Forex

TABLE OF CONTENTS
CHAPTER 1. INTRODUCTION...............................................................................3
Entering the Trade ......................................................................................................................... 4 Exiting the trade............................................................................................................................. 6 Cut Your Losses Short .................................................................................................................7 Let Your Profits Run .....................................................................................................................8 Trading Mindset ............................................................................................................................. 8 Trading plan. ................................................................................................................................ 13
CHAPTER 2. GENERAL FOREX TRADING INFO ................................................15

Understanding Forex Trading .................................................................................................... 15 About Currency Pairs and Exchange Rates ............................................................................. 15 Understanding the Standard Contract Size .............................................................................. 17 What is the Pip?........................................................................................................................... 18 How to Calculate the Profit......................................................................................................... 18 Step 1: Calculating the Pip Value per Lot ................................................................................. 19 Step 2: Calculating Your Profit in Terms of the Quote Currency .............................................. 19 Step 3: Converting Your Profit to Your Deposit Currency......................................................... 20 Summary Tables ....................................................................................................................... 22 The Concept of Leverage............................................................................................................ 23 Your Trading Equipment............................................................................................................. 24 Your Computer Equipment........................................................................................................ 24 How to choose your Forex Broker............................................................................................. 25 Charting Software...................................................................................................................... 31
www.forextradingtips.com
Monitor More Than One Currency Pair...................................................................................... 38
CHAPTER 3. TECHNICAL ANALYSIS .................................................................39

Why Does Technical Analysis Work?........................................................................................ 39 Moving Average ........................................................................................................................... 41 Relative Strength Index RSI........................................................................................................ 42 Support and Resistance Levels ................................................................................................. 43
CHAPTER 4. TRADING STRATEGY .....................................................................46

How To Prepare For A Trading Day ........................................................................................... 49 Economic Calendar ..................................................................................................................... 52 Calculating Major S/R Areas....................................................................................................... 55 How to set up our trading screen? ............................................................................................ 57 When to enter the trade? ............................................................................................................ 58 Entering on the bullish side. ...................................................................................................... 58 Entering on the bearish side...................................................................................................... 59 What kind of order should you use to enter the trade?........................................................... 60 What size should you be trading with? ..................................................................................... 60 Money Management .................................................................................................................... 61 When To Exit The Trade? ........................................................................................................... 62 Recursive Trailing Stops ............................................................................................................ 64
CHAPTER 5. EXAMPLES ....................................................................................67

Trading Example 1. EUR/USD .................................................................................................... 67 Trading Example 2. GBP/USD .................................................................................................... 70 Trading Example 3. USD/CAD .................................................................................................... 72 Trading Example 4. EUR/USD .................................................................................................... 74 Trading Example 5. GBP/USD .................................................................................................... 77 Trading Example 6. USD/CAD .................................................................................................... 79
CHAPTER 1. INTRODUCTION
The obvious reason as to why you are interested in trading currencies is the unparalleled profit potential that forex market has to offer. Therefore, the purpose of this course is to prepare you to enter the exciting field of currency trading and what is more important, to put you on equal ground with successful traders. You may be a beginning trader, made a few trades, lost some, won some, however you have come to the conclusion that you dont have a real edge and if you continue you will slowly burn most of the capital in your trading account. Or maybe you are already actively trading currencies and you are always looking for new ideas to improve your trading
In any case you have come to the right place.

As I have promised there will be no unnecessary information in this course. I assume that you are already familiar with the concept of forex trading. If you are totally new to the forex trading game you can find all of the necessary basic info inside the Chapter 2. All of the other chapters deal directly with the system itself. You should read each chapter carefully. Everything is explained in detail. The first chapter that you are just reading is just a short introduction to the logic that is behind my trading system. The basic skeleton of each trading system consists of two elements. Entering the trade and exiting the trade. Each of those elements is equally important.
Entering the Trade

The profitability of a trading system is not based on the quantity of entry signals that it produces. It is based on the quality of entry signals. The entry signal needs to have the highest possible probability that the trade will move in your desired direction. After years of trading many different trading strategies I have found out that most of them have one large flaw. They were producing way too many entry signals which as a result is greatly reducing the profitability of a trading system. One of the greatest myths that most of the forex trading strategies propagate is that at the same time you can be looking for both buy and sell opportunities. Well the truth is you cant. If you want to make profit, that is. If you were ever swimming in the river you would know that it is much easier to swim with the current than it is to swim against the current. Although there are always minor movements against the current trend they usually dont last very long and after them the market moves again in the direction of the current trend. However it is precisely those minor movements that are likely to produce losing entry signals. Any system that generates entry points will provide us with entry points both against and in the same direction as the long-term trend. Even though there is money to be made in both cases, by following only the entry points in the same direction as the long-term trend we will get the higher quality trades leading to the higher profits in the long run. Lets have a look at the figure below:
Figure 1-1
As we can observe on the chart above the trend during the given period is clearly bullish, meaning that we were much more likely to make a profit during this period if we were looking only for buying opportunities instead of focusing on both buy and sell opportunities. It is clear that in most of the cases if we were taking sell positions we would be stopped out resulting in losing trades. On the other hand if we were looking only for buy positions we were likely to make some very profitable trades. Another misconception that most of the forex trading strategies make is to underestimate the power and importance of support and resistance areas when looking for entry opportunities. Those strategies usually concentrate mostly on lagging indicators that are most likely to get you into the trade when it is already too late. Lets have a look at the figure below:
Figure 1-2
As we can observe on the chart above the support and resistance areas have extremely important role when it comes to price movement. What would you say if you were told that these lines were drawn before the start of this trading day? That's right. Successful traders know where the major support and resistance areas will be located before they start looking for entry opportunities.
Exiting the trade

