Forex traiding

0|P ag e

FOREX TRADING ONLINE TRAINING PROGRAM

Student Notebook 2014

Becoming a Successful Currency Trader!

1|P ag e

Š2014 by Forex Training Academy. All Rights Reserved.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the copyright owner.

2|P ag e

Housekeeping Rules Instructor: Francis Reyes Qualifications

How to reach me

How to get the most out of our Training Program The Big Picture View

Our Goals: Demystified Forex Trading 4TDS Approach and Implementation Learn/Trade/Manage your own Forex account Intermixed Theory/Real Time Trading Our goal is to make you a successful Forex Trader Positive Money Management Account 3|P ag e

Course Outline

Lesson 1 The ABC of Forex

Section 1: Major, Minor, Crossover Currency Pairs Section 2: Forex Terminologies Section 3: Understanding PIP Section 4: Factors that Moves the Market Section 5: Fundamental & Technical Analysis Section 6: Economic Calendar Section 7: Forex Resources Section 8: Types of Trading Strategies Section 9: Open up a Forex Broker Account 4|P ag e

Lesson 2 How Indicators Work Giving You a Sense of Market Direction

Section 1: RSI Indicator Section 2: Stochastic Indicator Section 3: MACD Indicator Section 4: Fibonacci Retracement Section 5: Candlestick Real World Application Session Review Q & A Forum 5|P ag e

Lesson 3 Chart Analysis and Trends Introduction Section 1: Support and Resistance Trend Line Section 2: Double top & double bottom Section 3: The Significance of Moving Averages Section 4: Real World Application Session Real World Application Session Review Q & A Forum 6|P ag e

Lesson 4 Money Management Introduction Section 1: Placing Stop Losses Section 2: Risk Factor (how much to risk) Section 3: When to shoot for Breakeven Point Section 4: Spreads (sudden jump) Real World Application Session Review Q & A Forum 7|P ag e

Lesson 5 Trade Management Introduction

Section 1: Common Mistakes Section 2: Averaging In and Averaging Out Section 3: Trailing Stops Section 4: Scaling for additional profit Real World Application Session Review Q & A Forum

8|P ag e

Lesson 6 Inside Trading Tips

Section 1: Introduction/Resources Section 2: Another way to use Oscillators Section 3: Currency Pairs Correlations Section 4: Starting as a Scalp trade Section 5: The 2 AM EST High/Low Section 6: Overnight Moves Section 7: The Best Trading Sessions

9|P ag e

Lesson 7 Trading Psychology and Habits

Section 1: Introduction/Resources Section 2: Being Wrong Section 3: Risk Takers and Market Uncertainly Section 4: Discipline Section 5: Commitment, Patience and Responsibility Summary Resource Trader’s Diary/Resources 10 | P a g e

Lesson 8 Trading as a Business Section 1: Introduction/Resources Section 2: Business Plan Section 3: Trading Journal Section 4: Resources Summary Resource Trader’s Diary/Resources Q & A Forum

11 | P a g e

Lesson 9 Daily Briefing Section1: Daily Briefing Section 2: Organize Yourself Section 3: Self-Analysis Section 4: A Trading Scenario Section 5: Some important ideas

12 | P a g e

Lesson 10 Our Live Trading Session/Trading Systems Section 1: Introduction/Resources Section 2: 4DTS Approach in Real Time Section 3: Real Time- Technical Analysis Section 4: Real time - Chart Analysis Section 5: Real Time – Fundamental Analysis Section 6: Real Time – Sentimental Analysis Section 7 : Demo Account balance

13 | P a g e

The Big Picture View

14 | P a g e

The Big Picture View Trading World Currencies

24 Hours Market Daily FX Trading over $5 trillion Any person can trade (no license required)

15 | P a g e

Your Management Screen Buying or Selling Currency for Profit

Trading in the Forex market opens up opportunity to make money anytime during the day or night.

16 | P a g e

Special Extension to the Class Entry to our Live Trading Session Monday to Friday Daily analysis the market and give out entry and exit points

What you will learn in this program can be life changing.

17 | P a g e

Three Major Trading Sessions Essentials: There are 3 major sessions each in the forex market.

The Asian Session (7PM - 4AM EST) – During this period, you can successfully day trade, especially if you trade the Japanese Yen. USD/JPY is a good choice if you plan to trade during this session. This period is not as volatile as the US or the European sessions, but it’s possible to trade it and achieve a good performance.

The European Session (2AM – 12PM EST) – This is one of the best periods to trade Forex. Since most of the dealing desks of large banks are located in London, the majority of major Forex transactions are completed during this session. During this period you can implement a successfully strategy on any currency pair.

The U.S. Session (8AM – 5PM EST) – This is another great period to implement your Forex strategies. Volatility is good and you can expect good volatility on any currency pair.

Between 8AM and 12PM EST we have the U.S. and the European sessions at the same time. This is the best time of the day to trade Forex. Volatility is good in all currency pairs. Some of the most important economic releases occur during this period, and this brings good opportunities to Forex traders almost every single day.

18 | P a g e

Traders have access to over 36 World Currencies pairs to trade with.

Essentials: Below are just a small number of currencies pairs that trader can select

and place a buy or sell orders. One of most popular pairs is the Euro dollar (EUR/USD).

You should start to learn the symbol for various countries. Here are some that you can probably figure out.

EUR – Euros JPY – Japanese YEN USD - Dollars

AUD – Australia

GBP – British pound (Cable) NZD – New Zealand

19 | P a g e

Trading Currencies Pairs Essentials: When you trade a currency pair, you have the first listed currency

known as the base and the second listed will the quoted currency.

Currency pair prices - What do they mean?

If the current market price of the EUR/JPY is 155.60 it means that 1 EUR (Euro Dollar) is equal to 155.60 JPY (Japanese Yen). If the current market price of the GBP/USD is 1.9564 it means that 1 GBP (British Pound) is equal to 1.9564 USD (United States Dollars).

There are many different currencies that can be traded, but it is usually desirable to trade the ones that are the most actively traded, the ones with the greatest liquidity.

The major currencies are: 1) USD (United States Dollar) 2) EUR (Euro Dollar) 3) JPY (Japanese Yen) 4) GBP (British Pound) 5) CHF (Swiss Franc) 6) CAD (Canadian Dollar) 7) AUD (Australian Dollar) There are also many different minor currencies. Each country has its own currency and it's possible to trade many other currencies, such as the NZD (New Zealand Dollar). Any currency that is not one of the major currencies is a minor currency.

20 | P a g e

One currency is always paired with another currency to form a currency pair.

For example, the GBP/USD, EUR/JPY, USD/JPY, AUD/USD, EUR/CHF, USD/CAD are traded as currency pairs. Before proceeding I must first define a few terms. Don't get too stressed over these terms, they are really pretty easy to learn.

So, for example, if I see that the dollar is going to be stronger than the Euro, then I would select the EUR/USD pair and I would place a sell order. This means that I am selling Euros as the dollar’s value is headed up.

If the Euro value is headed up in value against the dollar, would I place a buy or sell order on the Eur/USD pair?

Forex is simply trading one currency against other currency.

You either Buy or Sell to make Money.

21 | P a g e

Market Direction Finding the Trend/Using Indicators There are three directions the market will move. The market will move up (in an uptrend), down (in a downtrend), or remain in a trading range. In a trading range the price will move up and down, but will stay in a specific range. The following charts show you these 3 types of markets.

Uptrend

22 | P a g e

Downtrend

Range

23 | P a g e

Forex – Foreign Exchange Forex Market Basics

Before you can trade the Forex market you must first know what it is and how it works. Forex is short for "Foreign Exchange." Foreign exchange is the simultaneous buying one currency and selling of another currency.

Why trade the Forex?

The Forex market has become an extremely popular venue for traders all over the world. Anyone with a computer and a good internet connection can trade the Forex market, making it accessible to almost anyone wanting to trade. And since there is as much as 5 trillion dollars traded daily in the Forex market it has very good liquidity.

The Forex market is so vast no one entity can control the market price for an extended period of time. So you can enter a trade in the Forex market feeling pretty comfortable that nobody is going to drive the market against you for the purpose of stopping you out.

24 | P a g e

Trade day or night, 24 hours a day, 5 days a week

Another advantage to the Forex market is that you can trade any time, day or night. There are major Forex markets around the world, in London, in Australia, in Japan, in the USA, and they are all open at different times of the day. So you can trade 24 hours a day, 5 days a week. Trading begins on Sunday afternoon in the USA and ends Friday afternoon in the USA. The US markets open at 8:00 AM EST causing an overlap for a couple of hours with the European markets, meaning they are both open at the same time. The end of the US market overlaps the opening of the Asian market. Because each market is open at a different time trading can be done 24 hours a day.

So if the markets are open 24 hours a day which time is best to trade? The simple answer is that you can trade any time. However, certain times do offer more liquidity. There is more volume traded during the European market session than any other session. In my experience the best trends develop more often during the European session than during any other session. But that doesn't mean there aren't plenty of good trading opportunities at other times. There are great trends that develop during all market hours. By following the trading strategies taught in this class you will be able to trade any time, day or night.

