WINDSOR BROKERS

Trader’s manual
 What is Forex?
• Forex is an acronym for Foreign Exchange Market
which is a component of financial markets.
• Financial markets are described as any marketplace
where trading of securities occurs.
• Forex market is the world’s largest financial market
conducted ‘over – the – counter’ through electronic
trading platforms such as Windsor Brokers.
• It involves speculation of value changes of
currencies with the aim of making a profit.
Characteristics of
Forex
• High liquidity – it has a huge trading volume with
$5trillion traded per day.
• Geographical dispersion – its conducted world
wide.
• Continuous Operation – runs 24hours 5days a
week.
• Leverage- uses leverage to enhance profit and
loss margins with respect to account size.
• Capital – allows low initial investment amount i.e
50$ can get you going.
• Freedom – Forex market can be accessed any
where in the world with internet and a gadget.
• Charges-has minimum charges incurred in
comparison to returns i.e spreads.
Differences between Investing and Trading What can be traded with Windsor Brokers

INVESTING TRADING • Forex – Buying and selling one currency for

another.
• Indifferent to short • Sensitive to short term
term price fluctuations price changes • Indices - A stock index is a measurement of the
price performance of a group of shares from an
• Long term – Buy and • Short term – Many &
exchange e.g. The FTSE 100 represents the 100
Hold Frequent
largest stocks trading on the London Stock
• More concerned with the Exchange.
• Emphasis is on the price
fundamentals changes/movements • Commodities- you can trade energy commodities
(Oil & Natural gas), Metals (Gold, silver) and
• Short term returns
agricultural products (cotton, coffee, cocoa)
• ‘Owning a portion’
• Stocks – you can buy or sell individual stocks
of different companies. For example,
Facebook, Boeing and many more
 Role of your Broker – WINDSOR BROKERS Securities

• The main role of a broker is order execution and connecting you to the
forex interbank market.

• Client protection - Non-Dealing broker like WINDSOR BROKERS

secures regulation inthe jurisdiction they seek to run their business:
CMA in Kenya.

• Trading platforms – we offer a trading platform with superior trading

features and unmatched user experience - Windsor Brokers Trader.

• Leverage – trading leverage offered to clients enables them to open

larger positions with minimal capital requirements: for Windsor
Brokers 1:400leverage is offered.

• Support – we offer client support, workshops and access to account

managers.

• Tradable assets- Brokers will look to have as many tradable assets as

possible on their trading platforms.
Currencies traded
We offer to our clients a vast variety of currencies traded worldwide, for example US Dollar (USD), Canadian Dollar
(CAD), Great Britain Pound (GBP), Euro (EUR), Japanese Yen (JPY), New Zealand Dollar (NZD), Australian Dollar (AUD)
and Swiss Franc (CHF)

Currencies are groups into 3

• Majors – Have the US Dollar in the

pair and are the most traded i.e.
EUR/USD, USD/JPY

• Minors – Pairs which do not contain

the US Dollar. The most traded minor
currencies are GBP, EUR and JPY i.e.
EUR/GBP, EUR/CHF

• Exotics – Pairs with a major currency

and an emerging currency. They are
not traded frequently due to their
low liquidity in the market i.e.
EU/TRY, USD/SEK & USD/NOK
Forex market participants

Commercial Banks
These are the world’s largest banks that determine the exchange rates based on demand and supply. They include
UBS, Barclays Capital, Deutsche Bank and Citi Group.

Central banks and governments

Central banks affect the forex market when they adjust interest rates to control inflation hence affecting currency
valuation. Governments on the other hand set economic goals and shake the market with political decisions made.

Corporations
Companies take part in the Forex Market for the purpose of doing business. For example, Apple Inc. must exchange
the Dollar for the Japanese Yen in order to purchase materials from Japan.

Investment funds
Organizations owned by high level investors have a broad selection of investment opportunities like the Forex market
Traders – Individuals with a risk averse personality come into the market to earn good returns.
Types of orders

Market Order
A market order is an order to buy or sell at the current market price.

Pending Orders
A pending order is an order to buy or sell a currency pair, which is executed in the future when the price reaches
the specified level

At the WINDSOR BROKERS Trader you can place a pending order when activating the “Only buy/sell when rate
reach” function

Stop loss & Take Profit Orders

A stop loss order is an order that closes your trade once it reached a certain level of loss.
A take profit order is an order that closes your trade once it reaches a certain level of profit.
When your take profit or stop loss order is hit on a trade, the trade is closed at the current market price.
How to make money trading Forex?
When trading in forex you can either buy or sell in the market.

With a speculation that the value in the market will fall, it’s advisable to
place a sell order to make profits and it applies vice versa in that with
an expectation of value increase in the market, a buy order is best
suited for this type of speculation.

