index (ADX) can also
be used to gauge the strength of a trend. A trend trader will look for a
good time to buy in an up trend or to sell in a down trend. They will
usually hold no position in a flat or ranging market.


o Carry trading

Carry trading involves buying a higher interest rate currency and selling
a lower interest rate currency to capture the interest rate differential
existing between them. Carry traders typically take leveraged positions
that they hold over a long term time frame. Ideally, a carry trader would
expect the higher interest rate currency to appreciate relative to the
lower interest rate currency over the trade’s projected time frame to
generate even more profits. An example of carry trading might involve
buying the Australian Dollar and simultaneously selling the Japanese
Yen for a period of six months or more in order to capture the positive
interest rate differential.

o Chart level trading

 Chart level trading involves pursuing exchange rate charts to identify
significant levels of support and resistance. Support and resistance
levels are usually an indicator of underlying human psychology that
prompts a significant market reversal at a particular exchange rate.
They often occur near round numbers. Chart level traders typically
attempt to sell ahead of resistance and buy above support. They often
place their stops just beyond the chart level in case it breaks.

o Classic chart pattern trading

Classic chart pattern trading involves perusing exchange rate charts for
chart patterns that have reliable outcomes and then trading the
appropriate range or breakout signals as they arise. Classic reversal
chart patterns that indicate the market may be changing direction
include Head and Shoulder Tops and Bottoms, Double and Triple Tops
and Bottoms, and Saucer Tops and Bottoms. Classic continuation
chart patterns include Flags and Pennants, where the market pauses
briefly after a substantial move before breaking out to make another
move in the same direction. Classic consolidation patterns include
triangles, wedges and ranges where the market trades between
established converging or flat parallel lines before breaking out. The
primary classic trending pattern is the Channel, which consists of a set
of sloping parallel trend lines between which the market trades as it
moves in either an upwards or downwards direction.

o Technical indicator trading

Technical indicator trading involves computing one or more indicators

that provide trading signals which can be used to forecast and profit
from exchange rate movements. Technical analysis offers traders a
variety of indicators computed mathematically from market observables
like price, volume and open interest that can be used alone or in
combination to devise a technical indicator trading strategy.

 Popular technical indicators used in trading strategies include moving

averages, the Moving Average Convergence Divergence or MACD oscillator,
Bollinger Bands, the Average Directional Movement Index or ADX, the
Relative Strength Index or RSI, William’s Alligator indicator, Stochastic, and
On Balance Volume. Technical indicators provide traders with a more
objective way to determine market direction and timing for entering and
existing positions.
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 Conclusion

Proper training is important for achieving success as a Forex trader. Without

the right preparation and expertise, it is certain that a trader’s possibilities of
succeeding are substantially reduced. This e-book, The Building Blocks for
Succeeding with Forex Trading, was created by traders and for traders with
the aim of equipping traders with the right skills of earning big returns from
trading currencies.
It is important that you learn at your own pace and take time to familiarize
yourself with the foreign exchange market. Only then should you consider
entering trades in the market. Whether you are an investor who want to learn
Forex trading for the first time or someone who just wants to give Forex
trading a try, then take the first steps with this easy-to-follow e-book.
Importantly, the lessons in this guide give new and experienced traders alike
all the essential tools and resources to start buying and selling currencies in
the Forex market.

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Reading progress

Overview

This e-book was created by traders and for traders with the aim of equipping traders
with the right skills of earning big returns from trading forex online. With the help of
this comprehensive and easy-to-follow e-book, you will soon be equipped with
enough knowledge to start a fulfilling career in the foreign exchange market.

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