Copyright Information Page

Copyright © by James Williams. All rights reserved worldwide.

No part of this publication may be replicated, redistributed, or given away in any form
without the prior written consent of the author/publisher or the terms relayed to you
herein.
James Williams, theForexInsiders.com
3950 Las Vegas Boulevard South Las Vegas, NV 89119
http://www.TheForexInsider.com/

This publication is designed to provide accurate and authoritative information in regard

to the subject matter covered. It is sold the understanding that the publisher is not
engaged in rendering legal, accounting, or other professional services. If legal advice or
other expert assistance is required, the services of a competent professional person
should be sought.

Table of Contents
Copyright Information Page
Reader Bonus # 1
Reader Bonus # 2
Brief History of Monetary Exchange and Forex
Forex Participants
Markets for Trading Currencies/Derivatives
So Why Forex?
Candlesticks
Introduction to Forex/Japanese Candlestick Charting
Common Terminology and trend deduction
Using Candlesticks with Indicators
Fibonacci
THE END
Reader Bonus # 1
 Reader Bonus # 1

http://www.TheForexInsider.com/
 Reader Bonus # 2

http://ForexEnquirer.com/free
Brief History of Monetary Exchange and
Forex
That dollar note in your wallet would be just as valuable as toilet paper, should others
believe it not to be of any value. Money is ultimately just a unit to facilitate exchange of
goods and services. In a country, inflation and deflation serves as natural mechanisms to
determine the value of money.

Things get a lot more complicated when other countries come into the equation. As a
country’s currency strength needs to reflect their economic strength.

The history of currency trading can be traced back to the ancient times, to the first
instances whereby people from different countries engaged in trade. No merchant would
want to lose out on a trade. So to combat that gap, a self-regulating equilibrium was
struck.

Forex trading serves exactly the same purposes as the ancient merchants, though perhaps
in a more refined manner. The creation of the Gold Standard Monetary System in 1875
marks one of the milestones in currency trading history. Countries began to choose and
accept gold as the fixed trading unit (due to its rarity and resilience), and began to mark
the value of their currencies against the value of gold.

With a fixed value in place (gold), currency exchange between countries eventually
revolved their differences around the price of gold. Forex today has evolved plenty
from those days of face to face merchant haggling. Mainly because technology has
played a huge part in altering the way it works. But the fundamentals of this platform
still remain constant.
Forex Participants
Hinged on the concept that no one wants to intentionally lose out on currency differences
- Forex is a mechanism to balance exchange rates between countries.

The major players include commercial and central banks. Commercial banks trade in
the market for profit, whereas central banks are responsible for stabilizing the Forex
market, as well as regulating inflation and interest rates.

Investment firms and retail brokers also make up a substantial amount of the trade. This
is due to the large accounts they command for. The remaining trading players are known
as the speculators. They are individuals that participate according to their own desire.
Markets for Trading Currencies/Derivatives
There are three different markets for trading in general. They are commonly referred to
as the Spot, the Forward, and the Future market.

Spot contracts refer to transactions where delivery takes place “immediately”, which is
impossible in practice due to the various world markets operating at different times. A
maximum lag period is usually implemented to allow for this delay. Any spot
transactions which extend beyond the maximum lag period becomes a Forward
Contract.

A Forward contract refers to an agreement between two parties, whereby one has the
obligation of delivering the other an underlying asset at a fixed future date. And the
other the obligation of paying a fixed amount at a fixed rate in return for the assets.

A Future contract is similar to a forward contract, but with a few key differences. Future
contracts are traded on an exchange, and require payment of margin deposits before
orders can be placed.

In return, they eliminate counterparty risk as both parties are now dealing with the
clearing house of the exchange directly. Unlike in a forward contract, rates are altered
on a daily basis and participants will have to alter their positions.
So Why Forex?
By far, the Forex market is the largest trading market in the world. It sees roughly $4
trillion in volume daily, compared to the estimate of $28 billion at the NYSE. In fact,
even all the world’s stock markets combined does not even come close to what Forex
has to offer.

Being the largest market in the world comes with its benefits for individuals. Basic
rules of supply and demand combined with the needs of competitive advantage means
that the spreads are much lower than other markets. More brokers, more
competitiveness, less spreads!

