Simlpy Forex English by meydanco

Simply FOREX An Introduction For The New Trader Meydan

C o.

| Learn A Trade | Learn To Trade |

Risk Disclosure ► This

information is provided to give new forex traders or a simple beginners introduction information and some commonly used methods in the forex market by many traders. ► This information is not financial advice or any trade recommendation. It is only provided to the interested reader as basic information. ► No part of this document can be copied or published without the written consent of Meydan & Co. © Meydan & Co. www.meydanco.com www.globaltraderclub.com

Contents ► ► ► ► ► ► ► ► ► ► ► ► ► ► ► ► ► ► ► ►

What is forex and how is it traded? Advantaged of trading the forex market Currency pairs and their significance The concept of leverage Trading costs Pips Lots Order types Fundamental analysis Major currency pairs Technical analysis Managing your risk The psychology of the trader Trading accounts Trading platforms Risk management Trading philosophies The market‟s noise Two forex trading strategies Final words

4 6 7 9 12 14 15 16 18 20 24 34 37 40 41 42 44 45 47 81

What is forex & how is it traded? ►

Forex is the buying of one currency and selling of another concurrently. Currencies are quoted in pairs such as EUR/USD. The major currencies are EUR (Euro), GBP (British Pound), JPY (Japanese Yen) and the CHF (Swiss Franc) – and they are traded against the USD.

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The first listed currency is known as the base currency, while the second currency is called the counter or quote currency.

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The base currency is the "basis" for the Bid price (the cost of selling the base currency) or the Ask price (the cost of buying the currency).

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For example, if you Ask EUR/USD you have bought Euros (and simultaneously sold dollars). You would do so in expectation that the Euro will appreciate in value relative to the US dollar. FX is traded in lots, which represent 100,000 units of the base currency.

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What is forex & how is it traded? ►

If the EUR/USD is quoted at 1.2253, that means that one Euro is currently worth just over $1.22. If the market moves from 1.2253 up to 1.2254 that represents a move of one pip.

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A pip is the smallest increment a currency pair can move and in the case of the EUR/USD currency pair a pip is worth $10 in a 100K account and is $1 in a mini account.

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For example you bought €10,000 at the EURUSD rate of 1,2253. [+ € 10,000 & -$12,253] and after a week you exchanged your Euros back to US$ at a rate of 1.3000 [1.3000x$10,000=$13,000].

Advantages Of Trading The Forex Market ►

►

High Leverage (low margin): Generally forex brokerage service providers offer a leverage of 100:1. This means for every $1,000 you place in your account you have access to trade with $100,000 worth of contracts. The traders can utilize a small amount of funds in order to take a large position. If you should happen to incur a loss, your broker will close your position when the loss equals the balance in your account. Liquidity: The forex market trades between $1.5 and $2 trillion daily. The market orders are almost filled instantaneously and the market is too large for any one to control. 24 Hour trading: The forex market operates 24 hours a day from Monday morning Sydney – Australia time to Friday evening New York (EST) time. Therefore traders have immediate access to information, their accounts and transaction ability without after hours price fluctuation vulnerability. Trade both sides of the market: You can profit from price movements in either direction, whether prices are going up or down. You can profit in a bear or a bull market and the economy of any country is irrelevant to make profits. Low trading costs: Forex brokers will only charge you for the difference of a buy and sell price quote. There are no commissions or other charges payable buy the trader.

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Currency Pairs & Their Significance A currency pair represents the exchange rate between the two currencies. For example, the rate at which the EUR/USD is trading that represents the number of US Dollars one Euro can purchase. The first currency is called the base currency and the second currency is called the counter currency. ► An example of how currency pairs trade is if a trader believes the Bank of Japan will intervene to cause a decrease in the Yen against the US Dollar, then the trader would Ask USD/JPY (Ask the US Dollar/Bid the Yen). However, if the trader believes that Japanese investors are losing faith in the United States' economy and are pulling money out of the US into Japan, then the trader would Bid USD/JPY (Bid the US Dollar/Ask the Yen). ►

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Currency Pairs & Their Significance â&#x2013;ş

Below is an example of how currency pairs are listed on trading stations. The currency pairs are listed on the left side of the column. The Bid price is the level at which a trader can Sell the currency pair and the Ask price is the level at which a trader can Buy the currency pair.

ÂŠ Meydan & Co. www.meydanco.com www.globaltraderclub.com

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The Concept of Leverage ►

What is leverage? Leverage allows traders to borrow money and use that money to invest in the foreign exchange market. Because of leverage, clients without a large amount of capital are able to make large investments, whereas in other markets such as the equities market, clients would have to pay 50% of the full amount for each share of stock they were investing in. Most market makers allow positions to be leveraged up to 100:1. This means that if a trader wanted to Ask a “lot” worth $100,000, with 100:1 leverage the trader only has to put up $1,000. Leverage is about risk. Increasing your leverage increases both your opportunity to take bigger profits AND rack up bigger losses.

