Complete Forex Trading Guide - Forex - Doc-1 [PDF]

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2 About Forex ……………………………………………………………………………………………………………………………………….. Currency pairs…………………………………………………………………………………………………………………………………..3 What moves the Forex market? ……………………………………………………………………………………………………….6 Pip…………………………………………………………………………………………………………………………………………………….8 9 Bid and Ask price ………………………………………………………………………………………………………………………………. Margin Trading and Lot ……………………………………………………………………………………………………………………10 11 Leverage ………………………………………………………………………………………………………………………………………….. 13 How to calculate? ……………………………………………………………………………………………………………………………... 14 How can I start Forex trading? ………………………………………………………………………………………………………….…….. 18 Fundamental vs technical analysis……………………………………………………………………………………………………. How many pairs should you trade?………………………………………………………………………………………………… 19 19 How much money do I need to start Forex trading? …………………………………………………………………………. 20 Trading plan ……………………………………………………………………………………………………………………………………… How to Place Profit Targets?.................................................................................................................21 22 Charts and candlesticks …………………………………………………………………………………………………………………….….. 27 Understanding technical analysis................................................................................................................ 28 Support and Resistance.......................................................................................................................... 31 Chart patterns ………………………………………………………………………………………………………………………………….. 34 Technical indicators................................................................................................................................. 42 Trading psychology ……………………………………………………………………………………………………………………………….

• Even if you already know all these things, I recommend you to read this. It doesn’t take a long time and you can find some very useful information about trading.

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About Forex Forex is global market that allows the exchange of one currency for another. Let’s make it simple. You travel from to Germany to USA. Main currency in USA is dollar (USD - $). Main currency in Germany is euro (EUR - €). You have 1000 € in your wallet. The moment you arrived in USA you need to exchange euros for dollars because main currency in USA is dollar. How can you do that? Well, you can go to exchange office and buy dollar. Exchange rate is for example 1.1250, so you will see something like this: EUR/USD = 1.1250. That means for 1000 € you will get $1125. It’s simple math: 1000 € * $1.1250 = $1125. Imagine you didn’t spend any money and now it is time to go back in Germany, but now exchange rate is lower! For example exchange rate now is 1.1020 or EUR/USD = 1.1020. This time you need euros, so let’s do simple math again: $1125 / 1.1020 = 1021 €. Now you have 1021 €, but on the beginning of the journey you had 1000 €. That means you earned 21 €. It’s these changes in the exchanges rates that allow you to make money in the foreign exchange market or Forex. This is much harder than it sounds, because you never know when exchange rate will go up or down. The foreign exchange market, which is usually known as Forex or FX, is the largest financial market in the world, with its $5 TRILLION a day trade volume. For people like you and me this doesn’t mean much. We can’t even imagine how big that is. For us is important how we can take advantage of that. Here, I will try to explain that and help you become successful trader. The Forex market is run by a global network of banks, spread across four major forex trading centers in different time zones: London, New York, Sydney and Tokyo. Because there is no central location, you can trade Forex 24 hours a day 5 days a week. Most traders speculating on forex prices will not plan to take delivery of the currency itself; instead they make exchange rate predictions to take advantage of price movements in the market. Simple rule: buy when price is low and sell when price is high.

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Currency pairs I mentioned currency pair in the example above, but what is a base and quote currency? A base currency is the first currency listed in a forex pair, while the second currency is called the quote currency. Forex trading always involves selling one currency in order to buy another, which is why it is quoted in pairs – the price of a forex pair is how much one unit of the base currency is worth in the quote currency. Each currency in the pair is listed as a three-letter code, which tends to be formed of two letters that stand for the region, and one standing for the currency itself. For example take GBP. GB stands for Great Britain, and P stands for pound. GBP/USD is a currency pair that involves buying the Great British pound and selling the US dollar. GBP is the base currency and USD is the quote currency. If GBP/USD is trading at 1.3550, then one pound is worth 1.3550 dollars. If the pound rises against the dollar, then a single pound will be worth more dollars and the pair’s price will increase. If it drops, the pair’s price will decrease. So if you think that the base currency in a pair is likely to strengthen against the quote currency, you can buy the pair (going long). If you think it will weaken, you can sell the pair (going short). In this table you can see most traded currencies.

Table 1: popular currencies

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Pairs are split into the following categories: • Major pairs - seven currencies that make up 80% of global forex trading. Major pairs include USD, so every pair that includes USD is major pair.

Picture 1: major pairs

• Minor pairs - less frequently traded, these often feature major currencies against each other instead of the US dollar. Includes: EUR/GBP, EUR/CHF, GBP/JPY. • Exotics - a major currency against one from a small or emerging economy. Includes: USD/PLN (US dollar vs Polish zloty), GBP/MXN (Sterling vs Mexican peso). • Regional pairs - pairs classified by region – such as Scandinavia or Australasia. Includes: EUR/NOK (Euro vs Norwegian krona), AUD/NZD (Australian dollar vs New Zealand dollar). The dollar is the most traded currency, taking up about 85% of all transactions. The euro’s share is second while that of the yen is third. Significant reasons why the U.S. dollar plays a central role in the forex market: - The United States economy is the LARGEST economy in the world, - The US dollar is the reserve currency of the world, - The United States has the largest and most liquid financial markets in the world, - The United States has a stable political system, - The United States is the world’s sole military superpower.

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EUR/USD is the most traded currency pair in the world. That is exactly why I don’t trade this pair. Big Banks and market makers can easily manipulate with price of this currency. Be aware of this! One important thing to note about the forex market is that while commercial and financial transactions are part of the trading volume, most currency trading is based on speculation. In other words, most of the trading volume comes from traders that buy and sell based on intraday price movements. The scale of the forex market means that liquidity – the amount of buying and selling volume happening at any given time – is extremely high.

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What moves the Forex market? The Forex market is made up of currencies from all over the world, which can make exchange rate predictions difficult as there are many factors that could contribute to price movements. Forex is primarily driven by the forces of supply and demand, and it is important to gain an understanding of the influences that drives price fluctuations here. Central banks Supply is controlled by central banks, who can announce measures that will have a significant effect on their currency’s price. Quantitative easing, for instance, involves injecting more money into an economy, and can cause its currency’s price to drop. News reports Commercial banks and other investors tend to want to put their capital into economies that have a strong outlook. So, if a positive piece of news hits the markets about a certain region, it will encourage investment and increase demand for that region’s currency. Unless there is a parallel increase in supply for the currency, the disparity between supply and demand will cause its price to increase. Similarly, a piece of negative news can cause investment to decrease and lower a currency’s price. Market sentiment Market sentiment, which is often in reaction to the news, can also play a major role in driving currency prices. If traders believe that a currency is headed in a certain direction, they will trade accordingly and may convince others to follow suit, increasing or decreasing demand. Economic data Economic data is integral to the price movements of currencies for two reasons – it gives an indication of how an economy is performing, and it offers insight into what its central bank might do next.

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Credit ratings Investors will try to maximize the return they can get from a market, while minimizing their risk. So alongside interest rates and economic data, they might also look at credit ratings when deciding where to invest. A country’s credit rating is an independent assessment of its likelihood of repaying its debts. A country with a high credit rating is seen as a safer area for investment than one with a low credit rating. This often comes into particular focus when credit ratings are upgraded and downgraded. A country with an upgraded credit rating can see its currency increase in price, and vice versa. Now when we learned about Forex and how it works we need to learn basic terms like: pip, bid and ask price, spread, lot, leverage and margin.

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Pip A pip, short for point in percentage, is a very small measure of change in a currency pair in the forex market. It can be measured in terms of the quote or in terms of the underlying currency. A pip is a standardized unit and is the smallest amount by which a currency quote can change. It is usually $0.0001 for US. Assume that we have a EUR/USD direct quote of 1.1370. What this quote means is that for 1 €, you can buy about 1.1370 dollars. If there was a one-pip increase in this quote (to 1.1371), the value of the euro would rise relative to the US dollar, as 1 € would allow you to buy slightly more dollars. The effect that a one-pip change has on the dollar amount, or pip value, depends on the amount of euros purchased. If an investor buys 10,000 euros with dollar, the price paid will be $ 11370 (1.1370 x 10,000). If the exchange rate for this pair experiences a one-pip increase, the price paid would be $ 11371 (1.1371 x 10,000). In that case, the pip value on a lot of 10,000 euros will be $ 1 ($ 11371 - $ 11370 ). Here’s another example using a currency pair with the Japanese Yen as the counter currency. Notice that this currency pair only goes to two decimal places to measure a 1 pip change in value (most of the other currencies have four decimal places). In this case, a one pip move would be .01 JPY. So, in all pairs that include JPY, a pip is second decimal number. Take GBP/JPY as example: [(.01 JPY) / (145.80 JPY)] x 1 GBP = 0.0000685 GBP. So, when trading 10,000 units of GBP/JPY, each pip change in value is worth approximately 0.685 GBP.

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Bid and Ask price All forex quotes are quoted with two prices: the bid and ask. In general, the bid is lower than the ask price. The bid is the price at which your broker is willing to buy the base currency in exchange for the quote currency. This means the bid is the best available price at which you (the trader) will sell to the market. If you want to sell something, the broker will buy it from you at the bid price. Ask price is the price at which your broker will sell the base currency in exchange for the quote currency. This means the ask price is the best available price at which you will buy from the market. Another word for ask is the offer price. If you want to buy something, the broker will sell (or offer) it to you at the ask price. The difference between the bid and the ask price is known as the SPREAD. On the EUR/USD quote below, the bid price is 1.1005 and the ask price is 1.1006. If you want to sell EUR, you click “Sell” and you will sell euros at 1.1005. If you want to buy EUR, you click “Buy” and you will buy euros at 1.1006.

Picture 2: currency pair

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Margin Trading and Lot When you go to the grocery store and want to buy an egg, you can’t just buy a single egg, they come in dozens or “lots” of 12, so what is a lot in Forex? Currencies are traded in lots – batches of currency used to standardize Forex trades. As Forex tends to move in small amounts, lots tend to be very large: a standard lot is 100,000 units of the base currency. So, because individual traders won’t necessarily have 100,000 pounds (or whichever currency they’re trading) to place on every trade, almost all Forex trading is leveraged. In Forex, it would be just as foolish to buy or sell 1 euro, so they usually come in “lots” of 1,000 units of currency (micro), 10,000 units (mini), or 100,000 units (standard) depending on your broker and the type of account you have. You probably don’t have enough money to buy 10,000 euros. That is no problem, and yes, you still can trade. The answer is margin trading. Margin trading is simply the term used for trading with borrowed capital. This is how you’re able to open $1,250 or $50,000 positions with as little as $25 or $1,000. You can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital. It is very important to understand this. Example: You believe that signals in the market are indicating that the British pound will go up against the US dollar. You open one standard lot (100,000 units GBP/USD), buying with the British pound at 3% margin and wait for the exchange rate to climb. When you buy one lot (100,000 units) of GBP/USD at a price of 1.20000, you are buying 100,000 pounds, which is worth $120,000 (100,000 units of GBP * 1.20000). If the margin requirement was 3%, then $3,600 would be set aside in your account to open up the trade ($120,000 * 3%). You now control 100,000 pounds with just $3,600. Your predictions come true and you decide to sell. You close the position at 1.20200. You earn about $200.

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Leverage Leverage is the ability to use something small to control something big. Specific to Forex trading, it means you can have a small amount of capital in your account controlling a larger amount in the market. This is trading on margin mentioned above. In forex trading, there is no interest charged on the margin used, and it doesn't matter what kind of trader you are or what kind of credit you have. If you have an account and the broker offers margin, you can trade on it. The apparent advantage of using leverage is that you can make a considerable amount of money with only a limited amount of capital. The problem is that you can also lose a considerable amount of money trading with leverage. It all depends on how wisely you use it and how conservative your risk management is. Money and risk management are extremely important in trading. Without proper risk and money management, you will fail as a trader! Leverage makes a rather boring market incredibly exciting. Unfortunately, when your money is on the line exciting is not always good, but that is what leverage has brought to Forex. Without leverage, traders would be surprised to see a 10% move in their account in one year. However, a trader using too much leverage can easily see a 10% move in their accounts in one day. While typical amounts of leverage tend to be too high, some trade with five times leverage; it is important for you to know that much of the volatility you experience when trading is due more to the leverage on your trade than the move in the underlying asset. Leverage Amounts Leverage is usually given in a fixed amount that can vary with different brokers. Each broker gives out leverage based on their rules and regulations. The amounts are typically 50:1, 100:1, 200:1 and 400:1. 50:1 → Fifty to one leverage means that for every $1 you have in your account you can place a trade worth $50. As an example, if you deposited $500, you would be able to trade amounts up to $25,000 (50*500$) on the market using 50:1 leverage. It's not that you should be trading the full $25,000, but you would have the ability to trade up to that amount.

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100:1 → One hundred to one leverage means that for every $1 you have in your account, you can place a trade worth $100. This is a typical amount of leverage offered on a standard lot account. The typical $1000 deposit for a standard account would give you the ability to control $100,000 (100*1000$). 200:1 → Two hundred to one leverage means that for every $1 you have in your account, you can place a trade worth $200. This is a typical amount of leverage offered on a mini lot account. The typical deposit on such an account is around $300. With $300 you would be able to open up trades up to the amount of $60,000 (200*300$). There's no need to be afraid of leverage once you have learned how to manage it. The only time leverage should never be used is if you take hands-off approach to your trades. Otherwise, leverage can be used successfully and profitably with proper management. Leverage must be handled carefully – once you learn to do this, you have no reason to worry.

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How to calculate? So now that you know how to calculate pip value and leverage, let’s look at how you calculate your profit or loss. Let’s buy US dollars and sell Swiss francs. The rate you are quoted is 1.4525 / 1.4530. Because you are buying US dollars you will be working on the “ASK” price of 1.4530, the rate at which traders are prepared to sell. So you buy 1 standard lot (100,000 units) at 1.4530. A few hours later, the price moves to 1.4550 and you decide to close your trade. The new quote for USD/CHF is 1.4550 / 1.4555. Since you initially bought to open the trade, to close the trade, you now must sell in order to close the trade so you must take the “BID” price of 1.4550. The price which traders are prepared to buy at. The difference between 1.4530 and 1.4550 is .0020 or 20 pips. Using our formula from before, we now have (.0001/1.4550) x 100,000 = $6.87 per pip x 20 pips = $137.40. I guess you are probably little confused and that is totally normal. No reason to be worried. When you start practicing all this will be simple.

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How can I start Forex trading? You’ve read about pips, leverage, margin, bid and ask price and all other basic stuff. It is time to start practice. Today it is very easy to start Forex trading. First thing you need to do is select a Forex Broker. There are many brokers and for new trader it may be hard to choose the best one. Remember, most of them offer a demo account, where you can test their trading platform. Usually, registration is quick. If you look at Forex broker offer, make sure that he allows to trade with lower sizes such as nano or at least micro. One of the most important criteria for traders when choosing a Forex Broker is the regulatory status of the broker and under which regulatory body it is governed. Brokers who conduct business without regulation do so at their own discretion and pose a direct risk to the security of their clients’ money. Here is a list of Forex brokerage regulators for a few select countries: - Australia - Australian Securities and Investments Commission (ASIC) - Cyprus - Cyprus Securities and Exchange Commission (CySEC) - Russia - Federal Financial Markets Service (FFMS) - South Africa - Financial Services Board (FSB) - Switzerland - Swiss Federal Banking Commission (SFBC) - United Kingdom - Financial Services Authority (FSA) This is most important thing when choosing a broker, so before you choose yours, check their regulation status. It is easy to do that. Just find their license number and check on the Internet. If you can’t find license number or they don’t want to give it to you, simply avoid that broker and find new. Install trading software With selected broker you need to install trading software. This will be Meta Trader 4 platform or other custom platform from broker. Some brokers use their own trading platform. The big advantage of Meta Trader 4 is that you have many custom indicators, expert advisors. It is a good platform overall and I recommend brokers who offer MT4.

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When you have registered an account, you can add funds. It is very easy. You can start with few hundred dollars on mini account. Minimum amount is different for each broker. Test platform on demo This is the most important thing for new traders. Opening a demo account is the best thing that you can do at the beginning of your trading career. Before you decide to open real account, test a platform on demo. You will have some virtual 10k or 100k to play with on demo. Test how order placing works, how to place stop loss, take profit etc. You do not want to learn these things with your real cash. The main advantages of Forex demo trading: - You do not put at risk real money – yours loses and gains are virtual, so there is no risk that you will lose all you trading capital; - You can test your trading system and different trading strategies; - You can see how to use leverage; - If you are using mechanical system, you can test it in practice. The main disadvantages of demo trading: - You do not put at risk real money – you react different when it is real money you are losing; - You make trades that you normally wouldn’t make with real money. When you are on demo and you switch to real money trading, you will notice difference. Now you care. When you are losing money, you feel fear. You hesitate to close losing position because it may turn around. When your trade is in profit, you are greedy. You hesitate to close position, because it may go even higher. This kind of emotions occurs only when you are trading with real money. You will learn over time that most of yours loses come from not following trading plan and allowing emotions to play too big role in your decision making process. You are not able to switch off your emotions. On the other hand, you must be aware of them and not allow to take control. That is why you need to have your trading plan on paper. Write down as many things you can in your trading plan – that way you will minimize impact of emotions in your trading. 15

Demo trading in trader learning process: 1. Open demo account; 2. Build strategy and trading plan; 3. Test different position sizes – add to trading plan size of positions. Test different currency pairs, different time frames; 4. Test your trading plan – set goals such as do not lose money in next few months. Find a Mentor It is not an easy task to find mentor, especially these days. Most trading pages on Instagram and social media platforms are scam. They will tell how you can get rich quick, how they have best strategy that works around 90% of the time and will show you pictures like this:

Picture 3: scam I

Picture 4: scam II

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That is NONSENSE. Don’t believe them! First of all, good trader will never open more than 3 (max 4) positions. Opening too many positions is the worst thing that you can do. You need to focus, and you cannot do that when you open more than 3 positions. Not just that, if you are wrong, you will blow your account very fast. But why scammers do this? Answer is simple. They have two demo accounts. On one account they buy and on another one they sell. They will open as many positions as they can so they can win more. And guess what. When positions are closed they will show pictures of winning account. Finding an honest mentor is the fastest way to learn to trade Forex. With mentor, you will avoid many mistakes and sometimes save many years of trial and errors.

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Fundamental vs technical analysis Technical analysis relies on past price movement data to predict currencies’ future value. Traders focus on charts of price movement and various analytical tools to evaluate a security's strength or weakness. In technical analysis, a trader examines the prices of specified currencies over time. In most cases, they will recognize repeated patterns, which they then use to predict the movement of the market. With automated technical analysis, computer software analyzes the history of the currencies’ price movement. Currency values tend to fluctuate in fairly predictable patterns, which give this style of analysis a value. Technical analysis is the most popular type of forex analysis. Fundamental analysis relies on current factors affecting countries’ economies. These traders look at related economic, financial, and other qualitative and quantitative factors. In fundamental analysis, traders examine factors such as a country’s inflation rate, interest rates, GDP and other economic indicators. Traders consider interest rates particularly important when making decisions. A higher interest rate will attract more investors, which, over time, will increase the value of that country’s currency. What you will focus more is personal choice, but do not ignore the other side. If someone says that he is technical trader and do not look at fundamentals and news, then he is not someone you want to follow. There are so many evidences that news can move the market. Many big players simply close all trades before important news, because market can be unpredictable. Technical and Fundamental analysis are base of Forex trading.

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How many pairs should you trade? As a new trader, you should start with one or two pairs. Why? Three or more pairs are hard to follow. Remember that you should check situation on few time frames to take a trade. With two or more pairs you will struggle to follow price actions. Select two pairs. It is enough. Every pair has its own characteristic. If you jump between pairs, you won’t notice this. Also, it is important to check situation on higher time frames. When you do that on many trading pairs, it is hard to follow price action for new traders.

How much money do I need to start Forex trading? This is one of most popular questions about Forex trading. You can open trading account with as little as 100$ (or even less in some cases). Is it enough to trade? Technically, yes. With that money, you can place trades if broker has nano or micro lots in his offer. If you want to trade for living, you will need much more. But you need to start from somewhere like everyone else. When you learn how to trade, use money you can afford to lose. That is very important. Never trade with money you can’t lose. This is brutal game. Save some money for your trading account. People see all that adverts, read about leverage and think that they do not need much capital. That is a huge mistake.

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Trading plan You must have a trading plan. Of course, there is a whole learning process and you will be testing different Forex trading strategies. Eventually you should decide what works best for you and explore that part. Your goal is to create trading plan. You should write down things like: - Which currency pair you trade; - Which time frames you trade; - When you enter a trade (based on what strategy/signals); - When you exit a trade (based on what strategy / signals); - Stop losses – what is your risk per trade; - Taking profits and money management. If you do not have things like this written down, then you will be changing lot of things at once. That way you will never find out what you are doing wrong. When you start to learn how to trade Forex, it is normal that you will be testing different systems and strategies. In the end, you should choose one and take your time to master it. I have my own strategy that I developed after years of learning on demo account. You will find more about my strategy in my lessons. I wait for the setup and I go in. No emotions, no pressure. Is it perfect? NO. You will never find perfect strategy. Even 80% or more win rate is impossible. When you find strategy with win rate over 50% you are on the right path. In Forex even with 50% win rate you can be profitable at the end of the month. How? Answer is good trading plan. Imagine that every time you are wrong, you lose $ 2, and every time you are right, you win $5. This month you traded 10 times. Simple math again: 5 (trades you won) * $5 =$25; 5 (trades you lost) * $2 = $10. Balance: $25 - $10 = +$15. This is why Forex is not gambling and why Forex is much better than gambling. It’s not about luck, it’s about your decisions!

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How to Place Profit Targets? Frankly speaking, the most feasible approach of how to use stop-loss and takeprofit in Forex is perhaps the most emotionally and technically complicated aspect of Forex trading. The trick is to exit a trade when you have a respectable profit, rather than waiting for the market to come crashing back against you, and then exiting out of fear. The difficulty here is that you will not to want to exit a trade when it is in profit and moving in your favor, as it feels like the trade will continue in that direction. The irony is that not exiting the moment the trade is significantly in your favor usually means that you will make an emotional exit, as the trade comes crashing back against your current position. Therefore, your focus when using the stop-loss and the takeprofit in Forex should be to take respectable profits, or a 1:2 risk/reward ratio or greater when they are available - unless you have predefined prior to entering, that you will try to let the trade run further. What is a Take-Profit order? A take-profit order (T/P) is a type of limit order that specifies the exact price at which to close out an open position for a profit. What is a Stop-Loss order? A stop-loss order is an order placed with a broker to sell a security when it reaches a certain price. Stop-loss orders are designed to limit an investor’s loss on a position in a security. Although most investors associate a stop-loss order with a long position, it can also protect a short position, in which case the security gets bought if it trades above a defined price. Some traders don’t use stop loss order. It takes a lot of guts and knowledge. For new traders it is recommended to use stop loss. You can put it little above previous high or little below previous low.

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Charts and candlesticks Let’s take a look at the three most popular types of forex charts: 1 - Line chart 2 - Bar chart 3 - Candlestick chart Line Charts A simple line chart draws a line from one closing price to the next closing price. When strung together with a line, we can see the general price movement of a currency pair over a period of time. Here is an example of a line chart for EUR/USD:

Picture 5: line chart

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Bar Charts A bar chart is a little more complex. It shows the opening and closing prices, as well as the highs and lows. The bottom of the vertical bar indicates the lowest traded price for that time period, while the top of the bar indicates the highest price paid. The vertical bar itself indicates the currency pair’s trading range as a whole. The horizontal hash on the left side of the bar is the opening price, and the right-side horizontal hash is the closing price. Here is an example of a bar chart for USD/CAD:

Picture 6: bar chart

You will see the word “bar” in reference to a single piece of data on a chart. A bar is simply one segment of time, whether it is one day, one week, or one hour. When you see the word ‘bar’, be sure to understand what time frame it is referencing.

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Here’s an example of a price bar:

Picture 7: price bar

Candlesticks Charts Candlestick bars still indicate the high-to-low range with a vertical line. In candlestick charting, the larger block (or body) in the middle indicates the range between the opening and closing prices. Traditionally, if the block in the middle is filled or colored in, then the currency pair closed lower than it opened. In the following example, the ‘filled color’ is black. For our ‘filled’ blocks, the top of the block is the opening price, and the bottom of the block is the closing price. If the closing price is higher than the opening price, then the block in the middle will be “white” or hollow or unfilled. You can change the colors.

24 Picture 8: candlesticks

The advantages of candlestick charting Candlesticks are easy to interpret, and are a good place for beginners to start figuring out Forex chart analysis. Candlesticks are easy to use. Your eyes adapt almost immediately to the information in the bar notation. Candlesticks and candlestick patterns have cool names, which helps you to remember what the pattern means. Candlesticks are good at identifying market turning points – reversals from an uptrend to a downtrend or a downtrend to an uptrend. Here is an example of a candlestick chart for EUR/USD

Picture 9: candlestick chart

As you can see I like to use red clolor for bearish candle and blue for bullish candle.

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Here you can find some useful information about candles, but remember – trading just candles is bad idea, but combining them with your trading strategy can be very useful, and try to trade only when candle closes.

Picture 10: candlestick patterns

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Understanding technical analysis Technical analysis is the study of historical price action in order to identify patterns and determine probabilities of future movements in the market through the use of technical studies, indicators, and other analysis tools. Technical analysis boils down to two things: 1- identifying trend 2- identifying support/resistance through the use of price charts and/or timeframes Markets can only do three things: move up, down, or sideways. Prices typically move in a zigzag fashion, and as a result, price action has only two states: 1. Range – when prices zigzag sideways; 2. Trend – prices either zigzag higher (up trend, or bull trend), or prices zigzag lower (down trend, or bear trend).

27 Picture 11: trend

Support and Resistance Support and resistance is one of the most widely used concepts in Forex trading. Let’s take a look at the basics first.

Picture 12: support and resistance I

As you can see, this zigzag pattern is making its way up (bull market). When the Forex market moves up and then pulls back, the highest point reached before it pulled back is now resistance. As the market continues up again, the lowest point reached before it started back is now support. In this way, resistance and support are continually formed as the Forex market oscillates over time. The reverse is true for the downtrend. Support and resistance are one of the most important and fundamental parts of technical analysis. Support: Typically expected that prices should rise after touching support. Resistance: Generally expected that prices should fall after hitting resistance.

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An example of price respecting support and resistance lines is given at the chart below.