25 | P a g e

Currency Pairs in action Currencies are always traded as currency pairs. For example, one currency pair would be the EUR/JPY (Euro dollar/Japanese Yen). When you actually place an order to trade the EUR/JPY you will either be buying it or selling it. If you buy the EUR/JPY it means you want the EUR to increase in value in relation to the JPY. If you sell the EUR/JPY it means you want the EUR to decrease in value in relation to the JPY.On a EUR/JPY chart, if the price moves higher, it means that the EUR is increasing in value in relation to the JPY and the JPY is decreasing in value in relation to the EUR. If the price drops lower it means that the EUR is decreasing in value in relation to the JPY and the JPY is increasing in value in relation to the EUR.

26 | P a g e

Notice on the following EUR/JPY chart that the price is dropping lower. This means that the EUR is decreasing in value (in relation to the JPY) at the same time the JPY is increasing in value (in relation to the EUR)

EUR/JPY

If you want to buy the EUR/JPY it means you expect the price to climb higher on the EUR/JPY chart. If you want to sell the EUR/JPY it means you expect the prices to drop lower on the EUR/JPY chart. If you buy the EUR/JPY it means you are buying the EUR while simultaneously selling the JPY. If you sell the EUR/JPY it means you are selling the EUR while simultaneously buying the JPY.

27 | P a g e

Lesson 1 The ABC of Forex Section 1: Major, Minor, Crossover Currency Pairs Section 2: Forex Terminologies Section 3: Understanding PIP Section 4: Factors that Moves the Market Section 5: Fundamental & Technical Analysis Section 6: Economic Calendar Section 7: Forex Resources Section 8: Types of Trading Strategies Section 9: Open up a Forex Broker Account

28 | P a g e

Objectives

 The student will have understanding on how currency trading is operated worldwide.  The student will have a working knowledge on key forex terminologies.  The student will know factors that move the forex market.  The student will know the different between Fundamental Analysis and Technical Analysis.  Be able to read a Economic Calendar  Understanding of the types of Trading Strategies  Will know how to open up a currency broker account.

29 | P a g e

Top Five Main Currencies The best currencies for trading

Forex trading is mainly focused on the 5 "main" currencies. This is because the governments of their respective countries tend to be more stable.

The US dollar (USD): The dollar is the most exchanged currency in the world, it represents 86% of all currency trading transactions.

The euro (EUR): The euro is the second most exchanged currency, representing 37% of all currency transactions. The euro replaced the German deutschmark, which, prior to the euro's creation, represented 25% of all forex transactions.

The Japanese yen (JPY): Coming in at third place, the yen is primarily traded against the dollar and the euro, and it represents 20% of the world's exchanges.

The demand for Japanese yen is mainly due to Japanese companies repatriating their sales profits. The yen is therefore affected by those companies' financial results as well as the real estate market.

The British pound (GBP): The GBP is the currency that is most often traded against the USD and the EUR, and the fourth worldwide, representing 17% of all currency trading. 34% of all currency trading passes through London's City, which is the currency trading capital of the world.

The Swiss franc (CHF): The CHF is perceived as being a safe currency. Its economy is stable but this hardly justifies its rank amongst the major currencies.

The fact that investors secure their assets by buying CHF is due to its banking system's solid reputation. The Swiss franc tends to be rather volatile due to its lack of liquidity with regards to the other main currencies.

30 | P a g e

Major Currencies Pairs Essentials: These are the known as the Major Currencies. The most heavies traded

in the world. You will soon see that the major currencies can have a huge affect on market conditions. All major currency pairs all involve the U.S. dollars one on one side of the deal.

Major Currency Pairs Traded

Pair

Countries

Long Name

NickName

Eur/USD

Eurozone/U.S.

Euro-dollar

N/A

USD/JPY

United States/Japan

Dollar-yen

N/A

GBP/USD

United Kingdom/U.S.

Pound-dollar

USD/CHF

United States/Switzerland

Dollar-Swiss

Swissy

USD/CAD

United States/Canada

Dollar-Canada

Lonnie

AUD/USD

Australia/United States

Australia-dollar

Aussie or Oz

NZD/USD

New Zealand/United States

New Zealand/dollar

Kiwi

Cable or Sterling

31 | P a g e

Euro Crosses Pair

Countries

Market Name

EUR/CHF

Euro zone/Switzerland

Euro-Swiss

EUR/GBP

Euro zone/ United Kingdom

Euro-Pound

EUR/CAD

Euro zone/Canada

Euro-Canada

EUR/AUD

Euro zone/Australia

Euro-Aussie

EUR/NZD

Euro/New Zealand

Euro-Kiwi

Yen Crosses Pair

Countries

Market Name

EUR/JPY

Euro zone/ Japan

Euro - Yen

GBP/JPY

United Kingdom/Japan

Pound- Yen

CHF/JPY

Switzerland/Japan

Swiss- Yen

AUS/JPY

Australia /Japan

Aussie-Yen

NZD/JPY

New Zealand/Japan

Kiwi-Yen

British Crosses Pair

Countries

Market Name

GBP/CHF

United Kingdom/Switzerland Pound- Swiss

GBP/CAD

United Kingdom/Canada

Pound- Canada

GBP /AUD

United Kingdom/Australia

Pound- Aussie

GBP/NZD

United Kingdom/ New Zealand

Pound- Kiwi

32 | P a g e

Forex Terminologies Essentials All industry has their jargon and the Forex industry is no different. Let go through some very common term that you need to know about.

Long - If you think the price will move higher you will want to "go long" on a trade (or enter a long trade). Long also means buy. For example, if you said “I went long on the Eur USD means that you place a buy position on the Euro dollar. “

Bullish - If you think the price will move higher you are bullish. You will want to "go long" on a trade (or enter a long trade).

Short - If you think the price will move lower you will want to "go short" on a trade (or enter a short trade). Short is also a term use to place a sell. For example, if said “ I went short on Eur USD”, means that you placed a sell order on the Eur USD.

Bearish - If you think the price will move lower you are bearish. You will want to "go short" on a trade (or enter a short trade).

Trend - When the price continues for an appreciable length of time in one direction it is called a trend. The prices will continue to rise in an uptrend and continue to drop in a downtrend.

33 | P a g e

Retrace - Prices never move in one direction too long before "retracing." A retracement is when the price moves in the opposite direction of a trend for a little bit before resuming in the direction of the trend. For example, let's say the market is in an uptrend with prices continuing to climb higher. At some point during the uptrend the prices then start to drop back down. After dropping a little bit (the retracement) the price then resumes the move higher again, in the same direction as the original uptrend.

Lots Lots are the units traded. 1 lot equals 100,000 units. For example, if you are trading the USD/JPY and you trade 1 lot you are trading 100,000 units of the USD (the first currency listed in the currency pair, also called the base currency). 1 lot of the USD/JPY would be 100,000 United States Dollars. 1 lot of the AUD/USD would be 100,000 Australian Dollars. Trading 1 lot means that for each pip the price moves in your favor your profit will increase by $10. For each pip the price moves against you your loss will increase by $10.

Most brokers today allow traders to trade in amounts less than 1 lot. 1 mini lot is 1/10 of 1 lot and is worth 10,000 units of the base currency. For example, if you are trading the USD/JPY and you trade 1 mini lot you are trading 10,000 units of the USD (the first currency listed in the currency pair, also called the base currency). 1 mini lot of the USD/JPY would be 10,000 United States Dollars.

Trading 1 mini lot means that for each pip the price moves in your favor your profit will increase by $1.

For each pip the price moves against you your loss will increase by $1.

There are even Forex brokers that will allow you to trade in "micro" lots which are 1/10 the size of mini lots. If you are really strapped for cash and can't come up with at least $1,000 or $2,000 you can certainly start a smaller Forex trading account and trade micro lots. It's possible to build the value of your micro account until you have enough money to trade mini lots, it just might take awhile.

However, even if you have enough money to open a larger account it still might be beneficial to trade micro lots as a beginner.

34 | P a g e

That way you can get the feel of trading real money without putting a lot of money at risk. Trading micro lots might help you build confidence in your trading abilities before moving up to the mini lots and full lots.

Margin When a trader opens an account with a Forex broker he must deposit a minimum amount of money with that broker. The minimum varies among different brokers and may be as small as $300 (and even less), or as much as $100,000. Every time the trader enters a new trade a certain percentage of the trader's account balance will be earmarked as the initial margin. Depending on the broker it's possible that you could have a margin requirement of only 0.5% or you could have a margin requirement of 5%. Some brokers will allow you to choose the size of your margin requirement, within limits.

If you buy 1 lot of USD/JPY, you are controlling $100,000 (USD). With a 2% margin requirement $2,000 will be set aside as your margin (2% of $100,000). If your margin requirement was only 1% then $1,000 would be set aside as your margin.

This is very important because you do not ever want to get a "margin call."

Margin Call If you don't have enough money in your account to cover the margin your broker will automatically exercise a margin call and close your trade. Here's an example of a margin call: Let's say you have $900 in your account and have a margin requirement of 2%. You would not be able to trade 1 full lot of USD/JPY because trading 1 lot means you would be controlling $100,000 (USD), and you would need $2,000 in your account to cover the margin requirement (1 lot means you would be controlling $100,000 and 2% of $100,000 is $2,000).

