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HASIM ALIU

FIRST STEPS
Ladies and gentleman boys and girls, welcome to PracticePips,
your essential Foreign Exchange marketeducation. The
following content is a huge stepping stone towards potentially
changing your life and enhancing your overall trading success.

For those market newbies, these are most definitely your first
steps on the way to the top of your personal trading game but
although we are here to assist you in your understanding of the
Forex market, the outcome of your efforts is truly down to YOU!

First Steps aims to provide a foundational understanding of the


Foreign Exchange market. You will learn where the market
originates from, who the market players arealongsidethe
important key terms before we move on to the nitty gritty side of
things!

So grab your lunchbox or your cocktail, whatever your


preference and let us begin your first steps!
WHAT IS FX?

Before you start thinking that you are the next Leonardo DiCaprio on your way
to conquer Wall Street, allow us to break down and explain exactly what
trading the foreign exchange market involves. Do not worry, you can still be
the wolf, just a slightly less dashing version of Leo.
Just like we buy and sell stocks and shares, in the Forex market we
simultaneously buy and sell currency pairs against each other.
For example: Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen
(USD/JPY)
This battle takes place five times a week, every single minute of the day, while
traders sit back and observe from anywhere around the world using their
laptops or mobile devices.
When trading Forex, we are able to profit from fluctuations of currencies.
Those are constantly varying due to fundamental factors occurring across the
globe; also known as news. Along with technicals, which is price action
analysis; the study and interpretation of major key levels, breakouts and
reversals in the market.

Until recently, it was the large financial institutions, corporations, central


banks, hedge funds and extremely wealthy individuals that dominated the
Forex market currency transactions. The emergence of the Internet changed
all of this. It is now possible for the average investor, like yourself, to buy and
sell currencies electronically. It is now possible for you to become that
extremely wealthy individual!
THE HISTORY OF FOREX

Many of you skip this part, HOWEVER we promise you that there is nothing
more embarrassing than calling yourself a Forex trader but not having a clue
where the market originates from when a market professional asks you.
We do not intend to bore you with every specific event that has contributed to
the creation of the monetary system. Therefore, we have summarised a few
significant points in history that contributed to the creation of the currency
market and foreign exchange trading.

The Gold Standard

1875 Was the year of one of the most crucial events in history, the creation of
the gold monetary system, which is responsible for the global growth we
witness in the modern world today. Prior to this system, countries, particularly
international, used gold and silver as a method of payment. However, it was
always an issue that the value of gold and silver would alter according to
supply and demand. In other words, when potential gold mines were
discovered, the value of gold would decrease due to the increase of gold in
circulation. This issue acted as a catalyst for the implementation of a gold
standard system.
A guaranteed value between the conversion and exchange of gold for
physical goods was the concept behind the gold standard. Paper
currency was then introduced by the worlds central banks and was
attached to a specific amount of gold bullion.
1913 The establishment of the Federal Reserve, informally known as the Fed,
came at a convenient time period for the shift of global wealth and the
centralisation of power. The Fed now dictates all global and G20 fiscal
policies, alongside global monetary policies. If you take a moment to observe
a physical U.S. dollar note, you will notice that it clearly states FEDERAL
RESERVE NOTE, a currency issued by a privatised banking system.
1930 The price and value of just one ounce of gold bullion fluctuated and was
valued around $20 to $38. During this period of time, the purchasing power
was substantial, meaning that the currency, when pegged against the official
gold standard, would stand ready to trade dollars for gold at a fixed rate with
the government. Under such a monetary rule, it seemed as though the dollar
was as good as gold.

World War 1
Whilst in battle and following increasing political tension with Germany,
Europe felt pressure to invest in large military projects. In order for Europe to
do this, further financing was required, which contributed to the printing of
more and more money. However, due to the large-scale projects, the amount
of gold was insufficient for all the extra printing. Thus, the world witnessed the
first imperfections of the gold standard.

1944 After the stimulation and expansion period of many world economies,
the partially backed U.S dollar became the worlds centralised currency.
Therefore, all of the worlds trade was attached to the Feds currency, granting
them domination over the global economy.
Most importantly, the pivotal change in the new system was the replacement
of the gold standard with the U.S. dollar, which made the dollar the primary
reserve currency. In order to assist with global economic activity, three
international agencies were formed:
- The International Monetary Fund (IMF)
- The International Bank for Reconstruction and Development (IBRD)
- The General Agreement on Tariffs and Trade (GATT)
All three assisted with the creation of the World Trade Organization (WTO),
which still exists today.
However, the same cannot be said for the Bretton Woods System, in which
exchange rates were set against gold. In 1971 the reserves of gold held by
the U.S. Treasury were low, and there was nowhere near enough gold to
continue to back the dollar. Former American president Richard Nixon was
forced to close the gold window.
1971 The United States came out of a costly conflict with Vietnam;
consequently they were in huge military debt and in need of assistance. This
is when president Nixon completely pulled the remaining precious metal 'PEG'
from the U.S. currency, enabling all of the G20 counterparts to have a free
floating currency. This is also known as thin air currency, the on demand
printing of central bank paper money. The price and value of gold then started
to rise at a rather fast pace.

1980 to Present
Telecommunications and a global increase in the paper money supply
triggered huge interest and speculation on the currency markets. The FX
market began to expand, with the U.S. dollar being the dominant, due to the
currencies of the world being pegged against it. This is the reason why all of
the major currency pairs include the USD. The market continues to grow due
to the rapid social awareness and ease of accessibility.
ADVANTAGES OF TRADING
Millions of people across the globe are now discovering the benefits of trading
the foreign exchange market and how it could potentially benefit their lives
and inflate their bank account. Some have a dabble for fun, some attempt
trading during their spare time, while others quit their day jobs and dedicate
their entire lives toward learning to master the market.
Whatever your reasons are for becoming involved in Forex trading, always
remember that in todays society, there is no job guarantee. Many are
outsourcing in the search for an alternative income, as a university degree
might no longer deliver the same opportunities it did many years ago.
With newbie traders emerging everywhere, the Forex hype is growing along
with its participants. Let's delve deeper into the reasons why YOU should
become involved!
Liquidity Monster
With an estimated turnover of $4 trillion passing through each trading day,
Forex is unrivalled when it comes to market liquidity. As the number of market
participants increase, so do the market figures and wealth, which is
transferred to the small percentage who become successful.
Buy or Sell
Compared to other global markets, which often have restrictions on short
selling, the Forex market has no limitations concerning when you may buy or
sell! Simply put, it is completely within your control whether you wish to buy or
sell a currency pair, at any price you like, at any time of day.
Around the Clock
Regular markets such as stocks and companies, often have a daily opening
and closing time. This usually occurs at 9.30am to 4pm. However, the Forex
market operates 24 hours a day, five days a week. Thats right, you can
decide to open and close a trade at any time throughout the week and hold a
trade for as long as you wish.
Freedom
Whether you are working from a 1997 Windows PC or the latest MacBook
Pro, or living in a luxury New York City apartment or a remote village in India,
you can trade from absolutely anywhere. All you need is an Internet
connection. This type of freedom allows you to begin trading alongside
another career or your favourite hobby! Or maybe you would just prefer to sit
and relax on a beachfront PIP chasing - it is completely up to you and that is
the beauty of it!

CURRENCY PAIRS

Let us start from the ground up, you are here to learn about foreign exchange
trading, not tobacco, not titanium and not penny stocks but currency pairs!
You may be wondering whether you must buy and sell the individual currency
pairs at the exact same time, so let's provide some clarity.

All currencies are traded in pairs. These pairs are simultaneously bought and
sold against each other for the transaction to be classified as a trade. A large
majority of the world currency pairs can be actively traded, provided that the
brokerage platform, in which you execute trades through, provides them.
For example, you can trade the U.K. Pound versus the U.S. Dollar, or the U.S.
Dollar vs. the Japanese Yen etc. The decision is down to you and there is
never a stationary or fixed value in which a currency pair is worth. All currency
prices will fluctuate throughout the period that the market is open and that, my
friend, is precisely how you make money!

One of the most important things to understand is that there are two main
groupings of currency pairs, known as the Majors and the Minors/Exotics. The
tables below outline the two categories.
The examples above constitute only a few of the popular minor pairs; however
there are other currency pairs that may be available for you to trade. For
example, the Turkish Lira vs. the Danish Krona. We heavily suggest not
bothering with these currency pairs, as movement can be minimal with the
spreads being rather high. We shall soon explain what spread means!

To begin with, we suggest that you select only a few currency pairs to trade
with. Most amateur traders will attempt to trade over 15 currency pairs at
once! This not only leads to a damaged account, but also creates havoc in the
mind of a trader! Less is most certainly more in this market.
LONG, SHORT AND FLAT

What do we mean by Long, Short and Flat? While this may be the wording
many of you choose when describing an ex-relationship, more importantly,
they are directional and positional terms used to describe and notify a certain
viewpoint and bias of a currency pair.

Long

The term long is used when a buy trade is executed on a specific currency
pair, in the hopes that it shall rise against another.

You may select to BUY and go LONG in a trade at any point in the market.
You can choose to hold a LONG TRADE for a minute, an hour or even until
your hair turns grey! The decision is completely up to you. Closing the position
is as easy as the click of a mouse, when you decide that you are satisfied and
ready to exit.

Short
Alternatively, if you anticipate a specific currency pair may start to decline, you
have the option to sell! This is otherwise known as going short in the market.

In this situation, the value of one currency is declining against the other. In a
short selling scenario the overall aim is to close the position once the currency
pair has reached a lower level, decreasing the number of PIPs, therefore
allowing you to bank profits and kick back!

Flat

So, what if you are not actively involved with any directional position? In the
FX market this is known as being flat. Being flat in the market can often be the
best approach, especially when you are unsure of a currency pair's next move
or even anticipating major fundamentals.
Most traders often become addicted to the thrill of trading, feeling like they
need to be in a trade at all times. This is not recommended and is typically a
major contributing factor to the downfall of a newbie. Although you do not
have the opportunity to make money while being flat, it can save you from
stress, mental trauma and hassle, with the bonus of not damaging your
account!

Patience saves PIPs- EverythingFX

Trade smart not often The FX market can be 70% sideways, so more
often than not, it is best for you to sit on your hands and not always
attempt to find a trade!"

THE BROKER AND THE SPREAD

Every tradable market will incur commission costs; its the primary way
brokers make money. For those unfamiliar with this concept, every trader who
desires to invest their money must go through a broker. The broker acts as a
middleman and takes a small commission fee for the service it provides.
You send your trading capital to a broker of your choice, via bank transfer or
card payment. The broker will run some mandatory checks in order to provide
a segregated account, which acts as your electronic access into the world of
Forex.

Love them or hate them, brokers are your gateway to trading and they make
commission every time you enter a trade! Your next question would naturally
be how will this commission be calculated? Let's take a look.

The spread is the PIP difference between when a trader is purchasing or


selling a currency pair. (Also known as the BID price and ASK price).

Bid Price = Going Short / Selling

Ask Price = Going Long / Buying

Using the EUR/USD to show you an example

Source: Metatrader 4
As displayed above the EUR/USD 1.3333(3)-1.3335(2), this would be a 2.1
PIP SPREAD difference. Therefore when you execute a BUY or SELL
position that trade will automatically be in negative 2.1 PIPs.

There is no secret method for not having to pay spread; its the charge for
every trader to be a part of this market.

You should take note that the broker will be able to offer you a lower spread
for the most actively traded major currency pairs, due to the amount of
liquidity flowing through those pairs. Consequently making it cheaper to trade!
However, a large majority of the minor/exotic currency pairs can potentially
cost much more to trade. Spreads can vary up to 6 to 9 PIPs, so ensure you
are cautious and aware of the spread before executing your trade!

Spread costs are inescapable upon trade execution and are something that
you as a trader must deal with. If you are unaware of spread variations and
how the spread is calculated, you could be spending a lot of time with your
head in your hands!

LEVERAGE AND MARGIN

Leverage is a term used all over the world throughout many aspects of
business, whether you are investing in world markets or simply purchasing
your first home.

Leverage is often used when placing a deposit on a property purchase and


the bank funds the rest. For example, if you were to purchase a 100,000
home but only put down a 20,000 (20%) deposit to your bank, they would
then grant you the extra 80,000 (80%) by leveraging your money! A 20,000
deposit would give you access to 100,000 and in the world of brokering, this
represents a leverage amount of 1:5.

Leverage Offered by the Broker

Forex brokers offer the highest trading leverage in comparison to other world
markets due to the substantial liquidity and turnover. Let's say youre a trader
who wishes to open a 1000 trading account, Forex brokers can allow you to
use leverage of 100:1, thus enabling you to trade as if you had a 100,000
trading account!

Lets say you have just banked 10 PIPs profit on your trade. Applying your
knowledge of PIPs, this could give you a potential return of 100 pounds, a
nice 10% gain of your account just on one trade! However do not be mislead,
although leverage can work in your favour, it may also work against you.
Therefore, you must always calculate the risk based on your account capital
size.
Unfortunately, many traders are easily enticed into using high leverage by
brokers. If we take the same example as above, but this time let's say you
LOST 50 PIPs (which in the Forex market can occur within minutes). This one
loss would take 50% of your trading account. Now, this is when you may need
a box of tissues, depending on how you deal with your losses!

Yes, leverage may assist you in flipping your trading account into huge gains,
however when used incorrectly, it can lead to your account being emptied
faster than you can fill it up!

Always use risk management. We do not suggest losing more than 2-3% of
your account per trade. If you do, you will find yourself chasing the money and
driving yourself insane.

Margin

In the Forex market when managing your trading account, leverage and
margin go hand in hand. Simply put, margin acts as an insurance, or safety
net if you like, (for your broker), in case you decide to blow your account. It is
the amount set aside from your free equity for any new position.