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The Concept of Leverage â&#x2013;ş

What is margin? [Minimum account size] Margin is a performance bond, or good faith deposit, to ensure against trading losses. The margin requirement allows traders to hold a position much larger than the account value. In the event that funds in the account fall below margin requirements, your broker will close some or all open positions. This prevents clients' accounts from falling into a negative balance, even in a highly volatile, fast moving market.

For example, let's say you have an account with $10,000. That means you have $10,000 of usable margin. If you use $7,000 to Ask 7 lots of USD/JPY, you now have $3,000 of usable margin left, meaning that you are allowed to lose $3,000 before you are under required margin level. The account equity remains at $10,000 until you begin to make or lose money on the position. Now, if the USD/JPY decreases to the point that you end up losing the $3,000 which is left in your account, then the broker will close all of your positions to ensure that you do not lose more than you have in your account. ÂŠ Meydan & Co. www.meydanco.com www.globaltraderclub.com

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The Concept of Leverage ► How

are leverage and margin related? The amount of leverage a broker [market maker] gives to a client defines the amount of margin that the client will have to commit in order to take a position in the market. For example, when leverage is 100:1, the “1” in the leverage ratio signifies the amount of capital the customer has invested of his own money, which is also known as the margin.

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Trading Costs How much does it cost for a trader to make a trade? ► Traders do not take positions on a currency pair at the exact rate at which the currencies are trading. Instead, there are two rates for the currency pair: the bid rate and the ask rate. ► The bid rate is the price at which traders can Bid the pair. ► The ask rate is the price at which traders can Ask the pair. ► This is an example of a currency pair. The Ask rate is higher than the Bid rate and the spread is 3 pips, meaning that if a trader Asks this pair, then the Bid rate of this pair will have to go up 3 pips in order for the trader to break even. ► The ask rate will always be higher than the bid rate. The difference between the bid rate and the ask rate is the spread. The spread is an automatic cost that the trader incurs when making the trade. Because of this spread, traders will take a position they started with a small loss and will need to gain some profit in order to break even. ► For example, if a trader Asks into a position at the ask rate, and then immediately closes the position at the bid rate, the trader will incur a cost equal to the spread. These spreads are seen in every kind of market. However, because of the broker-based system in the equities and futures market, it can sometimes be difficult to identify where and how much the spread cost is. © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Trading Costs â&#x2013;ş Rollover For positions open at 5pm EST [i.e. New York] there is a daily rollover interest rate that a trader either either pays or earns, depending on your established margin and position in the market. If you do not want to earn or pay interest on your positions, simply close the position before 5pm EST or choose a broker with an Islamic account. If you are buying a currency with a higher interest rate then the net difference will be positive. ÂŠ Meydan & Co. www.meydanco.com www.globaltraderclub.com

Pips A pip is the last decimal place of a quote. The pip is how you measure your profit or loss. Each currency has its own pip value so you need to calculate the pip value for every pair. Pips with USD as base currency e.g USDJPY: 0.1/exchange rate = pip value [0.1 / 119.80=0.0000834] ►

Pips with non USD base currency need to be converted back to US$ e.g. EURUSD: [0.0001/exchange rate]xexchange rate © Meydan & Co. www.meydanco.com www.globaltraderclub.com

Lots Forex is traded in lots. Standard size is $100,000. There is also a mini lot, $10,000. ► Since currencies are traded in pips, and these pips are tiny values, we need to trade in large amounts to make a significant profit. e.g. If we trade with $100,000 USDJPY @ 119,80; [0,01/119,80]x$100,000= $8,34/pip. ►

If we have a non US$ bas currency pair such as EURUSD: e.g. EURUSD @ 1,1930; [0,0001/1,1930]x€100,000= €8,38. To convert to US$: €8,38x1,1930= $9,99734. i.e. $10. © Meydan & Co. www.meydanco.com www.globaltraderclub.com

Order Types â&#x2013;ş 1.

2. 3.

There are three basic types of order; Market Order; It is an order to buy or sell at the current market price. Limit Order; Limit order is an order placed to buy or sell at a certain price. Stop Loss Order; This is an order linked to an open order for the purpose of limiting your losses if the market moves against you.

