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This free beginner’s forex Training has been put together by T Sithole, for the beginner to
learn how to trade forex successful for free. Through the support I get from sponsors like
Pro91 Media, I am able to provide free forex to all disadvantage South African youth with
no cost. When I was a young boy, I remember dreaming that I would become a millionaire
by the time I reached 25 years of age. I made my first trade; only now I was doing it
successfully. Yet, somehow, I was now beginning to find trading difficult. That nervous
feeling helped me open up to whole new levels of success-way beyond those of my first
childhood dream. Our purpose to empower South African Youth!

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Introduction

Before you start trading Forex answer some of the following questions:

- How do you protect your capital if the market goes against you?
-How or when do you take your profits?
-How much do you buy or sell when you get a signal?
-Which market is the method designed for or does it work in all markets?
-What are your goals for trading in the market?

What is Forex Trading?

Foreign exchange, popularly known as 'Forex' or 'FX', is the trade of a single currency for
another at a decided trade price on the over-the-counter (OTC) marketplace. Forex is definitely
the world's most traded market, having an average turnover of more than US$4 trillion each day.
Compare this to the New York Stock Exchange, that has a daily turnover of about US$70 billion
and it is very obvious how the Forex market is definitely the largest financial market on the
globe.
In essence, Forex currency trading is the act of simultaneously purchasing one foreign currency
whilst selling another, mainly for the purpose of speculation. Foreign currency values increase
(appreciate) and drop (depreciate) towards one another as a result of variety of factors such as
economics and geopolitics. The normal objective of FX traders is to make money from these
types of changes in the value of one foreign currency against another by actively speculating on
which way foreign exchange rates are likely to turn in the future.

Because you're not buying anything physical, this kind of trading can be confusing. Think of
buying a currency as buying a share in a particular country, like buying stocks of a company. The
price of the currency is a direct reflection of what the market thinks about the current and future
health of the Japanese economy.
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For instance, when buying the Great Britain Pound, you are basically buying a "share" in the
British economy. You are betting that the British economy is doing well, and will even get better
as time goes through analyzing using basic methods. Once you sell those "shares" back to the
market, hopefully, you will end up with a profit. “gfi

Profitability

It doesn’t take a financial genius to figure out that the biggest attraction of any market, or any
financial venture for that matter, is the opportunity of profit. In the Forex market, profitability is
expressed in a number of ways. First of all, just to set the record straight, you don’t have to be a
millionaire to trade Forex. Unlike most financial markets, the Forex market allows you to start
trading with relatively low initial capital.
Right about now you’re probably asking yourself: “What chance do I have of profiting with such
a low initial investment?” The Forex market doesn’t require large initial investments because it
allows you to use leveraged trading. Leveraged trading lets you open positions for tens of
thousands of dollars while investing sums as small as $25. This means that Forex trading has the
profit (and loss) potential of tens and even hundreds of percent a day!
What is also unique about the Forex market is that any sort of movement is an opportunity to trade.
Whether a currency is crashing or soaring, there is always room for speculation, since you always
have the option of buying or selling the currency of your choice. Unlike the stock market, you are
not limited to speculating on rising stocks, and a falling market is just as good for business as a
rising market. Having said all that, it is important to remember that as profitable as the Forex
market is, it still carries all the risks involved with financial trading. You should always be aware
of the risk, and never risk money that you can’t afford to lose.
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Major Currencies

Symbol Country Currency Nickname

USD United States Dollar Buck

EUR Euro zone members Euro Fiber

JPY Japan Yen Yen

GBP Great Britain Pound Cable

CHF Switzerland Franc Swissy

CAD Canada Dollar Loonie

AUD Australia Dollar Aussie

NZD New Zealand Dollar Kiwi

Risk Management
Risk management refers to the set of tools and methods traders use to minimize or remove
financial risks from their decision-making. It is widely regarded as one of the most important
aspects of trading in any financial market, be it forex or otherwise. Although it’s impossible to
know what will happen in the future, there are certain steps traders may take to minimize their
exposure and ensure they don’t blow out their account on one or two really bad positions.
The following four strategies should be part of any forex trader’s risk management plan:
• Risk-Reward Ratio: Based on your analysis, the risks of entering a trade should be well below
the potential rewards. The minimum risk-reward ratio a trader should use is 1:2 (i.e. potentially
risking 10 pips to make 20 pips).

• 2% Rule: If you really want to minimize downside risks and have the opportunity to make more
trades, you may consider not allocating more than 2% of your entire trading capital on a single
position. If you have $1,000 in your account, no more than $20 should go toward one trade.
• Stop Loss / Take Profit: A stop loss is an order to sell a currency when it reaches a certain
price, allowing a trader to limit losses in the event of a bad trade. A take profit works in the
opposite direction, allowing traders to lock in profits by closing a trade once it reaches a certain
price.
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Don’t be foolish and don’t be greedy – utilize stops and take profits whenever you can. When
looking for a broker to trade with, ensure they guarantee their stops – this means that if the
market moves against you, you will never lose more than your initial investment, your margin.
• Diversification: Don’t put all your eggs in one basket. Consider trading more than one currency
in order to minimize the negative impact that any one position can have on your profitability. As
you progress as a trader, consider adding other assets to your portfolio, such as stock indices or
commodities.