The FOREX trading market also reflects actual economies and fundamentals, as
opposed to how a certain business is performing inside a certain economy inside a
certain marketplace. An individual can easily research on what is going on around
different parts of the world, but it would be close to impossible to obtain data on how a
company is functioning behind closed doors. Here, success rates have a greater
correlation to how much effort an individual puts into his research.

Technological advancements and the wide availability of brokers make it very easy for
individuals to begin Forex Trading. Many brokers also allow a leverage system,
whereby it allows for participants to leverage a small amount of money into a large
sum, potentially increasing profits many folds.

The Forex market is also open 24 hours a day for 5 days a week, allowing participants
flexibility to trade anywhere and anytime they choose to, unlike in stock markets where
they close and open on a daily basis.
Candlesticks
Candlestick charts are one of the oldest types of charts used for price prediction. It
dates back to the 1700's, when the chart was used to predict the rise and fall of rice
prices.

Munehisa Homma, considered to be the founding father of the candlestick chart, created
his own charts to make fortunes from rice trading. Eventually, he rose from humble rice
merchant to discerning financial advisor for the Japanese Government.

The tool once used for rice trading is now applicable for Forex too. Today, candlesticks
are the brass tacks of every trader’s chart watching. It has helped them to follow and
analyze the trends.
Introduction to Forex/Japanese Candlestick
Charting
Candlestick charts in comparison to a standard two-dimensional bar chart, is much more
visually appealing. There are four elements necessary to construct a candlestick chart,
the OPEN, HIGH, LOW and CLOSING price for a given time period. Below are
examples of candlesticks and a definition for each candlestick component:

• The body of the candlestick is called the real body, and it represents the range
between the open and closing prices.
• A white candle represents a bearish trend, indicating that the stock closed at a
lower price in comparison to its opening.
• A black candle represents a bullish trend, indicating that the stock closed at a
higher price in comparison to its opening.
• The vertical line above and/or below the real body is called the upper/lower
shadow, representing the high/low price extremes for the period.
Common Terminology and trend deduction
Below are a few of the terminology traders usually use to describe candle(s) of a
certain outlook, and what they indicate.

• The Shaven Head - a candlestick with no upper shadow.

• The Shaven Bottom - a candlestick with no lower shadow.

• Spinning Tops - candlesticks with small bodies, when they appear within a
sideway choppy market, they may represent equilibrium between the bulls and the
bears. The candlesticks can be either white or black. The Spinning Top is regarded
as a reversal signal.

• Doji – A very tiny real body which looks like a horizontal line. This represents
when the Open and Close are the same or very close. The length of the shadow can
vary. Doji convey a sense of indecision or tug-of-war between buyers and sellers.
 Like the Spinning Top, the Doji is a reversal signal, the lack of a real body signifies
that the current price changes might have hit equilibrium, and are now starting to
reverse.

• Dragon Fly Doji

Dragonfly Doji looks like a "T" with a long lower shadow and no upper shadow. It
tells us that sellers dominated trading and drove prices lower during the session. By
the end of the session, buyers resurfaced and pushed prices back to the opening level
and the session high. This indicates that the market is rejecting lower prices,
predicting a potential bearish reversal

• Gravestone Doji

Gravestone Doji looks like an upside down "T" with a long upper shadow and no
lower shadow. It tells us that buyers dominated trading and drove prices higher
during the session. However, by the end of the session, sellers resurfaced and
pushed prices back to the opening level and the session low. This usually indicates
that the market is rejecting higher prices, predicting a potential bearish reversal.

• Hammer

A Hammer is defined by a candlestick with no upper shadow (or very little upper
 shadow), and a lower shadow at least 2 times the size of the real body. Should the
market be going in a bearish trend prior to the hammer, this indicates that the market
is rejecting lower levels, and a bottom reversal is about to take place.

• Long Lower Shadows

Long Lower Shadows refers to a group of 2 or more consecutive candles with lower
shadows at similar levels. This indicates that the market is rejecting lower prices
and a bullish trend might occur soon.

• Long Upper Shadows

Long Lower Shadows refers to a group of 2 or more consecutive candles with

higher shadows at similar levels. This indicates that the market is rejecting higher
prices and a bearish trend might start soon.

