Windsor Brokers Advanced Forex

ADVANCED FOREX
FUNDAMENTAL ANALYSIS
Here are some economic This involves looking at the
factors you can follow to market by analyzing
identify economic trends and economic, social and
their effect on currencies. 1 political forces that affects
the supply and demand of
an asset.
The supply and demand of a
country’s money is reflected
in its foreign exchange rate.
5 2 Like any commodity, the
value of a currency rises and
falls in response to the
forces of supply and
Everyone needs to spend
and consumer spending
4 3 demand.
directly affects the money

supply.
Trading in margined products carries high level of risk.

INTEREST RATES
Global money is always

An anticipated
Base Interest Rate looking to shift from Interest rate is An anticipated fall in
interest rate hike
(Nominal Rate) from countries with lower probably the biggest interest rates usually
by central banks
central banks is what rates into countries factor in determining causes the currency
usually causes the
influences currency with higher rates for the perceived value to depreciate
currency to
price fluctuations. the highest return. of a currency.
appreciate.

INFLATION
One of the biggest It’s generally accepted that The dollar strengthens
Inflation is a steady against other currencies
influences on a moderate inflation comes
increase in the prices of in anticipation for hike in
central bank’s with economic growth. For
goods and services and interest rate. Should the
interest rate advanced economies, the
it is presented as readings fall short of
decision is price optimal rate of inflation is
Consumer price Index expectations, there is
stability (inflation). expected to be between 2- anticipation that rate may
(CPI) in the economic
3% be reduced.
calendar.

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.

To achieve their goals, central banks use monetary policy mainly to
control the following:
D
Discount window
lending to
C commercial
Reserve
B. banks
requirements
The money over banks
A.
The rise in supply
inflation
The interest rates
tied to the cost
of money
BALANCE OF PAYMENTS
A country’s current account Balance of trade measures the
reflects balance of trade and ratio of exports to imports for a
earnings on foreign investment. given economy.
A. Exports > Imports = Trade Surplus = Positive (+) Trade Balance
B. Imports > Exports = Trade Deficit = Negative (-) Trade Balance

BALANCE OF PAYMENTS
A negative trade balance causes a country’s currency Conversely, a positive trade balance of payments
to weaken as they spend more on importing tends to be favorable to the country’s currency as
products than they earn through sale of exports. it earns more foreign money.

HAWKISH AND DOVISH CENTRAL BANKS
Central banks, like most businesses,

have a Governor, president or a
chairman. His role is to be the voice
of that central bank, conveying to the
market which direction monetary
policy is headed.
Central bank speeches have a way of

inciting a market response.
Speeches can include anything from

changes interest rates, discussions
on economic growth, to monetary
policy announcements outlining
current and future changes

HAWKISH AND DOVISH CENTRAL BANKS
Forex analysts and traders take the news and
try to dissect the overall tone and language of
the announcement.
Central bankers can be viewed as

either ‘hawkish’ or ‘dovish’.
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 Companies with money spend it all this
as held by consumers, businesses creates some healthy tax revenue for
and the governments. It’s easy to the government. They jump on board
understand that when consumers and also start spending money. Now
perceive a strong economy, they feel everybody is spending, and this tends
happy and safe, and they spend to have a positive effect on the
money. economy.

ECONOMIC GROWTH EXPECTATIONS
Weak economies, on the other To meet the needs of a growing If a country releases
hand, are usually accompanied by population, an economy must expand. higher (than expected)
consumers who aren’t spending, However, if growth occurs too rapidly, GDP numbers, it means it
businesses which aren’t making any price increases will outpace wage has produced more goods
money and aren’t spending, so the advances so that even if workers earn and services and will
government is the only one still more on average, their actual buying export more -its currency.
spending. 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.
The important thing you want to keep track

of is capital flow balance, which can be
positive or negative.
When a country has a positive capital flow

balance, foreign investments coming into the
country are greater than investments
heading out of the country.
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.

CAPITAL FLOWS
With more investment coming into a If supply is high

country, demand increases for that for a currency (or
country’s currency as foreign demand is weak), If a country also has a
investors have to sell their currency in the currency growing domestic financial
order to buy the local currency. This tends to lose market, even better!
demand causes the currency to value.
increase in value.