Picture 13: support and resistance II

Potential Buy Signal → It is a general expectation that when prices touch a historical level of support, prices will cease the negative momentum downward and reverse course; hence a potential buy signal could be triggered when price touches the support line. Potential Sell Signal → If prices reach a historical price ceiling (resistance), typically it is expected that prices will stop at that level, unless some other external impetus like great earnings can send prices past historical resistance; therefore, a potential sell signal is triggered when price touches the historical resistance line. Breaking Support and Resistance → Another fundamental concept of support and resistance is listed next and is shown in the chart below. If price breaks below support, then that support level can become the new resistance level. If price breaks above support, then that resistance level can become the new support level.

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Picture 14: support and resistance III

Support and resistance are basic yet vitally important technical analysis tools. On every time frame, intra-day, daily, weekly, and monthly, Support and resistance levels are focused in by traders. Knowledge of these levels could keep a trader on the correct side of the market.

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Chart patterns If you have been around the Forex market for any length of time, then you definitely have heard about chart patterns and their importance in technical analysis. I will go through the most important chart figures in. What are Forex chart patterns? Forex chart patterns are on-chart price action patterns that have a higher than average probability of follow-through in a particular direction. These trading patterns offer significant clues to price action traders that use technical chart analysis in their Forex trading decision process. Each chart pattern has the potential to push the price toward a new move. Thus, Forex traders tend to identify chart patterns in order to take advantage of upcoming price swings. Type of chart patterns Forex trading patterns are divided in groups based on the potential price direction of the pattern. There are three main types of chart patterns classified in Forex technical charting. Continuation chart patterns The trend continuation chart pattern appears when the price is trending. If you spot a continuation chart pattern during a trend, this means the price is correcting. In this manner, continuation patterns indicate that a new move in the same direction is likely to occur. Some of the most popular continuation chart formations are: pennants, flags and corrective wedges.

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Picture 15: continuation chart patterns

Reversal chart patterns The trend reversal chart patterns appear at the end of a trend. If you see a reversal chart formation when the price is trending, in most of the cases the price move will reverse with the confirmation of the formation. In other words, reversal chart patterns indicate that the current trend is about to end and a new contrary move is on its way! The most popular reversal chart patterns are: double (or triple) top/bottom, head and shoulders, reversal wedges, ascending/ descending triangle.

32 Picture 16: reversal chart patterns

Neutral Chart Patterns These are the chart formations which are likely to push the price toward a new move, but the direction is unknown. Neutral chart patterns may appear during trends or non-trending periods. You may wonder what value there may be in neutral chart formations, since we are unable to know the likely direction. But actually, spotting a neutral chart pattern is still quite valuable as you can still trade an upcoming move. When the price confirms a neutral chart pattern, you can open a position in the direction of the breakout.

Picture 17: neutral chart patterns

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Technical indicators Success comes from knowledge – this is true for most things in life and especially Forex trading. To become successful, a trader needs to learn technical analysis. Technical indicators are a big part of technical analysis. I will provide you with a fair and simple explanation of the most popular technical indicators. There are many indicators that you can use. It is impossible to know and master every single one of them. Here you can find few popular indicators that you can combine with other things to create trading strategy. Do technical indicators actually work? We trade to get a positive result or, in other words, profit. Many beginner traders are eager to know whether technical indicators are able to give them good trading signals. The truth is that technical indicators won’t automatically lead you to profit, but they will do a lot of work for you. There are no doubts that a skillful and experienced trader can achieve profit without indicators, but they can still help a lot. In fact, technical indicators can do a few wonderful things: 1 - Show something that is not obvious; 2 - Help to find a trade idea; 3 - Save time for market analysis. Every technical indicator is based on a mathematical formula. These formulas make fast calculations of various price parameters and then visualize the result on the chart. You don’t need to calculate anything yourself. Just go to Meta Trader menu, click on “Insert” and then choose an indicator you would like to add to the chart. At the same time, technical indicators make their calculations only on the basis of a price – the currency quotes, which are reordered in the trading software. As a result, indicators do have weak spots. They can give signals which lag behind the price (for example, the price has already fallen when the indicator finally gives a signal to sell).

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Popular technical indicators for Forex traders Technical indicators are divided into several groups depending on their purpose. As purposes of the indicators are different, a trader needs not one, but a combination of several indicators to open a trade. • Moving Average – an indicator to identify the trend Moving Average (MA) is a trend indicator. It helps to identify and follow the trend. MA shows an average value of a price over a chosen time period. In simple terms: Moving Average follows the price. This line helps to smooth the price volatility and get rid of the unwanted price “noise”, so that you focus on the main trend and not on corrections. It is necessary to understand that this indicator does not predict the future price, but outlines the current direction of the market. Advantages of Moving Average 1 - Identifies a direction of a trend; 2 - Finds trend reversals; 3 - Shows potential support and resistance levels. Disadvantages of Moving Average 1 - Lags behind the current price (will change more slowly than the price chart because the indicator is based on the past prices). There are 4 types of the Moving Averages – simple, exponential, linear weighted and smoothed. The difference between them is merely technical (how much weight is assigned to the latest data). Most traders use Simple Moving Average. The most popular time periods for MA are 200, 100, 50 and 20. 200-period MA may help to analyze a long-term “historical” trend, while the 20-period MA – to follow a short-term trend. Moving Average shows whether to buy or sell a currency pair (buy in an uptrend, sell in a downtrend). MA won’t tell you at what level to open your trade (for that you’ll need other indicators). As a result, applying a trend indicator should be among the first steps of your technical analysis. On the picture below you can see 2 MAs on one chart. You can add multiple MAs, but it doesn’t have much sense to go with more than 3. 35

Picture 18: moving average

• Bollinger Bands – an indicator to measure volatility Bollinger Bands helps to measure market volatility (the degree of variation of a trading price). Bollinger Bands consist of 3 lines. Each line (band) is an MA. The middle band is usually a 20-period SMA. It identifies trend direction – just like the MAs described above do. Upper and lower bands (or “volatility” bands) are shifted by two standard deviations above and below the middle band. In simple terms: Bollinger Bands indicator puts the price in a kind of box between the two outside lines. The price is constantly revolving around the middle line. It can go and test levels beyond the outside lines, but only for a short period of time and it won’t be able to get far away. After such deviation from the center, the price will have to return back to the middle. You can also notice that during some periods of time Bollinger lines come closer together, while during other periods of time they spread and the range becomes wider. The narrower the range, the lower is market volatility and, vice versa, 36

the bands widen when the market becomes more volatile. I like to use BB as they can tell what to expect in the near future. Advantage of Bollinger Bands 1 - The indicator is actually great in a sideways market (when a currency pair is trading in a range). In this case, the lines of the indicator can be used as support and resistance levels, where traders can open their positions. Disadvantage of Bollinger Bands 1 - During a strong trend, the price can spend a long time at one Bollinger line and not go to the opposite one. The outer bands automatically widen when volatility increases and narrow when volatility decreases. High and low volatility periods usually follow each other, so the narrowing of the bands often means that the volatility is about to increase sharply. I don’t recommend you to use Bollinger Bands without confirmation from other indicators/technical tools. Bollinger bands go well with candlestick patterns, trendlines, and other price actions signals. Bollinger Bands work best when the market is not trending. This indicator can be a great basis for a trading system, but it takes a lot of time to become good with it.

Picture 19: Bollinger Bands

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• MACD – an indicator that shows the phase of the market MACD (Moving Average Convergence/Divergence) measures the driving force behind the market. It shows when the market gets tired of moving in one direction and needs a rest (correction). MACD histogram is the difference between a 26-period and 12period exponential moving averages (EMA). It also includes a signal line (9-period moving average). In simple terms: MACD is based on moving averages, but it involves some other formulas as well, so it belongs to a type of technical indicators known oscillators. Oscillators are shown in separate boxes below the price chart. After an oscillator rises to high levels, it has to turn back down. Usually so does the price chart. The difference is that while MACD needs to return close to 0 or lower, the price’s decline will likely be smaller. This is how MACD “predicts” the turns in price. Sell when histogram bars start declining after a big advance. Buy when histogram bars start growing after a big decline. Crossovers between the histogram and the signal line can make market entries more precise. Buy when the MACD-histogram rises above the signal line. Sell when the MACD-histogram falls below the signal line. Zero line as additional confirmation. When MACD crosses the zero line, it also shows the strength of bulls or bears. Buy when the MACD-histogram rises above 0. Sell when the MACD-histogram falls below 0. Note though, that such signals are weaker than the previous ones. Divergence → If a price rises and a MACD falls, it means that the advance of the price is not confirmed by the indicator and the rally is about to end. On the contrary, if a price falls and MACD rises, a bullish turn in the near-term. Advantages of MACD 1 - MACD can be used both trending or ranging markets; 2 - If you understood MACD, it will be easy for you to learn how other oscillators work: the principle is quite similar. Disadvantage of MACD 1 - The indicator lags behind the price chart, so some signals come late and are not followed by the strong move of the market. It’s good to have MACD on your chart as it measures both trend and momentum. It can be a strong part of a trading system, although I don’t recommend to make trading decisions based only on this indicator.

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Picture 20: MACD

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• RSI – an indicator to measure momentum The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. The RSI oscillates between zero and 100. Traditionally the RSI is considered overbought when above 70 and oversold when below 30. Signals can be generated by looking for divergences and failure swings. RSI can also be used to identify the general trend. RSI is considered overbought when above 70 and oversold when below 30. These traditional levels can also be adjusted if necessary to better fit the security. For example, if a security is repeatedly reaching the overbought level of 70 you may want to adjust this level to 80. During strong trends, the RSI may remain in overbought or oversold for extended periods. In an uptrend or bull market, the RSI tends to remain in the 40 to 90 range with the 40-50 zone acting as support. During a downtrend or bear market the RSI tends to stay between the 10 to 60 range with the 50-60 zone acting as resistance. These ranges will vary depending on the RSI settings and the strength of the security’s or market’s underlying trend. If underlying prices make a new high or low that isn't confirmed by the RSI, this divergence can signal a price reversal.

40 Picture 21: RSI

Advantages of RSI 1 - Effective way to predict potential trends; 2 – RSI can give very good signal when to enter and when to close position. Disadvantages of RSI 1 - True reversal signals are rare and can be difficult to separate from false alarms; 2 - RSI can stay long time in overbought or oversold zone; 3 - When a market features a strong trend, the RSI loses its usefulness. There is no magic indicator than can predict with certainty when to enter or when to exit a trade. If there was, everyone would use it, and there would be no dynamic market as everyone would buy, and everyone would sell at the same time.

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Trading psychology As you progress as a trader you will become involved in thinking and probably reading about trading psychology. Trading psychology is a broad term that encompasses the study of traders and their emotional issues about trading. Tradingpsychology literature takes its cues from scientific study of psychology, common sense, and the experience of traders and trading gurus. If you are interested in trading psychology, it probably means that you are further along in your trading education. If you are one of the traders with an interest in trading psychology, you have moved beyond looking for the perfect trading system. You now understand the important role emotions play in trading results. One thing that many traders fail to recognize is the intricate relationship between what you risk and the emotions you experience during trading. In fact, risk and trading psychology are two sides of the same coin. Markets change, new opportunities will always come. Don’t rush, be patient and always have a trading plan. Good traders are successful but humble people. Being a trader is a lifelong challenge. I hope this helps you to grow as a trader. Continue to learn and be smarter tomorrow than you are today. Now, when we went through basics, we can start with more advanced knowledge. In the upcoming lessons you will find out more about technical and fundamental analysis.

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LESSONS - I recommend you to read 1 to maximum 3 lessons a day, so you can process the information you find there. You will learn basic and advanced things about Forex trading, so take your time and don’t try to learn everything in short amount of time. Trading is not easy and it takes time to become good, confident and even more time to become profitable trader. But the good thing is – it is possible!

Lesson 1 - About Forex In first lesson, I want you to realize how huge Forex market is and if you want to outsmart everybody else who trade on this market, you will have to learn and practice a lot!

Lesson 2 - Technical and Fundamental analysis There are two types of analysis. Technical and Fundamental. The point of this lesson is to realize that you need to use them both. You will focus on one for sure, but never neglect other one.

Lesson 3 - Support and resistance It is very important to understand this topic. If you have any questions, feel free to ask me. I recommend you to look at support and resistance as zones, not just lines.

Lesson 4 - Trendlines Trendlines are very important when it comes to technical analysis. They give you valuable information about current trend and we use them to spot chart patterns.

Lesson 5 - Trading trendlines This lesson is very important so make sure to ask anything you need.

Lesson 6 - Forex Patterns Try to remember as much patterns as you can. It might seem hard to remember, but trust me it's not. You will see these patterns many times, especially in my free Telegram group.

Lesson 7 - Continuation Chart Patterns After these patterns are formed, continuation of the price is expected. Here you will learn some of the most traded continuation chart patterns.

Lesson 8 - Reversal Chart Patterns After these patterns are formed, declining of the price is expected. Here you will learn some of the most traded reversal chart patterns.

Lesson 9 - Neutral Chart Patterns These patterns are interesting because price can go either way, but they can be very useful if you have proper strategy trade them. Here you will read how I recommend you to trade them and how I like to trade them.

Lesson 10 - Market Behavior After we have learned about chart patterns, it’s time to read about market behavior.

Lesson 11 - Relative Strength Index RSI is the most used indicator. Many traders have this indicator plotted into their charts and you should try it too. Many traders also trade overbought and oversold RSI conditions but you should be very careful if you try this strategy and the reasons why, you will find in this lesson.

Lesson 12 - MACD This is little more complex indicator, but if you understand this indicator, you will not have any difficulties with others.

Lesson 13 - Bollinger Bands I trade this indicator and its part of my strategy. Here you will see how I trade Bollinger Bands. With a proper strategy this indicator is very useful!

Lesson 14 - Moving Average Moving Average is indicator that you simply have to use. It is very useful and there are many ways to trade them. It is the easiest way to determine the trend with MAs.

Lesson 15 - Stochastic Oscillator and CCI These two indicators are popular and that is why I want to cover them too. I tried CCI indicator but it didn't give good results so I simply stopped using it. Stochastics are very good, but many times they give false signals. If used properly, they can be very good.

Lesson 16 - Fundamental analysis After we have learned about technical analysis, it is time to learn about fundamental analysis too. Here you will find the most important news that usually move the price.

Lesson 17 - Backtesting Backtesting is very important. It is crucial to test your strategy before you actually start to trade it. This something that you just have to do!

Examples Here you will find some ideas and examples of how to make a trading strategy.

Lesson 18 - Problems with trading There are many problems that you will face when trading. One of the biggest problems is controlling your emotions. You have to be completely objective, because if you are not, you are just fooling yourself.

Lesson 19 - Trading psychology I want you to read the most important lesson and it’s about trading psychology. You have to know about this if you want to become good trader.

Lesson 20 - How much money do I need to start trading? Here you will find the answer to most frequently asked question. The only right answer is to start with amount you can afford to lose!

Lesson 21 - When not to trade? When not to trade is very important to know. By not trading we protect our capital and sometimes it’s just the best thing we can do. In this lesson you will find out when you shouldn’t trade.

Lesson 22 - Risk Reward Ratio This lesson and the next one are very important. You have to read them!

Lesson 23 - Money Management If you don’t have proper money management you will fail. That is just harsh truth.

Lesson 24 - Fibonacci tools Fibonacci tools are very helpful and interesting. Here you will find out how I like to use them.

Lesson 25 - Trading Fibonacci In this lesson you will see how to trade Fibonacci tools with few examples.

Lesson 26 - Advanced (Harmonic) patterns Advanced patterns can be very useful, but to trade them on a professional level, you will have to master them. You will need much more then you can find here, but I want you to know about them and to be aware of their significance.

Lesson 27 - Elliott Wave Elliot Wave is very interesting strategy but it is definitely not recommended for beginners. This is trading on a much higher level, but just like with advanced patterns, I want you to know about this strategy too.

Lesson 28 - Taking the trades You should look at the missed opportunities as a part of the game. Just try to learn from them, but don't focus on missed trades, because they can affect your trading in a negative way.

Lesson 29 - Types of traders Here you will find out all types of traders. If you don't really know which one to choose, this lesson will help you determine your trading style. Once you find that out, stick to it.

Lesson 30 - Focus on learning Never focus on money. Money should be the end result of your hard work and willingness to learn and improve every day. In this lesson you will find out why you should focus on learning instead of money.

Lesson 31 - Trading journal Trading journal is very important part of every good trader. It is additional work, but it definitely helps you to see what you can improve, what are you doing right and what are you doing wrong.

Lesson 32 - Importance of having a proper strategy and money management You will find some shocking charts here that will hopefully show you the importance of having a proper strategy and money management once and for all!

TECHNICAL ANALYSIS Here you will find many real chart examples.

Lesson 33 - Key takeaways pt.1 Lesson 34 - Key takeaways pt.2 Lesson 35 - Never give up

Lesson I About Forex Welcome to the world of forex trading. Forex is a portmanteau of foreign currency and exchange. Foreign exchange is the process of changing one currency into another currency for a variety of reasons. The foreign exchange market is where currencies are traded. For example, a German tourist in Egypt can't pay in euros to see the pyramids because it's not the locally accepted currency. Because of that, the tourist has to exchange the euros for the local currency, in this case the Egyptian pound, at the current exchange rate. The market is open 24 hours a day, five days a week, and currencies are traded worldwide in the major financial centers of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris and Sydney - across almost every time zone. This means that when the trading day in the U.S. ends, the forex market begins anew in Tokyo and Hong Kong. As such, the forex market can be extremely active any time of the day, with price quotes changing constantly. Forex is the largest market in the world. Forex traders exchange $5 (and more) trillion each day. Forex market never sleeps, you have the opportunity to trade at any time of the day and make money any time. But you need to be careful, because you can easily lose everything! Traders with very little money can begin trading forex. In forex, you may take relatively large trades with small amounts of money because of the favorable leverage requirements. There are many reasons to become a forex trader, but if your only reason is to get rich quick, then you are at the wrong place. It takes time, effort, a lot of practice and patience. Once you gain necessary knowledge and learn how to control your emotions, trading forex will become easy. You often hear people claim that because the forex market is so large, it is relatively easy for forex traders to jump in and ride the trends in this gigantic market. To be exact, the world’s largest market. However, most forex traders trade what is called the retail forex market; this is a different market to the “real” forex market in which $5 trillion is exchanged each day. Basically, we can say there are two markets in forex. There is the interbank market, where big banks, governments, hedge funds, and corporations exchange currencies, and there is the retail market. Most forex traders trade in the retail forex market, an entirely different market to the “real” interbank market. Basically, you trade against big banks, governments and corporations that have enormous amounts of money and because of that, they can manipulate the market. Everything you know, they know too and they will use that against you. Make no mistake about it, when you step into any market, including the forex market, and decide that you want to make money, you have decided you will outwit and outperform some of the most determined, intelligent, and well-resourced people in the world! All these people have one goal. They want to take your money. How can you make money in the markets, knowing whom you are up against? You must practice. Practice your trading. This is the simple way to become an expert. Simple does not mean easy, because many traders expect to become experts without practice, and sadly they never achieve expertise. Consistently profitable trading is yours if you practice trading and become an expert!

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So how can you win? The answer is mathematics. Here is what I mean by that. You need to find trading strategy that works 50% of time. A forex trading strategy is a technique used by a forex trader to determine whether to buy or sell a currency pair at any given time (we will talk about this more later). All the stories that you hear about 90+% win ratio {forex robots} are simply not true. So out of 100 trades, you win 50. That is good. Now, every time you win, you win $4 and every time you lose, you lose $2. That is why I love forex market. I choose how much I win, and I choose how much I lose. So, 50(won trades)·$4 = $200; 50(lost trades)·$2=$100. Now; $200(that you won) - $100(that you lost) = $100 (in profit). The biggest problem with this is that is not easy to stick to your strategy every time. Sometimes you will have (for example) 7 consistent losses. After that, you will start to question your strategy and you will try to find new one again. Again, and again and again... That is very big mistake that leads to nowhere! So your biggest enemies are your emotions and lack of self-discipline. You need to realize that consistency is the key, and the only way to be consistent is to control your emotions. After 7 losses you will get 7 or 8 or 9 wins, but you never got to see that because you changed your strategy. The cycle of winning and losing is endless. That is just how life works! The question is how to form trading strategy? To do that, you need to know everything about technical and fundamental analysis and that it takes time to form one. Right from the start you should know that market is never wrong in what it does! Therefore, you as an individual trader interacting with the market (first as an observer to perceive opportunity, then as a participant executing a trade, contributing to the overall market behavior) have to confront an environment where only you can be wrong, and it's never the other way around. I want you to read this carefully more than once. It is very important to understand this! Everything we learn after this can be for nothing, if you don’t understand this part.

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Lesson II Technical and fundamental analysis There are basically two schools of traders, and you must decide which school fits your trading personality. You will most likely focus on one, but be sure to never completely forget about other one. The first school is the school of fundamental analysis. Fundamental traders use economic reports and news reports as the basis for their trading decisions. Forex traders who have a fundamental approach will closely examine world events, interest-rate decisions, and political news. Fundamental traders are concerned with properly interpreting news. The focus for the technical forex trader is different. The technical forex trader uses technical indicators, candlesticks and patterns to properly interpret price movement on a chart. The forex trader who adopts a technical approach will examine the price charts. So, while the fundamental forex trader is concerned with interpreting news and world events, the technical trader is concerned with interpreting price on a chart. Technical analysts believe that history tends to repeat itself! The repetitive nature of price movements is often attributed to market psychology, which tends to be very predictable based on emotions like fear or excitement. Technical analysis uses chart patterns to analyze these emotions and subsequent market movements to understand trends. While many form of technical analysis have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves. The problem with technical analysis is that ignores fundamental factors. So combining fundamental and technical analysis is much better than focusing on just one. For example, every morning I check news that will be released that day (economic calendar). If very important information for Euro zone (that can move price) will be released in 4PM, I simply won’t open any trade around 4PM that includes EUR. Everything about technical analysis is relative. By that I mean there is no perfect indicator or pattern! This is very important to know. Don’t ever think that you will find indicator or pattern that works every time. Now when we know that, let’s start with candlesticks. The candlestick chart is a popular chart that displays the opening price, the closing price, the high price and the low price for a market during a given time period. Each candlestick clearly represents the important market activity for the given time period. You can choose specific time period and it is called time frame. If you choose one hour time frame (H1), every candle will represent price movement in one hour. Look at the picture 9 (previous chapter) to see how candlestick looks. - Open price: The open price depicts the first traded price during the formation of a new candle; - High price: The top of the upper wick. If there is no upper wick, then the high price is the open price of a bearish candle or the closing price of a bullish candle; - Low price: The bottom of the lower wick. If there is no lower wick, then the low price is the open price of a bullish candle or the closing price of a bearish candle; - Close price: The close price is the last price traded during the formation of the candle.

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On the picture 10 (previous chapter - page 26) you can see most popular candlestick patterns. Bearish patterns indicate that after pattern is formed, lowering of price is expected. Bullish patterns indicate that after pattern is formed, rising of price is expected. Neutral patterns indicate that after pattern is formed, price can go either way, up or down. This will not work every time. Candlestick charts are the most popular charts among forex traders because they are more visual. Candlestick charts highlight the open and the close of different time periods more distinctly than other charts, like the bar chart or line chart. Candlestick charts have certain advantages: - Forex price movements are perceived more easily on candlestick charts compared to others; - It is easier to recognize price patterns and price action on candlestick charts; - Candlestick charts offer more information in terms of price (open, close, high and low) than line charts. However, there are some disadvantages of candlestick charts: - Candles that close green or red may mislead amateur forex traders into thinking that the market will keep moving in the direction of the previous closing candle; - Candlestick charts may clutter a page because they are not a simple as line charts or bar charts. One thing I recommend is to open the trade only when candle closes (when candle is formed). The reason why is that candle like on picture 1 can easily transform into candle that looks like candle on picture 2.

Picture 1

Picture 2

When people see massive bearish candle like in the first picture they will sell. They believe that price will go down, so they sell and place stop loss just above the wick (or somewhere around). Market makers (people that trade for big banks with enormous amounts of money) know that. Remember the previous lesson. They buy and because they operate with large amounts of money price will strengthen, go up and trigger all the stop loses. And just because you were not patience enough to wait for candle to fully form, you lost money! The reasons for price movement like this can be different, not just one I described. Of course this will not happen every time, but by being patience and waiting for the candle to close you drastically lower the chances to lose money! 4

Be sure to always combine candlestick patterns with other things like trend, chart patterns and indicators (we will talk about that in this course). Never open the trade just because you see bullish or bearish candle! Example that I explained above happens often. Look at picture 3:

Picture 3

See that large wick. People who didn’t wait for candle to close and sold, lost their money. This is typical price manipulation at the support zone.

Picture 3.1

Make sure to always go back at previous chapter where I shared more pictures of different candlestick patterns that can be useful. And AGAIN: don’t just enter the trade based on candlestick pattern signal! Combine them with support/resistance zones, trendlines, indicators and other tools. 5

Lesson III Support and resistance Support and resistance levels are significant reference points because many traders recognize support and resistance on charts and believe in their significance. The concepts of support and resistance are undoubtedly two of the most highly discussed attributes of technical analysis. Part of analyzing chart patterns, these terms are used by traders to refer to price levels on charts that tend to act as barriers, preventing the price from getting pushed in a certain direction. The explanation and idea behind identifying these levels seem easy, but as you'll find out, support and resistance can come in various forms. Somehow, everyone seems to have their own idea on how you should draw and measure forex support and resistance. First, let’s see how support looks like in theory (picture 4):

Support occurs when falling prices stop, change direction, and begin to rise. Support is often viewed as a “floor” which is supporting, or holding up prices.

Picture 4

This is how resistance looks like in theory (picture 5):

Resistance is a price level where raising prices stop, change direction, and begin to fall. Resistance is often viewed as a “ceiling” keeping prices from rising higher.

Picture 5

If price breaks support or resistance, the price often continues to the next level of support or resistance. Support and resistance levels are not always exact. They are usually a zone covering a small range of prices so levels can be breached, or pierced, without necessarily being broken. As a result, support/resistance levels help identify possible points where price may change directions. It sounds logic but the only right way to spot support and resistance is by looking at the chart! 6

Can you spot a resistance on picture 6? Just look at the chart, don’t scroll down.

Picture 6

Here it is:

Picture 7

You can see at the cahrt that price failed to break 0.89750 level 4 times. This level represented resistance zone, because price failed to break it. 7

The way I like to draw support and resistance levels is like this:

Picture 8

I use zones, not lines. As you can see here, price touched resistance zone 4 times, and after 4th time price went down. The zones can be bigger, but I prefer thinner zones, as price is more likely to reject or penetrate thinner zones. When we have big zones, price also can move up and down inside that zone. On picture 9 you can see support level.