In the worst-case scenario, if you open too many losing positions or use big lot
sizes on risk, your margin could fall under the minimum required to keep your
position open. Thus automatically closing your trade and potentially giving you
a margin-call on your account, (this margin amount is usually around 50%).
The higher the leverage, the more flexibility gained from the margin
requirements.
PARTICIPANTS

Not only is it important for you to understand the nature of the Forex market,
but you should also be aware of exactly who the main participants are. With
the market being so lucrative, it attracts various participants who can be
divided into several categories.

For the majority of you pupils, your main task is to educate yourself on the
world's largest market for your individual gain and awareness, whereas
governments and other monetary bodies are in the mix for reasons of power
and capitalism. It was not until the 1990s that a surge of retail traders, such as
the ones you guys are on your way to becoming, manifested by the pack.

Who Trades the FX Market

1. Central Banks
It can be said that the most powerful weapon, besides knowledge, is money.
The money supply is governed by the worlds central banks, which are all
participants of a group known as the G20. These centralised, private entities
have dominion over a large portion of the Forex market through the control of
countries' interest rates and speed of inflation, diluting a currencys purchasing
power. All countries in the world have a central bank that controls their
national currency.

Central banks are responsible for the maintenance of an economy and are the
big boys who largely determine the exchange rates. This is due to their
decisions surrounding possible inflation, money supply and interest rates,
which are just a few of the variables that have a large impact on currency
movement.

This group of participants is supposed to aid financial imbalances and is not


supposed to trade with the intention of earning direct profit. However, over a
long period of time they can often earn revenue through huge currency
fluctuations. Those are usually witnessed during central bank announcements
and commonly labelled as high volatility on the macroeconomic calendar.

2. Businesses

An established business that imports materials from overseas must first


convert their currency into that of the dealers currency. The price and value of
a countrys currency will impact the potential profits of a major company.

The business will not only monitor the exchange rates, but also analyse higher
time frames and the overall trend of the currency. A large majority of
companies will keep up-to-date with the markets even without directly placing
trades! Some often contract third party analysts to gain a deeper
understanding of the markets, in order to stay on top of the revenue game.
3. Smaller Banks

Major commercial or investment banks across the world play a significant role
when it comes to currency transactions within the Forex market. By trading as
a service to their customers who deposit or borrow money, they are able to
make a pleasant profit. This can be witnessed in an individual savings account
(ISA), which offer an annual yield to their customers.

Amongst other, banks such as Deutsche, JPMorgan and Goldman Sachs hold
around 80% market share. This share is derived from the amount of capital
and power they have in the Forex market. This means that they are able to
manipulate prices, drive out stops and capitalise by moving a currency into a
pool of liquidity, in order to make an overall profit.

Many banks have their own platforms and may trade a little differently to the
standard retail trader. Major banks have specific trading floors, which cater
for world markets, foreign exchange and private equity management. Major
banks will trade between themselves, using electronic broker systems based
on credit.

The more capital a bank has access to, the better foreign exchange prices
they are able to acquire. Banks can also purchase a large quantity of a
particular currency at cheap rates and then sell it at a higher price.

If all the bank loans were paid, no one could have a bank deposit, and there
would not be a dollar of coin or currency in circulation. This is a staggering
thought. We are completely dependent on the commercial banks. Someone
has to borrow every dollar we have in circulation, cash, or credit. If the banks
create ample synthetic money we are prosperous; if not, we starve. We are
absolutely without a permanent money system. When one gets a complete
grasp of the picture, the tragic absurdity of our hopeless situation is almost
incredible - but there it is Irving Fisher
4. Hedge Funds

Yes, we have all seen the movies and know that hedge funds make millions
every day and possibly help the rich get richer! They trade regulated and
unregulated funds with risky, yet smart, strategies to generate large returns for
their clients.

Larger executions from hedge funds and private groups can have great
impact when it comes to market movements and sudden fluctuations. Hedge
funds will hedge positions on specific markets, which have an opposite
correlation so that the funds are always protected in the case of sudden
volatility.

Hedge funds and major investment firms provide opportunities and


advantages to willing investors and can often yield a return of around 3-5%
per month for clients. Investor and business magnate George Soros is
famously known for earning his hedge fund of $1.1billion in less than 30 days
from the decline of the GBP.

5. Retail Traders

Once you have graduated from PracticePips many of you will fall into the
category of a retail trader, which accounts for around 10% of market
participants. The introduction of electronic trading platforms from the 1980s
onward allowed any ordinary person to gain access to the Forex market in
order to make personal gains on their individual trading accounts.

Wealth is constantly transferred in the markets and jumping in blindly without


adequate education often leads to the standard retailer being swallowed by
the big sharks!

When 90% of traders lose in the Forex market it provides great benefit for
brokers and other market players. Nevertheless, through smart work,
discipline and reading price action, there is always an opportunity to join the
winning 10%! Living a lifestyle of freedom, unique to any other business on
the planet, who would not want to be a part of that cool crew?

TRADING HOURS

The days of the alarm clock are now behind us! There is no need to worry
about missing opportunities in this market as it operates 24 hours a day, five
days a week. Thats right, unlike other markets, which are often only traded
during business hours, Forex is active all week and only closes during the
weekend, giving us an opportunity to enjoy the prior weeks PIPs!

Regardless of your location, the flexibility of the Forex market provides an


excellent opportunity for active involvement. You may trade throughout the
day or night, depending on the time you have to spare, your trading style and
time zone.

The FX market opens at 10pm GMT on Sundays, and closes for the weekend
on Fridays at 10pm GMT. Ideally you would be trading during the most active
periods of the market to catch the strongest period of momentum. The
following is a breakdown of those times.
London 7AM 4PM (GMT)

Also known as the European Trading Session, this is an ideal session to


trade if you are based in the United Kingdom! A hub for huge financial sectors,
the London session is notorious for providing the majority of volatility and price
movement and is responsible for 30-35% of all Forex transactions.

It is worth noting that smaller time frame trends often form in this session, with
a continued direction that flows throughout the New York session. It is wise to
become active on the charts around this time of day in order to spot an early
trend and ride the wave!

New York 12PM 8PM (GMT)

Commonly known as the American Trading Session, this is another very


profitable time zone for currency traders. Periods of high liquidity can form
when the London and New York sessions overlap, with a slow period
occurring around 4-5PM (GMT). A majority of market movement in this trading
session can be due to its economical data releases, as 85% of all trades
involve the U.S. Dollar.

You should always monitor high impact news when entering or having an
active trade running. Most of the U.S. macroeconomic data is released around
1-4PM.

Tokyo Session 1AM 6AM (GMT)

After a weekend break, the Asian market will be the first to experience price
fluctuation. This time zone is commonly known as the Tokyo Session, but
many refer to it as the Asian Trading Session. The Japanese Yen, just
behind the U.S. Dollar, is one of the most actively traded currency pairs with
over 15% of Forex transactions involving the Japanese Yen! However, you
will also witness price action momentum among the Australian Dollar, the New
Zealand Dollar and the Chinese Yuan.

The Asian session typically contains the least amount of volatility, and it can
therefore be a waiting game before the correct move is deployed. Most of the
market movement fluctuates between a tight consolidation range, and this can
be ideal for scalpers and day traders. Ensure that you are on the lookout for
any macroeconomic news that may be due for release around these times for
the above mentioned currency groups.

FOREX VS. OTHER MARKETS

The Forex market is often wrongly compared to other markets such as stocks
and futures. However, there are differences that all traders must be aware of.
While many believe that it can be beneficial to bring their past experiences
and analytical qualities from other markets to the Forex market, that can
actually be a colossal mistake.

To begin with, the amount of trading volume traveling through the market is
staggeringly miles apart. While the world stock markets turn over in excess of
$85 billion each trading day, Forex figures reach over $4 Trillion! With such a
large trading volume, amongst many advantages provided to retail a trader is
the opportunity for decent percentage gains, when money management and
risk rewards are taken into consideration of course.

A common killer of success that many traders can relate to is becoming


overwhelmed by the vast amount of trading options available to them. Be it
various strategies, currencies or a mix of markets. Newbie stock traders may
find themselves admitting defeat after just a short time period due to the
thousands of market instruments to choose from, leading them down a path of
confusion; what we like to call analysis paralysis.

Whereas within the Forex market, although brokers offer around 100 currency
pairs, only six constitute the most popular. Because of this, it is not necessary
to dedicate extensive periods of time to keeping up-to-date with various types
of economical data and political news.
Unlike stocks, when one trades Forex, the percentage capital returns, in
accordance to profit, can be much more gainful over a controlled period of
time. This may often vary due to leverage and market momentum;
nevertheless on most investable stock options it can be a while before the
same percentage gains can be made, due to the slower forming trends and
fundamental impacts.

Previously short selling was restricted, in that not all traders were able to
capitalise on major market declines. However, the Forex market permits you
to buy and sell at your own will, allowing you to capitalise on either direction.

THE MIDDLEMAN

Many years ago, cavemen used crude tools to manufacture useful items that
they offered at bid to ask rates to others from the village. Thanks to modern
technology, an online broker can offer us currency market viewpoints in order
to capitalise from fluctuations.

The overall business plan of a broker is to provide the average person with
instantaneous access to the currency market through a web-based platform.
Without the broker all retail traders would more or less be screwed!
Nowadays, every buy and sell transaction is executed through this middleman
and as you learned under First Steps, the middleman takes a commission!

Brokers come in various shapes and sizes, with and without regulations! Any
individual who wishes to become actively involved in trading in the foreign
exchange market must operate through a broker.
Back in the early 1900s, after the cavemen shaved their beards and started
wearing pants, people set up street markets and sold fruit! Imagine that you
wanted to buy bananas, and took your partner for a stroll to the market stalls
downtown. The street market acts as a middleman supplier of goods the same
way a broker supplies market quotes and opportunities to transact via various
computerised devices.

The major difference between people buying and selling fruit at the market
stall and those buying and selling currencies online, is that there are no
restrictions when it comes to the distance between the Forex trader and his or
her broker. You can be continents apart!

BEWARE OF THE BROKERS

You now understand that us retail traders place our trades on various
currency instruments via a broker. When you wish to buy and sell a particular
currency pair it is as simple as opening a broker account online. Once
completed, you deposit some of your hard-earned funds into the account. It
now becomes the task of your broker to assist you in matching your buy or
sell orders with a respective buyer or seller. This is also known as a liquidity
provider.

What comes to mind when you envision a broker? Many picture a scene from
the movie Boiler Room. The film entails an intelligent group of guys who take
orders from unsuspecting buyers over the phone, only to keep them riding the
hamster wheel while trying to keep up with their sports car payments!
However, the advancement of technology has seen the birth of trading
platforms and makes it simple for even pensioners to capitalise from market
movements from the comfort of their retirement homes.
The role of a broker is to lure the trader in for business and many have their
own fancy marketing techniques to do so.

95% of brokers will offer their own trading platform or even a platform known
as metatrader. These are offered for free and a large proportion of the
currency traders out there utilise these platforms in order to perform their
technical analysis, as well as hitting the buy/sell button.

For you pupils to see the light, it is our responsibility as your educators to alert
you to the dark sides of the world that is Forex. We are able to tell you that
through our experience a large majority of these platforms, which are directly
connected to and offered by brokers, can in fact be manipulated!

It is our recommendation to trading newbies as well as professionals that


while undergoing your technical analysis - always use professional charting
software. Thus, keeping the work done on the professional charting software
separate to that which is offered by the broker.

Remember: Analyse your currencies, find a trade THEN execute that


trade into your brokers platform.
Thanks to technological developments, modern brokers are mobile phone and
device compatible. So as long as you have an Internet connection, you are
able to place your trades directly from the brokers mobile application, allowing
you to bag those PIPs without any restrictions!
It is of crucial importance that you do your research before you choose your
broker. A good piece of advice is to imagine that you are a boss interviewing a
job candidate for potential employment. Always make sure that the broker is
regulated by a financial agency and will compensate for any losses due to
change in business, i.e. insolvency.
DEALING VS. NON-DEALING DESK

It is essential for every trader to understand the different types of brokers


available and the trade structure you will be using.

Dealing Desk

After manually approving your order, a dealing desk broker often places a
trade that is opposite to yours.

Example:

You place a short (sell) trade on AUD/USD as you expect it to lose strength
and fall.

The dealing desk broker will then place a long (buy) trade on AUD/USD.

This implies that this type of broker has the opposite interest to you because it
wants your trade to lose! Sounds harsh, right? But the dealing desk broker,
also known as a market maker has no such interest, it is simply creating a
market for their clients. The way that this type of broker attains most of his
commission is from an entry fee.

Example:

Lets say it costs the broker 2.3 PIPs to have access to a particular currency
pair and that they charge 4.6 PIPs to the client, therefore doubling up on any
executions made.

Quite frequently, you may find that when you are using a market maker
broker, spreads can widen throughout macroeconomic releases and they
often catch the trader off guard.
A dealing desk broker is suitable for those whose trading volume is not too
substantial:

Lower than 10 per PIP


Executes less trades
Holds them for a longer duration i.e. over one day

Non-Dealing Desk

Brokers who utilise this type of system do not place a trade that is opposite to
yours, as they work directly with liquidity providers. Investors are dealing with
numerous providers in order to acquire the most competitive bid and ask
prices. There is no conflict of interest in active trades with the non-dealing
desk broker as all orders are anonymous, however a commission per trade is
charged.
A broker without a dealing desk may seem slightly more promising when it
boils down to the entry spreads. For instance, this broker may charge you just
1.5 PIPS for an entry, however this charge also applies for the exit fee.

This type of broker is most appropriate for those whose trading volume is
larger than 10 per PIP and prefer to scalp the market, where they execute
multiple trades per day.