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
An increase in unemployment signals a slowdown in the

economy and possible devaluation of a country's
currency because of declining consumer confidence and
lower demand.
If demand continues to decline, the currency supply

builds and further exchange rate depreciation is likely.

GOVERNMENT PRESENT AND FUTURE
Instability in the current government or changes to the
current administration can have a direct bearing on
that country’s economy and even neighbouring
nations.
Political stability also has a bearing on the performance

of the currency.

RISK MANAGEMENT IN TRADING
Forex trading has an element of high risk due

to frequent and continuous change in
exchange rates.
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.

RISK MANAGEMENT IN TRADING
Trading without
a stop-loss is Once you've set
similar to your stop-loss,
driving a car you should
with no brake never bring it TRADING WITH STOP LOSSES
at maximum down.
speed.
If you are a
position trader, No matter which
with plans to position you have THE TREND IS YOUR FRIEND
hold that ultimately decided
position for an to take, you
extended period shouldn't fight
of time. current market.

USING CORRECT LOT SIZES
When it comes to initially determining your lot Never risk more than to 2% per trade.
size, it's best for new traders to start small.
Trade Total 2% Risk on Trade Total 10% Risk on

Account each trade Account each trade
1 $20,000 $400 1 $20,000 $2,000
10 $16,675 $333 10 $7,748 $775

19 $13,903 $278 19 $3,002 $300

TRACKING OVERALL EXPOSURE
While using reduced lot size is a good thing,
opening multiple lots with correlated currency
pairs could cripple you.
For example: if you go short on EUR/USD and long

on USD/CHF, you are essentially exposed two times
to the USD. And if the USD tumbles, you'll suffer a
double loss.
But keeping your overall exposure limited

can reduce your risk and increase your
prospect for long-term success.

RISK-TO-REWARD RATIO
• As a trader, enhance your • If you were to reduce your
chances of growth, you position size, then you
want to trade when you could widen your stop to
have the potential to make maintain your desired
3 times more than you are reward/risk ratio.
risking.
• Reward-to-risk ratios aren’t
• This enables one to
set in stone. They must be
continuously grow the adjusted depending on the
account even when you time frame, trading
only make profit on just environment, and your
50% of the trades. entry/exit points.

TRADE PLAN
A trading plan This covers your trader

It helps limit trading A trading plan
defines what is personality, personal
mistakes and minimize eliminates any bad
supposed to be expectations, risk
your losses since emotions decision making in the
done, why, when, management rules and
can consume you when heat of the moment.
and how. trading system(s).
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

1. CHOOSE A TIMEFRAME
A trading strategy is the method of buying and
selling in markets that is based on predefined
rules used to make trading decisions.
Are you a day trader, swing trader or position trader?
How long do you intend to hold on to your

positions?
Though you will consider multiple

time frames, this will be the main
time frame you will use to get a
trade signal.

2. 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.

3. CONFIRM NEW TREND USING INDICATOR
We can confirm There are good indicators

overbought and for confirming a trend like
oversold regions using MACD, Stochastic, and RSI
indicators

When joined together with
A simple line chart a line, we can see the
draws a line from one general price movement of
closing price to the a currency pair over a
next closing price period of time.

4. DEFINE YOUR RISK
When developing your forex trading strategy, it

is very important that you define how much
you are willing to lose on each trade.
You have to decide how much room is enough

to give your trade to play out, but at the same
time, not risk too much on one trade.

5. DEFINE YOUR ENTRIES AND EXITS
ENTRIES Identify where you EXITS

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

6. WRITE THE STRATEGY RULES AND FOLLOW THEM
1
You must write the rules
2 Discipline is one of the
most important
and follow them.
characteristics a trader
must have.

1
You must write the rules
2
and follow them.
COMMON MISTAKES TRADERS MAKE

1

1. Overconfidence
Inflated belief over one’s trading skills.
This is self conceived belief that you know everything

about the markets and that there’s no way for you to
ever lose.
While confidence is necessary, too much confidence

can have negative consequences.