However, with $900 in your account and a 2% margin requirement you could trade 4 mini lots. If you traded 4 mini lots of USD/JPY (4/10 of 1 lot) you would have an initial margin requirement of $800 (4 mini lots means you would be controlling $40,000 and 2% of $40,000 is $800). However, if the price went against your position until your account balance was less than $800 (which wouldn't take a very large move in this case) you would automatically have your trade closed out. It is never a good idea to risk so much on one trade. Later in this

35 | P a g e

book I will show you how much you can trade safely so that even if you have a string of consecutive losses you will still be able to keep trading.

Leverage

The reason Forex trading can be so profitable is because of the amount of leverage you have. You may only have $3,000 (USD) in your account, but by trading 1 lot you can control $100,000 (USD). You can be earning profits on $100,000 instead of $3,000. Leverage is the ratio of the amount of money controlled in a trade to the amount required for margin. If the margin is 2% your leverage will be 50:1 (you can control 50 times more money than the amount you have in your account). Of course it is very unwise to use the full leverage available to you. If you place too large of a trade for the amount of money you have in your account you could be totally wiped out very quickly.

The Bid price is the price that a trader can sell the base currency for (also called the sell price). The Ask price is the price a trader can buy the base currency for (also called the buy price). In this book they will always be referred to as the buy price and the sell price. The difference between the buy and sell price is called the "spread."

Spread The spread is the difference between the buy and sell price. For example, if you are trading the EUR/JPY the buy price may be 159.35 while the sell price may be 159.31. The difference between these two prices is 4 pips, which means the spread is 4 pips. However, the spread isn't always 4 pips for the EUR/JPY because the spreads are constantly changing. The spread may change from 4 pips to 3.5 pips, to 2.5 pips, to 1 pip, to 3 pips, to 5 pips, etc. This amount of changing can and does happen in a matter of seconds.

The spread is the amount that you pay to enter a trade. Here's an example of how the spread works: Let's say the sell price for the EUR/JPY is 159.25 and the buy 36 | P a g e

price is 159.29. You think the market is going to move higher so you buy the EUR/JPY at 159.29. The very second you buy this currency pair at 159.29 you can sell it (exit the trade) at the sell price, which is currently 159.25. If it were possible to buy this currency pair at the buy price and then immediately sell it at the sell price you would lose 4 pips on the trade. If you buy this currency pair at the buy price of 159.29 the sell price will have to move 4 pips higher (from 159.25 to 159.29) before you could exit (sell it back) with a break-even trade. If the sell price climbed to 159.30 you would have a 1 pip profit. If the sell price moved to 159.40 you would have an 11 pip profit.

Whenever you enter a trade the price will have to move in your favor the amount of the spread before you can break even on the trade. The amount of the spread differs depending on which currency pair you are looking at. Some spreads can be 15 or 20 pips or even higher while other spreads can be 1 or 2 pips or even lower.

If you want to trade currency pairs with larger spreads just remember that it will take a very good-sized move for you to break even. If the spread is 15 pips it means that the price will have to move 15 pips in your favor just for you to break even on the trade.

Rollover At the end of one trading day and at the beginning of the next trading day there is a process called the rollover. If you have an open trade one day and do not exit that trade before the end of the day (in other words your trade remains open from one day to the next day) your account will either be charged or credited a certain amount of money depending on the interest rate differential between the two currencies.

Some traders will purposely buy a certain currency pair just before the end of the day so that they can receive this "interest payment" when the next day begins.

Other traders might exit a trade just before the end of the day so that they do not have to pay this "interest payment."

37 | P a g e

The Forex Broker It's very easy to trade the Forex market today. All you need is a computer with a good internet connection. Once you decide on a broker it's simply a matter of filling out an application on their website, depositing money, and then trading.

Make sure you open a Forex "spot" account and not a "futures" account or some other type of account.

There are many Forex brokers. To find a broker all you need to do is type in "Forex broker" in a search engine. Some of the better known brokers are FXCM, Interbank FX, GFS Forex, TradeStation, but there are many others. Plus, almost all Forex brokers today allow you to trade a free demo account until you feel comfortable enough with your trading skills to start risking your own money. For example, at FXCM you can sign up for a free 30-day demo account. Once that demo account ends, or even before it ends, you can sign up again for another free account. You can sign up for new free accounts as long as you want, until you feel ready to begin trading with real money.

Limit Orders A limit order is an order to either sell at a specific price or buy at a specific price.

Once your limit order price is reached your order will be filled at the current market price. For example, if you wanted to buy (go long) the EUR/JPY at 159.50 and the current buy price was 159.30 you could place an order to go long at 159.50. Once the price reaches 159.50 your order will be filled. It's important to note that the price you get filled at may not be exactly 159.50. Once your order price is hit, triggering your order, the price may change before your order is actually filled.

Stop-loss orders A stop-loss is a type of limit order. Once you have entered a trade you can have a "stop price" so that if the market moves against you a certain amount your order 38 | P a g e

will automatically be exited, limiting the amount of your loss. It's very important that you ALWAYS place a stop-loss at the same time you place a trade. Do not enter a trade without also entering a stop-loss at the same time.Some traders enter trades without a stop-loss, thinking that they can always add it later. This is true, but it's also a very bad habit because two things can happen. First, the price can immediately move against you before you have a chance to enter the stoploss, causing you to lose more than you had planned on.

Second, and more likely to happen, you may enter a trade without a stop-loss and then have your computer freeze up, the power go out, or the trading program stop functioning. You will then have an open order without a stop loss, which means you could lose everything in your account if the market went far enough against you. You may think the odds are slim of this ever happening, but I've had all three of these things happen to me. If for any reason you ever get caught in this situation be sure to have the broker's phone number handy, along with your account number, so that you can call them and either exit the trade immediately or place a stop-loss over the phone.

39 | P a g e

Understanding PIPs Essentials: When the market in Forex goes up or down is it referred to as a PIP movement.

PIP stands for percentage in point or to be it more simple it is points.

Most currency pairs are quoted using five digits. The placement of the decimal point depends on whether it is JPY currency pair – if it is, there are two digits behind the decimal point. For all other currency pairs, there are four digits behind the decimal point. In all cases, that last itty-bitty digit is the pip.

Pips A pip is the smallest unit of price for any currency pair. For example, the EUR/JPY currency pair may be trading at 159.22. If the price climbs to 159.23 it has moved higher by 1 pip. If the price drops from 159.22 to 158.22 it has dropped by 100 pips. Most currency pairs have 4 numbers to the right of the decimal point.

Notable exceptions are the currency pairs that include the JPY. For example, the EUR/JPY has two numbers to the right of the decimal point, such as 159.22.

However, other currency pairs such as the GBP/USD have 4 numbers to the right of the decimal point, such as 1.9565. If the price of the GBP/USD moves from 1.9565 up to 1.9575 it has moved higher by 10 pips.What is 1 pip worth? In US Dollars, trading 1 lot (a unit of measurement - explained later), a pip is worth approximately $8 to $10 depending on the currency pair.

For example, if you trade 1 lot of the GBP/USD each pip will be worth $10 profit or loss. However, trading currency pairs that include the JPY will be approximately $8 to $9 depending on which currency is traded with the JPY. If you are trading 1 mini lot, instead of 1 lot, each pip will be worth 1/10 as much as 1 lot. It takes 10 mini lots to equal 1 lot.

40 | P a g e

Examples: Here are some currency pairs with pip underlined: EUR/USD 1.3053 USD/CHF 1.0544 USD/JPY 84.42 GBP/USD 1.509 EUR/JPY 1.11.34

41 | P a g e

Factors that Moves the Forex Market

Essentials: Foreign Exchange is affected by various economic and political factors. The largest fluctuations in currency prices usually occur during Central Bank intervention, when governments trade in huge amounts FOREX in an attempt to either raise or lower the value of their own currency. This, as well as many other factors such as interest rate changes, economic numbers, political instability and large lot transactions by hedge funds can move the market.

How can you predict the future forex movements?

There are two major ways to analyze financial markets:

Fundamental analysis and technical analysis.

42 | P a g e

Fundamental & Technical Analysis Fundamental analysis is based upon underlying economic conditions, while technical analysis uses historical prices to predict future movements. There is an ongoing debate as to which methodology is more successful. Short-term traders prefer to use technical analysis, focusing their strategies primarily on price action, while fundamental traders focus their efforts on determining a currency's proper valuation, as well as future valuation. It is important to take into consideration both strategies, as fundamental analysis can explain technical analysis movements such as breakouts or trend reversals.

Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action. Technical analysis is concerned with what has actually happened in the market, rather than what should happen and takes into account the price of instruments and the volume of trading, and creates charts from that data to use as the primary tool. One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments simultaneously.

43 | P a g e

Technical analysis Three Important Principles

1. Market action discounts everything! This means that the actual price is a reflection of everything that is known to the market that could affect it, for example, supply and demand, political factors and market sentiment.