Here are some of the basics you need to note:

• Currencies are trading through a broker and they are traded in pairs.
Each currency is denoted by a 3-letter symbol e.g.; US Dollar (USD),
British pound (GBP)

• Exchange rates fluctuate based on which currency is stronger in the

market at the moment.
How to read Forex quote?

As mentioned above, currencies are traded in pairs such as GBP/USD. In every transaction you are simultaneously buying one
currency and selling another.

In a currency pair we have a Base & Quote currency. As seen above, the first listed currency (GBP) is the Base currency whose value
is always 1. The second listed currency (USD) is known as the Quote currency whose value fluctuates with the market movement.

When placing a buy order, it means you are purchasing one unit of the base currency using the prevailing value of the
quote currency in the market. In the above example, you have to pay 1.51258 dollars (USD) to buy 1 British pound (GBP).

When placing a sell order, you are acquiring the quote currency by selling the base currency. From the above illustration, if
you placed a sell order you would be selling 1 British pound to acquire 1.51258 Dollars.
Common terms in Forex
Going Long
This means buying (i.e. buy the base currency and sell the quote currency). The intention is for the base currency to rise in value;
then sell it back at a higher price.

Going Short
Going short is to sell (which actually means sell the base currency and buy the quote currency). The expectation is for the base
currency to fall in value then buy it back at a lower price.

Bid & Ask

Forex quotes are quoted with 2 prices; the bid and ask.
Bid Price – This is the price at which you sell the currency pair and it’s usually lower than the ask price.
Ask Price – The price at which you buy the currency pair and it’s higher than the bid price.

Spread
It is the difference between bid and ask price also referred to as the cost of trading.

Leverage
The financial facility provided by the brokers that enables traders to trade with higher volume
than their capital.

PIP (Percentage in Point)

This is termed as the smallest movement in price of the currency pair. It is usually denoted by
the fourth digit after the comma in the currency price. However, in exceptional currencies like
the Japanese Yen the pip is the second digit after the comma.
Price action and candlestick patterns

Price action refers to a movement of a security’s price plotted over

time. It forms the basis for all technical analysis helping in identifying
market trends and formations to help in making informed trading
decisions.

Technical analysis is the study of historical prices to anticipate the

future movement of prices. As a trader you need to study the chart to
spot trends and patters which will help you find some great trading
opportunities.
Types of charts
Line Chart

A simple line chart draws a line from one closing price to the next closing price where by it shows the general price movement of
a currency pair over a period.
Types of charts
Bar Chart

It shows the opening and closing prices, as well as the highs and lows. The bottom of the vertical bar indicates the lowest traded
price for that period, while the top of the bar indicates the highest price the market has reached. The horizontal hash on the left
side of the bar is the opening price, and the right-side horizontal hash is the closing price.
Types of charts
Candlestick Chart

A candlestick is a type of price chart that displays the high, low, open and closing prices of a security for a specific
period. In this charting, the large block(body) in the middle indicates the range between the opening and closing prices.
The thin line or wick shows the highest and lowest price reached within that trading period.
Support and resistance
Support and resistance is one of the most widely used concepts in forex trading. When the forex market moves up and
then pulls back, the highest point reached before it pulled back is now resistance. As the market continues up again,
the lowest point reached before it started back is now support.

Take note:

• When the price passes

through resistance, that
resistance could potentially
become support.

• The more often price tests a

level of resistance or support
without breaking it, the
stronger the area of
resistance or support is

• When a support or resistance

level breaks, the strength of
the follow-through move
depends on how strongly
the broken support or
resistance had been holding.
How to trade support and resistance
1. Bounce
In this strategy we usually want to turn the odds in our
favor by waiting for the confirmation that the support
or resistance was held before entering into the
market.

2. The Break
For this strategy you can either buy or sell when the
price passes through a support or resistance zone.
Trendlines
This is a line connecting 2 or more points along the same level. The essence is to spot the best point to place buy trades in an
uptrend and best sell trades in a downtrend.

When drawing a trendline:

