Forex Trading for Beginners

Making Money by Investing In Foreign

Exchange Currency Trading

by Marc Stuart
Preface
I want to thank you and congratulate you for downloading the book, Forex Trading for
Beginners: Making Money by Investing In Foreign Exchange Currency Trading.

This book is for those of you who are just starting to consider trading Forex but dont
know where to start, given the abundance of information on the internet. I introduce you
to foreign currency exchange trading starting from the very basics to more advanced
strategies.

My knowledge of trading, in general, extends over a 10 year period and since 7 years I
mainly trade currencies of multiple reasons I highlight in this book. During this time, I
have developed and shared many trading strategies together with experienced traders.
Some of my strategies are explained here.

Thanks again for downloading this book, I hope you enjoy it!
 Copyright 2016 by Marc Stuart - All rights reserved.

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should be ordered.

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Outline

Chapter 1 Introduction
Chapter 2 - What is Forex Trading
Chapter 3 What is the Forex Market
Chapter 4: Overcoming your Concerns
Chapter 5 - Currency Pairs
Chapter 6 - Advantages of Forex Over Other Investment Assets
Chapter 7 - How to Start with Forex Trading
Chapter 8 - Forex Fundamentals
Chapter 9 - Technical Analysis for Forex Trading Success
Chapter 10 - Technical Analysis for Forex Trading Success
Chapter 11 - Developing a Forex Strategy
Chapter 12 - Common Mistakes in Forex Trading
Chapter 13 - FAQs on Forex Trading
Chapter 1 Introduction
One day, a man named George Soros made an investment that made him a whooping
ONE BILLION British pounds overnight. Can you imagine today making over 1.4
Billion US dollars within 24 hours? That is a real story and that day, 16 Sept. 1992,
came to be known as Black Wednesday.

In the simplest terms, what George Soros did was speculate on the currency market and
made a wise investment and within 24 hours he became a living legend. What happened
was that the Conservative British Government made the decision to withdraw the pound
from the European Exchange rate Mechanism, a move that cost their treasury over 3.3m
pound sterling. Financial speculators, key among them Mr. Soros, saw that the high
inflation and low interest rates in the sluggish British economy would lead to a
devaluation. So they sold their pounds at high prices to buy back at low prices, thus
making the staggering profits of Black Friday in 24 hours.

By watching the international money markets closely and investing on the winning side,
anyone can make a fortune. Since Black Friday, there have been many rags to riches
stories of people who went into the Forex market with relatively little investment
capital or financial/economics knowledge and made a killing.
Chapter 2 - What is Forex Trading
If you have ever traveled from one country to another, then you know that somewhere
along your journey you will have to exchange your home currency for the currency of
your host country. Say, if you are an American traveling to Canada, you will have to
exchange your American dollars (USD) for Canadian dollars (CAD). This applies to
each and every country in the world. Thus, it means everyone who has ever traveled has
traded in the Foreign Exchange (ForEx) market.

While that is the simplest trade, there are many other ways we can participate in forex
trading. When importing and exporting goods, buyers usually have to convert their
money to that of the exporting (selling) country. One can also directly participate in
forex trading by using a forex broker. Some major players in the Forex market are the
big banks.

For example, when the US Government has to pay off its loans to China, the US Federal
Reserve has to convert millions or even billions of US dollars to Chinese Yuan and
send it to the Peoples Bank of China. As such, the two major banks have made a forex
trade.

For the major profits seen by investors like Soros, the Forex market has one unique
quality. Like every other market, an investor profits by buying at low prices and then
selling at a higher price. However, unlike other markets, in the forex market you can
also profit by first selling at high prices and buy back at low prices. There are three
major ways in which Forex trade is conducted. This is either through the spot market,
the futures market, or the forwards market.
 I. Spot Market Forex Trading
This is the biggest market because it involves the underlying real asset that is traded
worldwide. In fact, the spot market forms the basis of the other two markets. Before the
advent of the internet and electronic funds transfers, individuals could only participate
in forex trading via the futures market. However, with so many online options for
instantly and securely sending or receiving funds, the spot market is now overflowing
with individual and corporate investors. Actually, nowadays when you talk about the
forex market, you are most likely referring to the spot market. The futures and forwards
markets are favored by corporates who hedge their funds to avoid future risks.

A simple definition of the spot market is its where we all buy and sell currency at the
current price. Currency prices are determined by supply and demand, just like all other
markets. However, with currency, this supply and demand can be affected by
government regulations, economic performance, international treaties, political climate,
and even weather patterns. A key factor in determining price is the speculation on future
currency price trends. If people feel that in the next two months the euro is going to gain
against the dollar, more people will sell their dollars and purchase euros.

A transaction in the spot market is known as a spot deal. It is a bilateral agreement

where one party sells one type of currency and purchases another currency from the
second party. The two parties agree on a specified value for each of the traded
currencies. Thus, it is not as simple as give me one dollar I give you one pound.