Other key broker points to be aware of include:

References from past clients


Withdrawal speeds and options 24 hour

THE THREE TYPES OF CHARTS

In the realm of trading there are various methods that may be implemented
when speculating and making market judgements.

The two main aspects of analysis in the foreign exchange market are
technical and fundamental. The FX market is rather unique in comparison to
other markets, as 90% of the time those who are rather proficient in reading
pure price action can usually get a clear picture of the way the price is likely to
go next! Fundamental, or macroeconomic, releases will be explained in further
detail later on.

While studying technical analysis and analysing the Forex market


electronically via a computer, you will come across three main types of charts:

1. Line charts
2. Bar charts
3. Candlestick charts

Candlestick charts are our preference as they show price dynamics in the
most efficient manner; lets take a look at these in further detail.

CANDLESTICK CHART

Candlestick charts are EverythingFX's preference because they display price


action in a clear manner. A candlestick actually shows the same information
as a bar chart, but in a graphical format that is easier on the eyes. The candle
indicates the high and the low of the given time period just as bar charts do
with the vertical line, which is also known as the wick.

The upper vertical line, or wick, is known as the upper shadow while the
bottom is known as the lower shadow. The main difference between the
candlestick and the bar is how it displays opening and closing prices. The
block, otherwise known as the body of the candlestick, indicates the range
between the opening and closing prices, while the wicks let the trader know
where price has touched previously as displayed below.

If the body is red, it indicates that the price of the currency pair, on that
particular time frame, closed at a lower price than it opened. This is known
as bearish.

If the body of the candle is green, it indicates that the price of the currency
pair, on that particular time frame, closed at a higher price than it opened. The
term for this is bullish.

In order to enhance their longevity and analytical consistency, a dynamic


trader will not only remember but also understand the many candlestick
formations that exist. Do not fear, once youve graduated from PracticePips
you will be a master in this field!

TECHNICAL

Technical analysis is the study of historical price movements allowing you as


a trader to recognise patterns and technical signals to make a decision about
the direction the price may move next.

What comes to mind when you think of technical analysis? Let us guess
charts? Indeed, you are correct! Charts allow us to digest this crucial historical
data in the easiest way possible. It can be said that they paint a clearer picture
of the economic (or what we cool people call fundamental) variables, which
can be represented and expressed into the price movement on the charts.
There are, nonetheless, other methods you may use when analysing the
market in a technical manner. Trend lines, support and resistance,
candlesticks and the use of indicators are also highly popular within the
trading community; the same can be said for stock, commodities and futures
traders. However, unlike other markets, Forex is technically pure; no stock,
options or futures trader will rely solely on charts and technical analysis.

With such a large proportion of traders utilising similar trading tools, technical
analysis can become a self-fulfilling prophecy. You may be glued to your
computer screen thinking, Im sorry come again? What this means is, with the
growing number of traders who use technical analysis to recognise certain
levels as strong buying or selling points, there will of course be a large amount
of similar orders executed into the market. This can actually make the price
bounce, however the question always remains: how lasting will these moves
truly be?

Technical analysis differs from trader to trader, depending on their personal


trading style and preference. Everyone adapts their own strategies, indicator
setups and interpretations where they spot major price levels. These
differences are known as personal trading systems, some better than other.
As your trading style stems from your trading personality, you could take a
group of 20 traders and end up with 20 completely different trading strategies.

SUMMARY

Due to the specific rules that the market adheres and reacts to, learning how
to analyse the Forex market should always be done through a professional
source with a proven track record.

You may have come across various promising indicator systems that are
sold online, however do not become distracted by such false pretences, as
they do not work. Keep your eye on the prize! You are here in pursuit of
becoming a successful Forex trader; once you become skilled in the art of
analysis you will have a greater understanding of how the global monetary
system works, which you can then use to your advantage in predicting future
market movements.
Despite technical analysis accounting for a large proportion of market
speculation, high impact macroeconomic releases should not be ignored. As a
trader you should always monitor macroeconomics for the upcoming week,
more prominently you should be aware of the timings throughout the trading
day. Acquire the skill of analysing and managing open positions surrounding
these events, as executing trades directly from these releases is not
recommended.
ESTABLISHING THE TREND

There are two types of trends:

1: Downward/Downtrend (Bearish)

2: Upward/Uptrend (Bullish)

Lets show you a couple of examples!

An upward trend is known as bullish. We recommend traders to look for


buy opportunities.

A downward trend is known as bearish. We recommend traders to look


for sell opportunities.
Want an easy method to remember the bulls and the bears? Of course you
do!

When a bull attacks, he points his horns upward. When a bear attacks, he
swipes down. Easy, right?

Establishing Direction in the Market

Now that you know what a trend line looks like, the difficult task is to draw
one, let alone draw it correctly! Fortunately, there are certain features within a
market that can assist us in recognising a trend and accurately plotting one.
Depending on whether the trend is of an upward or downward nature, these
features will differ.
Upward Trend

Higher Lows (HL) - Every time that the market is in an upward trend it will
create a higher high, but then retrace and come back to establish a HIGHER
LOW.

Higher Highs (HH) - Every time that the market swings higher, it will often
retrace to form a higher low, before rallying in order to establish a new
HIGHER HIGH.

Downward Trend

Lower Highs (LH) - As the market is now in a downward trend it will continue
to push lower, before having to retrace back up. The swing it leaves before
coming back down is the LOWER HIGH.

Lower Lows (LL) - Then as it pushes back lower, it needs to break the past,
the prior LOWER LOW to create a new one! A continuation of the bearish
momentum.

WHAT ARE TREND LINES?

Now you know that traders either buy or sell in the Forex market, however to
ensure that you are making the correct move, you must first determine the
direction the market is moving. How? TREND LINES of course! Trend lines
comprise the utmost essential method to establish the direction of the market
and shall become your best friends!

Unfortunately, many traders believe they draw trend lines accurately, yet you
will often find that they misplace them. This inevitably results in unreliable
trading judgements.
Example of how trend lines may appear on a chart:

As you can see there is a uptrend falling into an downtrend, which is


continuously repeated. Spotting trend lines accurately will help you interpret
the overall direction of the market.
While trading against the trend is possible, it comes with risk; safe traders
always trade with the trend. Moreover, you will always use trend lines as
your foundation, prior to plotting any other forms of analysis on your chart!

CHANNELS

Once we have found our HH, HL or LH, LL trend, we draw a parallel line and
we have a channel! No, these are not TV channels, but just as exciting for us
Forex geeks! This further in-depth step allows us to find sideways, support
and resistant levels that aid us in determining our entry and exit points within
the market.

BULLISH Ascending Channel - Buy Opportunities:

BEARISH Descending Channel - Sell Opportunities:


WHAT ARE KEY LEVELS?

Assisting us in breaking down the market within minutes so that we may


concentrate on the crucial price movement, key levels are imperative tools
guiding us to find our entry, target and even stop losses. Ensuring that you
recognise key levels correctly is pivotal, in case you make a mistake you may
find yourself in a bit of a pickle!

Let us show you what key levels look like:


Each black line is representative of a key level, these are areas that the price
has trouble breaking. Once the price reaches these levels you will witness that
it does one of two things, break or bounce.

1. Break: The price aggressively travels up to a new key level.

2. Bounce: The price refrains from breaking and reverses back down to the
previous key level.

Many trades can be unsuccessful, as the trader does not allow the break to
complete. Therefore, the currency pair can reverse and result in something
known as a fake out. For you to assume that there will be a break, always
ensure full closure of the candlestick, on whichever time frame you are
executing from. Remember to be patient!

SUPPORT AND RESISTANCE


Key levels fall into categories:

Resistance: Key levels above the current price.

Support: Key levels below the current price.

Lets demonstrate this on a real chart

The current price shall always determine whether a key level is support or
resistance. If a price was to break a certain key level, that key level would also
change. For example, if the price falls and breaks the support level, that level
would become resistance.

Here is another example:


ADVANCED

Now that you have a primary understanding in plotting support and resistance,
and realise the impact they may have on your trading, let us stretch you
during your last term of elementary school! Welcome to the advanced class of
the major and minor key levels!

A key thing to retain is that the BIGGER PICTURE will always prevail. This
means that if we find support or resistance on, say a 4 hour or daily time
frame, this shall always be much more significant as opposed to support and
resistance levels on the 5 minute or 30 minute time frame.

The stronger the support and resistance, the more difficult the barrier is to
break. However, once broken it is able to push much more momentum behind
the move. As a newbie trader, you may find that spotting key levels is difficult;
nevertheless with day-to-day practice you will become a natural! On that note,
due to the important role it plays in future movement, we remind you to always
carefully take into consideration past market movement.

Although we know you are keen and want to study the market in-depth all
night, avoid drawing support and resistance for small time frames. You shall
want to study the bigger picture, concentrate and look for the move of the
major support and resistance levels.

That concludes elementary school; good luck and we'll see you in high school.
P.S. remember to do your homework!

RECOGNISING A SIDEWAYS MARKET

As a trader you must be able to spot and trade the different types of markets.
The market can move in one of two ways, trending or sideways (which is
also known as a range bound market).

Many traders are under the false impression that the market is predominantly
trending. This is incorrect! Lets present the real facts:

Trending 30%
Sideways 70%

Thats right, the market is largely sideways and this is usually a result of the
supply and demand being in a state of equilibrium in that particular currency
pair.

How do we spot a sideways market?


Compared to a trending market (in which you will find HH, HL, LH or LL's), a
sideways market lacks these features. So, if you find yourself frantically
unable to spot any of the above mentioned characteristics, you're staring at a
range bound/ consolidating market!

Notice that there are no HH, HL, LL or HL's, thus there is no trend.
Simple!

TRADING A SIDEWAYS MARKET

Many traders become impatient and disgruntled when they find themselves
within a sideways market. That's not the destiny for our Pipsters! Now you
know that the market is most often sideways and you possess the tools for
recognising this type of market! This means that you're able to adjust your
own trading style in order to make profit!

Here are the 3 different ways to trade a sideways market:

1. Trading the Range


The market often appears choppy and affixed in a sideways trend, however if
executed in a skillful manner, this can be an excellent time to place trades
within the range. To achieve this, it is necessary to locate the highs and lows
of the range using support and resistance. Trading within the range is an
amicable move as we deal with a much more predictable entry, stop loss and
target, thus assisting with risk-reward.

2. Catch the Breakout

Otherwise referred to as consolidation into continuation, after possibly


performing a strong move, the price takes a break where the market moves
sideways; this would be your consolidation period. Within that break the
movement builds, followed by a sudden burst of directional action often
continuing in the same direction, which can last for an extended period of
time; otherwise known as continuation.
3. Stay Flat

If the market does not satisfy the traits of your trading style or strategy you
may choose to stay out of the market, "stay flat". Turn off your screen and
step away from the charts! Exercise patience and return to the market once
you locate the set up you desire. While remaining flat is not a strategy, it is the
most apt method to protect your account.
THE DOJI & SPINNING TOP

Doji candlesticks have the same opening and closing price, or the
movement is significantly minute. These types of candlesticks convey a sense
of indecision between the buyers and sellers. Think of it as a tug of war!

Prices move above and below the opening price during the time frame
session, but close at or extremely close to the opening price. The
consequence is a deadlock; neither the buyers nor the sellers are able to gain
control, resulting in a draw between the bulls and the bears!

There are four distinct forms of Doji candlesticks. The length of the upper and
lower shadows can vary, where the resulting candlestick gives a formation
similar to a cross, inverted cross or plus sign. When a Doji forms on your
chart, it is crucial that you pay special attention to the preceding
candlesticks. Doji refers to both the singular and plural form.

Spinning Tops

Spinning tops are comprised of a long upper shadow, long lower shadow and
a small real body. The colour of the real body is not significant. What we must
take away from this type of candlestick is the indication of the indecision
between buyers and the sellers.

Whether green or red, the small real body illustrates the slight movement from
open to close and the wicks indicate that both the bulls and the bears were
active during that time frame session. Although that session opened and
closed with little change, prices moved considerably higher and lower during
that period. However, neither the bulls nor the bears managed to gain the
upper hand.
MORNING AND EVENING STAR

Morning and Evening Star formations consist of three candlesticks. To make it


easier for you, we will refer to daily candles for the following examples:

Morning Star

The Morning Star is an indication to traders that a downtrend is approaching a


reversal point and has the following characteristics:

1. A bearish (red) candlestick, representing selling acceleration.


2. Followed by a candlestick signifying indecision and a sudden halt to the
downtrend acceleration. These can either be:
o Spinning top
o Doji
o Hammer/Pin Bar
3. The final candlestick is a bullish (green) candlestick, which closes within
the upper 40% of the first bearish candlestick range.
Evening Star
Any predictions as to what the Evening Star indicates? Yes, you're right! The
Evening Star tells us that an upward trend is approaching a reversal point.

1. A bullish (green) candlestick, representing buying advancements.


2. Followed by a candlestick signifying indecision and a sudden halt to the
upside advancement. These can either be:
o Shooting Star
o Doji
o Hammer/Pin Bar
3. The final candlestick is a bearish (red) candlestick, which closes within
the lower 40% of the first bullish candlestick range.
THE HAMMER

Though the Hammer and Hanging Man look exactly alike, they have entirely
different implications, dependent upon past price action. Both have tiny
bodies, a long lower shadow and a short or absent upper shadow.

The Hammer got its name from how the market is hammering out a
bottom.

Forming after a decline, it is a bullish reversal pattern, informing us that


the bottom is near and signals a bullish revival. In other words, prices will
proceed to rise again! The long lower shadow indicates that sellers pushed
the price lower, however buyers were able to overcome this selling pressure
and closed relatively near to the opening price.

ENGULFING CANDLESTICKS

Bullish Engulfing Candlesticks

Usually occurring at the bottom of a downtrend, or consolidation range at


levels of support, the Bullish Engulfing pattern is a signal that an uptrend may
be arriving.

