This is a free forex trading course for beginners who just want a forex trading education online so that they can start to trade forex.
Table Of Contents
- Forex Trading Course Part 1:What is Forex?
- So What Is Forex Trading?
- How Is The Forex Market Created?
- Decentralized Forex Market Structure
- 3 Benefits of A Decentralized Market
- Centralized Market Structure
- 7 Participants Of The Forex Market
- 1 Reason Why Banks Are Important In Forex Trading
- Forex Market vs The Stock Market
- Forex Market Opening Times
- Forex Market Sessions
- 10 Advantages Of Forex Trading
- 5 Forex Trading Risks
- FOREX TRADING COURSE PART 2: History Of The Forex Market
- Forex Trading Course Part 3: Forex Brokers
- Forex Trading Course Part 4: Forex Trading Terminologies
- What Is Forex Leverage?
- Forex Trading Course Part 5: Types of Forex Orders
- Forex Trading Course Part 6: How To Calculate Profit And Loss
- Forex Trading Course Part 7: Technical Analysis
- Forex Trading Course Part 8: What Is Fundamental Analysis?
- Forex Trading Course Part 9: What Is Price Action Trading?
- Forex Trading Course Part 10: Forex Trading Methods
- Forex Trading Course Part 11: How To Really Make Money In Forex Trading
- Forex Trading Course 12: The Psychology Of FX Trading
This is not a comprehensive forex trading course, but it covers most of what you need to know to get started in forex trading.
The good news is that this forex course it will cost you nothing.
There are forex websites selling forex trading courses online and you can fork out $100-$300 or more to pay for these forex courses.
The information in this forex trading course here is the same or even better than ones that are on sale so you really got two choices:
- buy those forex courses that are being sold online
- or read through what I’ve got here and it covers everything you need to start trading forex.
At the end of this forex trading course, I hope you can show your appreciation by tweeting, sharing, liking and even mentioning this free forex trading course in other forex websites or forums that you are a member of so that the word gets out.
Welcome and enjoy!
Forex Trading Course Part 1:What is Forex?
Forex simply means Foreign Exchange or “for-ex” in short. The Forex market can also be called these names:
- Currency market
- Fx market
- Foreign exchange market
- Foreign exchange currency market.
So What Is Forex Trading?
Forex trading is when you get involved with buying and selling of currencies.
Many companies these days deal with import and export of goods and services today.
These types of companies have to deal with different currencies and exchange rates due to their nature of their business. They are taking part in the business part of forex.
Then there’s the other part of forex, speculators. Speculators are traders that buy and sell currencies with the aim of making a profit from the retail forex market.
For instance, if you predict euro to rise against the U.S. dollar, you can place a buy EURUSD currency pair and then (hopefully) sell the EURUSD at a higher price to make a profit.
If the US dollar does not rise as you anticipated, you be in a loosing trade.
How Is The Forex Market Created?
- The forex market is created when buyers and sellers come together to exchange or sell and buy currencies.
- The structure of a forex market is called a decentralized market.
- A Decentralized market simply has no location or a central exchange or place where trading is controlled from.
- A decentralize market like forex is different and totally opposite to the centralized market like the share market. In the share market, you have names like:New York Stock Exchange, Australian Stock Exchange etc. These are central exchanges where buyers and sellers have to go through to make buy and sell.
Let me get a bit deeper into these…
Decentralized Forex Market Structure
The forex market is an example of a decentralized market. Now, what does that mean?
Well, the definition of a decentralized market is this: it is a market that has a structure that is made up of many networks that enables individuals, investors, banks, and businesses to create a marketplace without a centralize location.
Technology is the key driver of the decentralized market because it can be said that a decentralized market is a market connected with various technical devices.
See chart below to give you an idea of what this means:
3 Benefits of A Decentralized Market
- investors & speculators have access to various (many options of) bid and ask prices through technology (internet).
- deal directly with other dealers, banks, brokers, investors than with a given exchange.
- no physical location/no central marketplace to buy or sell currencies.
Centralized Market Structure
Now, as mentioned previously, in a centralized market, everything gets controlled by a central exchange.
A centralized market example would be the New York Stock Exchange.
The structure of a centralized market like the stock market looks like this:
With a centralized market, you have no choice but to go through a stock exchange and the issue with that is this:stock exchange controls the prices or rather, the prices can be altered to benefit the stock exchange.
Let me give you an example: Lets say that one day, the sellers of a particular stock are selling like crazy.
The number of sellers exceed that of the buyers. So what can the exchange do?
- the exchange is forced to fulfill the sellers (client’s) orders and buy all the stock which it cannot sell to the buyer side because there are not enough of them.
- the exchange can increase transaction cost with the aim of stopping sellers from getting into the market and it can do this by manipulation of the quotes.
7 Participants Of The Forex Market
So who participates in the forex market then? Well, buyers and sellers, right?
Errr…yes…But who are these buyers and sellers?
For example, if a business in Australia wants to buy cars from Japan, the Australian Dollars first has to be converted to Japanese yen.
Similarly, if you are tourist from Australia and you want to go to Japan, you cannot buy anything in Japan in Australian, dollars, you have to change all your dollars to yen at whatever the exchange rates is either at the international airport or when you use your credit/debit card in Japan.
Now, if you are speculating in the currency market, you either buy or sell a currency with the aim of making a profit.
For example, if you think that the US dollar is going to rise against the Australian dollar, then you buy the US dollar. If price increases, you sell at the higher price and make a profit.
That’s basically how speculation in the currency market works.
Now lets back to the main questions: who are the participants of the forex market? Here they are:
Interbank market allows both the majority of commercial Forex transactions and also the large amounts of speculative trading each day.
Most large banks will trade billions of dollars daily.
Sometimes, such trading is done on behalf of the bank’s customers.
However, lots are done by the proprietary traders who are trading for the banks.
#2: Central Banks / Governments
Country’s central bank always play important roles in foreign exchange markets.
The central bank/government can either cause some increase or decrease in their country’s currency value by controlling the money supply, and (or) the interest rates.
They can also use their foreign reserves to stabilize the market.
Companies needs foreign exchange market to settle their goods and services bills from foreign countries of the world and also to sell their various products and services in foreign countries of the world.
An important part of daily Fx market activities is the companies that are looking to exchange currency to be able to transact with other countries.
#4: Hedge funds
It is estimated that between 70% and 90% of all foreign currency transactions are very speculative in nature.
It means the person or an institution that either bought or sold a certain currency has no plan of taking delivery of such money; the transaction was instead executed with the sole intention of price movement speculation of that particular currency.
The investment firms who manage significant portfolios for their clients always use this same Forex market to facilitate the transactions in foreign securities.
Take, for instance, an investment manager who is controlling a particular international equity portfolio will need to use Forex market to buy and sell different currency pairs to be able to settle foreign securities bills they need to purchase.
Have you ever traveled to another country and exchanged your country’s money to a different currency at your destination airport or bank?
Then you have already transacted in this popular foreign currency exchange market. What you have done there was a simple foreign exchange transaction.
#7: Retail Forex traders
The retail Fx trading industry is expanding every day with the establishment of different Forex trading platforms and easy their accessibility on the internet is.
Retail Forex traders always access the forex market indirectly either through a bank or a broker.
1 Reason Why Banks Are Important In Forex Trading
Banks play a very important role in FOREX trading.
In fact, most of the market works against larger banks, hedge funds and big money players.
The commercial banks (such as Deutsche Bank and Barclays) contribute liquidity to the Forex market owing to the trading volume they cater for every day.
Any of this trading represents foreign currency conversions on behalf of customers’ needs while some are carried out by the banks’ proprietary trading table for speculative purpose.
The bottom line is that we retail Forex traders are small fish compared to the bigger players like hedge funds, commercial banks, and other big players.
We can profit from the moves these big players cause in the market by finding our fit in the market and trading it with discipline.
Forex Market vs The Stock Market
How big do you think the forex market is? Is it smaller than the stock market? If you think so, then you are gravely mistaken.
Here’s a bar chart giving you an idea of how big the forex market is vs the New York Stock Exchange, London and Tokyo Stock Exchanges:
As you can see above, The forex market is a giant compared to all the stock markets in the world combined.
The forex market alone has an average daily turnover of about $3.98-$5 trillion.
Forex Market Opening Times
The forex market is always open 24 hours a day, 5 days a week.
These 9 places shown below are the important world trading centers because most of the forex currency transactions and or speculations take place at these centers(or through these centers):
- New York,
- Hong Kong,
- and Paris.
Forex Market Sessions
There are three main forex market trading sessions (or you may call it forex market hours)
- the London/Europe trading session
- The New York Trading Session
- And the Asian Trading Session (that includes Sydney, Hong Kong, Tokyo)
As you can see on the table below, there is a bit of over lap in the forex market trading sessions. The time given below is in GMT.
What this means is that the forex market follows the sun around the world…
When London is getting into the evening in London and Europe, the New York Trading Session is on.
When New York sleeps, Sydney and Tokyo Trading Session begins for the day.
10 Advantages Of Forex Trading
Many people shy away from the forex market, thinking that it is too risky or they are used to thinking that trading the stock market is the best way to invest.
Their lack of knowledge and ignorance of the forex market makes them fear a market which is much easier to trade than the stock market.