II. Forward Market Forex Trading

Unlike the spot market that deals with current currency rates or prices, the forward and
futures markets do not trade in actual currencies. They instead deal in contracts that lay
claim to particular currencies, to be exchanged at a pre-set price, and issued on a
specific settlement date. In the forwards market, these contracts are traded over the
counter by two parties. The two parties agree on terms between themselves.

III. Futures Market Forex Trading

In contrast, the futures market deals with standard-sized contracts with settlement dates
that are dependent on publicly traded financial instruments. For example, a futures
contract may be based on the New York Mercantile Exchange and not on bipartisan
agreements between buyer and seller. Futures markets are highly regulated and the
contract details are very specific in terms of settlement dates, number of traded units,
settlement dates, and any price increments.
Chapter 3 What is the Forex Market
The Foreign exchange market goes by many names. It may be referred to as the forex
market, the FX market, the currencies market, or simply forex. There are many different
ways we all participate in the foreign exchange trade. As such, there is no central or
common market place in the same sense as there is a stock exchange market floor for
conducting stock sales.

The Forex market is a fluid, extremely liquid market with no physical location. Forex
transactions are mostly carried out electronically or Over The Counter (OTC). The
Forex market is the biggest financial market with an estimated USD 4.9 trillion in
transactions per day. To put it in proper perspective, if we were to combine the whole
worlds stock markets, equity markets, and all other financial instruments, they would
not get to the liquidity mark of USD 3 trillion per day.

Another thing is that while most other markets open only during business hours on
weekdays, the Forex market operates 24 hours a day, every single day of the week. This
is possible because when financial trading is closed in, say, New York, it is opening in
London, and is on its lunch run in Hong Kong, Sydney or Tokyo. Thus, the Forex market
is the market that never sleeps.
Chapter 4 - Forex Regulation
A primary difference between the forex market and other markets is that it is largely
unregulated. It has no central clearing house or exchange and is decentralized. It is free
for all with a level playing field and no barriers to entry. The only difference between
investors is the amount of money they are trading. No single entity, government,
corporation, cartel, or individual can effectively influence the prices.

Nonetheless, there are regulatory bodies charged with registering brokers and ensuring
that fair trade practices are followed. These bodies guard investors against fraudulent
brokers, money laundering activities, and other irregularities. They are a combination of
independent supervisory bodies, professional associations, and government agencies
from across the world. Some of the recognized regulatory authorities include:

The International Financial Services Commission IFSC (Australia, Belize, and

others)
The Financial Market Authority FMA (Austria)
The Securities Commission of the Bahamas SCB (Bahamas)
The Financial Services Agency FSA (Japan)
The Financial Services Board FSB (South Africa)
Association Romande des Intermediares Financiers ARIF (Switzerland)
The Capital Markets Board CMB (Turkey)
The Financial Services Authority FSA (UK)
Commodities and Futures Trading Commission CFTC (US)
Securities and Exchange Commission SEC (US)
Chapter 5 - Currency Pairs
In the Forex Market, all world currencies are traded except in very rare circumstances
such as with the Chinese Yuan where there are government restrictions on trading.
Nevertheless, there are some currencies which are traded more than others.
Additionally, currencies are always traded one against another. Thus, each transaction
involves a pair of currencies.

MAJORS
The most traded currencies in terms of volume come from 8 countries. These are usually
referred to as the major currencies or simply as the majors. Likewise, there are
currencies that are most often paired together for trade and these are referred to as the
major pairs (The Majors). The 8 most traded currencies in the forex market are:
1) The American Dollar (USD)
2) The European Euro (EUR)
3) The British Sterling Pound (GBP)
4) The Japanese Yen (JPY)
5) The Canadian Dollar (CAD)
6) The Australian Dollar (AUD)
7) The Swiss Franc (CHF)
8) The New Zealand Dollar (NZD)
These highly traded currencies, when traded against each other, form the major currency
pairs. Thus, a major pair would look like this: GBP against the USD (GBP/USD, or the
Cable), or EUR/USD (EuroDollar), or USD/JPY (DollarYen). One thing to note, all
major pairs always have the USD on one side.

Apart from these 8 major currencies, there are others making a big impact in the
financial markets. For instance, the South African Rand (ZAR, the United Arab Emirates
Dirham (AED), and the Indian Rupee (INR) are also strongly traded. These are some of
the currencies that are from emerging economies or very strong though small economies
yielding high trade volumes.

MINOR PAIRS OR CROSS PAIRS

Before the Bretton Woods Conference of 1944, world currencies were pegged to the
value of gold. However, at the conference it was agreed that both gold and the USD
would be used as standard systems for valuing different world currencies. Thus, if you
were exchanging one currency for another, you had to convert to USD first to get a
standardized value for both currencies. However, after the Nixon Shock of 1971, most
currencies became free-floating and could be exchanged against one another without
first converting to the dollar.

When the 8 most heavily traded currencies are traded directly together in a pair that
does not contain the USD, then it is referred to as a minor pair. Some examples include
EUR/JPY (the EuroYen) and AUD/NZD (the AussieKiwi).