However, the pure technical analyst is only concerned with price movements, not with the reasons for any changes.

2. Prices move in trends. Technical analysis is used to identify patterns of market behavior that have long been recognized as significant. For many given patterns there is a high probability that they will produce the expected results. Also, there are recognized patterns that repeat themselves on a consistent basis.

3. History repeats itself. Forex chart patterns have been recognized and categorized for over 100 years and the manner in which many patterns are repeated leads to the conclusion that human psychology changes little over time.

44 | P a g e

Typical Economic Calendar Essentials: One of the surest thing you must do is bookmarked a website that has a Econonics Calendar. It will have schedule news release for the week that will certainly hae some effect on the forex market. This one below is from www.forexfactory.com.

Most good Economic Calendar will have a designation if the news release is high impact or low impact. You want to pay attention to both, but more so to the high impact news release. What you don’t want to do is be in a middle of trade as a major news release is about to come out. You will end up in a bad place if the news release goes way against you.

45 | P a g e

Forex Resources This list of Forex resources contains URLs to other useful Forex sites — Forex forums, general Forex information resources, Forex signals providers.

Forex Market News FXstreet — Many useful articles, constantly added expert commentaries and forecasts.

DailyFX — Everything happening in Forex world is covered here.

Currency Newswire — daily currency news and Forex highlights.

ForexSpace — offering unique forex insights, news, education, charts, technical and fundamental analysis on real-time quotes to enable every aspect of daily trading.

Forex Charts and Technical Analysis Incredible Charts — A very good resource to learn everything about charts.

Metatrader Expert Advisors and Metatrader Indicators, MQL4 Coding Service BBForex — Bollinger Bands Forex — Forex screening, analytics and signals based on Bollinger Bands. Interactive charts with a wide array of technical indicators and streaming forex news. And totally unique on BB4X.com are patent-pending 2-D and 3-D charts.

MetaTrader Expert Advisor Programming — OneStepRemoved.com specializes in programming Expert Advisors and custom indicators for MetaTrader.

Strategy Road — Strategy Road runs EOD forex correlation with one day of forecast. It displays these correlations as charts plus the one day of anticipation to 46 | P a g e

help making the best trading. Buy and Sell indicators are given due to these correlations.

Forex Analysis/Signals — Daily Forex analysis for EUR/USD currency pair with detailed performance.

Forex Signals and Market Forecasts Profit Guide Forex — reliable Precise Trading System with free software that can generate your own signal.

Forex Training - Work at Home Business Opportunity — Offers forex training internet home based business opportunity. Work from home job.

AceTrader - FX signal provider — Provides 24-hrs Intraday and Daily FX trading commentaries & signals. Services started on Reuters since 1989, on Internet since 2000.

Forex Signals — Forexena provides forex signals analysis.

Forex Forums and Community Sites ForexFactory — a popular Forex discussion forum.

MoneyTec — Forex related Forum dedicated to technical analysis.

Forex Trading Information TradeJuice — The largest selection of FREE day trading articles in the world.

Investopedia.com — a large educational Internet resource about investing and trading.

Forex Glossary — Terms and terminology used in Forex Trading. Index of financial and investment terms.

47 | P a g e

Forex trading — Forex technical and fundamental analysis, forex charts and brokers.

MaxProfit — program for keeping records and analyzing transactions. Trader's Log.

Forex Directories Forex Directory — Whole Forex in one place.

Forex Web Directory — link to forex related sites and more business information.

Business Web Directory — a large resource of all kind of financial information.

Most Visited Forex Websites — Ranking the most visited forex websites based on alexa and compete statistics. Includes website reviews and historical ranking information.

48 | P a g e

Types of Trading Strategies Scalper trader If you like to trade in very short time period, like within 30 minutes or less, then you are a scalper trader. They find opportunity within a short window to find a trend and pounce right away. They will use a 30 minutes chart to analysis the market and see if there is trend developing to take advantage of. A forex scalper looks to make a large number of trades and earn a small profit each time.

Intraday Trader Intraday trading is a demanding trading style that requires research and a well defined trading plan. This type of trader looks for trends lasting less than an hour.

A trading pattern usually lasts between 5 and 15 minutes, and traders could be pulling the trigger on trades as often as every thirty seconds.

Long-term trader The long-term trader takes trades overnight and even several days, or some several weeks. The type of trading is for those with a strong will power and plenty of upfront analysis in all fronts.

49 | P a g e

Open up a Broker Account The Forex Broker It's very easy to trade the Forex market today. All you need is a computer with a good internet connection. Once you decide on a broker it's simply a matter of filling out an application on their website, depositing money, and then trading.

There are many Forex brokers. To find a broker all you need to do is type in "Forex broker" in a search engine. Plus, almost all Forex brokers today allow you to trade a free demo account until you feel comfortable enough with your trading skills to start risking your own money. For example, at FXCM you can sign up for a free 30-day demo account. Once that demo account ends, or even before it ends, you can sign up again for another free account. You can sign up for new free accounts as long as you want, until you feel ready to begin trading with real money.

Limit Orders A limit order is an order to either sell at a specific price or buy at a specific price.

Once your limit order price is reached your order will be filled at the current market price. For example, if you wanted to buy (go long) the EUR/JPY at 159.50 and the current buy price was 159.30 you could place an order to go long at 159.50. Once the price reaches 159.50 your order will be filled. It's important to note that the price you get filled at may not be exactly 159.50. Once your order price is hit, triggering your order, the price may change before your order is actually filled.

50 | P a g e

Stop-loss orders A stop-loss is a type of limit order. Once you have entered a trade you can have a "stop price" so that if the market moves against you a certain amount your order will automatically be exited, limiting the amount of your loss. It's very important that you ALWAYS place a stop-loss at the same time you place a trade. Some traders enter trades without a stop-loss, thinking that they can always add it later.

This is true, but it's also a very bad habit because two things can happen. First, the price can immediately move against you before you have a chance to enter the stop-loss, causing you to lose more than you had planned on. Second, and more likely to happen, you may enter a trade without a stop-loss and then have your computer freeze up, the power go out, or the trading program stop functioning.

You will then have an open order without a stop loss, which means you could lose everything in your account if the market went far enough against you. You may think the odds are slim of this ever happening, but I've had all three of these things happen to me. If for any reason you ever get caught in this situation be sure to have the broker's phone number handy, along with your account number, so that you can call them and either exit the trade immediately or place a stoploss over the phone.

Profit Orders You can also place a limit order to take profits once the price reaches a specific target. You can place this limit order the same time you place your entry order or after you've placed your entry order. For example, if you buy (go long) the EUR/JPY at 159.30 you can place a limit order to take your profit at 159.70. Once the sell price hits 159.70 you will automatically have your order closed out at the current market price (which may actually be different than 159.70).

51 | P a g e

Open up a Demo Account Essential Let get out trading account up by opening up a demo account with FXCM.

Forex Broker – FXCM

Instructions – Wait for Instructor before starting.

1. Go to www.FXCM.com

52 | P a g e

2. Select Open Practice Account

Execution Type: Standard Spread (NoDealing Desk) Hit the Submit button

53 | P a g e

Instructor will lead you through the various steps: Overview of the trading platform How to place a buy and sell order How to set up your charts to look like his

54 | P a g e

Order Types/ Market Orders A market order is an entry order, either long or short, that is opened at the current market price. The following illustration shows a typical dialog box where you would place a market order. Here are the steps involved in placing a market order.

Instruction will show you step by step.

1) Make sure the currency pair you want to trade is listed correctly.

2) Click the Sell or Buy button. In this example we are buying the EUR/JPY.

3) Enter the amount you want to buy or sell. In this example we chose to buy 100.

Different brokers may list the amounts differently, but in this example 100 means 1 lot. If you wanted to trade 2 lots you would enter 200. If you wanted to trade 1 mini lot you would enter 10. [10 (1 mini lot) is short for $10,000 and 100 (1 lot) is short for $100,000].

4) "Rate" is the price you want to enter the trade at. In this example the price is grayed out and can't be changed. The grayed-out price will change automatically as the market price changes, until you click the OK button to place the trade. The price is grayed-out because if you are placing a market order you cannot specify a price, the price will automatically be the current market price.

5) The "Stop" price, or stop-loss, is 155.60. Once you have placed this order you will have a stop-loss at 155.60. If the price then drops to 155.60 your order will automatically be closed.

55 | P a g e

(Intentionally blank page)

56 | P a g e

LESSON 2: Selecting the Best Indicators

57 | P a g e

Objectives  The student will have understanding on how indicators are used to detect movement/trend in the forex market.  The student will to able to read correctly RSI, Stochastic, and MACD indicators.  The student with the instructor leading an exercise will be able to correctly select the right trend movement on various currency pairs.  The students will be able to use not one but several indicators to confirm trend movement.

58 | P a g e

Lesson 2 How Indicators Work Giving You a Sense of Market Direction

Section 1: RSI Indicator Section 2: Stochastic Indicator Section 3: MACD Indicator Section 4: Fibonacci Retracement Section 5: Candlestick Real World Application Session Review Q & A Forum 59 | P a g e

How Indicators Work Essentials: If you are hesitant to get into the forex market and are waiting for an obvious entry point, you may find yourself sitting on the sidelines for a long while.