With daily trading volumes of over $3 trillion, its not surprising that many are interested in the forex market and area learning about it so that they will have the knowledge to trade it successfully.
Here are 10 advantages of trading the forex market.
- Trade at your own convenient time
Because the forex market opens 24 hours, 5 days a week, you can trade after work when you go to your house. You see, there is no bell for opening in the Forex market. It is easy to enter a trade or exit a trade at your convenience from Sunday around 5:00 pm EST to Friday around 4:00 pm EST.
- Fewer Currency Pairs to Trade
You don’t need to scan and research thousands of shares like in the stock market. In forex market, there only 5 major currency pairs and another 15-20 at least you can look at for trading opportunities.
- Ease of access
You can deposit as little as $250 in your trading account at many retail brokers and commence trading the same day in most cases. Ability to make straightforward orders allows you to trade at the mere click of a mouse.
- Trade forex from anywhere in the world.
There is freedom of trading anywhere you find yourself in the world with your laptop and internet connection.You can even trade on your Smartphone.
- Commission-free trading
Many retail market-makers provides you with cAnd overall lower exchange costs than you can get from commodities and stocks.
- Good Volatility to Profit From Up or Down Markets
Good Volatility allows traders to make profit in every market conditions. And also provides for weekly high-probability trading opportunities. There is also no any structural market bias like those long biases characterized the stock market.
Biggest and the most liquid market on the planet
You can get into trades in and out and have would have no liquidity problems of getting your orders filled.
- Trading platforms provided by forex brokers are free.
You don’t have to pay any monthly subscription fees.
- Market manipulation or insider trading hardly happens
Why? Because the forex market is too big for anyone or any company to manipulate unlike the stock market where it is notorious for insider trading.
Low Transaction Costs
Compared to that of the stock market, forex trading has lower transaction costs
Therefore, forex traders are endowed with the equal opportunity to make profits in rising or falling markets.
5 Forex Trading Risks
Forex trading has its risks. Many people ventured into the forex markets only thinking about the reward while ignoring the risks involved.
All investments carry risks. Risk levels may be different based on what kind of investment vehicle they are. Forex trading therefore is the same, it has its risks.
Here are the top 10 risks of trading the forex market.
- You can lose most or all or most of you money. Don’t start trading forex if the money you are putting on the line is your life’s savings.
- Forex is a leveraged instrument, if you don’t know how to handle leverage it can be a double edge sword, you can make a lot of money but can lose a lot too.
- Economic and political events can impact the currency markets causing you to suffer enormous trading losses if your do not have proper risk management process in place.
- Unknowingly, you can open a forex trading account with a dodgy forex broker and it may be hard to withdraw your money from profits made. I suggest, you always open forex trading accounts in Australia, UK and New Zealand. These countries have really strong regulations to protect the clients funds.
- You become your own worst enemy. Failure to learn from past mistakes as well as not really understand what it takes to succeed in forex, can bring you down. You see, it takes time to become sucessful in forex trading. There’s lot of emotional roller coaster involved and then there’s the risk management aspect of it as well.
It’s important that you accept the glaring fact that you could lose money on any trade you placed if you are really serious about trading the Fx market in the right way.
FOREX TRADING COURSE PART 2: History Of The Forex Market
Ok, I’d be honest here,this is going to be boring…learning the history of the forex market.
But if you’d like to increase your forex trading knowledge, thanks for sticking along.
Every major business has their history of how each one started.
Therefore, it’s important to have some basic background knowledge of the history of the forex market you are venturing into, so that you know a little bit about why forex market exists and how it got here.
Here are important parts of the History Of Forex market Summarized.
The Gold Standard Era
- Something called the gold standard was implemented in 1876. The gold standard simply meant that all paper currency had to be backed up by solid gold. The idea was to stabilize the world currencies by pegging them to the gold price.
- It was a good idea but what wasn’t foreseen was the fact that later on, it created boom-bust patterns. This was the main reason for dumping the gold standard around the begining of second world war. Why? Because many countries were going to war and started printing a lot of paper currency (to pay for the war efforts) exceeding their gold supply.
- Gold lost its standard but its value as a safe haven still remains to this day.
Fixed Reserve Currency
- The world then collectively decided to have fixed exchange rates that caused the U.S. dollar to be the primary reserve currency and that it would be the single currency backed up by gold, this is understand to be the ‘Bretton Woods System’ that happened in 1944.
- U.S. declared later in 1971 that it would no longer be exchanging gold for any U.S. dollars that were being held in various foreign reserves, hence, the end of Bretton Woods System.
- This article, explains in detail How the Bretton Woods System Collapsed.
- But in short, the Bretton Woods System collapsed because in the 1960s, America had an expansionary fiscal policy which meant they were spending huge amounts of money on War in Vietnam, Space Race with Russia and also the Welfare Expenditure.
- In simple terms, out of control spending made the US dollar not a good reserve currency so that meant that the Bretton Woods System failed.
Floating Currency System
- It was this failure of the Bretton Woods System that ultimately led to the global acceptance of floating foreign exchange rates in 1976.
- A floating currency exchange rate simply means that exchange rate of a particluar country’s currency is dependent on supply and demand for that particular currency relative to the other currency.
- This was the beginning of the foreign currency exchange market as we now know today but there was still on major issue: it didn’t instantly become widely and electronically traded until around the mid-1990s.
Forex Trading Course Part 3: Forex Brokers
- Who are forex brokers?
- What do forex brokers do?
- How many types of forex brokers are there?
Well, in this chapter, I’m going to answer some of those questions and a lot more.
What Is A Forex Broker?
Well, forex brokers are companies that provide forex traders with access to a trading platform (like Metatrader 4) which allows them to trade the currency market.
Forex brokers are also known as:
- currency trading brokers
- retail forex brokers
- or simply fx brokers.
Most forex broker make money off the the bid-ask spread.
Let me give you an example, a retail forex broker may buy euros for 1.5450 U.S. dollars and, at the same time, sell euros for 1.5453 U.S. dollars.
Therefore spread (the difference between the bid and ask price) in this case is $0.0003, or 3 pips.
If you are an individual or retail forex trader, you cannot trade the forex market without a forex broker. You need them like your lungs need the oxygen.
There are two main types of forex brokers:
2 Types Of Forex Brokers
The are two main types of forex brokers and they are:
- Dealing Desk broker (DD)
- No Dealing Desk broker (NDD)
So what is the difference between a DD broker and NDD broker? Well, I’m going to explain shortly…
Dealing Desk Forex Broker
- A dealing desk forex broker makes money through spreads
- dealing desk forex brokers are also called market makers because they provide both the buy and the sell quotes.
- they can take positions against you.
No Dealing Desk Forex Broker
- clients orders are not passed through a dealing desk.
- they do not take the other side of your trade.
- they simply link your order to so that other banks, brokers, hedge funds etc can fill your order. They are just like a bridge.
- they can charge a small commission or increase their spread slightly.
- NDD brokers can be STP or STP + ECN forex broker.
What Is An STP Broker?
STP stands for Straight Through Process. So a NDD STP forex broker gets the orders of its clients and connects them to its liquidity providers.
Since they have many liquidity providers, each provider will quote its own bid and ask price.
Guess what? That’s not the quote you will see on your trading platform.
Your NDD STP forex broker is not a free service.
Its a business, it needs to make money.
They went to the trouble of getting all these liquidity provider’s quotes to bring them to you and do you think the’d give that to your for free?
So what they would do is charge a small markup.
Most STP forex brokers have variable spreads because they are dependent on their liquidity providers.
ECN Forex Broker:
- allow orders of their clients to interact with orders of other participants (banks, hedge funds, other brokers)
- ECN forex brokers do not have spread but charge a commission for trades you take.
- ECN also allows clients to have access to the depth of market so you can know where the buy and sell orders are.
Forex Trading Course Part 4: Forex Trading Terminologies
- lot and contracts
- stop loss
- take profits
As someone interested in forex trading, you must understand their meanings.
Let’s get started…
What Is A Currency Quote?
Currencies are always quoted in pairs.
Let’s take for example the USD/EUR is the U.S. dollar/euro. Using this quotation, the value of a currency is determined by its comparison to another currency.
Lets look at the quote of EUR/USD=1.32105 below…
What does it mean? It simply means that 1 Euro=1.32105 US Dollar.
What is the Base Currency?
The first currency in the quote, which is located to the left of the slash mark in the pair is referred to as base currency, in this case above, it is the Euro.
- while the second currency of the pair that is located to the right of slash mark is referred to as counter or quote currency, in this case, it is the USD.
What is The Quote Currency?
The second currency pair in a forex quote is called the quote currency. It the case above, it is the USD. In the popular metatrader4 trading platform, here’s what a base currency and quote currency looks like:
An exchange rate, by definition is a currency price for which you have to exchange a currency to get another currency.
If you were to fly from London to Manila(Philippines), you’d change your British Pound to Philippines Pesos at the International Terminal and the amount of money in Pesos that will be given to you will be based on the exchange rate between the two countries.
Now, what’s given above is a really simple every day explanation of exchange rates for many ordinary people some don not even know that forex exists.
What is Bid Price
The price at which the market is prepared to buy a product. Prices are quoted two-way as Bid/Ask.
In FX trading, the Bid represents the price at which a trader can sell the base currency, shown to the left in a currency pair.
For example, in the quote AUD/USD 0.9189/0.9192, the base currency is AUD, and the Bid price is 0.9189, meaning you can sell one Australian Dollar for 0.9189 US Dollar.
What is Ask Price?
The price at which the market is prepared to sell a product.
Prices are quoted two-way as Bid/Ask. The Ask price is also known as the Offer.
In FX trading, the Ask represents the price at which a trader can buy the base currency, shown to the right in a currency pair.
For example, in the quote USD/CHF 1.4527/32, the base currency is USD, and the Ask price is 1.4532, meaning you can buy one US dollar for 1.4532 Swiss francs.
What Is A Pip?
A pips is the smallest increment of price movement a currency pair can make.
For instance, 1 pip for the EUR/USD = 0.0001 and 1 pip for the USD/JPY = 0.01.
A pip is the very smallest amount that a currency quote can change and for US dollar related pairs, this amount is usually $0.0001.
It can be sometimes referred to as 1/100 th of 1% or as one basis point and this acts as a standard.
Having this standard size helps investors and traders know what kind of risk they are taking so they can protect themselves from taking huge trading losses.
If a pips was 10 basis point, this would cause more extreme volatility in the values of the currencies.
How To Calculate Pip Values
Let me give you an example:
- Lets say USDJPY has an exchange rate of 100.10. Now lets calculate the pip value: (0.01/100.10) x 100,000=$9.99 per pip.
- another one, if USD/CHF is at an exchange rate of 1.4555 then what is the dollar per pip? Here’s how to calculate it: (.0001 / 1.4555) x 100,000 = $6.87 per pip
What Is Forex Leverage?
To make money from these small increments of price movement, one need to trade larger amounts of a particular currency in order to make any significant profit (or loss).
This is where forex leverage comes to play.
So we need to know now how lot size affects the value of one pip.
Let’s work through some examples:
We will assume we are using standard lots, which control 100,000 units per lot.
Let’s see how this affect the value of pip .
1) EUR/JPY at an exchange rate of 100.50 (.01 / 100.50) x 100,000 = $9.95 per pip
2) USD/CHF at an exchange rate of 0.9190 (.0001 / .9190) x 100,000 = $10.88 per pip
In a currency pairs where the U.S. dollar is the quote currency, one standard lot will always be equal to $10 per pip, and one mini-lot will equal $1 per pip, while one micro-lost will equal .10 cents per pip, and a nano-lot is one penny per pip.
You may most likely have heard this saying :
“Leverage is a double edge sword”
What this means is that in forex trading, you control large amount of money with a very small deposit, which is called a margin.
So what this really means is that you can have deposits in your forex trading account that are less than the full value of the position you take.
Leverage in forex trading is simply expressed as ratios: 1:1, 1;50, 1:100, 1:200, 1:400.
To fully understand the leverage concept, look at the table below:
So how do you calculate Leverage then? Well, here’s how:
Leverage=Purchase Power/Capital Invested
Example: If you purchasing power is $100,000 and you have a deposit of $1,000 in your forex trading account, then what is your leverage?
$100,000/$1000=100. Your leverage is 1:100.
So now, lets dig deeper in into what this means when you deposit $1000 into your forex trading account:
- for every $1 you deposit, the broker gives you $100 margin.
- so for $1000, the broker gives you a $100,000 margin.
- so for just having a $1,000, you control $100,000 for trading purposes.
So that is a very basic simple explanation of what forex leverage and how to calculate it.
For every trade you place, you should know the exact amount you are risking. And that amount that you are risking must me something that if you lose it, you won’t cry over it.
Another thing you also need to understand is that not all trade will become winners. So expect trading loses as part of the process of forex trading.
Leverage is the ability of a trader to influence a system to gear his account to a position greater than his total account margin.
Take for instance; if a trader has $2,000 of margin in his account and he opens a $200,000 position, he leverages his account by 100 times, or 100:1. If he opens a $400,000 position with $2,000 of margin in his forex account, his leverage will be 200 times, or 200:1.
Note that, increasing your account leverage magnifies both your gains and losses.
If you want to calculate the leverage you used, divide your open positions total value by the balance of total margin in your trading account.
For instance, if you have $20,000 of margin in your account and then you open one standard lot of USD/CAD (200,000 units of the base currency) for $200,000, your leverage ratio is 10:1 ($200,000 / $20,000). If you open one standard lot of USD/JPY for $150,000 (100,000 x USD/JPY 1.5000) your leverage is 15:1 ($150,000 / $10,000).
What Is Forex Margin?
Forex margin is the deposit required to open a trade or maintain a trade.
Margin can be “used” or “free”.
What does it mean?
Well, a used margin is the amount of money required to maintain your open trade.
A free margin is the amount available for you to open up new trades.
Let me give you a simple example:
- If the forex brokers required margin to place 1 standard lot(contract) order is $1,500 then it simply means that you actually have to have $1,500 in your trading account before you can open a 1 standard lot trade.
Now, lets assume that you placed a sell trade and your profit is now $1,500 and you have not closed that trade yet. That means you now have a free margin of $1,500 which you can use that free margin to open another trade. So you can actually have two trades running at the same time.
However, if your trading accounts below the minimum required to maintain an open trading position in the market, you will get a margin call from your forex broker which means you need to add more money into your trading account maintain your open trading positions or if if not, you have to close your position.
Many times, the forex broker will close your open positions if you have a margin call and taken any action. This is done to protect brokers as well as part of their risk management process.
What Is Spread?
The difference between sell quote and buy quote or bid and offer price.
For instance, if GBP/USD quotes read 1.3100/03, the spread is the difference between 1.3100 and 1.3103, or 3 pips. In other to break even on a certain trade, a position must move in the direction of trade by the amount equal to that spread.
What Is A Forex Trading Strategy?
Definition of a forex trading strategy in simple terms is this: it is a set of trading rules specifying where and when to buy a currency pair, where and when to exit a position and how to manage your trading risk.
This site has a lot of Forex trading strategies. As you can see, they are all rules telling you when to buy or sell.
However, there are some basics of learning a price chart that you need to know before you can proceed to learn any one strategy in-depth.
What is fundamental analysis?
When you analyse all the economic and political factors that drive the country’s currency to make trading decisions,that is called fundamental analysis.
What Is Technical Analysis?
When you rely on price charts to analyse currency pairs to make a trading decision then that’s technical analysis. Technical analysis involves tool like forex indicators, trendlines, support and resistance levels, price channels, fibonacci levels etc.
What is A Stop Loss?
A stop loss is actually an order that you place at a certain price level to automatically get you out of a trade. It is a risk protection strategy to stop your trading account from further trading losses if price goes against you.
What Does Going Long Mean?
When you go long it means you are buying the market and so you want the market to rise so that you can then sell back your position at a higher price than you bought for.
This means you are buying the first currency in the pair and selling the second pair.
So, if you buy the EURUSD and then, euro strengthens in relative to U.S. dollar, you will enjoy a profitable trade.
What Does Going Short Mean?
When you go short it means you are selling the market and so you want the market to fall so that you can then buy back your position at a lower price than you sold it for.
This means you are selling base currency in the pair and buying the second.
Therefore, if you sell the GBPUSD and then the British pound weakens in relative to the U.S. dollar, you will enjoy a profitable trade.
The main idea of forex trading is to buy low and sell high or sell high and buy low. I understand that probably sounds a little bit weird to you because you are thinking about “how you can sell something that you don’t own?”
In the Forex market when you sell a currency pair you are another way round buying the second currency of the pair and selling the first currency of the pair.
In the case of a non-Forex market, though, selling short seems a little bit confusing, like if you were to sell a commodity or stock.
The main idea here is that your broker lends you the commodity or stock to sell and then you must buy later it back to close the transaction.
Since there is nothing like physical delivery, it is possible you sell a security with your broker especially since you will ‘give’ it back to the broker at a later date, possibly at a price that is lower.
What Is A Lot In Forex?
Currencies are trade in specific amounts called lots in forex trading terminology.
So there’s a standard lot, a mini-lot and micro-lot.
What do these all mean?
You can an examples of each of these in the chart below and the number of units they represent each:
- What this means is that for 1 standard lot (or contract) you trade, you have 100,000 units.
- for 1 mini lot you trade, you have 10,000 units
- for 1 micro-lot, you have 1000 units.
The big questions is why all these large numbers?
Well, that is because when a currency value changes, it does not move much at all. This difference in values is measured in Pips which is a very tiny percentage of the unit of currency so YOU NEED need to trade large amounts to actually make any decent profit (or) loss.
Let’s say that USDJPY may move from 100.10 to 100.20. So the difference in moves is $0.0010. That’s not even 10 cents. (or 1o pips=100.20-100.10) So you can you make money in the currency market if you have such moves like this daily? No. Hardly!
So that’s why you need a lot of units in lot to that then you can multiply that by the change in Pips to make a decent profit or loss.
What Is A Contract In Forex?
A contract in forex simply means the same thin as a lot.
What Is A Cross Rate?
A cross rate is an exchange rate of two currency pairs that does not involve the US dollar.
Here are few examples: EURGBP, EURJPY,GBPJPY,GBPCHF
Forex Trading Course Part 5: Types of Forex Orders
Now it’s time to cover order types.
When you execute a certain trade in the Forex market it is referred to as an ‘order’, there are different types of order, and they can vary between the various brokers.
All brokers provide some order types, other ‘special’ types of orders are not offered by all brokers on their platform, though, we will cover them all in the next paragraph:
What Is A Market Order?
A market order can be explained as order that is placed ‘at the forex market’ and it’s executed instantly at the best price.
What Is Limit Order?
A limit entry order is either placed to buy below the current fx market price or sell above current fx market price. This can be a bit tricky to understand at first, here is the explanation:
If EURUSD is currently trading at 1.3201 and you want to sell the market if it reaches 1.3251, you can place a limit sell order and when / if the market touches 1.3251 it will fill you short.
Hence, the limit sell order is placed ABOVE the current forex market price.
If you wish to buy the EURUSD at 1.3051 and the market is trading at 1.3101, you would place your limit buy order at 1.3051 and if the market hits that level it will automatically fill you long.
Hence the limit buy order is placed BELOW the current forex market price.
What Is A Stop Order?
Stop-entry order is placed to buy above the current forex market price or sell below it.
Take for instance, if you wish to trade long and you want to enter on a breakout of resistance area, you would place your buy stop above the resistance, and it would get filled as price moves up into stop entry order you placed.
The opposite holds true for a sell-stop entry should you want to sell the forex market.
What Is A Stop Loss Order?
A stop loss order is a type of order that is connected to a trade for the sole purpose of preventing further losses in case the price moves beyond the level that you specify.
Stop-loss is perhaps the most significant order in Forex trading market since it gives you the ability to control the risk and limit your losses.
This order remains in effect until your position is liquidated or you cancel or modify the stop-loss order.
What Is A Trailing Trailing Stop Order?
Trailing stop loss order is a type of order that is connected to trade like the standard stop loss, but a trailing stop loss moves or ‘trails’ the current forex market price as the trade moves in favor of you.
You can typically set your trailing stop-loss to trail at a distance from current market price, it won’t start moving until or unless the price moves higher than the distance you specified.
For example, if you set a 50 pips trailing stop on the EURUSD, the stop won’t move until the position is in your favor by exactly 51 pips, and then the stop can only move again if the market moves 51 pips above your trailing stop. So, this way you can lock in profit as the market moves in your favor.
Trailing stops are best-made use of, in strong trending forex markets.
What Is A Good Till Canceled Order? (GTC)
If you are using a metatrader 4 trading platform, you don’t need to worry about the GTC order because it does not exist.
A good till you canceled order is exactly what its name implies…good until you cancel it. If you place a GTC order, it won’t expire until you cancel it manually.
Be very careful with this because you don’t want to set a GTC and forget about it only to have the forex market fill you in after a month in a negative position.
What Is A Good for the Day order? (GFD)
In metatrader 4 trading platform, THE GFD does not exist.
The good for day order remains active in the fx market until the end of a trading day. In Forex market, the trading day ends at 5:00 pm EST or the New York time. The exact time a GFD expire might vary from different broker, so ensure always to check with your own broker.
What Is A One Cancels the Other Order? (OCO)
In metatrader 4 trading platform, the OCO order does not exist.
The one cancels the other order is two set of orders. It can consist of two entry orders, either two stop loss orders, or two entry and two stop-loss orders. When one order is executed the other get cancelled.
So, if you want to buy OR sell the EURUSD for the fact that you are anticipating a breakout from consolidation but you know not which way the market will break, you can place the buy entry and stop-loss above the consolidation and the sell entry with your stop loss below the consolidation.
Then, if the buy entry gets filled, for instance, the sell entry and its connected stop loss will both be canceled instantly. This is a very handy order to use when you are not sure of the market direction but are anticipating a big move.
What Is A One Triggers the Other Order?(OTO)
In metatrader 4 trading platform, the OTO order does not exist.
This order is the opposite of an OCO order, because instead of canceling an order upon filling one, it will just trigger another order upon filling one.
Forex Trading Course Part 6: How To Calculate Profit And Loss
Now, let’s move on to calculating profit and loss in forex:
Let’s use a pair without the U.S. dollar as the quote currency since these are the trickier ones:
1) The rate for the USD/CHF is currently quoted at 0.9191 / 0.9195.
Let’s say we are looking to sell the USD/CHF, this means we will be working with the ‘bid’ price of 0.9191, or the rate at which the market is prepared to buy from you.
2) You later sell one standard lot (100,000 units) at 0.9191
3) A few days later the price move to 0.9091 / 0.9095 and then you decide to take your profit at 96 pips, but what dollar amount is that??
4) The current quote price for the USD/CHF is 0.9091 / 0.9095. Since you are closing the trade. You are practically working with the ‘ask’ price since you want to buy the currency pair to offset the sell order that was initiated previously. So, since the ‘ask’ price is now 0.9095, this is a price the market is willing to sell you the currency pair, or the price that you can buy it back (since you initially sold it).
5) The actual difference between the price you sold at (0.9191) and a price you want to buy back (0.9095) is 0.0096, or 96 pips.
6) if we use the formula from above, we have (.0001 / 0.9095) x 100,000 equal to $10.99 per pip x 96 pips = $1055.04
For a currency pairs where U.S. dollar is the quote currency, profit or loss calculation is pretty simple.
You just simply take the number of pips gained or lost and then multiply that by dollar per pip you are trading, here’s a clear example:
Let’s assume you trade the EURUSD and buy it at 1.3200 but the price moves down and hits your stop loss at 1.3100….you just lost 100 pips.
If you are trading one standard lot, you would have lost $1,000 because one standard lot of pairs with U.S. dollars as the quote currency is equal to $10 per pip, and $10 x 100 pips per pip is equal to $1,000
If you had traded 1 mini-lot, you would have lost just $100 since 1 mini-lot of USD quote pairs is equivalent to $1 per pip and $1 x 100 pips = $100
You can also utilize our Forex Trade Position Size Calculator.
Regularly remember: when you entera trade or exit a trade you have to bargain with the spread of the bid/ask price. Therefore, when you purchase a currency you will use the asking price and when you sell a currency you use the bid price.
Forex Trading Course Part 7: Technical Analysis
In this chapter, you are going to learn about:
- technical analysis
- what is involved in technical analysis
- the different types of charts that you can use for technical analysis
- forex candlestick charts and patterns
- trend and trend trading
- support and resistance levels and trading
- counter trend trading
- range bound trading
What Is A Technical Analysis In Forex?
Technical analysis in forex is simply the study of price movement on a chart.
So what is the purpose of technical analysis then?
Well, it is used to forecast if price is going to move up, down, up or sideways based on what you can see on your chart and this can be done by studying what happened in the past as well as what is happening in the more recent timeframe.
Technical analysts believe that price accounts for all the market variables and that if you want to trade, you do not need to analysis anything else.
If you trade using charts, then you are a technical analyst.
So does it mean that you do not need to have some knowledge about fundamental analysis?
Well, having some fundamental knowledge is not bad but no a requirement.
Because a technical traders looks for patterns on charts. These patterns are repaetable patterns that once they develop, it gives the trader the likely outcome of where price is going to be headed in the future.
Based on this, the trader then makes a trade.
Technical analysis, broadly, is about the study of these:
- finding trends
- finding support and resistance levels where price is most likely to move to/from
- and learning to read the what is happening on your charts based on candlesticks
Technical analysis is not really an exact science. It is more of an art.
Indeed, much of my price action trading course is constructed around learning to recognize and trade price action setup.
Price action is the foundation of technical analysis.
3 Types Of Charts
There are 3 main types of price charts technical analyst use, here they are:
The chart that I use all the time is the candlestick chart.
Line charts are good at providing you a quick view of an overall market trend as well as support and resistance levels.
They are not practical to trade off of because you can’t see the different price bars, but if you want to view the trend of the market in a clear way, you should check the line charts of your chosen markets from time to time.
Line charts are created by connecting a line from the great price of one period to the high price of the subsequent, low to low, close to close or open to open.
By far, line charts that exhibit a connection from one closing price to the following are the most useful and the most popularly used; this is because the closing price of a market is considered the most important since it defines who won the battle between the bullish and the bearish for that time.
Let’s look at an instance of a 4hr line chart of the EURUSD:
The Bar Chart
A bar chart tells us a price bar for every period. So if you are looking at a daily chart, you will see a price bar for each day, a 4-hour chart will show you one price bar for each 4 hour period…etc.
An individual price bar gives us 4 pieces of information that we can use to make our trading decisions: The open, high, close and low; you will seldom see bar charts called OHLC charts (open, high, low, close charts), here’s a sample of a price bar:
Here’s an instance of the same EURUSD chart we used for the line chart sample but as a bar chart:
The Candlestick Chart
Candlestick charts show the equivalent information as a bar chart but in a graphical format that is also fun to look at.
A Candlestick charts indicate the high and low of the given time just as bar charts, with a vertical line. The top vertical line is described as the upper shadow while the bottom vertical line is named the lower shadow; you might also see the upper and lower shadows called “wicks”.
The main difference lies in how candlestick charts show the opening and closing price.
The large block in the heart of the candlestick indicates the scale between the opening and closing price. Traditionally the block is called a “real body”.
If the original body is saturated in, or darkened in color, the currency closed lower than it opened, and if the actual body is left empty, or usually a lighter color, the currency closed higher than it opened.
For example, if the original body is white or another light color, the top of the original body likely indicates the close price and the bottom of the original body indicate the open price.
If the original body is black or another dark color, the top of the original body likely indicate the open price and the bottom indicate the close price (I used the word “likely” because you can make the original body whatever color you want).
This will all become plain with an illustration:
Bullish candles are the white ones which (close higher than open) and bearish candles are the black ones which (close lower than open):
The Candlestick charts are the most popular of all three principal chart forms, and as such, they are the type you will often see as you trade, and they are also the type I recommend you use when you study and trade with price action strategies.
Forex Candlestick Charts And Patterns
In order for you to learn how to trade with price action, you need to know the different types of candlesticks and chart patterns.
There are so many candlestick types as well as different patterns, but you really don’t need to know them all. All you need to do is find one pattern or two that you like and stick to understanding them and trading them.
Here are some resources for you to check out on this site with regards to candlestick patterns:
- I’ve written about the top 10 forex candlestick patterns every trader need to know.
- I’ve also written about doji candlestick patterns.
Support And Resistance levels
The Support levels are created as market swings higher.
So, if a market is driving lower for instance and it then changes direction and starts moving higher, it either has generated a level of support or bounced off a formally existing level of support.
The Resistance levels are formed as the market turns lower.
So, if a market is moving higher for instance, and it then changed direction and begins moving lower, it either has formed a level of resistance or bounced off a formally existing level of resistance:
Identifying and plotting support and resistance levels are by no means rocket science.
Instead, it requires the judicious use of human eye and a little bit of intelligence…do not be worried, though; it’s not that difficult to become proficient and confidence in drawing support and resistance levels on your charts.
In the next chart, you will see the daily AUDUSD chart, with all the appropriate support and resistance levels drawn in:
One critical point that I want you to recognize about support and resistance levels is that they are not strong.
Many traders seem to believe support and resistance levels are strong and that they should never trade a structure if there is a support or resistance level close by, it can result in them getting analysis paralysis and never opening a trade.
While it is true that you must to take into consideration the key support and resistance levels in the forex market, you also need to look at the overall market situation.
In trending markets, support and resistance levels will usually be broken by the trend momentum; so don’t be scared of support and resistance levels, as they will frequently break.
Instead, watch these levels for the forex trading signals. When a Fx trading signal like a price action setup forms at a vital support or resistance level, it is a very high-probability to note.
The Trending markets offer us the best chance to profit since the market is indeed moving in one normal direction; we can use this information to our benefit by entering the market in the direction of a trend.
An uptrend is marked by series of higher highs and higher lows, and a downtrend is marked by series of lower highs and lower lows.
I like to trade with the near term daily trend by searching for high-probability price action strategies developing within the structure of the market trend.
What I mean by this is mainly looking for price action setups forming the next support as a market turns lower in an uptrend and next resistance as a market rotates higher in a downtrend.
Markets ebb and move, and if you can learn to take advantage of trending markets, you will have a superb shot at becoming a profitable Fx trader:
Since trends always end, we can also take advantage of this info. However, counter-trend trading is inherently dangerous and more complicated than trading with the trend, so it should be practiced after you have thoroughly mastered trading with the trend.
Some of the things to look for in a sound counter-trend signal is a price action pattern or setup developing at a very prominent and ‘key’ support or resistance level on the daily chart, see here:
Range-Bound Market Trading
When market is in a trading range, it indicates that it is consolidating between a level of support and resistance. You can use the fact that a market is bouncing between support and resistance to our good.
As the market progresses to the support or resistance boundary of the trading range, we have a high-probability entry level, since the risk is precisely defined just above or below the resistance or support of the range.
When you are trading price action in trading ranges, you can watch for exact price action setups forming near the edges of the range.
Forex Trading Course Part 8: What Is Fundamental Analysis?
A Fundamental analysis is the study of how world economic news and other news events control financial markets.
It encompasses each news event, social force, Federal policy change, economic announcement, company earnings and news, and maybe the most important piece of Fundamental data fit the Forex market, which is a country’s interest rates and policy.
The idea behind the fundamental analysis is that if a country’s contemporary or future economic picture is balanced, their currency should strengthen.
A robust economy attracts foreign businesses and investment, this means foreigners must buy a country’s currency to invest or commence a business there.
So, it all essentially boils down to supply and demand; the country with a strong and developing economy will experience higher demand for their currency, which will work to reduce supply and drive up the value of a currency.
For instance, if the Australian economy is gaining strength, an Australian dollar will increase in value in relative to other currencies.
One important reason a country’s currency becomes greatly valuable as its economy strengthens and grows is because a country will typically raise their interest rates to control growth and inflation.
The higher interest rates are attractive to foreign investors and thus, they will need to buy Aussie dollars to invest in Australia, this, of course, will shoot up the demand and price of the currency and ease the supply.
• Major economic events in Forex
Now, let’s quickly go over some of the most significant economic events that push Forex price movement.
This is just to make you understand some more of the terminologies that you will likely come across on your Forex trading journey; you don’t need to worry too much about the economic events besides being informed of the times they are released every month, which can be found every day in my Fx trade setups analysis.
- A Gross Domestic Product (GDP)
A GDP report is one of the most powerful of all economic indicators.
It is the highest measure of the overall state of the economy. The GDP number is issued at 8:30 am EST on the closing day of each quarter, and it reflects the former quarter’s activity.
The GDP is the total monetary value of all the goods and services produced by the whole economy during the quarter being measured; this does not include international activity, however. The growth rate of GDP is the relevant number to look for.
The trade balance is referred to as a measure of the distinction between imports and exports of concrete goods and services.
The level of a country’s trade surplus and changes in exports vs. imports is universally followed and an essential indicator of a country’s overall economic strength. It’s better to have more exports than imports, as exports help grow a country’s economy and show the overall health of its manufacturing sector.
- Consumer Price Index (CPI)
The CPI report is the most extensively used to measure inflation. The report is published at 8:30 am EST almost the 15th of each month, and it shows the previous month’s data. CPI measures change in the cost of a bundle of buyer goods and services from a month to the other.
- A Producer Price Index (PPI)
Along with the CPI, a PPI is one of the two most valuable measures of inflation.
This report is published at 8:30 am EST during the second full week of every month, and it shows the previous month’s data.
The producer price index measures the price of goods at wholesales level. So to compare with CPI, the PPI measures how many producers are receiving the goods while CPI measures the cost paid by the consumers for goods.
- Employment Indicators
The most significant employment announcement transpires on the first Friday of each month at 8:30 am EST.
This publication includes the unemployment rate; which is the percentage of the workforce that are unemployed, the number of fresh jobs created, the average hours worked through the week, and average hourly earnings.
This report often results in serious market movement. You will often hear traders and analysts talking “NFP”, this means Non-Farm Employment report, and it is possibly the one report each month that has the greatest potential to move the markets.
- The Durable Goods Orders
The durable goods orders report a measurement of how much people are paying on longer-term purchases, these are defined as products that are meant to last more than 3years.
The report is released at 8:30 am EST about the 26th of each month and is understood to provide some insight into the future of manufacturing industry.
- The Retail Sales Index
Retail Sales Index measures goods traded within the retail industry, from long chains to smaller local stores, it gets the sampling of a set of retail stores across the country.
Retail Sales Index is released at 8:30 am EST about the 12th of the month; it indicates data from the previous month. This report is usually revised somewhat significantly after the final numbers are out.
- Housing Data
The Housing data includes the number of fresh homes that a country began building that month as well as subsisting home sales. Residential construction activity is an important cause of economic stimulus for a country and so Forex participants widely follow it.
Existing home sales are good measure of the economic strength of a country also; low existing home sales and low fresh home starts are typically a sign of a weak or sluggish economy.
- The Interest Rates
Interest rates are the primarily driven force in Forex markets; all of the above discussed economic indicators are closely followed by the Federal Open Market Committee to gauge the overall health of the economy.
The Fed can use the tools available to it to lower, raise, or leave interest rates fixed, depending on the evidence it has gathered on the strength of the economy.
So while interest rates are the primary driver of Forex price action, all the above economic indicators are also crucial.
Technical Analysis VS Fundamental Analysis
The Technical Analysis and Fundamental analysis are the two principal schools of thought in trading and investing in the forex market.
Technical analysts study the price movement of the market and use the information gathered to make predictions about its future price trend.
Fundamental analysts look at economic news, also identified as fundamentals. Since nearly any global news event can have an influence on world financial markets, technically any news event can be economic news.
This is an essential point that I want to stress which many fundamental analysts seem to overlook…
One of the main reasons why all of my members and I prefer to trade fundamentally with technical analysis is due to there are millions of various variables in the universe that can affect financial markets at any time.
Now, Forex is more affected by global events like a country’s interest rate policy or GDP numbers, but other major news events like natural disasters or war can also make the Forex market to move.
Thus, since many others and I believe that all of these world events are factored into the price and readily visible by analyzing it, there is no reason to try and follow all of the economic news events that happen each day, to trade the markets.
One of the main contentions that I have read that fundamental analysts have versus technical analysts is that past price data cannot foretell or help predict future price movement, and instead, you must use future news (fundamentals) to foretell the price movement of a market.
So, I thought it would be a good idea to give my response to these two discussions against technical analysis:
1) If the fundamental analysts want to try and tell me that past price data is not necessary, then I would like them to clarify to me why horizontal levels of support and resistance are utterly necessary.
I also would love to ask how many other price action traders and myself can successfully trade the markets by trying to trade off of a handful of simple but still powerfully uncovering price action signals:
A Look at the regular spot Gold chart above, we can clearly see that support and resistance levels are significant to watch. Any Fundamental analyst, who wants to assert that charts don’t matter, is just wrong, and you will come to conclusion on your own when you spend enough time studying some price charts.
2) The following argument that Fundamental analysts use is that you can more correctly predict a market’s price movement by analyzing impending forex market news events. Well, anyone who has traded for long period knows that markets often and usually react against what an impending news event means.
Are there times when the market follow in the direction suggested by a news event? Yes, truly, but is it something you can establish a trading strategy and trading plan around? Never.
The reason is that markets depend on expectations of the future. This is actually a widely accepted fact of trading and investing, so it’s a little strange that some people still overlook technical analysis or don’t basically focus on it when they are analyzing and trading the forex markets.
Let me tell you: if Non-farm payrolls is coming out (that is the most important economic report every month, released in the U.S.) and the market is waiting for 100,000 more jobs to be added last month, the market will possibly already have moved in anticipation of the number.
So, if the real number is 100,000 even, the market will possibly move lower, instead of higher…although, there were not MORE added jobs than expected.
So, while 100,000 new jobs might be a good figure, the fact that the actual report did not surpass expectations is bad for traders and investors (can you see how these wastes get confusing now? I almost confused myself putting this in black and white…).
Since all of the prior expectations of the news release have already been exhausted and are visible on the price chart, why don’t you just analyze and study to trade off the price action on a price chart??
What a great idea! You can see, even after the news is released you can still use technical analysis to trade the price movement, so truly technical analysis is the brightest, most practical, and most useful way to analyze and trade the markets.
I’m saying there is no place for Fundamental analysis in a Forex trader’s toolbox? Absolutely not.
But, what I am citing is that it should be seen and used as a tribute to technical analysis and it should be applied sparingly, when in suspense consult the charts and read the price action, just use Fundamentals to hold your Technical view or out of pure concern, never rely solely on Fundamentals to foretell or trade the markets.
Forex Trading Course Part 9: What Is Price Action Trading?
By studying to read the price action of a market, we can determine a market’s directional bent as well as trade from reoccurring price action or action pattern setups that reflect changes or increases in market sentiment.
In easier terms: Price action analysis is the use of the raw or “natural” price movement of the market to analyze and trade it.
This implies that you are making all of your trading decisions purely on the price bars on a naked or indicator free price chart.
All economic variables form price movement which can be seen easily on a market’s price chart. Either an economic variable is filtered down by a human trader or a robot, the movement that it effects in the market will be readily visible on a price chart.
Therefore, rather than making effort to analyze a million economic variables every day (this is impossible obviously), you can just learn to trade from price action analysis because this style of trading allows you to analyze easily and make use of all market variables by only reading and trading off of the price action made by said forex market variables.
How To Apply price Action Analysis In Forex
First of all, I must say that price action analysis can be employed to trade any financial market since it merely makes use of the “core” price data of the forex market.
However, my personal preferred market to trade is the Forex market, essentially due to its deep liquidity which makes it simple to enter and retreat the market, and also because the Forex market manages to have better trending conditions as well as more volatility which causes for better directional trading and allows price action trading really shine.
My personal approach to trading and teaching price action trading is that you can trade effectively from a few time-tested price action setups.
There is no need to try and trade from 25 separate price patterns, the Forex market moves in a predictable fashion most of the time, so all we require is a handful of useful price action entry setups to give us an excellent opportunity to finding and entering high probability trades.
The fundamental thing you need to do to apply price action to the Fx market is to clear your charts of any indicators and get clear” price chart with solely the price bars in a color you like.
All indicators are stemmed from price movement, so if we have a secure method to trade based solely on price movement (price action analysis), it is only reasonable that we would use that instead of attempting to analyze messy secondary data.
What Is The Price Action Trading Signal?
Let’s examine how we can use price action analysis to find entries into the Fx market from a basic price chart. As a sequel, of years of trading the forex markets I have boiled down all I have learned from my unique method of trading with price action.
This strategy consists of a handful of very precise price action entry triggers that can provide you with a high probability entry into the forex market.
Mostly, what we are looking for is reoccurring price designs that tell us the thing about what the market might react soon.
How To Use Price Action For Trend Analysis
You will presumably come across many different indicators devised to tell you what the trend of a market is. The most time-tested and trusted way of defining a market’s trend is simply to watch the daily charts and analyze the market price action.
To recognize a downtrend, we look for patterns of lower highs and lower lows, seldom annotated by “LH and LL.” To recognize an uptrend, we look for patterns of higher highs and higher lows, sometimes interpreted by “HH and HL.”
How To Trade With Confluence
Trading with confluence means looking for areas or levels in the market that are distinctly significant.
Confluence means when things come together or intersect at a certain point…like a melting pot, figuratively speaking.
Thus, when we are trying to “trade with confluence” we are attempting to put together a distinct price action signal with a serious level in the market.
There are diverse factors of confluence that we can watch out for, but in the chart below I am revealing to you price action setups that formed at significant support and resistance levels in the market.
Support and resistance levels are each a factor of confluence.
This lesson gave you a basic sketch of what price action analysis is and how to apply it in the markets. From here, you should advance to learning the forex trading strategies that are on this site, open a demo forex trading account start practicing.
Forex Trading Course Part 10: Forex Trading Methods
#1: Automated / Robot Trading:
The software-based trading systems, also known as forex trading robots, are designed by converting a set of trading customs into code that a computer can use.
The computer will then run this code via trading software that browses the markets for trades that meet the requirements of the trading customs contained in the code. The trades are then performed automatically via the trader’s broker.
The Myth Of Automated Fx Trading Systems
While we are discussing different ways of trading the Forex market, I want to touch on what I believe is a widely accepted “myth” regarding automated robot and indicator based trading systems…
You are apparently going to come across many Forex website marketing Forex software that they claim will completely mechanize the process of trading so that all you have to do is bang your mouse when the software signals you to and then rake in the profits.
You need to keep constantly in mind the old saying “If it sounds too good to be true it is…” when you are learning to trade Forex.
As I asserted before, you are probably going to come across a lot of those robot websites if you haven’t already.
You are better served by ignoring them all.
You will probably view track records that they claim are “indisputable” proof of the robots performance in the markets…what they don’t disclose to you is that this track record is utterly a display of a “perfect” data that the software was back tested.
The point is that trading software cannot work over a very long-term because the market is constantly evolving and as such, it takes the discerning discretion of the human intelligence to trade the forex market over a very long-term effectively.
I am not saying that computer software has no room in trading, but it cannot be the only thing right you rely on, and it certainly should not be used in an attempt to automate the trading process thoroughly.
The strength to read the raw price action of a market and grow and evolve with the ever-evolving conditions of the market is how I trade and how I teach my students to trade.
To be thorough, I wanted to give you guys a brief overview of all the primary 11 different methods and ways people trade the Fx market
The discretionary Forex trading depends on a trader’s ‘gut’ trading feel or discretionary trading experience to analyze and trade the forex markets.
Discretionary trading allows for a more flexible strategy than automated trading but it does take a particular amount of time to acquire your discretionary trading art. Most professional Fx traders are discretionary traders because they understand the market is a changing and continuously flowing entity that is much traded by the human inclination.
#3: Technical Trading:
Technical trading, or technical analysis, required analysis of a market’s price chart for devising one’s trading judgments. Technical analysis traders majorly use price patterns or ‘technical signals’ to trade the forex market with an edge.
The popular belief amongst technical analysis traders is that all the economic variables are represented by and brokered into the price movement on the price chart.
#4: Fundamental Trading:
The fundamental trading, or news trading, is a type of trading technique wherein traders rely massively on the market news to make their trading analysis and forecasts.
Fundamental news does ‘drive’ movement of price, but often the market will react oppositely than what a precise news release would imply due to market shareholders often buy on anticipations of future events and sell once the truth of said future event occurs.
This is another main purpose many pro traders rely more on technical analysis than fundamental analysis, though many do use a mixture of the two.
#5: Day Trading:
A traders who day-trade the Forex market are in and out of the market inside one day. It means they typically buy and sell currencies in a very short space of time, and they may enter and exit several trades in one day.
A scalping is comparable to day-trading, but it relies on more regular and shorter-term trades than day-trading even does.
It is a trading method that refers to as jumping in and out of the market several times a day to ‘scalp’ a few pips here and there, generally with little regard for setting logical stop-losses.
Scalping is usually not recommended by experienced / pro traders because it is typically just gambling.
#7: Swing Trading / Position Trading:
This method of trading involves taking a short to mid-term view on the market and traders who rotate trade will be in a trade anywhere from a few hours to many days or weeks.
Swing or position traders are frequently looking to trade with the near-term daily chart drive and typically enter anyplace from 2 to 10 trades in a month, on average.
#8: Range Trading:
The range trading involves trading a market that is consolidating between obvious support and resistance levels. By watching for trading signals close to the support and resistance boundaries of the trading limit, traders have a high-probability entry scenario with apparent risk and reward position.
The trend traders are traders who wait for market to trend and then take advantage of this high-probability drive by looking for entries inside the trend.
An uptrend is deemed to be in place when a market is moving higher highs and higher lows, and a downtrend gets in place when a market is moving lower highs and lower lows.
By looking for entries inside a trending market, traders have the greatest chance of making a substantial profit on their risk.
Traders who regularly try to trade against the trend by attempting to pick the top and bottom of the market, usually lose money quite fast. Professional Fx traders are largely trend-traders.
#10: Counter-trend Trading:
Trends certainly do end, and if you are a savvy and seasoned trader you can successfully trade a counter-trend move, but this shouldn’t be attempted until trend-trading has been learned as counter-trend trading is naturally more dangerous than trend-trading and there can be numerous false tops or bottoms in a bearing before the real one surfaces.
The carry trading, or clearly ‘the carry trade’ as it is called, is the strategy of easily buying a high-interest-rate currency against a low interest-rate currency and taking the position for what is usually a long period.
Forex brokers will pay the traders interest rate deviation, or ‘swap’, between the two currencies for every day the position is held.
The deal here is that higher-yielding currencies are susceptive to large sell-offs if the market loses risk hunger since these currencies are regularly considered riskier than safe-haven currencies like the U.S. dollar or Japanese yen, so it is a good idea to trail your stop loss up to bolt in profit as the trade moves in favor of your.
Forex Trading Course Part 11: How To Really Make Money In Forex Trading
The fact that you are reading through this forex trading course here means that you, like many millions of other that are interested in forex trading, want to make money trading forex.
Here’s the thing…
The most easiest part of forex trading is learning about the trading strategies and systems.
In fact, there are hundreds of forex trading strategies on this site where you can choose from.
Guess what the hardest part of forex trading is?
I’ll tell you: its when your real live money is on the line.
If you’ve never traded forex with real money, you wouldn’t have a faintest clue what I’m talking about in here.
If you’ve never traded a live forex account, I say ” Do it and experience it”.
After you’ve done that, then you will say “Aha…now I see what RKay was talking about”.
Welcome to the world of forex trading.
So what do many forex traders struggle to make money and why what is required to be a successful forex trader? In this chapter, you are going to learn some things not to do and some things to do.
Why Many Forex Traders Lose Money?
There’s a good logic for this, and the reason is primarily that many people think about trading in the altered light.
Most people come into the forex market with unrealistic anticipations, such as thinking they are going to leave their jobs after a month of trading or thinking they are going to convert $1000 into $1,000,000 in just a few months.
These unrealistic anticipations work to promote an account-destroying trading mindset in most forex traders because they feel too much tension or “need” to make money in the markets.
When you begin trading with such “need” or pressure to earn money, you enviably end up trading forex emotionally, which is the fastest way to lose your fund.
4 Destructive Trading Emotions
To be a little bit more precise about “emotional” trading, let’s go over some of the 4 most popular emotional trading mistakes that forex traders make:
There is an old saying that you may have heard concerning trading the market, it goes something like: “Bulls make money, bears make money, and pigs get murdered”. It means that if you are a greedy “pig” in the market, you are almost inevitably going to lose your money.
Traders are selfish when they don’t take profits because they think a trade is going to go endlessly in their favor.
Another thing that greedy traders do is combining to a position just because the market has moved in their support, you can add to your trades if you do so for reasonable price action-based purposes, but doing so only because the market has moved in your support a little bit, is usually an action displayed out of eagerness.
Apparently, risking too much on a trade from the very beginning is a greedy thing to do too. The point is you need to be careful of greed because it can sneak up on you and destroy your trading account quickly.
Traders become fearful of penetrating the market usually when they are fresh to trading and have not yet mastered an efficient trading approach like price action trading (in which they should not be trading real money yet).
Fear can also result in a trader after they knocked a series of losing trades or after experiencing a loss larger than what they are emotionally able of absorbing.
To conquer the fear of the market, you have to make sure you are never risking more money than you can afford to lose on a trade. If you are totally OK with losing the sum of money you have at peril, there is nothing to fear. The fear can be a very limiting emotion to a forex trader because it can make them miss out on good trading chances.
Traders experience a feeling of “revenge” on the market when they experience a losing trade that they were “certain” would work out.
The important thing here is that there is nothing “sure” in trading…never.
Also, if you have risked so much money on a trade (beginning to see a theme here?), and you end up losing such money, there’s a good possibility you are going to want to try and rush back in the market to make the money back….which usually going to leads to another loss (and sometimes an even bigger one) since you are just trading emotionally once more.
While feeling euphoric is a good thing, it can do a lot of harm to the account of a trader after he or she hits a big victory or a large string of winners.
Traders can become overly confident after winning a few trades in the market, for this purpose, most traders experience their greatest losing period’s right after they hit a bunch of money in the market.
It is remarkably tempting to jump right back in the forex market after a “perfect” trade setup or after you make 5 winning trades in a row…there’s a fine line between holding your feet in reality and thinking that everything you do in the market will turn to gold.
Numerous traders enter into a tailspin of the emotional trading and losing money after they make a string of profit. The reason this occurs is because they feel very confident and euphoric and then forget about the real risk of the market and that ANY TRADE CAN LOSE.
The main thing to remember is that trading is a long-term game of probabilities, if you possess a high-probability trading edge, you will eventually make a profit over the long-term if you follow your trading edge with utmost discipline.
But, even if your edge is 70% effective over time, you could still hit 30 losing trades concurrently out of 100….so keep this fact in mind and forever remember you never understand WHICH trade will be a loser and WHICH will make you a profit.
The 5 Common Forex Trading Mistakes
There are usual errors that give nearly all traders trouble at some point in their trading professions. So, let’s cover the most common blunders that traders make which keep them from making money in the forex markets:
#1: An Analysis-paralysis
There is the virtually unlimited amount of Forex news fickle that can occupy a trader, as well as tons and tons of trading strategies and trading software.
You’ll need to screen through all of these variables and forge a trading strategy that is a simple yet effective warning; this can be a very a difficult task for beginner traders.
The reason is that most traders seem to think that ‘more is better,’ when in reality ‘more’ is worse, as it relates to Forex trading. There is no need to sit in front of the computer for hours on end analyzing Forex news reports or various indicators.
My trading theory is that all variables that influence a market’s price movement are shown via the price action on a price chart.
So, wasting your time and money on trading systems, software, or analyzing news variables is simply a waste of time. Furthermore, many traders get analysis-paralysis, this happens when a trader attempts to analyze so many market variables that they weaken themselves to the point of committing silly emotional trading errors.
Many traders do not make money in the market on the long-run for one simple reason: they trade far too much. One interesting fact of trading is that most traders perform excellently on demo accounts, but then when they begin trading real money they do horribly.
The reason for this is that in demo trading there is practically no emotion involved since your money is not on the line. Therefore, it goes to show that emotion is the #1 killer of trading success. Traders who over-trade are operating solely on emotion.
Trading when a pre-defined trading edge is absent is over-trading.
Trading if you have no trading plan or have not mastered a trading edge yet is over-trading.
Primarily, you need to know precisely what you’re looking for in the forex market and then ONLY trade when your edge is available. Trading too much causes you to rake up transaction costs (spreads or commissions), and it also makes you lose money a lot faster since you are totally gambling on the market.
You need to take a calm and calculated approached to the forex market, not a drunken-gamblers approach…which appears to be the favored approach of a lot of traders.
#3: Not applying risk reward and money management accurately
Risk management is crucial to achieving success in the forex market. Risk management involves managing your risk per trade to a level that is sustainable for you.
Most traders ignore the truth that they COULD lose on ANY TRADE taken. If you know and admit that you could lose on any trade…why would you EVER risk more than you were pleased with losing???
Traders make this mistake time and time again…the error of risking too much money on a trade.
It only needs one over-leveraged trade that goes against you to fix off a chain of emotional trading mistakes that cleans out your trading account a lot quicker than you think.
#4: No trading plan and no discipline
Not having a Forex trading plan is probably the most prevalent trading mistake a Forex trader make. Many traders appear to think that they will build a trading plan “later on” or after they start making a profit or that they simply don’t need any or can just keep it “in their heads.”
All of these rationalizations are merely keeping traders from achieving the success they desire so badly.
If you don’t have a Forex trading method that details all your actions in the market as well as your overall forex trading approach and tactics, you will be far more likely to trade emotionally and from a gambling mindset.
Beginner especially need a Forex trading plan to thicken their trading strategy and to create a pattern that they use to trade the market from, and you can’t keep it in your head…you need to write physically out your trading plan and read it daily before you start trading.
•#5: Trading real money too soon or gambling with it
The urge to dive into the market and start trading real money is oftentimes too much for most traders to resist.
However, the fact is that until you have learned an effective Forex trading strategy like price action trading, you actually should not be trading real money.
By “mastering” the strategy, I imply you should be consistently successful with it on a demo account for at least a period of 3 to 6 months, prior to going live.
However, you don’t fancy using demo account trading as a crutch…trading a real account is different owing to the real emotions involved, so just be certain you switch to real money trading after you have attained success on demo…don’t be scared of trading real money, because you will eventually need to make the switch to real money trading one day.
Also, make sure you are not just gambling your money away. These things we discussed above; i.e. over-trading, over-leveraging, not having a trading plan, etc. are all things that gambling traders do.
Traders who don’t gamble their money in the markets are calm and calculating…they have a trading strategy, a trading journal, and they know precisely what their trading edge is and when to trade such.