EXOTICS PAIRS
There are also currency pairs that are traded in much smaller volumes compared to the
majors and minors. These are usually referred to as exotic pairs and their world prices
are usually connoted by pairing them against any of the major currencies. For example,
the Zimbabwean Dollar (ZWD) against the USD, the Euro against the Turkish Lira
(TRY), or the Canadian Dollar against the Indian Rupee (INR).

CURRENCY QUOTES
When buying and selling currency, each currency is priced at a rate against another that
forms the pair traded. For instance, if your trade USD for GBP, the current rate stands at
one dollar being exchanged for GBP 0.7. If you trade GBP for USD, you will get USD
1.43 for each sterling pound.

These currency rates are usually connoted in a very specific way. For the above
example, the quote will be expressed thus:

GBP/USD = 1.43120

BID, ASK, SPREAD, AND PIPS

In the pair, the currency on the left is known as the base currency while the one on the
right is the quote currency. However, in the forex market you will always be given two
different prices. In the example above, the broker might give you a selling price of
1.43080 and a buying price 1.43120.

The selling price is known as the bid price and it is the best price you can sell to the
market. The buying price is known as the asking price and it is the best price at which
you can buy from the market. The difference between the two prices is known as the
spread. In this case, our spread is 0.0003 and is referred to as 3 pips. The spread is the
cost of placing your trade and this is how your forex broker generates income.
Chapter 6 - Advantages of Forex Over
Other Investment Assets
When Bill Lipschutzs was a Cornell University student, his grandmother passed away
leaving him a modest inheritance of $12,000. The first challenge young Bill faced was
to consolidate all these stocks which were spread over 100 different locations. The
second challenge he faced was the huge bill and commissions he had to pay to liquidate
these stocks. He grew his stock portfolio to an impressive $250,000 before he lost it all.

While this may sound disheartening, it formed the foundation of Bills interest in better
ways to invest. Right now, Bill Lipschutz is one of the best known Forex multi-
millionaires and is rumored to earn over $300 million per year on forex trading alone.

Some lessons can be learned from Bills experiences. He has traded in all major
financial markets which are stocks, bonds, commodities, and currency markets. A look
at his career in financial trading gives a vivid example of the differences between Forex
trading and trading in other financial instruments.

EASE OF TRADE
In the US alone, the stock market is huge. For instance, there are over 3,100 stocks
listed on NASDAQ and another 2,800 listed on the NYSE. Which of the two would you
choose? And once you choose your market, how do you stay on top of the performance
of each of the thousands of listed stocks?

In comparison, on the spot forex market the most traded currencies are clustered into
four major currency pairs. So much easier to trade than thousands of stocks, right?

24-HOUR MARKET
Every Sunday at 1700hr (EST) the financial markets open in Sydney. The Tokyo market
opens 2 hours later and the London market opens at 0300hrs (EST) Monday morning. 5
hours after the London market opens, the New York market also opens for trade and by
the time the New York market closes the Sydney market is back up again. You can only
trade stocks and futures for a particular region during that regions business hours, but
you can trade currency for any country whenever and wherever you want.

TRANSACTION FEES
When you are trading stocks, futures, or even options, you need to prepare yourself for
high transaction fees, trading charges, high spreads, and broker commissions. Just like
Bill Lipschutz, you can switch over to forex trading where there are usually no
transaction fees, no trading charges, no licensing fees, and no broker commissions.
Brokers typically make their revenue from high volume of very small spreads.

FUNDS SEGREGATION
With a managed forex account, the client can separate his trading capital from that of the
broker. This means that even if the broker makes losses in other trades, becomes
insolvent, files for bankruptcy, or closes down for one reason or the other, the clients
funds are safe. This is a safeguard protecting retail forex traders.

CAPITAL LIQUIDITY
Just like Bill Lipschutz found out, no matter how much you have in stocks, turning it into
liquid cash is a long and expensive process. With forex trading, you can simply
withdraw your funds at any time, unlike with futures where you have to wait for a
specified period. After all, the underlying asset being traded is actual cash, right? You
can choose to transfer, trade, or withdraw part or all of your trading capital.

SLIPPAGE
In stocks, equities, futures, and options trading, the trader has to wait between the time
they fill out an order to the time the order is executed. With forex trading, there is rapid
trade execution. This means you get to execute your trade at the best possible price with
minimum slippage. And if slippage does occur, you have lots more liquidity to cover the
slippage than with other financial instruments.

LEVERAGE
Many financial trading markets offer traders a chance to trade with borrowed money.
This borrowed money is known as leverage and helps a trader control more assets and
gain higher profits. However, while other markets offer leverage of about between 1:2
and 1:5, most forex brokers will offer leverage of 1:50. In fact, nowadays there are
many forex brokers offering leverage of 1:200 and even 1:500. Which means for every
dollar you invest, you get to control a portfolio worth 500 dollars. If you get even 1%
profit, it means each dollar will yield you 5 dollars in profit.
Chapter 7 - How to Start with Forex
Trading
Sandile Shezi is a young African kid who was raised in poverty in the ghettos of Durban
Township of South Africa. He showed an interest in entrepreneurship from quite early,
selling muffins to classmates at age 12. One year, he took his tuition money and started
trading currency mostly from public cyber cafes. At 23, he became South Africas
youngest self-made dollar millionaire, and all his fortune was made through forex
trading. His story is an inspiration for all who have the vision but lack the means of
breaking out of poverty and creating wealth.