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Order Types There are three not common order types; 1. GTC (Good „til canceled): It remains active in the platform until you cancel it. 2. GFD (Good for the day): The order remains active in the market until 5pm EST time, since that is the end of a forex trading day. 3. OCO (Order cancels other): In this case you place two orders, one to buy at a certain price and one to sell. When one of them is activated the other is canceled. ►

Fundamental Analysis ►

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What influences prices in the forex market? Prices in the currencies market are affected by macroeconomic factors, such as inflation, unemployment, and industrial production. Information on events such as these is easy to find and are based on their analysis of economic data, which traders take positions on the market to make profit. There are three main macroeconomic factors a trader should focus on when analyzing foreign exchange rates: Interest Rates: Each currency has an overnight lending rate attached to which is determined by that country‟s central bank. Lower interest rates usually lead to depreciation in the value of the country's currency. This is largely due to traders who execute carry-trades. A carry-trade is a trade where a currency with a low interest rate is sold and a currency with a high interest is bought. This is based on the idea that currencies with higher interest rates will generally rise in value, and will rollover and allow trades to earn interest on a daily basis. Employment: The unemployment rate is a key indicator of its economic strength. If a country has a high unemployment rate, it means its economy is not strong enough to provide people with jobs, and thus, leads to a decline in the currency value. Geopolitical Events: Key international political events that affect not only the foreign exchange market, but all other markets as well.

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Fundamental Analysis Techniques How does fundamental analysis explain the long term trend movements? â&#x2013;ş Fundamental analysis is very useful for determining long-term trends within a currency pair. By focusing on long term economic factors that affect countries, fundamental analysis predicts long term trends. ÂŠ Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Major Currency Pairs EUR/USD When the dollar weakens the EUR/USD will rise and if the USD recovers then a strong foreign demand will send EUR/USD lower If you think the U.S. economy will become weaker and hurt the US Dollar, you can ASK, which means that you are Asking Euros and expecting them to go up against the US Dollar. If you think that there will be increased foreign demand for US financial instruments such as equities and treasuries, and that benefit the US Dollar, click on BID, which means that you are Asking U.S. Dollars, expecting them to climb in value against the Euro.

USD/JPY Japanese government intervention to weaken their currency sends USD/JPY higher and gains in Nikkei and demand for Japanese assets drive USD/JPY down. For example, you think that the Japanese government will continue to weaken the yen in order to help its export industry, you would click on ASK, expecting the U.S. dollar to increase in value against the yen. If you think that Japanese investors are pulling money out of U.S. financial markets and repatriating funds back into the Japanese asset markets, such as the Nikkei, you would click on BID. This means that you expect the Yen to strengthen against the U.S. Dollar as Japanese investors Bid their assets and convert their Dollars back into Yen. ÂŠ Meydan & Co. 20 www.meydanco.com www.globaltraderclub.com

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Major Currency Pairs GBP/USD High Yield and attractive growth in the UK drives GBP/USD higher speculation about UK adopting the euro will send the GBP/USD lower. For example, you think the British economy will continue to benefit from its high yield and attractive growth, thus buoying the Pound, you would click ASK, which means that you expect the British Pound to strengthen against the U.S. Dollar. If you believe the British are about to commit themselves to adopting the Euro, you would click BID, expecting the Pound to weaken against the Dollar as the British devalue their currency in anticipation of merging with the euro. USD/CHF Global stability and global recovery will send USD/CHF higher USD/CHF rallies on geopolitical instability. For example, you think that the market is headed towards a period of global stability and economic recovery, meaning that investors no longer need to park their money in the safe haven currency such as the Swiss Franc, you would click ASK, expecting the U.S. Dollar to strengthen against the Swiss Franc. If you believe that due to instability in the Middle East and in U.S. financial markets, the dollar will continue to weaken, you would click BID, expecting the Swiss Franc to strengthen against the dollar. ÂŠ Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Major Currency Pairs EUR/CHF Swiss government uses verbal intervention to weaken the Franc, sending EUR/CHF higher. For example if inflation took off in Germany and France it could drive EUR/CHF lower. Thus for example if you think the Swiss government wishes to devalue the currency to help exports in Europe, you would click ASK, expecting the Euro to increase in value against the Swiss Franc. If inflation started taking off in Germany and France, you would click BID expecting the Swiss Franc to increase in value against a devalued Euro. AUD/USD Rising commodity prices sends AUD/USD higher Droughts hurt Australian economy and AUD/USD. For example, you think that commodity prices are going to rise dramatically, thus benefiting the Australian Dollar, you would click ASK, expecting the Aussie to strengthen against the U.S. Dollar due to Australia's status as one of the world's leading commodity exporters. If you believe that Australia will face another drought, hurting the domestic economy, you would click BID, expecting the U.S. Dollar to strengthen against the Australian Dollar. ÂŠ Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Major Currency Pairs USD/CAD Canadian economic underperformance against US sends USD/CAD higher. Higher interest rates and rebounding labor market in Canada will help to drive USD/CAD lower