Picture 9

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Far right in the red circle is massive wick. So, is this a breakout (breakout means that price penetrated through the zone)? In this case is not. We call this false breakout (it is usually price manipulation). In one moment price penetrated zone, but when candle closed, body of the candle wasn’t penetrating the zone. That is why I say, always trade when candle closes! Many traders have misconceptions concerning zones. Traders may be familiar with the concept of support and resistance but unfortunately, many misapply this concept to technical trading. You should understand that zones are an area on the chart. This is a different concept to a support and resistance line. A support and resistance line indicates a specific price on the chart, but zones indicate a specific area from where price can possibly reverse. Once an area or "zone" of support or resistance has been identified, it provides valuable potential trade entry or exit points. This is because, as a price reaches a point of support or resistance, it will do one of two things. Bounce back away from the support or resistance level, or violate the price level and continue in its direction until it hits the next support or resistance level. Most forms of trades are based on the belief that support and resistance zones will not be broken. Whether the price is halted by the support or resistance level, or it breaks through, traders can "bet" on the direction and can quickly determine if they are correct. If the price moves in the wrong direction, the position can be closed at a small loss. If the price moves in the right direction, however, the move may be substantial. Facts: - When the price passes through resistance, that resistance could potentially become support; - The more often price tests a level of resistance or support without breaking it, the stronger the area of resistance or support is; - When a support or resistance level breaks, the strength of the follow-through move depends on how strongly the broken support or resistance had been holding. Many traders have read or heard that old support becomes resistance and old resistance becomes support. This bit of market insight is valid for some very sound psychological reasons. One of the most interesting phenomena regarding support and resistance occurs when the price is finally able to break out and go beyond an identified support or resistance level. When this happens, it is not uncommon to see a previous level of support change its role and become a new area of short-term resistance. Picture 10 is a good example.

Picture 10

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These two pictures (picture 11 and 12) are great example of support and resistance.

Picture 11

Picture 12

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Lesson IV Trendlines A trend or a tendency is a price behavior, which involves overall price increase or decrease. A currency pair is trending when it is increasing or decreasing for a longer period of time. There are two types of trend tendencies in Forex – a bullish and bearish trend. We have a bullish trend when the price accounts for higher bottoms and higher tops on the chart. In this manner, the trend line during a bullish trend should connect the price bottoms on the chart. So the bullish trend line acts as a support. Bearish trends have opposite functions to bullish trends. The trend is bearish when the price action creates lower tops and lower bottoms on the forex chart. In this case the bearish trend line should be drawn through the swing tops on the chart and the resulting trendline acts as a resistance for the price. Trends, a series of higher highs and higher lows, or lower highs and lower lows over a period of time, work because there aren't enough sellers to absorb the number of buyers competing with each other to get into the market during that period of time. Here you can see what trend looks like (picture 13).

Picture 13

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Adding to this buying force will be old sellers at lower levels who finally lose faith and bail out of their positions. They will do this in significant numbers when the prices penetrate what they believe to be significant reference points. Trendline analysis in forex is a crucial price action method that helps us first and foremost in trend detection. Trendlines measure the price move of a forex pair when the price is increasing or decreasing. In this manner, there are two types of trendlines: 1) Bullish Trendlines We have a bullish trend when the Forex pair is increasing. In this manner, the price of the pair records higher bottoms (lows) and higher tops (highs). The bullish trend line should be located below the price action and it should connect the bottoms of the currency pair. This way the bullish trend line acts as a support for the price action. Obvious uptrend looks like this (pictures 14 and 15):

Picture 14

Picture 15

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Picture 16

Sometimes you will not be able to draw perfect trendline that connects all the lows or highs, but trend would still be active. That is why spotting price structure is very important. The structure of trend is not that complicated. You can see on the picture above (16) that price formed higher highs and higher lows and that uptrend is still active even though you can’t connect the lows with perfect trendline. The structure of the downtrend is same, just different direction. Instead of higher highs and higher lows, price forms lower highs and lower lows. The price structure is important to understand, but I will leave this for later. By the end of this ebook you will find many examples that will help you understand this.

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2) Bearish Trendlines The bearish trend has the opposite character of the bullish trend. We use a bearish trendline in order to measure the price action during a price decrease. In this manner, the bearish trend requires the price to record lower tops and lower bottoms. This indicates that the price is dropping. The bearish trend line should be located above the price action during a price decrease. The bearish trendline plays the role of resistance for the price. Obvious downtrend looks like this (pictures 17 and 18):

Picture 17

Picture 18

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Picture 19

In order to draw a trendline (bearish or bullish), you first need to identify a trend. Look at this chart:

Picture 20

Can you find a trend on the chart? Answer honestly, we are here to learn! 15

You can see that there are at least three minor trends here. Let’s look at picture 20.1 below:

Picture 20.1

There are three trendlines here. Two of them are bearish (red), and one of them is bullish (green). Basically, drawing trendlines is not hard, but it can be tricky at times. In order to confirm a trend, you need at least three points lying on the same line! This is very important. When drawing trendlines, you must have a minimum of two points. In order to confirm a sloping support or resistance tendency, you need a third confirmation point, lying on the same line as the two previous points. You can see that on picture 21:

Picture 21

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So, our bullish trend starts with the first and a second bottom. The third bottom is the trend confirmation signal. The arrows after the confirmation point out subsequent tests of support, which lay in the area of our trendline. Never think of the trend as contained within of a single line. The trend is not a line, but an area. Remember previous topic. I said to always look at support and resistance as zones (areas), not just lines. Same applies here. Trendlines are basically support and resistance but not straight. When you build a bullish trendline you should take into consideration the lower candle wicks and the body bottoms. Very often the lower wicks of the candlesticks might go outside the scope of the trendline. However, we know to think of the trendline as an area and not as a single line written in stone. In this manner, if the price action breaks the trendline with its candle wick, this doesn’t mean that the trend is broken. An important point also to keep in mind is that as trendlines mature, there will be more of a tendency for price reactions at the trendline levels, and many times you will see false breakouts around these areas, like on picture 22.

Picture 22

We recognize from the price action at this test that most of the price action closed within the trendline area, and there were quite a few wicks around this zone, indicating that price was being rejected as it was trying to break thru. As a result, price records another drop before it eventually breaks the trend on the final attempt.

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You are might wondering, but how can I find the trend? There are three ways to do it. First one is connecting the three higher lows (uptrend) or three lower highs (downtrend) with the trendline. Second is to follow market structure that I mentioned before. If you spot higher highs and higher lows, that means price is trending up. If you spot lower highs and lower lows that means price is trending down. Third way is to use Moving Averages. I mentioned them in the first chapter of this ebook. You can plot two or three MAs and if price is above them, we have the uptrend. If price is below them, we have the downtrend.

Picture 23

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Lesson V Trading trendlines There are three basic occurrences on the trendline, which could be traded – trending move, correction, and breakout. We will now go through each of these. When we confirm a trendline, we can prepare to trade with the trending move. With the trendline confirmation we have a clear area for our position entry point. In this manner, if we confirm a bullish trend, we can trade the next bounce from that trendline, assuming that price action confirms our setup. Take a look at picture 24:

Picture 24

The blue line is a trend line of the bearish price move you see. The three arrows are the three base points, which form the trend. Notice that the third arrow is green. This is so, because it indicates an area of trend confirmation. We see a strong bearish candle after price approaches the trendline. This provided a good entry signal to sell. After the trend gets confirmed (green arrow) the forex pair creates a trending move downwards. Then we see a new lower bottom and a new correction to the trend. The price interacts with the blue trendline and then bounces downwards again. Price breaks its previous low, creating a lower bottom. The next move to the trendline is considered the last one, although there is a tiny 1-period bounce from it. The price breaks the trend afterwards with a strong bullish closing candle. This is a signal that the trend may be over or very likely to stall. Of course, not every bullish candle above trendline means that trend is over but it is something you need to pay attention to. Now I will show you how to spot and trade corrections of trending moves. However, I would like to tell you that counter trend trading is for advanced traders. The reason for this is that it is a risky initiative to trade corrections. I trade only in trend. There is no reason to complicate your life. When I identify bullish trend (uptrend) I look only for buying opportunities. When I identify bearish trend (downtrend) I look only for selling opportunities. 19

What is a trend correction? A correction (corrective move) is a move, which comes after an impulsive trending leg and brings the price back to the trendline area. A corrective move should be smaller than the trending move. Also, in most cases, corrections tend to take more time to complete than the trending leg phase. As a result, corrections are definitely riskier and less attractive to trade. In order to demonstrate how to trade corrections in the content of trendlines, we will use a channel for our example. Look at picture 25:

Picture 25

Take note of the two bullish parallel trendlines (blue). The black circles with the numbers show you the respective Trend phases. The green arrows show you the trending moves in the channel, while the red lines point out the corrective moves. When we have a channel, we usually confirm the pattern with the third price move. In other words, we need only two bottoms in case of a bullish trend and not three as described above. The reason for this is that after the third price move we have two bottoms on a bullish line and two tops on another bullish line, which is parallel to the first line. In this manner the pattern gets confirmed. Notice that the corrections are smaller in terms of price change, as they are contrary to the general trend. A countertrend trader would sell at the tops of the upper trendline with targets near the bottom of the channel. As you can see this strategy is much less desirable than the potential that we have in trading with the trend to the upside. Let’s talk about trendline breakouts. Being able to spot breakouts is very important for trend traders. For example, if the price is moving along in a directional manner and it demonstrates the tendency of higher highs and high lows we have a bullish trending situation. But as we know, this pattern is likely to stop and reverse at some point. When this happens, the price changes its direction and starts moving in the opposite direction.

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Traders should be on the lookout for potential trendline breaks, as this is an attractive way to get in the beginning of a new price move. However, every breach in price through the trendline is not enough to confirm a reversal pattern. As I already said, it is common for the price to go a bit beyond the scope of the trendline, and the trendline should never be treated as an exact line (I hope you learned that already). The image below will show you the four phases to recognize when trying to confirm a trend reversal using trendlines. Let’s go thru this using a bullish trendline example: A break in the trend occurs. We have a break when the price closes a candle below the trendline. The price decreases further and creates a bottom, which is lower than the previous price data inside the trendline. We draw a horizontal support line at the swing low, which will be the trigger of our reversal confirmation. The price then increases and tests the already broken trend as a resistance. The retest does not have to touch the broken line. The reason for this is that the trendline must be viewed as an area and not as a single line. Furthermore, the price could even Picture 26 increase beyond the already broken trendline area. The price decreases again and breaks the already established support level (red line). This is the reversal confirmation signal. When you get this fourth signal, you have a strong reason to believe that the price will reverse direction. You could short (sell) the currency pair based on strong reversal belief. It is also important to point out that aggressive traders may look to sell at the retest of the trendline. This provides higher profit potential, and experienced price action traders typically prefer this type of entry. On picture 27 we can see this example.

Picture 27

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Look at the numerated dots indicating the four phases of the reversal process: 1 - Points to the moment when the price breaks the bullish trend line. Notice the strong red candle that closes outside the upward sloping trendline. This is considered a high momentum breakout to the downside; 2 - Shows the price decrease below its previous bottom and the swing low that was created; 3 - Shows the retest of the broken trendline which is now considered resistance. Aggressive traders will look to enter in this area. A good entry point would be after the close of the strong red candle that follows the doji bar at new trendline resistance; 4 - Shows the strong breakdown below the swing low; Notice the strong red bar which closes sharply below the support swing line. This would be a confirmed short opportunity (sell opportunity). After that, price drops significantly over the next period. This type of trendline trading system gives you a clear picture of what is currently happening with the trend of a currency pair. Recap: - Uptrends occur where prices are making higher highs and higher lows. Up trendlines connect at least two of the lows and show support levels below price; - Downtrends occur where prices are making lower highs and lower lows. Down trendlines connect at least two of the highs and indicate resistance levels above the price; - Consolidation, or a sideways market, occurs where price is oscillating between an upper and lower range, between two parallel and often horizontal trendlines.

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Lesson VI Forex Patterns Chart patterns are one of the most effective trading tools for a trader. They are pure price-action, and form on the basis of underlying buying and selling pressure. Traders use them to identify continuation or reversal signals, to open positions and identify price targets. Pattern is a specific price action which has been formed before repeated times. In technical analysis, patterns are used to predict future price movements. Today we will go through the most important chart figures in forex and we will discuss their potential. Patterns offer significant clues to price action traders that use technical chart analysis in their forex trading decision process. Each chart pattern has the potential to push the price toward a new move. That is why traders tend to identify chart patterns in order to take advantage of upcoming price movements. Technical analysts have long used price patterns to examine current movements and forecast future market movements. Before we even begin be sure that these patterns are not perfect. Many times patterns will provide you with false signals. But that is OK. I hope you already learned this! There is no perfect pattern, indicator and strategy. I said this and I will say it again many times. In general, all patterns trigger a long (buy) or short (sell) entry when horizontal or diagonal support or resistance is broken.

Picture 28

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On the picture above you can see the most popular chart patterns. Through my trading experience I can say that these patterns can be very useful and helpful in order to find good entry point. Every trader will have their own opinion on every pattern. So far, I can say that Double Top/Bottom, Ascending, Descending and Symmetrical Triangles are the best. The ones that I don’t trade are Diamond, Cup and Handle and Broadening Triangle. Depending on your style you might find some other patterns useful and this is just my experience. There are three main types of chart patterns. 1) Continuation Chart Patterns The trend continuation chart pattern appears when the price is trending. If you spot a continuation chart pattern during a trend, this means the price is correcting. In this manner, continuation patterns indicate that a new move in the same direction is likely to occur. I told you that trading in the trend is better than trading against the trend. That is why I recommend you to learn continuation chart patterns first. On these pictures you can see most traded continuation chart patterns:

Picture 29

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Picture 30

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2) Reversal Chart Patterns The trend reversal chart patterns appear at the end of a trend. If you see a reversal chart formation when the price is trending, in most of the cases the price move will reverse with the confirmation of the formation. In other words, reversal chart patterns indicate that the current trend is about to end and a new contrary move is on its way! The most popular reversal chart patterns are double top/bottom, head and shoulders, reversal wedges. On these pictures you can see most traded reversal chart patterns:

Picture 31

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Picture 32

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3) Neutral Chart Patterns These are the chart formations which are likely to push the price toward a new move, but the direction is unknown. Neutral chart patterns may appear during trends or non-trending periods. You may wonder what value there may be in neutral chart formations, since we are unable to know the likely direction. Spotting a neutral chart pattern is still quite valuable as you can still trade an upcoming move. When the price confirms a neutral chart pattern, you can open a position in the direction of the breakout or you can wait for the retest. What I recommend you to do when you spot neutral chart pattern is this: enter the trade after breakout, but only if breakout is in the trend direction. If the breakout is in the opposite direction, wait for the retest (I will explain this later and show you pictures). On the picture 33 you can see most traded neutral chart patterns:

Picture 33

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Lesson VII Continuation chart patterns A price pattern that denotes a temporary interruption of an existing trend is known as a continuation pattern. A continuation pattern can be thought of as a pause during a prevailing trend – a time during which the bulls catch their breath during an uptrend, or when the bears relax for a moment during a downtrend. While a price pattern is forming, there is no way to tell if the trend will continue or reverse. As such, careful attention must be placed on the trendlines used to draw the price pattern and whether price breaks above or below the continuation zone. Technical analysts typically recommend assuming a trend will continue until it is confirmed that it has reversed. In general, the longer the price pattern takes to develop, and the larger the price movement within the pattern, the more significant the move once price breaks above or below the area of continuation. Wedges They are constructed with two converging trendlines, where both are angled either up or down. A wedge is characterized by the fact that both trendlines are moving in the same direction, either up or down. A wedge that is angled down represents a pause during uptrend; a wedge that is angled up shows a temporary interruption during a falling market. As with pennants and flags, volume typically tapers off during the formation of the pattern, only to increase once price breaks above or below the wedge pattern. You can see how wedges look on picture 34.

Picture 34

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Wedges are hard to understand at the beginning because they can represent both continuation and reversal patterns. On the picture 34 you can see blue wedges and red wedges. I did that on purpose so its easier for you to understand. For now, we will focus on blue ones. They represent continuation chart patterns. When the falling wedge (bottom left blue on picture 34) forms during an uptrend, it usually signals that the trend will resume later on (picture 35). In this case, the price consolidated for a bit after a strong rally. This could mean that buyers simply paused to catch their breath and probably recruited more people to join the bull camp. A good upside target would be the height of the wedge formation. You can enter the trade after the breakout and aim for the same level as some of the previous highs. On the picture below you can see that price even retested the trendline after breakout.

Picture 35

Remember when I told you that you don’t have to wait for the retest after breakout in this case. Breakout is in the trend direction. If you want to wait for the retest that is perfectly fine too. That is why I used example with retest on picture 35. Many times in this case retest will not occur, but if you don’t want to be aggressive, that is fine. You will find out what fits your style. Trade on demo platform and after some time you will find out. Some traders are very aggressive and they never wait for the retest, or even the pattern to complete. Some of them won’t open the position if the retest doesn’t occur. In this case you can put your stop loos below the bearish (red) candles wick. 30

Now let’s take a look at another example, but this time of a rising wedge formation (top right blue on picture 34). As you can see, the price came from a downtrend before consolidating and sketching higher highs and even higher lows (pictures 36 and 37). Price then broke the down trendline and continued to go down. This is an example without the retest. That’s why it’s called a continuation signal. Price continued to go at the same direction before pattern occurred (downtrend on this example).

Picture 36

Picture 37

Flag The continuation is often equal distance to the flag pole. This provides a way to set an objective once the flag pattern breaks. This provides a way to set an objective once the flag pattern breaks. Take a look how flag looks:

The picture 38 shows a bullish flag pattern. However, its bearish alternative has the same components. Flag Pole, Flag and Continuation.

Picture 38

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The flag pole This is the initial move in price. It can be represented by either an uptrend or a downtrend. Uptrend in this case. The angle of this move is irrelevant in terms of the validity of the flag pattern. The distance of the move should be measured by calculating the previous swing high or low to the current swing high or low. As an example, I would measure from the bottom of the red line to the top of the red line in the illustration above. The flag The flag formation is the key to this pattern. This is the point at which, after a strong move in price, the market consolidates for a period of time. The length of time is irrelevant, however do note that longer consolidation periods tend to lead to more aggressive breakouts. The continuation At this point the market has finished consolidating and is now trending in the original direction. Using the distance, we calculated above for the flag pole, we now have a measured objective for a possible target. If this is a little unclear right now, don’t worry, it will all make sense once you see the illustrations below. Notice in this example (picture 39) how the continuation is the exact same length as the flag pole. The distance for the flag pole is measured from the swing low to the swing high of the flag pattern. Note that this will not happen every time!

Picture 39

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Picture 40

Pennant The pennant patterns are similar to flags, with the main difference being that the patterns are formed as converging trend lines into a triangle. The bullish and bearish pennant chart patterns work on the same principles of the flag patterns. After a big upward or downward move, buyers or sellers usually pause to catch their breath before taking the pair further in the same direction. Because of this, the price usually consolidates and forms a tiny symmetrical triangle, which is called a pennant. You can see how it looks on picture 41.

Picture 41

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While the price is still consolidating, more buyers or sellers usually decide to jump in on the strong move, forcing the price to bust out of the pennant formation. A bearish pennant like on pictures 42 and 43 is formed during a steep, almost vertical, downtrend. After that sharp drop in price, some sellers close their positions while other sellers decide to join the trend, making the price consolidate for a bit. As soon as enough sellers jump in, the price breaks below the bottom of the pennant and continues to move down.

Picture 42 Picture 43

As you can see, the drop resumed after the price made a breakout to the bottom. To trade this chart pattern, I’d put a sell order at the bottom of the pennant with a stop loss above the pennant. That way, I’d be out of the trade right away in case the breakdown was a fake out. Unlike the other chart patterns wherein the size of the next move is approximately the height of the formation, pennants signal much stronger moves. Usually, the height of the earlier move (also known as the mast) is used to estimate the size of the breakout move.

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Let’s see now an example of pennant formed after uptrend. The sharp climb in price will resume after that brief period of consolidation, when bulls gather enough energy to take the price higher again. In the example below the price made a sharp vertical climb before taking a breather.

Picture 44 Picture 45

Just like we predicted, the price made another strong move upwards after the breakout. To play this, I’d place our long order (buy order) above the pennant and our stop below the bottom of the pennant to avoid fake-outs. Like we discussed earlier, the size of the breakout move is around the height of the mast (or the size of the earlier move).

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Lesson VIII Reversal chart patterns A price pattern that signals a change in the prevailing trend is known as a reversal pattern. These patterns signify periods where either the bulls or the bears have run out of steam. The established trend will pause and then head in a new direction as new energy emerges from the other side. Reversals that occur at market tops are known as distribution patterns, where the trading instrument becomes more enthusiastically sold than bought. Conversely, reversals that occur at market bottoms are known as accumulation patterns, where the trading instrument becomes more actively bought than sold. As with continuation patterns, the longer the pattern takes to develop and the larger the price movement within the pattern, the larger the expected move once price breaks out. Double Top The double top is a bearish trend reversal pattern that often marks the end of an uptrend and the start of a downtrend. It consists of two consecutive peaks that reach a resistance level at more or less the same high value, with a valley separating the two peaks. The low of the valley is important for price projection purposes. The “tops” are peaks which are formed when the price hits a certain level that can’t be broken. After hitting this level, the price will bounce off it slightly, but then return back to test the level again. If the price bounces off of that level again, then you have a double top.

Picture 46

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You can see on picture 46 above that two peaks or “tops” were formed after a strong move up. Notice how the second top was not able to break the high of the first top. This is a strong sign that a reversal is going to occur because it is telling us that the buying pressure is just about finished. With the double top, I would place our entry order below the neckline because I am anticipating a reversal of the uptrend. If you look closely you can see how price broke neckline with very strong bearish candle. That was good reason to sell. I used here example with retest as that is always patient move, but you can also enter after the break of neckline (especially when breakout is strong like on picture 46). Looking at the picture 46 you can see that the price breaks the neckline and makes a nice move down. Remember that double tops are a trend reversal formation so you’ll want to look for these after there is a strong uptrend. The drop can be approximately the same height as the double top formation. That will not be the case every time but you should be aware of that, so you know where to put your take profit offer. On the picture 47 you can see two double top patterns formed one after another. Very cool. First one is little more advanced. As you can see we had nice trendline and price broke it too and gave us another reason to sell. Combining the knowledge is very important and on this example you can see one way how to combine trendline and pattern.

Picture 47

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On the picture 48 you can see another great example of combining different tools. After price formed double top it retested neckline with another double top formation. Very interesting. There was also a chance to sell after the first double top breakout. And another chance to sell, after price retested first neckline with another smaller double top pattern.

Picture 48

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Double Bottom The double bottom is also a trend reversal formation, but this time we are looking to go long (to buy) instead of short (to sell). These formations occur after extended downtrends when two valleys or “bottoms” have been formed. You can see on the picture 49 that after the previous downtrend price formed two valleys and it wasn’t able to go below a certain level. Notice how the second bottom wasn’t able to significantly break the first bottom. This is a sign that the selling pressure is about finished, and that a reversal is about to occur. The price broke the neckline and made a nice move up. Remember, just like double tops, double bottoms are also trend reversal formations.

Picture 49

Same rules that apply on double top, also apply here with double bottom, so I will not repeat them. Sometimes double tops (and double bottoms) are not so easy to spot like on picture 50. This is still valid double top formation. This massive bullish candle didn’t break previous high.

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Picture 50

On the picture 51 you can see great example why these patterns are consider reversal patterns. After uptrend, price formed double top. Price reversed and started to go down. Then, double bottom occurred, price reversed and started to go up again.

Picture 51

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Head and Shoulders The Head and Shoulders pattern is one of the most popular trend reversal patterns and is usually seen in uptrends, where it is also referred to as Head and Shoulders Top, though they can appear in downtrends as well, where they are also referred to as Head and Shoulders Bottom or Inverse Head and Shoulders. As they are trend reversal patterns, the Head and Shoulders patterns requires the presence of an existing trend. Head and Shoulders is formed when a higher high in an uptrend is followed by a lower high. The result is a series of three peaks where the center peak, the head, is higher than the two peaks, the shoulders, on either side of it. The two shoulders do not need to be the exact same size or the same height, but they must be lower than the head. A “neckline” is drawn by connecting the lowest points of the two troughs. The slope of this line (or zone) can either be up or down. Typically, when the slope is down, it produces a more reliable signal.

Picture 52

In this example, we can easily see the head and shoulders pattern. The head is the second peak and is the highest point in the pattern. The two shoulders also form peaks but do not exceed the height of the head. With this formation, we can put an entry order below the neckline. We can also calculate a target by measuring the high point of the head to the neckline. This distance is approximately how far the price will move after it breaks the neckline. 41

You can see on the picture 52 that once the price goes below the neckline it makes a move that is at least the size of the distance between the head and the neckline. But never be greedy! Don’t always put your take profit order at that point.

Picture 53

Head and Shoulders with straight neckline are easier to spot, but sometimes neckline can be angled up or down. Also, you can trade this pattern by waiting for the retest like on picture 53. That is always a smart move, but since head and shoulders are one of the best patterns you can be little more aggressive and open the trade right before price breaks neckline.

Picture 54

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Inverse Head and Shoulders It is basically a head and shoulders formation, except this time it’s upside down. A valley is formed (shoulder), followed by an even lower valley (head), and then another higher valley (shoulder). These formations occur after extended downward movements (picture 54). Here you can see that this is just like a head and shoulders pattern, but it’s flipped upside down. With this formation, we would place a long entry order above the neckline. Target is calculated just like the head and shoulders pattern. Measure the distance between the head and the neckline, and that is approximately the distance that the price will move after it breaks the neckline.

Picture 55

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Now when you learned about double top and head and shoulders, lets combine these two patterns. On the picture 56 below you can see combination. Price formed head and shoulders and broke the neckline. Then retest occurred in a form of double top chart pattern.

Picture 56

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Rising Wedge A rising wedge is formed when price consolidates between upward sloping support and resistance lines. Here, the slope of the support line is steeper than that of the resistance. This indicates that higher lows are being formed faster than higher highs. This leads to a wedge-like formation, which is exactly where the chart pattern gets its name from! With prices consolidating, we know that a big splash is coming, so we can expect a breakout to either the top or bottom. If the rising wedge forms after an uptrend, it’s usually a bearish reversal pattern. On the other hand, if it forms during a downtrend, it could signal a continuation of the down move. Do you remember picture 34? Last time we talked about blue wedges as they represent continuation patterns. This time we will focus on red ones. Red wedges on this picture represent reversal chart patterns.