This pattern consists of two candlesticks, where a large bullish candle follows
a bearish candle. The larger green bullish candle completely engulfs the red
bearish candle's body.

The Bullish Engulfing pattern suggests a change in sentiment from a bearish


decline to that of a bullish one, which advances and closes at the highs of the
previous candle. This means that buyers step in after the opening and take
control of the market. Simplified, the greater the engulfment - the stronger the
reversal will be.
Bearish Engulfing Candlesticks

A Bearish Engulfing pattern is the opposite of a Bullish Engulfing pattern,


which usually occurs at the top of a uptrend, or consolidation range at levels
of resistance.

Forming when a large red bearish candle engulfs the prior green bullish
candle, this type of dual candlestick pattern signals that a downtrend may be
arriving.

The Bearish Engulfing pattern indicates a change in sentiment from a bullish


advancement to that of a bearish one, which closes at the lows of the previous
candle. Denoting that sellers take control after the opening and dominate price
action. Simplified, the greater the engulfment - the stronger the reversal will
be.
CANDLESTICKS IN FURTHER DETAIL

The Western adoption of Japanese candlestick charting only dates back to 25


years ago, when it gradually became popular within the U.S. trading
community. Prior, it failed to generate much interest as many believed that the
concept was time consuming and too difficult to grasp. However, thanks to
computers and computer programming, there was no turning back for the
candlestick.

Candlesticks are the purest form of price action, providing a visual image of
market occurrences. Although the signals on a candle chart are equivalent to
those of a bar chart, candle charts are more reliable and enables you to
visually align your thoughts. Did you know that it is scientifically proven that
visual aids enhance your understanding? Furthermore, under no
circumstances will indicators increase the reliability of candles nor are they
comparable to candles, which deliver visual confirmation signals of support
and resistance.
WHAT ARE BREAKOUTS AND FAKEOUTS?

On the wide spectrum of technical Forex traders there are two groups. Those
traders who take advantage of the sideways ranges and execute multiple
trades daily, and those traders who approach the market stealthily, awaiting
the next breakout opportunity to ride a particular currency pair trend.
Currency pairs tend to form medium to long-term trends, which can be
observed on technical charting software. More often than not, consolidation
ranges may form, trapping the price between two barriers while the two
currencies are at equilibrium and anticipating their next directional move.

Once a currency pair has become capped and supported by numeric barriers,
range traders will often trade the bounces, in that they buy the pair when it is
within a close vicinity of the support level and sell when it approaches the
resistance level.

Whereas, once the price breaks through the implied area of support or
resistance, a breakout or trend trader will opt to ride the market on a sharp
move. However, you should ensure that the situation at hand is indeed a
breakout, as it is common for the inexperienced trader to wrongly identify
fakeouts as breakouts. We don't want to do that!

Depending on the volume and the momentum running through a certain


currency pair, you will often witness the price slightly breaking through the
resistance and support levels without following through. Meaning that the
price does not continue to accelerate in that direction, but moves back into its
original range.

Why does this misleading move take place? Such a false move is due to
market manipulation and trapped traders volume, which consists of retail stop
losses and pending orders. Simplified, the market participants have an
interest in pushing the price to certain levels, however the official market
direction is yet to follow through.

RECOGNISING AND TRADING A FAKEOUT

A false breakout, referred to as a fakeout, is defined by a burst through a key


level of support or resistance, however it does not retest that zone and it does
not continue in the breakout direction. A fakeout often occurs when the
volatility of a given currency pair is high; although prices run through a key
level it is unable to completely close, thus leaving behind a large spike
otherwise known as a "candle wick".
What exactly is the cause of the spikes? For the most part, sudden price
fluctuations and market spikes are triggered by macroeconomic and
fundamental data releases. The majority of the releases are a mask for
manipulative volume spikes, often a case of hunting the retail traders stops
on an intraday basis. Trading purely from macroeconomic releases is far from
a good move; professional application of technical analysis is always advised.

Many traders, especially intraday, are commonly deceived by an initial price


burst and through their fear of missing out they decide to place a trade.
However, you are only presented with an indication that a specific market is
breaking out to new highs or lows once the candle closes on the specific time
frame you are monitoring, as well as ensuring you are comparing the closing
price to the boundaries of the support or resistance level.

Below is an image demonstrating a false breakout of a support level swiftly


reversing to the upside, which continues to penetrate the level of resistance.
In this case the price broke below the level of support, proceeded to come
back up to retest that zone as resistance, however due to no continuation or
follow through of momentum we are presented with a fakeout.
This is a weekly EUR/USD chart in which a sudden burst of market volume
and momentum pushed the pair a few hundred PIPs through a monthly key
barrier of resistance. As the end of the week approaches, the price reverses
with a dip back below the key level, resulting in a large spike as well as a high
probability for a future decline.
RECOGNISING AND TRADING A BREAKOUT

A breakout is defined by a burst through a key level of either support or


resistance, where it succeeds in closing above or below that level. The price
must close above the resistance level or below the support level, as it is
possible for it to return to its previous range. Breakouts stem from extended
periods of price accumulation, where the forces of a new or continued trend
arise and the currency pair visits a new territory. Usually broken support levels
will become a resistance level, while broken resistance levels become
support.

Remember:

- Anticipate the longer-term trend

- Be observant of the overall momentum of the currency pair

- Only place trades in the direction of that trend


Price action will always give you a heads up concerning the way the market
will potentially go! You should continuously look out for higher highs, higher
lows, lower lows and lower highs. Additionally, you must also utilise higher
time frames when plotting the key levels of support and resistance. 4 hourly
(H4) and Daily Charts are the most suitable time frames to trade breakouts in
the direction of the trend. Remember to allow the candlestick to completely
close before you think about any executions! Following a breakout and before
a continuation occurs, 80% of the time the price may pull back and retest that
key zone as a new level of support or resistance.
WHAT ARE FUNDAMENTALS?

What do we mean by fundamentals? The markets witness the release of


significant economic data every day, be it the BOE (Bank of
England) regarding inflation or employment rates, the FED minutes, the US
CPI or Manufacturing Numbers and the Eurozone interest rates etc! This
is what traders refer to as macroeconomic data, releasing impact price
action for both long and short-term periods.

Fundamental announcements are vital to trading Forex, stocks and pretty


much all markets. They assist in moving the markets along at a swifter pace
creating huge liquidity in short periods of time. Additionally, these
announcements also create plenty of volatility. This combined with liquidity
can be taken advantage of. The general consensus is that markets follow the
economic numbers.

When we refer to fundamentals in Forex, we basically mean pitting one


economy against another.

USA v Great Britain, Australia v Japan, Switzerland v USA, or New


Zealand v Australia.

Lets break down this macroeconomic data and take a look at the most crucial
factors having the highest impact on the particular currency crosses.

Higher interest rates cause an appreciation in the value of a currency. This is


due to the increase in investment under these higher interest rate climates.
Nevertheless, a stronger currency may also have issues of its own. Not only
will it result in exports becoming expensive, but also makes borrowing costs
more expensive.
The macroeconomic calendar is updated daily and displays a breakdown for
the following day and week. The releases are categorised into low, medium
and high volatility.

KEY RELEASES

Sovereign Debt Problem in the Eurozone:

Downgrade Ireland in the credit rating by Standard & Poor's, Moodys or Fitch
(Short GBP/USD)
Blocking Payments by the International Monetary Fund (IMF) for Greece
(Short GBP/USD)
Approval of austerity measures by Greece (Bullish EUR/USD)

Unexpected announcement of quantitative easing in the United


Kingdom:

Sharp decrease in price of the (GBP/USD). Await the pullback (correction)


before selling this currency pair
Possible short on EUR/USD

Unexpected increase in the interest rates delivered by the Peoples Bank


of China:

Decrease in the price of the AUD/USD currency pair


Possible sell entry upon a price spike to the upside on AUD/USD or go long
EUR/AUD

Dovish (inflationary) tone of the Bank of England press conference:


Decrease of the GBP/USD, EUR/USD and a potential increase on the
AUD/USD
Short GBP/USD or EUR/USD (if you have time for it)

Dovish (Inflationary) tone of the European Central Bank press


conference:

Decrease of the GBP/USD, EUR/USD and a potential increase on the


AUD/USD
Short EUR/USD or GBP/USD (if you have time for it)

Hawkish European Central Bank conference stating strong vigilance in


relation to an increase of interest rates in the European Union:

Increase in EUR/USD price (possible 30 PIP rise)


Long EUR/USD or maybe Long GBP/USD

Hawkish is a term typically used to describe monetary policy that favours


higher interest rates and tighter monetary controls to keep inflation in check.

Dovish is a term referring to an economic outlook that generally supports low


interest rates as a means of encouraging growth within the economy.

Quantitative Easing from the FED (QE):

Potential weakening of the U.S. Dollar (Bullish EUR/USD)


Increase prices of the Crude Oil (Bullish WTI)
Growth of the inflation (Long Gold and AUD/USD)

Non-Farm Payroll:
This is a statistic that is researched, recorded and reported by the U.S.
Bureau of Labor Statistics, intended to represent the total number of paid U.S.
workers in any business, excluding the following workers:

General government employees


Private household employees
Employees of non-profit organisations that provide assistance to individuals
Farm employees

This monthly report also includes estimates on the average workweek and the
average weekly earnings of all non-farm employees. The total non-farm
payroll accounts for approximately 80% of the workers who produce the entire
gross domestic product (GDP) of the United States. The non-farm payroll
statistic is reported on the first Friday every month and is used to assist
government policy makers and economists in determining the current state of
the economy, as well as predicting future levels of economic activity.

Non-farm Payrolls create a great deal of volatility and havoc in the market.
Immediately after the data release there will be sudden spikes in price across
all USD pairs. It is advised you stay clear from the Non-farm Payroll day and
begin your trading the following week, once there is stronger sense of
direction.

Lower interest rates cause a currency to depreciate in value, as there is less


investment due to the lower return rate. Interest rates drive the flow of money,
which is the very backbone of the Forex market.

Higher Interest rates cause a currency to strengthen, as there is higher


investment with a higher rate of return. You should expect sudden bullish
volatility if interest rates are raised past an expected figure.

Manufacturing data is a strong indicator for industrialised countries.


Depending on the numbers we are able to see whether the market is bullish or
bearish:

Bullish - if the numbers are higher than expected


Bearish - if the numbers are lower than expected

Employment Data

Higher inflation and higher consumer confidence is a positive economic


signaland therefore has a bullish effect on the currency of a particular
country. Therefore, weaker inflation and consumer confidence is a bearish
signal for a currency:

Bullish - if the employment numbers a high


Bearish - if the employment numbers are low

GDP (Gross Domestic Product) is considered more of a lagging indicator,


but of course a higher GDP encourages bullish price action. The lower the
GDP of a country, the more bearish the currency will be.
So PracticePippers, once youre in the big wide Forex world on your own,
before you even THINK OF opening your charts, your first port of call as an
FX trader will be to observe the economic calendar. You must do this daily to
establish which fundamental announcements affect the markets and the
currency pairs you wish to trade.

FINAL ADVICE

Some great advice for those seeking to take on the Forex market is to trade
around any major macroeconomic releases. High volatility release can cause
panic and uncertainty within the market, so do your best to steer clear from
the specific timing of the releases.

Occasionally fundamental releases may assist in forming a currency pairs


trend; where they are seen to break through key levels and encourage
movement, which you are able to anticipate through proficient readings of
price action. It is essential that you are aware of central bank releases and
talks; never allow a broker to tell you that trading around fundamentals is a
good move; these guys can make tremendous profits from the mistakes of an
amateur.
Central Banks and Financial Institutions:

Federal Reserve (FED)


European Central Bank (ECB)
International Monetary Fund (IMF)
Bank of England (BOE)
Reserve Bank of Australia (RBA)
Bank of Japan (BOJ)
Peoples Bank of China (PBoC)

Important decisions are also formulated by:

Standard & Poor's (S&P)


Moodys and Fitch (Fitch Ratings)
THE IMPORTANCE OF RISK MANAGEMENT

At this point you may be itching to open YOUR VERY OWN trading account in
the hopes of banking as many PIPs as possible. However, before you
proceed, it is absolutely imperative that you understand and apply risk
management.

Risk management is possibly the most important lesson you'll learn at


PracticePips. Many amateur traders enter the market with the mindset that
they are going to make millions in days or weeks. That's not trading, it's
gambling! As a Forex trader your aim should always be to achieve long-term
profitability.

Though the Forex market allows you to live a life of freedom, with no boss and
the possibility of an extravagant lifestyle, all of this comes at the price of one
thing TIME. Time is a crucial factor; many traders will experience and learn
from their mistakes on their path to success. One of those experiences is risk
management.
Not only does risk management prevent you from losing a great deal of
money, it also moulds you into a profitable trader over time. With great
reward, comes great risk. A professional trader must always comprehend and
correctly apply risk management. Not sometimes, not most of the time,
but ALL OF THE TIME.

Risk management can be as simple as small calculations and setting realistic


targets. As it is your money on the line, you want to trade as though you are
protecting your capital by any means necessary. You should also be mindful
that the more often you are in the market, the more times your account is at
risk. The bottom line is this; to achieve consistency within the market it is
crucial that you have a firm grasp of what equates to good money
management and risk.
RISK TO REWARD

We apply risk-to-reward in our everyday lives. You wouldnt go swapping your


Ferrari for your friends Honda Civic, would you?

The same applies to trading! Far too many Forex traders overlook risk-to-
reward, resulting in dire consequences. Risking more than your potential
reward will decrease your chances of becoming profitable.

How Risk-to-Reward Ratio Works:

Minimum
The minimum risk-to-reward requirement should be 1:1:
A risk of 100 PIPs and the reward of 100 PIPs, this may require an 80%
success rate.