By learning a variety of forex indicators, you can determine suitable strategies for choosing profitable times to back a given currency pair. Also, continued monitoring of these indicators will give strong signals that can point you toward a buy or sell signal. As with any investment, strong analysis will minimize potential risks.

RSI – Overbought or Oversold Indicator A single –line oscillator plotted on a scale from 0 to 100, based on closing prices over a user-defined period. Common RSI period are 8, 14, and 21. RSI compares the strength of up periods to the weakness of down periods – hence, the label relative strength RSI reading over 75 are considered overbought ; reading below 25 are considered oversold. RSI signal are given when the indicator leaves overbought or oversold territory and on divergences with price.

Note: The Instructor will lead you through a step by step example and explanation.

`

60 | P a g e

How Indicators Work Stochastic – A two-line oscillator plotted on a scale of 0 to 100. The two lines are known as %k (fast stockastic) and %D (slow stockastic). Stockastics are also based on closing prices of prior periods. The basic theory behind stockastics is that the strength of a directional move can be measured by how near the close is to the extreme of a period. In a uptrend, close near the highs for the period signifies strong momentum; a close in the middle or below signals that momentum is weakening. In a downtrend, the close of a period should be nearer to the lows for momentum to strengthen. As momentum shifts, the %k line will cross over the slower-moving %D line. Crossovers in overbought or oversold territory are considered sell or buy signals. Overbought is above 80, and oversold is below 20.

Note: The Instructor will lead you through a step by step example and explanation

61 | P a g e

How Indicators Work MACD – (Moving Average Convergence/Divergence) Using MACD indicator you can identify the major trend and their reversals. The first thing you have to do is to identify trend and their reversals. These major trend reversals provide very profitable opportunity for trading. MACD can detect trend direction and trend reversal by its centerline or zero line. In this centerline, the value is zero. Value is positive above centerline which is considered as a bullish region. Value of MACD line is negative below this centerline which is considered as a bearish region.

When MACD line is above this centerline, the trend is bullish, and the trend is bearish when MACD line (blue colored line) is below the centerline. When MACD line (blue colored line) crosses above this centerline then it is a bullish trend reversal and a very strong buy signal in favor of the trend. Inversely, it is a strong sell signal or an entry signal for short position when MACD line (blue colored line) crosses below the centerline.

Note: The Instructor will lead you through a step by step example and explanation

62 | P a g e

How Indicators Work Fibonacci Retracements Fibonacci Retracements are ratios used to identify potential reversal levels. These ratios are found in the Fibonacci sequence. The most popular Fibonacci Retracements are 61.8% and 38.2%. Note that 38.2% is often rounded to 38% and 61.8 is rounded to 62%. After an advance, chartists apply Fibonacci ratios to define retracement levels and forecast the extent of a correction or pullback.

Fibonacci Retracements can also be applied after a decline to forecast the length of a counter trend bounce. These retracements can be combined with other indicators and price patterns to create an overall strategy.

63 | P a g e

How Indicators Work Candlesticks

Candlestick chart This is the Candlestick chart, where we honestly don’t subscribe to for various reason, but we wanted to at least inform you of it.

In the candlestick chart, the body in the middle indicates the range between the opening and closing prices. Generally speaking, if the body is black or red, then the currency closed lower than it opened; conversely, if the body is white or green, then the closing price is higher than the opening price.

64 | P a g e

Lesson Plan in Real World Application  Q & A Period

 Instructor will demonstrate on a live trading screen the application of material just covered and point out real examples.

 Trading opportunities - If a trade opportunity arises, we will trade with full trade analysis.

Notes:

65 | P a g e

Notes

66 | P a g e

(Intentionally blank page)

67 | P a g e

Lesson 3 Chart Analysis and Trends Introduction Section 1: Support and Resistance Trend Line Section 2: Double top & double bottom Section 3: The Significance of Moving Averages Section 4: Real World Application Session Real World Application Session Review Q & A Forum Quiz 2 68 | P a g e

Objectives  The student will have a working knowledge on Support and Resistance points.  The student will recognize certain formation on the technical charts to take advantage for profit taking.  Will recognize Moving Averages lines  The student will be able to interpret technical charts and locate entry and exit points.

69 | P a g e

Reading Technical Charts Support and Resistance - Trend Line Essentials: One of the important aspects of trading is finding support and resistance from a technical chart. Support and resistance levels are indentified based on prior price action, such as highs or lows and short –term (minutes to hours) consolidation or congestion zones (where prices get all stopped up and can’t move one way or the other for a period of time). Support and resistance can also be determined by drawing trendlines.

Support: A price level where buying interest overwhelms selling interest, causing a price decline to stop, bottom out, or pause.

Note: The Instructor will lead you through a step by step example and explanation

70 | P a g e

Reading Technical Charts Support and Resistance – Trend lines Resistance: The opposite of support. Resistance is where selling interest materializes and slows or overpowers buying interest, causing prices to peak, stall, or pause in a price rally. Think of resistance as the ceiling in price advance.

Note: Keep in mind; support and resistance are made to broken. All support and resistance lines cannot hold for ever. Here are some tips on this. The longer the time frame of the price point, the greater it significance. A weekly high/low is more important than a daily high/low, which is more important than an hourly high/low, and so on, down the time scale.

Trend-line strength is also a function of time frame and durability. A trend line based on a daily charts tends to be stronger than a trend line based on a hourly prices. A trend line that dates back six months has greater significance than one ‘s only a week or two old. Also, the more often a trend line is tested (meaning prices touch the trend line but do not break through it, or break it only very briefly and by small amount), the move valid it is.

Note: The Instructor will lead you through a step by step example and explanation

71 | P a g e

Reading Technical Charts Double Top & Double Bottom Formation Essentials: Double tops and double bottom are typically considered among the most powerful chart formation indicating a reversal in the direction of an overall trend.

Double tops form in an uptrend and double bottoms form in a downtrend.

In term of market dynamics, the idea behind both is that a directional move (up or down) will make a high or low at some point. After a period of consolidation, the market will frequently test the prior high or low for the trend. If the trend is still intact, the market should be able to make a new high or a low beyond the prior one. But if the market is unable to surpass the prior high or low, it’s taken as a signal that the trend is over, and trend followers begin to exit, generating the reversal.

Note: The Instructor will lead you through a step by step example and explanation Double Top formation

Double Bottom Formation

72 | P a g e

Moving Averages Essentials: One of the more basic and widely used indicators in technical analysis, moving averages can verify existing trends, identifying emerging trends, and generate trading signals. Moving averages are simply an average of the prior prices over a user-defined time period displayed as a line overlaid on a price chart. There are two types of moving averages: Simple Moving Average: gives equal weight to each historical price point over the specified period.

Exponential Moving Average: gives greater weight to more recent price data, with the aim of capturing directional price changes more quickly than the simple moving average.

The main moving average periods to focus are 21, 55, 100, and 200. Shorter-term traders may consider looking at the 9 and 14 period moving averages.

Another way moving averages are used is by combining two or more moving averages and using the crossovers of the moving averages as a buy or sell signals based on the direction of the crossover. For example, using a 9 and 21 period moving average you would buy when faster moving 9-period averages crosses up over the slow-moving 21-period average, and vice versa for a crossover to the downside. The example, below shows the effect of using buy signal when the 50day SMA moving average crossover over 200-day SMA moving average.

Note: The Instructor will lead you through a step by step example and explanation

73 | P a g e

Lesson Plan in Real World Application  Q & A Period

 Instructor will demonstrate on a live trading screen the application of material just covered and point out real examples.

 Trading opportunities - If a trade opportunity arises, we will trade with full trade analysis.

Notes:

74 | P a g e

Notes:

75 | P a g e

(Intentionally left blank)

76 | P a g e

Lesson 4 Money Management Introduction

Section 1: Placing Stop Losses Section 2: Risk Factor (how much to risk) Section 3: When to shoot for Breakeven Point Section 4: Spreads (sudden jump) Real World Application Session Review Q & A Forum

77 | P a g e

Objectives

 The student will have working knowledge on how to manage his trading to minimize losses.  The student will know how much to risk per each trade.  The student will be able to use the breakeven point to their advantage.

 The student will recognize how there can be sudden spread increase.

78 | P a g e

Money Management Money Management Money management is probably the most important aspect of trading. Proper money management is a necessary component of a long and successful trading career. There are four money management components that will keep you in the game as a winner: Placing a stop loss and never moving it unless you are raising or lowering it to protect profits, never exiting a trade before you get a signal to do so, never risking more than 4% of your account balance on any one trade (beginners should start with 1% or 2%), and exiting half your positions at the break-even point.