Picture 34

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Picture 57

On this example (picture 57), a rising wedge formed at the end of an uptrend. Notice how price action is forming new highs, but at a much slower pace than when price makes higher lows. See how price broke down to the downside? That means there are more forex traders desperate to be short than be long! They pushed the price down to break the trend line, indicating that a downtrend may be in the cards. Just like in the other forex trading chart patterns we discussed earlier, the price movement after the breakout is approximately the same magnitude as the height of the formation.

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On the picture 58 below, you can see another example of this chart pattern.

Picture 58

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Falling Wedge Just like the rising wedge, the falling wedge can either be a reversal or continuation signal. As a reversal signal, it is formed at a bottom of the downtrend, indicating that an uptrend would come next. We talked about this pattern as a continuation signal. This time we will look at falling wedge as reversal sign:

On this example, the falling wedge serves as a reversal signal. After a downtrend, the price made lower highs and lower lows. Notice how the falling trend line connecting the highs is steeper than the trend line connecting the lows.

Picture 59

Upon breaking above the top of the wedge, the pair made a nice move upwards that’s approximately equal to the height of the formation. In this case, the price rally went a few more pips beyond that target.

Picture 60

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Lesson IX Neutral chart patterns These are the chart formations which are likely to push the price toward a new move, but the direction is unknown. Neutral chart patterns may appear during trends or non-trending periods. When the price confirms a neutral chart pattern, you can open a position in the direction of the breakout! These chart patterns are a bit trickier because these signal that the price can move either way. To play these chart patterns, you should consider both scenarios (upside or downside breakout). First I will present you all three types and then, I will try to explain the best way to trade them. These neutral chart patterns are Ascending, Descending and Symmetrical Triangles.

Picture 61

Triangles are among the most popular chart patterns used in technical analysis since they occur frequently compared to other patterns. These chart patterns occur on every timeframe! Symmetrical Triangle Symmetrical triangles occur when two trend lines converge toward each other and signal only that a breakout is likely to occur – not the direction. Ascending triangles are characterized by a flat upper trend line and a rising lower trend line and suggest a breakout higher is likely, while descending triangles have a flat lower trend line and a descending upper trend line that suggests a breakdown is likely to occur. A symmetrical triangle is a chart formation where the slope of the price’s highs and the slope of the price’s lows converge together to a point where it looks like a triangle. What’s happening during this formation is that the market is making lower highs and higher lows. This means that neither the buyers nor the sellers are pushing the price far enough to make a clear trend. If this were a battle between the buyers and sellers, then this would be a draw. This is also a type of consolidation. Picture 62

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On the picture 62, we can see that neither the buyers nor the sellers could push the price in their direction. When this happens we get lower highs and higher lows. As these two slopes get closer to each other, it means that a breakout is getting near. We don’t know what direction the breakout will be, but we do know that the market will most likely break out. Eventually, one side of the market will give in.

Picture 63

On picture 63 you can see example where price broke upper trendline. After the breakout it continued to go up. With the patterns that we previously learned (double top/bottom, head and shoulders) you can take riskier approach sometimes and take a trade before price breaks neckline (before pattern is fully formed). With triangles (especially symmetrical) that is not the case. You just have to wait for the breakout like on example above.

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On the picture 64 you can see my recommendation on how to trade triangles. I will try to explain as simple as I can. When pattern is formed after the uptrend and price breaks 1) upper trendline: enter the trade; 2) down trendline: wait for the retest. When pattern is formed after the downtrend and price breaks 1) down trendline: enter the trade; 2) upper trendline: wait for the retest. Hopefully next picture will make it easier for you to understand.

Picture 64

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Ascending Triangle This type of triangle chart pattern occurs when there is a resistance level and a slope of higher lows. What happens during this time is that there is a certain level that the buyers cannot seem to exceed. However, they are gradually starting to push the price up as evident by the higher lows.

Picture 65

On the picture 65, you can see that the buyers are starting to gain strength because they are making higher lows. They keep putting pressure on that resistance level and as a result, a breakout is bound to happen. Now the question is, “Which direction will it go?” Many charting books will tell you that in most cases, the buyers will win this battle and the price will break out past the resistance. However, it has been my experience that this is not always the case. Sometimes the resistance level is too strong, and there is simply not enough buying power to push it through. Most of the time, the price will, in fact, go up. The point I am trying to make is that you should not be obsessed with which direction the price goes, but you should be ready for movement in either direction. 52

Picture 66

As you can see on picture above, pattern formed after the uptrend. It then broke resistance level (upper trendline), so there is no need to wait for the retest.

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Descending Triangle As you probably guessed, descending triangles are the exact opposite of ascending triangles. In descending triangle chart patterns, there is a string of lower highs which forms the upper line. The lower line is a support level in which the price cannot seem to break.

Picture 62

Picture 67

On the picture 67, you can see that the price is gradually making lower highs which tell us that the sellers are starting to gain some ground against the buyers. Now most of the time the price will eventually break the support line and continue to fall. However, in some cases, the support line will be too strong, and the price will bounce off of it and make a strong move up. We just know that it’s about to go somewhere.

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Picture 68

On picture 68 you can see different variations of descending triangles formed one after another. Price was trending up and in both cases it broke upper trendline and there was no need to wait for the breakout.

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Picture 69

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Picture 70

Analyzing the chart above I noticed that price formed descending triangle after previous strong uptrend. Remember when I told you to wait for the retest if price breaks down trendline (support) after the uptrend. We can see that retest occurred and price went down. But what if retest doesn’t occur? Can I enter the trade? Sure, lets see the next example.

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Picture 71

You can enter the trade without waiting for the retest, but you need to understand that is riskier approach. In this case definitely make sure that your lot size and stop loss size are reasonable!

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Lets take a look at few more examples:

Here the major trend is downtrend. We see the breakout in the previous trend direction and Three Black Crows candlestick pattern formed. In this case I don’t wait for the retest.

Picture 72

Same explanation applies here. We have massive bearish candle breakout in the previous trend direction.

Picture 73

This time we have symmetrucal triangle, but explanation is the same.

Picture 74

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Picture 75

Picture 76

Picture 77

In these cases, we have triangle patterns formed after impulsive move (quick large price move up or down). After impulsive move you want to look for these patterns. We can see here that breakout was in the previous trend direction and then price went up. Now when we learned all important patterns I need to say that they are not perfect. Nothing is! I said this and I will say it 100 more times. For example, many times price will go down, then up, trigger your stop loss and then go down again. That is just how Forex works. The point of these patterns is to include them in your trading strategy. In this course we will learn how to create strategy and how to test your strategy. We will do that after we learn indicators. 60

Lesson X Market behavior Now when we learned patterns I want to tell you to understand why they occur and what moves the price the most (except price manipulation). The market's behavior can be defined as the collective action of individuals acting in their own self-interest to profit from future price movement while simultaneously creating that movement as an expression of their beliefs about the future. Behavior patterns result from the collective actions of individual traders doing one of three things: initiating positions, holding positions, and liquidating positions. What will cause a trader to enter the market? A belief that he can make money and that the current state of the market offers an opportunity to enter into a trade at a price level that is higher or lower than the price at which it can be liquidated. What will cause a trader to hold a position? A sustained belief that there is still potential for profit in the trade. What will cause a trader to liquidate a trade? A belief that the market no longer provides an opportunity to make money. This would mean in a winning trade that the market no longer has the potential to move in a direction that will allow the trader to accumulate additional profits or that the risk of staying in the trade is too great in relation to the potential for additional profit. In a losing trade, the trader believes that the market no longer has the potential to move in a direction that will allow him to recover his losses or the trade was a calculated risk in which a predetermined loss level was set in advance. If you look at any price chart, you notice that over a period of time, prices will form patterns in a very symmetrical fashion. These kinds of symmetrical-looking price patterns are not an accident. They are a visual representation of the struggle between two opposing forces - traders squaring off, so to speak, taking sides and then having to switch sides to liquidate their trades. Now, what you would be looking for in these charts are significant market reference points. These are defined as anything that causes traders' expectations to be raised about the possibility of something happening. They are points where a large numbers of traders have taken opposing positions. Based on those expectations, they will continue to hold a position in the belief that the expectation will be fulfilled, and most important, they will likely liquidate a position as a result of the expectation being unfulfilled. Significant reference points are places where the opposing forces (traders with opposite beliefs about the future) have taken a stand, where they have, in their minds, prescribed for the market very limited ways for it to behave, an either/or situation. The more significant the reference point, the greater the effect traders will have on prices, as the balance of power will shift dramatically between the two opposing forces at these points. These expectations about what the market will do, projected into price levels, are especially significant because both sides, buyers and sellers, have decided in advance their degree of importance, where one trader is taking one position, betting the market can't or won't do something, and the trader taking the opposite side of the trade is betting that it will. So, reference points are price levels where many traders on one side of the market are very likely to give up their beliefs about the future, whereas the other side will have their beliefs about the future reinforced. It is where each side expects the market to confirm what they believe to be true. You could say it is a place where the traders' expectations about the future and the future actually meet. This means for one side, in their minds, that "the market" will make them winners. Their beliefs will be validated. All the traders on the other side, however, will be made losers. They will feel the market took something away from them and will naturally be disappointed. 61

The greater the expectation traders have about something happening, the less tolerance they have for disappointment. On a collective basis, if you have a whole group of traders who expect something to happen and it doesn't, they will have to trade from the opposite direction of their original trade to get out of their position. On the other hand, the winners had their beliefs validated, consequently leaving fewer and fewer traders available to let the losers out of their trades. The losers will have to compete among one another for the limited supply of traders willing to take the other side of the trade, the side they originally believed would be successful. For example, if buyers are the losers, they will need other traders to buy from them to get out of their positions. All this activity will result in a great deal of movement in one direction. The point is to never get too excited when you win and to never get too disappointed when you lose.

Picture 78

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Lesson XI Relative Strength Index RSI (Relative Strength Index) is counted among trading’s most popular indicators. This is for good reason, because as a member of the oscillator family, RSI can help us determine the trend, time entries, and more. The Relative Strength Index (RSI) was developed to measure the speed and change of price movements. RSI oscillates and is bound between 0 and 100. There are many different uses for RSI and by far the most popular is trading overbought and oversold crossovers. Typically, readings of 30 or lower indicate oversold market conditions and an increase in the possibility of price strengthening (going up). Some traders interpret that an oversold currency pair is an indication that the falling trend is likely to reverse, which means it’s an opportunity to buy. Readings of 70 or higher indicate overbought conditions and an increase in the possibility of price weakening (going down). Some traders interpret that an overbought currency pair is an indication that the rising trend is likely to reverse, which means it’s an opportunity to sell. This is how RSI looks on the chart:

Picture 79

Some traders and analysts prefer to use the more extreme readings of 80 and 20. A weakness of the RSI is that sudden, sharp price movements can cause it to spike repeatedly up or down, and, thus, it is prone to giving false signals. In addition to the overbought and oversold indicators mentioned above, traders who use the Relative Strength Index (RSI) indicator also look for centerline crossovers.

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Picture 80

On picture 80 above you can see example of signals RSI indicator provides. This is perfect example. After reaching “overbought zone” price went down and after reaching “oversold zone” price went up. In a reality this thing will happen, but also false signals will happen too. Price will reach “overbought zone”, traders will rush to sell, but price will continue to go up. It is very important to combine this indicator with other tools. For example: RSI is above 70 zone, but you spot resistance zone and also bearish candlestick pattern. This is much better situation to sell, than just signal that RSI provides. Or you spot RSI below 30 zone and you scale down to lower time frames. On a lower time frame you spot nice double bottom pattern and neckline retest, so you decide to buy. Again, much better than to just buy once you spot RSI below 30 zone. 64

A movement from below the centerline (50) to above indicates a rising trend. A rising centerline crossover occurs when the RSI value crosses ABOVE the 50 line on the scale, moving towards the 70 line. This indicates the market trend is increasing in strength, and is seen as a bullish signal until the RSI approaches the 70 line. A movement from above the centerline (50) to below indicates a falling trend. A falling centerline crossover occurs when the RSI value crosses BELOW the 50 line on the scale, moving towards the 30 line. This indicates the market trend is weakening in strength, and is seen as a bearish signal until the RSI approaches the 30 line. RSI is a very popular tool because it can also be used to confirm trend formations. If you think a trend is forming, take a quick look at the RSI and look at whether it is above or below 50. If you are looking at a possible uptrend, then make sure the RSI is above 50. If you are looking at a possible downtrend, then make sure the RSI is below 50.

At the beginning of the chart left (picture 81), we can see that a possible downtrend was forming. To avoid fake-outs, we can wait for RSI to cross below 50 to confirm our trend. Sure enough, as RSI passes below 50, it is a good confirmation that a downtrend has actually formed.

Picture 81

Another way to trade RSI is by spotting divergences. 65

RSI Divergence RSI bearish divergence forms when the price forms a higher high, and at the same time the RSI decreases, and forms a lower high. You will usually see RSI divergence forming at the top of the bullish market, and this is known as a reversal pattern. Traders expect the reversal when the RSI Divergence forms. It is an advance reversal warning, as it appears in several candlesticks before the uptrend changes its direction, and breaks below its support line. Conversely, the RSI bullish divergence will form when the price forms a lower low, and the RSI forms a higher low. This is an advance warning sign that the trend direction might change from a downtrend to an uptrend. RSI divergence is widely used in Forex technical analysis. Some traders prefer to use higher time-frames (H4, D1) for trading RSI divergence. Using these strategies, you can achieve various RSI indicator buy and sell signals. On this picture 82 you can see divergence cheat sheet.

Picture 82

Blue line represent price movement and red line represent indicator movements.

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Here is an example of a regular bullish divergence:

Picture 83

By looking at the picture above you will see bullish and bearish regular (strong) divergence. First, price formed lower lows, but RSI showed higher lows. Price then went up as expected. After some time, price formed higher highs and RSI showed lower highs indicating that price is going to reverse and it did. Both times RSI divergence provided us with good signal.

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Picture 84

Advantages of RSI: 1 - Effective way to predict potential trends; 2 - RSI can give very good signal when to enter and when to close position. Disadvantages of RSI: 1 - True reversal signals are rare and can be difficult to separate from false alarms; 2 - RSI can stay long time in overbought or oversold zone; 3 - When a market features a strong trend, the RSI loses its usefulness. Remember to never trade just based on indicator information! It is good to have one or two indicators included in your trading strategy, but never rely just on indicators. There is no magic indicator than can predict with certainty when to enter or when to exit a trade! If there was, everyone would use it, and there would be no dynamic market as everyone would buy, and everyone would sell at the same time. 68

Lesson XII MACD The MACD is one of the most popular and broadly used indicators for forex trading. The letters M.A.C.D. is abbreviation for Moving Average Convergence Divergence. The basic function of the MACD Forex indicator is to discover new trends and to help identify the end of current trends. There are various ways to gauge the signals generated by MACD, and many traders use their own unique settings and methods around this trading indicator. Moving Average Convergence Divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages. This is how MACD looks on a chart:

Picture 85

Red line is called signal line and vertical lines are called histogram. With an MACD chart, you will usually see three numbers that are used for its settings. The first is the number of periods that is used to calculate the faster-moving average. The second is the number of periods that is used in the slower moving average. And the third is the number of bars that is used to calculate the moving average of the difference between the faster and slower moving averages. For example, if you were to see “12, 26, 9” as the MACD parameters (which is usually the default setting for most charting software), this is how you would interpret it: - The 12 represents the previous 12 bars of the faster moving average; - The 26 represents the previous 26 bars of the slower moving average. The 9 represents the previous 9 bars of the difference between the two moving averages. This is plotted by vertical lines called a histogram. 69

MACD Settings On most trading platforms, the MACD indicator typically comes with the default parameters 26, 12, and 9. We will interpret the meaning of these three numbers and how they apply to the structure of the indicator. The “12” and “26” are mutually related. These two numbers concern the calculation of the faster MACD line. The structure of the MACD line comes with calculating a 12-period Exponential Moving Average on the price action and then subtracting a 26-period Exponential Moving Average from the result. The difference between the two EMAs gives you the value of the faster line. The “9” comes from the calculation of the slower line a.k.a. the signal line. This line is a product of a 9-period Exponential Moving Average plotted on the faster MACD line. This is why the signal line is slower than the MACD line – because it is the smoother version of the MACD line. If you feel confused, it is ok. The important thing is how to actually use MACD. Here, you will find some ways. MACD Crossovers The MACD crossovers involve the interaction between the two MACD lines. The MACD line is faster than the signal line, and it will typically cross above and below the slower signal line. Bearish MACD Crossover – The bearish MACD crossover is opposite to the bullish MACD crossover. When the MACD line crosses the signal line in the bearish direction, we have a bearish crossover. This hints that the price action might be entering a bearish move. Look at picture 86:

Look how histogram (grey vertical bars) decreases and when crosses 0 line it’s a sell signal. As you can see, price went down.

Picture 86

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Bullish MACD Crossover – We have a bullish MACD crossover when the MACD line crosses the slower signal line in the bullish direction. This action generates a bullish signal on the chart, which implies that the price might start an increase. Look at picture 87:

Look how histogram (grey vertical bars) increases and when crosses 0 line it’s a buy signal. As you can see, price went up.

Picture 87

MACD Divergence One of the best uses of the MACD study in Forex trading is in identifying divergence signals. When the general price action on the chart and the MACD direction are in contradiction, this clues us in that the price is likely to change directions. You can find picture about divergence (picture 82) (I used RSI indicator as an example). Here, everything is the same, so I won’t repeat what I wrote earlier. It works the same. MACD indicator can also provide overbought/oversold signals as well. Overbought MACD – The MACD is overbought when the MACD line gains a relatively big distance from the signal line. In such cases, we expect the bullish move to exhaust after the strong increase and a bearish move to appear. You can see this when grey bars are very big and above 0 point like on picture 87:

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As you can see price went down.

Picture 87

Oversold MACD – The oversold MACD signal is opposite to the overbought signal. When the MACD line gains a relatively significant bearish distance from the signal line, then you are getting an oversold MACD signal. In this case we expect the price to exhaust in its decrease and to initiate a new bullish move. You can see this when grey bars are very big and below 0 point like on picture 88:

As you can see price went up.

Picture 88

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MACD crossover:

Picture 89

Advantages of MACD 1 - MACD can be used both, trending or ranging markets; 2 - If you understood MACD, it will be easy for you to learn how other oscillators work: the principle is quite similar. Disadvantages of MACD 1 - The indicator lags behind the price chart, so some signals come late and are not followed by the strong move of the market. Limitations of MACD One of the main problems with divergence is that it can often signal a possible reversal but then no actual reversal actually happens – it produces a false positive. The other problem is that divergence doesn't forecast all reversals. In other words, it predicts too many reversals that don't occur and not enough real price reversals. Remember to never trade just based on indicator information. Many times MACD will give you false signals. Be careful! 73

Lesson XIII Bollinger Bands Bollinger Bands are popular with technical analysts and traders in all markets, including forex. Since traders of currency look for very incremental moves to profit, recognizing volatility and trend changes quickly is essential. Bollinger Bands help by signaling changes in volatility. Volatility (in forex trading) refers to the amount of uncertainty or risk involved with the size of changes in a currency exchange rate. For example, a lower volatility would mean that an exchange rate does not fluctuate dramatically, but changes in value at a steady pace over a period of time. Bollinger Bands use two bands to forecast the potential high and low prices for an instrument relative to a moving average. During normal market conditions, the bands usually appear to move in a synchronous pattern, but you can gauge volatility in the market by observing the distance between the bands. This is how Bollinger Bands look on a chart:

Picture 90

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Picture 91

A trader must understand how Bollinger Bands are set up. There is an upper and lower band, each set at a distance of two standard deviations from the security's 21-day simple moving average. Therefore, the Bands show the volatility of the price in relation to the average, and traders can expect movements in price anywhere between the two bands. Forex traders can use the bands to place sell orders at the upper band limit and buy orders at the lower band limit. This strategy works well with currencies that follow a range pattern, but it can be costly to a trader if a breakout occurs. I will show you how I like to trade BB (Bollinger Bands). One thing you should know about Bollinger Bands is that price tends to return to the middle of the bands. That is the whole idea behind the “Bollinger Bounce.” The longer the time frame you are in, the stronger these bands tend to be. When the bands squeeze together, it usually means that a breakout is getting ready to happen.

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If the candles start to break out above the TOP band, then the move will usually continue to go up. If the candles start to break out below the BOTTOM band, then price will usually continue to go down.

Picture 92

Picture 93

This strategy is designed for you to catch a move as early as possible. As you can see on picture 92 price broke upper Bollinger Band with massive bullish candle. After that price formed strong bullish move. Bollinger Bands work best when the market is not trending and it is little more accurate on higher time frames. Advantages of Bollinger Bands 1 - The indicator is actually great in a sideways market (when a currency pair is trading in a range). In this case, the lines of the indicator can be used as support and resistance levels, where traders can open their positions. Disadvantages of Bollinger Bands 1 - During a strong trend, the price can spend a long time at one Bollinger line and not go to the opposite one. I don’t recommend you to use Bollinger Bands without confirmation from other indicators/technical tools as a beginner. After some time and practice you can use BB as only indicator on your charts. Bollinger Bands go well with candlestick patterns, trendlines, and other price actions signal. This indicator can be a great basis for a trading system.

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This is how I like to trade Bollinger Bands: When the price is below the 100 Simple Moving Average (red line on the chart), I look for sell opportunities. When do I sell? I sell when I see that bearish candle opened above upper Bollinger Band and closed below previous candles’ body! You can see that on next pictures:

Picture 94

We can say that in this case price was trending down. Price then formed strong bullish candle that broke upper Bollinger Band. Another bullish candle formed that closed above upper Bollinger Band. Immediately after bearish candle occurred. It opened above upper Bollinger Band, but closed below it and also below previous candles’ body. Considering the fact that price is trending down and we look for sell trades, this was good opportunity to enter the trade.

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Same explanation applies here.

Picture 95

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Now, lets take a look at example when to buy. When the price is above the 100 Simple Moving Average I look for buy opportunities. I buy when I see that bullish candle opened below lower Bollinger Band and closed above previous candles’ body! You can see that on this picture:

Picture 96

We can say that in this case price was trending up. Price then formed strong bearish candle that broke down Bollinger Band. Another bearish candle formed that closed below down Bollinger Band. Immediately after bullish candle occurred. It opened below down Bollinger Band, but closed above it and also above previous candles’ body. Considering the fact that price is trending up and we look for buy trades, this was good opportunity to enter the trade. I can say that this strategy can work VERY good. But there is one big problem with it. These scenarios don’t happen often, so this strategy requires A LOT of patience and discipline. If you miss the trade, you will feel bad which is not a good thing. So you will have to trade a lot of pairs and that is also not a good thing for a beginner. However, if you find BB useful after some time and develop patience and discipline, this strategy can be very useful. 79

On next pictures you can see more examples how to combine BB with price structure, zones, trendlines and candles.

Picture 97

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Picture 98

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Lesson XIV Moving Average In technical analysis, the moving average is an indicator used to represent the average closing price of the market over a specified period of time. Traders often make use of moving averages as it can be a good indication of current market momentum. The Moving Average indicator is one of the most basic forex technical analysis tools. It is an on-chart lagging line, which smooths the price action. The reason for the lag is that the Moving Average averages a certain number of periods on the chart. The basic function of the Moving Average is to provide the trader with a sense of overall trend direction, but is can also provide signals for upcoming price moves. In addition, the Moving Average line can act as an important support and resistance area. The reason for this is that price action tends to conform to certain psychological levels on the chart. There are four types of MAs (Moving Averages): 1- Simple 2- Exponential 3- Smoothed 4- Liner Weighted. To calculate the SMA, one must start by gathering closing prices over a fixed number of trading sessions. If a trader wants to determine the 20-day SMA of the EUR/USD, he can add up all the currency pair's closing prices over the time and then divide by 20. Alternatively, figuring out the 200-day SMA of the same currency pair would require totaling its closing values during that time and then dividing that sum by 200. Calculating the EMA is a bit more complicated, as this indicator gives greater weight to more recent values in order to reduce the effect of lag. Every Moving Average is subject to a calculation, which gives an output that can be plotted on the price chart. I will not give you mathematical formulas here, because they are not really important (they are not complicated). The only important thing is how to use Moving Averages. Moving averages are a frequently used technical indicator in forex trading, especially over 10, 50, 100, and 200 periods. MAs are used primarily as trend indicators and also identify support and resistance levels. The two most common MAs are the simple moving average (SMA), which is the average price over a given number of time periods, and the exponential moving average (EMA), which gives more weight to recent prices.

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This is how a Simple Moving Average looks on the chart:

Picture 99

Blue line is 50 SMA and red is 100 SMA. Notice that the red 100-period SMA is slower than the blue 50period SMA. It is smoother and it does not react to small price fluctuations. Above you saw the structure of the most common Moving Average – the Simple Moving Average. It just gives an arithmetic mean of the periods on the chart. The Moving Average indictors can help us to identify the beginning and the end of a trend. The Moving Average Trading method involves a couple of signals that tell us when to be prepared to enter and exit the market.

The most basic Moving Average signal is when the price crosses the Moving Average. When the price breaks the Moving Average upwards, we get a bullish signal. And on the flip side, when the price breaks the Moving Average downwards, we get a bearish signal. We can see that on picture 100.

Picture 100

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This can give very good indications about future price movement, but traders don’t like this very much because often times you get false signals, like on this chart:

Picture 101

Entering a trade just because price crossed MA is not good idea! A Moving Average crossover signal involves the usage of more than one Moving Average. To get a Moving Average crossover, we need to see the faster Moving Average breaking the slower moving average. If the crossover is in bullish direction, we get a long signal. If the crossover is in bearish direction, we get a short signal. Short means sell signal, and long means buy signal.

Picture 102

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Traders can use crossovers as entry points for their trades. Some traders use the crossovers as exit points as well. However, if you want to exit the market based on a Moving Average signal, you have two other options. You can exit your trade when the price breaks the faster Moving Average, or when the price breaks the slower Moving Average. It is not necessary to wait for the crossover when you exit a trade based on your Moving Average strategy. This strategy is little better than the first one, but I also don’t use MA like this. When price is consolidating this strategy is useless, like on this picture 103:

Picture 103

Even if a forex trader doesn’t base his trading strategy on Moving Averages, they should still study price action at crucial Moving Average levels on the chart. The reason for this is that, in many instances, price action conforms to crucial Moving Average levels. Some most important Moving Average levels are the 50period SMA, 100-period SMA, the 150-period SMA and the 200-period SMA. As you see, these Moving Averages are relatively big in terms of periods. But that is also why they are closely watched as areas of interest. These levels are considered important in terms of support and resistance. So, the moving average can be used to determine support and resistance levels once a trader has placed a trade. If the trader sees the moving average trending higher, they may enter the market on a retest of the moving average. Likewise, if the trader is already long in an uptrend market, then the moving average can be used as a stop loss level. The opposite is true for downtrend. The charts below are examples of how the moving average can be used as a both a support and a resistance level.