Good
A decent risk-to-reward is 1:2:
A risk of 100 PIPs and the reward of 200 PIPs, this may require a 70%
success rate.

Great
We suggest a risk-to-reward of 1:3:
A risk of 100 PIPs and the reward of 300 PIPs, this may require a 60%
success rate.

What may assist you in determining Risk-to-Reward?

Never assume that each of your trades will be a risk-to-reward of 1:5. You
must always be aware that it boils down to the precision of your technical
analysis; the positioning and accuracy of your key levels determine the risk
and reward you can expect.
Poor Risk-to-Reward

The example below demonstrates a bad risk-to-reward strategy on a bullish


trade. The next level of resistance is just a few PIPs away from the entry point
with the stop loss all the way near the level of support, leaving the trader with
a small target in comparison to the amount he or she is risking.

This is a backward ratio of 4:1, potentially risking 400 PIPs only to be


rewarded 100 PIPs.

Sensible Risk-to-Reward
The chart below pictures a much more logical risk-to-reward strategy on a
bullish trade. In this case the nearest key level of resistance is further away
from the entry point, while the key support stop level is closer. Thus, the trader
is not risking as many PIPs as he or she could potentially bank.

This example is a 1:4 risk-to-reward ratio. Although you are risking 100
PIPs, you can be rewarded an impressive 400 PIPs.
Money management is key to any traders success. It involves a disciplined
approach toward managing the correct lot and contract size, in comparison to
account balance. A colossal misinterpretation among many newbie traders is
that trading the foreign exchange market is a game of hit and miss, rather
than a structured business based upon probabilities.
A get-rich-quick scheme will mentally dissipate your capital and destroy your
confidence. To be profitable long-term, it is essential that you ensure that all of
your Forex transactions are logged, revised and calculated in percentages
with a medium to long-term outlook. The key to consistency is patience,
compounding is powerful; your trading success will come in time. Follow the
smart money and stick to your plan!

STOP LOSS

If your trade is going against you but you're still confident that it will unfold in
the way you predicted, it can be tempting to extend your stop loss. However,
this is the primary destroyer of traders and one of the most damaging
mistakes you can make. Moving your stop loss is a detrimental habit, proven
difficult to shake off.

Your stop loss should be calculated upon your technical analysis before
entering a trade. A similar rule also applies to your take profit.

Prior to trade execution, there is no emotional attachment involved, thus you


are in a state of mental clarity. At this point you must decide the amount you
are willing to lose per trade. Once you've made up your mind, we suggest that
you view the possible loss in three different formats:

1. The PIP amount you are risking


o E.g. 50 PIPs
2. The monetary value you are risking
o E.g. 250
3. The percentage of the account you are risking
o E.g. 2%

A great tip is to write down the figures and set them in stone
It is necessary to be firm with your risk management. How would you feel if
you extended your stop loss or ludicrously removed it all together and ended
up losing almost all of your capital? That laptop charger seems like it would be
pretty snug around your neck, right? This is exactly why you should not
tamper with your stop loss.!

Say it with us: I WILL NOT MOVE MY STOP LOSS

TRIANGLE FORMATIONS

Forming when a particular currency pair is anticipating a sudden strong trend


continuation move, triangles can be a great chart formation for breakout-
traders to take advantage of.

Price action tends to build up over a small period of time and the trick is to
trade only once the triangle breaks in the direction of the overall trend. This
can be weekly or daily.

This form of pattern should be approached with caution as they tend to form
false breakouts in the opposite direction, before continuing in the same
direction. Depending upon the type of triangle you are presented with, you will
have a better indication and capitalise on this.

The three most prominent triangle formations are discussed below.

Symmetrical Triangle

A symmetrical triangle formation can be recognised when the slope of the


prices lows and the slope of the highs seem to merge, presenting you with a
triangle as shown above.

The lower highs and higher lows are formed as the squeeze advances, ready
for the sudden burst of volatility. This usually occurs when the sellers cannot
push the price any lower and the buyers cannot push the price any higher,
leaving us with a tie. This price action is known as consolidation, which sooner
or later will have to break.
A point to note is that you should always ensure the lines are drawn wick to
wick, with a minimum of two points in connection.

The example above shows the way we can take advantage of a symmetrical
triangle breakout. Prior to the breakout a stop loss is placed below the
previous higher low. Once the price has broken and closed outside of the
trend line the trade can be executed, in this example the trend line broken is
the resistance.

In establishing a target level, you take the height of the triangle mouth and
duplicate this onto the breakout point. Market dynamics are intelligent and no
movement is ever random. The opposite of these rules will apply to a
downside break of a triangle formation.

Descending Triangle
We can spot descending triangle formations in the midst of bearish markets.
As displayed on the descending triangle below, this type of pattern occurs
when there is a support level that the price cannot seem to break and a slope
of lower highs indicating a possible continuation of bearish momentum, as the
sellers are pushing against the buyers.

The slope of lower highs is the resistance level; it should be drawn with the
connection of a minimum of two wicks. Taking the height of the triangle mouth
and duplicating it at the breakout point will calculate your target projection
point.
Ascending Triangle

You guessed it! The ascending triangle is the opposite of the descending
triangle. As always, the majority of chart patterns and formations can be taken
advantage of in both bullish and bearish market conditions.

The example below displays the dynamics of a triangle in a bullish market.


The resistance level caps the price while higher lows indicate a possibility for
bullish continuation and higher highs being formed.

As with every pattern and trading methodology, you should always be mindful
of the bigger picture and undertake multi-timeframe analysis.
HEAD AND SHOULDERS

Yet another reversal formation, the head and shoulders chart pattern is
formulated by three characteristics and can be spotted on the majority of time
frames, however the setup and execution performs best on the Daily and the
H4.

How to Spot a Head and Shoulders Formation:

Left Shoulder: The prevailing trend must be that of a bullish one, with the
price anticipating its next move around a key level of resistance. Price action
may often form a bearish candlestick formation, acting as a catalyst for a deep
pullback.
Head: The following wave will continue to rise forming a new high before
forming another bearish reversal, leading the new price slightly lower once
again. This peak is the highest point in the pattern.
Right Shoulder: Finally the price will rise again, but this time it will not exceed
the previous high, thus forming a lower high from the head.
Once Head and Shoulders Plays Out:

Once we have correctly established the head and shoulders pattern, a


neckline is drawn by the connection of the lowest points of the two troughs. It
is now possible to anticipate a break to the downside.

Take a look at the example below.

The right shoulder is also known as a lower high, once this is formed and
breaks the neckline the price declines. This break and the area of close
vicinity below are great selling execution points.
If you decide to execute a selling position and take a short trade, an ideal
position to place your stop loss would be above the right shoulder.

We can calculate a target level by measuring the distance between the


highest point of the head and the neckline. This distance is duplicated onto
the breakout point, thus giving you your target level as displayed on the chart
above.

Inverse Head and Shoulders:

The previous pattern may also be applied in bearish market conditions in a


reverse aspect. The same rules apply, however it is simply the other way
around.

Once the neckline is broken, you can expect the market to provide you with a
long set up, also known as bullish.

Here is a clear example of an inverse head and shoulders formation.


Once you have decided to execute a long trade you should place your stop
loss around the right shoulder.

Just as the target level was calculated on the head and shoulders pattern, you
would now measure the distance between the valley of the head to the
neckline and duplicate it into the breakout point. Easy peasy!

DOUBLE TOPS AND BOTTOMS

Double Top

A double top indicates a key selling opportunity by showing us clear barriers in


price, which has trouble breaking. The market will rise to a strong key level of
resistance twice, with the second time forming a clear bearish candlestick
formation bringing with it a chance of reversal to the downside.
After the initial rejection from the resistance key level the price will tend to fall
and create a base known as the Neckline. The price will then have a second
attempt at testing the same level of resistance, which is the highlighted strip
on the image below. Often, the price is seen to spike above the resistance,
creating a new high if the prevailing trend is bullish. Double tops frequently
provide the highest chance of reversal at weekly and monthly levels of
resistance on the Daily or the H4.

After a confirmed signal to take a short trade from the double top formation,
the neckline acts as a firm target. Always be aware of the bigger picture's
directional bias presented by the overall time frames.

Double Bottom
The double bottom is also a reversal pattern, but in this case it comes after a
run of bearish momentum at a key level of support.
The price declines and hits a strong key level of support where it is rejected
and then returns to test for a second time, forming a neckline as pictured
below.

This second rejection confirms the double bottom formation; ideal for a buying
opportunity or even an exit if you have been holding a short trade over a
considerable period of time.

PERSONALITY

Various Types of Traders and Styles

Since the dawn of the foreign exchange market the secrets to trading as well
as guidance and insight have been publicly accessible. So how come only a
minority of traders succeed?
The reality is that long-term success boils down to your trading personality
and certain aspects of your character. In order to conquer life's difficult hurdles
you'll find that half of the battle occurs within yourself. Trading is now part of
your life; you will be living and breathing it! However, who said you cant live
and breathe on a beach? Stop daydreaming now, class is in session!

We all have our own trading styles and preferences. Conforming yourself to
trade in a way that does not correlate with your personality will only result in
failure to achieve consistency.

Unfortunately many traders do not take the time to assess their inner
strengths and weaknesses that shape the traders they are, thus falling victim
of the same mistakes repeatedly.

So, what do you need to figure out about yourself and the way you trade?

The Slow Patient Trader


Patience is key when trading a volatile market like Forex. Far too many
individuals allow the fear of missing an opportunity to consume them, making
them act on nervous impulse.
The patient trader is obedient in holding a position for an extensive time
period, enabling them to cultivate a much more relaxed and stress free life! It
is often necessary to take a trade breather, therefore you must be willing to
sacrifice an entry and potentially sit at break-even for numerous days. Less is
more sometimes!
The Impatient Fast Trader
A fast-paced trader is one who eagerly executes several trades, often
throughout the day, keeping an eye on a number of currency pairs in an
attempt to sniper her or his entries. This trader potentially benefits from a
sideways market, however will fall short of bagging those PIPs on the longer
swings within the market, as well as spending an extensive time glued to the
computer screen. To achieve consistency over time, erratic trading and
multiple executions must be exercised with a high level of discipline.
Full-Time and Part-Time Traders
Your trading style will also be contingent upon your ability to free your time in
order to monitor the markets. Many individuals quit their full-time jobs to trade
live capital, only to fail due to sheer lack of preparation.
Here at PracticePips, we cannot stress enough that you take your time to gain
knowledge and experience within any market before inducing yourself into a
lifetime commitment.
If you find yourself becoming pressured into trading because you need to or
you must, then stop right there Pipster! You're sending yourself down a path
of negativity and this frame of mind can severely impact your psychological
trading state.
Trading and technical analysis is an art and to achieve mastery, you must first
practice! Studying a currency pairs trend in a higher time frame is highly
beneficial to anyone wishing to sit back and be rewarded with reasonable
percentage gains on their investment, while enjoying life and the freedom that
trading provides.

SCALPING

What is scalping, you ask? It is the term given to high frequency trading and
multiple executions throughout the day. Often placing small target points and
stop losses, scalpers typically focus their attention on smaller time frames
such as one, five and 15 minutes, with the aim of catching PIPs from the
sudden market movements. As a scalper it is crucial that you are equipped to
fire at will.

Although scalping can be an exciting form of trading, we warn you that it can
cause a spike in blood pressure!
Yes, scalping can be profitable; but the constant high-paced action within the
market must be dealt with in a stealthy manner. You must be on the ball and
ready to enter the market without fear! Scalpers usually fall into the category
of full-time traders, as it is necessary to watch their charts throughout the
majority of the day. As previously mentioned, a high level of discipline is
required to maintain longevity within the market.

In order to gain an adequate profit from just a 5 to 10 PIP movement, scalpers


use high leverage. Lets do a little math

You have 10 per PIP

A 5 PIP trade = 50

If you achieve this result at least five times a day thats a potential 250, but
nothing is guaranteed.

The aim of a scalper may seem rather simple; execute swiftly, grab the PIPs
and EXIT. Nevertheless, scalpers do utilise a more calculated approach by
targeting particular hours of the day when the market is of a high volatility, as
well as basing a trade on macroeconomic releases.

SWING TRADING

Frequently applied by professional traders and investors, swing traders hold a


position for a greater period of time, ranging anywhere from days, weeks if not
months. Unlike scalp trading, this type of trading does not require your full
attention, but only a few hours every day to analyse the market.

As a swing trader you will be looking to enter the market on retracements,


which are the pullbacks of upswings and downswings in order to ride the
momentum of the market. Basically, thou shall not enter the market unless
there is a high probability that you shall be PIP-bagging! This is also known as
trend trading and is a much relaxed and smarter approach.

A swing trader will allow a position to float freely until he or she is satisfied
with the PIP count or until it reaches the selected stop loss. More often than
not, as the trend continues to progress in their direction or a major key level is
hit, this trader will trail their stop loss to lock in the profits thus far gained. This
technique allows the trader to accumulate maximum profit from a colossal
market wave in one particular direction. At times this exceeds what they had
originally anticipated from the trade.
Swing traders will trade using the following time frames, yet frequently view
four-hourly time frames for entry precision and timings:

Monthly
Weekly
Daily
Substantial capital is ideal when it comes to risk management, enabling you to
risk a safe amount as well as allowing the trade to play out over a long time
period.

For example, a trader with 100,000 can risk 2% to gain 4%. Now this 4% can
be gained through a long-term trade, taking two to three weeks to play out and
will still leave the trader with a nice 4000 profit. However, if we take a trader
who has only 1000 capital they may not be so keen on waiting two to three
weeks for a 40 return of investment! This is where medium swing
trading comes in.

Medium swing trading is at any traders disposal. The only difference between
this form of swing trader and your normal swing trader is the methods and
technical viewpoints that they apply.