1) focus only on major swing points
2) connect at least 2 major swing points
3) adjusting the line to ensure it touches the most number of swing points.
Type of trendlines
• Uptrends (Higher lows)
• Downtrends (Lower highs)
• Sideways trends (Ranging)
Candlestick charts psychology
The short candlesticks indicate that
neither the bulls nor the bears are in
control and there is very tight trading.
The long upper shadows indicate that
the number of buyers were higher
initially but the sellers were able
to come back.
The long lower shadows indicate that the
number of sellers were higher but
the buyers came back to overcome
the
selling pressure.
The upper and the lower shadows on the
same candlestick indicates that both
buyers and sellers had equal control in the
market
Moving averages
Indicator smooths out price fluctuations distinguishing between typical market noise and actual trend
reversals helping us understand the market direction.
Relative Strength Index (RSI)
Indicator that helps evaluate the current market strength. When using the RSI indicator take note that:
• RSI reading of 30 and below indicates an oversold or undervalued condition which may signal a trend change or corrective
price reversal to the upside.
• RSI reading of 70 or above indicates an overbought / overvalued condition in the market hence there may be a trend change
or corrective pullback in price.
Moving Average Convergence Divergence (MACD)
Tool that identifies a new trend, whether bearish or bullish. As the two moving averages separate, the histogram gets bigger;
(divergence) since the faster moving average is moving away from the slower moving average.
As the moving averages get closer to each other, the histogram gets smaller; (convergence) because the faster moving average is
getting closer to the slower moving average
When “crossover” occurs, and the fast line starts to “diverge” or move away from the slower line, it often indicates that a new trend
has formed.
• Reversal Patterns – signal that the ongoing trend is about to change course
• Continuation Pattern – signal that the ongoing trend will resume
• Bilateral Patterns – signal that the price can move either way

Types of chart patterns

Double top
A pattern formed after there is an extended move
up. The peaks formed when price hits a certain
level cannot be broken and they are a strong sign
of a reversal occurring. An order should be placed
below the neckline in anticipation of a reversal

Double bottom
Formations occurs after extended downtrends when 2
bottoms have been formed. This indicates the selling
pressure is decreasing hence a reversal is about to occur.
Head and Shoulders
It is formed by a peak (shoulder), followed by a higher
peak (head), and then another lower peak (shoulder)
indicating a trend reversal formation.
Once the price goes below the neckline it makes a
move that is at least the size of the distance between
the head and the neckline.

Rising Wedge
Formed when price consolidates between upward
sloping support and resistance lines in that the slope of
the support line is steeper than that of the resistance.
If the rising wedge forms after an uptrend, it’s usually a
bearish reversal pattern. On the other hand, if it forms
during a downtrend, it could signal a continuation of the
down move.
Bullish Rectangle
Chart pattern formed when price is bounded by parallel
support and resistance levels. A rectangle exhibits a
period of consolidation or indecision between buyers
and sellers. With a bullish rectangle, the price breaks to
the upside.

Bullish Pennant
This is a tiny symmetrical triangle formed during a pause
after a strong uptrend move.
Fundamental analysis

This involves looking at the market by analyzing economic, social and political forces that affects the supply and demand of an
asset. Like any commodity, the value of a currency rises and falls in response to the forces of supply and demand.
Here are some economic factors you can follow to identify economic trends and their effect on currencies.

Interest rates

Interest rate is probably the biggest factor in determining the perceived

value of a currency.
An anticipated interest rate hike by central banks usually causes the
currency to appreciate whereas an anticipated fall in interest rates usually
causes the currency to depreciate
Base Interest Rate (Nominal Rate) from central banks is what influences
currency price fluctuations.

Inflation

Inflation is a steady increase in the prices of goods and services, and it is

presented as Consumer price Index (CPI) in the economic calendar
One of the biggest influences on a central bank’s interest rate decision is
price stability (inflation).
It’s generally accepted that moderate inflation comes with economic
growth. For advanced economies, the optimal rate of inflation is
expected to be between 2-3%
Monetary policy
National governments and their corresponding central banking authorities formulate monetary policy to achieve certain
economic mandates or goals.
Monetary policy boils down to promoting and maintaining price stability and economic growth.

Central banks use monetary policy mainly to control the following:

• The interest rates tied to the cost of money
• The rise in inflation
• The money supply in the economy
• Reserve requirements over banks
• Discount window lending to commercial banks

Balance of payments
A country’s current account reflects balance of trade and earnings on foreign investment.
Balance of trade measures the ratio of exports to imports for a given economy

Exports > Imports = Trade Surplus = Positive (+) Trade Balance

Imports > Exports = Trade Deficit = Negative (-) Trade Balance

A negative trade balance causes a country’s currency to weaken as they spend more on importing products than they earn
through sale of exports.
On the other hand, a positive trade balance of payments tends to be favorable to the country’s currency as it earns
more foreign money.
Hawkish and dovish central banks
Central banks have a Governor, president or a chairman whose role is to be the voice of that central bank, conveying to the
market which direction the monetary policy is headed. Forex analysts and traders take the news and try to dissect the overall
tone and language of the announcement. Central bankers are described as “hawkish” when they are in support of the raising
of
interest rates to fight inflation even to the detriment of economic growth and employment. Dovish central bankers, on the
other hand, generally favor economic growth and employment over tightening interest rates.

Economic growth expectations

This relates to the economic outlook as held by consumers, businesses and the governments. It’s easy to understand that when
consumers perceive a strong economy, they feel happy and safe, and they spend money. To meet the needs of a growing
population, an economy must expand. However, if growth occurs too rapidly, price increases will outpace wage advances so that
even if workers earn more on average, their actual buying power decreases.