If, for example, you think that the U.S. economy is going to rebound while the Canadian economy goes into recession, you would click ASK, expecting the U.S. Dollar to strengthen against the Canadian Dollar. If you believe that the higher yields and rebounding labor market in Canada warrants a higher valuation for the Canadian Dollar against the U.S. dollar, you would click BID, expecting the Canadian Dollar to decline against the U.S. dollar. NZD/USD Bad weather in US increases demand for foreign wheat sending NZD/USD higher. New Zealand Interest rates expected to decrease sending NZD/USD lower If, for example, you think that Hurricane damage in the US will lead to an increase for wheat imports from foreign nations such as New Zealand, you would click ASK, expecting the New Zealand Dollar to strengthen in value against the U.S. dollar. If you felt that interest rates in New Zealand would fall in the future while interest rates in the US will continue to rise, you would click BID expecting the New Zealand to drop in value against the U.S. Dollar. ÂŠ Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Technical Analysis â&#x2013;ş

What is good about technical analysis? Once a trader masters technical analysis, it is easy to apply it to any currency or time frame, and thus allowing a relatively short time to figure out where trends are going. Because of the short time, technicians can follow numerous currencies at the same time, whereas fundamentalists usually focus on one or two pairs of currencies, because there is so much information in the market to analyze. Traders using fundamental analysis can run into trouble because there are so many different ways to analyze market information. This causes controversy and can lead to misdirection, misunderstanding and ultimately, loss of money. On the other hand, technical analysis can be much more straightforward. Many traders even consider it to be a selffulfilling prophecy, meaning that it works well because so many traders use it. This is an important aspect of technical analysis because if many traders are basing their decisions on technical indicators, then the indicators must be watched since they reflect the sentiment of the market and the majority of the traders.

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Technical Analysis â&#x2013;ş

Why is the foreign exchange market the best market for technical analysis? The foundation behind using technical analysis is to find trends when they first develop, which allows the trader to ride the trend until it ends. The foreign exchange market is typically composed of trends and is, therefore, a place where technical analysis can be effective. Traders are able to speculate on both up and down trends in the foreign exchange market because it is possible to Ask a currency and Bid against another currency. This aspect of currency trading works well with technical analysis, because technical analysis helps determine where the trends are and which way they are going, thus giving the trader a chance of profiting from the market, regardless of its direction.

In comparison to the equities and futures markets, technical analysis is much more common and popular within the foreign exchange markets, which causes the traders to pay attention. The market partly moves because of all the technical analysis performed. For example, according to technical analysis, if a currency pair decrease, then the majority of traders will Bid the pair, causing it to drop further.

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Technical Analysis ►

Support and Resistance At the core of all technical analysis theory are two very simple concepts: support and resistance. Support can be defined as a “floor” through which the currency pair has trouble falling below. There is no scientific formula for calculating support; it is something that is typically “eyeballed” by traders, and hence involves somewhat of a subjective element. Resistance, on the other hand, is simply the opposite: it is the upper boundary through which a currency pair has trouble breaking. Similar to support, resistance levels are somewhat subjective. Generally, if the market reaches a certain number of times and cannot sustain a break above that level; it can be identified as resistance. The reason why price has trouble breaking these levels is the presence of actual orders around these levels. A support level is simply a price area where Ask orders tend to be, and so it takes more than normal Biding pressure to break that level. Similarly, a resistance level is a price area where Bid orders tend to be, and so it takes more than normal Asking pressure to break that level.

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Technical Analysis â&#x2013;ş Support

Markets

& Resistance in Range - Trading

One simple way to use support and resistance in trading is to simply trade the range: in other words, traders can simply Ask at support level, and Bid at resistance level. A key advantage of this is that the FX market is range-bound a majority of the time, making it an attractive strategy for many market conditions. ÂŠ Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Technical Analysis â&#x2013;ş The

two disadvantages of range trading: Trading in a range generally does not result in substantial gains on a per-trade basis. When the market breaks out of the range, generally it will make big moves. As a result, traders trading with range strategies can suffer big losses when the market breaks out of the range.

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Technical Analysis The chart below illustrates the concept of range-bound trading.

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Technical Analysis â&#x2013;ş

Support and Resistance in Momentum Markets Another way to use support and resistance is to trade outside of the range; in other words, to anticipate a breakout. This involves placing orders to Ask above resistance and to Bid below support. The rationale is that the market will gain momentum once it breaks out of the range, and thus by placing orders just below or above of support or resistance, traders may be able to profit if the market continues to move out of the range and they are on the right side of the market. Momentum trading is a bit counter-intuitive, as it involves Asking at a higher price and Biding at a lower price.

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Technical Analysis â&#x2013;ş Below

is a chart that illustrates the concept of momentum trading.

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Technical Analysis Oscillators Oscillators are a class of mechanical trading tools that offer indications of when a currency pair is overbought or oversold. A popular oscillator is the Relative Strength Index. â&#x2013;ş Relative Strength Index The relative strength index (RSI) is a momentum indicator that measures a currency pair's strength relative to its won recent past performance. As the indicator is front-weighted (more importance is given to the most recent data), it typically provides a better velocity reading than other oscillators. RSI is less affected by sharp movements, and filters out a lot of "noise" in the Forex market. Many traders also use this indicator as a substitute for volume confirmation, since the over-the-counter structure of the FX market does not allow for real-time volume reporting. â&#x2013;ş

RSI's levels are between 0 and 100. Most traders use 30 as an oversold condition and 70 and as overbought condition, although some traders may use 20 and 80. When choosing the settings for RSI, traders should typically use the default time period of 14, since that is what the market as whole tends to look at. ÂŠ Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Technical Analysis Generally RSI is used in five different ways: Top and Bottoms - Overbought and Oversold conditions are usually signaled at 30 and 70. Divergences - When a pair makes new highs (lows) but RSI does not, this usually indicates that a reversal in price is coming. Support and Resistance - RSI may show levels of support and resistance, sometimes more clearly than the price chart itself. Chart Formations - Patterns such as double tops and head and shoulder may be more visible on RSI rather than on the price charts. Failure Swings - When RSI breaks out (surpasses previous high or low), this may indicate that a breakout in price is coming. RSI was useful in detecting this USD/JPY short after a crossover of the 70 "overbought" level materialized on the daily. Following the clear Bid signals, the pair moved down 450 pips over the next 30 days. ÂŠ Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Managing your risk â&#x2013;ş

There are three basic questions that every trader should answer BEFORE entering a trade. 1. How much do I believe the market will move and where do I want to take my profit? Limit Orders allow traders to exit the market at profit targets. If you are short (sold) the system will only allow you to place a Limit Order below the current market price because this is the profit zone. Similarly, if you are long (bought) the system will only allow you to place a limit order above the current market price. Limit orders help create a disciplined trading methodology and enables traders to walk away from the computer without constantly monitoring the market.

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Managing your risk 2. How much am I willing to lose before I exit the position? A Stop/Loss order allows traders to set an exit point for a losing trade. If you are short a currency pair the stop loss order should be placed above the current market price. If you are long in the currency pair, the stop loss order should be placed below the current market price. Stop/Loss orders help traders control risk by capping losses. Stop/Loss orders are counter-intuitive because you do not want them to be hit; however, you will be happy that you placed them! When logic dictates, you can control greed. ÂŠ Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Managing your risk 3. Where should I place my stop and limit orders?

As a general rule of thumb traders should set Stop Orders closer to the opening price than limit orders. If this rule is followed, a trader needs to be right less than 50% of the time to be profitable. For example, a trader that uses a 30 pip Stop/Loss and 100 pip limit orders needs only to be right 1/3 of the time to make a profit. Where the trader places the stop and limit it will depend on how risk-adverse he/she is. Stop/Loss orders should not be so tight that normal market volatility knocks the position out. Similarly, Limit Orders should reflect realistic expectation of gains given the markets trading activity and the length of time one wants to hold the position. ÂŠ Meydan & Co. www.meydanco.com www.globaltraderclub.com

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The Psychology of the trader â&#x2013;ş

What should the psychology of the trader be? Before placing trades, traders must sufficiently analyze the position they are about to take. However, many do not thoroughly plan out their actions, and instead make trades based on guesses and hunches. This psychological viewpoint can result in traders losing a lot of money very fast. How can this be avoided? Through careful planning and analyses, including where to place stop and limit orders, a trader can keep losses to a minimum while allowing profits to run.

Make sure to have a plan that utilizes stop and limit levels before making the trade in order to minimize losses and lock in on profits. ÂŠ Meydan & Co. 37 www.meydanco.com www.globaltraderclub.com

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The Psychology of the trader One huge psychological error that many traders make is going against their original plan and either closing positions to take a profit before they reach the profit target or not closing a losing position in the hopes that the market will come back in their favor. Another psychological error traders make is to believe that every trade should be profitable. If there is an instance where a stop is hit and then the market goes back in favor of the position the trader had held, this belief can cause the trader to remove stops from their trades. What is often forgotten is that stops are there to keep them from losing more money than they would like, not to be some sort of roadblock against profit. It is okay to hit stops and lose the predetermined amount of money because when a trader is lets profitable trades run, the loss will be made up for and more. Do not try to improvise. Stick with the original plan and precautions made before the trade.

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The Psychology of the trader â&#x2013;ş

Another psychological error traders make is becoming too committed to a trade and unwilling to let it go. A trader must keep his original analysis in mind when seeing the result of a trade, and be objective about what is happening to his position and what he should do about it. However, many traders attempt to analyze the position differently from the original analysis so that the analysis will favor their original position. They intentionally distort their analysis for one of two reasons: they do not want to close the position with a loss or they are hoping that the position will become more profitable than it already is.

This psychological viewpoint causes many traders to lose the profit that they had made or lose more than they originally would have lost. Just because leverage is provided does not mean it is okay to trade large portions of the account at a time or too frequently. A prevalent mistake made by many traders is overtrading, meaning that they trade much larger amounts of their account than is reasonable or trade too frequently. Although leverage allows traders to trade one lot of currency with only $1,000 as a margin deposit, it does not mean that traders should trade their entire available margin in one or two trades. The psychological mistake they are making is that they are thinking of their trade as a $1,000 investment, when in actuality it is a $100,000 investment. Although most traders perform adequate analysis of currencies before placing trades, they sometimes use too much of their margin and are later forced to exit the position at the wrong time. A general rule that traders try to follow in order to keep them selves from getting over-leveraged is never using more than 20% of their account at any given time.

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Trading Accounts ► You

can set up a regular account or a mini account. Regular accounts are a full lot where the value traded is $100,000 with leverage of 100:1 and you only need to put up $1,000 of your own money to buy or sell this much currency. As explained earlier in the margin and leverage sections.

► How

ever in the forex market you will not loose more than your account like in equitites.

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Trading Platforms There are generally two types of platforms. 1. A web based platform that you can also track with your mobile telephone. 2. A download platform which is more sofhisticated. You should become familiar with the platform before you start trading and make the best of the demo period to be familiar with all aspects of the trading facility. â&#x2013;ş

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Risk Management ►

You have to accept a certain amount of risk when you open a position.

►

You will always need to have stop orders to protect yourself. Sometimes your stops may be hit but this is the nature of the market

►

With a stop loss order you can cut your losses fast when the market moves against you.

►

When placing your stops take into consideration the volatility of the currency and the time frame.

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Risk Management ► If

your stops are too wide you can loose alot of money. ► If your stops are too tight you can get snapped out of the trade with a small loss too often. A series of small losses are as bad as a one big loss. ► If you know your risk a head of time it will help you to remain calm. ► Your decision will be based on facts, not pure speculation or feeling and you have to wait to see if you are correct. © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Trading Philosophies ► As

discussed before traders are either fundamental analyst or technical analyst. ► We will be focusing on technical analysis in this information document. ► We will be basing our decisions purely on charts. Because the charts have all the fundamental information integrated in the pricing. ► You just need to know if its going up, down or side ways. Trust the chart and base your decisions on what the markets are doing NOW! © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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The Market‟s Noise ► Since

we believe that all the information in the market is in the price of the currency... ► We will not listen to the news! ► We will not read other people‟s comments! ► We will not read forex reports & what analysts say! THE CHARTS NEVER LIE! So we need to read the charts correctly so we can trade at the beginning of the movement. © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Chart Basics ► The

chart is the graphical presentation of the price. I like to use candle charts or bar charts. ► On the platform you can choose which ever you like. The platform guides explain the full functionality of the platform tools and every trader should be familiar with the platform they use. © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Two Forex Strategies - Daily - Intraday

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Currencies To Trade ► Before,

in this e-book we discussed the various currency pairs. Over time you will see that currency pairs have their own characters. ► I generally like to trade the currencies that are against the US dollar. These currencies will have more volume for good moves and also will be liquid pairs. ► I keep my focus on Swiss Franc, British Pound Sterling, Euro and the JPY. These currencies have the greater volatility. ► The pairs with less volatility but where you can get some good trends with are the Canadian, Australian and the New Zealand dollars. © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Currencies To Trade ► When

trading currency pairs we should also consider the costs of trading. ► Each currency pair has an interest charge attached to it for overnight held positions. We are trading on margins and we need to realise that this means “borrowed money.” ► The interest for an overnight held position is called a roll over margin and this can change depending on interest rates. Brokers will display these rates on their web sites and if they don‟t you should enquire about it. © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Currencies To Trade ► The

real movers in the market for high potential profits are the EUR/ GBP/ CHF. ► For new traders it is generally better to consider long term positions until you get familiar in the market. ► So lets move to a nice simple method we can follow to trade the Forex markets. ► First we will get to know the tools to trade with. © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Trading Tools ► Moving

Averages (MA); moving average is the sum of a given set of prices averaged. The platforms will have these tools for you to use so you dont need to calculate them. ► MAs are widely used by traders. In our approach we will use exponential MAs because they give more importance to the most recent price movements. © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Trading Tools ► MAs

are good indicators for identifying the trend. We will always trade with the trend and NEVER against the trend. ► The exponential moving average (EMA) we will use is also calculated by the platforms. ► Since we are going to trade on a daily basis lets use two common time periods for the EMAs; a long period of 13 EMA and a short period of 6 EMA. © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Placing Our Exponential Moving Averages 6 day exponential moving average

13 day exponential moving average

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Trading Philosophy ► The

EMA lines will help us keep on track and will let us know where to enter a trend and where to get out. ► By using these moving averages we will also know if there is a change in trend. ► Our trigger to get ready is when these lines are crossing.