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Picture 104

Picture 105

Picture 93

Picture 106

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Picture 107

On the pictures 106 and 107 you can see examples how to trade MAs as support and resistance in uptrend and downtrend. When the price is above both MAs, you look to buy and when price is below both MAs, you look to sell. This strategy works very good with candlestick patterns. There are multiple ways to use a moving average as part of a forex trading strategy. Moving average trading indicators can be used on their own, or as envelopes, ribbons, or convergence-divergence strategies (to name some examples). Before using any of these indicators or strategies, adjust the settings to verify that the strategies provide favorable results on the forex pairs and time frames you trade. Moving averages are lagging indicators, which means they don't predict where price is going, they are only providing data on where price has been. Moving averages, and the associated strategies, tend to work best in strongly trending markets. Once I used SMA. When the price is above 200 and 100 SMA I look only for buy opportunities. When the price is below 200 and 100 SMA I look only for sell opportunities. I recommend you to use MAs and include MA in your trading strategy. 87

Lesson XV Stochastic Oscillator and CCI The Stochastic Oscillator consists of two lines. The two lines are: 1. %K, also known as “stochastic fast”, tracks the current market rate for the currency pair; 2. %D, known as the signal line, typically uses the last three valuations of %K to create a moving average of the %K stochastic. Because %D is a moving average of %K, it is referred to as "stochastic slow" since it reacts more slowly to market price changes than %K. This is how Stochastic indicator looks like: %K = blue line, %D = red line

Picture 108

The oscillator works on the following theory: - During an uptrend, prices will remain equal to or above the previous period closing price; - During a downtrend, prices will likely remain equal to or below the previous closing price. This indicator also gives you overbought and oversold signals. When the %K line of the stochastic scale climbs to more than 80, analysts interpret an overbought condition which could lead to a sell-off forcing the price downwards. When the %K line falls below 20 on the stochastic scale, the market may be interpreted as oversold, and traders may start buying. Some traders use divergence as entry reason. We covered divergence earlier in this course. Divergence arises when the direction of price moves opposite to one of several indicators, including an oscillator. A positive divergence occurs when the indicator moves higher as the price moves lower. A negative divergence occurs when the indicator moves lower as the price is moving higher. 88

A crossover occurs when the fast stochastic (%K line) intersects the slow stochastic (%D line). Because the %K line reacts more quickly to market changes it oscillates at a faster rate than the %D line. Under certain conditions, it can catch up to, and cross over the %D line. When the %K Stochastic crosses over and moves above the %D Stochastic, the interpretation is that the market rate is gaining at a faster rate than the average represented by the %D Stochastic. This increase in price strength is considered a buy signal. A sell signal is the result of the %K Stochastic crossing under the %D Stochastic because the faster moving %K line is declining more rapidly than the overall downward trend.

Picture 109

On this picture 109 you can see the combination of oversold and crossover. In this case signal was good. Blue line crossed red line in the oversold zone, and as you can see that gave us good buying signal.

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Picture 110

This is another example of crossovers. You can see that every time crossover occurred in area below 20, it gave good signal to buy. Also, very time crossover occurred in area above 80, it gave good signal to sell. Keep on mid that this is perfect example. Many times this indicator will give wrong signals and you should combine it with other tools. I hope you learned that already.

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Let’s combine previous knowledge with this indicator (picture 111). We have trendline that connects highs and price is trending down. We also see resistance zone formation that price tested 3 times. On the 3 rd touch price also tested the trendline and formed bearish candlestick pattern. Stochastic indicator worked well as it gave another confirmation so sell (red circle).

Picture 111

There is one more indicator that I want to tell you about. I never used it, but it is popular and many traders use that indicator. That is CCI indicator. The Commodity Channel Index is an indicator used in the technical analysis of the financial and forex markets. The CCI indicator, short for Commodity Channel Index is a momentum based indicator and belongs to the oscillator group of technical indicators. As a momentum based indicator, the CCI index belongs to the oscillator group of indicators. Such indicators typically move around fixed values and can depict changes in volume or momentum. The CCI indicator or the commodity channel index indicator, as we have just learned is an oscillator. The CCI indicator oscillates between fixed levels of +100 and -100. Other settings that can be used are +200 and -200 with a lookback period of 14. When the forex cci indicator rises above the standard +100 or falls below -100, it signals overbought and oversold levels in the market. 91

This is how CCI indicator looks like:

Picture 112

The CCI trend indicator can be used to signal the strength of the trend. When a trend exhibits strong momentum, there is a high probability that price will continue rising or falling. This means you can expect price to continue in the same direction. So, the next time you want to know how strong the trend of a security is, simply look at what the cci indicator is suggesting. Using the CCI as a trend indicator is ideal when combined with other trend indicators such as moving averages. This can help you to pick bottoms in a rally or tops in a decline. In other words, using the cci as a trend indicator, you can time your entries within a trend. CCI indicator suggests rising momentum in an uptrend, as signaled by the bullish positioning of the SMA’s in the chart.

Picture 113

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Using the CCI indicator, you can see that the bullish momentum is renewed every time the CCI falls below the -100 level, like on the picture above. Using the CCI as a trend indicator can help you to time your entries into a trend. Instead of buying at the top or selling at the bottom, which usually happens with most traders, the CCI index can signal to you when the best time is to enter a trend. As with most other oscillators, the CCI indicator can also be used to spot divergence. Generally, lower lows or higher highs (or higher lows and lower highs) in price should reflect in the CCI posting the same values. When there is a discrepancy when comparing the highs and lows, you can expect the cci divergence to result in a price correction.

Picture 114

When the markets are range bound, the CCI can be used to signal overbought and oversold conditions. This can be especially useful for traders who want to trade breakouts or to trade within the ranges. The best way to trade the overbought and oversold conditions with the CCI indicator is to first identify a range or a sideways market. Once you do that, look for the highs and the lows that are established by price action. Then, once price reaches the upper range, look for the CCI to signal exhausting momentum. This means that the CCI must be falling after rising above +100 level. Similarly, when the price is at the lower range, the CCI must be rising from - 100 after initially falling below this level.

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Picture 115

Let me tell you more about indicators in general. Indicators are additions or overlays on the chart that provide extra information through mathematical calculations on price and volume. There are 4 major types of indicators: 1. Trend, 2. Momentum, 3. Volume and 4. Volatility Trend indicators tell you which direction the market is moving in, if there is a trend at all. They’re sometimes called oscillators, because they tend to move between high and low values like a wave. Trend indicators we’ll discuss include Parabolic SAR, parts of the Ichimoku Kinko Hyo, and Moving Average Convergence Divergence (MACD) can also be considered as trend indicator (some consider it momentum indicator). Momentum indicators tell you how strong the trend is and can also tell you if a reversal is going to occur. They can be useful for picking out price tops and bottoms. Momentum indicators include Relative Strength Index (RSI), Stochastic, CCI, Average Directional Index (ADX), and Ichimoku Kinko Hyo. Volume indicators tell you how volume is changing over time, for example how many units of bitcoin are being bought and sold over time. This is useful because when the price changes, the volume gives an indication of how strong the move is. Bullish moves on high volume are more likely to be maintained than those on low volume. I didn’t cover volume indicators here, but this class includes On-Balance Volume, Chaikin Money Flow, and Klinger Volume Oscillator. Volatility indicators tell you how much the price is changing in a given period. Volatility is a very important part of the market, and without volatility we can’t make money. The price has to move for you to make a profit. The higher the volatility is, the faster a price is changing. It tells you nothing about direction, just the range of prices. 94

The reason why I told you this is because you should not use multiple indicators that are same type. For example, there is no much point to use RSI, CCI and Stochastic in the same time. They are all same type – momentum indicators. This means that most of the time signal they provide will be similar. So once you decide to combine indicators, make sure they are not the same type. This is the end of indicator section. There are many indicators that you can use but it would take enormous amount of time to cover them all. Here, we covered most used indicators. In some ways they are similar and in some ways they are different. It is on you to find few that fit your trading style and form your own trading strategy. Never rely too much on indicators, but use them to help you determine good entry points. Combine them with trend, candlestick patterns and of course price! There is NO magic indicator that works with 100% accuracy! For the beginners I recommend to start with RSI and Moving Average. See how that works for you and then you can adjust what you need over time. Be sure to practice every day in order to find your own good combination! It is essential that other factors are also considered, including careful attention to your risk management and analyzing the underlying fundamentals that govern the price.

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Lesson XVI Fundamental analysis Trading on the fundamentals (also referred to as trading the news) is the study of news events and economic statistics to determine trading opportunities. Referred to as fundamentalists, these traders pay close attention to changes in economic indicators such as interest rates, employment rates, and inflation. Economic indicators can have a marked effect on forex. Many traders keep a sharp eye on the ECONOMIC calendar, to ensure that they are abreast of any potential volatility bumps that lie in the road ahead. Around the world, various governmental and non-governmental agencies report on a regular basis, with certain pieces of economic information. The main difficulty for traders who are just starting out is knowing which are the important ones – those that are most likely to affect prices – and which ones are low-impact. This knowledge is useful as there may be many economic indicators released in a single day, and it's not really realistically possible to keep an eye on them all. In this economic indicators list I've included those that are considered to be the most important. All of these have the potential to exert a strong effect on the financial markets. As the US economy is the largest economy in the world, and wields some influence on the performance of financial markets globally, this list focuses on US reports, in an effort to provide you the best economic indicators. 1. Gross Domestic Product (GDP) GDP is the widest measure of the overall health of an economy. It takes such a long time to compile that its direct effect on Forex and CFD prices is frequently muted – and by the time the data is published, many of the components are already known and therefore, expectations are often fairly accurate. That being said, should the number come out markedly different to expectations, it still has the potential to move the market. Despite its lack of timeliness, it is still a very important indicator to understand because it is the single best measure used to confirm where we stand in the business cycle. Gross domestic product is simply the total market value of all goods and services produced in a particular country. In the case of the United States, this total can be broken down into four main categories: consumption, investment, government expenditures (or spending) and net exports. Consumption: Final consumption expenditures by households. These can include things like food, rent, fuel, and other personal spending. Investment: Business spending on new plants and equipment, as well as household investment in property. Government spending and investment: The total of all government spending, including public employee salaries and defense or social program benefits. Net Exports: Total final exports, minus total imports. A higher net export number is more productive for the economy. The sum of these numbers is the United States' total gross domestic product, which can be compared to another year's performance in order to derive a percentage of GDP growth or contraction in a particular period. 96

There are three basic reactions to price action that a trader or investor can reasonably expect: - A lower-than-expected GDP reading will likely result in a selloff of the domestic currency relative to other currencies. In the case of the U.S., a lower GDP figure would signal an economic contraction and hurt the chances of a rise in U.S. interest rates – lowering the value or attractiveness of U.S. dollar-based assets. Additionally, the further below an actual GDP reading is from the estimate, the sharper the decline in the dollar; - An expected reading requires a bit more comparison by the FX investor. Here, the analyst or trader will want to compare the current reading to the previous quarter's reading – maybe even the previous year's reading. This way, a better evaluation of the situation can be gathered. Given this factor, you can expect that the resulting price action will tend to be mixed as the market sorts out the details; - A higher-than-expected reading will tend to strengthen the underlying currency versus other currencies. Therefore, a higher U.S. GDP figure will benefit the greenback, lending to some appreciation in the U.S. dollar against counter currencies. The higher an actual GDP reading is, the sharper the incline of the dollar's appreciation. We need to be aware of it is as well, but you should also be cognizant of the fact that because GDP is a lagging indicator, its main use is to confirm what we already expect. Its lack of timeliness means that its utility as a trading tool for short and medium-term trading is limited. US GDP only comes out once a quarter, and even the earliest estimate reports back many months into the past. 2. Nonfarm Payrolls (NFP) For most Forex and CFD traders, this is the single most important indicator in the monthly calendar. It's released on the first Friday of each month by the Bureau of Labor Statistics (BLS) alongside the unemployment rate (which is the next indicator on our list), as part of the Employment Situation Report. The reason it's so closely followed is because the report has a tendency to move Forex markets substantially. The employment cycle and the business cycle are closely related and, historically, changes in nonfarm payrolls (NFPs) have moved along a very similar path to quarterly GDP changes. This close correlation means that payroll data can be used as a proxy for GDP. The crucial difference between the two is that nonfarm payrolls come out monthly, reporting on the month that ended just a few days before. In contrast, GDP is reported quarterly, and with a big delay. 3. Unemployment Rate The unemployment rate is defined as the percentage of the labor force actively looking for work. In periods of recovery, unemployment acts as a lagging indicator. We tend to see unemployment continuing to rise even after GDP has bottomed out. Just as with nonfarm payrolls above, unemployment data offers CFD traders insights into one of the key metrics followed by the FED (The Federal Reserve System). This means that any strong divergence from expectations are likely to have a big impact on Forex and stock markets. All things being equal, US labor market weakness would conventionally be considered to be bearish for stock prices and for the US Dollar.

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4. Federal Funds Rate The Federal Open Markets Committee (FOMC) meets eight times a year as part of its regular schedule to determine US monetary policy. The outcome of an FOMC meeting can markedly affect the Forex market, should there be any disparity from the expected course. A key fundamental that drives Forex rates is the level of interest rates in the two countries involved, and the expectations regarding those interest rates. If the FED makes a change to the federal funds rate, or simply alters perceptions about the future course of monetary policy, it makes a difference to the US Dollar, the most important currency in the world. As part of the statement released after each FOMC meeting, the FED provides forward guidance about the expected path of monetary policy. This is a reasonably recent measure, aimed at providing greater transparency as part of an effort to reduce volatility in financial markets. As a consequence, changes in monetary policy are usually communicated to some degree in advance. This means that the forward guidance itself has the potential to move markets, just as much as an actual change in policy. A serious Forex or CFD trader will always ensure they are aware of the Calendar for FOMC Meetings. 5. Consumer Price Index (CPI) The Consumer Price Index (CPI) is a broad measure of inflation within an economy in relation to the cost of goods and services. That figure can have a significant impact on the value of a currency in relation to the currencies of other nations. The CPI calculates the weighted average of prices of a basket of consumer goods and services, including costs of transportation, food, and energy. Economists use this CPI figure to assess price changes in individuals’ cost of living. When inflation is too low, a central bank like the Federal Reserve may cut interest rates in order to spur economic activity. When inflation is too high, interest rates may be raised to stabilize prices. By increasing interest rates, a consumer may be more likely inclined to save money, rather than spend it, due to the return they may generate by keeping it in a bank. Because inflation feeds into monetary policy so directly, the CPI report can have a high impact on prices in the bond, FX, and stock markets. As usual, it is diversions from expected results that tend to have the highest impact. For example, if CPI comes in much higher than expected, it will alter the perceptions that the FED will be more likely to tighten monetary policy going forward. All things being equal, this should be bullish for the US Dollar. Similarly, a CFD trader might interpret such inflationary data as being bearish for the stock market, as tighter monetary policy tends to curtail risk appetite. Since the financial crisis, we have been in a very low inflationary environment, which has forced the Federal Reserve to stick with very loose monetary policy. This has to some degree been responsible for the extended bull-market we have seen in the US. 6. Industrial Production Index The Industrial Production Index measures the level of US output (in terms of quantity of material produced rather than Dollar amount) relative to a base year over three broad areas: manufacturing, mining, and gas and electric utilities. The report is compiled by the Federal Reserve, and is published around the middle of each month.

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Some of the index data comes from hard data, reported directly for certain industries from trade organizations or official surveys, but this may not always be available on a monthly basis. The industrial sector is important because, along with the construction sector, it is responsible for the majority of the change in US output seen in the business cycle, and can offer insights into the evolution of structural economic changes. The Industrial Production Index is procyclical. This means there is agreement between its movements and the changes in the business cycle. The correlation between this index and economic activity is close enough for some analysts to use this report as an early signal for how GDP might be performing. 7. Capacity Utilization This indicator gauges how the US manufacturing sector is running as a proportion of full capacity. The definition of full capacity is the greatest level of sustainable output a factory can achieve within a realistic framework. In other words, it takes into account things such as normal downtime. It is calculated as a ratio of the industrial production index divided by an index of full capacity. This provides us with a timely indication of manufacturing/economic health, as well as an insight into trends that may be forming within the manufacturing sector. It may also provide clues about inflation. If factories are running hot, it's a reasonable assumption that producers may raise prices. If factories are running close to their maximum capacity, machines are likely to fail as a result of being overworked. Taking machines offline poses the risk of laying off workers at a time of high demand, which is undesirable. Accordingly, manufacturers are likely to cope with high demand by raising prices, rather than laying off workers. This, in turn, is likely to feed through to consumer prices, leading to higher inflation. Conversely, if capacity utilization is running at low levels, it is a signifier of economic weakness. As a general rule, rates below 78% have historically tended to point to a forthcoming recession — or may even mean that the economy is already in recession. As such, this indicator is used by the FED to gauge trends in manufacturing, the wider economy, and also inflation. This makes it an important indicator for CFD traders to follow, particularly for bond traders, but it's also a key marker for those involved in the shares and FX markets. 8. Retail Sales This is more well-known as Advance Monthly Sales for Retail Trade, to give the report its full name. It is, however, better known by Forex traders simply as retail sales. The Census Bureau, which is a division of the U.S. Department of Commerce, releases the report roughly two weeks after the month in question, at 08.30 ET. The report gives an early estimate of the nominal Dollar value of sales within the retail sector (that is, the number is not adjusted for inflation) and it also reports the number as a percentage change from the previous month. Usually, it is this latter figure that CFD and Forex traders respond to. It is a closely-followed report and has the potential to send perturbations through market prices, especially if there is a big divergence between the reported figure, and Wall Street expectations. Strong sales data may lead to rising prices, however, meaning that there are inflationary considerations to be taken into account. This tends to have a positive effect on the US Dollar, but is bearish for bond prices. Conversely, weakness in the retail sales report tends to depress the stock market, is bearish on the US Dollar, but bullish for bond prices. 99

9. Durable Goods Orders The report on Durable Goods Orders is released by the Census Bureau, a part of the U.S. Department of Commerce. The Advance Report on Durable Goods, to give it its full name, is released around 18 business days into the month, after the month for which it is reporting (the precise day varies according to the schedule of other key releases at the time). Durable goods are defined as items that are expected to last for at least three years. In other words, we are generally talking about expensive items that tend to be bought infrequently. This infrequency means that the report is subject to volatility and you need to be very careful about what you read into a single report in isolation. Analysts often exclude the transport component of the report, to try and mitigate this volatility. Another method employed is to consider a series of reports together in order to try and gauge some kind of feeling for an underlying trend. Also, beware of revisions to a previous month's data, which can be substantial. If demand is strong and companies have an upbeat outlook, we would expect to see increases in new orders for durable goods. On the other hand, in a weak economic climate, we would expect to see lower orders. Therefore, strength in this report is bullish for risk appetite, and weakness is bearish. 10. Initial Jobless Claims This 'Weekly Report' measures the number of people making first-time claims for unemployment benefit insurance. This provides a useful update on the strength of the labor market, particularly when it coincides with the sample week used for the 'Employment Situation' report. 'Jobless Claims' are a useful resource for trying to get a feel for upcoming movements in the all-important monthly nonfarm payrolls report, though there is not a precise correlation between the two. Short-term changes in the labor market are much more likely to be reflected in the weekly initial jobless claims data, than in the monthly employment report. Still, this is one of the more impactful weekly reports on FX and CFD prices. Knowing about which economic indicators impact the Forex market is one thing, but keeping on top of the releases is another. To properly keep yourself up-to-date, every Sunday I will send important upcoming news to keep eye on them in my free Telegram group. That is called economic calendar. You should be aware of big news that will be released every week. I advise you not to trade around the times when big news are released because price might drastically go up or down especially if you are scalper or day trader.

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Lesson XVII Backtesting Forex backtesting is a trading strategy that is based on historical data, where traders use past data to see how a strategy would have performed. Consistently profitable traders, otherwise known as expert traders, have one thing in common: they test their trading systems. These traders practice their trading systems. There are many methods for testing a trading system. Each of them has advantages and disadvantages. Back-testing is a common term used in trading that simply means “testing a trading system through historical data.” Many traders know that using historical data is not the perfect solution to testing a trading system. A much better alternative would be to have future data to test our trading systems. Failing that, historical data is the next best thing. There are many pitfalls and problems associated with testing trading systems on historical data; however, the consequences associated with trading a system in live market conditions when it is not tested on historical data are much more problematic. Your back-testing will allow you to do two things. First, you will identify how suitable the trading system is for you. This does not mean you are discovering just whether the trading system is profitable, but, rather, you are examining the fit between you, the trader, and the rules of your trading system. Second, you will learn to trust your trading system and learn to let go of your trades. You may trade in a more relaxed manner once you have taken thousands of trades over years of market data. The confidence gained by trading your system repeatedly will show up in the form of a relaxed approach to your live trading. Third, you will gain expertise with your trading system. This may only happen if you take many trades, and back-testing is a quick way to accumulate many trades. Backtesting has a range of benefits for Forex traders, including: - Strategic insight: The main benefit of forex backtesting is that traders can determine whether their chosen strategies will deliver their expected returns; - Practice: Backtesting can help traders spot trading opportunities by looking at past price movements and recurring patterns. In other words, it helps traders develop their technical analysis skills; - Confidence: Forex backtesting is a good way to build confidence, as traders gain experience by testing traders on past price information. This helps build their confidence for when they start trading 'for real'. Manual backtesting strategies involve a fair amount of work, but it is possible. In manual forex backtesting, you just take the historical data and step through it. A charting tool will help you to go bar by bar, so that you can observe the price action and subsequent performance metrics along the way. First, you start to trade on demo account. Give yourself some time to practice. After you find out which trading type fits you the most, you are ready to find your own strategy. For example: by trading on demo account for few moths you realized that you feel comfortable trading on H1 chart and holding your positions few hours or about 1 day. This means that day trading fits your personality the most! When you find that out, you are able to form your strategy. Let’s say that you like trading triangle patterns and that you like to trade in trend. Based on that, you decide to buy when you see breakout when the price is above 100 simple moving average or to sell when the price is below 100 SMA. Now, it is time to backtest your strategy. 101

You need to go through historical data and try to find every time when price broke triangle pattern.

Picture 116

Here we see breakout from ascending triangle and price was above 100 SMA. By following the rules from strategy that you created, you would buy after breakout and in this case you would win. Now you need to repeat the process. Go left through your charts and find another breakout from triangle pattern.

Picture 117

In this case you would win again. REPEAT the process 20, 30, 50, 100…. times. When you find out that your strategy has win ratio about 50% or more, that means your strategy has potential to be profitable. Use risk reward ratio 1:2 or higher and start trading! 102

Now when you know your strategy has potential to be profitable, always follow rules, never violate them and practice! Take as much time as you need. After you achieve few consecutive profitable months, you are ready to trade with the real money. Very important thing to know is that you shouldn’t change your strategies too often. When I say too often I mean, every few days, every week or so. Many traders change their strategy just because they took few consecutive losses. Losses are part of the game! Give your strategy a time. Follow rules and never trade emotionally. Trust me that this is the biggest problem. Once you start following your rules, never violating them and stop trading based on your emotions - you will become profitable! That is the biggest problem that you will have, but trust me, it is possible.

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Examples This time I just want to give you some ideas how to create strategy. As you begin, you can test few strategies at once, and see how well they perform. For example, you can use multiple time frame analysis. Every time when price is below 50 SMA on H4 chart find resistance zones on H1 chart and look for selling opportunities when RSI is around 70 zone. I came up with this idea, and it took me few minutes to find out that this strategy could work. Take a look: On this picture we see that price is below 50 SMA on H4 chart (arrow on the chart).

Picture 118

Then wait for the resistance to be confirmed on H1 chart (when price hit 3rd time same zone) and sell if RSI is around 70 level.

Picture 119

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Also you do this when price is above 50 SMA on H4 chart. Find support zones and RSI oversold situations on H1 and look for buying opportunities. Just like that you created strategy. Now it is time to go back and see how this performs. If you see that your strategy has potential to be profitable, try it for some time and don’t give up too early. Take your time and practice! I gave you another example yesterday with triangle chart patterns. You can try that with different patterns, not just triangles. You can try this for another example: Find when price is above 50 SMA in clear uptrend on H1 chart like on this picture:

Picture 120

Then find every time when RSI is around 20 on M30 chart and look for buying opportunities.

Picture 121

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Just like that you created the strategy and now it’s time to test it. See, it is not that hard. There are countless possibilities to create strategy with so many indicators and patters. Think of something that you think it could work and try it. Once you gain experience you will get some ideas. It takes time to become good, experienced trader and even more to become profitable. Remember to always feel free to share your ideas with me. As you learned in this course, having a strategy and following the rules that you created is very, very important. Without this you will be lost and you will never achieve consistency! Remember our first lessons – consistency is the key!

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Lesson XVIII Problems with trading You will find that there are two different types of confidence problems for forex traders: 1- a lack of confidence in the trading system, or 2- a lack of confidence in yourself. All traders will have losing streaks. Losing streaks may lead to feelings of inadequacy and disparity. However, if the trading system is a valid winning trading system, it has been tested, and is profitable over the long run, there is probably nothing wrong with the system. Sometimes losing streaks happen and you should not feel bad, but most of the time, a losing streak is due to the wrong application of the trading system. In other words, most losing streaks are due to the misapplication of the system (caused by the trader), and not the system itself. There are several common issues that many traders have, all of which may lead to losing streaks and confidence issues. It is important to note that without proper application of risk management rules, a trading drawdown may be exacerbated and, therefore, may be very difficult to handle for many traders. Traders who have issues with risk management will usually multiply their drawdown and find it difficult to make money consistently. Normal, everyday losing streaks are unfortunate and difficult for many traders to endure, but when these drawdowns are accentuated by poor risk management, the results are often disastrous. Discipline problems are common. Many traders at banks are not brilliant traders (in fact, many retail forex traders are much better traders than bank traders). Bank traders do not have a sixth sense for the markets. These traders do not have access to secret algorithms or indicators. Many traders are consistently profitable because there is a built-in discipline system at the bank. Bank traders have a risk manager. The risk manager ensures that the bank trader trades with discipline. The bank hires intelligent trainees to become disciplined traders on the forex desk. The risk manager ensures that the bank traders do not risk too much on their trades. All the bank traders must follow one simple rule: they must not take more risk than they are allowed. Each bank trader knows how much he may risk, every bank trader has a number, and his risk cannot exceed this number. The risk manager on the forex desk oversees the risk associated with each of the trades taken by the traders. If a trader takes on too much risk, the trader is warned once. If a trader makes this mistake again, the trader loses his job. These are the rules. Each bank trader understands this, and the forex trading desk is set up to tightly manage risk. The interesting thing about this system is that even those traders who are exceptionally profitable—the traders who make millions for the bank—even these traders are shown the door if they take on too much risk. Banks understand trading is a game of risk. All the bank traders must be disciplined traders. Any trader who steps out of line is a severe concern for the bank. Retail forex traders such as you and I do not have a risk manager. We don’t have no body to punish us when we risk too much. You can find somebody to help you with this. Find a trading buddy, your partner, a relative, anyone you respect. Offer them your trading statement each week. This is your report card. Report the risk for each trade. Be accountable to this person. If you take on too much risk (win or lose), your risk manager should reprimand you. If you can’t find anybody, then you will have to it by yourself. It will be hard, but you will have to try your best.