Placing stop-losses We have already discussed stop-losses, but it doesn't hurt to reemphasize how important they are. Once you decide where to place your initial stop-loss leave it there, don't ever move it unless you are raising it or lowering it to protect some profits. If the price starts to approach your stop-loss and you are scared that it might stop you out, do not move your stop loss further away. All you're doing is increasing your risk on the trade. If you find a good signal to enter a trade and the price moves against you and stops you out, it's very likely that the price will continue moving in that direction. If you move your stop-loss to avoid getting stopped out you will more than likely just end up with a bigger loss. You are going to get stopped out sometimes so you might as well get used to it. The key is to keep your losses as small as possible and not make them bigger than they need to be. Good winning trades can make up for several small losses.

The only time you want to move your stop is after the price moves in your favor.

Once the price is moving in your favor you will raise or lower your stops to protect your profits.

79 | P a g e

Never exit a trade early This isn't an absolute 100% rule, but it should be pretty close. It's very easy to turn a winning trading plan into a losing one. All you have to do is exit your trades early with small profits instead of letting them go. It's very hard watching a profit get smaller and smaller. It can be very tempting to click the "Close Trade" button, but if you want to be a winning trader that's exactly what you should not do. Sure, you may lose more trades by letting them run, but you will also get more winning trades, and the good winning trades can make up for the losses.

Never risk too much on any one trade As a general rule I try to limit my losses to a maximum of 4% of my account balance. However, beginning traders should risk even less until they gain more confidence. If you risk 10% or 20% on any one trade it won't take too many losses to completely wipe out your account. The way to make more money is to risk only 4% or less and then add to winning positions as explained previously. If you have a $1000 trading account it means you don't want to risk more than $40 on any one trade. If you trade the GBP/USD you can trade 1 mini lot if you have a 40 pip risk. When you trade the GBP/USD each mini lot is worth $1 (one US Dollar), so if you have a 40 pip risk and trade 1 mini lot your maximum loss will be $40. If your risk on a trade is only 20 pips you can trade 2 mini lots.

However, beginners should be risking only half this much. This is why I would suggest starting with at least $2,500 in your trading account, so you can be making trades with a risk of 2% or less. There is another reason for opening an account with at least $2,500 because it is required that you enter trades with at least 2 mini lots (and a $2,500 account will allow you to do that).

80 | P a g e

If you have a $100,000 trading account it means you don't want to risk more than $4,000 on any one trade. If you trade the GBP/USD you can trade 10 lots if you have a 40 pip risk because each lot is worth $10 (ten US Dollars). If your risk on the trade is only 20 pips you can trade 20 lots. However, once you get up to a $100,000 account you may feel more comfortable risking less than 4% per trade.

You can still make a lot of money risking just 2% per trade if you have $100,000 in your account.

Exit half your positions at the breakeven point This is one of the most important and beneficial money management techniques you could ever learn. There are many different variations for using this exit strategy and I will give you a detailed explanation of how to implement this technique. Plus, once you know how this strategy works you will be able to customize it any way you want. With this strategy you will be able to reduce your risk, turn potential losing trades into winning trades, and also reduce your trading stress. After all, traders get stress from losing money, so if you could eliminate the risk of losing as quickly as possible after entering a trade your stress would be lessened tremendously.

OK, so how does it work?

Entering a trade is exactly the same as explained previously. You will also place an initial stop-loss at the time you enter the trade, also the same as explained previously. However, once the price moves in your favor the same amount as you risked on the trade, you will exit half your positions. In other words, if you are risking 20 pips on a trade you will exit half your positions with a 20 pip profit. This will turn your trade into a break-even trade even if the price reverses and the second half of your positions get stopped out with a loss.

81 | P a g e

Here's an example.

You get a signal to enter a long trade at 155.50 and your initial stop is at 155.20 which means you are risking 30 pips on this trade. You place 2 separate trades with half of your positions in each trade. If you are going to trade 2 mini lots you will place 2 separate orders and go long 1 mini lot with each order. In other words you will place an order to go long 1 mini lot at the current market price of 155.50.

Immediately after placing the first order you will place a second order to go long 1 mini lot at the current market price of 155.50. Once you get the hang of it, it only takes a couple of seconds to place an order, but even so, in the time it takes you to place both orders the current market price may be 1 or 2 pips higher or lower than 155.50. That means you might actually enter one trade at 155.50 and one trade at 155.52 or 155.48.Once you have entered both trades you can go in and edit these open trades. If you entered both trades at 155.50 you will notice that each trade is risking 30 pips. On one of these trades you add a limit order that is 30 pips above your entry price of 155.50, or at 155.80. Then when the price climbs higher and hits 155.80 you will automatically have one of your trades closed out with a 30 pip profit. If the price drops against you and eventually stops you out of the other trade with a 30 pip loss you will have lost nothing on the trade.

Once the price moves up 30 pips you will be guaranteed at least a break-even trade. From that point on there is no stress on the trade, you can't lose. But if the price continues to move in your favor you can continue to increase your profits on your one remaining open position. An added benefit is that once you have guaranteed yourself at least a break-even trade it is a lot easier to stay in the trade even if the price should move against you, without feeling the need to exit the trade too early.

This will keep you in more trades longer. It's very easy to want to exit a trade with a small profit if you think you may end up losing on that trade, but it's very easy to stay with the trade all the way if you know you can no longer lose money on that trade.

82 | P a g e

You will find that many of your trades will move 30 pips or more in your favor and then reverse. Without this technique many of those trades could turn into losing trades. But with this technique you will find that many trades that would have ended up losers turn into break-even trades or even small winners instead. Before we start examining variations of this method here are a couple of charts showing you examples of this basic technique: I have explained this technique in the easiest way possible, so that you would understand how it works.

However, there is one part that I haven't mentioned yet because I didn't want to complicate the process until you learned the basic strategy. I did not mention anything about spreads in the explanations above, but they must also be figured in.

83 | P a g e

Spreads must be added to the amount of risk in this strategy

All you have to do is add the amount of the spread to the amount of the risk.

Here's how that works: As you have already learned there is a buy price and a sell price. The difference between the buy price and the sell price is the spread. Most traders will be looking at the sell price on their charts. When I'm looking at my charts I am always seeing the sell price, never the buy price (which is higher). If a candle closes on my chart at the price of 195.50 and I want to enter a long trade at that price, I will not be able to buy it at that price. The buy price may be 4 pips higher than that price.

So if I buy 1 mini lot at the sell price of 195.50 I will actually be buying it at the buy price of 195.54.

84 | P a g e

Variations of exiting half your positions at the break-even price Instead of placing your limit order to exit half your positions at the break-even point you can place your limit order much closer to your entry point. The closer you place your limit order to your entry price the better your chance for at least getting a break-even trade. But on the other side of the coin, the closer you place your limit order to your entry price the better chance you have of getting stopped out and missing a good winning trade.

It's really very simple. Let's say you entered a long trade at 195.50 and your stoploss was at 195.25. You are risking 25 pips. In the basic strategy you would place your limit order on half your positions at 195.75.

However, you don't need to place your limit order that high. There is no law that says you can't place your limit price at 5 or 10 pips above your entry price. You can place it anywhere you want. For example, you could place your limit order just 10 pips above your entry price at 195.60 instead of 25 pips above your entry price. It is much more likely that the price will hit 195.60 than hitting 195.75. And once the price hits 195.60 half of your positions will be closed out with a 10 pip profit. You will then raise your stop from 195.25 to 195.40 so that you will be guaranteed at least a break-even trade.

85 | P a g e

You can choose to place your limit price 5 pips, 10 pips, 15 pips, or any amount of pips higher than your entry price. The lower the amount the greater the chance you have of at least breaking even on your trade, but also the greater chance you have of being stopped out before the big move. You'll have to decide what's right for you. Here's a chart showing what could happen if you used 10 pips as your break-even point:

86 | P a g e

Another Variation If the price moves very decisively in your favor you can delete the limit order you have on half your positions and instead move your stop-loss to retain at least some of the profit on both halves of your positions. For example, let's say you enter two separate short trades, with half your positions in each trade, and you have a 40 pip risk. You place a limit order on 1 of your trades (half your positions) to exit at a 40 pip profit. But as the price moves quickly in your favor, and is getting close to the limit price, you decide that you want to try for a larger profit on this trade. So you remove your limit order and instead lower your stops so that you will get at least 10 pips of profit on both of your trades. If the price continues to move in your favor you will end up with twice as much profit because you never exited half your positions. If the price moves against you and ends up stopping you out you will still get 10 pips profit for all of your positions. Here is an illustration of this strategy:

87 | P a g e

There are many different ways to tweak this strategy and you should experiment with your own ideas. The idea is to maximize your profits on good strong moves while still reducing your risk as much as possible.

What you don't want to do is turn a winning trade into a losing trade.

Here is how I would trade this variation: I would always place my limit order on half my positions at a specific price level as usual. What price level? In my study it seems that the ideal price to place the limit orders (to take profit on half of the positions) is approximately 5 pips less than the initial amount of risk.

In other words, if I enter a long trade at 195.50 and my stop is at 195.25 I am risking 25 pips on the trade. I would place my limit order at about 18 to 20 pips above my entry price instead of 25 pips. Then when the price hits my limit price, and I automatically exit the first half of my positions, I would then raise my stop on the second half to the break-even point. This would be my basic method.