What Is Professional Forex Trading?
A professional Forex trader is a person who uses price movement in the Forex market to make profits. The target of any Forex trader is to win as many as possible trades and also to maximize the winning trades.
A professional Forex chart technician uses the price charts to analyze and trade the forex market. By trading with an EDGE in the forex market, professional traders can turn the odds in their favor to successfully trade the price movement from point A to point B.
Caution! Forex trading is not a ‘get-rich-quick’ scheme, and it is harder to make money in Forex trading than what most popular Forex system-selling websites would have you believe.
To profitably trade, we must not only have winning trades strategies, but we must also cut our losing trades short so that our winning can out-pace our losses.
You see, losing is an enviable part of patronizing the Forex markets, and you must learn to lose correctly by taking small losses comparable to your winners.
This means you must A L W A Y S trade with a stop loss in place on E V E R Y trade you take and be certain of the dollar amount you have at risk is an sum you are 100% comfortable with missing.
Professional Forex price-chart traders have a conquering edge which is realized via Technical Analysis.
A professional Forex trader understands that understanding a price chart is both skill and art, and as such, they do not try to automate the process of trading as each minute in the market is unprecedented, so it takes a flexible and dynamic trading tactics to trade the markets with a high-probability end.
How Do Pro Traders Trade The Forex Market?
There are different trading strategies and systems that the pro traders use to trade the forex markets with, but ordinarily speaking, professional traders do not make use of overly-complicated trading techniques and rely largely on the raw price data of the forex market to make their analysis and forecasts.
• Professional Forex traders vs. amateur Forex traders
The professional Forex trading might seem like something of an obscure or difficult goal for those of you struggling to trade profitably or just beginning to trade.
But, there are a few key distinctions between pro traders and amateur traders that you should be aware of to help you improve your trading or get started on the right track if you are a newbie:
12 Important Skills Pro Traders Possess
Trading the forex market can be disastrous or rewarding. It has its highs and lows, an emotional roller coaster for may traders.
It is not surprising that many make a lot of money in a short period of time, only to lose most or all of them some time later.
But what really separates a winning forex trader from the losing ones?
Well, there are books written about how to be succeful traders and a lot of them are out there in fact.
This is not about exploring the “hows” but having said that, there are certain traits or characteristics that successful forex traders posses.
Here they are:
#1: Ability – take every loss without becoming emotional
#2: Confidence – having no fear, believing in yourself and at your trading strategy
#3: Discipline – always remain calm and unemotional during the period of constant market temptation
#4: Dedication – dedicate your time to becoming the best Forex trader you can be
#5: Flexibility – To trade the ever changing market conditions successfully
#6: Logic – You have to look at the market from a straightforward and objective perspective
#7: Patience –always wait for only the highest probability trading strategies according to your plan
#8: Focus – to stay true to your trading plan and to not stray off course
#9: Organization – forge and reinforce positive trading habits
#10:Savvy – be aware of what is happening in the forex market at all times and take advantage of your trading edge whenever it arises
#11:Realism – to not take forex trading as a get rich quick scheme and understand the reality of the market and trading
#12: Self-control – to not over-leverage and over-trade your trading account.
- you can make an enormous profit from the high leverage and volatility of the market through learning
- mastering effective Fx trading strategy
- building an effective trading plan around your strategy and following the strategy with ice-cold discipline.
Lack of money management is the main reason why many forex traders fail. If you can master money management, you’d do well in the long run.
How To Make Your Forex Trading Plan
Producing a Forex trading plan is one of the key elements of becoming a successful Forex trader.
Many traders never make a trading plan, let alone use any regularly. It’s imperative that you do both; make a trading plan and use the one you make effectively…don’t just make one and then never look at it like many forex traders do.
Here are some solid points to consider regarding Fx trading plans:
• Follow a plan, have a journal and log trades.
You need to do three necessary things to become and remain a prepared and disciplined Forex trader. These things are as follow;
1) Devise a Forex trading plan,
2) Form (or use an existing) Forex trading journal,
3) Use BOTH of them.
The means of creating a Forex trading plan around an efficient trading plan like price action trading will work to thicken your understanding of the trading plan and will also furnish you with a blueprint for what you require doing every time you interact with the market.
Having the market blueprint is crucial for developing the type of ice-cold discipline that it takes to profit in the Forex currency market over a long-term.
Logging your trades in a trading journal is significant to your success because it enables you to have a visible representation of your ability (or lack thereof) to trade the forex markets, it also builds a track record for you that you can use which and will show you how your trading edge works out over the period, this will allow you to ‘tweak’ and modify your trading strategy as you deem fit.
• Trading plans contain a routine and checklist
To put it in a simple term, you NEED to have a system in your trading activities; otherwise, you will just finish up running and gunning the seat of your pants.
I have a trading belief that revolves around trading Forex like a sniper and not like a machine gunner if you really want to trade like a sniper you have to have a system that you follow, and you have to be very disciplined…
A sniper in the military is an extremely disciplined individual, and you must think of the Forex market as if it’s a war, and you are the sniper trying to take only the ‘easiest victim’; your ‘prey’ in the markets consists of only the greatest trade setups.
Your trading method should include a checklist that you follow; this will involve things that you look for in the forex market and what you aspire to see before entering a trade.
If you can tap all the boxes then you enter the trade, else, hold off until your trading edge appears again.
You can formulate your whole trading plan as a checklist; this will make it a smooth format that allows you to decide quickly if any potential trade setup is worth taking.
• Trading plans contain written guidelines of what a trader will do and look for as well as images of trade setups.Your trading plan should include a written explanation of what you will do in the markets.
This includes items like what your trading edge is, how you trade it when you trade it, the time frames you trade (I prefer daily Fx chart trading), your policy for risk management and profit making, and your overall goals as a trader.
You should also include images of your trading edge setups so that you are always reminded of what an “ideal” setup looks like.
Ultimately, after you follow your written guidelines and “typical” trade setup pictures long enough, you will burn them into your memory to the point of knowing exactly what you are looking for in the forex market, which will work to build your self-confidence as a trader.
• The trades planned in advance and ‘anticipated’ works best.
One of the chief reasons to create a Forex trading strategy is because pre-planning your trades and pre-determining what you are searching for in the markets is the best way to make a profit over the long-run.
You will never be more real and calm then when you are NOT in the market, therefore, if you can plan out all your trades when you are not in the market, you will be wholly uninfluenced by market variables when you are in a trade, and this will work to shield you from becoming an emotional Fx trader.
• Be patient and wait for the situation of a plan to unfold – don’t force the issue
Patience is possibly the most important quality that a Forex trader can possess. When you are a patient trader, it suggests you know what you are looking for in the forex market, and you wait for your trading edge to show up before you carry out a trade.
Trading in this manner eliminates many harmful trades that are the result of emotionally trading…or without patience.
An enormous part of trading, and perhaps the largest part, is simply waiting for an “ideal” price action setup or another trade setup to form in the market.
Traders, who don’t wait for a perfect setup to form, end up losing their money very fast because they neglect their trading edge and are only gambling instead.
Make sure you emphasize the importance of steadiness in your trading plan, this way you will be reminded each time you read it why being a patient trader is so critical to making money in the Forex market.
Forex Trading Course 12: The Psychology Of FX Trading
A big part of forex trading success is not the forex trading strategies that you may be using. Even though finding the right forex strategies are important, there are not as important as trading risk management.
As a matter of fact, learning the rules of a forex trading strategy is the most easiest part.
I’ve made a lot of money trading forex and lost a lot too and here’s what I’ve found out: I am my worst enemy.
When you are demo trading, its all good and fine…you can blow up a $50,000 demo trading account but it is an imaginary money, you don’t have real connection with it. You don’t really feel the joy and happiness, the fear, the greed that comes from winning and loosing real money in forex trading.
But when your real money is on the line, you become a completely different animal.
My biggest trading mistakes have come from me being greedy and risking too much. And I have lost amounts of money like this because of greed ( I wanted to make more):
You can learn all you can about money management in trading but it is really pointless if you don’t have the mental capacity to control your emotions of greed and fear.
Greed makes you take huge risks so that you can win more. Fear makes you take profits too soon or exit a trade too soon or miss really good trading setup that you were supposed to take.
Now, I’m no psychologist and I don’t have the solution to telling you how you are going to solve all this trading psychology stuff but one thing I know is this: you got to eventually figure that one out yourself and it all comes down to having an efficient trading mindset.
How To Get And Maintain An Efficient Trading Mindset
- you are taking a calculated effort to do the right thing in trading.
- you accept certain realities about trading and you are trading the market with these truths in mind. For example, every trade has a the potential to be a loosing trade.
- you follow a strategy and you master it, you become good at it.
- you manage your trading risk properly.
Your failure to do these opens up your mind to emotional trading, which is really bad.
Here’s a fact…it is really hard for your to admit or recognize that you are emotional trading until after the fact, which can be loosing a lot of money in a trade!
If you’ve read books or seen or read some traders saying that you must “eliminate emotions in trading”, then they simply do not know what they are talking about.
You simply cannot eliminate emotions in trading. You are human, how can you eliminate emotions? Impossible!
But what you can do is control your emotions and your really can’t control them if you don’t recognize what is happening at the very moment in time when you are about to make a trading decision.