Leverage and Margin

One of the biggest draws of forex trading is the ability to control a large amount of capital using
very little of your own money. In forex this is called leverage, and involves borrowing a certain
amount of trading capital needed to buy a currency. For example, if a broker offers 100:1
leverage, traders can control a $100,000 position on a mere $1,000 deposit. As you can easily
tell, leverage may be an incredible way to amplify your earnings. After all, if your position rose
to $101,000, your return is $1,000 (that’s a gain of $1,000 on an initial investment of $1,000).
Sounds great, doesn’t it? Well, it also works in reverse. Leverage can also amplify your losses. If
that $100,000 position were to fall by $1,000, your initial deposit would be wiped out, leaving
you with zero.
Remember that $1,000 initial deposit you put down to control the $100,000 pot of money?
That’s called margin. You need margin to use leverage. Simple as that.
Keep in mind that some brokers offer crazy leverage opportunities from 500:1 or even greater.
Remember, leverage is a two-way street, a double-edged sword and … “insert any other cliché
that works for you.” New traders are strongly advised to stay away from leverage or use it
sparingly until they learn the ropes.

Leverage is borrowing money from the forex broker so that you can get an even bigger exposure
to the markets, you don’t pay any interest on the loan, so in forex trading, a small amount of deposit
can control a much larger total contract value. Leverage gives a trader the ability to make nice
profits, and to keep risk capital to a minimum. With $100 you can handle currency that’s worth
$1000, e.g. if you make 2% from the $1000 that means that you have made $20 and your trading
account is $120 now.

Size of leverage:(50:1) (100:1) (200:1) (500; 1) (1000:1)
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For example, a forex broker may offer 50-to-1 leverage, which means that a $50 margin deposit would
enable a trader to buy or sell $2,500 worth of currencies. Similarly, with $500 dollars, one could trade with
$25,000 dollars and so on. While this is all gravy, let's remember that leverage is a double-edged sword.
Without proper risk management, this high degree of leverage can lead to large losses as well as gains. You
are probably wondering how a small investor like yourself can trade such large amounts of money.
Think of your broker as a bank who basically fronts you $100,000 to buy currencies. All the
bank asks from you is that you give it $1,000 as a good faith deposit, which he will hold for you
but not necessarily keep. Sounds too good to be true? This is how forex trading using leverage
works.

The amount of leverage you use will depend on your broker and what you feel comfortable with.

Typically, the broker will require a trade deposit, also known as "account margin" or "initial
margin." Once you have deposited your money you will then be able to trade. The broker will also
specify how much they require per position (lot) traded.

For example, if the allowed leverage is 100:1 (or 1% of position required), and you wanted to trade
a position worth $100,000, but you only have $5,000 in your account. No problem as your broker
would set aside $1,000 as down payment, or the "margin," and let you "borrow" the rest. Of course,
any losses or gains will be deducted or added to the remaining cash balance in your account.

The minimum security (margin) for each lot will vary from broker to broker. In the example above,
the broker required a one percent margin. This means that for every $100,000 traded, the broker
wants $1,000 as a deposit on the position.

Calculating profit and loss with pips

Profit-and-loss calculations are pretty straightforward in terms of math — it’s all based on
position size and the number of pips you make or lose. A pip is the smallest increment of price
fluctuation in currency prices. Pips can also be referred to as points; I use the two terms
interchangeably. It’s unclear where the term pip came from. Some say it’s an abbreviation for
percentage in point, but it could also be the FX answer to bond traders’ bips, which refers to bps,
or basis points (meaning 1⁄100 of 1 percent).
Just a couple paragraphs earlier, I mentioned that the pip is the smallest increment of currency
price fluctuations. Not so fast. Even the venerable pip has been broken down into decimals or
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fractionals. Decimals or fractionals refer to one-tenth of a pip. The good news for traders is that
typically means narrower trading spreads. Instead of trading on a whole pip spread of 3 pips, you
might see a spread of 2.6 or 2.2 pips, which can lead to lower transaction costs over time.
For now, though, to get a handle on P&L calculations, you’re better off sticking with whole pips.
Take a look at a few currency pairs to get an idea of what a pip is. (I leave out the decimalized
pip version for simplicity sake for the rest of this chapter.) Most currency pairs are quoted using
five digits. The placement of the decimal point depends on whether it’s a JPY currency pair — if
it is, there are two digits behind the decimal point. For all other currency pairs, there are four
digits behind the decimal point. In all cases, that last itty-bitty digit is the pip.