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If you have a losing streak, you may become too careful or too reckless with your trading system. This is a common reaction to a drawdown. This often leads to a downward spiral. It is important to keep track of what you are doing. There are many ways to do this, but be most common way is to keep track of your trading. It is very important to track your trades. To make sure that you are not changing your trading rules, do one of the following: take screenshots of your trades before you take the trade (the set up), during the trade, and after the trade is closed. You may also want to create a trading journal. This journal should include information such as why you decided to take the trade, the system you employed for the trade, your feelings about the trade, the result of the trade, and a rating on how well you applied the rules of your trading system to that particular trade. A final option would be to look over your trading printouts, in other words, your trading record. This is another place where you may notice what is happening, why you are changing your trading, and what exactly you are doing that is different to your system. The key to combating this problem is to become aware, more self-aware of what you are doing as a trader. Just as a professional gardener does not mow the lawn the same way every single week, you may not be taking your trades the same way even though you are trading the same system. Taking records of what you are doing is invaluable for self-assessments later, in order to look at exactly how you are executing your trades and what changes you might be making. Traders may end up with a losing streak simply because they miss out on some trades. This is a particularly difficult problem for those traders who have a low win rate. It is obviously possible to be a successful and profitable trader - in fact to be a professional trader - with a trading system that has a very low win rate. The problem is that if winning trades do not occur that often, it is imperative that all trades are taken to make sure the winners are captured. If you trade a system that has a low win rate, and you miss out on some of the trades, and these trades end up being large winners, it can be disheartening. Obviously, if you trade a system with a very low win rate, you need large winning trades to maintain profits. Missing out on these winners can be psychologically demoralizing. It can be difficult to maintain your confidence in a trading system with a low win rate. If this happens to you, just accept the fact that you missed it. In forex market there is unlimited potential for profit and loss. Opportunities are like trains - they come and go! The good think is that these days you can trade from your mobile phone. Download few trading applications and you will always be able to check what is happening on the forex market.

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Lesson XIX Trading psychology Self-discipline is simply a mental technique to stay focused on what you need to learn, or do, to accomplish your goals. There will be times when you won't have the resources to function effectively relative to the external conditions. Other times the resources you do have will be in conflict with both the conditions and your goals. So to accomplish your goals, you will need to adapt. In other words, you will need to change the way you interact with the environment. To change your behavior and how you experience the environment (feelings and emotions), you will have to change your perspective. To change your perspective, you will have to change the mental components that effect your perception of environmental information. Keep in mind that you can't physically control what the markets do. You can only learn to control your perception of the markets. The more sophisticated you become as a trader, the more you will realize that trading is completely mental. It isn't you against the markets, it's just you. All the other traders participating to make the market provide you with an opportunity to make money from their divergent beliefs about the future. If people didn't disagree about the future value of any particular commodity or stock, then there would be nothing to compel them to either bid a price higher or offer it lower, and the opportunity to profit from these changes would cease to exist. Each individual trader creates his own experience of the markets based on this picking and choosing process and the decisions that result. If you accept this concept as valid, then the implications are that you will never have a valid reason to blame the markets for your unsatisfying results. The markets don't owe you anything because every other trader participating is doing so to take your money away. You and you alone are completely responsible for whatever you end up with. The sooner you accept that responsibility (if you haven't already), the easier it will be to identify what skills you need to learn to interact with the markets more successfully. Even if you can't identify the mental components responsible for what you ended up with, at least by assuming that you are responsible, you will be opening yourself up to find out. To be a successful trader you need to trade without fear. You will become fearless once you gain confidence, and confidence comes with knowledge and experience. That means you will have to learn and improve every day. With hard dedication, you will become successful over time. Nothing will happen over night. Once you trust yourself to always do what needs to be done, there will be nothing to fear because the markets won't be able to do anything to you, as a result of your inability to respond appropriately. Consequently, with nothing to fear, you are then free to observe the markets free of distortions. There won't be any need to avoid certain categories of information because of how that information will make you feel. The less reason you have to avoid or distort information, the more you make yourself available to learn about the nature of the markets. The more you learn, the easier it will be to anticipate what the market will do next. There is no "get rich quick" scheme being offered here. Getting rich quick can only lead to a great deal of anxiety and frustration if you don't have the skills to keep it. There isn't much point to making a lot of money if you are a susceptible to making that one trading error that can give it all back plus more. Once you have made a fortune and lost it, the psychological work that you will need to do to get it back is enormous compared to work that is necessary to keep yourself from losing it in the first place. 109

As a trader it is more important to know that you will always follow your rules than it is to make money, because whatever money you make, you will inevitably lose back to the market if you can't follow your rules. Maybe you think that consistently profitable trading is easy. Trading successfully can be simple, but that does not make it easy. Trading successfully will mean putting in the time backtesting your system, developing a trading plan to cover all of the what-if scenarios you can come up with, and creating a method for overcoming the doldrums of the inevitable drawdowns. Planning is critical for you to succeed in the long term, but it is not the only ingredient for success. To succeed you will need a healthy dose of determination. History is littered with stories of famous people who overcame adversity, people who accepted success because failure was not an option. Determination is the common thread among these stories. You simply must have determination to succeed in trading (or any other endeavor). All successful people share determination. Your determination will guide you to trading expertise in the form of all the hours spent in front of charts, backtesting.

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Lesson XX How much money do I need to start trading? You can easily “test the waters” without any investment. First of all, you can open a demo account at your chosen broker to get accustomed to the feel of a forex platform and its tools. When you have tested your skills in a demo account, you can open a trading account with as little as $100. In order to achieve notable gains, you will want to deposit more. Most successful traders start real-money trading by depositing anywhere from $300 to $2,000. When traders start making regular profits and have accumulated $10,000 - $25,000, they start looking at "big boy" accounts that offer lower spreads, direct interbank level executions and other premium features. As you can see, you can start gradually and invest more only if you feel comfortable about it. How much money you’ll need to trade forex is one of the first issues you have to address if you want to become a forex trader. Which broker you choose, trading platform or strategy you employ are all important as well, but how much money you start with will be a colossal determinant in your ultimate success. Not all traders are alike though, and not everyone trades the same way. A day trader may not need the same amount of money to start forex trading as a swing trader does. The amount of money you need to trade forex will also be determined by your goals. Are you looking to simply grow your account, or do you seek regular income from your forex trading? Does it really matter if you start an account with $100 or $3000? The answer is YES. If you want to start trading, it’s likely because you want an income stream. You aren’t going to have much of an income stream if you start with $100. Since very few people are patient enough to let their account grow, they will risk way too much of their capital on each trade trying to make an income, and in the process lose everything. I recommend you to risk not more than 3% of your account size on a single trade. If your account is $100 that means you can only risk $3 per trade. In the forex market that means you can take a one micro lot position, where each pip movement is worth about 10 cents, and you need to keep the risk to less than 30 pips. Trading in this way, if you have a good strategy, you’ll average a couple dollars profit a day. While this will build your account slowly, most traders don’t want to make a couple dollars a day. They want to build their account much faster and therefore will risk $30 or $50 per trade (or more) in an attempt to turn that $100 into thousands as quickly as possible. This may work for a time, but usually results in an account balance of $0. The other problem with forex trading with such a small amount of money is that it offers almost no flexibility in the style of trading you undertake. If you deposit $100, and follow proper risk management protocols, you can only risk 30 pips if you take a 1 micro lot position. This forces you to be an active day trader, whether you want to day trade or not. It is very important to trade when good setup occurs, not when you feel like trading! For example, with a 10 pip stop loss you won’t be able to swing trade or invest, since the price can easily move 10 pips against you, resulting in a losing trade, if you try to hold out for long-term gains.

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It is possible to start an account with a smaller amount, such as $500, but if doing so make a commitment to grow the account for at least a year before withdrawing any money. If you do this, and don’t risk more than 1% of your account on each trade, you can make about $10 per day to begin with, which over the course of a year will bring your account up to a few thousand dollars. Swing trading is when you hold positions for a couple days to a couple weeks. This style of forex trading is suited to people who don’t like looking at their charts constantly and/or who can only trade in their spare time. With swing trading you’re trying to capture longer term moves and therefore may need to hold positions through some gyrations (ups and downs) before the market actually gets to your profit target area. A profit target is a determined exit point for taking profits. For swing trading you’ll often need to risk between 20 and 100 pips on a trade, depending on your strategy and the forex pair you are trading (some are more volatile than others). Your expected profit should larger than the risk. If want to take a trade that has 50 pips of risk, the absolute minimum you can open an account with is $500. This is because you can risk $5 per trade, which is 1% of $500. If you take a one micro lot position ($0.10 per pip movement, and the smallest position size possible) and lose 50 pips you’ll be down $5. Since trades occur every couple days, you’re likely to only make about $10 or $12 per week. At this rate it could take a number of years to get the account up to several thousand dollars. If you start with $5000, you can make about $100 to $120 per week, which is more of an income stream. Depending on where you live, this may serve as an adequate side income. Be aware that this is an estimate. You need to practice in a demo account for a couple months before trading with real money, as that will give you a bit better idea of your income potential. You also need to be careful not to fall into a trap because demo trading is easier than real trading, because you have nothing to lose. Investing smaller amounts of money to begin with is always smarter than putting all you saved. Always go with amount you can afford to lose! It is important to be realistic about what you expect from your forex trading. How much money you deposit plays a crucial role in how much you will likely make if you follow proper risk management. If you’re willing to grow your account slowly, then you can likely begin with as little as $500, but starting with at least a $1000 is recommended no matter what style of trading you do. If you want to make an income from your forex trading, then I recommend opening an $5000 account. Play with the scenarios to find an income level and deposit level that is acceptable. Most unsuccessful traders risk much more than 3% of their account on a single trade. It is possible for even great traders and great strategies to witness a series of losses. If you risk 10% of your account and lose 5 trades in a row (which can happen) you have significantly depleted your capital and now you have to trade flawlessly just to get back to even. If you risk only 2% or 3% of your account on each trade, 5 losses is not much. The above scenarios assume that your average profit will be about 2 times your risk (or greater), and that you’ll win about 60 percent of your trades. This is not always easy to accomplish consistently. Your personal trading style will largely determine your profitability or lack of it. Though, how much money you trade forex with will play a significant role in your ability to meet your trading goals.

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If you start conservatively and use sensible money management, you do not need a large amount of money to trade forex. It is possible to start trading with only a few hundred Euros, provided your trading sizes are small. If you are willing to put in the preparatory leg work, you should be able to discover a trading approach that works for you. There's one more thing to consider – people who succeed at trading, work hard at it. The more effort you put in, the more likely you are to succeed. So, when facing a new, challenging venture, the only correct option is to learn more about what you are getting into.

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Lesson XXI When not to trade? Save your money and keep your nerves by not trading at the wrong time. While it is crucial to understand when is the best time to analyze the charts and make the bids, it is equally important to know when NOT to open positions. While the forex market allows you to place trades around the clock, Monday through Friday, there are certain situations during which you should stay on the sideline. Knowing when not to trade forex is very important. There are a number of scenarios where it is inadvisable to trade forex. These can be separated into personal (environmental) reasons and market reasons. Personal reasons not to trade Get rid of all distractions. You need to keep your focus on the charts and not lose your concentration to other things going on. For instance, you might be waiting for a trade and get distracted. When you come back to your chart you have missed the trade, or even make an error in creating your trade. Distractions can cost you money, but whatever your potential distractions are, find a way to manage them before you start to trade! If something emotional is happening in your life and you can’t maintain your objectivity, don’t trade! This could be any number of things that had a negative impact on your day. When trading, you need to be able to assess what is happening in quite a short amount of time. If you are mentally elsewhere then this will have a negative impact on your trading account. The personal times that you should avoid trading in can be summed up as times when you are out of sync with your normal mental rhythm. There are absolutely times where your emotions or environment negatively affect your trading. This may impact the likelihood of a successful trade. The good news is that these things tend to be in the realm of your control. The market reasons for not taking a trade are different in this sense. Market reasons tend to be external issues where you have very little control. These can really kick you hard sometimes. Market Reasons not to trade There are two main characteristics of bad timing and these are: low activity in the market and chaotic direction of trades. An inactive (“thin”) market offers smaller movements of rates, thus smaller potential profits. A thin market also comes with higher commissions (spreads) for each trade due to the decreased liquidity. In simple words: if you want to sell a currency, it is harder to find potential buyers, so the commission goes up. A good example of chaotic trading is shortly before, during and shortly after important news events. In these times of uncertainty, the currency rates can swing wildly and unpredictably, thus messing up trading by creating execution lags, triggering stop-loss orders, etc.

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So here are some examples of when you should be careful when trading: 1. Bank Holidays - These are scheduled and there is nothing you can do about it. If there is a U.S. or UK bank holiday you shouldn’t trade. This is because the Banks are the biggest participants in the forex market. If they are on holiday, then the volume of transactions being carried out is greatly reduced. This can lead to either really static markets or on occasion erratic markets. If it’s a Bank holiday in another country such as Japan or Australia then don’t trade currency pairs that belong to those countries (EUR/AUD, USD/JPY etc.). It isn’t always about when not to trade, but also what not to trade. 2. News and speeches - There are scheduled news releases and economic news throughout any given day. These can be found in advance by using an economic calendar. You should avoid interest rate announcements and NFP related news announcement. In the first month of this course I sent you lesson with important news. It’s generally not a good idea to trade the hour before and after news releases. With NFP, it’s a good idea not to trade that entire day. 3. Erratic Periods - There will be times where a currency is moving differently from normal. Perhaps price is spiking and you don’t know why. This is a good time to stay out of the market. If you can’t understand why price is behaving in a certain way, it is usually due to some unscheduled news that has been released or leaked. That is bad news because the market will be unsure as to how to react. For instance, this happened recently during the credit crunch and the various Banks reporting that they were having major difficulties. 4. Weekends - It is not recommended to hold trades over the weekend unless your method is a long-term strategy which incorporates holding trades for a long time – weeks, months. A lot can happen over a weekend. All it would take is for one Bank to go bust over the weekend for your position to flip on its head. Current tensions in a lot of countries around the world lead to violence which heavily impact the market. The activity usually slows down in the second half of Friday mainly because the big banks and hedge funds are closing their positions for the weekend. This is mostly done for security reasons; they don’t want to have their large positions left open without sufficient supervision. The biggest risk of leaving positions open for the weekend is called “the weekend gap”. When bigger rate swings occur while the systems are not recording them, the stop-loss orders might not be executed correctly and can create problems. That’s why most traders don’t leave open positions over the weekend. 5. Market close/open - It’s a good idea to avoid these or be wary around these times. At market close a number of trading positions are being closed. This will lead to volatility in the currency markets which can then cause price to move erratically. The same applies at market open. A lot of people are opening positions as they didn’t want to hold them over the weekend for the reasons stated above. 6. December and Summer Holidays - Banks tend to trade the forex market at least once a day for balance sheet reasons. They can also trade multiple times throughout the day for speculation reasons. They need a certain amount of each currency to meet the demand of their customers – both personal and business – that will need to buy foreign currency from the bank or exchange their foreign currency into their local currency. Banks have to balance this out each day otherwise they leave themselves open to Foreign Exchange risk. So during December and the summer months a lot of bank staff take their holidays. Therefore, the forex market tends to be slower in these months because there are fewer participants.

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7. Primetime TV events - World championships in football, NBA, NHL, Super Bowl finals, The X-Factor, etc. can create the same effect as the holidays. We won’t find these events in the economic calendars, so a TV program guide can also be a useful tool for a trader. Knowing when to trade, and when not to, is critical as a trader. It will help keep your capital safe when conditions are volatile or markets are illiquid and capitalize when the time is right!

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Lesson XXII Risk Reward Ratio In this lesson, we will explore the idea of risk to reward ratio so that you can better understand how important this concept is to your overall money management strategy. You will learn how to properly calculate risk-reward ratio which is one of the most important things in trading. If you are novice trader, then you might have the experience of initially making some consistent profits, only to have that one bad trade, which eventually wipes out all the profits from those earlier profitable trades. This is very common among forex traders because they do not understand the importance of risk management. The key to becoming successful as a forex trader is to find the right balance between how much you risk per trade to achieve the desired profit you are aiming for. This balance needs to be realistic and relevant to the technical strategy you are applying. For example, you have randomly decided to set a profit target three times your initial stop loss, a risk to reward ratio of 1:4. But, what if your strategy is not capable of delivering such a risk to reward ratio in the long run? In that case, you will eventually lose money. On the other hand, if your trading strategy is capable of delivering trades with a 1:5 risk to reward ratio, but you usually close the trade once your profit reaches only two times of your initial stop loss, then you are always leaving money on the table. That is another reason why should spend a lot of time back testing your strategy and try to find out the realistic average profit your trading strategy makes on each trade relative to the stop loss it requires. Only then can you can properly understand the relationship between risk and reward and successfully conduct a forex risk reward analysis for your particular trading strategy. The point is that you need to combine risk reward with your strategy. For example, if you analyze H1 charts and trade based on that analysis you can’t have your stop loss with only 8 to 10 pips, even if you use good risk reward ratio. Scalpers use small stop losses, but if you are day trader you can’t use that small stop loss. Your stop loss has to be much higher like 20 or more pips. That means you will aim for around 40 and more pips to gain. The risk-reward ratio is simply a calculation of how much you are willing to risk in a trade, versus how much you plan to aim for as a profit target. To keep it simple, if you were making a trade and you only wanted to set your stop loss at five pips and set your take profit at 20 pips, your risk reward ratio would be 5:20 or 1:4. You are risking five pips for the chance to gain 20 pips. The basic theory for the risk-reward ratio is to look for opportunities where the reward outweighs the risk. The greater the possible rewards, the more failed trades your account can withstand at a time. Think of it this way, if you were to use the example above and have a successful trade, it would buffer you against four losing trades with the same ratio. The idea of using a good risk-reward ratio is to put the odds in your favor. If you consistently did the 5:20 ratio, you could lose half of your trades, and still, make a decent profit. For example, if you give yourself a 3:1 reward-to-risk ratio, you have a significantly greater chance of ending up profitable in the long run. Take a look at the chart below as an example:

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6 TRADES

LOSS

1

$100

2 3

$300 $100

4 5

$300 $100

6 TOTAL

WIN

$300 $300

$900

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In this example, you can see that even if you only won 50% of your trades, you would still make a profit of $600. Always remember that whenever you trade with a good risk to reward ratio, your chances of being profitable are much greater even if you have a lower win percentage. In real trading, you need to consider the spread charged by your forex broker to conduct the risk and reward analysis effectively. If you do not pay attention to the spread, you will end up using a risk to reward ratio for your trades that is not completely accurate. For example, if you are a scalper who likes to risk a maximum of five pips per trade and aim to gain around ten pips from each of your trades, and think you are achieving a 1:2 risk to reward ratio, then think again! If your broker charges 2 pips spread on GBPUSD, then you are effectively risking (5 + 2 =) 7 pips to make (10 – 2 =) 8 pips of profit, which means your net risk to reward ratio in reality is only 1: 1.14 not 1:2 which you incorrectly assumed because you did not take into account the transaction costs. So essentially based on this example, your risk (7 pips) for a reward (8 pips) would equal: 1:14 risk reward ratio. You do not need to be a math genius to figure out that it would require a lot higher win rate to compensate for this huge risk to reward ratio difference due to spreads, right? While the effect of spreads is most severe for scalpers (and some day traders), this effect is not really important for swing traders and position traders that tend to trade on higher timeframes. Aside from understanding the overall risk to reward ratio of your trading strategy, you also need to figure out the impact of win rate, which is an integral part of the risk to reward ratio analysis. If you already know the historical risk to reward ratio of your trading strategy from back testing, there is a simple formula you can apply to figure out what kind of win rate you will need to maintain to remain profitable in the long run. The formula to find minimum win rate Required win rate = 1 ÷ (1 + historical risk to reward ratio of your trading strategy) For example, if you know that your trading strategy has an expected risk to reward ratio of 1:1 from extensive back testing, then plugging this into the formula would yield the following outcome: 1 ÷ (1 + 1) = 0.5, which is 50%.

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So, you need to maintain at least 50% win rate in order just to break even. With this trading strategy, if you maintain a 50+% win rate, you should be profitable in the long run. But, if your win rate comes down to even 49%, you can be confident that this trading strategy will become suffer, meaning regardless of short term performance, in the long run, you will lose money. However, if your trading strategy has a win rate of only 50%, but it can deliver a risk to reward ratio of 1:2 on a consistent basis, you would end up making a 50% return on your investment just by risking 1% of your capital in a series of 100 trades. The formula to determine required minimum risk to reward ratio Required minimum risk to reward ratio = (1 ÷ historical win rate of your trading strategy) – 1 For example, if you know that the historical win rate of your trading strategy is 40%, then plugging this into the formula would yield the following outcome: (1 ÷ 0.4) – 1 = 1.5 So, to remain profitable in the long run with this trading strategy, you need to maintain a risk to reward ratio of at least 1:1.5, which means for example that if you set a stop loss of 100 pips, your profit target should be at least 150 pips. The type of risk-reward ratio that traders should use depends on the type of trader you are, and the market conditions. It would be ideal if you could always find trades that had high rewards and low risk, but what you might find in reality could be very different. It's frowned on to have a risk that is larger than the reward, but if markets are volatile, it might make sense. The point of having a stop loss is not only to protect capital but also to stop your trade once it no longer makes sense. Sometimes the point where the trade stops making any sense is much farther from the opening market price than the safe exit. When it comes down to it, it is up to you as a trader to figure out what type of risk-reward ratio you want to use. You should try to avoid having your risk be bigger than your reward, particularly if you are a beginner, but there is no particular ratio that works for all traders. The important thing is that you use a ratio that makes sense for your trading style and for market conditions!

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The power of proper risk reward ratio can be seen on the picture above. Even with 2 losses, 1 break-even trade (no profit, no loss), and 2 wins you would still be profitable!

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Lesson XXIII Money Management Money management is the most important factor separating the good traders from the amateurs! When people first come to forex trading the first thing they look to do is find best trading system they can get their hands on. The thinking goes that if they can just find the latest and greatest system all their dreams will come true and the millions will come rolling in, but even a solid and profitable trading method is useless, if the trader doesn’t use a profitable money management technique to fit that system or method then the best trading system in the world is not going to help them. The best trader in the world could personally tutor and give a trader all their tricks and tips, but if that trader fails to use solid money management, they will fail! This is how important money management is! It takes months in most cases for traders to search through system after system to realize that after all the systems have failed that maybe it is not the system, but something else they are doing that causing them to consistently fail. That “something else” is bad money management. The proper application of money management gives a forex trader an account growth edge, while trading forex without a logical money management strategy typically amounts to little more than gambling. This explains why forex risk and money management practices remain an essential part of the business that needs to be incorporated into every forex trading plan. In fact, the main reason why novice forex traders fail to grow their trading accounts is due to their lack of understanding or failure to apply proven money management principles to their trading endeavors. Successful forex trading typically involves managing profits and losses wisely. Ideally, for most traders, these should be large profits and small losses. Having a sound money management component in a trading plan helps ensure this is the case, and hence an understanding of well-established money management techniques is essential for most, if not all, successful forex traders. While having an effective trading plan may seem sufficient, a lack of money management in forex trading can be catastrophic. Like I said earlier forex trader that pays no attention to money management is gambling and not trading. The management of risk for each trade as well as the trading account overall, helps lead a trader toward having a profitable trading business. While money management practices may limit some of the potential profits on a given trade, good money management is one of the forex trader’s tools to being consistently profitable in the market. A good trader knows from experience that over a period of time he may engage in more losing trades than winning ones. But money management, and a careful assay of the risks protected by realistic stops, will keep the trader out of trouble and ensure that on the "big" moves, he will profit. Money management is composed of two essential elements: psychological management and risk management. I covered risk management in this course several times. Basically, using right risk reward ratio in combination with your trading strategy gives you good risk management. Psychological management is something else. We covered that in this course too and basically you need to realize that losing is just part of the game and you need to accept the losses. With good money management you can afford to lose. Those losses will not be big and you will be able to get over them. If you use bad money management and risk too much, one big loss will cause frustration and one thing is for sure – trading when frustrated will destroy your account! Let’s take two traders for example. The first trader has an awesome trading strategy that is profitable 90% of the time, but doesn’t manage their risk at all. The second trader has an average trading strategy with a 50% winning rate, but utilizes top-notch money management rules. What do you think, which trader will end with more profits by the end of the month? The answer is the second trader, as the first trader will likely lose all of their profit on a single losing trade. 121

Let’s say that first trader won 9 trades with average profit of $10. That means he earned $90. But because bad money management, once he risked $100, which is way too much and lost. That means over ten trades he lost $10 even with 90% win rate strategy. Second trader used 1:2 risk reward ratio and risked $10 every time in order to gain $20. After ten trades he is profitable with $50 in his pocket, even with much less win rate of 50%. That is why proper money management is very important! This is the difference between a trader and a gambler: A gambler has no risk management, and a gambler is willing to lose large amounts of money quickly. A trader treats each trade as a calculated risk and manages each trade according to his system rules. Gamblers can lose all the money at once, and traders lose only as much money as their system will allow. The distinguishing factor is that a gambler does not follow risk management rules, whereas a trader follows strict risk management controls. Expert traders do more than simply follow strict risk management controls. They also concentrate on one trading technique. This is the real secret of expert traders. They focus on one market, one trading system, one edge, and they use this edge in their trading repeatedly. Profitable trading is boring. Profitable traders are experts, and these expert traders do one thing over and over again. Like I once said, this is why I like forex. I decide how much I lose and how much I win! You must use proper risk per trade. I talked about this many times. Risk per trade refers to the maximum amount of risk you’re taking per any single trade. Risk per trade is usually determined as a percentage of your trading account size. Let’s say that you have a $1000 account. If you open a trade with a potential loss of $200 (the maximum loss if the trade hits your stop-loss), then your risk per trade would be equal to 20%. This example shows how not to trade. Taking a 20% risk per trade is way too much risk, as a strike of five losing trades would wipe out your entire account! Even two losing trades would leave you with only 60% of your initial trading account size, and guess what – it takes much more than 40% to return to your initial account. This is why you should never risk than 3% of your account size per trade. One very important thing is to know when to exit the trade before you enter a trade. The analysis performed before entering into a trade should give the trader a clear idea of where they expect the market to move to so that they can take profits on the trade, in addition to where they would cut their losses in the event of an adverse market move. This key pre-trade analysis will allow the trader to set appropriate take profit and stop loss orders for each trade when they are in a more objective state of mind. This important trade planning stage can really help traders avoid the lack of discipline when the time comes to either reap the rewards or take the losses as a consequence of their trading decision. Some traders might also set a time limit on their trades, so that the trade is closed out if the market does not perform as expected within a particular time frame. All of these decisions should be made ahead of time so that they can then be followed objectively rather than being influenced by the potentially problematic emotional states that commonly occur among traders when faced with decisions around trade management. Understanding the basic money management principles and using solid techniques for limiting risk in a forex trading account can make the difference between being consistently profitable and deleting your account. Basically, forex trading can be a serious long term business for a good money manager or a temporary whirlwind that can completely consume a person’s risk capital quite quickly for those who do not manage their money wisely. Maintaining a realistic handle on profits and losses by using established money management principles, allows a forex trader to be relatively impartial and not let their emotional reactions sabotage their trading efforts.

