Trading Forex
A free guide on
How to trade
The Forex Market
Kevin Greenhall
SIMPLY TRADING FOREX
Kevin Greenhall
Simply Trading Forex
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Disclaimer
The Simply Trading Forex book and subsequent updates should in no way be interpreted as
trading advice and is distributed to show the basics of ‘How to trade the Forex Market’. Any
decision to place trades with a spread betting company is at the sole discretion of the reader and
it should be clearly understood that in any decision to trade there is a risk of loss. Neither Simply
Trading Forex Ltd nor its employees shall be liable for any special, indirect, incidental, or
consequential damages, including without limitation losses, lost revenues, or lost profits that may
result from these materials. Opinions and estimates constitute our judgment and are subject to
change without notice. Past performance is not indicative of future results.
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Acknowledgements
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Contents
Foreword 5
Introduction 8
1. An overview 10
1.1 What it is and how it operates 10
1.2 What makes the currencies move against
each other 12
1.3 Fundamental and Technical Analysis 13
1.4 The Bulls and the Bears 15
2. Trading Discipline 16
2.1 How to avoid getting it wrong 16
2.2 Having a Trading Plan 16
2.3 Mindset 17
3. The Charts 18
3.1 Price Bars: the anatomy of a price bar 18
3.2 Candlesticks 20
3.3 How the charts are structured 23
3.4 Timeframes 23
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4. Currency Pairings 24
5. Technical Indicators 24
5.1 Support and Resistance lines 24
5.2 Candlestick analysis and patterns 28
5.3 Moving Averages 32
5.4 Fibonacci (FIB) 35
7. Stop Loss 40
7.1 Definition 40
7.2 Trading Bank 40
7.3 Understanding the use of the Stop Loss 41
7.4 Risk Reward Ratios 43
7.5 Trailing Stop Loss 44
7.6 Limit Order 45
10. Summary 50
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Foreword
The author got in touch with me over a year ago and asked
me if I thought a book on Simply Trading Forex was a good
idea. I said yes because I knew that the market for this type
of information was rife with so-called 'manuals' that gave
very little substance and were mere sales letters for higher-
priced products. However I had no idea concerning how
extensive this book would be. For less than £30 I expected 20
pages in which each area was given a few pages of sizzle and
no steak.
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with very limited results. Despite the hype, the reality of most
trading systems is that they are complex, time consuming and
too risky.
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1. An Overview
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Only with the advent of computers and the internet has this
market become more open to the general public and although
still in its infancy, it is expected to grow substantially in the
years ahead. Novice traders are now able to look at the same
screens, and the identical, ‘live’ up-to-date information, that the
professional traders in the city have had access to for decades. It
is, of course, a pre-requisite that a broadband internet connection
is available to enable the satisfactory download of real time
charts and to be able to access the trading platform to initiate
trades.
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2. Trading discipline
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2.3 Mindset
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3. The charts
The currency pairings, and their relative price to each other, are
displayed on the charts by means of a price bar. These price bars
reflect the Open, High, Low and Close, often referred to as
OHLC, for the period the bar represents, whether it is daily,
weekly or one of the shorter time frames e.g. hourly, thirty
minutes or fifteen minutes.
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H
H
Key:
C O O : Open
H : High
L : Low
C : Close
(OHLC)
O C
L L
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Close is below the Open, then the sellers (Bears) were the
dominant force.
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3.2 Candlesticks
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Diagram of Candlesticks
H
H
O
Key: C
O: Open
H: High
L: Low
C: Close C
(OHLC)
O
L
L
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3.4 Timeframes
With the use of the tool bar there are a number of different time
frames that can be selected. Preferred options of Simply
Trading Forex are centred around the daily candle. This allows
traders flexibility of movement and prevents them having to be
tied to the computer all day. They need only spend the minimum
amount of time in the morning and evening, normally 25
minutes per day in total. Operating on much smaller timeframes
can be very profitable but also increases stress levels, and the
amount of time required to be spent in front of the computer, to
a point that is, in our opinion, unacceptable.
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4. Currency pairings
There are twelve currency pairings that Simply Trading Forex
regularly monitors, as mentioned in Section 1.1 above. They
represent those currency pairings that generally offer the biggest
movements and therefore the biggest potential gains. There are
correlations between the currency pairings and these fluctuate
from month to month and, where applicable, are featured in the
regular updates.
5. Technical indicators
Simply Trading Forex preferred technical indicators comprise:
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Engulfing Candles
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Figure 5.2b
Engulfing Candle
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Flag patterns
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Channels
Triangles
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There has probably been more written and discussed about how
to arrive at the optimum numbers to select, as there is on how to
use the moving average lines to establish a profitable trade.
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It should be noted that the FIB levels are more significant if they
are very close to the price action when you are considering
entering a trade, whereas once you are in the trade, the Moving
Average methodology should take precedence and the FIB
levels merely used to give an indication of additional areas of
support and resistance.
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7 Stop Loss
7.1 Definition
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quickly test the area close to where the indicators are situated
before moving back in the direction anticipated and, if you don’t
allow the market room to breathe, you can sometimes be caught
out. Also see Section 7.4 Risk Reward Ratios.
From the twelve currency pairings that are set up and monitored,
it should be possible to select trades that fit the above trading
bank criteria and, in the early days of acquiring the skill of
trading, it is preferable to limit the number of trades open at any
one time, to one or two. As proficiency and confidence grows,
this can be gradually increased to a number that remains
comfortable.
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On the firm basis that traders never take a trade without the very
clear understanding that they expect the trade to be successful, it
should also follow that they know what is the minimum gain
that they expect to achieve. Consequently, a Risk Reward ratio
is simply the amount a trader is expecting to win on any one
trade versus the amount the trader is prepared to lose should the
trade go the opposite way i.e. the stop loss points multiplied by
the stake level. This is expressed as 3:1, 4:1 etc. The reward is
always represented by the first figure, although the terminology
suggests the risk is first.
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Stop Loss nearer the price action in a winning trade but never
further away from the price action in a losing trade.
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set a Limit Order in this way if the calculated move has a high
probability of being reached at some point during the following
trading day and the likelihood is that, as day traders, the high or
low could be missed and the market retraced by the time the
market is checked again.
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Apart from the ease with which the trade can be accomplished,
another major benefit is that currently there is no UK tax
payable on the profits that can be made. It therefore follows that
there can be no deductions that can be offset against losses but,
of course, the UK tax situation could change for either or both of
these circumstances in the future.
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Do …
Don’t…
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Don’t…
Summary
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This really can be the opportunity to ‘ditch the day job’ but, like
any skill, needs to be learnt and experience gained over time. It
is not a ‘Get-Rich-Quick’ scheme.
Kevin Greenhall
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