Capital flows
Capital flows measure the amount of money flowing into and out of a country or economy because of capital investment
purchasing and selling. When a country has a positive capital flow balance, foreign investments coming into the country are
greater than investments heading out of the country. With more investment coming into a country, demand increases for
that
country’s currency as foreign investors must sell their currency in order to buy the local currency. This demand causes the
currency to increase in value. A negative capital flow balance is the direct opposite i.e. Investments leaving the country for some
foreign destination are greater than investments coming in.

Employment outlook
Employment levels have an immediate impact on economic growth. As unemployment increases, consumer spending falls
because jobless workers have less money to spend on non-essentials signaling a slowdown in the economy and a possible
devaluation of the country’s currency.
Risk Management in trading

One of the fundamental rules of risk management in the Forex market is that you should never risk more than you
can afford to lose. To minimize the likelihood of financial loss, traders need to have in place some Forex risk management
actions and strategies.

When it comes to initially determining your lot size, it's best for new traders to start small. Never risk more than to
2% per trade. As a trader, enhance your chances of growth, you want to trade when you have the potential to make 3
times more than you are risking.

This enables one to continuously grow the account even when you only
make profit on just 50% of the trades.

Ensure you have a trading plan which defines what is supposed to be done,
why when and how. This covers your trader personality, personal expectations,
risk management rules and trading system(s). A good trading plan helps limit
trading mistakes and minimize your losses since emotions can consume you
when money is on the line.
How to build a trading strategy

A trading strategy is the method of buying and selling in markets that is based on predefined rules used to make trading
decisions. Creating a strategy may be easy but it may call for back testing on a demo account to ensure its effective.

Below are steps to consider when formulating a strategy

Choose a timeframe
When choosing a timeframe always ask yourself the following questions:
1. Are you a day trader, swing trader or position trader?
2. How long do you intend to hold on to your positions?

Though you will consider multiple time frames, this will be the main timeframe
you will use to get a trade signal.

Apply appropriate indicators

Our aim is to identify trends as early as possible. We should use indicators that can
accomplish this.

Moving averages ‘crossover’ are one of the most popular indicators that traders use
to help them identify a trend.
Confirm a new trend using an indicator
We can confirm overbought and oversold regions using indicators. There are good indicators for confirming a trend
like MACD, Stochastic and RSI.

Define your risk

When developing your forex trading strategy, it is very important that you define how much are you willing to lose
on each trade. You have to decide how much room is enough to give your trade to play out.

Define your entries and exists

Identify where you will enter and exit a trade in order to get most profit. The ideal entry is upon close of a
candlestick after all indicators match up and give a good signal. For exits, you have a few different options:
1. One way is to use stop loss
2. The other way is to exit when the price hits target

Write down rules for your strategy and follow them

When trading, discipline is one of the most important characteristics a trader must have. You must write down the
rules and follow them.
Common mistakes traders make

Overconfidence
This is self-conceived belief that you know everything about the markets and
that there is no way for you to ever lose. While confidence is necessary, too
much confidence can have negative consequences.

Overtrading
This is when you are trading too frequently, taking extremely large trades,
inconsistent lot sizes and/or taking uncalculated risks. Successful traders are
extremely patient. Quality setups take more time to materialize, so they
remain patient and wait for confirmation. What matters is protecting your
capital. You have to wait until the odds are in your favour before entering a
trade.

Revenge trading
Revenge trading is when you jump back into a new trade right after taking a
loss because you believe that you can quickly flip
the loss back into a profit. Then you start thinking like this, your state of mind is not objective anymore. You become more prone
in making even more trading mistakes, which result in you losing even more money. To avoid revenge trading practice the
following techniques:

1. You need to have a trading plan

2. Be in good state of mind: avoid anxiety, fear, greed and impatience
3. Focus on the process – trading is long term. Don’t stress on one loss or a couple of losses.
Overexposure
When you have multiple positions open in your trading account which consist of a common currency. For instance, when you have
two buy positions of AUD/USD and NZD/USD; essentially, its like having two identical trades open as they usually move in a similar
manner.

Adding to a losing trade

Averaging down is adding to your position as the price moves against you, in the usually mistaken belief that the trend will reverse.
Adding to a losing trade is a dangerous practice. The price can move against you for much longer than you expect, as your loss gets
exponentially larger.

Trading without a stop loss

Have a stop loss order for every single forex day trade you make. A
stop loss is an offsetting order that gets you out of a trade if the
price moves against you by an amount you specify.

Poor risk management

The key part of your risk management strategy is to establish how
much of your capital are you willing to risk on each trade.
Depositing money with the wrong forex broker is the biggest
trade
you will make. You should ensure that your broker is regulated by
the relevant body i.e. WINDSOR BROKERS Securities is regulated by
CMA in Kenya.A non-dealing broker is the ideal broker.
THANK YOU