However, if a strong move begins, especially if I was risking 40 or 50 pips or more on a trade, I would remove my limit order and move all stops so that if I was stopped out I would still end up with a profit of at least 10 or 15 pips.

I would then either get stopped out with a 10 or 15 pip profit on all positions or I could possibly end up with a very profitable trade.

88 | P a g e

Lesson Plan in Real World Application  Q & A Period

 Instructor will demonstrate on a live trading screen the application of material just covered and point out real examples.

 Trading opportunities - If a trade opportunity arises, we will trade with full trade analysis.

Notes:

89 | P a g e

Notes:

90 | P a g e

(Intentionally blank page)

91 | P a g e

Lesson 5 Trade Management Introduction

Section 1: Common Mistakes Section 2: Averaging In and Averaging Out Section 3: Trailing Stops Section 4: Scaling for additional profit Real World Application Session Review Q & A Forum

92 | P a g e

Objectives  The student will have recognition of trade management.  The student will have a understanding of Averaging In and Averaging Out.  The student will know how to use trailing stop technique.  The student will be able to use scaling for additional profit.

93 | P a g e

Trade Management Essentials Forex trade management is arguably the most important aspect of success in the markets; it can literally make or break you. Once you learn a high probability Forex trading strategy like price action, you have to know how to manage your trades after they are live. Most traders simply ignore this essential piece of the Forex trading puzzle. By ignoring trade management or by simply not being aware of it, it is only a matter of time before you self-destruct in the market. A perfect price action trade setup can very easily turn into a losing one if you fail to manage it properly. So, without further ado, let’s dive into some practical Forex trademanagement tips that you can put to work right away.

Forex Trade Management Mistakes…

Most trade management mistakes are a result of emotional decisions. How often have you found yourself entering a new position just because your current position is in profit? Or how about moving stop losses further from your entry because you are “certain” that price will turn around and move back in your favor? Have you ever moved your profit target further out as a trade moved into profit because you convinced yourself it would keep going because of XYZ reason?

Maybe you take profits smaller than 2 times risk all the time or often get stopped out at breakeven only to see the market move on in your favor without you?

These are all very common errors that traders make which are caused from poor or no planning and emotional decision making.

All of these errors seem pretty silly when you’re not in the market and thinking objectively. But, once you enter a trade, if you are not following a Forex trading plan and keeping track of your trades in a Forex trading journal you are very likely to experience extreme temptation to make one or more of the above mentioned 94 | P a g e

trade management mistakes. While trade management is not a concrete science or a mechanical process, there are some general guidelines you can follow and questions you can ask yourself before and during each trade which can help you manage your trades much more effectively.

Averaging In and Averaging Out… Let’s discuss adding to positions and having multiple or partial positions. First off, the decision of whether or not to add to your initial position in a trade should largely be made before you enter. You need to analyze current market conditions and decide the most logical exit strategy and whether or not adding to your initial position is logical given current market conditions. If you are entering into a strong trending market, you may decide before hand that you will try a trailing stop and try to let the trade run and add to it at logical levels as it moves in your favor. The safest way to add to a position as it moves in your favor is to average in as the market moves in your favor. Here is an explanation of averaging in.

• Averaging in means that you use your open profit to “pay for” the next trade, it allows you to add to your position in a risk-free manner, but the sacrifice is that you increase your odds of getting stopped out at breakeven. It typically is only good to try this technique in a market that is in an obviously strong up or down trend. Forget about it in trading ranges or sluggish / slow-grinding markets.

Here is an example of averaging in: you sell the EURUSD at 1.4500 with one minilot. The position quickly goes into profit by 100 pips and then forms a fakey setup in the direction of your initial position. Once your first position is up 100 pips and the market formed another price action setup giving you a reason to take on another position, you add a second mini-lot with a 50 pip stop loss, you then move down the stop loss on the first lot to lock in +50 pips. Now, if the second position turns around and hits your 50 pips stop loss, the first position will also stop you out for a 50 pips profit, stopping you at breakeven.

95 | P a g e

This is a risk-free way to add to a position that is moving strongly in your favor.

However, always keep in mind it increases your odds of getting stopped out at breakeven and making no money at all, the payoff is that you could obviously make twice as much (or more) money. One important note of caution is to make sure you NEVER add to your initial position and double up your risk by not adjusting your stop on the first position. Averaging in means that you move your average entry price closer to the market price, if you double up your position and don’t trail up your stop loss, you open yourself up to substantial losses.

• Averaging out (Not A Good Idea In My Opinion), also known as “scaling out” is often talked about in the Forex trading community but it is almost always a bad idea. The main reason it is a bad is because of this; when you scale out of a position all you are doing is reducing position size as the trade moves into your favor. Sound illogical? It is. Think about it for a minute. Why would you purposely want to hold the smallest part of your position at the most profitable part of your trade? It is always better to either take full profit at a logical spot in the market, 2R multiple or greater, or trail your stop on the full position, than to try and take partial profit by scaling out. The bottom line on averaging out is that holding the least profitable part of your position at the most profitable part of the trade is not a financially wise or logical way to try and maximize your winners.

96 | P a g e

Trailing Stops… (Only Use them when the market is trending) Trailing your stop as a trade moves in your favor can be a very good Forex trade management technique. However, trailing has limitations and you don’t want to just blindly trail your stop…

• Stop trailing techniques can take many different forms. A few of the more common ones including the following: trailing your stop up as a trade moves 1 times risk in your favor, thereby reducing your risk to 0 as a trade moves 1 times risk in your favor and subsequently locking in each 1R multiple of profit.

• The 50% trail technique is also popular, in this technique you trail your stop to 50% of the distance between your entry and the newest high / low as the market moves in your favor; thereby locking in profit as the market moves in your direction, this technique generally gives a trade more room to breathe but it can also give way a lot of open profit if a trade comes back beyond the 50% level and stops you out.

• Yet another popular trailing stop technique is to trail your stop just beyond the daily 8 or 21 day EMA. The 21 day EMA typically allows your trade to run for longer since it is less likely to get hit in a strong trending market than the 8 day EMA. The 8 day EMA trail would only be used in very quickly moving / trending markets. These are by no means the ONLY ways to trail your stop, they are just examples. There really is no right or wrong way to trail your stop loss, but just keep in mind it’s not the best strategy for every market condition. You generally only want to trail in strong trending markets.

• Breakeven stops are not always a great idea because the market can whipsaw around as everyone knows; stopping you out at breakeven only to move back in your favor. What you need to realize about trailing stops to breakeven is that it can cut down your long-term gains by limiting your potential profits. Yes, you will eliminate some potential losses by moving to breakeven, but you will also eliminate some even larger rewards.

As traders, we all need to accept the risk that is an inherent part of any trade, and if you are entering the market on a sound price action trading strategy, you want 97 | P a g e

to give your edge time to play out, essentially you are interfering with this edge if you move to breakeven as soon as possible. I have personally found that viewing my trades as a win or lose proposition and being totally OK with the loss, is a better way to trade long term, because you will inevitably have some winners that more than make up for your losers, and you don’t want to cut back on these winners through breakeven trades. There are times when moving to breakeven is a good idea; in very volatile markets or if you have pre-planned to trail up your stop in a logical manner like we discussed above.

Getting the Most Out of Each Trade…

The goal of any successful Forex Trader is to get the most out of every trade they enter. The way that you give yourself the best chance to get the most out of every trade is by behaving in a logical and consistent manner and pre-planning all aspects of your Forex trade management.

There is a fine line between being a trader who lives in hope and being a trader who accepts the reality of the market by taking what the market offers them.

Before you get into a trade you need to ask the question, “how far do I realistically think this market can move before a substantial correction occurs?”

Once you master price action trading and learn to read the levels and dynamics in the market, you will be able to make a pretty accurate estimation of the potential of any setup before you enter. And keep in mind you are ALWAYS LESS EMOTIONAL before you enter a trade than at any time during it. So, you have to assume that long-term, you are going to get the most out of every trade by managing it as much as you can before you enter it, rather than trying to manage it “on the fly”.

Listen to the signal and the market conditions; if there’s a price action setup at a clean breakout level or an obvious trend with strong momentum, trailing your stop into a 1 to 4 winner may have its reward. However, in a more congested or range-bound “not-so-sure” market situation, it’s not a good idea to pray and hope, trying to milk every last dollar out of a trade. So you see, there is a certain amount of discretion involved in trade management, it’s most important to read the market conditions before you enter a trade and decide how best to manage 98 | P a g e

the trade at that time while leaving open the possibility of adjusting your exit strategy if any obvious reversal signals occur in the course of the trade or if the market conditions change drastically. However, that said, it’s almost always better to plan everything beforehand and then set and forget your Forex trades. Trading in this way allows you to see how your trading edge plays out over the long-term with no “outside� interference, and it prevents you from trying to force your will on the uncontrollable market.

Placing a stop-loss Whenever you enter a trade you should always enter a stop-loss at the same time. In long trades I will usually place my stops 5 pips below the most recent low.