CAPITAL
Like all other businesses, one needs capital to start trading forex. The good news is that
with forex, there are many brokers offering accounts funded with as little as $5. But
since you cannot expect huge profits from such a tiny sum, forex brokers are very
generous with their leverage and you can get as much as 1:400 depending on your
broker. The best starting capital for reasonable profits and manageable risk is between
USD 1000 and USD 5000.

BROKER
Apart from capital, you will need a broker and a trading account. There are literally
thousands upon thousands of forex brokers online catering to retail forex spot traders.
You need to pick a broker who has a fantastic trading platform. The platform has to have
a user-friendly interface and fast order executions. Although not necessary, a broker
who is under the regulation of a reliable authority is advisable so as to protect your
investment. Pick a broker that offers a demo account so you have time to familiarize
yourself with the platform before you can use a funded account.

INTERNET
So, of course, you will need a reliable internet connection. Profitable currency price
shifts are usually highly volatile and one needs to take advantage of every pip
movement. Thus, the faster your internet connection is, the better. A slow connection
may result in costly slippage and unmanageable losses.

COMPUTER
Like Sandile Shezi, you can start out by using public commercial computers. However,
these pose a greater risk from hackers and computer viruses. It is better to invest in a
personal computer. A laptop is best as it allows you to trade on the move. Currently,
most online forex brokers offer platforms that work with most mobile gadgets such as
iPads, iPhones, tablets, and smartphones.

SIGNALS
Your profitability in forex trading will depend on how accurately you can predict
currency price shifts. Ideally, the best trader should be the one who can follow global
economic shifts, gauge political influence, and measure international trade. However,
that takes so many years to learn and not everyone has the capacity or patience to sit
through those many lessons.

The internet has saved us all in that area. There are endless numbers of signal providers
who will alert you on predictions of future price moves. Additionally, there are
automated trading systems and robots that will perform trades for you out of their
generated signals. However, you should be careful to pick signal providers with a track
record of success. There is also the option of joining a social forex traders platform
where you get to follow the trade actions of successful traders.
JOURNAL
The first rule to forex trading is ALWAYS keeping a journal and record all your trade
decisions. Journals help you learn from your mistakes and build on your strengths. Your
journey to becoming the next forex billionaire is 100% dependent on how fast you can
learn. Without a journal, your account is likely to get wiped out within a very short
period.

HOW TO TRADE
Once you have all these basic requirements, you are ready to start trading. Your very
first move should be to open a demo account. This is usually a free account provided by
your broker to help you get familiar with their platform. The demo account is a must for
all traders, even expert traders. This is because your current broker may be using a
different platform compared to that of your former broker.

Once you are reasonably adept at using the demo account and you are posting
reasonable virtual profits, it is time to fund a real account and make real profits. For
each trade, you will need to determine an entry point and exit point. Include sound risk
management plans in all of your executed trades to lock in your profits and minimize
losses.

Remember, currency trading is all about price movements. And trading is all about
pairs, so choose one pair and stick to it. The currency pair you choose to trade in may
be relatively stable or may fall into a long term trend. However, most pairs have
moments of high volatility. You should watch out for slight movements inside any
established range as the pips will give you high profits. Use leverage wisely as
leverage is the tool for instant millions as well as instant bankruptcy.
Chapter 8 - Forex Fundamentals
A common question posed by new forex traders is how do you tell the price of money?
How does money have a price? Forex trading can sound very confusing to a newcomer,
especially one only exposed to his/her countrys currency. But the fact is, all currencies
are not equal to each other. The Singaporean dollar is not equal to the Nigerian Naira
just as one US dollar is not equivalent to one Canadian dollar.

Not only is the value of each currency different, but each currencys value keeps
changing. With this price fluctuation, each currency gains against others and loses
against others on a daily basis. These changes occur in a fraction of a second and the
tide may go either way for each currency pair. Some of the factors that influence the
value of currency include the following:

BALANCE OF TRADE
If someone in Germany want to buy something from the US, she has to change her Euros
into US dollars. If there are many people in Germany buying American products, there
will be a demand for US dollars by people willing to exchange their euros. That means
the Euro will lose in value against the dollar.

In the real world, you will find that there are also Americans who need to purchase
German products. So there will be a counter demand for Euros by people holding US
dollars. By balance of trade, we mean the difference between what a country imports
against what it exports. If Americans import goods worth USD 10m and export goods
worth USD 15m, the balance of trade is in their favor (trade surplus) by USD 5m. Thus,
their currency, the USD, gains value against other currencies. A trade deficit weakens
the currency.

GROSS DOMESTIC PRODUCT

Apart from imports and exports, what a country produces also strengthens or weakens
its currency. The Gross Domestic Product (GDP) of a country is the sum total of all the
goods and services produced within that countrys borders in one financial year. It is a
comprehensive measurement of the countrys economic performance and has a direct
influence on the value of that countrys currency. The GDP sums up private production,
public production and consumption, exports minus imports, investments, and
government outlays.