2. Overtrading
Overtrading 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 time

to materialize, so they remain patient and wait for confirmation.
It doesn’t matter how long it takes you before you find

a set up
What matters is protecting your capital. You have to

wait until the odds are more in your favor before
entering a trade.

3. ‘Revenge trading’
When you suffer a large loss, or a series of losses, within a short span of
time, you might be tempted to “revenge trade”.
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.
When you start thinking like this, your state of mind is

not objective anymore. You become more prone to
making even more trading mistakes, which results in
you losing even more money.

How to avoid ‘revenge trading’
You need to have a trading plan.
Be in good state of mind: Avoid anxiety, fear, greed and

impatience.
Focus on the process – trading is long term: Don’t

stress on one loss or a couple of losses.

4. 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.
Even if there are two valid trade setups in both pairs,

you may not want to take both.
You might believe that you’re diversifying your risk by

trading in different pairs, but some pairs tend to move
in the same direction.

5. 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.
Instead, take a trade with the proper position size and

set a stop loss on the trade.
If the price hits the stop loss the trade will be closed
at a loss. There is no reason to risk more than that.

6. 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.
Your loss is moderated. Take it and move on to the

next trade.

7. Poor risk management
The key part of your risk management strategy is to establish how much
of your capital you are willing to risk on each trade.
Day traders ideally should risk 1 - 2% of their capital

on any single trade.
That means that a stop loss order closes out a trade if

it results in no more than a 1% loss of trading capital.
That means that even if you lose multiple trades in a

row only a small amount of your capital will be lost. At
the same time, if you make 2% or 3% on each winning
trade your losses are easily recouped.

8. Choose the right broker
Depositing money with the wrong forex broker is the biggest trade you
will make.
If it is poorly managed, in financial trouble, or an outright trading

scam, you could lose all your money.
You should ensure that the broker is regulated by the relevant body. A
Non-dealing broker is the ideal broker.

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ADVANCED FOREX

directly affects the money

Trading in margined products carries high level of risk.

Global money is always

Trading in margined products carries high level of risk.

Trading in margined products carries high level of risk.

National governments and their

Monetary policy boils down to promoting

Trading in margined products carries high level of risk.

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

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

Trading in margined products carries high level of risk.

Trading in margined products carries high level of risk.

Central banks, like most businesses,

Central bank speeches have a way of

Speeches can include anything from

Trading in margined products carries high level of risk.

Central bankers can be viewed as

Central bankers are described as

Dovish central bankers, on

Trading in margined products carries high level of risk.

Trading in margined products carries high level of risk.

The important thing you want to keep track

When a country has a positive capital flow

A negative capital flow balance is the direct

Trading in margined products carries high level of risk.

With more investment coming into a If supply is high

Trading in margined products carries high level of risk.

An increase in unemployment signals a slowdown in the

If demand continues to decline, the currency supply

Trading in margined products carries high level of risk.

Political stability also has a bearing on the performance

Trading in margined products carries high level of risk.

Forex trading has an element of high risk due

One of the fundamental rules of risk

To minimize the likelihood of financial loss,

Trading in margined products carries high level of risk.

Trading in margined products carries high level of risk.

Trade Total 2% Risk on Trade Total 10% Risk on

1 $20,000 $400 1 $20,000 $2,000

10 $16,675 $333 10 $7,748 $775

Trading in margined products carries high level of risk.

For example: if you go short on EUR/USD and long

But keeping your overall exposure limited

Trading in margined products carries high level of risk.

Trading in margined products carries high level of risk.

A trading plan This covers your trader

Trading in margined products carries high level of risk.

A trading strategy is the method of buying and

Creating a strategy may be easy but it may call

Below are steps to consider when formulating

Trading in margined products carries high level of risk.

Are you a day trader, swing trader or position trader?

How long do you intend to hold on to your

Though you will consider multiple

Trading in margined products carries high level of risk.

Trading in margined products carries high level of risk.

We can confirm There are good indicators

Trading in margined products carries high level of risk.

Trading in margined products carries high level of risk.

When developing your forex trading strategy, it

You have to decide how much room is enough

Trading in margined products carries high level of risk.