In short trades I will usually place my stops 5 pips plus the spread above the most recent high. For example, if I enter a short trade at 159.50 in the EUR/JPY, and the most recent high is 159.70, I will place my stop 5 pips plus the spread above 159.70. If the spread is 4 pips I will place my initial stop at 159.79. The following chart shows where I would place my stops on both a long trade and a short trade.

99 | P a g e

Raise or lower your stops as the price moves in your favor Once you enter a trade and the price moves in your favor you want to lock in some of the profits as soon as you can. There is nothing more frustrating than being ahead on a trade and then watching it reverse direction and eventually stop you out at a loss. In the section on money management I will teach you the key to preventing these types of losses, but for now I will show you the basics of raising or lowering your stops to protect you profits.

There are three directions the market will move. The market will move up (in an uptrend), down (in a downtrend), or remain in a trading range. In a trading range the price will move up and down, but will stay in a specific range. The following charts show you these 3 types of markets.

Uptrend

100 | P a g e

Downtrend

Range

101 | P a g e

When and Where to raise your stops in an uptrend Once you have entered a long trade and the price starts to move in your favor you will raise your stops to each new swing low (see chart below). A swing low is defined as the lowest price level between 2 high prices. Here is a chart showing you how to determine the swing lows:

Placing your stops When you enter a long trade you will place your initial stop 5 pips below the low price. After the price moves in your favor for a little bit you will wait for the price to retrace. After a retracement you will wait for the price to move higher again, eventually making a new high. Once the price exceeds the previous high price (once it makes a new high) you will raise your stop to 5 pips below the most recent swing low.

Each time you see a retracement you will wait for the price to turn back up and exceed the previous high price, and when it does you will raise your stop to 5 pips

102 | P a g e

below the most recent swing low. The following chart will show you where and when to raise your stops each time the price exceeds the previous high price

When and Where to lower your stops in a downtrend Once you have entered a short trade you will lower your stops to each new swing high (see chart below).

103 | P a g e

A swing high is defined as the highest price level between 2 low prices. Here is a chart showing you how to determine the swing highs:

When you enter a short trade you will place your initial stop 5 pips plus the spread above the high price.

After the price moves in your favor you will wait for the price to retrace. After a retracement you will wait for the price to reverse lower again, making a new low price. Once the price exceeds the previous low price you will lower your stop to 5 pips plus the spread above the most recent swing high. Each time you see a retracement you will wait for the price to reverse back and then exceed the previous low price, and when it does you will lower your stop to 5 pips plus the spread above the most recent swing high. The following chart will show you where and when to lower your stops each time the price exceeds the previous low price.

104 | P a g e

Where do you place your stops in a trading range?

When you trade a trading range you will basically enter the trade and place your stop-losses just have you have already learned. However, once you realize that the market is in a range you will want to start buying at the low price of the range (using your same entry signals) and start selling at the high price of the range (using your same entry signals). The following chart shows how to trade during a trading range.

105 | P a g e

Protect your profits. If the price moves in your favor, giving you a good profit, but doesn't give you a good place to move your stop, you should place a stop to protect your profits anyway. See the following chart.

106 | P a g e

Lesson in Real World Application  Instructor will demonstrate on a live trading screen the application of material just covered and point out real examples.

 Trading opportunities - If a trade opportunity arises, we will trade with full trade analysis.

 Q and A Period

Notes:

107 | P a g e

NOTES:

108 | P a g e

(Intentionally blank page)

109 | P a g e

Scaling for Additional Profit Essentials: In today’s lesson I am going to teach you how to “trade with the market’s money”. That’s right, I am going to show you how to scale in or “pyramid” into a winning trade, without taking on more risk. This essentially means you will add to an open winning position without taking on more risk and possibly even creating a risk-free trade, all while dramatically increasing your potential profit. It’s not too good to be true, but there are certain times when scaling into a trade works better than others, which we will discuss in today’s lesson.

Note; Scaling in is the same thing as adding to a position or pyramiding in.

You’ve probably heard the saying “Cut your losers short and let your winners run”, but how do you actually do that? Today’s Forex trading training lesson is going to teach you how to properly scale into an open trade that’s in profit, so that you get the most out of your winning trades.

How to safely scale in or “pyramid” into a winning trade Note that I have “safely” in italics above, that’s because there are basically two ways that you can add to a winning open position: 1) The stupid way – Scaling into your position but not trailing your stop up or down to reduce risk on the previous position(s), thereby voluntarily taking on more risk (something you should NEVER do).

2) The smart way – Scaling into your position at predetermined levels and trailing your stop up or down each time you add a new position so that you never risk more than you are comfortable with losing, or more than what you have predetermined is a good 1R value for you (1R = the amount you risk per trade).

I am going to teach you how to safely pyramid into your trades today, but before we get started I need to stress one thing:

110 | P a g e

WARNING: Just because you can scale into an open position that is in profit doesn’t mean you SHOULD. There are certain times when the strategies you are about to learn will work well and certain times when they won’t. In general, you can try to scale into a winning position when a market is in a strong trend or during strong intra-day moves. You should not try scaling in when the market is range-bound or trending in a choppy manner with a lot of back and filling.

Now, because you are adding a new position each time your current trade moves a certain distance in your favor, your breakeven point on the whole position moves closer to the market price. This means the market doesn’t have to move as far to put you into negative territory. Now, this won’t be a problem if you have trailed your stop loss on the previous position(s) so that you maintain your overall 1R risk, but where traders get into trouble is scaling into positions and not moving their stop losses to reduce risk. If this all seems a little confusing right now I promise the diagrams below will clarify…

Example scenario: Let’s say the EURUSD is trending down. You see a solid point entry strategy that formed showing rejection of the 1.2625 resistance level. You decide that since price has respected this level and it’s obviously a “key” level, it’s a good place to set your stop loss just above. So you decide to put your stop loss for the trade at 1.2650….we ALWAYS set our stop loss BEFORE deciding on a potential profit target. This is because risk management is the most important aspect of the whole thing…if you don’t properly manage your risk on EVERY trade you WILL NOT make money.

Next, there is no obvious / significant support that you can see until about 1.1900, so you decide to aim for a larger profit on this trade and see if the trend won’t run in your favor a bit. Your pre-defined risk on the trade is going to be $200, to keep the math simple let’s say you sold at 2 mini-lots at 1.2550; 100 pip stop loss x 2 mini-lots (1 mini-lot = $1 per pip) = $200 risk

111 | P a g e

You decide to aim for a risk reward 1:3 on this trade, so you set your initial target at 1.2250 and you plan on adding two positions to this trade, 1 when you are up 100 pips and another when you’re up 200 pips. You plan on doing this because the market is trending strongly and you have decided based on your discretionary price action trading skills that there’s a good chance the trend will continue.

Here is a diagram of what your trade looks like at the beginning:

The trade pushes on in your favor and you decide to scale in with another 20k units at 1.2450. Your overall position size is now 40k or $4 per pip on the EURUSD, this increases your potential reward to $1,000 if price hits your target at 1.2250.

Since you trailed down the stop on your initial position to 1.2550, that position is now at breakeven, the stop on your new position is also at 1.2550, meaning your overall risk on the trade stays the same at $200.

112 | P a g e

Next, the trade continues on in your favor and you decide to pyramid in with another 20k units at 1.2350. This means your overall position is at 60k or $6 per pip on the EURUSD. Your overall reward potential is now $1,200 if your target of 1.2250 gets hit; note that your reward is now double what it was when you started whilst your overall risk is now at $0 as you’ll see now…

You trail down the stops on both previous positions to 1.2450 thereby locking in a profit of $200 on the first position, reducing the second position to breakeven and offsetting the $200 risk on your new position to $0…you now have a breakeven trade. The catch here is that the market is only 100 pips from your breakeven point on the whole trade, so there’s a bigger potential of the whole position getting stopped at breakeven…the good part is you have increased your potential for profit without taking on any more risk.

113 | P a g e

The trade continues on in your favor and hits your target at 1.2250, all three positions are now closed and you’ve netted a 1:6 risk : reward. You never risked more than $200, which was your predefined 1R risk amount, and you gained $1,200. This is an example of how to take advantage of a strong trending market like we have seen recently in the EURUSD and other markets.

114 | P a g e

Final word on adding to winners…

Finally, I just want to stress again that you should not try to scale into EVERY trade that goes into profit. You need to decide BEFORE you enter a trade if you think it has the potential to run in your favor; you need to decide before you enter if you are going to add positions to a trade by scaling in. You don’t want to leave anything to chance, and you want to make as many decisions as possible before you enter the market, since that’s when you’ll be the most objective and logical.

Take note of the EURUSD and some of the other major Fx pairs over the last 3 to 4 weeks (as of May 31st 2012)…these are the types of market conditions that give 115 | P a g e

us good potential to try and add to a winning trade. Note that these market conditions don’t happen extremely often, but I wanted to teach you guys that you can add to a trade without taking on any more risk…and that was the point of today’s lesson.

116 | P a g e

Lesson Plan in Real World Application  Q & A Period

 Instructor will demonstrate on a live trading screen the application of material just covered and point out real examples.

 Trading opportunities - If a trade opportunity arises, we will trade with full trade analysis.

Notes:

117 | P a g e

Notes:

118 | P a g e