For example, instead of targeting a 600 PIP movement from a monthly or


weekly timeframe, it is possible to determine the overall bias of a currency pair
and then adjust to a lower time frame for a more precise execution point.

Once you have gained experience through chart-time and professional


guidance, the application of multiple time frame analysis and strong technicals
allows you to take advantage of the overall momentum.

Remember to analyse time frames in the same direction, as this will certainly
assist you in the movement of your swing.

FUNDAMENTAL TRADER

Otherwise known as macroeconomic trading, this class of trader focuses on


news releases rather than technical analysis on the charts.

Fundamental trading is popular amongst the stock and equity markets,


however some individuals implement the very same principles within Forex,
little do they know they are only setting themselves up to fail due to the
diverse spectrum of manipulation present.

The most common news releases are:

- Gross Domestic Product (GDP)

- Trade Balance

- Growth in Employment

- Interest Rates
In addition to staying up-to-date with all these global figures, you must always
be in the loop about the rumours. Therefore, the job of a fundamental trader is
that of a full-time one! High impact news should be steered clear of as brokers
often take advantage of rookies in these periods of high volatility. It is common
for brokers to widen the bid and ask prices, which in turn results in high
spreads and commission fees.

You should note that there are many systems available online attempting to
suggest they are able to present and deliver the news faster than where it is
available anywhere else. But news is news! It is released to the public at the
very same time, regardless of how much you do or do not pay; that's insider
trading, my friend!
WHY PSYCHOLOGY IS IMPORTANT

Many are in awe of the fast-paced flexible environment that the Forex market
provides to people across the world! The harsh reality is that a very high
percentage of traders tend to lose money and find themselves in a financially
and mentally inferior position compared to when they began.

With the mass overload of information on the Internet, distinguishing garbage


from truth can be very difficult!
However unlike many other marketplaces, when education and searching for
a credible source is concerned, Forex stands out.
When striving for success trading Forex, you may experience a series of
failures. These failures stem from repeat application of market techniques that
simply do not work!
As Albert Einstein once said, Insanity: doing the same thing over and over
again and expecting different results.

WHY MOST TRADERS FAIL

Many who attempt to trade the Forex market lose and there is a very good
reason for that. A majority of beginner traders assume that this market is a
get-rich-quick scheme. They arrive equipped with unrealistic expectations that
they will turn 1000 into 100,000 in a matter of months, and sometimes think
that they can soon quit their jobs. They're setting themselves up for failure!

Instead of treating Forex as a platform casino, you need to think of it as a


long-term investment.
Unrealistic expectations will also work against you in creating an account-
destroying mindset, as you will begin to feel that you must make money fast!
But always trade with clarity; your mindset should almost be robotic-like. Avoid
allowing stress to penetrate your thoughts or dominate your actions.
If you begin to trade with this need or pressure to make money, be it
consciously or subconsciously, it will inevitably result in trading emotionally,
which is the fastest way to lose your capital.
Before you consider trading, you need to be financially able to survive a loss.
Losing is never great, but it is a part of the business, and eventually highly
rewarding.
You should also avoid trading if after a loss you are the type who drives
yourself crazy. Trading is not for everyone; certainly not for the weak-hearted.

MENTAL ATTITUDE

Many believe in the theory that successful people do more than average
people in one day. In many fields of work this is true, but to become a
consistently profitable Forex trader this attitude is not preferable.

You do not need to work harder to place more trades, add indicators, read
more news data or gain access to more currency pairs. It is the guidance that
many lack, which is necessary to achieve smarter, more efficient results!

You may be familiar with the concept of return on investment. In the realm of
trading you must encourage a mindset of achieving results per hour. A 12-
hour or more workday is no longer a requirement for success in this field. It is
rather a poor way of thinking that can lead to psychological damage. The
worlds most successful traders have thoroughly been introduced to their inner
demons of greed, doubt and fear of missing out. These individuals learned to
conquer their inner selves, as the dualistic mind can be your friend or foe.
Ultimately, the wealthiest and smartest traders have deduced efficient
methods allowing them to increase their results per hour. Readily practiced
over extensive periods of time by the EverythingFX panel, these methods can
be referenced to for the success of many others.
Clarity of purpose is everything, thus absolute coherency in forecasting
market sentiment is required. As a trader you are defined by your trading
actions, on the spot decisions and long-term goals. These goals are
statements toward your market potential. It is crucial that you repeat them to
yourself every day; through these goals you'll gain a sense of control over
your life and destiny.

SELF DISCIPLINE

Ambitious and driven individuals thrive from the sense of achieving greater
success. They often find themselves in situations acting as tests and will
most definitely encounter hurdles during their journey. Additionally, any out of
the box venture will more times than not lead to a downfall of some sort,
particularly if there is lack of guidance.
The worlds most successful financial businessmen have indeed achieved
their current state of solitude or financial freedom through sheer persistence
and self-belief. What has shaped these ordinary people into the prosperous
beings they are today is the way they've overcome and learned from their
defeats.
This concept can be applied to trading Forex; you will be tested and forced to
accept that psychological pain is very much part of the process. The more a
diamond is cut, the brighter it sparkles. Utilise the Forex market as a potential
means for liberation to enjoy the life that you deserve!

SUMMARY
As neuroscientists say, Neurons that fire together, wire together, meaning
when you do things in a repeated fashion, the neural pathways within your
brain take a new form and become deeper over time. Therefore, wherever you
continuously direct your attention, it shall define you on a neurological level.
Simplified, whatever you think, believe and practice you shall become on a
neurological level. Remember - practice makes perfect!

Confidence keeps you aligned with your own judgement and promotes a
positive attitude; it is pivotal within the Forex market. Prior to your execution of
a trade, you have to believe and trust in your technical analysis. Do not
mistake this for cockiness, as cockiness is something that you want to avoid in
your trading career. It affects your mindset, leaving you thinking that
everything you touch will turn into gold.

As previously mentioned, 80% of the battle is with yourself. Some traders


boast to those around them that they have made x amount of profit within the
market. In trader lingo, this is a way of trying to impress others; chasing bigger
profits for not only personal satisfaction but to show off. This is a sure fire way
to entrap yourself within a ruthless market until the entirety of your account
disappears.

WHAT IS FIBONACCI

The most important aspect of correctly identifying a market bias is accurately


plotting key levels derived from specific time frames and price action methods.
Without these critical foundations in place the remaining structure will not be
stable.

Although the market is intelligent and dynamic in its own right, history always
repeats itself. With the in-depth knowledge of our trading panel, it will soon
become evident how
powerful analytical
methods are at providing
the bigger picture.

A highly accurate
analytical tool for charting
and technical analysis is
Fibonacci. When used
correctly, this tool is
brilliant for measuring
market waves and the
retracement waves that
currency pairs tend to go through.
The Fibonacci number sequence is what constructs sacred geometrical
patterns. Everything in the universe is constructed in a spiral manner.
Fibonacci sequences are what construct nature and even the genetic and
physical construction of the human body.

So why is this sequence so important to traders? Fibonacci is used to


measure retracements when a market is trending. For example, when a
market is in an uptrend and we witness an up thrust of say 200 PIPs, it will
take a breather so to speak, thus retracing on some of its move before a
continuation trend unfolds.
APPLYING FIBONACCI

Bearish Market

Fibonacci is drawn from a significant high to a significant low. There are three
FIB levels acting as levels of resistance, before they are broken and move
higher. Subject to the strength of the overall trend, a pullback or retracement
may be expected to touch one of the FIB levels.
Bullish Market

Fibonacci is drawn from a significant low to a significant high. There are three
FIB levels, this time acting as support levels before they are broken and move
higher. Depending on the strength of the overall trend, a pullback or
retracement may be expected to touch one of the FIB levels.
WHAT IS TIMEFRAME ANALYSIS

Price action (hereinafter P.A.) is the discipline of making the most of your
trading decisions from a clean chart. One of which is free from lagging
indicators, but perhaps has a few moving averages that assist you to identify
dynamic support and resistance areas along with trend directional bias.

All financial markets generate data on price movements within a market over
varied time periods; the charts reflect the overall beliefs and actions of the
participants.
Economic variables also create price movement. These are easily visible on
the price chart of a market. When economic variables are filtered through
human trading psychology or even a computer trader, the movement
encouraged by these variables is evident within the P.A. This does not mean
that you are required to analyse thousands of economic variables daily, as the
overall sentiment is portrayed within the price.
Price action analysis makes use of the overall core price data; this is why it
can be used to trade any financial market. Before you begin your P.A.
analysis you must completely strip your technical Forex charts of any
indicators so that you are presented with a clean chart. Within your
professional charting software you are able to choose the colours of the
bearish and bullish candlesticks to your preference.
As a trader it is crucial that you analyse the long-term trend of a currency pair.
To effectively achieve this, you should be looking to the support and
resistance levels, chart patterns and so on. For example, the market opens at
10pm GMT on a Sunday night. In terms of analysis, your first point of action
should be to examine the monthly as well as the weekly charts, as the
candlestick P.A. displays the most recent long-term data.
MULTIPLE TIMEFRAME ANALYSIS

Imagine you had a birds eye view 50,000 feet above the ground compared to
just 5,000 feet. It is completely obvious that a clearer perspective would be
envisioned when the bigger picture is observed. The same can be said for
technical analysis within the Forex market; a higher time frame will provide
you with a much more comprehensive outlook of a particular currency pair's
movement.

Amateur traders attempting to tackle the market with smaller amounts of


capital are under the misconception that they are only required to analyse
small time frames. However, in doing so they are prevented from
understanding the long-term data that is the very foundation for consistent
analysis and profitable trades, thus postponing themselves for extensive
periods of time.

Multiple time frame analysis is by far the most thorough method in analysing
any given currency pair. A large proportion of Forex traders will only consider
individual time frames, however the movement of a currency pair can only be
comprehended when this dynamic approach is applied. The practice required
to dissect the Forex market in such a manner can only be attained through
hard work and dedication to chart time.

Singular time frame indicators and automated robot systems are potentially
the largest and most destructive traps within the Forex market. Unfortunately
for some, it is necessary for the human brain to be utilised to read the market
and search for trade setups. Nothing is ever guaranteed; the job role of a
currency trader is to analyse a range of currency pairs and to trade those
displaying a strong buy or sell indication on the charts.
In reality, multiple time frame analysis can only be practiced on a professional
charting platform accompanied by a few moving averages equipped in
assisting with the recognition of the trend direction.
The first step in conducting multiple time frame analysis is to observe the
three largest time frames on your charting platform. These are usually
monthly, weekly and daily. Applying the various laws of P.A., the overall trend
is established when the weekly and daily charts communicate the same
directional bias. This assists in the determination of the beginning, middle and
potential end of a trend.
Structure
Each time frame has its own independent structure, with the higher forms
overruling the lower. Again we emphasise that the bigger picture rules all! This
is true for the monthly, weekly and daily key levels of support and resistance.
For instance, the daily chart may appear to be rather chaotic and choppy with
the price being trapped between two major barriers of support and resistance.
However, with this taken into account the lower time frame such as the one or
two hour may be smoothly trending to the upside then the downside. In this
case it would be logical to trade from this smoother time frame, as this is what
defines the current market condition at that point in time.
Professional top down market analysis is required to break down the charts
and if a currency pair is not trending on a larger time frame but a range bound,
then a breakout of support or resistance will occur at some point, where the
price will be seen to enter a new territory.
When a currency is trending upward on a higher time frame, it is common for
the price on a lower time frame to sell off. This is known as a pullback or
retracement and due to the nature of the clearly formed trend it provides an
excellent opportunity to enter the market with Fibonacci being the suitable
technical tool to utilise.

EXAMPLES OF DIFFERENT TIMEFRAME ANALYSIS

The examples below display a currency pairs movement on a weekly and


daily basis. On the weekly chart a clear structure of lower swing highs can be
seen, providing us with a clear indication of a bearish downtrend.
When dealing with monthly and weekly time frames you should always
confirm that you are aware of the key levels of support and resistance, as this
is what will determine your risk-to-reward ratio of any potential selling
opportunities.

Once a lower high is formed and confirmed with a bearish candlestick


formation, there is a 75% chance that the price shall follow through to form a
new lower low.

Conversely, when a higher low is formed and confirmed with a bullish


candlestick formation, there is a 75% chance that the price shall follow
through to make a new higher high.

With chart time, dedication and practice, the overall momentum and web of
confluences can be strung together to achieve consistent analysis.
Providing you with a much more refined picture of price action, a daily time
frame allows you to study and interpret a currency pairs movement in an in-
depth manner.

While studying a weekly chart you may discover a series of lower highs,
however if you were to study the daily and H4 time frames you may locate
significantly more refined lower highs. In recognizing a trend structure, we do
not advise that you use a time frame lower than the H4 one as this can
become too messy.

After analysing the above weekly and daily time frames, it is evident that both
communicate a downtrend. Therefore, in line with the overall momentum, it
would be logical to retain a sell-only bias.

Concluding, as a trader you should never limit yourself to one time frame as
the currency market is of vast intelligence. There is always a possibility for a
refined entry just by hopping down to a lower time frame!
THE IMPORTANCE OF ORGANISATION

The quote you are as good as your last trade is correct to a certain degree,
however, as a professional trader who strives to prosper and develop you
must review your previous months of trading.

If you have traded a demo account in the past, you will be aware that once
you have incurred a great loss you can make it vanish with a touch of a
button; this is not how trading works in the real world. Although it is not in our
nature to want to face our errors, it is something that you must grow
accustomed to doing, as it is the only way to work on your flaws.

Reviewing your performance tells you a great deal about your trading style
and what best suits you. Ask yourself the following questions:

What currency pairs am I performing best with?