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Applying The Trade Methodology â&#x2013;ş Since

we will always follow the trend we ideally want to get in to the trade when we spot a high probability trend movement, confirm it and stay in that trend until there is enough evidence to state that the trend is over or changing. â&#x2013;ş The markets are only going to move in one of 3 directions; up, down or side ways. The moving averages we are using will guide us to identify the trend. A good trend can go for several weeks. ÂŠ Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Applying The Trade Methodology ► In

order for us to have a high probability win trade, firstly we need to wait until the EMAs cross over. ► Sometimes you will see that the EMA lines will come very close to each other, will touch and even cross over slightly and then turn back to its original way. Take a look at the next page for instance... © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Applying The Trade Methodology The gap here in the cross over is 33 pips. So we have to determine what is a good gak that will keep us in the trade and not throw us out of the trade when we still have an opportunity to follow the trend and earn more money.

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Applying The Trade Methodology ► In

order to avoid such whip saws that falsely take us out of a trade during a good trend we are going to add some extra tools. ► These will be are long term EMAs and they will give us a nice guide line about the long term trend. ► We will now add a 200 and 89 day EMAs, which will be our last moving average tools. © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Applying The Trade Methodology 89 EMA Line

200 EMA Line

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Applying The Trade Methodology ► The

way to trade by using these tools is to follow the 13 EMA and 6 EMA cross over in the same direction of the long term EMAs. ► Do not go against the trend! Follow the direction of the trend. ► If the price is above the 89 and 200 EMA lines and moving up you are in a more likely long position. ► If the price is moving along under the 89 and 200 EMAs then your position is more likely short. © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Applying The Trade Methodology ► To

ensure that we can track the trend and stay in the trend as long as the trend lasts we should make use of some additional tools. ► Here is when the Fibonacci retracements come in. ► We are going to use Fibonacci retracements to continue and to make an extra contract entry after confirming the trend. © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Fibonacci Retracements ► Fibonacci

levels are a series of numbers which the market tends to use very often to test levels and then move forward. ► Generally on daily trends after a few days of trending there will be a pull back in the price. ► We will see how to take a few days (generally 3 to 4) and track a Fibonacci retractment. ► Lets take a look at the next diagram. © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Fibonacci Retracements 3 day Fibonacci retracement line

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Fibonacci Retracements ► At

the end of the 3rd day we draw our Fibonacci retracement line. ► You will then see that there are certain levels on along the graph. The most important and common retractments are the 38.2, 50 and the 61.8 lines. The platforms calculate these values. ► The price after a few days will retract to these levels. While it does this we will wait! © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Fibonacci Retracements

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Fibonacci Retracements ► As

you can see above the price retraced back to 61.8 then took off above the 100 line and then retraced again between 61.8 and 50 levels and took off again to 161.8 level. ► This is a very common scenario in the market. ► At these retractment levels you also keep an eye on your EMA lines so when they open up again as in the next diagram you can go long with an additional lot. © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Fibonacci Retracements These retracements are very common

You can now enter with your second lot at the beginning of this bar.

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The Summary â&#x20AC;&#x201C; What to do? 1. 2. 3. 4. 5.

We will select a currency pair to trade. One of the EUR/ GBP/ CHF & JPY. At the end of the close of each day and look at the charts for the above pairs. Add the short EMAs on to the chart and look for crosses 6 to 12 pips of the 13 and 6 EMAs. Now add the long term EMAs to confirm the direction of the trend. Place the first order at the beginning of the day and prepare for the Fibonacci set up.

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Lets Do An Example This was a good set up on the 2311-2006. We check that the short term EMAs have crossed over, and confirm that we are in the direction of the long term trend. Once we checked that our crosses are valid and confirmed we are in the direction of the trend we enter at the beginning of the day bar on 2411-2006. Then we prepare for our Fibonacci set up to see if we can get in with another lot and add to our position.

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Lets Follow Up Our Trade On 24-11-2006 we are long in the trade with our stop loss below the low of the previous day so we minimise any turn around in the change of the trend.

Stop loss level is 75 pips from entry price which is calculated as the half point of previous day’s bar and we are expecting to stay till stopped out and will continue with follow up entries until the trend is over. We will trail our stop to the bottom of the previous day’s bar and keep following the trend.

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Lets Follow Up Our Trade Day 2 Day 1

We move the stop loss levels to the bottom of the bar of the previous day at the beginning of each dayâ&#x20AC;&#x2122;s bar.