EMPLOYMENT STATISTICS
When a big majority of the country is in productive employment, the country has a
greater GDP. The country also becomes a major market for domestic and imported
products and this strengthens its economy and its currency. When the majority of the
countrys citizens are unemployed or underemployed, productivity is low, demand for
products is low, and social ills such as crime is high. This has a negative effect on the
value of the local currency.

POLITICAL CAUSES
When a country is peaceful and governance issues or policies are favorable, the local
currency is strengthened. This is because a peaceful political climate encourages
investment, tourism, productivity, exports, education, and trade. Government policy has
a direct influence on how much investment and savings is available within the country.
A favorable political climate will also attract Direct Foreign Investment (DFI) and this
is a direct boost to the value of the local currency.

COMMODITY PRICES
Economic goods such as agricultural products and mineral products are commonly
referred to as commodities. Not all countries are producers of crude oil, so when the
demand for oil products falls, the value of currencies fall for oil producing countries.
Similarly, if the price of gold falls, all gold producing countries suffer a negative effect
on the value of their currency.

NATURAL CAUSES
When Hurricane Katrina hit the Atlantic in 2005, it was a natural disaster. Over 1200
people died and property worth billions destroyed across the US, Mexico, and the
Bahamas among other countries. Such natural calamities have a negative effect on the
productivity of a country and its currencys worth.
Chapter 9 - Technical Analysis for Forex
Trading Success
Richard J. Dennis is historically revered as the Prince of the Pits. He conducted an
experiment to prove to his partner that anyone can be taught how to profitably trade. He
gathered a number of people who had never traded before. These people ranged from a
security guard, a boy who had just graduated high school, and a female auditor. The
training took exactly 14 days and within a year, each of the study group members had
made profits of at least 1 million in trading.

The moral of this long story is that anyone can trade. The second lesson to be learned is
that simple systems work best. In the experiment, the group was taught a very basic
breakout method. Complex systems are difficult to understand, take the time to generate
results, and have too many variables that can go wrong at any point.

Technical analysis has become the hot topic for forex traders. It provides instant signals
and instant results. Technical analysis is fairly simple to grasp and anyone can become
adept at it. Despite the scary technical names, technical analysis indicators are easy to
comprehend and implement in your trading systems. Technical analysis simply means
the study of historical currency price shifts and current conditions to determine future
price shifts. In short, it works on the premise that history repeats itself.

Through this study of the past, you can come up with an indicator which as the name
suggests, indicates where the price is likely to be in future. For instance, if last week on
Tuesday at lunch time GDP/USD was at 1.4132 and after lunch it dropped to 1.3876,
then it might be possible that the same big-pip movement will happen this Tuesday at
lunch hour.

MOVING AVERAGES
This is the most commonly used indicator in technical forex analysis. The method works
by calculating average prices over time to smooth out fluctuations and determine the
overall trend. By smoothing out the small fluctuations, the moving averages effectively
reduce the market noise and gives a better picture of the general market flow. When
studying price data using moving averages, the trader seeks to find out price trends and
to determine trade entry and exit points. Moreover, moving averages help the trader
identify trend reversal points to time the most optimal buying and selling points.

BOLLINGER BANDS
Bollinger bands are extremely useful in identifying degree and periods of volatility in
real-time for specified currency pairs. The degree of volatility is useful to traders as it
is often a sign of an impending market reversal. Bollinger bands are located on top of
price charts with lower and bottom bands on moving averages to define pricing
channels.

Typically, the area between the top and bottom bands shows the price channel. The area
above this channel is known as the buy range while the area below the channel is the
sell range. When prices are in the buy range, it means the currency is facing an upward
momentum thus, the probability of high profits for buyers. The same is true on the
downward momentum for sellers when the price falls in the sell range.

RELATIVE STRENGTH INDEX

Relative Strength Index (RSI) is an oscillator indicator that moves according to
currency price changes. The RSI is a perfect technical analysis tool for determining the
strength of a currency price trend. The RSI works on the premise of two very important
thresholds.

The first threshold is the 30 or under reading. When the reading goes below 30, then it
means the currency is oversold and the demand will rise as the supply remains low. As
in any other market, this indicates that there is a potential rate increase coming up.

The second threshold is the 70 or above reading. When the price reading reaches or
exceeds 70, then that currency is overbought. Thus, demand will fall as supply rises.
This will create a situation where a potential rate decrease is imminent.

STOCHASTIC OSCILLATOR
This is one of the earliest yet most accurate indicators used in financial trading. When
used in forex trading, it provides insight into possible future market trends. The
indicator is based on one strong premise. That during a market uptrend, currency prices
will exceed or equal the closing price of the previous trading period. Similarly, in a
market downtrend currency prices will remain equal to or lower than the closing price
of the previous trading period.

The Stochastic Oscillator uses a measuring scale to determine the level of price shifts
from one closing period to the next. Thus, the trader can predict the likelihood of a
continuance of the current direction trend or a market reversal.