• Tweezers Bottom

A Tweezer Bottom occurs when you have 2 or more candles with matching lows (or
almost matching), and the later consecutive candles showing bearish signs. When
you have a couple of candles having matching lows, it indicates that the market is
 rejecting lower prices and a bullish trend might occur soon.

• Piercing Pattern

A Piercing Pattern occurs when the market is in a downward trend, and a bullish
candle shows up and rebounds strongly (about halfway into the prior black candle
body). The bullish candle must be identical to a shaven bottom (no or little lower
shadow). Should these conditions be met, it represents a likely bullish trend.

• Dark Cloud Cover

A Dark Cloud Cover is the exact opposite of a Piercing Pattern. It occurs when the
market is in an upward trend, and a bearing candle shows up and drops sharply
(about halfway into the prior white candle body). The bearish candle must be
identical to a shaven head (no or little upper shadow). Should these conditions be
met, it represents a likely bearish trend.

• Bullish Engulfing Pattern

 When a bullish candle engulfs a small preceding bearish candle, this pattern is
termed as the Bullish Engulfing Pattern. Ideally, they should have similar lower
shadows to indicate price resistance. This indicates a bullish trend.

• Bearish Engulfing Pattern

The exact opposite of a Bullish Engulfing Pattern, this pattern indicates a bearish
trend. It occurs when a bearish shadows engulfs a small preceding bullish candle.

• Morning Star
 Think of the Morning Star as the transition from dusk to dawn. A dark night,
followed by the dim glimpse as the Sun approaches, to the searing noon sun. The
above is how a Morning Star looks, a strong bearish candle, followed by a weak
bullish candle, and finally a strong bullish candle. This indicates a strong bullish
trend.

• Evening Star

The exact opposite of the Morning Star, an Evening Star starts off with a strong
bullish candle, followed by a weak bearish candle, and finally a strong bearing
candle. The Evening Star indicates a bearish trend.

• Three Advancing White Soldiers

 There are specific conditions to be met before you know three white soldiers are
approaching. The market must firstly be in a bearish trend before 3 strong bullish
candles appear. The 2nd and 3rd bullish candle must open near the closing of the prior
candle, and there should ideally be little upper shadow from each candle. Should
these 3 conditions be met, it indicates that a bullish trend is likely to occur.

• Three Black Crows

The opposite of Three Advancing White Soldiers, Three Black Crows indicates a
strong bearish trend. The market should be in a bullish trend before three strong
bearish candles appear. The 2nd and 3rd bearish candle should open near the close of
the previous candle, and there should ideally be little lower shadow.

• Tower Bottom

A Tower Bottom occurs when a strong bullish candle occurs after a lull period
 which follows a bearish trend. The lull periods can be made up of any candle lines,
but should fall remotely within the same range. The Tower Bottom pattern indicates
a strong bullish trend.

• Tower Top

When you’re at the top of the tower, you are at the highest point possible (at least
for now). The Tower Top is the exact opposite of the Tower Bottom, and it
signifies a strong bearish trend. A Tower Top occurs during a bullish trend, when
the trend hits a dull period followed by a strong bearish candle.

• Frying Pan Bottom

The Frying Pan bottom is similar to the Tower Bottom pattern, except that the
changes are more subtle, and occur in the shape of a concave rather than a sharp
drop/increase. The Frying Pan indicates a bullish trend.
• Dumpling Top

A Dumpling Top reflects a bearish trend in the market. It is the opposite of the Frying
Pan Bottom. The top few candlesticks of the convex of the Dumpling Top indicates
that the price of the stock has likely hit the price ceiling, and buyers are now
reluctant to purchase at those levels.

• Record Session Lows

A Record Session Lows pattern is spotted when 8-10 session lows occurs in a short
period of time, it usually indicates a bullish trend. The rational behind this pattern
reading, is that prices are unlikely to have such a steep drop in a short period of time
(barring bad news in global events), and hence a change in trend in likely to occur
soon. It is however recommended to wait for a bullish signal before acting on this
pattern.

• Record Session Highs

The opposite of Record Session Lows, it goes by the same rational that prices are
unlikely to rise continuously for an extended period of time (barring positive
global events), and hence a bearish trend is likely to occur soon.
Using Candlesticks with Indicators
Candlesticks can be combined with other indicators. This enhances their effectiveness
in predicting price movements. Here are some common indicators that are often utilized
by traders.