Most traders make a mistake by thinking that entering the trade is more important than exiting the trade, and if they have found an entry strategy with positive expectations, the job is done. Nothing could be further away from the truth. Exit strategy is equally if not more important than entry. Average traders typically use
a simple trailing stop as their exit strategy. Even though a trailing stop may work ok in certain cases, definitely it is not the best option for a proper exit strategy. Why? Because a trailing stop does not fulfil all the basic fundamental requirements for a proper exit strategy. Especially when it comes to let your profits run. So, which are the basic fundamental requirements for a proper exit strategy? Well, lets show them to you:
Cut your losses short Let your profits run
Cut Your Losses Short This requirement is linked to the question how much capital we can risk on one trade. This is where it gets tricky. You have probably heard hundreds of times that you need to protect yourself against large losses in order to protect your start up capital. However if by cutting your losses short you think running out of a trade like a scared rabbit as soon as the trade goes against you, you will be in a big trouble. You CAN NOT trade currencies in such fashion. The key to currency trading success is to catch a major movement. You will not be able to do that if you dont give your trade a chance. By properly implementing our entry strategy you have done everything you can to enter the trade with a high probability that it will go in your direction. However, it doesnt mean that it will do so immediately after you placed a trade. You need to give it some space. How much space? Enough space so that you dont get stopped out all of the time while at the same time tight enough so that if you are wrong you preserve majority of your capital to fight another day. If our stop loss is reached we will get out of the trade immediately, no questions asked. You cannot cut corners with the stop loss rule. It needs to be followed every single time without exception. Failure to follow the stop loss rule is the number one reason for failure among beginning traders. It is true that sometimes price will turn
around just after you get out, but there is no way to know this in advance. It only takes a few stubborn incidents to entirely devastate your initial trading capital. Let Your Profits Run As mentioned above, the key to currency trading success is to catch major market movements. And for that purpose we need to give our trade a chance by giving it some space for moving in our desired direction. The key issue is hereby to determine the proper space depending on your current trade situation. It is not the same situation, when you just have entered a trade or when you are already in with a current positive balance of 150 pips. In the first case the main focus is to protect your trading capital, in the second case you dont need to protect your capital any more as you definitely will close your position with profits. The focus hereby is to give your trade more space than when you entered the trade in order to make even more money. In order to be profitable in the long run we need to extract as much profit as possible from every single trade. So we need to stay in the trade as long as the trade goes in our direction. Most exit strategy methods out there, as for example a trailing stop, do not fulfill above requirement as they will lead to exiting a position too soon. For this purpose I have developed a Recursive Trailing Stop formula that extracts as much profit from our trade as possible. You will learn about it in the Trading Strategy chapter.
Trading Mindset
If you were ever watching somebody else trade, you have probably quickly come to the wrong conclusion that trading is fairly easy. The same applies if you are just observing the price action on the chart and placing the trades on paper or in your head. There are two reasons for that. Number one reason is that you are not trading with your own hard earned money and the second reason is that everything seems simple after it has already happened. It seems that nothing is easier than predicting
price movement by watching the chart. The problem with such conclusion is that the certainty of the outcome comes after we have already seen the whole picture. Basically we have seen the outcome of the trades that have already ended. For the inexperienced observer it seems irrelevant since he is sure that he would have reacted in the same way even if he did not see the whole picture. That is a mistake. I am not sure if you have experienced such situations but I definitely did back in my beginning trading days. Now lets assume that you have an open 5 minute chart at 2 p.m. and you want to enter a trade. There were some big down movements in the morning. Then, for some short period of time it was a sideways market and now it is going down again. At 14:25 you want to take some action. See the figure below.
Figure 1-3
Can you make the prediction as to where the price will move by observing the chart above? Will it go down and for how many pips? Will it go up and for how long? Tricky, isnt it?
Figure 1-4
As we can see from the chart above, the first move was down, then it went up and at present it is moving down again. Now think again about the situation from the chart that we have observed earlier. At 14:25 you did not have the information that you have now. If you entered on a long side would the price action trigger the stop loss? If you entered on a short side would the price touch the take profit? You may say that you would have entered on a short side, taken your 30 pip profit and exited the trade. Again, it is easy to speculate about this when you have already seen the whole chart. Such price movements happen all of the time. In order to deal with them, first of all you need to have a winning and proven trading strategy. We will get to the strategy later in the course, however another aspect that we need to master in order to deal with such erratic price movements is to have a winning trading mindset. One needs to understand that forex trading even though it offers great opportunities to make income is also a very risky endeavor. Basically you need to learn how to deal with your emotions whether you are on a winning or a losing streak. Even the best forex traders have losing streaks as even the most consistent trading systems do not produce winning trades only.
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To have a winning mindset means to be able to deal with emotional highs that happen during the winning streaks and emotional lows that happen during the losing streaks. Lets go through some mistakes that a lot of aspiring traders make. This is a typical scenario. After demo trading for a while you have just funded your forex account with real money. You are monitoring the charts and observing price action. You see some bearish movement and you are eager to take action. You realize how different it feels when you are trading with real money. You decide to follow your own instincts instead of following the strategy you were testing in your demo account. You want to make 20 pips just to get a feeling of how it is to make real money. You enter a trade on the sell side. You are quite sure that the price will reach your take profit of 20 pips so you dont even bother placing a stop loss. However, as soon as you have entered the trade the price starts to move up. Half an hour later you are 20 pips in minus. And your goal was 20 pips in plus. You are starting to get nervous. One hour later and you are 40 pips in minus. You want to get out but you still believe that the price will change the direction. The adrenaline is rising. Another fifteen minutes and you are 60 pips in minus. This is more than you can take and you get out of the trade. Now you are really nervous, you just wanted to make 20 pips and you ended losing 60. You want to make up for your loss as quickly as possible and before you know it you are making the same mistake again.
Therefore Dont trade impulsively.
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Here is another typical scenario. You have done your homework regarding forex trading, read several books on the subject, purchased a system that appears to make sense however you dont have a startup capital. You were successfully trading a demo account and now you feel confident that forex is a way out of your financial troubles. Since you are so sure in your ability to make money you decide to borrow your initial capital. With the profits that you are going to make you will easily repay the borrowed money. At least thats what you believe. Most people do not have a clear mind and are unable to keep cool under pressure and that especially rings true if they are trading with borrowed money. It is hard enough to lose money that you own, losing money that you dont own is even harder. Again, you have to keep in mind that no matter how good a trading system is, there will be some losing trades. And what if they happen at the beginning? You should trade with money that you can afford to lose. That way you are already one step ahead as you are not under pressure of losing the capital that you can not afford. Dont forget that many people fail to become successful traders not because their trading system but because they couldnt take the pressure.
So, never, ever invest money that you can not afford to lose
Yet another mistake that many beginning traders make is that they are too eager to enter a trade. They think that if they didnt enter some trade the opportunity is lost. I can understand that. Everyone likes to see action. However, you really havent missed anything. You should enter only those trades that meet all of the criteria that your trading system requires. Look at the picture below.
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Figure 1-5
Those are the price movements that happened during one trading day. Price is constantly moving. There were and there will be many, many opportunities to enter a trade. Dont feel bad that you have missed some trades. It is much better to miss a trade than it is to enter a bad one. Dont overtrade. Enter only those trades that fully meet your criteria. No compromise there.
Trading plan.
There are several variables that need to be taken into account when creating a trading plan. Please do not confuse a trading plan with a trading strategy or a trading system. Our trading system is outlined in the last chapter of this course and should be taken as is without improvisation. The trading plan on the other hand should be created by each trader individually. It should take into account what is your trading objective. Of course, your trading objective is to make money. How much money? This may sound as a dumb question as obviously you want to take as much money as possible. On the other hand you need to understand that making more money involves taking more risk and investing more time. So the next question is: How much time can you invest? How much risk can you handle without falling under
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pressure? How much money can you invest money that you can afford to lose? All of those questions fall under the definition of a trading plan. Most people do not think of trading as a business and that is a mistake. Trading should be treated as any other business venture and every successful business venture must have a business plan. He who fails to plan, plans to fail
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CHAPTER 2. GENERAL FOREX TRADING INFO
In this chapter I want to give you some general trading tips that may help you to improve your trading, especially if you are a novice trader. If you are already an experienced trader this chapter might not be of interest to you, so you might just throw a glance at it.
Understanding Forex Trading
About Currency Pairs and Exchange Rates
When trading currencies, you dont trade a single currency, but always currency pairs. Thats the reason why when looking at forex quotes you will always see the currencies quoted in pairs, as for example EURUSD, GBPUSD or USDCAD. To every pair you will see an exchange rate quoted. The first currency of the pair is known as the base currency, the second one as the counter or quote currency. The exchange rate gives the amount of the quote currency which needs to be sold to buy 1 unit of the base currency. EURUSD is the rate of 1 euro in US dollars, GBPJPY 1 British pound in Japanese yens, i.e., the first currency is always defined in terms of the second one. For
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example in picture below the exchange rate of 1.5736 means that for 1 euro you can get 1.5736 US dollars. You could also write it like 1 euro / 1.5736 US dollar.
Figure 2-6
Even though there are 100s of currency pairs out there, you should pay only attention to the major currency pairs, which are the most traded. It is estimated that activity in these currencies comprises more than 85% of the daily foreign exchange volume. Liquidity is essential when trading foreign currencies. Currencies that are illiquid generally will have wider trading costs (spreads), they also will have a much greater chance to have "fast market" conditions where liquidity can be non-existent and volatility greatly increased, and they are also often more susceptible to short term market manipulation or deception, like false technical breakouts. The major currency pairs are assumed to be: EURUSD USDJYP USDCHF GBPUSD AUDUSD USDCAD GBPEUR Euro and US dollar US dollar and Japanese yen US dollar and Swiss franc British pound and US dollar Australian dollar and US dollar US dollar and Canadian dollar British pound and Euro
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Understanding the Standard Contract Size

When trading a currency pair, the standard contract size is called a "lot. A lot can have different values for different currency pairs. At present, the major currency pairs have the lot value equal to 100,000 units. But 100,000 of what? When we buy, we give money for goods. When we sell, we get money for goods. But with currencies, we buy and sell simultaneously since we get one currency for another one. This is why it is common practice to consider that we get the first currency of the pair (base currency) when we buy and give, respectively, the second currency (quote currency). A standard lot for USDCAD is $100,000 US dollars. If we buy one lot of USDCAD, it means that we get $100,000 US dollars and give a number of Canadian dollars equal to 100,000 times the actual exchange rate. If the current exchange rate of USDCAD is 1.1, then buying one lot of USDCAD means that we get $100,000 US dollars and give $110,000 Canadian dollars. The other way round if we sell one lot of USDCAD at the same exchange rate, it means that we give $100,000 US dollars and get $110,000 Canadian dollars. Most of the forex brokers offer also the possibility to trade mini lots, which are one tenth of a standard lot (for example 10,000 units instead of 100,000 units). Here you can find the lot and mini lot definition for the major currency pairs:
CURRENCY PAIR EURUSD USDJYP USDCHF GBPUSD AUDUSD USDCAD
LOT SIZE 100,000 euros 100,000 US dollars 100,000 US dollars 100,000 British pounds 100,000 Australian dollars 100,000 US dollars
Table 2-1
MINI LOT SIZE 10,000 euros 10,000 US dollars 10,000 US dollars 10,000 British pounds 10,000 Australian dollars 10,000 US dollars
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What is the Pip?
The pip is the smallest price change of the exchange rate. For example when trading EURUSD the smallest price change is 0.0001, for example a move from 1.5231 to 1.5232 is called a 1 pip move. Below you can find the pip definition for the major currency pairs:
CURRENCY PAIR EURUSD USDCHF GBPUSD AUDUSD USDCAD USDJYP

Table 2-2
PIP SIZE 0.0001 0.0001 0.0001 0.0001 0.0001 0.01
How to Calculate the Profit
The profit of your trade is calculated in the three steps:
Step 1: Calculating the Pip Value per Lot Step 2: Calculating Your Profit in Terms of the Quote Currency Step 3: Converting Your Profit to Your Deposit Currency
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Step 1: Calculating the Pip Value per Lot

The pip value per lot is calculated according to the following formula: Pip Value per lot = lot size x pip size in units of the quote currency (second currency of the pair) Below you can find the pip value per lot for the major currency pairs:
CURRENCY PAIR EURUSD USDCHF GBPUSD AUDUSD USDCAD USDJYP
PIP VALUE PER LOT 10 US dollars 10 Swiss francs 10 US dollars 10 US dollars 10 Canadian dollars 1000 Japanese yen
Table 2-3
Step 2: Calculating Your Profit in Terms of the Quote Currency

The profit is calculated according to the following formula: profit = lot size x pip size x pip value per lot in units of the quote currency Example 1:
Sold 3 lots of EURUSD at 1.5675 and bought them at 1.5610. In this example, we made 65 pips profit (as we sold at a higher price than we bought). The pip value for EURUSD is 10 USD, so the total profit = 3 lots x 65 pips x 10 USD pip value per lot = 1,950 US dollars.
www.forextradingtips.com 19
Example 2:
Bought 2 mini lots of GBPUSD at 1.9170 and sold them at 1.9250: In this example, we made 80 pips profit (as we bought at a lower price than we bought). The pip value for GBPUSD is 10 USD, so the total profit = 0.2 lots x 80 pips x 10 USD pip value per lot = 160 US dollars.
Step 3: Converting Your Profit to Your Deposit Currency

Though it is possible to make trades using various currency pairs, the trading result is always written in only one currency - the deposit currency. If the deposit currency is US dollar, profits and losses will be shown in US dollars, if it is euro, they will be, of course, in euros. The most usual is that you run your forex account in the deposit of your country. If you live in US, then you will probably run your account in US dollars. If you live in France, then in euros. The profit is converted into your deposit currency by using the appropriate exchange rate. For example if your account is in euros and you made a profit of 1,000 US dollars, then you can convert your profit in euros by dividing with the actual exchange rate for EURUSD. In the following example we will assume that the deposit currency is US dollars.
Example 1:
Sold 5 mini lots of EURGBP at 0.7915 and bought them at 0.7815: In this example we made 100 pips. The pip value for EURGBP is 10 GBP, so the total profit is 0,5 lots x 100 pips x 10 GBP per pip = 500 British pounds. The exchange rate of GBPUSD was 1.8500 (for 1 British pound you can get 1.85 US dollars), when the position was closed:
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500 British pounds x GBPUSDJPY exchange rate = 500 British pounds x 1.85 US dollars / 1 British pound = $925 US dollars Example 2:
Bought 2 lots of USDJPY at 105.60 and sold them at 105.20: In this example, we made 40 pips (as we sold at a lower price than we bought). The pip value for USDJPY is 1000 JPY, so the total profit is = 2 lots x 40 pips x 1000 YPJ pip value per lot = 80,000 JPY yen. The exchange rate of USDJPY was 105.20 (for 1 US dollar you can get 105.20 JPY yen), when the position was closed. In order to get the amount of dollars we need to divide by the exchange rate. 80,000 JPY yen / USDJPY exchange rate = 80,000 JPY yen x 1 US dollar / 105.20 JPY yen = $760.46 US dollars
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Summary Tables
Currency Pair EURUSD USDCHF GBPUSD AUDUSD USDCAD USDJYP Profit in US dollars: number of lots x pips x ... 10 US dollars 10 Swiss francs / USDCHF 10 US dollars 10 US dollars 10 Canadian dollars / USDCAD 1000 Japanese yen / USDJPY
Table 2-4
Profit in euros: number of lots x pips x ... 10 US dollars / EURUSD 10 Swiss francs / USDCHF / EURUSD 10 US dollars / EURUSD 10 US dollars / EURUSD 10 Canadian dollars / USDCAD / EURUSD 1000 Japanese yen / USDJPY / EURUSD
Currency Pair EURUSD USDCHF GBPUSD AUDUSD USDCAD USDJYP
Profit in Canadian dollars: number of lots x pips x ... 10 US dollars x USDCAD 10 Swiss francs / USDCHF x USDCAD 10 US dollars x USDCAD 10 US dollars x USDCAD 10 Canadian dollars 1000 Japanese yen / USDJPY x
Table 2-5
Profit in Australian dollars: number of lots x pips x ... 10 US dollars / AUDUSD 10 Swiss francs / USDCHF / AUDUSD 10 US dollars / AUDUSD 10 US dollars / AUDUSD 10 Canadian dollars / USDCAD / 1000 Japanese yen / USDJPY / AUDUSD
Currency Pair EURUSD USDCHF GBPUSD AUDUSD USDCAD USDJYP
Profit in British pounds: number of lots x pips x ... 10 US dollars / GBPUSD 10 Swiss francs / USDCHF / GBPUSD 10 US dollars / GBPUSD 10 US dollars / GBPUSD 10 Canadian dollars x USDCAD / 1000 Japanese yen / USDJPY /
Table 2-6
Profit in Japanese yens: number of lots x pips x ... 10 US dollars x USDJYP 10 Swiss francs / USDCHF x USDJYP 10 US dollars x USDJYP 10 US dollars x USDJYP 10 Canadian dollars / USDCAD x USDJYP 1000 Japanese yen
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The table is to be used as following: we trade 3 lots AUDUSD, make a profit of 50 pips , our deposit currency is in euros and the actual EURUSD exchange rate is 1.5, then our profit in euros is: 3 lots x 50 pips x 10 US dollars / 1.5 (EURUSD exchange rate) = 1,000 euros
The Concept of Leverage
Many beginning traders dont fully understand the concept of leverage. Basically, if you have a start up capital of $5,000 and if you trade on a 1:50 margin you can effectively control a capital of $250,000. However, a two percent move against you and your capital is completely wiped out. If you are a beginning trader you should not use more than 1:20 margin until you get comfortable and profitable and then and only then you can attempt to use higher margins. What does 1:20 margin mean? It means that with your $5,000 you will control a capital of $100,000. Lets say you are trading EUR/USD and by using our entry strategy you have decided to enter the trade on a long side. That means that you are betting that USD will depreciate against Euro. Lets say current EUR/USD rate is 1.567. Again, if your trading capital is $5,000 and you are using 1:20 leverage you will effectively be exchanging $100,000 to Euros. If the current rate is 1.567 you will receive 100,000/1.567 = 63,816 Euros. If the trade goes in your direction the margin will work in your favour and 1% decline in USD will mean 20% increase in your start up capital. So if EUR/USD rate moves from 1.567 to 1.583 you will be able to exchange your 63,816 Euros back to $101,000 for a profit of $1,000. Since your start up capital was $5,000 it is effectively a 20% increase in your account. However, if the trade went against you and USD appreciated 1% vs. Euro your account would be reduced to $4,000. That would not have happened as our strategy has built in hard stops to prevent such an outcome.
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Your Trading Equipment
Before you can start trading you need the following trading equipment:
appropriate computer equipment a forex broker a suitable charting software
Your Computer Equipment

Unfortunately, you cannot go into real forex trading with an outdated computer system or an unstable and slow Internet connection. If you enter a position, you cannot afford that your computer system crashes or that your Internet connection fails. That way you could miss a proper exit signal which would have protected your already achieved profit or what is much worst, directly after you enter a position, it could happen that you are not able to place your stop order, because your Internet connection or computer fails. This is traders suicide, as you could lose all of your trading capital, if suddenly the price of the currency pair drastically changes in opposite direction of your trade! On top of that you cannot afford that you follow the market price or place market orders with a considerable time delay (either because your Internet connection or your computer is too slow), because this will cost you lots of money in the long run. As a rule of thumb you can use the following check: Is your computer and Internet connection 100% stable? Are you able to follow the market price and to place market orders in real-time without any time delay? If not, you should enhance your computer equipment, starting with the weakest part of the chain.
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How to choose your Forex Broker

Without a reliable broker, even the best traders may have a limited chance of success. Every trader I know has at least one horror story about his/her broker. What happens if you try to sell your position because the value of your holdings is quickly depreciating only to find out that your brokers server is down. By the time they fix the problem you may be out of 100s even 1000s of dollars. This is especially true when trading currencies. When choosing your broker, youll need to take into account several factors. You also need to understand that while one broker may be an excellent choice for one form of trading it may be a terrible choice for another form of trading. If you are not happy with the service and performance that you receive from your broker you should look for another one. It is not worth your time or money to be loyal to someone whose service isnt working for you. There are literally hundreds of brokers that you can choose from. When it is time to choose your broker, take the time to get informed about several prospective brokers. Although you can always change your broker later it is often a frustrating experience, so try to do everything in your power to make sure that you do it right the first time. By choosing your broker carefully you will save yourself valuable time and money. Your forex broker should have the following properties:
Low Trading Costs Although brokers do say that it is not in their interest that you lose your money, you need to remember that they make profit whether you win or lose. Equities and futures brokers make their profits on commissions that traders pay to them for every trade they make. Forex brokers make their profits from spreads. Spread is the difference between bid price (the price you sell at) and ask price (the price you buy at). Every currency quote has these two numbers displayed. For example, a EUR/USD quote of 1.5701 / 1.5703 means bid(sell): 1.5701 and ask(buy): 1.5703, a spread of 2 pips. Didnt you notice that every time you enter a trade, you start with a negative balance account? Well, that is the spread your
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broker is earning from you. If you would buy and sell immediately 1 lot EUR/USD, then you would make a loss of $20: as you would buy at 1.5701 and sell at 1.5703 $100,000 x (1.5703 - 1.5701) = $20.
Figure 2-7
More trades you do, more money your broker makes. This is why many brokers that cater to currency traders prefer traders who make many trades during the day. They even hold courses that teach you how to scalp in and out of positions all day long. Although this approach has worked out for some traders who were trading highflying Nasdaq stocks in the late 90s for a currency trader it is a sure way to slowly lose all of his money. Here is an example of the danger of such a strategy. Lets say a trader has $2,000 in capital and is using 1:5 leverage to buy/sell $10,000 per trade and lets say that he trades 20 times daily as some of these courses and strategies teach. Average spread being around 5 pips he would spend $5 per trade. At 20 trades per day this would equal $100 per day in spreads. It is five percent of the traders capital each day just in spreads. 20 trading days a month and it would equal 100% of traders capital each month. You are better spending your money anywhere else. The importance of spreads depends greatly on your trading style and your trading strategy. If your strategy generates several entry signals per day and you are using relatively tight stops in order to limit your losses, then spread size is very important to you. With such trading style the difference between a broker that has average spread of 4 pips and a broker that has an average spread of 8 pips is of huge importance. 5 trades per day can mean $40 per day, $800 per month, $9,600 per year if you are trading in $10,000 per trade. Adds up quickly, doesnt it?
Some forex brokers will request, in addition to the spread, a commission per trade. For example they may ask 5$ for every lot you want to trade. One would normally assume that brokers asking for commission are in any case more expensive than the other commission-free ones. Well, that is not always the case, as brokers asking for commissions offer typically much lower spreads than the commission-free ones. For example assume that we have a broker A that requests for trading the major currency pair EUR/USD 3 pips and a broker B that requests for trading the same currency pair 1 pip plus 5$ per lot. Which would be the costs for trading 1 lot EUR/USD? With broker A the costs would be $30 per trade (3 pips x $100,000), with broker B the costs would be $15 per trade (1 pips x $100,000 + 5$)! So dont automatically disregard the brokers requesting commissions. Sometimes they are cheaper than the commission-free ones! In the table below you can find the trading costs of several forex brokers at the time of this writing.
Fast Execution of Market Orders In order to successfully place a trade you need to be able to get the most favorable price at any given time. This is especially true for market orders. When trading currencies, prices move extremely fast and by the time your order gets filled it may be at a price that is very different from the price you were trying to get, which was exactly the price displayed at your monitor at the time you place your order. The losses we suffer in case such a scenario occurs are known as slippage costs. Even the brokers that normally provide fast executions occasionally may take longer to fill your order. High trading volumes may affect the speed of their executions and when prices move quickly your limit orders may become outdated.
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Appropriate 24-hour Customer Service You should be able to contact the customer service even if the brokerage firm has technical problems and lots of clients call the customer service at the same time. Further you should be able to contact the customer service by different ways, 24-hour phone service as a must-have. Think about the possibility, that while you have an opened position your internet connection fails. In such case you need somebody on the phone being able to let you know what is happening with your trade.
High System Reliability If you find out that the brokerage system is down too often, then you have to choose another brokerage. You cannot afford that after you enter a position, the brokerage system fails! For the same reason you need stable computer equipment, you also need reliable brokerage system.
High Company Reliability If you do not completely trust your broker, you wont feel comfortable transferring your funds to those guys, so that you can start trading. Of course, there is no 100% guarantee in life, but you can minimize possible risks. First you will request that the brokerage company is regulated by a governmental agency from a country of your trust. Brokerage companies are usually regulated by the US agencies CFTC and NFA, sometimes also by agencies from other countries such as FSA (UK), SFBC (CH) or ASIC (AU). Would you trust a brokerage company which is not regulated or even one which is regulated by an offshore island? Second you will request that the brokerage company is over five years in the market. And third that it has offices in several places around the world, desirable of course also in your residence country.
Below you can find a list of brokers that are appropriate for forex trading (see Table 6.1).
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Account Conditions
Trading Costs Spread on Majors
Company Reliability
Forex Broker
Min. Deposit Max. Leverage Commission
Since
Regulated By
$200 www.alpari-idc.com $2,000 www.ac-markets.com
100:1
No
2 to 4
2004
FSA (UK)
100:1
No
2 to 3
2002
SFBC(CH)
NFA(US), FSA(UK), $2,000 www.cmcmarkets.com/us 100:1 No 2 to 3 1989 ASIC(AU), BAFIN(DE), OSC(CA)
$200 www.cmsfx.com $300 www.crownforex.com $250 www.forex.com
400:1
No
3 to 4
2003
CFTC/NFA (US)
200:1
No
1 to 2
2004
SFBC(CH)
200:1
No
2 to 3
1998
CFTC/NFA (US)
$2,000 www.forex.ch
200:1
No
3 to 4
2006
Polyreg (CH)
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Forex Broker
Account Conditions Min. Deposit Max. Leverage
Trading Costs Spread on Majors 2 to 4
Company Reliability
Commission
Since
Regulated By
$500 www.fxlite.com $250 www.fxsol.com $500 www.gfsforex.com
200:1
No
2004
NFA (US)
400:1
No
3 to 5
2001
CFTC/NFA (US)
200:1
No
3 to 5
CFTC/NFA (US) CFTC/SEC (US),
$250 www.gftforex.com
400:1
No
3 to 5
2001
FSA (Japan), ASIC (Australia)
$7,500 www.hotspotfx.com
50:1
$3/100k
1 to 2
2000
CFTC/NFA (US)
www.interactivebrokers.co m
$5,000
50:1
$2/100k
2 to 2
1998
$250 www.interbankfx.com $400 www.mbtrading.com
100:1
No
2 to 3
2001
NFA(US), CFTC(US)
100:1
Yes
1 to 2
2002
CFTC/NFA (US)
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$200 www.mgforex.com $2,000 www.migfx.ch $1 www.oanda.com $2,000 www.saxobank.com
100:1
No
3 to 5
2000
CFTC/NFA (US)
200:1
No
2 to 3
2005
SFBC(CH)
50:1
No
1.2 to 2.5
2001
CFTC/NFA (US)
100:1
No
2 to 3
1998
DFSA(DK)
Table 2-7
Charting Software
In order to implement our strategy you need charting software capable to place some TA indicators (MA and RSI) and capable to draw lines on the chart. These features are usually provided by any charting software, so you should be able to implement our strategy regardless which charting software you are using. Usually when you open an account in a brokerage firm, you get free or discounted charting software. If you do not feel comfortable with the provided charting software, we recommend that you to take a closer look at the following charting software programs. Most of them provide a one month free trial period so you can try several of them before you decide which one suits your needs. Here is a short list of some of the software providers. There are many others out there and you can find them by doing simple Google searching.
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Free Charts
Metatrader
Website: http://www.metaquotes.net/metatrader/ Metatrader offers several technical indicators and time frames, but what sets the package apart is its built-in language for programming custom indicators and trading strategies. With this feature you can analyze the market, enter pending orders, and automatically trigger trades generated by your strategy. It is the best charting software for free out there.
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Fxtrek
Website: http://quote2.fxtrek.com/misc/fxcm2.asp Costs: $115/Month plus Data feed $50/month for the FX FXtrek offers a suite of increasingly sophisticated packages. Here you can gain access to FXtrek's free package, which makes for an extremely efficient starter kit for the beginning technician. The charts feature the most popular time frames, including tick and 1 minute. In addition, it offers the most commonly used indicators used for FX analysis. Java-based.
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Stratagem
Website: http://scharts.fxcorporate.com/ Designed for ease of use, this package contains a menu bar that allows you to execute the most common charting actions with a single click of the mouse. The user friendly layout offers you the ability to organize and tile workspaces. This package includes 14 technical indicators, 7 different time frames, and a multiple-chart viewing capability. Java-based.
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Premium Charts
Esignal
Website: http://www.esignal.com Costs: $115/Month plus Data feed $50/month for the FX E-signal is a well established name in the charting software arena. E-signal offer reliable charts with a slew of technical indicators, drawing tools, as well as alerts, back testing capabilities, and a helpful support team. Windows based.
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Amibroker
Website: http://www.amibroker.com/ Costs: SOFTWARE COST: Professional - $229.00 one time purchase fee. Standard $149.00 one time purchase fee, FX DATA FEED COST: Varies based on Data feed Provider AmiBroker offers a robust professional charting package with such features as alerts back-testing, and indicator customization all accessible via a clear, user-friendly interface. AmiBroker is also noted for their exceptional Customer Support team, which distinguishes itself with superior service quality and efficiency. Windows based.
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CQG
Website: http://www.cqg.com/ Costs: SOFTWARE COST: $545/month, FX DATA FEED COST: $100/month CQG charts offer a robust charting solution with alerts, back testing, the ability to export to excel, and a large number of technical indicators. CQG provides worldwide data coverage including futures, options, and stock exchanges. Windows based.
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Monitor More Than One Currency Pair
As we did not want to confuse our reader with too much information at once, we decided to monitor only one currency pair in our examples. Once you get more comfortable using our strategy, we recommend that you monitor more than one currency pair at the same time. That way, you will get more entry signals and in consequence you will enter more trades generating a higher profit. First you have to decide how many currency pairs you are going to monitor at once. We recommend starting with two currency pairs, as it is a manageable number of currency pairs. If at any time you do not get enough entry signals, you can just increase the number of monitored currency pairs. Once we enter a trade for a particular currency pair, then we concentrate only on that currency pair until we exit the position. After closing the trade, we return again to monitor more currency pairs to get an entry signal.
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CHAPTER 3. TECHNICAL ANALYSIS
Why Does Technical Analysis Work?

Technical analysis describes different ways of predicting the future of the underlying market based on its history. Unfortunately, technical analysis is not an exact science. Many prominent scientists label it as voodoo science. They claim that due to market efficiency, if you use TA to find your entry positions, youre no better off than someone who chooses those positions randomly. Market efficiency means that all the available information is already calculated in the market prices, and that you can only guess how wills the price behave in the future. The voodoo science theory would make sense if it wasnt for a fact that there is a significant number of traders who are able to consistently make profits in currency markets. Those traders use technical analysis as their main tool. Since any trader has or can have access to the same TA tools we have to ask how can a small group of traders consistently win and the other larger group, more or less consistently lose in the currency trading game. What is it that winning traders know about technical analysis that gives them the upper hand? The answer is simple: Technical Analysis works but not necessarily for the reason most people believe. Many successful traders dont want to share this secret. TA works because many people use it, and successful traders are able to predict how will other people react on different TA indicators and signals. In other words, while the losing traders are using TA to determine their trades, winning traders are winning because they know how the losers are going to react based on this data. For example, when a price goes below one of the key moving averages, MA, many
traders will sell to protect themselves against additional losses. By doing so, they will drive the price of that instrument/currency lower and that will prompt some traders to start short selling in anticipation of further decline. Prices continue the downward trend, forcing traders who were long on that particular instrument/currency to sell their positions because it is going below their stop limits. This creates a domino effect as the price continues to decline. However, at this point, successful traders realize that most of the current price action was created artificially. They start to enter the positions on the buy side and more often than not price starts to reverse. The losing traders have already sold their positions based on the TA tools. The winning traders buy the instrument/currency because they understand that fluctuation was temporary, and they seize the opportunity based on the losing traders reactions. No TA tool by itself will give you reliable buy or sell signals. There is no Holy Grail or magic black box that will give you the perfect, accurate signal. However, combining of the right group of TA indicators with discipline and adequate trading capital has been the road to fortune for many traders. There is no reason why you cannot emulate their success. Technical Analysis is similar to studying history. Historians are usually able to make the most accurate predictions of future and outcomes of events. Usually the past repeats itself. History proves that people historically behave in the same manner in the similar situations. Great empires start to fall when everybody starts thinking that they are invincible. The same thing happens in currency markets. Every time when there has been a long lasting bull market in any major currency, new experts come from the woodwork claiming that this time it is different, that for this currency sky is the limit, fundamentals are strong there are hundred reasons why this currency should continue to appreciate. And now everybody starts to buy this currency more and more. Money is borrowed, leveraged and put into this currency. However, when no fresh money is coming in to feed this beast, it has to start to feed of itself. There comes the bear. If traders who were among the last to join the party looked at the charts of previous times, they would have noticed that many technical indicators were behaving similarly as they had in the past.
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When youre unprepared and unaware of historical facts, history is doomed to repeat itself. This is the last lesson you want to learn the hard way when entering the currency trading battle. If you learn while in the battle, not beforehand, your chances of success will most likely be lost. We will now examine the most important TA indicators and how can they be effectively used in predicting future movements in currency prices.
Moving Average
Moving average is one of the most widely used TA indicators. Moving average is calculated by finding the average price of the trading instrument over a set number of periods. It is called a moving average because as the newest period is added, the oldest period is dropped. MA crossovers are used in many trading systems as buy or sell signals. Usually combinations of two or three MA intervals are used. Another popular way of observing buy and sell signals is by using single, longer term MA such as 20 day MA. Buy signals occur when the current price crosses MA from below to above. The sell signal occurs when current price crosses MA from above to below.
Figure 3-8
Figure above is a daily candlestick chart for EUR/USD covering a five-month period. Blue line represents 20 day Moving Average. As we can observe from the chart when the price crosses blue line from the above to below it is usually a negative
41
signal and the trend becomes bearish for a certain period of time. Then, when the price crosses the blue line from below to above, sentiment changes and the trend becomes bullish for a certain period of time.
Figure 3-9
Figure above is 1-hour candlestick chart for EUR/USD covering a five-day period. Red line represents 4 hour moving average and blue line represents 12 hour moving average. Buy signal occurs when 12 period MA (blue line) crosses 4 period MA (red line) from above to below and sell signal occurs when 12 period MA crosses 4 period MA from below to above.
Relative Strength Index RSI
Relative strength index is a momentum indicator. It usually moves ahead of price. It is an indicator that measures an instruments price relative to itself. The
values that it can have are between 0 and 1000. Sudden short-term movements in an instruments price do not affect it. Therefore, it looks at the overall picture and eliminates much of the marketplace noise. RSI is usually used in combination with other indicators. RSI value of 30 or less is generally considered as buy signal and RSI value of 70 or more is considered as sell signal.
Figure 3-10
Figure above is a daily candlestick chart for EUR/USD. The RSI value is represented by the blue line on the bottom part of the chart. From the chart above we can observe that when the RSI starts reaching upper horizontal line price is often peaking and is starting to reverse its course and when the RSI starts reaching lower horizontal line price is often bottoming and is starting to reverse. Traders also look for the divergence between price movement and RSI (price moving up and RSI moving down and vice versa). If you see such movement, it is very likely that price is about to change direction.
Support and Resistance Levels

Support and resistance is the most basic concept of technical analysis. There is no wonder since support and resistance are based on supply and demand. And as we
all know supply and demand determine the price of goods in this case of the currencies traded. To recollect the law of support and demand in forex: as the demand for some currency increases the price of this currency will also increase and v.v. if the supply for some currency increases the price will decrease. What are then support and resistance? Support is created at points below current price where there are enough buyers to prevent and eventually reverse decline of the underlying instruments price. Resistance is created at points above the current price where there are enough sellers to stop and eventually reverse advance in the underlying instruments price. If the price breaks through support then support becomes resistance level and if the price breaks through resistance then resistance becomes support. And what we are trying to do, is nothing else than forecast the price of currencies at the given time. So if we can find out what are the support and resistance levels, we could with high probability tell in which direction price will move. Support and resistance are often established around key exponential moving average such as 20 day MA and 50 day MA or around key Fibonacci Retracement levels. Sometimes they simply establish around round numbers such as 1.15, 1.10, 0.75 etc
44
Figure 3-11
45
CHAPTER 4. TRADING STRATEGY
Now the battle is about to begin and you should get ready for it. Before you go any further ask yourself the following questions: Are you willing to invest your time, money and effort in a profession in which success is not guaranteed? Are you comfortable with and aware of the fact that the chances of failure are high? Do you have a comfortable basic knowledge of the Currency Markets in general? Are you familiar with key concepts and terms as related to currency/forex trading? Have you opened an account with an online broker/dealer that meets the criteria that we have outlined? Have you set aside the amount of money that you are willing to risk? Are you set up with the necessary hardware and Internet connection? We will assume that you will be using two monitors for the purpose of this strategy. If you havent installed two monitors yet, you will have to jump between the screens. Eventually, if you are serious enough about trading, you will realize that using only one monitor puts you at a disadvantage. Have you found a decent data feed and charting software provider? Before we start...
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Although the core of our strategy is Support and Resistance we will also be using two of the most basic technical tools that are used for confirmation purposes. 150 Period Moving Average Moving average is one of the most widely used TA indicators. Moving average is calculated by finding the average price of the trading instrument over a set number of periods. It is called a moving average because as the newest period is added, the oldest period is dropped. Most of the trading systems out there use MA crossovers as buy or sell signals. Our strategy will not be using MA indicator for such purposes. The only purpose of using MA indicator in our strategy is to determine current market sentiment. 150 Period means that in your charting software you will enter value of 150 when you are setting your MA indicator. Lets have a look at the figure below:
Figure 4-1
Figure above is a 5 minute candlestick chart for EUR/USD currency pair. The blue line represents 150 Period Moving Average. If the current price is above the blue line the market sentiment, for the purpose of our strategy is considered bullish. If the current price is below the blue line the market sentiment for the purpose of our
47
strategy is considered bearish. Obviously in the figure above, the market sentiment is bearish. The application of this will be shown later in the chapter. 4 Period Relative Strength Index For the purpose of our strategy we will be using RSI in a different manner than it is used by most of the trading systems out there. Most of the trading systems use 14 Period Relative strength index or RSI(14) in order to determine overbought or oversold market conditions. In our strategy we will be using 4 Period Relative Strength Index or RSI(4) in order to confirm whether the price is likely to make a breakthrough through predetermined support and resistance lines or to bounce off them. 4 Period means that in your charting software you will enter the value of 4 when you are setting your RSI indicator. Also during the setting make sure that upper and lower bands are set up at values of 70 and 30. Let's have a look at the figure below.
Figure 4-2
Figure above is a 5 Minute candlestick chart for the EUR/USD currency pair. The lower portion of the figure represents RSI(4) and the black lines are representing 30 and 70 areas. For the purpose of our strategy we only need to determine if the
48
current RSI(4) is above 70, below 30 or in between those two values. The application of this will be shown later in the chapter.
How To Prepare For A Trading Day

For the purpose of this course we will be using Esignal charting software. Which software and which trading platform you will be using is entirely up to you, however our setup will give you a general idea of what capabilities should your software have. Our examples will deal mostly with EUR/USD however if you live in Canada I would encourage you to trade USD/CAD, if you live in Australia you should trade AUD/USD, if you live in East Asia you should trade USD/JPY, if you live in UK you should trade either GBP/USD or EUR/GBP, if you live in European Union you are best off trading EUR/USD and finally if you live in the United States you should trade USD against the currency that you are most familiar with (EUR, JPY, GBP, CAD, SFR). Trading the currency that you are familiar with has lots of advantages vs. trading currencies that you have never used. For example a person who lives in Canada remembers approximate range of CAD vs. USD during past ten years or more and has much better understanding of those currencies than average person from Japan. Principles that are explained in this strategy can be used to trade any of the above currencies. Although forex markets are in essence 24-hour markets, for the purpose of our strategy we will define when does the trading day start and when does it end. Lets have a look at figures below:
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Figure 4-3
Figure 4-4
50
Figure 4-5
Figures 1, 2 and 3 are 15-min candlestick charts for EUR/USD, USD/CAD and GBP/USD respectively. What do they all have in common? We can observe that the time of the lowest trading volume for all of them is at approximately 5pm EST or 10pm GMT. That is the time when almost all of the forex trading centers around the world are closed. Therefore we will use 10pm GMT as the time when previous trading day ends and the new trading day begins. Here is an example: You live in Europe. It is Thursday morning 9amGMT. Previous trading day has started on Tuesday 10pmGMT and it has ended Wednesday 10pmGMT. Another example: You live in North America. It is Thursday morning 9amEST. Previous trading day has started on Tuesday 5pm EST and it has ended Wednesday 5pm EST. For those who dont know: Eastern Standard Time (EST) = Greenwich Mean Time (GMT) 5 Why it is important to determine when does the trading day start and when does it end?
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It is important because our strategy will be based on 3 day Pivot Points and in order to calculate 3 day Pivots we will need to combine 3 trading days into a single period. We will get to that later in the strategy.
Economic Calendar
Another important place to look at is Global Economic Calendar that has exact times and dates of all the major economic reports and events during current week. If you are trading EUR/USD you need to pay attention to the reports coming out of EU and US. If you are trading USD/CAD you need to pay attention to the reports coming out of US and Canada etc Some of the important indicators that you should pay attention to are Weekly Jobless Claims, CPI, University of Michigan Sentiment, Federal Reserve or Central Bank Meetings However you will not look at those indicators as trading signals because by the time you get the news it is already too late, price has already started moving. The reason you need to be aware of those reports and events is that at those times markets can get extremely volatile and for a beginning trader it is best to stay out of the market at such times. It doesnt mean that you cannot have a trade going on if there is a report due to come out. Those reports come out almost every day so you cannot avoid them. If you are already in the market you should watch the situation closely at those times and be ready to quickly react. Figure shown below is an hourly EUR/USD candlestick chart. You can notice that majority of the time price is trading in a close range and then suddenly there is a sudden upward or downward price move. Majority of those sudden moves happen immediately after the economic reports that we have described above come out. Again, if you are beginning trader, dont enter your trades just before such reports are due to come out.
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Figure 4-6
One
of
the
places
where
you
can
find
economic
calendar
is:
http://www.forexnews.com Figure shown below is an example of how a Global Calendar can look like however at the time when you are reading this course the website mentioned above can change and you will have to find the calendar someplace else. Here is another place where you may find a complete economic calendar: http://www.dailyfx.com/calendar/ Or if you are looking for a US calendar you may find it at: or http://biz.yahoo.com/c/e.html http://moneycentral.msn.com/investor/calendar/econ/current.asp
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Figure 4-7
As we have already mentioned our goal is to catch larger currency swings as thats where the real money is in currency trading. However, in order to be able to do so, we have to choose the best possible place of entry or the place that has the highest probability that the trade will go in our direction. Before we start to look for the place of entry (it doesnt matter at what time of the day we plan to place our trades) we need to do a preparation.
54
Calculating Major S/R Areas

Support and resistance is the most basic concept of technical analysis. Support is created at points below current price where there is enough buyers to prevent and eventually reverse decline of the underlying instruments price. Resistance is created at points above the current price where there are enough sellers to stop and eventually reverse advance in the underlying instruments price.
Lets say it is 8pm EST or 1am GMT and we are planning to trade tomorrow morning. First we need to calculate 3 day pivot points as those are the most important S/R areas that we will be looking at. How to calculate 3 day pivots? You may be asking why arent we using a single day pivot points and the answer is that our particular approach will attempt to catch larger moves and 3 day Pivots will be better at eliminating much of the intraday noise.
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Figure 4-8
Figure above is a 15 minute bar chart covering a three day period for EUR/USD. From the chart we can observe values for the 3 Day High, 3 Day Low and 3 Day Close. From those values we will calculate pivot values. In our example those are the values covering period from Nov/15/2009 to Nov/18/2009. Those are the values that we would use if we were to trade on Nov/19/2009. If we were to trade on Nov/6/2009 we would then calculate pivot values for the period Nov/16/2009 to Nov/19/2009. We will use classic formula to calculate pivot values. PP = (High + Low + Close)/3 Support = 2*PP High Resistance = 2*PP Low In our example: 3 Day High = 1.5016 3 Day Low = 1.4805 3 Day Close = 1.4960
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PP = (1.5016 + 1.4805 + 1.4960)/3 = 1.4927 Support (S1) = 2*1.4927 1.5016 = 1.4838 Resistance (R1) = 2*1.4927 1.4805 = 1.5049 For the purpose of our strategy Resistance Areas are 3 Day High, R1, Pivot Point and 3 Day Close. Support Areas are 3 Day Low, S1, Pivot Point and 3 Day Close. Resistance Areas are: 1. 3 Day High 2. R1 3. Pivot Point 4. 3 Day Close Support Areas are: 1. 3 Day Low 2. S1 3. Pivot Point 4. 3 Day Close Please note that Pivot Point and 3 Day Close are acting both as Support and Resistance Areas.
How to set up our trading screen?

OK, our trading day is about to start. We now need to set up our chart with the necessary info and tools.
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Figure 4-9
Figure above is a five minute candlestick chart for EUR/USD currency pair. As you can see we have drawn the support and resistance lines that we have already calculated. Support and resistance lines are R1, 3 Day High, 3 Day Close, Pivot Point, S1 and 3 Day Low. On the figure above you can not see R1 and 3 Day Low as they are not close to current price action. The thin blue line is representing 150 Period Moving Average and on the bottom of the chart there is 4 Period Relative Strength Index.
When to enter the trade?

We will now define our entry strategy.
Entering on the bullish side.

If the current price is above 150 MA it means that the price is trading in a bullish medium term trend and therefore we will adopt a bullish strategy.
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If bullish we will be looking to enter our position on upside breaktroughs through (Pivot Point, 3 Day Close, 3 Day High and S1) resistance lines and on the upside bounces from the (Pivot Point, 3 Day Close, 3 Day Low and S1) support lines.
Figure 4-10
Please note that Pivot Point and 3 Day Close are acting both as Support and Resistance lines. Confirmation with 4 Period RSI. Bullish Breaktrough signal will be taken ONLY if current RSI(4) is higher than 70. Bullish Bouncing signal will be taken ONLY if current RSI(4) is in between 30 and 70.
Entering on the bearish side.

If the current price is below 150 MA it means that the price is trading in a bearish medium term trend and therefore we will adopt a bearish strategy. If bearish we will be looking to enter our position on downside breaktroughs through (Pivot Point, 3 Day Close, 3 Day Low and S1) support lines and on the downside bounces from the (Pivot Point, 3 Day Close, 3 Day High and R1) resistance lines.
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Figure 4-11
Please note that Pivot Point and 3 Day Close are acting both as Support and Resistance lines. Confirmation with 4 Period RSI. Bearish Breaktrough signal will be taken ONLY if current RSI(4) is lower than 30. Bearish Bouncing signal will be taken ONLY if current RSI(4) is in between 30 and 70. What kind of order should you use to enter the trade? The only negative consequence you may get from not entering a trade is just that; you havent entered a trade. It is better to miss a trading opportunity than to have your order filled at a price that is far from your entry target price. If you feel the opportunity gap is closing too quickly, simply wait for the next opportunity to come along. Its worth it to save your money than risk losing it simply because youve got an itchy trigger finger. To get into the trade you should always use Limit orders. What size should you be trading with? If you are a beginning trader you should start very small and when you are able to build up your account you can start trading with larger amounts. This applies even if you are starting with substantial start up capital. You need time to perfect
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your trading strategy. It is much better to preserve your capital for later on, when you become more formidable market participant.
Money Management
As explained earlier in the course the leverage basically gives a trader the possibility to control a higher capital, than his real start up capital. That way he is able to control larger lot size and to make higher profit, if the trade goes in his direction. But at the same time he is taking higher risk, if the trade goes against him. Resuming, leverage is a powerful tool but it should be used by traders carefully! Example 1: EURUSD, 4 percent per trade risk level, $1,000 account size, 40 pips stop loss Well, let us assume that you want to trade EURUSD using our Support Resistance Strategy and that your account size is $1,000. First of all you need to define how much risk you want to take every time you enter a trade. For example, lets say you want to take a risk level of 4% per trade ($40 per trade). Ok, in our Support Resistance Trading Strategy after entering the market we place a 40 pips stop order in order to cut possible losses short. That means the maximum loss we may suffer is 40 pips. Now, we need to calculate the lot size we will use according to the defined risk level of 4%: Maximum loss in dollars $1000 * 0.04 = $40 Lotsize = maximumloss in dollars/stoploss in pips * $10 = $40/40*$10 = 0.1 That means that in this case we would be using 0.1 lot size when entering a trade. Example 2: GBPUSD, 4 percent per trade risk level, $2,000 account size, 100 pips stop loss Well, let us assume that you want to trade GBPUSD using our Support Resistance Trading Strategy and that your account size is $2,000. First of all you need to define how much risk you want to take very time you enter a trade. For example, lets say
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you want to take a risk level of 4% per trade ($80 per trade). Ok, in our Support Resistance Trading Strategy after entering the market we place 100 pips stop order in order to cut possible losses short. That means the maximum loss we may suffer is 100 pips. Now, it is about to calculate the lot size we will use according to the defined risk level of 4%: Maximum loss in dollars = $2,000 * 0.04 = $80
Lotsize = maximumlossindollars/stoplossinpips*10 = $80/100*$10 = 0.08 lot size.
That means that in this case we would be using 0.08 lot size when entering the trade.
When To Exit The Trade?

Let your profits run, cut your losses short. Sounds easy, doesnt it? It is actually much harder than most beginning traders realize. The majority of successful traders will tell you that proper trade management, once you are in the trade, is the single most important factor that will either make you or break you in the active trading business.
Cut Your Losses Short
Immediately after entering the market we place a stop order a number of pips below entry price if the entry signal was bullish or a number pips above entry price if the entry signal was bearish. If our stop loss is reached we will get out of the trade immediately, no questions asked. You cannot cut corners with the stop loss rule. It needs to be followed every single time without exception. Failure to follow the stop loss rule is the number one reason for failure among beginning traders. It is true that sometimes price will turn around just after you get out, but there is no way to know this in advance. It only takes a few stubborn incidents to entirely devastate your initial trading capital.
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How many pips away from the entry price should you place your stop loss.
This depends on how much time do you intend to spend in front of the screen monitoring the trade. If you have plenty of time and if you wish to monitor your trade often you should use 40 pips as your initial stop loss. If you can monitor your trade but not that often you should place your initial stop loss at 80 pips away from the entry price. If you have very little time to monitor your trade you should place your stop loss at most at 120 pips away from the entry price. Again 40 pips is the minimum, 120 pips is the maximum. Everything in between is up to you and shoud reflect your available time and trading style. The risk per trade should stay constant at 4% per trade and it is controlled by lot size as explained in the earlier paragraph.
Let Your Profits Run
Once you are in the trade and the price has started moving in your direction, you need to extract as much profit as possible. Not being able to do so will make you a losing trader in the long run. How can a trader lose if he only takes small profits at a time? Profit is profit, isnt it? Not exactly Profit of $550 is not the same as a profit of $850. If such profits are followed by three losses of $200 each, profit of $550 will become a $50 loss, while profit of $850 will become a $250 win. Do you get my point? Profits are always followed by losses and if the profits are small they will not make up for the losses that will eventually and surely follow. However, becoming too greedy can turn a small profit into a loss. This will also make you lose money in the long run.
The best solution to resolving these conflicts is to use Recursive Trailing Stops.
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Recursive Trailing Stops

The basic idea of our Recursive Trailing Stop is as follows: The more the market moves in the direction of our trade, the more space we want to allow to our trade in order to make even more profit. Let us give you an example in order to make this idea clearer. Once you enter a trade one always places immediately a stop order at the certain distance in pips. Let it be 40 pips (in this example) from the entry price. And that is the right thing to do, as we want to cut the losses short in case the market moves against our trade. But what happens if the market moves, lets say, 40 pips in our direction? In that case we do not need any more to have a tight stop order 40 pips below the actual market price for cutting the losses short, as only in case the market would move 40 pips against our trade we would have to face losses in the actual trade. Ok, once we know that a tight stop order of 40 pips is not required for fulfilling the requirement cut the losses short, the question that arises is, what is the right stop order for fulfilling the requirement let the profits run? As said before, every market trend, regardless of how strong it is, also shows small movements against it. So in order to avoid that we are stopped out just at the moment when our trade needed just a little more space, we need a wider space to the actual price than 40 pips. What they key question is, how much exactly we want to risk in order to able to make even more profit? We have answered this question by using a recursive formula for recalculating the stop order every time the market moves in our direction. As the information about the last stop order goes into the calculation of the new stop order it is a so called recursive formula.. This method behaves that way that the more space we want to allow to our trade the more the market moves in the direction. .Every time the price moves 40 pips in our direction we readjust the stop order by using the following Recursive Trailing Stop Order formula: Current stop order = Old stop order + Previous Stop Loss x 0.85 Equation 1
Here an example for the usage of the Recursive Trailing Stop Order formula:
Figure 4-12
We enter long (bullish) the market at the entry price of 1.4280 First stop order is set 40 pips below the entry price: First Stop Order at 1.4280 0.0040 = 1.4240
If the price moves 40 pips in our direction, here it means that the price reaches 1.4320, then the stop order is readjusted to: New Stop Order = 1.4240 + 0.0040 x 0.85 = 1.4240 + 0.0034 = 1.4274
If the price moves again 40 pips in our direction, here it means that the price reaches 1.4360, then the stop order is readjusted to: New stop order = 1.4274+ 0.0034 x 0.85 = 1.4274 + 0.0029 = 1.4303
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And so forth
If we were using 80 pips as our initial stop loss than we would wait the price to move 80 pips in our direction in order to start using our Recursive Trailing Stop. The same applies if were using 120 pips as our initial stop loss. In that case we would wait the price to move 120 pips in our direction before applying the formula.
What type of order should you use when exiting the trade?
When entering a trade I have recommended using a limit order because you can afford not to take a trade at a price that doesnt meet your standards. When exiting a trade the opposite is true. You cannot afford to stay in a bad trade. Therefore, when exiting we will use market order, which will get us out of the trade quickly, even though it will cost us additional spread points.
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CHAPTER 5. EXAMPLES
Trading Example 1. EUR/USD
It is December 3, 10pm EST and we are getting ready for the next trading day as we have described earlier in the strategy. Figure below is a 15-minute candlestick chart for EUR/USD covering period of the previous three trading days.
Figure 5-1
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As we can observe from the chart during the period of the past three days we can determine the values of 3 Day Low, 3 Day High and 3 Day Close. They are as follows: 3 Day Low = 1.4969 3 Day High = 1.5141 3 Day Close = 1.5043 From those values we will now calculate Pivot Point and major S/R areas. Pivot Point = (3 Day Low + 3 Day High + 3 Day Close)/3 Pivot Point = (1.4969 + 1.5141 + 1.5043)/3 = 1.5051 Support (S1) = 2*PivotPoint 3 Day High Support (S1) = 2*1.5051 1.5141 = 1.4961 Resistance (R1) = 2*PivotPoint 3 Day Low Resistance (R1) = 2*1.5051 1.4969 = 1.5133 Ok, now we have the necessary S/R lines for the next trading day. Figure below shows us what happens the next day.
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Figure 5-2
Figure above is a 5 min EUR/USD candlestick chart for the December 4., covering the period of approximately 10 trading hours. Green lines represent Resistance levels, Blue lines represent Support and Resistance levels and Red lines represent Support levels that we have calculated the previous night. Of course, we could have calculated those levels at any time during the current trading day as they would stay the same. The thin blue line represents 150 period Moving Average and TA tool on the bottom of the chart is 4 period RSI. As we can observe on the chart an excellent entry opportunity occured at approximately 8:30 am as at that time the price moved below 150 MA, RSI was below 30 and the price made a bearish breakthrough through the Support line (in this case 3 Day Close). At that time we would have placed sell order for EUR/USD and placed our stop loss at (40 120) pips above the entry price. The lot size is calculated according to our Money Management formula. After that, we would manage the trade using our Recursive Trailing Stop formula.
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Trading Example 2. GBP/USD
Figure below is a 15-minute candlestick chart for GBP/USD covering period of the previous three trading days. It is December 2, 9pm EST and we are getting ready for the next trading day as we have described earlier in the strategy.
Figure 5-3
As we can observe from the chart during the period of the past three days we can determine the values of 3 Day Low, 3 Day High and 3 Day Close. They are as follows: 3 Day Low = 1.6378 3 Day High = 1.6695 3 Day Close = 1.6632 From those values we will now calculate Pivot Point and major S/R areas.
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Pivot Point = (3 Day Low + 3 Day High + 3 Day Close)/3 Pivot Point = (1.6378 + 1.6695 + 1.6632)/3 = 1.6568 Support (S1) = 2*PivotPoint 3 Day High Support (S1) = 2*1.6568 1.6695 = 1.6441 Resistance (R1) = 2*PivotPoint 3 Day Low Resistance (R1) = 2*1.6568 1.6378 = 1.6758 Ok, now we have the necessary S/R lines for the next trading day. Figure below shows us what happens the next day.
Figure 5-4
Figure above is a 5 min GBP/USD candlestick chart for the December 3., covering the period of approximately 9 trading hours. Green lines represent Resistance levels, Blue lines represent Support and Resistance levels and Red lines represent Support
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levels that we have calculated the previous night. In this case we can not see the Red lines as they are out of focus. Of course, we could have calculated those levels at any time during the current trading day as they would stay the same. The thin blue line represents 150 period Moving Average and TA tool on the bottom of the chart is 4 period RSI. As we can observe on the chart an excellent entry opportunity occured at approximately 7.20 am as at that time the price was below 150 MA, RSI was below 30 and the price made a bearish breakthrough through the Support line (in this case 3 Day Close). At that time we would have placed sell order for GBP/USD and placed our stop loss at (40 120) pips above the entry price. The lot size is calculated according to our Money Management formula. After that, we would manage the trade using our Recursive Trailing Stop formula.
Trading Example 3. USD/CAD
It is December 3, 10pm EST and we are getting ready for the next trading day as we have described earlier in the strategy. Figure below is a 15-minute candlestick chart for USD/CAD covering period of the previous three trading days.
Figure 5-5
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As we can observe from the chart during the period of the past three days we can determine the values of 3 Day Low, 3 Day High and 3 Day Close. They are as follows: 3 Day Low = 1.0410 3 Day High = 1.0584 3 Day Close = 1.0573 From those values we will now calculate Pivot Point and major S/R areas. Pivot Point = (3 Day Low + 3 Day High + 3 Day Close)/3 Pivot Point = (1.0410 + 1.0584 + 1.0573)/3 = 1.0522 Support (S1) = 2*PivotPoint 3 Day High Support (S1) = 2*1.0522 1.0584 = 1.0460 Resistance (R1) = 2*PivotPoint 3 Day Low Resistance (R1) = 2*1.0522 1.0410 = 1.0634 Ok, now we have the necessary S/R lines for the next trading day. Figure below shows us what happens the next day.
Figure 5-6
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Figure above is a 5 min USD/CAD candlestick chart for the December 4., covering period of approximately 9 trading hours. Green lines represent Resistance levels, Blue lines represent Support and Resistance levels and Red lines represent Support levels that we have calculated the previous night. Of course, we could have calculated those levels at any time during the current trading day as they would stay the same. The thin blue line represents 150 period Moving Average and TA tool on the bottom of the chart is 4 period RSI. As we can observe on the chart an excellent entry opportunity occured at approximately 7:00 am as at that time the price was below 150 MA, RSI was below 30 and the price made a bearish breakthrough through the Support line (in this case Pivot Point). At that time we would have placed sell order for USD/CAD and placed our stop loss at (40 120) pips above the entry price. The lot size is calculated according to our Money Management formula. After that, we would manage the trade using our Recursive Trailing Stop formula.
Trading Example 4. EUR/USD
It is November 30, 10pm EST and we are getting ready for the next trading day as we have described earlier in the strategy. Figure below is a 15-minute candlestick chart for EUR/USD covering period of the previous three trading days.
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Figure 5-7
As we can observe from the chart during the period of the past three days we can determine the values of 3 Day Low, 3 Day High and 3 Day Close. They are as follows: 3 Day Low = 1.4826 3 Day High = 1.5084 3 Day Close = 1.5006 From those values we will now calculate Pivot Point and major S/R areas. Pivot Point = (3 Day Low + 3 Day High + 3 Day Close)/3 Pivot Point = (1.4826 + 1.5084 + 1.5006)/3 = 1.4972 Support (S1) = 2*PivotPoint 3 Day High Support (S1) = 2*1.4972 1.5084 = 1.4860 Resistance (R1) = 2*PivotPoint 3 Day Low Resistance (R1) = 2*1.4972 1.4826 = 1.5118
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Ok, now we have the necessary S/R lines for the next trading day. Figure below shows us what happens the next day.
Figure 5-8
Figure above is a 5 min EUR/USD candlestick chart for the December 1., covering the period of approximately 11 trading hours. Green lines represent Resistance levels, Blue lines represent Support and Resistance levels and Red lines represent Support levels that we have calculated the previous night. In this case we can not see the Red lines as they are our of focus. Of course, we could have calculated those levels at any time during the current trading day as they would stay the same. The thin blue line represents 150 period Moving Average and TA tool on the bottom of the chart is 4 period RSI. As we can observe on the chart an excellent entry opportunity occured at approximately 2.00 am as at that time the price moved above 150 MA, RSI was above 30 and the price made a bullish breakthrough through the Support line (in this case 3 Day Close). At that time we would have placed buy order for EUR/USD and placed our stop loss at (40 120) pips below the entry price. If this opportunity was missed there was another buy signal at 8.25 am as the price made a bullish breakthrough through 3 Day High Resistancel line. The lot size is
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calculated according to our Money Management formula. After that, we would manage the trade using our Recursive Trailing Stop formula.
Trading Example 5. GBP/USD
Figure below is a 15-minute candlestick chart for GBP/USD covering period of the previous three trading days. It is November 30, 10pm EST and we are getting ready for the next trading day as we have described earlier in the strategy.
Figure 5-9
As we can observe from the chart during the period of the past three days we can determine the values of 3 Day Low, 3 Day High and 3 Day Close. They are as follows: 3 Day Low = 1.6268 3 Day High = 1.6593 3 Day Close = 1.6439
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From those values we will now calculate Pivot Point and major S/R areas. Pivot Point = (3 Day Low + 3 Day High + 3 Day Close)/3 Pivot Point = (1.6268 + 1.6593 + 1.6439)/3 = 1.6433 Support (S1) = 2*PivotPoint 3 Day High Support (S1) = 2*1.6433 1.6593 = 1.6273 Resistance (R1) = 2*PivotPoint 3 Day Low Resistance (R1) = 2*1.6433 1.6268 = 1.6598 Ok, now we have the necessary S/R lines for the next trading day. Figure below shows us what happens the next day.
Figure 5-10
Figure above is a 5 min GBP/USD candlestick chart for the December 1., covering the period of approximately 8 trading hours. Green lines represent Resistance levels, Blue lines represent Support and Resistance levels and Red lines represent Support levels that we have calculated the previous night. In this case we can not see the
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Red lines as they are out of focus. Of course, we could have calculated those levels at any time during the current trading day as they would stay the same. The thin blue line represents 150 period Moving Average and TA tool on the bottom of the chart is 4 period RSI. As we can observe on the chart an excellent entry opportunity occurred at approximately 3.05 am as at that time the price was above 150 MA, RSI was below in between 30 and 70 and the price made a bullish bounce off the Support line (in this case 3 Day Close). At that time we would have placed buy order for GBP/USD and placed our stop loss at (40 120) pips below the entry price. The lot size is calculated according to our Money Management formula. After that, we would manage the trade using our Recursive Trailing Stop formula.
Trading Example 6. USD/CAD It is November 30, 11pm EST and we are getting ready for the next trading day as we have described earlier in the strategy. Figure below is a 15-minute candlestick chart for USD/CAD covering period of the previous three trading days.
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Figure 5-11
As we can observe from the chart during the period of the past three days we can determine the values of 3 Day Low, 3 Day High and 3 Day Close. They are as follows: 3 Day Low = 1.0528 3 Day High = 1.0750 3 Day Close = 1.0560 From those values we will now calculate Pivot Point and major S/R areas. Pivot Point = (3 Day Low + 3 Day High + 3 Day Close)/3 Pivot Point = (1.0528 + 1.0750 + 1.0560)/3 = 1.0612 Support (S1) = 2*PivotPoint 3 Day High Support (S1) = 2*1.0612 1.0750 = 1.0474 Resistance (R1) = 2*PivotPoint 3 Day Low Resistance (R1) = 2*1.0612 1.0528 = 1.0696 Ok, now we have the necessary S/R lines for the next trading day.
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Figure below shows us what happens the next day.
Figure 5-12
Figure above is a 5 min USD/CAD candlestick chart for the December 1., covering the period of approximately 9 trading hours. Green lines represent Resistance levels, Blue lines represent Support and Resistance levels and Red lines represent Support levels that we have calculated the previous night. In this case we can not see the Green lines as they are out of focus. Of course, we could have calculated those levels at any time during the current trading day as they would stay the same. The thin blue line represents 150 period Moving Average and TA tool on the bottom of the chart is 4 period RSI. As we can observe on the chart an excellent entry opportunity occurred at approximately 2.20 am as at that time the price was below 150 MA, RSI was below 30 and the price made a bearish breakthrough through the Support line (in this case 3 Day Low). At that time we would have placed sell order for USD/CAD and placed our stop loss at (40 120) pips above the entry price. If this opportunity was missed another sell signal occurred at 4.00 am as the price made a bearish breakthrough through S1 support line. The lot size is calculated
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according to our Money Management formula. After that, we would manage the trade using our Recursive Trailing Stop formula.
U.S. Government Required Disclaimer - Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results. CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
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TABLE OF CONTENTS

CHAPTER 2. GENERAL FOREX TRADING INFO ................................................15

Monitor More Than One Currency Pair...................................................................................... 38

CHAPTER 3. TECHNICAL ANALYSIS .................................................................39

CHAPTER 4. TRADING STRATEGY .....................................................................46

CHAPTER 5. EXAMPLES ....................................................................................67

In any case you have come to the right place.

Entering the Trade

Exiting the trade

Cut your losses short Let your profits run

Therefore Dont trade impulsively.

CHAPTER 2. GENERAL FOREX TRADING INFO

Understanding Forex Trading

About Currency Pairs and Exchange Rates

Understanding the Standard Contract Size

CURRENCY PAIR EURUSD USDJYP USDCHF GBPUSD AUDUSD USDCAD

What is the Pip?

CURRENCY PAIR EURUSD USDCHF GBPUSD AUDUSD USDCAD USDJYP

PIP SIZE 0.0001 0.0001 0.0001 0.0001 0.0001 0.01

How to Calculate the Profit

The profit of your trade is calculated in the three steps:

Step 1: Calculating the Pip Value per Lot

CURRENCY PAIR EURUSD USDCHF GBPUSD AUDUSD USDCAD USDJYP

Step 2: Calculating Your Profit in Terms of the Quote Currency

Step 3: Converting Your Profit to Your Deposit Currency

Currency Pair EURUSD USDCHF GBPUSD AUDUSD USDCAD USDJYP

Currency Pair EURUSD USDCHF GBPUSD AUDUSD USDCAD USDJYP

The Concept of Leverage

Your Trading Equipment

appropriate computer equipment a forex broker a suitable charting software

Your Computer Equipment

How to choose your Forex Broker

Trading Costs Spread on Majors

$200 www.alpari-idc.com $2,000 www.ac-markets.com

NFA(US), FSA(UK), $2,000 www.cmcmarkets.com/us 100:1 No 2 to 3 1989 ASIC(AU), BAFIN(DE), OSC(CA)

$200 www.cmsfx.com $300 www.crownforex.com $250 www.forex.com

Account Conditions Min. Deposit Max. Leverage

Trading Costs Spread on Majors 2 to 4

$500 www.fxlite.com $250 www.fxsol.com $500 www.gfsforex.com

CFTC/NFA (US) CFTC/SEC (US),

FSA (Japan), ASIC (Australia)

$250 www.interbankfx.com $400 www.mbtrading.com

$200 www.mgforex.com $2,000 www.migfx.ch $1 www.oanda.com $2,000 www.saxobank.com

Monitor More Than One Currency Pair

CHAPTER 3. TECHNICAL ANALYSIS

Why Does Technical Analysis Work?

Relative Strength Index RSI

Support and Resistance Levels

CHAPTER 4. TRADING STRATEGY

How To Prepare For A Trading Day

Calculating Major S/R Areas

How to set up our trading screen?

When to enter the trade?

Entering on the bullish side.

Entering on the bearish side.

Lotsize = maximumlossindollars/stoplossinpips*10 = $80/100*$10 = 0.08 lot size.

When To Exit The Trade?

Cut Your Losses Short

Recursive Trailing Stops

Trading Example 1. EUR/USD

Trading Example 2. GBP/USD

Trading Example 3. USD/CAD

Trading Example 4. EUR/USD

Lotsize = maximumlossindollars/stoplossinpips10 = $80/100$10 = 0.08 lot size.