Here are some major currency pairs and crosses, with the pip underlined:
EUR/USD: 1.3053
USD/CHF: 1.0567
USD/JPY: 84.23
GBP/USD: 1.5085
EUR/JPY: 110.65

Focus on the EUR/USD price first. Looking at EUR/USD, if the price moves from 1.3053 to
1.3073, it’s just gone up by 20 pips. If it goes from 1.3053 down to 1.3003, it’s just gone
down by
50 pips. Pips provide an easy way to calculate the P&L. To turn that pip movement into a P&L
calculation, all you need to know is the size of the position. For a 100,000 EUR/USD position,
the
20-pip move equates to $200 (EUR 100,000 × 0.0020 = $200). For a 50,000 EUR/USD
position, the 50-point move translates into $250 (EUR 50,000 × 0.0050 = $250).
Whether the amounts are positive or negative depends on whether you were long or short for
each move. If you were short for the move higher, that’s a - (minus sign) in front of the $200; if
you were long, it’s a + (plus sign). EUR/USD is easy to calculate, especially for USD-based
traders, because the P&L accrues in dollars.

If you take USD/CHF, you’ve got another calculation to make before you can make sense of it.
That’s because the P&L is going to be denominated in Swiss francs (CHF), because CHF is the
counter currency. If USD/CHF drops from 1.0567 to 1.0527 and you’re short USD
100,000 for the move lower, you’ve just caught a 40-pip decline. That’s a profit worth CHF
400 (USD 100,000 × 0.0040 = CHF 400). Yeah, but how much is that in real money? To
convert it into USD, you need to divide the CHF 400 by the USD/CHF rate. Use the closing rate
of the trade (1.0527), because that’s where the market was last, and you get USD 379.98.

Technical and Fundamental Analysis
In one of our previous sections we talked about the forces of supply and demand involved in
moving currency prices one way or another. But what about the techniques that traders use to
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analyze which direction prices are moving? That’s where technical and fundamental analysis
come into play.
Technical analysis is the use of past market data, such as price and volume, to predict future
price movements. Technical analysis is the single-most powerful method for evaluating currency
prices and is relied upon by the vast majority of traders.
It’s important to keep in mind that technical analysis doesn’t try to measure a currency’s intrinsic
value (i.e. what the currency is really worth). Instead, it helps traders identify price patterns that
may predict future activity, thereby improving entry and exit points.
Honestly, there are so many technical analysis methods and techniques out there that it would be
impossible to name them all, let alone cover them in depth. What you need to know is that
technical analysis is mostly used to identify trends and determine breakouts and reversals. As
you start playing around with charts and looking at things like trend lines, oscillators and moving
averages, you’ll slowly begin to appreciate technical analysis. You will also develop a newfound
appreciation for charts with squiggly lines. The forex market is essentially a club for chart
enthusiasts.
Fundamental analysis, on the other hand, does attempt to measure the intrinsic value of a
currency. It involves studying related economic, financial and other qualitative and quantitative
factors that may be influencing a currency’s price. Many forex traders who don’t have a
background in economics or monetary policy don’t like fundamental analysis and choose to
ignore it all together. That’s probably not a good idea. Things like central bank statements,
interest rates, economic growth indicators and insights about future government policies all have
a direct impact on currency rates. Traders absolutely need to pay attention to these if they want to
succeed. After all, trading doesn’t occur in a vacuum, but in a dynamic market with lots of
influencers. In fact, some of the biggest price movements occur immediately after a fundamental
news release. Take for example the Swiss National Bank’s removal of its three-year old peg on
the
EUR/CHF (euro vs. Swiss franc) exchange rate in January 2015. This move not only caused
absolutely staggering losses for the euro, it put many forex brokers out of business altogether.

Say Hello to Trends

Trend analysis is based on the idea that what has happened in the past gives traders an idea of
what will happen in the future.
Although this may seem pretty basic, being able to identify when a pair is in a trend and when it
isn't will help you to increase your chances to profit consistently in the Forex market.
When you can identify a trend, you can estimate what direction the rate of a currency pair is
going to go in. You should exploit the direction of the trend you identify by placing a trade in
that direction.
If it’s an uptrend, meaning that the rate is increasing, buying the currency pair will give you a
better probability for profit. If it’s a downtrend, meaning that the rate is decreasing, selling the
currency pair will give you a better chance of making money.

How do I identify a trend? What are the characteristics of a trend?
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The simplest way to identify a trend is through the distinct patterns that the price forms. These
can tell you if the market is moving in an uptrend or downtrend.

Identifying a Forex Trend

When a trend is taking place in a Forex pair, the price movements start to form peaks and valleys
in the chart of that pair, which are easily identified. In an uptrend, the price movements form a
series of higher peaks and higher valleys.
(Higher Highs and Higher Lows.)
Since a picture’s worth a thousand words, let’s look at the following chart:
This chart suggests that the trader should buy the currency pair (and close the trade by selling at
profit after the rate rises).

In a down trend, the price movements form a series of lower peaks and lower valleys:
(Lower Highs and Lower Lows)

This chart suggests that the trader should sell the currency pair (and close thetrade by buying at
profit after the rate declines)
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It is easier to make predictions with a trend than with a trading range. While you can still profit
in trading ranges, you have to be more nimble on your feet, and ready to jump in and out of the
markets at all times. Needless to say, this makes the trader’s life a lot tougher and the risk for
loss greater.
Trading ranges can be really messy and unpredictable, which is why you should always look for
trading trends. It’s a good idea to stay out all together during a range, and get back in only when
the markets start to trend again.
As a general strategy, it is best to trade with the trend rather than against it, meaning that if the
general trend of the market is headed up, you should be very cautious about taking any positions
that rely on the trend going in the opposite direction.
The trend spotting strategy assumes that the present direction of the price rate will continue into
the future. It can be used in three main time‐frames: short, intermediate and long‐term, with the
trends being different for each.
For example, here’s a possible scenario in the Forex market:
Over the last 12 months the trend for the EUR/USD is an uptrend, over the last 30 days the trend
is a downtrend, and over the last 24 Hours (intra‐day) trend is an uptrend.
Regardless of the chosen time frame, traders will remain in their position until hey believe the
trend has reversed.
So the goal is to spot a trend that you believe in and trade according to it.
Needless to say, you will need to monitor the trade, in case you were mistaken and the trend
vanishes or reverses. Then it's time to cut your losses by closing the losing trade or by reversing ‐
closing the trade and opening a following, opposite trade.

Ask and Bid

When traders want to place an order on the Forex market they should be aware of the currency
pair as well as the price of this pair. A Forex market price of a currency pair is denoted by two
symbols, Ask and Bid, which have specific digital notations.
Ask price is the highest price in the pair’s quotation at which a trader buys the currency, standing
first in the abbreviation of the currency pair. Consequently, a trader sells the currency standing
second.
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Bid price is the lowest price in the quotation of the currency pair, at which a trader sells the
currency standing first in the abbreviation of the currency pair. Respectively, a trader buys the
currency standing second.
Seem complicated? Here’s an example:
Let's assume that we have the currency pair of EUR/USD with the quotation of
1.3652/1.3655. This means that you can buy 1 euro for 1.3655 dollars or to sell 1 euro for 1.3652
dollars. The difference between the Bid price and the Ask price is called spread.
The spread is actually the commission of the broker. The Spreads in Forex trading are actually
very small compared to currency spreads at banks.
A term that you'll see a lot while trading Forex is "pip" and "pips" - a “pip” stands for
“Percentage in Point”. A pip is the smallest price movement of a traded currency. It is also
referred to as a “point”. It is very important that you understand what a pip is in the Forex trading
because you will be using pips in calculating your profits and losses.. For most currencies a pip
is 0.0001 or 1/100 of a cent.
When a currency moves from a value of 1.2911 to 1.2914, it moved 3 pips.When a pip has a
value of $10, you have gained $30.
There is an exception for quotations for Japanese Yen against other currencies. For currencies in
relation to Japanese Yen a pip is 0.01 or 1 cent.
Another term that you'll need to understand in relation to Forex trading is “Lots”. A lot is the
minimal traded amount for each currency transaction. For regular accounts one lot equals
100,000 units of the base currency. However you can also open mini and micro accounts that
allow trading in smaller lots.

BAR CHARTS

Bar charts are the standard means of chart analysis and probably the most widely used charting
form and technique.
The concept of a bar chart is simple. On a graph the horizontal axis represents time, and the
vertical axis represents price levels. Within that graph, a single bar or vertical line will represent
the range or the high and low points that prices reached during a given time period. A small hash
line or horizontal mark on the left side of the bar identifies the opening price; another hash mark
or horizontal line on the right side of the bar indicates the closing price for that time period
(Figure 3.1). The time represented by the vertical bar could be 1 minute, 5 minutes, 60 minutes, a
day, a week, a month, or even a year.
The relationship between the current time frame’s range and the previous time frame’s open,
high, low, and close is significant. Here are four classifications of bars that have more
significance to analysts:
1. One of the more popular, well-known bars is a key reversal. The bearish key reversal (Figure
3.2) makes a higher high than the previous time frame and usually closes below the prior time
frame’s close and the general trend direction. This occurrence is frequently accompanied by
unusually strong volume and indicates the trend is reversing. An S&P
500 index chart shows a good example (Figure 3.3). The exact opposite occurs for a bullish key
reversal in a down trending market—lower low than the previous time frame and then a close
above the prior timeframe’s close.
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Basic bar Key Reversal
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2. The outside bar (Figure 3.4) occurs when the current range takes out the previous time frame’s
high and low, but the close is consistent with the current trend. It usually signals the continuation
of the market’s direction.

3. The settlement price reversal bar (Figure 3.5) occurs when the bar moves in the same
direction as the previous time frame’s bar—a higher high and higher low for an uptrending
market—but closes lower than the previous time frame’s settlement price.
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4. The inside bar is exactly what it sounds like (Figure 3.6). The current bars high and low are
within the previous time frame’s high and low— that is, the whole current range is within the
previous bar’s range. The close is not considered important by most chartists. What is
important is how the market behaves in the next time frame. A breakout either way of the inside
bar range gives a buy or sell signal, based on the theory that there is a continued price move in
the direction of the breakout.

Settlement price reversal. Inside bar
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Candle Charts
Many believe that trading is financial warfare. It is either kill or be killed; the winner is the one
who will reap the spoils of war— namely, financial gain. The futures arena, after all, comprises a
zero-sum game.
It has been stated that, when there is blood in the water, there may be sharks. In the business of
trading, there are many great white sharks lurking in the water. The competition is fierce because
this industry attracts the sharpest minds, highly educated individuals, and men and women of
varying degrees of moral scruples.
In this business speed sometimes is the supreme consideration when it comes to order execution,
not only for entering positions but even for exiting the market. Candle charting, in my opinion,
can help speed the analytical process and uncover the psychological or emotional makeup of the
market and can give you an edge in seeing the next directional move the market may make.
Japanese candle

Candlestick bars still indicate the high-to-low range with a vertical line.
However, in candlestick charting, the larger block (or body) in the middle indicates the range
between the opening and closing prices. Traditionally, if the block in the middle is filled or
coloured in, then the currency closed lower than it opened.
In the following example, the 'filled colour is black. For our 'filled' blocks, the top of the block is
the opening price, and the bottom of the block is the closing price. If the closing price is higher
than the opening price, then the block in the middle will be "white" or hollow or unfilled.
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CANDLE PATTERNS
Individual candles and formations have some very interesting and descriptive names. The
hammer (Figure 4.3) indicates a reversal or a bottom is near after a downtrend. When a similar
candle formation appears after an uptrend, the name transforms into hanging man and indicates a
top is near.
Three main characteristics are needed to hammer in a bottom:
1. The real body is at the upper end of the trading range. The color (white or black) is not
important.
2. The lower part, or the shadow, should be at least twice the length of the real body.
3. The body should have little or no upper shadow and look like a shaved head candle.

Hummer
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The star (Figure 4.4) appears at the top of an uptrend and can signal a reversal. Again, the color
does not matter, but the body should be at the lower end of the trading range with a long upper
shadow. The significance here is that it shows the market opened near the low of the day, then
had an explosive rally that failed, and closed back down near the low of the day.
Usually there is little or no lower shadow, looking like a shaved bottom.
When this pattern is at the bottom of a downtrend, it is called an inverted hammer. The color
(white or black) is not important. This is not a tremendously reliable candle as a bottom indicator
on its own. Usually a white candle opening above the inverted hammer’s body in the next
trading session can verify the potential buy signal.
Spinning tops (Figure 4.5) have small real bodies usually with small upper and lower shadows.
These formations indicate a tug-of-war occurring between buyers and sellers
The doji (Figure 4.6) has nearly the same opening and closing price.
This candle typically indicates a change of direction. Doji are more powerful as an indicator of a
market top, especially after a long white or hollow candle, meaning the market closed above the
open during the previous period.
Doji signify indecision and uncertainty. They can also indicate bottoms, but more signals are
needed to confirm a bottom than just using a doji. There are several types of doji: the gravestone
(Figure 4.7), dragonfly (Figure 4.8), and rickshaw (Figure 4.9).
An evening star (Figure 4.10) is a three-candle formation that signals a major top. The first
candle normally has a tall white or hollow real body. The second candle has a small real body
(white or black) that gaps higher and can be a star candle. A doji can also be in the middle; that is
considered even more bearish. The third candle has a black body, and the important point here is
that it should close well into the first candle’s real body.

Star Spining Evening star Doji
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Morning star Shooting star Bearish engulfing pattern

Bullish engulfing pattern Bearish falling three Bullish rising three
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READING CANDLE CHARTS

Now it’s time to look at the charts to see these candle patterns in action. Figure
4.25 provides an excellent opportunity to examine several topping and bottoming formations in
Treasury bond futures. The first one highlighted is a shooting star formation, indicating that a top
in the bond market was developing.
As a general guideline, market tops take more time to develop than market bottoms. To illustrate
this point, note the retest of the high that forms a secondary bearish pattern, a bearish engulfing
candle.
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Candle tops and bottoms
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Pillar of strength

The market flamed out
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Triangle Chart Patterns
Charts display a number of triangle patterns, which usually reflect some type of congestion area
or indecision about prices. There are three main types of triangles: symmetrical, ascending, and
descending (Figure 5.11).
The symmetrical triangle is also known as a pennant or a coiling formation as the pattern forms
from a series of highs that are lower than the preceding high and a series of lows that are higher
than the preceding low.
Triangles form as the market consolidates while market participants are deciding whether to
commit to a position or add to positions already established. This so-called timeout period
usually involves a decline in volatility.
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The purpose of candlestick charting is strictly to serve as a visual aid, since the exact same
information appears on an OHLC bar chart. The advantages of candlestick charting are:
1. Candlesticks are easy to interpret, and are a good place for beginners to start figuring
out chart analysis.
2. Candlesticks are easy to use! Your eyes adapt almost immediately to the information in
the bar notation. Plus, research shows that visuals help in studying, it might help with
trading as well!
3. Candlesticks and candlestick patterns have cool names such as the shooting star, which
helps you to remember what the pattern means.
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4. Candlesticks are good at identifying market turning points - reversals from an uptrend
to a downtrend or a downtrend to an uptrend. You will learn more about this later.