FIBONACCI RETRACEMENTS
This is the use of the Fibonacci Sequence to create retracement lines that forex traders
use in determining possible future currency rate levels. The Fibonacci Sequence is a
series of numbers starting with the number zero (0). To get the next number in the
sequence, you simply add the previous number to the preceding number in the sequence.
 0+0=0
0+1=1
1+0=1
1+1=2
2+1=3
3+2=5
5+3=8
8+5=13
13+8=21
21+13=34

Thus, the first 10 numbers in the sequence are 0,1,1,2,3,5,8,13,21, and 34. By using this
sequence we come up with the Fibonacci ratios with the most significant ratio being
61.8%. This ratio is derived by dividing one number in the sequence by the number
immediately preceding it e.g. 13 8 = 0.618 (61.8%). It is referred to as the golden
mean or the golden ratio.

The other two Fibonacci ratios of special significance to forex technical analysts are
38.2% and 23.6%. The 38.2% ratio is gotten by dividing a number in the sequence by
the one-two places to its right e.g. 8 21 = 38.1%. The last ratio is derived by dividing
any of the numbers in the sequence with a number three places to its right e.g. 5 21 =
23.8%.

These Fibonacci ratios are used to create retracement lines on currency price charts.
The retracement lines assist the trader in determining possible resistance and support
levels. The retracement lines are placed on swing highs and swing lows that show a
potential for price retracement.
Chapter 10 - Technical Analysis for
Forex Trading Success
As you trade in currency and journalize every trade, you start noting patterns. In a short
time, you will learn what works and what fails. A forex strategy is simply a set of rules
for maximizing on profitable trades and minimizing loss-making actions. While you can
start by flying blind then through trial and error come up with a winning forex strategy,
the best way is to start by using tried, tested, and proven strategies then slowly
customize to suit your particular needs. Keep in mind that no strategy works for
everyone and all strategies work differently for different currency pairs.

THE DAILY FIBONACCI PIVOT TRADE

This strategy used a combination of daily or weekly pivots with Fibonacci retracements
and extensions. First, the trader finds the daily central pivot then places the retracement
lines at 38%, 50%, and 68%.

The strategy requires that the trader finds a position within the last few days of trading
where the average true range exceeded the previous trading sessions closing price.
Then the Fibonacci retracements are drawn at the current trading session from previous
trading sessions low to high if the current price is higher than the current central pivot.
If the current price is below the current central pivot, the Fibonacci retracement is
placed from the previous sessions high to low. The trader then looks for a point where
the central pivot forms a confluence with the Fibonacci levels. If price retraces at this
level, the trader enters into the market or awaits a confirmatory candle signal to enter
the trade. The confirmatory candle signal increases the reward to risk ratio.
FOREX DUAL STOCHASTIC TRADE
The stochastic indicator is a powerful technical analysis indicator. When you combine
two stochastics, one slow and another fast, you greatly enhance the power for accurate
price predictions. By combining this two stochastics, the trader looks for a period when
the two are at extreme opposites. These are typically the 20% level and the 80% level.
In your trading platform, you can set the slow stochastic at %K of 21, the %D at 4, with
a slowing of 10. The fast stochastic may be set at %K of 5, with a slowing of 2, and a
%D of 2.

Once you have set up both stochastics, you simply wait for 3 conditions to be met. The
first is to wait for a period when the price is trending strongly. Secondly, wait for the
moment when the two indicators are at opposite extremes. Thirdly, wait for a
candlestick confirmation signal signaling a short retracement followed by a reversal.

THE EXPONENTIAL MOVING AVERAGE (EMA)

This is very similar to a simple moving average, except that in this case, preference is
given to the most recent currency price data. In some texts, this strategy is referred to as
the exponentially weighted moving average. This strategy is usually employed to
identify support and resistance levels and to determine trend directions. The strategy
can be used for 1hr, 15 minute, and 4-minute time frames for all major currency pairs.

THE BLADERUNNER TRADE

This is a purely price action trading strategy. It can be used by combining pivot points,
candlesticks, resistance levels, and support levels to determine entry and exit points.
While not necessary, some off-chart indicators such as the RSI, stochastic, and MACD
may be included. The best indicator to use in this strategy is the 20 EMA but a trader
may also use the midline 20 Bollinger Bands.
While the strategy works well in the 5-minute timeframe, it can be used on any other
timeframe and any of the major currency pairs. For best results, this strategy can be used
during the early period of the Japan session which provides a profitable breakout.

THE BOLLY BOUNCE BAND TRADE

This strategy is popular with traders operating in a ranging market. In the strategy, the
Bollinger bands act as price limits in the short term price movements. The bands exhibit
an elastic quality where price reaches one band and bounces back to bounce off the
opposite band. For short term scalpers, the strategy can be used by making a trade entry
at the point of price bounce on the outer bands.