RSI

The Relative Strength Index (RSI) is a technical indicator used to chart the current
historical, strength or weakness of a stock or market based on recent closing prices

It works by monitoring the speed and change of price movements. Traders usually
consider a stock overbought when the RSI is above 70, and undersold when RSI is
below 30.

Stochastic

The Stochastic Oscillator is a momentum indicator that uses support and

resistance levels to detect changes. The Stochastic is not a price based indicator, and
changes are only detected based on momentum and speed. As momentum changes
direction before price changes, the Stochastic Oscillator can be used to foreshadow
reversals.
A value below 20 indicates that the price is near its low for the given time period,
whereas a value above 80 indicates that the price is near its high.

CCI

The commodity channel index (CCI) is an oscillator that is used to identify a new trend
or warn the trader of volatile conditions. CCI analyze current price levels to an average
price levels over the designated period of time, to determine if prices are high or low.

A high CCI value suggests that current stock prices are well above their average for the
given time period, whereas a low CCI value indicates otherwise. However, there are
exceptions to the rule above. Any CCI values which exceed +100 and -100 indicates
unusual activity in the market, which may foreshadow an extended move.

Bollinger Bands

The purpose of the Bollinger Band is to guide the user in understanding where the prices
sit, be it high or low. The bands are derived from a formula arising from standard
deviation. It is based on recent currency movement. The upper band indicates that prices
are high while the lower band indicates that prices are low.
The distance between the bands is a reflection on market volatility, the wider the
distance, the greater the estimated market volatility. Market volatility levels are
estimated based on average historical volatility levels for the stock.

Generally, most traders buy when the price touches the lower Bollinger Band and sell
when the price touches the moving average in the center of the bands.

MACD (Moving Average Convergence-Divergence)

The MACD indicator is one of the simplest momentum indicators available. It spots the
changes in momentum, direction and strength of a trend. In Metatrader 4, the Red line
signifies the Signal line, whereas the histogram is the main MACD line.

(Red = Signal Line, Histogram = Main MACD line)

The MACD line charts the difference between short and long period’s EMA
(exponential moving average), by comparing EMAs of different periods, the MACD
line can detect changes in trend of the stock. The Signal line is an EMA of the MACD
line.

EMAs highlight recent changes in a stock price, traders usually note for three signals in
a MACD indicator

1. When the Signal line crosses the MACD histogram

2. When the MACD histogram crosses zero
3. A divergence occurs between the MACD histogram and the price of the stock (or
vice versa)

Generally, these are the actions traders usually take base on the MACD indicator

1. Buy when the MACD histogram crosses up through the Signal Line, and vice versa
2. When the MACD histogram moves from positive to negative, it usually indicates a
bearish trend and it’s time to sell their stocks. Vice versa when the MACD histogram
moves from negative to positive.
Fibonacci
Fibonacci Retracement is used to predict future movements of a currency pair. Because
of the golden rule attached to it, which is proportion. In every large movement, a price
always retraces by a certain percentage, thus allowing this indicator to predict future
movements.
Fibonacci retracements use horizontal lines to indicate areas of support or resistance at
the key Fibonacci levels.

These levels are created by measuring the line between two extreme points, followed
by a division of the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%,
50%, 61.8% and 100%.

Utilizing the Fibonacci Retracement, traders have an indication on the possible turning
points, and hence know when to buy or sell.
THE END
A split second margin in decision making can result in a difference of a few pips. The
ease of deriving data from candlesticks makes it almost an essential tool among traders
today.
Aside from the convenience, candlestick patterns and trends makes it easy to spot signs
of a reversal. Setting this chart up to becomes a very powerful tool for every proficient
trader.

But why cling on to just one safely net when you have multiple options available?
Combine candlestick patterns with other external indicators, to allow better readings

Traders will always have different choice preferences in regards to utilizing candlestick
patterns. Some might prefer different time-frames, the others, risk ratios. But it all boils
down, to what appeals and works for you. Pick and stick to your winning indicator.
 Reader Bonus # 1

http://www.TheForexInsider.com/