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Lets Follow Up Our Trade

As you can see we got stopped out over here. Now we need to follow through the trade for the next entry.

As you can see this trend was so strong that it did not even retrace back to a Fibonacci level and went straight up.

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Lets Follow Up Our Trade

We enter our second trade at this bar and do the same procedure. We place our stop at the bottom of the prior dayâ&#x20AC;&#x2122;s bar and enter the transaction.

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Lets Follow Up Our Trade

As you can see we would have been stopped out here on the 5th day. And would wait for another opportunity in the same direction.

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Results on the two trades ► 1st

trade: We entered the transaction on 23 November 2006 at price 1.9145 and our initial stop loss was at the half point of the previous days bar at 1.9071. ► We followed the trend by moving our stops to previous day‟s low and were stopped out on the 9th day at price 1.9720. ► Profit in 9 days: 649 pips, ie $6,490. © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Results on the two trades ► 2nd

trade: We entered the trade on 17 January 2007 at price 1.9608 and our initial stop loss is at the bottom of the previous days bar at 1.9586. Also see the Fibonacci levels again see how the price came down to 38.2 and then moved back up. This is classic! ► We followed the trend by moving our stops to previous day‟s low and were stopped out on the 6th day at price 1.9745. ► Profit in 6 days: 137 pips, ie $1,370. © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Additional Tips â&#x2013;ş When

following your trade always be alert as to how close you are to the 200 MA trend line. If the closing price of the bar is more than 450 pips above the 200 MA line its better not to take a trade. It generally runs out of steam! Try to back test this phenomena you will be surprised at the results.

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What other tools can help a trader? ►I

find that you don‟t need many indicators to be a good trader. A few tools to help you follow the trend are enough. Additional good tools are learning how to use trend lines and keep your eyes on the long term trend. ► For a new forex trader there is nothing more depressing than getting knocked around in short term and scalping trades and loosing money. So look ahead take profits along the way and re-enter in the proper set up as discussed earlier. © Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Final Summary 1. 2. 3. 4.

5. 6. 7.

Decide on the currency pair you are trading. Look at the selected pairs at the end of each day. Put your 6 & 13 EMAs on to the charts and see if there is a cross over by 10 – 15 pips. Add your long term EMAs and check if your short term and long term EMAs are in the same direction. Make sure the gap between your long term EMAs are greater than 20 pips. If they are closer than this the trend is probably side ways and its not good for trading. Once you have these all the above conditions met enter the trend. If you get stopped out be patient and wait for the next round. Once you entered the trade close your computer and do not look at the chart until the end of the trade day. You have entered the trade and with the information you had your decision was right! Now leave it alone. If you start playing around and making changes and thinking about what is happening during the day you will not succeed in the long run. Pull your trigger and exit as planned. Don‟t be greedy and don‟t be afraid! Just trade!

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Bonus – Test this simple strategy “For the intra day session trader!” Tools: 30 minute or 1 hour chart. 89 EMA + 2 SMA and 7 SMA. ► ► ► ► ► ►

Enter buy transaction when the price goes above the 89EMA by 10 pips and the 2 and 7 SMAs are crossed to an open end. Enter sell transaction when the price goes below the 89 EMA by 10 pips and the 2 and 7 SMAs are crossed and opened up. Follow trend with 40 pip trailing stop until stopped out or the 2 and 7 MAs cross over. When the moving averages get close and merge wait for the price to make its move. This will be nice break out trade. You should back test and live test this before you use it. This is just a tip for the intra day trader. See the next page.

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For the intra day session trader Exit here

Enter here you would not enter here as the 2 & 7 did not open close enough to the 89 EMA. You are looking for a cross over opening with the 89 line.

Enter here Exit here ÂŠ Meydan & Co. www.meydanco.com www.globaltraderclub.com

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Final Words A trader should always continue to learn. You should treat trading like a business. Be consistent with your trading. Always enjoy your trading! Be cool with it! Keep up to date. Keep in touch with other traders. If you can, try to get some training and learn from some one who is in the market and some one you know who is in there taking trades. ► In the market you will hear many claims about magical software that tell you when to buy and when to sell and make you a lot of money. The truth is these softwares use the same technical indicators that platforms provide. I strongly recommend that, even if you do choose to use such software, you should get a hands on training in one way or another so you understand how these programs work and do not just blindly follow the signals. The markets always change but software programs do not! ► The forex market is over the internet and most brokers are not regulated. You should be aware of web sites who are not authentic and make proper research to find a good reliable broker. ► Enjoy your trading and good luck. ► ► ► ► ► ► ►

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Recommended Brokers â&#x2013;ş Meydan

& Co. Recommends traders to select regulated brokers &/or companies in partnership with regulated entities & brokers with good customer support.

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