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Lesson XXIV Fibonacci tools Leonardo Bonacci – also known as Leonardo Fibonacci – was an Italian mathematician in the 12th century. He was considered the most talented Western mathematician of his time and one of the greatest of all time. Although Fibonacci himself did not come up with what is now known as the Fibonacci sequence, he certainly introduced the phenomenon to the West in his book Liber Abaci. Before we look into the mechanics of Fibonacci trading and how it translates into a forex Fibonacci trading strategy, it is important to understand the Fibonacci sequence and the unique mathematical properties it provides first. The Fibonacci sequence is a sequence of numbers where, after 0 and 1, every number is the sum of the two previous numbers.

There are some interesting relationships between these numbers that form the basis of Fibonacci numbers trading. Here you can find the most important ones you will need to know about when we look at a forex Fibonacci trading strategy later on: 1-If you divide a number by the previous number it will approximate to 1.618. This is used as a key level in Fibonacci extensions as you'll learn later on in the article; 2-If you divide a number by the next highest number it will approximate to 0.618. This number forms the basis for the 61.8% Fibonacci retracement level; 3-If you divide a number by another two places higher it will approximate to 0.382. This number forms the basis for the 38.2% Fibonacci retracement level. - 61.8% = divide current number with next (from 13 onwards) e.g. 55/89 = 0.618 (approx.) - 161.8% = divide next number with current e.g. 89/55 = 1.618. This is also called the “golden ratio” - 38.2% = 0.6182 (or skip 1 sequence in division e.g. 55/144 = 0.382) - 23.6% = skip 3 sequences in division e.g. 34/144 = 0.236 (approx.) - 78.6% = √0.618 - 127.2% = √1.618 - 261.8% = 1.6182 or 1.6180.618 - 0%, 50%, 100% & 200% are not Fibonacci numbers, but are nonetheless used by some traders

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The use of Fibonacci levels in trading is perhaps one the best examples of the core philosophy of Technical Analysis and the belief of many, that trading decisions can be made purely from studying the charts and without the need for Fundamental Analysis. Fibonacci numbers, when used to measure price swings in the markets, present powerful levels to watch for potential reversals and are applied in technical analysis through two main studies: Fibonacci retracement and Fibonacci extension. What Are Fibonacci retracements? Forex traders use Fibonacci retracements to pinpoint where to place orders for market entry, taking profits and stop-loss orders. Fibonacci levels are commonly used in forex trading to identify and trade off support and resistance levels. After a significant price movement up or down, the new support and resistance levels are often at or near these trend lines. The retracement levels are based on the prior move in the market: After a big rise in price, traders will measure the move from bottom to top to find where price could retrace to before bouncing higher and continuing in the overall trend higher. After a big fall in price, traders will measure the move from top to bottom to find where price could retrace to before correcting lower and continuing in the overall trend lower.

Picture 125

We calculated earlier the relationship between the Fibonacci sequence to identify some important Fibonacci ratios such as the 0.618 (which forms the 61.8% Fibonacci retracement level) and the 0.382 number (which forms the basis of the 38.2% Fibonacci retracement level). There are also other Fibonacci trading ratios that traders use such as 23.6% and 78.6%, among others. The four listed in the picture 125 above are the most commonly used Fibonacci retracement levels. 124

The buy pattern is used when the market is an uptrend. Traders will attempt to find how far price retraces the X to A move (swing low to swing high) before finding support and bouncing back higher (B). These support levels are the Fibonacci retracement levels and could be a 23.6%, 38.2%, 61.8% or 78.6% retracement of the X to A move. The sell pattern is used when the market is in a downtrend. Traders will attempt to find how far price retraces the X to A move (swing high to swing low) before finding resistance and correcting back lower (B). The B point could be any one of the Fibonacci retracement levels already listed. What Are Fibonacci extensions? Fibonacci extension levels also help to provide price levels of support and resistance but are used to calculate how far price may travel after a retracement is finished. In essence, if Fibonacci retracement levels are used to enter a trend, then Fibonacci extension levels are used to target the end of that trend. As previously discussed the 1.618 is a key number in the Fibonacci sequence which is why it is called the Golden Ratio. This forms the basis of the most popular Fibonacci extension level - the 161.8% level.

Picture 126

In an uptrend, traders will attempt to enter the 'bounce' at point B and then measure the last retracement from A to B, to find how far the trend could go before reaching point C - the 161.8% level. In a downtrend, traders will attempt to enter the 'correction' at point B and then measure the last retracement from A to B, to find how far the trend could go before reaching point C - the 161.8% level. Reversal traders may also use the 161.8% level to enter into counter-trend trades but this is more suited to advanced traders. 125

So far, you have learnt that Fibonacci retracement levels are used to find support and resistance levels to enter a trade in the direction of the preceding trend. Fibonacci extension levels are used to calculate how far the trend could go before reversing and are used as exit levels. Difference between Fibonacci retracements and extensions Fibonacci retracement levels are those that are lower than the 100% of a price swing, while extensions are those that are above 100%. Fibonacci levels are used as support or resistance, and/or for projection of profit targets.

Picture 127

Fibonacci levels in a downtrend (picture 127). A price below point A after point B is formed would be a retracement level. In this case, C point is a retracement level of the AB swing. This could be a 38.2, 61.8 or 78.6% Fibonacci retracement level. A price above point A or below point B would be an extension level. In this case, point D is an extension of the BC swing. This could be a 127.2, 161.8 or 261.8 percent Fibonacci extension level.

Picture 128

Fibonacci levels in an uptrend (picture 128). A price below point A or above point B would be an extension level. In this case, point D is extension of the BC swing. This could be a 127.2, 161.8 or 261.8 percent Fibonacci extension level. A price above point A after point B is formed would be a retracement level. In this case, point C is a retracement level of the AB swing. This could be a 38.2, 61.8 or 78.6 percent Fibonacci retracement level.

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How to plot Fibonacci levels on the chart? Almost all trading platforms will have Fibonacci as part of their technical tools, so you do not have to worry about calculating the retracement and extension levels manually. All the trader has to do is identify a distinct high and a distinct low and plot the Fibonacci levels by dragging it from one extreme to the next. It is important to select the candlesticks’ wicks, so as to obtain more accurate results. They are always drawn from the left to the right: - In uptrend, it is drawn from the low to the high; - In downtrend, it is drawn from the high to the low. Once plotted, the trading platform would automatically display the Fibonacci retracements and extensions, and also their corresponding price levels. The Fibonacci tool is highly customizable, so one could add or remove certain levels.

Picture 129

Picture 130

As can be seen from the example above, price was trending lower on the H1 time frame. There was a distinct high and a low clearly visible. To draw the Fibonacci levels, you would have to drag it from the high to the low. The retracements and their corresponding price levels are then displayed automatically (picture 130). In this particular example, price momentarily found resistance around the 38.2% Fibonacci level before pushing higher to the more important 61.8% retracement. There, the sellers stepped in and drove price lower, eventually beyond the prior low.

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Lesson XXV Trading Fibonacci Now, when we learned about Fibonacci retracement and extension, it is time to learn how to trade them. Here, you will find examples and how I like to trade with Fibonacci tools. Let's start with example when the market is in an uptrend: First we need to identify large cycle up (X to A) and draw on Fibonacci retracement levels from the bottom of X to the top of A, using the Fibonacci indicator in the trading platform provided by your broker. Then we need to identify bullish price action trading pattern (bullish candlestick pattern) at one of the Fibonacci retracement levels. Both these rules are shown in the picture 131 below:

A

X Picture 131

In the example above, the price has moved higher from the bullish price action pattern which formed at the 38.2% Fibonacci retracement level. However, it is yet to reach the 161.8% target level. Use the 161.8% Fibonacci extension level as a price target level by using the Fibonacci retracement tool and measuring from the A to B cycle. Take a look at picture 132.

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A

B

Picture 132

Here we see price did hit our 161.8% target. You can look for lower levels to put take profit order, not just 161.8%, but in this example price hit 161.8%. You could enter after bullish candlestick pattern formed (pointed candlestick). Remember to always enter your trades after candlestick is fully formed. I hope you learned that already. While the trader may want the market to go the target level there is no guarantee it will. In fact, the market (at any time) could reverse the other way and change trend. This is why risk management and using a stop loss will prove to be beneficial in the long run as it can help to minimize losses. Now let's see example when the market is in an uptrend: We need to identify large cycle down (X to A) and draw on Fibonacci retracement levels from the top of X to the bottom of A, using the Fibonacci indicator. Then we need to identify bearish price action trading pattern at one of the Fibonacci retracement levels. Both these rules are shown in the example price chart below (picture 133):

129

X

A

Picture 133

In the example above, price did indeed move lower from the bearish price action pattern which formed at the 38.2% Fibonacci retracement level. Use the 161.8% Fibonacci extension level as a price target level by using the Fibonacci retracement tool and measuring from the A to B cycle, as shown below (picture 134):

130

B

A

Picture 134

In this instance, the price went all the way to the 161.8% Fibonacci extension level. Within the uptrend and downtrend Fibonacci forex trading strategy above, we used a combination of Fibonacci retracement and extension levels and price action. This is how I like to use Fibonacci tools. As I trade in trend, Fibonacci extension tool gives me very good idea where to put my take profit order.

131

Very good way to use Fibonacci tools is to combine them with other things we learned in this course (support/resistance, indicators and patterns). On picture 135 below, there are at least two clear trading opportunities that can be identified using a combination of Fibonacci and support/resistance. The rally from point B came to a halt at point C, at the 38.2% retracement of the AB swing. Once the old support around 0.7870 is broken, this clearly points to a continuation to the downside after that shallow pullback to the 38.2% Fibonacci level. Trader could use this information to expect a sizeable continuation - hence, trader may wish to have a profit target around the 161.8% extension (0.7755) of the BC swing as opposed to merely the 127.2% extension (0.7812). If this trade was missed, there was another great opportunity to sell once price retested that old support level of 0.7870. Even without a Fibonacci convergence this would have been a trade on its own. But the fact that there is a 61.8% retracement there too (i.e. of the CD swing), this therefore increased the probability of price turning at that broken support level. The stop loss could have been very tight 15 or so pips above 0.7870, providing a highly favorable risk to reward ratio.

Picture 135

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On picture 136, our pair was consolidating inside a triangle pattern. A trading opportunity would have been to enter with a stop sell order somewhere below the trend line. The stop loss could have been above point A. As can be seen, price broke through the prior low (point X) with ease and didn’t even pause at the 127.2% extension level. It did so at 161.8%, however. But such was the strength of the move that the pause there barely lasted half a day. The failure below the Fibonacci level would have been another sell opportunity with a target at or near the 261.8% extension. When price eventually reached the 261.8% extension level, there was a clear false breakout scenario. The bears simply had enough at that point and there were no further significant sell orders below this level, leading to a sharp short-squeeze rally. This could well have been an opportunistic buy trade with a very tight stop loss just below the low. Again, the risk reward ratio of such a trade would have been highly favorable.

Picture 136

Almost all traders have a trading style or set of strategies they utilize in order to maximize profit potential and keep their emotions in check. The Fibonacci trading strategy utilizes hard data and if a trader adheres to their strategy, there should be minimal emotional interference. The Fibonacci trading strategies discussed above can be applied to both long-term and short-term trades, anything from mere minutes to years. Due to the nature of currency changes, however, most trades are executed on a shorter time horizon.

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Lesson XXVI Advanced (Harmonic) patterns Harmonic price patterns are those that take geometric price patterns to the next level by utilizing Fibonacci numbers to define precise turning points. Harmonic trading attempts to predict future movements. Harmonic price patterns are precise, requiring the pattern to show movements of a particular magnitude in order for the unfolding of the pattern to provide an accurate reversal point. A trader may often see a pattern that looks like a harmonic pattern, but the Fibonacci levels will not align in the pattern. Another problem is when a trader takes a position in the reversal area and the pattern fails. When this happens, the trader can be caught in a trade where the trend rapidly extends against him. Therefore, as with all trading strategies, risk must be controlled. It is important to note that patterns may exist within other patterns, and it is also possible that nonharmonic patterns may (and likely will) exist within the context of harmonic patterns. These can be used to aid in the effectiveness of the harmonic pattern and enhance entry and exit performance. I recommend you to trade these patterns on higher time frames such as H4 or D1. There is quite an assortment of harmonic patterns, although there are four that seem most popular. These are the Gartley, Butterfly, Bat and Crab patterns.

Picture 137

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The Gartley The Gartley was originally published by H.M. Gartley in his book Profits in the Stock Market and the Fibonacci levels were later added by Scott Carney in his book The Harmonic Trader. The levels discussed below are from that book. Over the years, some other traders have come up with some other common ratios. When relevant, those are mentioned as well. Now, these patterns normally form when a correction of the overall trend is taking place and look like ‘M’ (or ‘W’ for bearish patterns). These patterns are used to help traders find good entry points to jump in on the overall trend.

Picture 138

On picture 138 you can see how Gartley looks and here we will look at the bearish example to break down the numbers. The price is dropping to A. The up wave of AB is a 0.786 retracement of XA. BC is a 0.382 to 0.886 retracement of AB. CD is a 1.618 to 2.24 extension of AB. D is at a 1.27 extension of the XA wave. D is an area to consider a short (sell) trade, although waiting for some confirmation of the price starting to move lower is necessary. You can place your stop loss not far above. With all these patterns, some traders look for any ratio between the numbers mentioned, while others look for one or the other. For example, above it was mentioned that CD is a 1.618 to 2.24 extension of AB. Some traders will only look for 1.618 or 2.24, and disregard numbers in between unless they are very close to these specific numbers. On pictures 139 and 140 you can see another example of Gartley pattern.

Picture 139

Picture 140

135

The “perfect” Gartley pattern has the following characteristics: - Move AB should be the .618 retracement of move XA; - Move BC should be either .382 or .886 retracement of move AB; - If the retracement of move BC is .382 of move AB, then CD should be 1.272 of move BC. Consequently, if move BC is .886 of move AB, then CD should extend 1.618 of move BC; - Move CD should be .786 retracement of move XA. As time went by, the popularity of the Gartley pattern grew and people eventually came up with new variations. The Crab The Crab is considered by Scott Carney to be one of the most precise of the patterns, providing reversals in extremely close proximity to what the Fibonacci numbers indicate. In a bullish pattern, point B will pullback 0.382 to 0.618 of XA. BC will retrace 0.382 to 0.886 of AB. CD extends 2.618 to 3.618 of AB. Point D is a 1.618 extension of XA. Take longs (buy) near D, with a stop loss not far below. For the bearish pattern, enter a short near D, with a stop loss not far above. You can see on picture 141 how this pattern looks.

Picture 141

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On pictures 142 and 143 you can see another example of Crab pattern.

Picture 142

Picture 143

The “perfect” crab pattern must have the following aspects: - Move AB should be the .382 or .618 retracement of move XA; - Move BC can be either .382 or .886 retracement of move AB; - If the retracement of move BC is .382 of move AB, then CD should be 2.24 of move BC. Consequently, if move BC is .886 of move AB, then CD should be 3.618 extension of move BC; - CD should be 1.618 extension of move XA. The Bat The Harmonic Bat is a variation to the Gartley pattern which was developed by Scott Carney. It is considered to be one of the more accurate patterns exhibiting a higher success rate than any other harmonic patterns. The bat pattern might look similar to a Gartley pattern but it is different in terms of the Fibonacci ratios between the swing/pivot points. The Bat is defined by the .886 retracement of move XA as Potential Reversal Zone. The Bat pattern has the following qualities: - Move AB should be the .382 or .500 retracement of move XA; - Move BC can be either .382 or .886 retracement of move AB; - If the retracement of move BC is .382 of move AB, then CD should be 1.618 extension of move BC. Consequently, if move BC is .886 of move AB, then CD should be 2.618 extension of move BC; - CD should be .886 retracement of move XA.

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Picture 144

Picture 145

The Butterfly The Butterfly pattern can be found near key market reversal points, usually at intermediate highs and lows. The appearance of the butterfly pattern indicates reversals when it is validated. The charts below gives an illustration of the Bullish and Bearish butterfly patterns.

Picture 146

Picture 147

The Butterfly contains these specific characteristics: - Move AB should be the .786 retracement of move XA; - Move BC can be either .382 or .886 retracement of move AB; - If the retracement of move BC is .382 of move AB, then CD should be 1.618 extension of move BC. Consequently, if move BC is .886 of move AB, then CD should extend 2.618 of move BC; - CD should be 1.27 or 1.618 extension of move XA.

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Some traders trade these patterns and have their strategy completely based on advanced patterns. Because of the popularity of these patterns I wanted to cover them in this course, but these advanced patterns are called advanced for a reason. To master trading these patterns you will have to put a hard work. You will need to read pretty much every book that covers this topic so you can trade them on a higher level. Here I just wanted to show you basics how advanced patterns work and how to trade them, but to fully understand them you will, like I said, need much more time, materials and effort. Here you can see how one of these patterns (Gartley) looks on a chart:

Picture 148

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Lesson XXVII Elliott Wave In this lesson will be covering a more advanced form of technical analysis - Elliott Wave Theory. Many traders have heard of the Elliott Wave theory, but some find it a bit overwhelming and complicated. The Elliott Wave concept does have a steeper learning curve than other types of analysis, but many traders found that it is one of the best forecasting tools available. Ralph Nelson Elliott was the founder of this theory, and invented the Elliott Wave mechanism. This term refers to the particular pattern or trend followed by the stock market, which occurs in repetitive in trade cycles. Back in 1934, Ralph Nelson Elliott discovered that price action displayed on charts, instead of behaving in a somewhat chaotic manner, had actually an intrinsic narrative attached. Elliott saw the same patterns formed in repetitive cycles. These cycles were reflecting the predominant emotions of investors and traders in upward and downward swings. These movements were divided into what he called "waves". This methodology is not about calculations. It looks at the historical trends of the financial markets, working on the premise that history repeats itself. With this in mind, advocates of this theory believe that a comprehensive presentation of the market can be represented with the help of wave analysis in forex. Although the variability of forms represents a real challenge for any Elliott's apprentice, it is important to distinguish between an impulsive and corrective wave. And here lies another big lesson from Elliott: in recognizing that the market spends much more time in corrective mode than in impulse and sentiment mode, and that periods of correction can be very complex in terms of price action. The question is why repetitive trade cycles occur? It is because of the mass psychology of the financial markets! Investors that trade within these markets broadly share the same hopes and anxieties, meaning that they often react as a 'herd' to economic news events. As a result, prices within these financial markets and Forex, suffer from upward and downward swings known as waves. Elliott Waves show that investor psychology is the real engine behind movements within the financial markets. Forex Elliott wave is often used by traders and Forex investors as one of many Forex advanced strategies. Forex Elliott Wave analysis can affect forex trading in a myriad of ways. This means that there are multiple ways to interpret Elliott Wave analysis. It depends on the requirements, and the choices of the forex trader, as to which method of FX wave analysis they follow. The Elliott Wave analysis includes two different wave patterns, which include the five wave pattern (Motive Phase), as well as the three wave pattern (Corrective Phase). The five wave pattern can be found with five different dominant waves, which include Wave 1, Wave 2, Wave 3, Wave 4, as well as Wave 5. The other corrective trend includes the other three wave patterns, including Wave A, Wave B and Wave C. All of these waves make up for arranging the best results in market analysis. On the picture 149 you can see how basic interpretation of Elliott Wave looks like.

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Picture 149

There are certain principles that come up with the influence of Elliott Wave forex analysis. Some of them are: - There are three impulsive waves Wave 1, Wave 3 and Wave 5, out of which Wave 3 can never be the shortest; - The retraction which comes from Wave 2 is not more than 100% of Wave 1; - Wave 4 will never overlap Wave 1 in the price territory; - All will be diagonal in the case of a diagonal triangle.

Now, let’s say you wanted to begin your wave count. You see that price seems to have bottomed out and has begun a new move upwards. Using your knowledge of Elliott Wave, you label this move up as Wave 1 and the retracement as Wave 2.

Picture 150

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Note that Wave 2 can never go beyond the start of Wave 1 and that Waves 2 and 4 frequently bounce off Fibonacci retracement levels! So, using your knowledge about Elliott Waving trading, you decide to open the Fibonacci tool to see if price is at a Fibonacci level. In this case price around the 50% level. This could be the start of Wave 3, which is a very strong buy signal. Important rule number 2 states that Wave 2 can never go beyond the start of Wave 1 so of you decide to buy, you need to set your stop below the former lows. Let’s see what happened next:

Picture 151

In this case Your Elliott Wave analysis paid off and you caught a huge upward move! There are three cardinal rules in Elliott Wave Theory when labeling waves: - 1. Wave 3 can NEVER be the shortest impulse wave; - 2. Wave 2 can NEVER go beyond the start of Wave 1; - 3. Wave 4 can NEVER cross in the same price area as Wave 1. Elliott Wave is just a supportive tool that can provide you with a good overview of the market and its potential moves, along with the correct placement of stop losses and take profits. However, it does not provide exact entry and exit signals. This is why this supportive indicator is recommended to be used together with other indicators that can be used for identifying the points of entering and exiting the trades. Hence, Elliott Wave should be used for confirmation rather than identification! 142

Analysis of market behavior can never be made easier with Forex Elliott Wave analysis alone. So the utilization of statistics, with the help of Elliott Wave analysis in forex trading, is highly recommended. If you are looking for an easy way to confirm market behavior, make sure you understand Elliott Wave. This is a great way to boost your knowledge and understanding of forex trading and to generally understand the market's behavior a little better. Just like with advanced patterns, to master trading Elliot Waves you will have to read pretty much every book that covers this topic so you can trade it on a higher level. I wanted to show you Eliot Waves basics but to fully understand this you will need much more time, materials and effort.

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Lesson XXVIII Taking the trades Traders put on trades and then take them off when they choose. This decision is the result of the sum total of all the mental components interacting with one another. When we win we feel good about ourselves, but when we lose we blame the market. The way you manage your trades is completely your decision, so there is no point to blame the market. There are two parts to managing the trade. The first part is managing the entry price and the second is managing the exit. Both decisions may be personalized depending on your trading style. There are several possible methods of entering a trade. You may execute the trade at the current market price or you may take a limit order (executing the trade after the market retraces, or moves in the “wrong” direction). Or you may execute the trade entry only once the market moves in the expected direction. You may also decide to use an alternative entry strategy – to wait for the market to offer a clue. In other words, you enter your trade once you receive market feedback, once the market suggests it will move in the expected direction. Managing the exit is also very important. There are many exit strategies available to you. Some traders believe that all trading decisions should be made before the trade is triggered and I believe in that too. The entry price, the stop-loss, and the profit targets should be determined in the beginning, before the trade is initiated. This way, there is no thinking after the trade is triggered. Traders who adhere to this philosophy attempt to get out of the way, and allow the market to rate the trade as a winner or loser. Some traders take this approach because they have jobs outside of trading. They simply can’t be around trading platform all the time. This restricts their availability for managing the trade and this limited exposure to charts can be a good thing. You need to decide for yourself how much management you will do when trading. Stick to these rules. Try to duplicate your back testing in your live trading. This will ensure that your live trading results will resemble your back testing results. As individual traders if we want to give ourselves more and more money out of the markets, we have to learn how to value ourselves more and more, so that we believe we deserve what we want or deserve what we get. Trading can result in the fast accumulation of windfall profits. To keep those profits, we have to have inner support. The first step in the process of valuing ourselves more is to accept our true starting point. We have to take complete responsibility for what we end up with as being a reflection of what we need learn about the markets and about ourselves. Everything that we do contributes to or detracts from our sense of self-valuation. The best to add to our sense of valuation is to commit ourselves to the process of growth. That is why I send you lessons every day. I want you to grow, learn and improve every day. Trading is an exercise in accumulating money. Once we have learned how to, who else or what else could be responsible for what we end up with? You are in control of your life and decisions you make are reflection of what you know and what you don’t know!

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We have to be willing to confront the truth about ourselves so that we can confront the truth outside of ourselves. The less illusion we indulge ourselves in, the more our perceptions of the outside environment will reflect the actual conditions, because we won't be blocking so much available information. The less we block, the more we learn. The more we learn, the easier it is to anticipate how the outside environment will react or respond under any given set of conditions. Otherwise, we will not allow ourselves to perceive in the environment what we refuse to know about ourselves.