THE LONDON HAMMER TRADE

The European trading sessions open with lots of excitement, with many of the worlds
strongest markets providing different trade signals and massive capital outlays. The
strategy is based on the rejection bar candlestick as currency prices drop and rise over
a tight price range. The trick is in looking for rejection bars where a resistance is
formed after the price moves beyond a narrow range. That marks the entry point which
is tightly followed by an exit point that falls just a little behind the hammers tail.
Chapter 11 - Developing a Forex
Strategy
Alexander Elder held a lucrative career as a psychologist and physician in Estonia then
later in New York, until he discovered that he could apply his knowledge in trading
currency. He has amassed a fortune in trading and established himself as an author and
trainer in forex trading. He is the best-selling author of at least 6 publications, among
them the 1993 international Best Seller Trading for a Living. He is an ardent believer
of not just trading like other professionals but creating forex trading strategies that work
for you.

DETERMINE MARKET CONDITIONS

Before you decide on any specific strategy, you need to determine which market
conditions are most favorable to you. For instance, you probably hold a day job where
you focus on forex trading. So you need a strategy that works outside your local
business hours.

Once you have determined your hours of trade, you need to find out which trade time
frames work best for you. Do you favor a monthly timeframe, 4-hour timeframes, 1-hour
time frames, or 5-minute time frames? Are you a swing trader, a scalper, or a day
trader?

PICK APPROPRIATE TOOLS

Once you have picked your market, you can pick the appropriate tools based on that
markets characteristics. For instance, a ranging market may not need moving averages
but might work well with RSI. On the other hand, moving average crossovers may be
the best choice for a highly volatile currency pair.

REFINE INPUTS
Once you have your price charts and other trade tools figured out, you need to pick the
most relevant inputs for a profitable strategy. Some of the inputs include the period you
want to trade in and the price ranges you will be trading within. These can be picked
through a system of trial and error until you settle on the most productive inputs.

FIND TRADE SIGNALS

Trade signals help the technical analyst identify the most opportune moments to execute
a trade profitably. These signals will be generated by the various indicators we use on
our price charts. Use multiple indicators to enhance your risk management. For instance,
if your indicators predict an overbought or oversold position, confirm using
convergence/divergence. Similarly, if your indicators show a breakout, confirm with
crossovers. Remember to keep your indicators simple so as to quickly form an analysis
of current and future price action.

MONEY AND RISK MANAGEMENT

The first rule in forex trading is to avoid making losses, and the second rule is to always
maximize your profits. Money management simply involves asking yourself, is that trade
worth risking my capital? Is the potential for profit worth it? You need to determine your
position size and establish your potential loss even before you calculate your potential
profit. Once you have these answers, you can place your entry and exit points. If you
have been giving up too much profit by exiting early, you can increase your stop order
level or institute a lock profit order. If you have been making your entry too late, you can
adjust to increase your profits and minimize your losses.

CONDUCT TECHNICAL ANALYSIS

After determining what each signal means, you can now begin your technical analysis.
Your analysis will help you decide on how much capital to allocate to each trade and
the risk management techniques to be used. During the analysis, the trader should put all
focus on the relevant period and only use the signals related to that period. This is the
stage where the trader separates market noise from relevant price action.

BACK TESTING
This is one of the most important steps in creating a forex trading strategy. Unfortunately,
it is also one of the most ignored. Once you have conducted the analysis and feel ready
to enter a trade, you need to test your strategy. Use historical data and make mock trades
to find out whether you would have profited at a similar past period under the same
conditions as your chosen market condition. Back testing will also help you identify
problem areas and fix them before risking your hard earned cash.

EXECUTE TRADE
Just before you put in your trade orders, you need to conduct a comprehensive
comparison of results gathered in your analysis and your back testing. The different
scenarios presented will help you identify those which are actionable and to confirm
their reliability and potential for profit. Once this comparison has been made, you can
now pick the one that offers the highest profit potential at minimum risk.
Chapter 12 - Common Mistakes in Forex
Trading
In 1977, Bruce Kovner borrowed $3,000 against his MasterCard and used it all to
invest in trading. He very quickly realized a growth of his investment to $40,000 only to
lose most of it and finally exit at $23,000. Nevertheless, this still meant he got to take
home a $20,000 profit. He is now a world famous forex trader with a net worth
estimated at $4.8 billion. Most traders are not as lucky as Bruce. They make some
common mistakes and never get the chance to make as profit or correct past mistakes.

GET RICH QUICK MENTALITY

Forex trade has many legends who made humongous profits overnight. However, most
of these overnight successes happened to people who had been trading a long time with
moderate profits. Additionally, what most novices dont know is that these overnight
successes were the result of very meticulous planning and careful execution, with
comprehensive analysis and sound risk management. They were not a product of
whimsical trade orders made without due diligence. One characteristic of traders with
this get rich quick mentality is they tend to make many large trades with high leverage in
contrast to the size of their trading capital.

RUNNING PROFITS INTO LOSSES

Many novice traders never know when to get out of a trade. They enter a trade and when
it starts performing well, they overstay the position. While this may sometimes lead to
bigger profits, it more often than not will lead to reversals that will end in losses. The
only solution for avoiding this kind of common scenario is to plan ahead. Always plan
your exit point before entering the trade and put in an exit order in advance. Do not get
excited by profits and move this exit order after execution.