The small real body (whether hollow or filled) shows little
movement from open to close, and the shadows indicate that both buyers and sellers were fighting
but nobody could gain the upper hand.
Even though the session opened and closed with little change, prices moved significantly higher
and lower in the meantime. Neither buyers nor sellers could gain the upper hand, and the result
was a standoff.
If a spinning top forms during an uptrend, this usually means there aren't many buyers left and a
possible reversal in direction could occur.

If a spinning top forms during a downtrend, this usually means there aren't many sellers left and a
possible reversal in direction could occur.

Marubozu

. Marubozu means there are no shadows from the bodies. Depending on whether the candlestick's
body is filled or hollow, the high and low are the same as its open or close. Check out the two
types of Marubozus in the picture below.
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A White Marubozu contains a long white body
with no shadows. The open price equals the low price and the close price equals the high
price. This is a very bullish candle as it shows that buyers were in control the entire session.
It usually becomes the first part of a bullish continuation or a bullish reversal pattern.

A Black Marubozu contains a long black body with no shadows. The open equals the high
and the close equals the low. This is a very bearish candle as it shows that sellers controlled
the price action the entire session. It usually implies bearish continuation or bearish
reversal.

Doji
Doji candlesticks have the same open and close price or at least their bodies are extremely
short. A doji should have a very small body that appears as a thin line.
Doji candles suggest indecision or a struggle for turf positioning between buyers and
sellers. Prices move above and below the open price during the session, but close at or very
near the open price.
Neither buyers nor sellers were able to gain control and the result was essentially a draw.
There are four special types of Doji candlesticks. The length of the upper and lower
shadows can vary and the resulting candlestick looks like a cross, inverted cross or plus
sign. The word "Doji" refers to both the singular and plural form.
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When a Doji forms on your chart, pay special attention to the preceding candlesticks.
If a Doji forms after a series of candlesticks with long hollow bodies (like White
Marubozus), the Doji signals that the buyers are becoming exhausted and weakening. In
order for price to continue rising, more buyers are needed but there aren't anymore! Sellers
are getting ready come in and drive the price back down.

If a Doji forms after a series of candlesticks with long filled bodies (like Black Marubozus),
the Doji signals that sellers are becoming exhausted and weak. In order for price to continue
falling, more sellers are needed but sellers are all tapped out! Buyers are on the lookout for
a chance to get in cheap.
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While the decline is sputtering due to lack of new sellers, further buying strength is required
to confirm any reversal. Look for a white candlestick to close above the long black
candlestick's open.
In the next following sections, we will take a look at specific candlestick formations and
what they are telling us. Hopefully, by the end of this lesson on candlesticks, you would
know how to recognize candlestick patterns and make sound trading decisions based on
them.

Trends
A trend is the direction in which the overall market is moving towards, to determine a trend
you have to just look at the charts and see where the overall market is going. There are 3
types of trends.

Uptrend
There is an uptrend, which means that there are more buyers than sellers and all the buyers
are pushing the price of that particular currency up, because trading is about supply and
demand. If there are more buyers than sellers then the price will go up, in this case its due
to demand (there are more buyers than they are sellers), demand pushes the price up.
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Down-Trend
A Down-Trend is the direct opposite of an uptrend, downtrend is when there are more
sellers than buyers and the sellers are pushing price down, whilst they are doing this the
price will keep declining and form a downtrend on the charts. Remember that the charts
represents the current and historical price of that currency, so when there is more sellers
than buyers, this causes price to go down, therefore forming a downtrend.

Range Bound

A range bound market doesn’t trend, this is a sideways market, this is when both the
buyers(Bulls) and the sellers(Bears) are fighting for dominance and none of them are
overpowering the other, this is when we have an equal amount of buyers and sellers and
instead of the market trending, it tends to go sideways without any proper direction, its
relatively flat.
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Trend Lines

Trend lines are drawn to determine the direction of the trend, so for an uptrend we will
draw a line under(below) the trend and for a downtrend we will draw a line on-top(above)
of the trend, but for a sideways market we will draw the line both above and below the
trend, these lines are called support and resistance lines.

Support

The support is the line under the trend and in most cases it indicates an uptrend, it’s
called the support because it appears as if its supporting the overall chart up.

Resistance

The resistance is the line above the chart that indicates a downtrend.
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 Support and Resistance: Support and resistance is one of the most widely used
concepts in trading. Strangely enough, everyone seems to have their own idea on
how you should measure support and resistance.

Look at the diagram above. As you can see, this zigzag pattern is making its way up (bull
market). When the market moves up and then pulls back, the highest point reached before
it pulled back is now resistance.
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As the market continues up again, the lowest point reached before it started back is now
support. In this way resistance and support are continually formed as the market oscillates
over time. The reverse is true for the downtrend.

Plotting Support and Resistance

One thing to remember is that support and resistance levels are not exact numbers.

Often times you will see a support or resistance level that appears broken, but soon after,
you find out that the market was just testing it. With candlestick charts, these "tests" of
support and resistance are usually represented by the candlestick shadows.

Remember, money management is very simple to master, but not as simple to keep up. Once
you’ve developed the money management system that works for you, make sure to stick to it and
don’t let your emotions get in the way of long term profit, even if it means absorbing short term
losses.

Now that you’re equiped for trading, take your time and start practicing your trading skills.

Order Placement
Fast Market Conditions
“Fast market conditions” describes a hectic and busy condition when orders are coming in too
quickly to be handled smoothly in a balanced market and prices are usually very erratic. When
the herd mentality takes over in a down market, for example, more people are willing to sell at a
certain price level than there are people willing to buy. This imbalance creates competition for
any order to get filled first at specific price levels. Traders and floor brokers can be frantic and
overwhelmed by the sheer volume of incoming orders. They are trying to get orders executed at
the best available prices but are deluged by the heavy volume and can’t keep up.
Then several events take place: (1) Incoming orders are given preference over reporting filled
orders, primarily because the floor broker needs to sign or endorse each filled order and doesn’t
have time. (2) Because everyone is working faster and at a heightened stress level, this is a time
when errors are more likely to occur. Exchange officials recognize this situation and declare a “
fast market.” (3) An “F” designating the fast market condition appears next to the last trade
price on both the exchange floor quote boards and most quote vendors’ screens. (4) The rules
of trading officially change at that point. Floor brokers are not held, meaning they are not
responsible for bad fills, good fills, or filling your limit orders at all, even if the price trades
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through your order. Obviously, you need to be aware of these little rules before engaging in
trading.
Limit Up
Not all futures markets have a “limit” provision, but this is the maximum price the market
may move up in a given trading day from the previous day’s settlement price. Trading can
occur at or below that price but not above it.
“Locked limit up” refers to a situation when there are no offers to sell at the limit-up price,
only bids to buy. If you are long the market, it is a good situation, of course. However, if you are
short, it’s not good. You cannot cover your short position by buying unless the market trades
off the limit. To buy, there has to be a seller. When there are no offers that means no sellers are
present.
Limit Down
“Limit down” is the maximum price the market may move down in a given trading day from
the previous day’s settlement price. Trading can occur at or above that price but not below it.
“Locked limit down” refers to a condition when there are no bids at the limit down price, only
offers to sell. If you are short, you’ll like it. But if you are long, you won’t be able to liquidate
your position unless the market trades off the limit. To sell, there has to be a buyer. When there
are no bids, that means no buyers are present.

After-Hours Trading
Some markets trade electronically around the clock so there is no openoutcry pit trading. E-mini
S&P 500 futures, for example, do not trade on the floor. Traditionally, the open-outcry session is
considered the “day session” or “regular trading hours,” and the after-hours session is
considered to be any time before or after that. For example, the floor session or day session may
be 8:30 a.m. to 3:15 p.m. Central time. Many futures markets now trade almost 24 hours a day.
For example, as of the end of January 2004, the e-mini S&P session starts at 3:30 p.m., takes a
maintenance break from 4:30 p.m. to 5:30 p.m., and then continues around the clock until 3:15
p.m. the following day.
However, just because trading is available does not mean it is advisable to trade in the middle of
the night in the United States. Trading may be very thin with wide price gaps between trades in
the overnight session. You want a liquid market where orders can be filled quickly and
efficiently, and you may have to limit your trading to the more active day session hours in some
markets, even if trading at 3 a.m. sounds interesting because you also have a day job.

FOURTEEN ORDER CHOICES
The following list of order types gives you plenty of alternatives for entering and exiting the
market in a number of different ways. Read the descriptions carefully to see if a particular type
of order will achieve what you want.
Keep in mind that not all brokers and not all exchanges accept all orders.
Only a few types of orders may be allowed for some electronically traded contracts—for example,
you may not be able to enter open or good ’til canceled orders. Table 10.2 lists the types of
orders that U.S. futures exchanges will accept.

Market Orders
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At the market is a common order instructing the broker to buy or sell a specific quantity, contract
month, and futures position at the next best available market price. That price could be better or
worse than what you see on your quote machine.

Market If Touched
A market if touched (MIT) order is specifically designed to turn into a market order if prices
trade at or through your specified price level. It could be filled at that price or the next best
available price that the floor broker can execute.

Market on Open
Market on open (MOO) is a market order that specifically means you want to be filled in the
opening range. A buy order is typically filled at the high of the opening range, and a sell order at
the low of the opening range. You usually need to get this order to the floor at least 10 to 15
minutes before the market opens to ensure that the filling floor broker has enough time to
organize his or her “deck” (the term that refers to all orders the broker is holding).

Market on Close
Market on close (MOC) is a market order that specifically means you want to be filled in the
closing range. A buy order is typically filled at the high of the closing range and a sell order at
the low of the closing range. You usually need to get this order to the floor at least 10 to 15
minutes before the market closes to ensure that the filling floor broker has enough time to
organize his or her deck and execute the order to those specific instructions.

Limit Orders
Limit orders have specific price instructions, requiring them to be filled at the designated price or
better. For example, if you enter a buy limit order, it needs to be filled at or below that price and
cannot be filled at a higher price. In effect, you are saying you will pay x price but no more. If
you enter a sell limit order, it needs to be filled at the specific price you designate or higher. The
fill cannot be at a lower price, but it could be higher than you specified, depending on price
action at the time.
These orders set specific prices where you want to enter or exit the market. Generally, the market
needs to trade through your price area to ensure a fill. If you absolutely must have a fill, you may
want another type of order as there is no guarantee that a limit order will be filled, even if your
designated price is touched. You should also be aware of the fact that floor brokers are typically
not held to execute these limit orders during the opening and closing ranges. For example, if you
placed a limit order before the open to buy 10 contracts of March Corn at 2.18 and the low of the
day was 2.17, you could expect to be filled on your order—unless it was in the opening or closing
range or in a fast market condition.

Stop Orders
Although they often are called stop-loss orders and are associated with getting out of a losing
position, a stop is an excellent order to use to either enter a new position or get out of a current
position. A buy stop is an order that is always placed above the current market price. If the
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market trades at or above your specific price, it turns your stop order into a market order to buy
at the next best available price. A sell stop is an order that is always placed below the current
market price. If the market trades at or below your specific price, it turns your stop order into a
market order to sell at the next bes available price.
A small detail should be noted here. Some exchanges rule that the market does not need to
actually trade at your price. Rather, a bid at or above a buy stop can elect your order, and an offer
to sell at or below your sell stop can elect your order. That factor may not mean much to you
now, but when your sell stop gets elected and is the low of the day or your buy stop is filled at
the high of the day, it will. Check regularly with your broker for current rules and specific
market conditions of each exchange and the products that you wish to trade.
When a stop order is used as a stop-loss to get you out of a position, it is often a mechanical
order to get you out of the market if a certain target price is hit. There are no guarantees that this
type of order will get you out of the market, mainly due to certain market conditions, and there
are no guarantees that you will be filled at the price you specify in your order. The market could
reach your price, activating your order, but the next price available might be some distance
away—a phenomenon known as slippage, which you must expect in your trading. A stop order in
a fast market or a limit-down period or in thin overnight trading especially may or may not be
filled at a good price or filled at all.
Under normal market conditions this is still a good tool and you should be in the habit of using
stops for risk management purposes. Trailing stops usually refers to moving the price of your
stop order up or down as the market moves in your favor and you want to lock in a profit or
reduce a loss.
Entering a market position using a stop is effective when trading technical chart points. If prices
appear to be in a channel and you only want to buy if the market trades above a resistance point,
then you might place a buy stop above that area to enter a long position if the market moves that
high. In other words, you are waiting until the market proves that it may go higher by surpassing
a certain price or chart point.
Of course, the opposite is true for a sell stop. If you only want to sell once the market price trades
below a support point, you would place a sell stop below that area to enter a short position,
waiting until the market proves that it may go lower by surpassing a certain price or chart point.

Stop Close Only
Stop close only stop orders are elected only if prices in the final closing range
(usually the final minute of trading) are below your sell stop or above your buy stop. This is a
specific order that some traders use to make the market prove they are wrong when exiting a
trade. It can also be used for entering a trade if the market is closing above or below a certain
point. It can be a dangerous order financially as the market could move significantly above or
below the intended price level on the close.

Stop Limit
Stop limit (SL) is a two-tiered price order generally used to limit slippage.
The first part of the order is the stop price level; the second is the limit price level where you are
willing to allow the filling floor broker to execute your order. The danger here is that the order
may not get executed at all if the momentum of the market is severe and the price moves
dramatically beyond your limit order level.
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THE MARKET'S PERSPECTIVE
For the most part, a typical trader’s perception of the risk in any given trading situation is a
function of the outcome of his most recent two or three trades (depending on the individual). The
best traders, on the other hand, are not impacted (either negatively or too positively) by the
outcomes of their last or even their last several trades. So their perception of the risk of any given
trading situation is not affected by this personal, psychological variable. There's a huge
psychological gap here that might lead you to believe that the best traders have inherent design
qualities in their minds that account for this gap, but I can assure you this is not the case. Every
trader I've worked with over the last 18 years has had to learn how to train his mind to stay
properly focused in the "now moment opportunity flow." This is a universal problem, and has to
do both with the way our minds are wired and our common social upbringing (meaning, this
particular trading problem is not person specific).
There are other factors relating to self-esteem that may also act as obstacles to your consistent
success but what we are going to discuss now is the most important and fundamental building
block to your success as a trader.

Okay, what about software? What should people look for in software?

The news is not that great. Most software is designed to appeal to people’s psychological
weaknesses. Most of it optimizes results to make you think that you have a great system when
you may not even have a profitable system. The software typically tests one market at a time
over many years. That’s not the way professional’s trade. But it will allow you to get very
optimistic results because those results are curve-fitted to the market.
I would strongly recommend that you at least be aware that this is what most of the software
does. In addition, you need software that will help you concentrate on the more important
elements of trading or investing--such as position sizing. I strongly recommend the Athena
software in this regard. I helped initiate the development of this software because we were
unable to find other so&are to help people size their positions, and adequately test the results of
various position-sizing algorithms.
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