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Lesson XXIX Types of traders There are five main types of trading: 1-scalping, 2-day trading, 3-momentum trading, 4-swing trading and 5-position trading. Mastering one style of trading is very important, but the trader also needs to be aware of others. The best way to find out which style suites you the best is to trade on demo account for some time. You will eventually find out what type of trader you are and then you can focus more on specific style. Scalping Scalping or micro-trading is about taking small profits, repeatedly. Typically, trades last from seconds to minutes. Scalping is a trading strategy that attempts to make many profits on small price changes. Traders who implement this strategy will place many trades in a single day in the belief that small moves are easier to catch than large ones. Scalping is an expert skill and, although many people find the idea attractive, I wouldn’t recommend it for beginners. This is basically style of day trading which involves the rapid and repeated buying and selling within seconds or minutes. The problem with this style are spreads. If spreads are higher, scalpers will not be able to maximize their profits. There are times when spreads are very high (overnight). An overnight fee is an interest charge brokers have to make when you hold a leveraged position open overnight. CFDs are leveraged instruments where you deposit only part of the money (margin) needed to open the position. The rest of the funds are provided by your broker. During the day there’s no charge to you for this borrowing. But to keep a CFD position open overnight, they charge a fee to cover the cost of the money we’re lending b. You need to watch out for the closing time. It is usually either 21.00 or 22.00 UTC on the same day that you opened your position, but changes depend on summer time clock changes. It is recommended to plot bid and ask price on your charts and you will be able to see when exactly spreads are high. Day trading Day trading is about buying and selling on the same day, without holding positions overnight. A day trader closes out all trades before the market closes. Most day traders use leverage to magnify the returns generated from small price movements. A day trader will hold a position typically for a few hours. The day trader does not own any positions at the close of any day therefore immune to overnight risks. Day trading is often glamorized as an easy way to get rich quickly, but that is not the case. Both scalping and day trading require strong discipline, time and ability to learn how to trade a tested and profitable strategy rapidly. Both scalping and day trading are what is known as intraday trading. If you buy and sell in a single day, then you are considered to have traded intraday. An intraday trader opens and closes their trades (also called positions) within the trading day, leaving no trades open overnight. Momentum trading In momentum trading, the trader identifies a price that is “breaking out” and jumps on to capture as much of the momentum on the way up or down as possible. They focus on currencies that are moving significantly in one direction on high volume. The typical time frame for momentum trading is typically several hours, depending on how quickly the price moves and when it changes direction.

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Swing trading Swing traders try to capture short term trends. It is a style of trading that attempts to capture profits within one to seven days. Swing traders use technical analysis to look for opportunities to buy or sell. These traders are interested in the technical analysis, price trends and patterns. Swing trading and position trading are the only two types of trading in which a person with a full time job can still consistently trade well part time. Since the holding period is several days, intraday moves will not affect the swing trader as much as they would a day trader. The principal difference between day trading and swing trading is that swing traders will normally have a slightly longer time horizon than day traders for holding positions. Swing traders also attempt to predict the short term fluctuation. However, swing traders are willing to hold positions for more than one day, if necessary, to give price some time to move or to capture additional momentum. Swing trading has the capability of providing higher returns than day trading, but unlike day traders who liquidate their positions at the end of each day, swing traders assume overnight risk. There are some significant risks in carrying positions overnight. For example, news events and earnings warnings announced after the closing bell can result in large, unexpected and possibly adverse changes. Position trading Position traders stay in trades for weeks to months. The position trader will try to anticipate whether the current trend will continue for a much longer term than a momentum or swing trade. Position trading gives traders who cannot trade frequently a lot of freedom. Profit potential is not diminished and position traders can make considerable gains. Long term traders are not concerned with short term fluctuations, because they believe that their long term investment horizons will smooth these out. It is important to note that every type of trading has advantages and disadvantages. It is up to you to find which style works the best for you. When choosing a trading type to suit your needs, try to answer these questions: - Am I short term or long term orientated? - How much time do I have during the day to trade? - Do I work full time? - Am I patient, or do I need to see results quickly? Answering these questions will help you determine your style. If you have full time job, you simply cannot choose scalping. It will be hard to be day trader, but possible. In this case I recommend you to choose swing or position trading. If you are beginner I recommend you to start with day trading if you have free time, or swing if you don’t.

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Lesson XXX Focus on learning If you ever ask yourself: “What should I do?”, after realizing that you have put so much time and you are still not making money, you may need to change your perspective or the focus of your trading. Your focus may have been to make money. Well, you will need to change your perspective and ask yourself "What do I need to learn or how will I have to adapt myself to become better?" You need to stay focused on mastering the steps to achieving your goal and not just the end result! There is a big difference between focusing on money and focusing on using your trading as an exercise to identify what you need to learn. If you are focused on money it will cause you to focus on what the markets are giving you or are taking away from you. If you focus on learning it causes you to focus your attention on your ability to give yourself money. With the first perspective, you are placing some of the responsibility onto the markets to do something for you, but with the second perspective, you assume all the responsibility. You will never become profitable if you focus just on making money. Sometimes you make money when you not lose it. In this course I wrote that is important to focus on loosing trades too. Execute your losing trades immediately upon perception that they exist. When losses are predefined and executed without hesitation, there is nothing to consider or judge and consequently nothing to tempt yourself with. There will be no threat of allowing yourself the possibility of disaster. If you find yourself considering or judging, then you are either not predefining what a loss is or you are not executing them immediately upon perception, in which case, if you don't and it turns out to be profitable, you are reinforcing an inappropriate behavior that will inevitably lead to disaster. Big part of trading are not just trades that we took, but missed opportunities too. Missed opportunities are trades that would have always turned out perfectly because they only occurred in our minds. Our mind is a place where we can make anything be as we want it to be. These missed opportunity trades have the potential to cause more anxiety and stress than the trades we actually do take that turn out to be losers. Nothing's worse than missing a "perfect" opportunity. The sooner you accept the fact that you shouldn’t care about them, the sooner you will be able to take advantage of these missed opportunities instead of beating yourself up over them. There really isn't anything to miss because as long as the price keeps changing, there will always be another opportunity. You need to start as small as possible and then gradually allow yourself to grow. What you should do is become an expert at just one particular type of behavior pattern that repeats itself. To become an expert, choose one simple trading system that identifies a pattern, preferably one that is mechanical, so that you will be working with a visual representation of market behavior. Your objective is to understand completely every aspect of the system and its potential to produce profitable trades. Out of all the combinations of behavior possible, you are going to limit your focus of attention to just one combination, so you will be letting all the other opportunities go by. The idea of letting go of opportunities that don't fit into your plan shouldn’t trouble you. If you are confident in your ability to transform yourself into a successful trader, what difference could it make that you let go of some opportunities? After you become an expert at one particular type of behavior pattern and after you have developed the appropriate skills, taking money out of the markets can be as easy as almost everyone believes it is before he started trading. 149

As I said before trading is not gambling. It is much easier to take risks and participate in a gambling event with a purely random outcome based on statistical probabilities, simply because it is random. If you risk your money on a gambling event that you know has a random outcome, then there's no rational way you could have predicted what that outcome would be. That is why, you don't have to take responsibility for the outcome if it isn't positive! With trading, the future is not random. Price movement, opportunity and outcomes are created by people acting on their beliefs and expectations of the future. This adds an element of responsibility to trading that doesn't exist with a purely random event. That is why you need to make a commitment to trade a system exactly according to the rules. You need to make a very strong commitment and not play any games with yourself. You also need to have a system that suits your unique tolerance for taking a loss. The amount of money you risk per trade should be an amount that you are completely comfortable with. As you already learned is this course, it is not recommended to risk more than 3%. If you don't stay within this tolerance level, you will feel uncomfortable and when we feel uncomfortable we make bad decisions. That is when you will start feeling pain and when you are feeling pain, instead of being focused on what the market is teaching you about itself and yourself, you will be focused on information that will ease your pain. That usually ends badly. This is why you need to stay focused on learning and receiving information that market is giving to you.

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Lesson XXXI Trading journal A forex trading journal is a trading log that helps you to keep a log of your trading activities. Many new traders think that having trading journal is extra and unnecessary work, but it is worth. A disciplined trader is a profitable trader and keeping a trading journal is the first step to building your discipline. Successful traders keep a trading log in order to help them to keep a tracking of their trading success and to maintain the trading routine. The benefit of using a forex trading journal far outweighs the work involved. It is true that forex trading journal means additional work, but in the long term, once you have enough data, you would be surprised to notice the things about your trading that you would have otherwise missed. Forex trading journal gives you a complete view of your trading activity. It doesn’t just rely on your trading strategy but also other aspects such as risk management, your ability to stick to a trading plan, the discipline when to stay off the markets and so on. As I mentioned in previous lessons, even with the best trading strategy you will not be profitable without proper money management. That is why is so important to track your trades. There are a number of ways you can utilize the information from a trading journal to enhance your trading skills. It allows you to pinpoint the aspects where you need to work more. This could be things like your lack of discipline, bad risk reward ratio or even aspects such as relying too much only on one type of analysis. You can’t properly manage your business if you don’t understand what it is doing right and wrong. You cannot coach your trading to success if you do not keep score. Keeping score is more than tracking your profits and losses. It means knowing how you’re performing and how this compares with your normal performance. Score keeping makes sense if you once again think of your trading as a business. A sophisticated retail clothing firm tracks sales closely every week. Retailers know not only how much they’ve sold in total, but how much of each product. World-class athletes do it to keep track of what helps them to be better, faster, and stronger on the field or court. The company that tracks these trends regularly will be in the best position to shift their product mix and maximize profits. The basic objective of a trading journal is that it helps to monitor the performance of your trading system and the trading plan and also shows you if you were able to stick to your trading plan consistently. Over a period of time, you can look back at your trading journal to understand some aspects of your trading that you would miss otherwise. By tracking your trades, you can identify what conditions made your trade to be a success and what conditions made your trade resulting in a loss. Without a trading log, it can be difficult to identify your potential and the possible areas of improvement that you need. One of the main benefits of a trading journal is that upon analysis you would be able to identify the conditions when you are able to best trade the markets. Sometimes, traders lose interest and over a period of time, end up not being detailed in their journal entries, but traders need to build a routine. It can be difficult initially to maintain a log, but over time you will get habituated to it.

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For some forex traders, a forex trading journal goes a bit further into also keeping a log of their feelings. While this is very subjective, it is up to trader’s individual preferences. Keeping a log of emotions is also a good way to understanding your state of mind and how that influences your trading results. Here is what I recommend you to do: -Enter your trading log before you start to trade and write down what your perception of the market is. A combination of technical and fundamental factors is great way to get a full context of the market. Write your entry price, target price and stop loss price with explanations for each. This can be a great way to stay on top of the markets! -If you ever adjust your stops and targets (I don’t recommend you to do that) then you should also write it down. This will be a great way to understanding how many of your trades are trading risk free when you trail your stops to the break-even level. Doing this will tell you how well you are managing your risk. Always mention how much of money you risk. The trading lots you are trading can give valuable insights at a later point in time. -You can also write down your emotions. Writing down things such as “I am confident that this trade will be a success because of these factors: …” is a good way to also keep a log of your emotions before and after trading. -Once the trade is closed, you should write down the details. Keeping a log of things such as why a trade failed or why a trade was successful can be a very good way to understanding how well your trading strategy is working and most importantly, your trading bias too. By doing this, you will also start to realize if you are respecting your trading strategy and trading according to the rules. -You can also take a screenshots of the charts before and after you trade. This is a great way to see how price action evolved. For example, if you are trading with chart patterns, then keeping an entry with the tag or keyword like “head and shoulders pattern” will at a later stage show you how well the pattern has fared and whether there is room for improvement. Most of the traders tend to focus only on a trading strategy. This can lead to a poor trading performance because the trading strategy is either not executed properly or there was poor risk management in place. This can be a great progression in your trading journey. It will help you build your skills further and will make you more confident when trading the markets. Maintaining a forex trading journal can be a bit tedious at first, but over a period of time you will start to notice the benefits of this. At the end, a forex trading journal will certainly enhance your trading skills and will help to make you become a better trader.

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Lesson XXXII Importance of having a proper strategy and money management In this lesson I will not write much, because I want to show you something that will probably shock you and that is exactly what I want. Let’s analyze this chart:

Picture 153

What do you see here? I can clearly see resistance zone and I also can see resistance zone that became support. Look at this chart:

Picture 154

You can even see (red point) that price reversed from support zone and then penetrated it. Many traders would sell at that point and put stop loss above zone. After just few candles, they would lose this trade. This happens a lot on Forex market especially for the traders who use narrow stop loss. You probably have a lot of questions and one of them is: “Which currency pair is this?” I guess. 153

This for sure isn’t EUR/USD. If you read my e-book that I sent you at the beginning of this course, you would know that. This is not chart of any index, not even metals. This is RANDOMLY GENERATED CHART. These candlesticks represent nothing! Let’s look at another example:

Picture 155

Here we can see trending channel (downtrend), significant zones and even a descending triangle. Shocking, isn’t it? The point of this lesson is not to show you how forex charts are completely random and that all we have learned so far is illusion. No, they are not. The point is to show you how important it is to have a strategy and proper money (risk) management! All patterns, indicators and oscillators are here to help you, but if you don’t trade with specific strategy that fits you and have a bad money management you will FAIL! You could also find lots of amazing Fibonacci levels and Elliott waves on these nonsense charts. I want you to consider this next time you look at a real chart. That thing on the chart that looks so good could be just random chance, or could be a great setup. At the end, all comes to this: strategy and money management!

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TECHNICAL ANALYSIS After we learned all important facts, it is time to take a look at some examples of technical analysis. On the next pictures you will see how I like to analyze charts. Focus will be on market structure (price action). I will combine all the knowledge I shared with you and explain my thoughts, so you can better understand how to analyze charts. On the picture 156 we can see good example of support + trendline confluence. Price pushed up, created new higher high and went down to test previous highs (resistance). Previous resistance, became support (first blue circle). Price then pushed up and repeated the process with another higher low that formed at previous higher high level.

Picture 156

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Let’s take a look at another zone + trendline confluence example. This time price was trending down. It created solid resistance zone that price failed to break. Price then went down, but returned to test resistance zone again (retest). At the same time, it also confirmed trendline with nice bearish candlestick pattern called “bearish engulfing”. As you can see price then continued to go down, so this was good place to enter the trade.

Picture 157

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Here price was trending up. Price formed bullish candle and 2 wick rejections at previous lows zone and confirmed creation of support zone (3rd touch).

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Very similar analysis and explanation as on picture 157. R = resistance, S = support.

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This is one simple but very effective example of good entry point. Price formed double top chart pattern. We can see very strong bearish candle below 2nd top indicating strong bearish pressure. Price then broke neckline and retested it with massive wick rejection followed by a massive bearish candle.

Picture 160

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On the next picture you can find great example how to combine your tools and knowledge. We have downtrend here, so you should focus to find good opportunity to sell. Price then formed triple top chart pattern that was confirmed with strong bearish candlestick pattern called “three black crows”. Immediately after, price broke previous major low and continued to go down.

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So far we have seen examples of trading with the trend. Let’s take a look at some examples of reversals and how to spot them. Here we can see uptrend and higher highs, higher lows formation. We can also see that highs and lows are getting closer indicating that uptrend is losing the power. Price then failed to create new high and broke previous low with massive bearish candle. Considering the fact that uptrend was very strong, waiting for the retest was very smart and patient approach. As we can see retest did occur, price fully reversed and went down.

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On the example below we have very strong downtrend. Price formed lower highs and lower lows. Price then formed massive bullish candle that broke the trendline indicating that bulls are gaining the control. Entering the trade after that strong candle would be risky considering the strength of previous downtrend, so waiting for retest or bullish structure was necessary. As you can see retest occurred. Price retested the trendline, formed strong bullish candles and wick rejections. After that we can see move up and full reversal.

Picture 163

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On picture 164 we can see break of bullish structure. Price formed higher highs and higher lows. It then created strong bearish candle that broke trendline and also created new lower low. Soon after price failed to push through the previous high and created new lower high. Price then confirmed the reversal with break of previous lower low level.

Picture 164

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Analysis for this one is very similar as with picture 163. This time price even created support zone giving us one more reason to believe that reversal will occur.

Picture 165

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Here we also have lower highs, lower lows formation. We can see that at the end price failed to create new lower low and it broke trendline with very strong bullish candle. Price continued to go up and broke the level that acted as a resistance. Soon after, it retested that level, so we have situation here where previous resistance became support. After that reversal fully formed.

Picture 166

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Sometimes aggressive reversals will occur. There will be no retest or new structure formation. Price will just break the trendline and continue to go up or down. On the picture 167 you can see that example. Entering the trade after breakout can sometimes be very beneficial but also very risky. That is why I named these trades “high risk – high reward” trades. I don’t trade them most of the time. If you decide to enter early and catch the reversal right from the beginning keep on mind that it’s a risky trade.

Picture 167

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This example is even more riskier than the previous. Last time price failed to create lower low but created support zone. This time we don’t even have that. Price just broke the trendline and reversed. I would not recommend to a beginner to try to catch trades like this.

Picture 168

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The important thing to understand is structure and next picture is good example. After series of lower lows and lower highs price broke the trendline indicating that trend will end soon, but we don’t want to jump into trade and we look for confirmation. After the breakout price created new high. It then went down to test previous lower low and failed to break it. Soon after it created new higher high and confirmed the reversal.

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Let’s take a look at few more examples of what I think is the good entry point.

Picture 170

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This time you can see example of both aggressive and patient entry. Of course, I would recommend you to focus on patient entry.

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I hope you remember the strategy that I told you about trading patterns. Let’s remind that. Imagine that channel chart pattern occurred and you are not sure what to do. Just make a plan and be patient. There are two options. Option A: if price breaks resistance zone, you look for the opportunities to buy. Price was trending up, so after resistance breakout, you can look to buy. Option A: if price breaks support zone, wait for the retest and then look for the opportunities to sell. You don’t want to jump into trades before confirmation. This time price broke resistance and continued to go up.

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There is one more thing I want you to know. All this knowledge can be combined with different time frames. I like to analyze H2 and H1 time frames and to look for my entries on M15. You can determine best time frames for you depending on your trading style. I am a day trader, so it does not make much sense for me to analyze D1, H4 or W1 charts. After years of practice I noticed that H2, H1 and M15 charts work the best for me. D1, H4 and H1 could be good combination for swing traders that hold positions longer and use wider stop losses than day trades. You can use two time frames, but don’t go with more than three. Let’s take a look at H4, H1 and M15 time frames. On your highest time frame you want to look for major support/resistance zones and trendlines. Avoid to trade once the price is at the zones, just once the price reacts to them (breakout or confirmation). On your middle time frame you want to look for trend, structure (highs, lows and patterns), breakouts and retests. Finally, on the entry time frame you want to look for reason to enter the trade. I like to look for candlestick patterns, wick rejections and minor zone breakouts/retests in order to enter the trade.

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On the picture 174 we can see one example of multiple time frame analysis. On H1 chart I spotted bearish structure. Price formed lower highs and broke support zone. It then went up to retest the previous support and also trendline. I scaled down to M15 time frame and spotted that price formed double top. So basically, what was retest on H1, it was double top on M15. Very good opportunity to sell considering, of course, bearish structure on H1.

Picture 174

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This is another example, but two time frames. On H4 we can see wick rejection followed with strong bullish candle – bullish reaction to support zone (confirmation). On H1 time frame we can see that price broke previous high with massive bullish candle and retested it indicating bullish pressure. As you can see, price went up after that.

Picture 175

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At the end I want to remind you that you should always combine your tools. Trend, support/resistance zones, indicators, candlesticks. You don’t have to use every tool. Find few that you feel good about and practice. Don’t expect to become expert right after this course, or any other. Now you have solid knowledge, but you need to invest your time. Practice, be patient and give yourself a time.

Picture 176

Keep on mind that every chart example found in this ebook is real. I didn’t create them for educational purposes. I found them on different currency pairs and wanted to share my view with you. I hope it is helpful. It might be hard at the beginning, but after some time it will become much clearer. Go through these examples as many times as you need. 175

Lesson XXXIII Key takeaways pt.1 Forex is the largest market in the world. Forex market never sleeps and you have the opportunity to trade at any time of the day (except weekends) and make money any time. But you need to be careful, because you can easily lose everything! If your only reason to become trader is to get rich quick, then you are at the wrong place. It takes time, effort, a lot of practice and patience. Once you gain necessary knowledge and learn how to control your emotions, trading forex will become easy. You trade against big banks, governments and corporations that can manipulate the market. Make no mistake about it, when you step into Forex market, and decide that you want to make money, you have decided you will outwit and outperform some of the most determined, intelligent, and well-resourced people in the world! There are two schools of traders, technical and fundamental. You will most likely focus on one, but be sure to never completely forget about other one. Combining fundamental and technical analysis is much better than focusing on just one. Learn, practice and improve every day. Start with demo account and find you strategy. Backtest it and when you feel comfortable and good about it, then you are ready to open a real account. Everything about technical analysis is relative - there is no perfect indicator or pattern. Open the trade only when candle closes (when candle is fully formed). Never open the trade just because you see bullish or bearish candle. Support and resistance levels are not always exact. They are usually a zone covering a small range of prices so levels can be breached, or pierced, without necessarily being broken. As a result, support/resistance levels help identify possible points where price may change directions. Trends, a series of higher highs and higher lows, or lower highs and lower lows over a period of time, work because there aren't enough sellers to absorb the number of buyers competing with each other to get into the market during that period of time. Trading in trend is the best way to trade for beginners. Uptrends occur where prices are making higher highs and higher lows. Up trendlines connect at least two of the lows and show support levels below price. Downtrends occur where prices are making lower highs and lower lows. Down trendlines connect at least two of the highs and indicate resistance levels above the price. Consolidation, or a sideways market, occurs where price is oscillating between an upper and lower range, between two parallel and often horizontal trendlines. Never think of the trend as contained within of a single line. The trend is not a line, but an area. Patterns offer significant clues to price action traders that use technical chart analysis in their forex trading decision process. Each chart pattern has the potential to push the price toward a new move.

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There are three main types of chart patterns: 1) Continuation Chart Patterns 2) Reversal Chart Patterns 3) Neutral Chart Patterns The market's behavior can be defined as the collective action of individuals acting in their own self-interest to profit from future price movement while simultaneously creating that movement as an expression of their beliefs about the future. The greater the expectation you have about something happening, the less tolerance you have for disappointment. Don’t expect anything from the market. Market doesn’t owe you anything. Relative Strength Index is counted among trading’s most popular indicators. RSI can help us determine the trend, time entries, and more. Advantages of RSI: 1 - Effective way to predict potential trends; 2 - RSI can give very good signal when to enter and when to close position. Disadvantages of RSI: 1 - True reversal signals are rare and can be difficult to separate from false alarms; 2 - RSI can stay long time in overbought or oversold zone; 3 - When a market features a strong trend, the RSI loses its usefulness. The basic function of the MACD forex indicator is to discover new trends and to help identify the end of current trends. Advantages of MACD: 1 - MACD can be used both, trending or ranging markets; 2 - If you understood MACD, it will be easy for you to learn how other oscillators work: the principle is quite similar. Disadvantages of MACD: 1 - The indicator lags behind the price chart, so some signals come late and are not followed by the strong move of the market. Bollinger Bands help by signaling changes in volatility. Volatility (in forex trading) refers to the amount of uncertainty or risk involved with the size of changes in a currency exchange rate. Advantages of Bollinger Bands: 1 - The indicator is actually great in a sideways market (when a currency pair is trading in a range). In this case, the lines of the indicator can be used as support and resistance levels, where traders can open their positions.

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Disadvantages of Bollinger Bands: 1 - During a strong trend, the price can spend a long time at one Bollinger line and not go to the opposite one. The basic function of the Moving Average is to provide the trader with a sense of overall trend direction, but is can also provide signals for upcoming price moves. Advantages of Moving Average: 1 - There are many ways to use this indicator and to adjust it, so it fits your style; 2 - Traders often make use of moving averages as it can be a good indication of current market momentum. Disadvantages of Moving Average: 1 - Moving averages are lagging indicators, which means they don't predict where price is going, they are only providing data on where price has been. There is no magic indicator than can predict with certainty when to enter or when to exit a trade!

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Lesson XXXIV Key takeaways pt.2 Losing streaks are due to the misapplication of the system (caused by the trader), and not the system itself. Just accept lost trades, lean from them and move on. If you are new to trading, focus on maximum 3 pairs at the beginning and never hold more than 3 positions at the same time. Traders who have issues with risk management will usually multiply their drawdown and find it difficult to make money consistently. Opportunities are like trains - they come and go! To change your behavior and how you experience the environment, you will have to change your perspective. You can't physically control what the markets do. You can only learn to control your perception of the markets. The markets don't owe you anything because every other trader participating is doing so to take your money away. You will have to learn and improve every day. With hard dedication, you will become successful over time. Nothing will happen over night. Getting rich quick can only lead to a great deal of anxiety and frustration if you don't have the skills to keep it. Trading successfully will mean putting in the time backtesting your system, developing a trading plan to cover all of the what-if scenarios you can come up with, and creating a method for overcoming the doldrums of the inevitable drawdowns. Most unsuccessful traders risk much more than 3% of their account in a single trade. Knowing when to trade, and when not to, is very important. It will help keep your capital safe when conditions are volatile or markets are illiquid and capitalize when the time is right. You will have to learn how to properly calculate risk-reward ratio which is one of the most important things in trading. You need to combine risk reward with your strategy. If the trader doesn’t use a profitable money management technique to fit system or method then the best trading system in the world is not going to help them. A gambler has no risk management, and a gambler is willing to lose large amounts of money quickly. A trader treats each trade as a calculated risk and manages each trade according to his system rules. You are not a gambler, you are a trader!

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Fibonacci numbers, when used to measure price swings in the markets, present powerful levels to watch for potential reversals and are applied in technical analysis through two main studies: Fibonacci retracement and Fibonacci extension. Harmonic price patterns are those that take geometric price patterns to the next level by utilizing Fibonacci numbers to define precise turning points. Harmonic trading attempts to predict future movements. Elliott Waves show that investor psychology is the real engine behind movements within the financial markets. Forex Elliott wave is often used by traders and Forex investors as one of many Forex advanced strategies. A forex trading journal is a trading log that helps you to keep a log of your trading activities. Make one. When we win we feel good about ourselves, but when we lose we blame market. The way you manage your trades is completely a personal decision, so there is no point to blame the market. We have to take complete responsibility for what we end up with as being a reflection of what we need to learn about the markets and about ourselves. There are five main types of trading. Scalping, Day trading, Momentum trading, Swing trading and Position trading. Try them on demo account but focus and master one style. If you are focused on money it will cause you to focus on what the markets are giving you or are taking away from you. If you focus on learning it causes you to focus your attention on your ability to give yourself money. Sometimes, that thing on the chart that looks so good could be just random chance, or could be a great setup. At the end, all comes to this: strategy and money management!

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Lesson XXXV Never give up

Never give up! If you find trading interesting after this course, then there is no any reason to give up.

Being a successful trader is possible. You will have to put a lot of work, but that is the only good recipe to become successful in anything that you do. I am sure that this course will help you a lot to become better trader. All I wanted is to give you a real knowledge that will help you on your path. I hope I succeeded. There is no more lessons (for now), but if you ever need my help, feel free to contact me any time. All I can do now is to wish you well and good luck with your trading. Some of you will think this is not a lesson but I strongly believe it is. Every day is a new lesson!

Love Peace Respect

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