What currency pairs do I continue to lose with?
During what time of the day am I most profitable?
During what periods of time has my losing streak started and finished?
Which days am I most profitable?
Am I most successful when I hold my trades for a longer period of time, or am
I a scalper?
Answering these questions helps you overcome difficulties that you may face.

There are two significant aspects to organising your trading:

1. Post-Mortem Analysis
2. Spreadsheet

POST-MORTEM ANALYSIS

Post-mortem does not imply that your account is going to die! In trading, it is a
form of analysing your technical ability.

It is possible for any individual to open a chart on any market and draw all
sorts of technical conclusions. The question is whether those are correct and
successful. In fact, 70% of traders draw their technical analysis incorrectly.
If your trend lines or your key levels are positioned inaccurately, you are
setting yourself up for failure before you have even entered the trade!

However, do not fear. Thanks to modern technology we are able to iron out
our rough edges. By taking a screenshot of our chart before and after a trade
we can examine whether we are applying our tools of technical analysis
correctly.
Before
Once you have drawn on your technical analysis and you are eagerly awaiting
your perfect entry point, at this point go ahead and take an image capture or a
screenshot. The screenshot must be taken on the time frame in which you
shall be executing your trade, as well as including the price and time, which is
found along the bottom. Once you have done this, name your image with the
currency pair and date.
After
Whether your trade has played out to your analysis or not, it is vital that you
take a second screenshot as this will become a template for any trades you
place in the future.
If your trade played out the way you predicted, then great - keep doing what
you're doing! However, if unsuccessful, you now have the material to help you
understand exactly what went wrong. This will naturally prevent you from
making the same mistake in the future.
It is imperative that you stay disciplined and on top of your post-mortem
analysis, as over a long period of time this will collectively become your
trading history. Not only will it serve as a foundation for your present
performance but shall also demonstrate how much you have improved.
Professional traders view each trade as a transaction and the importance of
keeping a log is paramount. In combining your spreadsheet and post-mortem,
you will have a foolproof trading journal that assists you to grow into a
successful trader.
SPREADSHEET

You must record each trade you place, ideally in a spreadsheet format.
Completing your spreadsheet should be done while entering and exiting any
trade. Once you close your trades you will use this comprehensive list of
transactions to assess your trading. Preferably include the following columns:

- Currency Pair

- Position (Long or Short)

- Date Opened

- Time Opened

- Date Closed

- Time Closed

- Stop Loss or Take Profit

- Win or Loss

Since every trader is unique, there is no correct spreadsheet. This crucial aid
to your organisation should never feel lika a chore, so design it as you wish!
Creating your spreadsheet is not difficult, however keeping it up is where most
fail. Completing your spreadsheet should become part of your trading routine.
Far too many traders become complacent and tell themselves I'll do it later.
But before you know it, you fail to recall half of the information. Thus, leaving
you with zilch to evaluate.

WHAT IS A TRADING PLAN

Self-Control Assessment

A self-control assessment is something you are required to carry out before


each analytical decision and trade execution you make. Your success and
longevity within the market will be determined by your ability to keep a centred
and clear mind before executing a trade.

More often than not, when a trader makes a mistake, they will be aware of this
error and will also understand that the aftermath of suffering was indeed self-
inflicted.

These mistakes include:

High volume size


Moving stop losses
Entering too many trades at once

You and only you are in control of your actions within the market. Along your
trading journey you will certainly meet your inner demons, however, despite
this it is a great journey of self-development and discipline.
The temptation to execute a trade in order to just be is always present! From
the moment you open your laptop in the morning your mind will be racing to
find your next entry fix. The transition from this train of thought to the concept
of less is more can be somewhat challenging, yet highly rewarding for your
psyche and pocket!
his enticement may lead you to enter each setup that displays itself to you,
however this must be fought with good discipline. In a business like Forex,
only individuals who exercise self-control shall be rewarded with positive and
consistent trading results over a period of time. In order to achieve this it is
crucial that you are aware of the various scenarios you may be presented
with, as well as recognising when it is appropriate to enter a trade and when
you should take a seat on the back bench.
In fact, around 60% of the time, the market may not even provide you with a
solid, high probability trade setup. Professional mentoring, higher time frame
analysis and the art of trend trading is the utmost logical and stress-free
method in taking advantage of the market momentum. Once you are proficient
in reading and analysing price action you will be skilled in recognising the
indecisive stages lasting for days, weeks or even months, which are the
periods when you should take a break and divert your attention to other
currency pairs.
Sit back and be honest with yourself. Are you truly ready? Is your trading
system tested and foolproof? Have you banked a consistent amount of PIPs
over a considerable period of time, or are you diving in the deep end in the
hopes that you will survive? If it is the latter then you are not ready, my friend.
Abort mission!
In the realm of Forex a demo trading account is an excellent starting point
before you begin to trade your own cash right away. These accounts are
accessible to any individual via an online brokerage platform, which are
usually delivered through a free downloadable software known as Metatrader
4. Casting your mind back to kindergarten, you will remember that for your
analysis you should make use of a professional analysis platform that is
separate from Metatrader. You should only use the broker platform to execute
your trades, as brokers can manipulate the market behind the scenes!
A demo account is suitable for newbie traders as it provides you with the
ample opportunity to harness your trading skills and market confidence, all
while familiarising yourself with the methods of trade execution. This
opportunity should not be taken for granted, as it offers essential practice in
bringing together your price action techniques.
Like mentioned before, trading is a business, one that should be archived. A
staggering 90% of traders will mistakenly fail to take the time to document
their progress and most importantly work on the reasons behind why a
particular trade failed. If you aspire to become successful, you should begin
your self-assessment from the moment you execute your first trade and
continue this throughout your trading life.
To begin with, you should ask yourself the following questions:

Have I treated my demo as I would my own money?


Am I aware of the strategies that enhance my performance the most?
Am I ready to risk my own capital?
Have I traded a demo account long enough? If yes, have I focused on the
PIPs and percentage wins and losses?

TRADING TARGETS

A common vision among traders is to someday conquer the market and be


featured on the front cover of The Wall Street Journal. A traders dream of
turning their first 5000 into 50,000,000 is one not to be tampered with.
Having such a vision is not wrong, however sooner or later it is time to wake
up.

Setting realistic goals is essential! This does not mean that it impossible to
become a millionaire one day, it does however mean that you must first
understand that a skill of great value takes time to cultivate. After all, Rome
was not built in a day! Set yourself monthly goals; create an on-going honest
relationship with your trading journal from the moment you begin trading, do
not be disheartened by the losses that may occur along the way, you should
take these as a unique opportunity for self-development.
Forget about the monetary figure you wish to make on a daily basis and the
amount you wish to multiply your account by. To become a successful trader
the only goal you will embed in your mind is the goal
of consistency. Consistent analysis, consistent drawdowns, consistent PIP
count and a consistent positive attitude!

Though you could flip a trading account from 1000 to 2000 within half an
hour, it is a recklessly risky trade. A hard-hitting saying in the Forex market
goes something like this:

"Money made by mistake is like a loan with a very high default rate"

What does this mean, you ask? Well, that even if you were to attempt high-
risk trading where you yield outrageous amounts of return, one day your luck
will expire and you will see yourself losing all the profit you accumulated. The
best lesson is dished out by time; there is an exceptionally high probability
that the money you have made without the correct knowledge and skill will be
returned to the market, along with your deposit. This business is a skill, a
profession if you like, not a gamble.

To conclude, your trading plan must be as honest and organised as possible.


Further questions you should factor into your plan are:

How many times a day will I check the market?


What currency pairs will I be trading?
How many trades will I be in at any one time?
What is my maximum risk on my account?
What kind of trader am I?
What is my trading style going to be?

TRADING RISK LEVEL

As a trader you are responsible for deciding the exact amount you are
comfortable losing. There is no logic in feeling frustrated toward your laptop,
phone or currency pair when it is you who control the risks when executing a
trade.

A common act of ignorance from a large majority of traders is to assume that


it is acceptable to decide the level of risk after entering a trade. This is also
known as insanity, and will at some point end in disaster.

Every trade should be planned with a stop loss and a target level before you
reach for the buy or sell button. Moreover, your trading judgements should be
made while you are calm, cautious and in a relaxed state of mind! If you have
the case of trigger fingers, seeking to make mega bucks over night acting on
nervous impulse, you are indeed setting yourself up to fail. This is not how
trading Forex works!
Risk is a constantly changing variable dependent upon the trader's financial
background. Therefore, you must incorporate your personal financial standing
into your risk management. Those with more capital, may not be so adversely
affected by losing x amounts of pounds of dollars.
For example, lets say you are a newbie trader who decides to throw all of
your funds into a brokerage account; the amount of pressure for you to
succeed would be immense! This factor of desperation will most definitely
send you into a battle of discipline and self-control. You should never risk
more than you are comfortable losing.
The reasoning behind every execution will vary to the previous trade. You
should be mindful that you are only as good as your last trade! Mental and
financial preparation is key to surviving the market and must be approached
with a level of care. Initially you must construct your plan over a 6 12 month
period while you focus your attention to your drawdown percentages, so that
you may program your mind to preserve your capital.
Retail market participants sabotage themselves due to the mental restrains of
fighting with time. Newbies can be overwhelmed with excitement and are
often too impatient to commit themselves to becoming skilled in the art of
analysis before depositing funds into their brokerage account.
Those who lack experience will often suffer a losing streak and with a weak
psychology they might go to extreme lengths in attempt to regain their losses.
They do this by applying substantial amounts of risk rather than taking a step
back and evaluating the situation.
The market is not going anywhere for the foreseeable future, so take your
time to grow as a trader at a natural pace. If you do not make sensible risk-to-
reward decisions it can lead you down a path of destruction. We are only
human; we all make mistakes! What shall mould you into a prosperous trader
is the way you overcome these mishaps and move forward.
Remember to start small, focus on the percentages and PIPs, as you grow
more confident within the market the monetary aspect will naturally follow
DEMO ACCOUNT

Demo to Real Account - The Psychology of Handling Money

Since the birth of the demo account, the hopes and dreams of traders have
become amplified, only to be destroyed once they begin to trade real money.
Its like dating your first ever crush and then being dumped a few days later.

Although we have already studied the psychology of trading, we shall now


delve a little deeper into an extremely common trait that can serve as a mental
barrier for traders. What is this trait, you ask? It is the direct attachment many
individuals naturally have with their trading capital, which in turn impacts their
trading judgements.

The aim of a demo account is to provide novice traders with a taste of the live
market flow. Unfortunately, the tainted human emotion of greed causes
traders to place high-risk and over-leveraged trades. They would never dream
of doing this if they were dealing with their own funds.

It is far too easy for a newbie trader to place such a trade and return to see a
50,000 profit from a 10,000 base capital. As you can imagine this is often
the point of exhilaration and the holiday browsing for the trip to Barbados
begins! However, if this was 10,000 of their own money, then suddenly they
cannot bring themselves to enter the same sort of trade! This is when a trader
is first presented with their inner demons.
Money is something we all treasure, especially when we have to work our
butts off to obtain it! Who wants to lose in life or the market? No one, right!
This is precisely why a beginner trader will suffer so many losses; making
money on hard-earned capital is not as easy as the emotionally free demo
account.
Imagine that you have a business. No matter how large or small this business
is you would want to keep your losses to a minimum, would you not? The
same principle applies to trading. It is irrelevant whether you are a huge
investor, Warren Buffet or a bedroom trader! Although you will lose a fraction
of your trades, you must remember that your knowledge and application of
risk-to-reward is imperative.
Kicking the Addiction
The moment a trader sits at home and makes his or her first 500 in the
space of 60 minutes, their life will never be the same again. Think about it,
after such an experience would you be content in going back to that dreadful
10 an hour job? Of course not! Yet, as motivating as this can be, without
control of this addiction you will be taking a turn for the worst.
The success secret is remaining patient and grounded. Within Forex, the
quote trade smart, not often is unparalleled. Repeat it to yourself every
morning, tattoo it on your hands, do what you must in order to implant it in
your subconscious mind. Traders can lead themselves into a frenzy of
constantly needing to be in a trade and not knowing when to take a day off. If
this sounds like you, then you must outgrow this habit and understand that
Forex is about the quality of your trades, not the quantity.
To conclude, never trade money that you cannot afford to lose. There is no
shame in practicing your skills on a demo account in order to harness your
skills until you have the available funds. Think of your trades as soldiers you
are going to deploy to war, with the battlefield being the market. Not every war
is worth fighting. So chose your battles wisely and take care of your army!

STARTING SMALL

Trading is Not a Race. There is No Finish Line

Experiencing a winning streak for even four to five days can cause a trader to
feel on top of the world, only to eventually have their trading account stripped
from within their grasp. This is the result of scrambling for the big bucks and
failing to take the small steps to begin a long-term successful trading career.
Consistency
To have a successful day or even a few weeks is not extraordinary within the
market. It all boils down to whether you are able to continue this week in week
out, month in and month out. You can only begin to trade with larger capital
once you are confident. This confidence stems from consistency. Do not make
the mistake of entering into numerous trades per week. Instead you should
aim to make your current week as profitable as the previous.
Experience
There are no shortcuts to success within the market. Everything shall come in
good time and you must understand that trading is a long-term investment. It
is irrelevant whether you are profitable come next month or next year,
because you will reach that point in life when it will truly change for the better.
In your strive to achieving this, it is important to build strong foundations so
that the pillars of trading will stand firm, as you grow stronger and stronger
from the inside out.
The market will teach you more life lessons than the educational system ever
has. Through your experiences of self-fulfilment you will become fiercer and
increasingly accustomed to fighting your inner demons. You will learn that bad
experiences are your teachers, with the end of semester tests being how you
move on from these experiences and what you have learned for the future

BACK TESTING

With the hundreds, if not thousands, of trading systems out there it can be
hard to decide which one you should use. Our only advice is to see them to
the end. A common mistake among amateur traders is scrapping a system
after a short period of time. Things can take a sudden turn in this market; you
may feel as if you have a bulletproof system because you have won five out of
five trades, yet when you lose three trades in a row it is only natural that you
lose faith.
It is just as important to conduct a post-mortem on your work, as it is to plan
and organise your executions. Before you begin to trade live money it is
crucial that you analyse what works for you and what does not. You can
achieve this by testing your trading system for a minimum period of four
months so that you are sure you shall be profitable from your system.
Opening a trading account with even 250 would suffice in practicing both
your skill and your psychology. A word of advice is to concentrate on those
PIPs and the money shall follow.

THE BIG LEAGUES

You have made it all the way here in the hope that one day you will become a
full-time trader. Throughout this process you may well have speculated what
is necessary in monetary terms and in doing so you may be in search of the
answers to the following questions:

What size account do I need?


How much can I make per month?
How much money or percentage gain may I expect each day or week?
When am I ready to start trading my life savings?
There is NEVER an exact answer as to how much you will be making
on a daily, weekly or monthly basis. However, what we can suggest is
taking trading and comparing it to other viable investment options
available out there.
Trading v Bank Bond/Interest
The majority of the human population believe placing their money in a
bank account or in an ISA is a safe investment, as you will yield a 3%
return EVERY YEAR. But what if you could learn how to potentially
make 3%, if not more, per MONTH? Now thats a game changer!
Suddenly a small percentage seems like a great return on your capital.

Trading v Property
Another popular investment is buying properties and placing them on
rent to tenants. Depending on the location of the property, the average
return is around 7% the WHOLE YEAR. Now imagine making 7% per
MONTH! Although we have discussed making 2 3% per month, 7% is
very much possible if you are capable of disciplining yourself to treat it
as an investment.

Large Account Traders


Professional traders who have a substantial capital of at least 100,000
250,000 are classed as large account traders. It is easier and less
stressful to make good profit on a regular basis if you hold a larger
account. For example, if your base capital is 100,000 you would be
comfortable to place swing trades within the market with a big stop loss,
for example 300 PIPs and an even bigger target of 900 PIPs.
A successful 900 PIP trade could potentially take a month to play out.
However, a large account trader is able to risk just 2% for a return of 6%
and still make a significant profit! Therefore from a relaxed swing trade,
it is possible to make 6,000 a month and this is purely from ONE
TRADE. Though the possibilities are endless, before you even think
about placing that sort of money into an account we strongly suggest
you build a strong trading performance over a long period of time.
WHAT ARE FX SCAMS?

The key to truly conquering the FX market is to become an expert in technical


analysis and judging the market. The only person you should be relying upon
is yourself.

There are far too many bodies within the world of Forex who sell the dream to
a poor soul unaware of the inner workings. You should always keep in mind
that victory within this is market is never a straight road. There will be times
when you may doubt yourself, but with a thorough plan and trading journal
there is no situation that you cannot overcome. It is important for you to be
honest with yourself and evaluate your weaknesses and transform these into
strengths. This will come with time.
If you are solemn in your strive to achieve consistency then brace yourself for
a rocky road. Forex is uniquely rewarding, you will reach levels of self-
development that many fields of work cannot provide.
Making money in the FX market is not smooth sailing; it requires hard work,
dedication and persistence. During your journey you will come across
archives of promises and web pages attempting to lure traders of all levels
into the dark. Although experienced traders are cautious of this, the
temptation for a novice trader may be too much for them to handle. You must
remember that technical analysis is the ruler of Forex. If you choose to rely
upon an external training source, ensure they hold their own archive of market
breakdowns and successful analysis. Signal selling is also a popular promise,
which can be clarified by a Google search. Be sure to conduct your research!

SIGNALS

Typically offering email or text alerts, signal sellers supply traders with both
buy and sell recommendations, signallingto the subscriber when a trade
should be executed. They may also provide a target and stop loss price and
usually come at a monthly subscription fee.

Amateur traders are easily enticed by the idea of having their trades handed
to them. Nevertheless you should be particularly wary of signal providers who
fail to put a face to their business. Unfortunately there are numerous scams
online that deviously collect money and vanish without delivering what they
promise. Other signal scammers may operate by recommending suitable
trends now and again, before disappearing after a devastating loss.
With the influx of Forex-related services across the Internet, it has become
increasingly simple for any individual to regurgitate signals from an uncertified
provider. For instance, Jimmy establishes superjimmysignals.com and without
great difficulty he is able to purchase bulk Forex signals from Johnny over at
johnnymastersignals.com in order to forward these on for profit. Who is to say
that these signals are reliable? Thats right, no one!
Despite this, a small minority of genuine signal providers with the intention of
delivering a quality service does exist!
Even so, as a genuine trader your goal should be to achieve maximum
consistency within the market over time and the only way to achieve this is by
relying upon yourself and dedicating your time to analyse the market.

ROBOTS AND INDICATORS


In the history of Forex, many trading systems have come into market
existence promising consistency. Fortunately for us, the market variably
experiences periods of a dynamic nature, thus resulting in the expulsion of a
large majority of these automated systems.

Just as signal providers operate, system providers assemble an online


platform providing traders with phenomenal trading results in exchange for an
extortionate price. You will come across marketing schemes such as, Earn
200- 500 a day or 2000% return within nine days. These are in place to
take advantage of inexperienced traders who are desperately seeking a
financial quick fix, however more often than not the results are disastrous.

Programmed scripts are commonly referred to as Robots, these along with


indicator-based systems are available in thousands. Most are compatible on a
trading platform known as Metatrader or MT4, as this platform can be
programmed by the user.
Software that analyses the Forex market for you, does not exist. Furthermore,
a fair few systems claiming to assist with the buying and selling of currency
pairs are frequently based on historical chart data and mathematical formulas.
If you seek guidance you should do so from accomplished traders with a
successful performance record.
Mechanical trading systems and robots are rarely independently verified and
of a live money market. 99% of the parameters and optimisation codes of
these trading systems are usually invalid and short-lived. The moral of the
story folks, is to abide by your own technical analysis and have confidence in
your own trading judgements.

BROKERS AND MANAGED FOREX ACCOUNTS

A popular scam enacted a few years prior to today was the manipulation of
the bid and ask spreads of a currency pair as well as the commission
transacted through a broker. Spread and commission vary according to the
particular currency pair. You must be watchful of offshore retail brokers who
are not regulated by the CFTC, NFA or their nation of origin.

In the past, there have been numerous cases of unlawful computer


manipulation along with firms taking off with money belonging to clients. Most
of these episodes historically occurred within the United States. Although
these deceitful conmen were caught, there are undoubtedly more out there.

Upon performing an Internet search on FX broker scams, the volume of


results returned is substantial. At times it may seem as though a broker is
intentionally seeking to cause you a loss due to the market moving against
you immediately after an execution. This is a common experience amongst all
traders and it does not necessarily determine that the broker is a sham.
Trading is not for everybody; some will never be able to comprehend the
dynamics of the market and are simply not built to open a chart. These
individuals will even fail to trade with a tested strategy due to their weak
trading psychology and damaging frame of mind dictating when to pull the
trigger.
Material problems can emerge when a communication barrier develops
between the retail trader and broker. Perhaps the broker fails to answer the
traders phone call, reply to an email or even fails to meet the demands of
withdrawing in time. This could be an indication that the broker does not have
the clients best interest at heart.
Before trusting your funds with a broker, you must run background checks and
in your research you will look out for the following:

Are they licensed?


Do they have any legal actions pending against them?
Are there any complaints of withdrawing funds made by previous or current
clients? If there are, this could be a tell-tale that their pot of liquidity may be
liquidating itself!

Yet another major scam devised by even established brokers, is the deposit
bonus. For instance, if the trader deposits 10,000 the broker sales team may
offer a percentage bonus plan, which can be added to your trading equity and
may be removed at any time. So if you were offered a 50% deposit bonus you
would be granted an extra 5,000 equity to have a play with, making your total
15,000! Sounds great, right? Unfortunately, my friend, this will only entice
you into trading larger lot sizes, leading you down the slippery slope to meet
Mr. Margin Call.
Once you are satisfied with a particular broker, go ahead and test the waters
with a mini account, depositing just 500 or 1000. Trade this for four to six
weeks and then attempt to withdraw the funds. If all goes well, you can be
confident to deposit more funds.
Last but not least, never make the mistake of handing your trading account to
any online entity or fall into the common pit of PAMM managed accounts,
which offer 2000% or more return on your investments each month! Whilst
searching for a broker or trading system you must remain skeptical of
promises or promotional material guaranteeing a high level of performance.
Understand however, the Internet can be a cynical place for any business
across the globe. It is far too easy for someone to post content online slating
another. So when we do come across forums, articles and other forms of
negative comments referring to brokers, we must remember the sheer amount
of traders out there who fail to make a profit. A great deal of these disgruntled
traders will proceed to post content online blaming brokers for their own failed
trading strategies. Thus, when we research a potential Forex broker, we must
separate fact from fiction.

STATE OF MIND

It would be an act of dishonesty to state that success in the Forex market


solely relies upon the system or strategy you use. True consistency and your
profitability are actually dependent upon your mindset and your trading
independence!

However, websites and businesses endeavouring to sell an indicator or robot-


based trading system will never tell you this. Why? Because they want you to
believe that it is possible to become profitable in the market by simply buying
their product or service. So lets think about this. If such a system existed, one
that was an autopilot moneymaking machine, would it not be a few billion
pounds or dollars as opposed to not even a fraction of that?

The missing piece to the puzzle is your ability to balance your emotions with
your mental processes. Failing to achieve this will result in you not being able
to make money in the long-term or consistently.
Trading strategies are not universal. Every trader has distinct characteristics
and therefore they may be more suited to one strategy over another. For
instance, long-term trading is convenient for traders with patience, whereas
restless traders prefer intraday trading.
Whatever your preference, the key to success it to practice until you become
perfect; as you would with any skill, shape it into a personal craft. A sure-fire
way to becoming a better trader is to master just a few techniques, locate the
set ups and determine exactly what your eyes are accustomed to find. Finally,
only enter trades that fall in confluence with your preferred price action
methodologies and plan.
Clarity and organisation are two aspects that will positively affect your trading.
By organised, we mean having a detailed trading plan and a thorough trading
journal. Making use of these on a regular basis is a must. You need to think
and treat Forex as though it is a business; not a trip to your local casino. Be
calm and calculated in all of your interactions and you should have no
problems keeping the emotional trading demons at bay.
Trading the currency market is far from a team sport. This is a one-man band,
people! You may stumble across forums and groups on the Internet where
traders can pool their ideas together. However, you should avoid these
because every trader works differently. Trader A could be analysing a five
minute chart and aiming for 10 PIPs, while trader B is analysing a daily chart
aiming for 100 PIPs.
You could be in a great position where you are ready to take advantage of
your accurate analysis and a fantastic trade setup, until you view another
traders chart in a forum, which is displaying an opposite bias. At this point the
seed has been planted and you may lose confidence in yourself and your
abilities. You will not find a professional profitable trader lurking in forums
jumping from strategy to strategy.
Losing Trades
Whether you are operating from your bedroom or on Wall Street, you will
always encounter losses. You win some and lose some; it is in the job
description! A trader who places 100 trades could lose 20 trades in a row.
Stay grounded and disciplined when it comes to keeping your risk tight.
Losing Money
Unfortunately, 90% of traders who lose money also lose their confidence.
These are the traders who become entrapped into paying for bogus Forex
services and some even go to the desperate lengths of allowing others to
trade on their behalf. Again, we stress that there are individuals out there with
not even two cents to their name who claim that they can help you. Do not be
fooled! Avoid allowing desperation to cloud your judgements; your will and
drive is all that you need.
TIME AWAY FROM THE MARKETS

Taking a break from the charts is important. Professionals understand the


value of removing themselves from the market to wind down, as ultimately
there is no value in spending vast amounts of time analysing the charts. In
fact, most traders will do more damage to their trading accounts from
overtrading and overanalysing. Experienced traders acknowledge that
whether it is a win or a loss, the best thing to do is to remove themselves from
the market for a period of time.

Immediately after a trade closes you will most certainly feel quite emotional.
You could be confident from a trade that panned out well or you could be
suicidal or desperate to regain your loss. The easiest way to avoid emotional
trading is to do something else than trading! Do not stay awake all night in
front of your computer screen!

A good nights rest is vital for your trading success over time. It is important
that you spend the majority of your time doing something other than trading,
something that you enjoy. This could be going to the gym, socialising with
your friends, working on a talent or absolutely anything that is not trading-
related! The point is, checking your charts every five minutes is only going to
have an adverse effect on your emotional body and will not increase your
chances of becoming profitable.

Professional traders are successful because they spend a minimal time


interacting with the market every day. They understand that the market is
nothing more than a tool to their disposal. This tool can be utilised in an
efficient manner, enhancing their lives and bringing them financial freedom or
devouring their money and leaving them penniless. The market is taking
advantage of you when you fiddle with open trades and glare at your screens
for prolonged periods of time!

Due to the liquidity of the Forex market, it is undoubtedly the most lucrative
and rewarding market to trade. Having said that, it also comes with great risk.
A large proportion of individuals disregard potential risks, blinded by pound
signs.

This mentality is by far the fastest way to lose a large portion, if not all, of your
account equity. Capital preservation is crucial; it is not about how much you
profit in FX, but how much you lose! A serious Forex trader will be mindful that
they could potentially lose any trade they place.

Too often it takes a string of losses and a painful experience to realise that
less is more. Rather than the quantity, focus on the bigger picture and the
quality of your trades. Create a solid routine, which includes 'cooling down'
periods. For example, once you close a trade in profit or loss do not look at
that pair until the next day to reduce the chance of any emotional errors.
Trading is a game, which requires psychological balance and non-attachment.