TOO MANY PAIRS

Each currency pair is unique in how the currency relates and react to each other. The
best way to trade currency is to commit to a particular currency pair and only switch to
another pair through an elaborate preparation period. It takes time to learn how each
currency reacts to economic news, political events, different markets opening or
closing, and even global weather patterns. The best way to trade profitable is by
keeping it simple. Multiple currency pairs will only complicate your analysis and your
decision-making processes.

TOO MUCH LEVERAGE

The forex market has the huge advantage of offering massive leverage to traders.
However, leverage is a double-edged sword that cuts both ways. It may increase your
profits hundreds of times, but it also has the potential for loss in the same proportion.
The best way to deal with leverage is to forget it is even there. Simply make a decision
on what proportion of your capital you are willing to risk on each trade. Most experts
suggest a level of between 1% and 5%. Once you have that in your strategy, the amount
of available leverage becomes a non-issue and your funds are protected from your
impulsive greed.

ANALYSIS PARALYSIS
For many forex beginners, almost every news item and any economic event have the
potential to affect our currency price charts. We get stuck on following news stories and
listening to expert opinion or watching our forex indicators and signals. The only way
to keep your focus is to keep in mind that all relevant fundamentals that can affect
currency prices will be shown in the price action of our charts. Therefore, following
news items is not really necessary.
LACK OF STRATEGY OR PLAN
If you trade on whims and moods, then you are setting yourself up for major failure. For
profitable forex trading, you need discipline, focus, and a strict adherence to a set
trading plan and strategy. Do not wait until you are successfully and making lots of
money before developing your own trading plan and strategy. Right from the get go, you
need a strategy that you will keep refining over time as you gain experience and better
insights.

IGNORING RISK MANAGEMENT

Risk reward and money management are critical for achieving any success when trading
currency. Your risk management strategy should only allow you to enter each trade with
controlled risk levels. You should enter each trade with the knowledge that it is possible
to lose all the funds entered into that trade. Moreover, with an over-leveraged trade, you
stand to risk losses that might wipe out your whole account.

OVERTRADING
It can get exciting, even addictive, watching the charts rise and fall as you make money
on your trades. Many traders will reason, If I made a profit of $1,000 in one day
making just one trade, isnt it possible to make over $10,000 daily by making 10 trades
per day? This kind of thinking will ruin you. Trading without a plan or strategy is
overtrading. The only way to beat overtrading is to wait until the market conditions
perfectly align to what your strategy suggests then making the exact entry and exit orders
prescribed in your strategy.
Chapter 13 - FAQs on Forex Trading
Can I become a millionaire through forex trading?
The short and sweet answer is YES. However, it takes a lot of work, patience, and use
of correct tools and strategies. One person in a million may become an overnight forex
millionaire, but the majority build their fortune over time.

How much money can I make through forex trading per month?
The amount of money you make depends on multiple variables. First, the amount of
capital you trade with. Second, the amount of leverage you employ in your trades. Third,
the number of profitable trades vis--vis the number of losses you make. All said and
done, a modest profit of between 10% and 25% should be acceptable for a newbie
trader.

How much do I need to start trading?

There are an unlimited number of forex brokers online and this number keeps growing
every single day. Each broker has their own rules and regulations and some offer sign
ins with as little as $5 while others have a minimum fund requirement of over $5,000.

What are forex instruments?

These are the ways a trader can make currency trades. For instance, scalping and day
trading.

How do I know which currencies will increase in value and which ones will reduce?
There is no sure-fire way to determine future currency prices, trends, or price
directions. Currency values and exchange rates are very volatile and are determined by
market forces of supply and demand. The best any trader can do is conduct a
comprehensive analysis to predict the likelihood of a future price movement, but there
are never any guarantees.

Is the forex market regulated?

Yes, each region of the world has a regulator that oversees the conduct of various
financial traders and brokers, including those dealing in forex trade. However, there are
many brokers who operate outside any set regulators and oversight authorities.

What are the characteristics of a good forex trading platform?

Every trader provides one or more trading platforms. Some key characteristics to look
for in a platform include:
Customer support services
Personal training
User-friendly interface
Trading tools such as charts, indicators, news feeds, and financial calendars.
24-hour account access
Real-time price rates
Leverage levels offered
Stop loss limits and take profit
Safety and security of funds and personal information
A demo account

Is forex trading risky?

Of course, it is. Forex trading has a high capacity for turning great profits. In the same
way, it is capable of resulting in huge losses.

What is a pip?
This is a measure of the price change in the value of one currency against another
currency. PIP is an acronym for price interest point and is measured to 4 decimal places
for most currencies except the Japanese Yen where it is measured to 2 decimal places.
A pip is 1/10,000th of a cent.
Conclusion
Thank you again for downloading this book!

I hope this book was able to let you learn more about the forex trading and how you can
make a significant side income through currency trading.

The next step is to just start and find a broker, install all software needed for trading,
like the MetaTrader 4, and try out the strategies explained in this book.
Finally, if you enjoyed this book, then Id like to ask you for a favor: Would you be kind
enough to leave a review for this book on Amazon? Itd be greatly appreciated!

Thank you and I wish you great success with trading.