STUDY GUIDE

WHAT IS FOREX TRADING?

 It is where currencies are exchanged and speculated.

 It has no central market place and is conducted “over the
counter” and is therefore direct trading and is not in standard
form.
 The broker effectively transacts the trade for you and so the
trade is actually between you and the broker and not another
trader.
 It can also be defined as the speculation of one currency
against another in a pair. Whether you buy or sell you speculate
that one currency has power over the other in the same pair.
For example, if you buy the EURUSD it means you speculate
that the euro has power over the American dollar and if you sell
your speculation is the other way around.

Here is a list of the qualities you will need to reach your goals
in the forex market through trading:
 Determination and discipline
 Ability to set aside your emotions
 Focus on a trading plan
 Reinforce positive trading habits
 Patience
 Realism
 Self-control

You can take advantage of the market by learning and

mastering an effecting trading strategy, building an effective
trading plan around it and following ice-cold discipline. You
need to take into consideration that at the same pace and
 manner you can win you can lose. So risk what you are
comfortable with losing.

FOREX TERMINOLOGY

 Cross rate- the currency exchange rate between two

currencies in a country they are not official currencies of.
 Exchange rate- the value of a currency in terms of another. For
example, “EURUSD is 1, 3200” means 1 euro is 1,3200 US
dollars.
 Pip- the smallest possible price movement a currency can
make.
 Leverage- The ability to control a large amount of capital with
a comparatively small capital in order to gear your account into
a greater position. This magnifies both wins and losses. For
example, when opening a $100000 position with just $1000 as
margin you magnify your account 100 times at a ratio of 1:100.
We can then say it using borrowed funds by means of a
contract to increase the ability of your investment and gain at a
higher level but at a higher risk too.
 Margin- the deposit required in your account in order to open
and/or maintain trades. It is deposited with a broker to secure
the brokers capital from any loss depending on the contract
agreed upon. Used margin is an amount maintaining an open
position and free margin is the amount available to open new
trades. If a trades account eventually falls below required
margin they receive a “margin call” which notifies trader to
 deposit more capital or close a trade. Most brokers
automatically close the open positions.
 Spread- the difference between the bid price (sell quote) and
offer price (buy quote).
 Going long- when opening a position that can only be profitable
if exchange rate rises. We can then sell back our position at a
higher price than we bought it for.
 Going short- when opening a position that can only be
profitable if exchange rate falls. We can then buy back our
position for a price lower than we sold it for.
 Flat- when the trader has no open positions.
NB*”if” is highlighted because there is no guarantee on
whether the exchange rate will rise or fall.*
We don’t use the words “buy” or “sell” because buying into a
position could mean you close a trade you went short on by
buying into the same pair convinced that the exchange rate will
change direction and rise.

•Nature- the characteristics in which the price is moving.

•Impulsive Nature- aggressive price movements with heavy
momentum.
•Corrective Nature- tight low momentum compact price
movements creating continuation and reversal patterns
•Structure- the use of multi timeframes to draw in a framework
of continuation patterns, reversal patterns and outer trend lines.
•Price Patterns- reversal or continuation price shape pattern.
 •Bullish Trend/Market- higher highs and higher lows.
•Bearish Trend/Market- lower highs and lower lows.
•Scale in- when you add positions to an existing position.
•Risk entry- entering a position before impulse out of structure.
•Reduced risk entry- entering a position on the correction after
the impulse out of structure.
•Progression- when price impulses out of pattern confirming
direction.
•Momentum- the dominate move on the higher time frames.
•Sentiment- using price action to judge the dominant direction.
•Bias- using sentiment to gain a belief of a bullish/bearish
stance.
•HTF- higher time frames (1M/1W/1D)
•LTF- lower time frames (4H/1H/15min)
•B/E- break even

ADVANTAGES OF TRADING
THE MARKET

 With forex being such a large market, dense liquidity is created

making it easy to enter and exit positions.
 You can trade anytime you want except for between Friday at
23h00 and Sunday at 23h00. During this time you can place
orders of positions you want to enter when the market re-
opens.
 You can open a position from anywhere in the world for as long
as you have internet access.
  It is volatile and therefore allows traders to gain profit at any
condition of the market.
 It easily accessible even in terms of the margin deposited into
the account.
 When given a chance the market is understandable and is really
not as complicated as people make it seem to be.

CURRENCY PAIR QUOTES

Exchange rates of two currencies are quoted in pairs because in all

foreign exchange transactions you buy a currency while selling
another at the same time.
In the currency quote above the Pound and American Dollar are
paired and we have learnt that the picture above tells us that 1GBP =
1,51258USD. Notice each currency has been labeled as either base
or quote currency. A base currency is the basis of a trade therefore
whether you go long or short your position is based on it. To
understand this better we can say, when you go long on this
currency pair it means you buy the GBP and sell the USD and will
obviously at that point believe that the GBP has power over the USD.
When you go short on this currency pair it means you sell the GBP
and buy the USD and again it will be obvious that you would be
convinced that the USD has power over the GBP. So whatever trade
you place will be based on the base currency.

Here are the major currency pairs:

ORDER TYPES
Market order- an order executed instantly at the current
available market price.

Sell limit- when you place a sell order above the current
market price. For example, if the EURUSD is currently trading
at 1.3200 and you want to go sell the market if it reaches
1.3250, you can place a limit sell order and then when / if the
market touches 1.3250 it will fill you short.

Buy limit- when you place a buy order below the current
market price. For example, If you want to buy the EURUSD at
1.3050 and the market is trading at 1.3100, you would place
your limit buy order at 1.3050 and then if the market hits that
level it will fill you long.

Sell stop- an order placed below

current market price. This usually when you want to go short
but only once the market has broken out of your support or
reached where you are comfortable with going short.

Buy stop- an order placed above current market price. This

means you would be willing to go long but only when the
market has broken your resistance or reached a point when you
are comfortable with going long.
Stop loss- it is an order
connected to a trade placed to prevent further losses. Once the
market reaches this point the position is automatically closed.

Trailing stop- when the stop loss order is placed within the
profit of a trade. This is done to protect the profits already
made and so if the market goes against you, you get to walk
away with profit. It is best used in strong trending markets.

Good ‘till cancelled order- It is an order that remains running

until you manually close it. It is not advisable to have such
because you could forget about it or worse lose internet
connection at a crucial stage of your trade.

Good for the day order- An order that lasts just for the day.

One cancels another order- A one cancels the other order is

essentially two sets of orders; it can consist of two entry
orders, two stop loss orders, or two entry and two stop-loss
orders. Essentially, when one order is executed the other is
cancelled. So, if you want to buy OR sell the EURUSD because
you are anticipating a breakout from consolidation but you don’t
know which way the market will break, you can place a buy
entry and stop-loss above the consolidation and a sell entry
with stop-loss below the consolidation. If the buy entry gets
filled for example, the sell entry and its connected stop loss will
both be cancelled instantly. A very handy order to use when
you are not sure which direction the market will move but are
anticipating a large move.
 LOT SIZE

These are quotes of positions. They affect the pip value by

either increasing or decreasing it. There are four types of lot
sizes and the Forex Chasers mainly focuses on the standard lot.

When we calculate our pip values we use the standard lot size and
σ
( )
the equation: ∆ × 100000=ρ

The equations simply means a decimal of one, of which to what

decimal place depends on the exchange rate, divided by the
exchange rate and the answer of that multiplied by a hundred
thousand is equal to the pip value. For example, EUR/JPY at an
exchange rate of 100.50 (.01 / 100.50) x 100,000 = $9.95 per pip
 HOW TO CALCULATE
PROFIT/LOSS

Let’s say you buy the EUR/USD at 0.5478 pips and a few days later
the markets is at 0.5567 pips and you decide to take that profit and
close your position. These are the steps to follow when calculating
profit:

1. Calculate the pip difference: 5567-5478=89 Therefore the

market moved up 89 pips.
2. Calculate pip value at current market price and multiply it by
the difference in pips: (0.0001/0.5567)(100000)= $17.96
(17.96)(89)= $1598.71 and that is the profit you have made.

The same steps can be used to calculate loss.

 PROFESSIONAL TRADING

Professional Forex traders use the price movements of foreign

exchange currency markets to make profit. These traders maximize
as much winning trades as possible and use price charts to analyze
and trade the market. They understand that Forex trading is not a
get-rich-quick scheme and is not a gamble but is rather much more
complicated than portrayed on the net. It requires education and
skill, the knowledge that you will not only attain winning trades but
there will be losses too and it is very important to learn from the
losses and make sure we minimize losses as much as possible by
putting stop losses in all our trades at points we are 100%
comfortable with. Most have winning edges developed through
technical analysis while some include fundamental analysis too. In
the Forex Chasers Institution we focus on Technical Analysis which
of course resulted in the formation of our ‘Forex Chasers Strategy’.
Professional traders understand that trading is an art and is not just
about money.

“Perfect the skill and the money will follow.”- Headchaser

WAYS PROFESSIONAL TRADERS USE

TO TRADE

There are many different ways which professional traders use to

conquer the market but in this study guide only ways encouraged by
the Forex Chasers Institution are mentioned.

 Technical Trading: Technical trading involves analysis of a

market’s price chart for making one’s trading decisions. It is the
use of price patterns to trade the market with an edge.
 Range Trading: Range trading involves trading a market that is
consolidating between obvious support and resistance levels.
By watching for trading signals near the support and resistance
boundaries of the trading range, traders have a high-probability
entry scenario with obvious risk and reward placement.
 Trend Trading: Trend traders are traders who wait for the
market to trend and then take advantage of this high-
probability movement by looking for entries within the trend.
An uptrend is considered to be in place when a market is
making higher highs and higher lows, and a downtrend is in
place when a market is making lower highs and lower lows. By
looking for entries within a trending market, traders have the
 best chance at making a large profit on their risk. Professional
Forex traders are largely trend-traders.

Here are differences between professional and amateur Forex

traders:

TECHNICAL ANALYSIS

Technical analysis is the study of the price movement on a

chart of a particular Forex currency pair or other market. It is a
framework that traders use to study and make use of the price
movement of a market and develop strategies around the
market to attain winning trades through predicting the direction
of the market and its state in the near future. Technical
analysts believe that all elements needed to predict the price
movement of a specific pair are on that pairs price chart and
are presented by that particular price. This allows them to
depend on just the chart for analysis.

They search for repetitive patterns to develop their edge.

They find trends, support and resistance levels and generally
learn to ‘read’ the ebbs and flows of a market. In order to
perfect this form of analysis and grow, more confident in it you
need to practice it a lot on as much currency pairs as possible.

Here is an example of technical analysis applied on a price: