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Forex Trading For Beginners

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  1. Contents Preface PARTI:BASICS 1 1.WhatisForex? 3 2.Profit/LossUnits(pips) 3 3.InvestmentUnits(l?s) 4 4.GenerosityofBrokers(Leverage) 4 5.ForexCharts 5 6.TrendandReversal 6 7.SupportandResistanceRevisited 11 8.ConsolidationandBreakout 13 9.LocalMaximaandMinima 16 10.WhichAreTheBestCurrencyPairstoTrade? 17 11.TheBestHourstoTrade 17 PARTII:FOREXTRADINGSTRATEGI? 21 12.ChartPatternsTradingStrategy 23 12.1TheMostProfitableForexChartPatterns 23 12.1.1MandW(Bat)Patterns 23 12.1.2Triangle(WeakeningMandStrengtheningW)Patterns 24 12.1.3Cascade(WeakeningUpwardorDownward)Patterns 25 12.1.4HeadandShouldersPattern 28 12.1.5SolidWall(orSandwich)Pattern 29 12.1.6Fractals 31 12.1.7DoubleandTripleTop/B?tomPatterns 31 13.PriceRejectionTradingStrategy 33 14.CorrelationTradingStrategy 38 14.195%ProbableCorrelationTrading 39 15.VolumePriceAnalysis(VPA)TradingStrategy 42 16.LongTerm(Daily,Weekly,Monthly)TradingStrategy 45 16.1AbandonedBaby-EMA(5)LongTermTradingStrategy 48

  2. Contents 17.SentimentTradingStrategy 51 17.1WhatIsTradersSentiment? 51 17.2HowtoUseSentimentChartsinTrading? 52 18.MultipleTimeFrameTradingStrategy 56 19.NewsTradingStrategy 58 19.1WhatIsNewsTrading 58 19.2HowtoDoNewsTrading 59 19.3ATypicalNewsTradingSession 63 19.4MyRemarksonNewsTrading 66 PARTIII:THEULTIMATEFOREXTRADINGSYSTEM 69 20.HighPerformanceTrading 70 21.MoneyandRiskManagement 73 22.TheConceptofOptimalTrading 77 23.ATypicalHighPerformanceTradingSession 77 24.PsychologyofTrading 81 25.PredictiveForexTrading 83 PARTIV:FINALADVICE 85 26.FinalAdvice 86 AnswersoftheExercises 87

  3. Preface Forextradingisabouthavingasolidtradingstrategy,having asoundplantomanageyourrisks,beingabletocontrol yourexcitementsduringatradeandhavingdiscipline.“The Ultimate Forex Trading System-Unbeatable Strategy to Place 92% Winning Trades” is an attempt to create a balancedsystemofallthesefourkeyfactors.Theresultisa high performance trading system quite adaptable to any tradinghabitandpersonallifestyle.Thisbookincludesthe followingtopics. InpartoneIhaveexplainedpreliminarybutkeyconcepts thateveryForextraderneedtoknow.Topicssuchassupport andresistance,consolidationandbreakout,thebestcurrency pairstotrade,thebesthoursfortradingandsoon. In part two you will find eight essential Forex trading strategiesthathavepassedmystrictcriteriatobeeasyto apply, highly profitable and manageable. Chart patterns tradingasaclassictradingmethodisthefirststrategythatI haveexplainedinthisbook.Onlyveryhighprobablechart patterns are discussed and real examples help you to discover their trading potential. In this chapter I have focused on training eyes and mind to predict (with high probability)howthenextbar(s)willunfold.Pricerejection(a subsidiaryofpriceaction)isthesecondtradingstrategythat Ihavediscussedinthisbook.Usingpricerejectionpinand twinbars(thatrevealsthemomentumbehindtheprice)isa

  4. classicskillthateveryprofessionaltraderhastoknowand benefitfromit.ThethirdstrategythatIhaveexplainedis correlation (negative or positive) between currency pairs. Correlationtradingisaveryaccuratestrategythatexploits thediscrepancyortimelagbetweentwonormallycorrelated currency pairs. Volume Price Analysis (VPA) is the next strategythatIhaveexploredinthispartofthebook.Under thistopicyouwillseehowverysimplerulesenableyouto interpretvolume-priceinterplayandhowitmakesareal differenceinyourtrading.Forthosewhocannotbeinvolved totrading24hoursadayandwishtoenterlongtermtrades tohaveenoughtimetoleavetheirtradingroomforafew days (or even weeks), long term trading strategy is the solution.Especially,averyhighlyprobabletradingmethod that I have called it Abandoned Baby EMA(5) is a very promising long term trading strategy. The sixth trading strategyusesrealtimesentimentcharts(buy/sellpositions) of worldwide traders to benefit from their opinion to forecast how the market will behave in the next hours. Checkingmultipletimeframesisagoodmethodtodouble confirmenteringatrade.IthasbeendiscussedinMultiple TimeFrameTradingStrategychapter.Newstradingasthe laststrategyhasbeentreatedfromastatisticalpointof view.Howestimateyourchancetoenterawinningtrade afterorduringnewsreleasesbystudyingthepricehistory andmarketreactiontothemediumorhighimpactnewsand what measures you have to take to manage this type of trading.

  5. Partthreeistheclimaxofthebookbecauseyouwilllearnto combineallyourknowledgeaboutForexbasicconceptsand varioustradingstrategiestoenteronlyhighperformance (morethan90%winningrate)trades.Manyrealtrading exampleswillguideyoutoreachthisleveloftradingskills. Moneyandriskmanagementhasbeendiscussedaroundthe very practical concept of risk/reward ratio, the only mechanismyouneedtocontrolyourtrades,minimizeyour risks,maximizeyourprofitanddotradeinaveryrelaxed andcomfortablestateofmind.AndunderPsychologyof Tradingyouwillfindthesummaryofthebestadvicesto controlyourpsychologyduringtradesandmaintainawinner mindset. MostafaAfshari August2016

  6. PartI Basics 1

  7. 2

  8. 1.WhatisForex? Forexistheknowledgeandartoftradingcurrenciesinaway togainsomeprofit.Inotherwords,Forexmarketisaplace wherepeoplebuyorsellcurrenciesexpectingprofit.Itis clear that we only buy when we expect the value of a currencywillriseandsellwhenweexpectitwillfall.Allthe effortsofaForextraderareinthiswaythatfindssome cluestopredicttheupwardordownwardmovementofa currencyprice. CurrenciesareusuallyrepresentedinpairswithUSdollaras the base. Major currency pairs belong to the major economical countries. EUR/USD, GBP/USD, USD/JPY, AUD/ USD,USD/CHFandUSD/CADarethemajors. 2.Profit/LossUnits(pips) Pip(orpipsinplural)standsforpointinpercent,meansone fourthdecimalinaunitofcurrency.Forexampleiftheprice (orexchangerate)ofUSD/CADgoesupfrom1.0035to1.0085 ithaschanged0.0050unitor50pips.So,ifyoubuyUSD/ CADat1.0035andsellitat1.0085youwillprofit50pips.In recentyears,onefifthdecimali.e.0.00001unit(orpipette) hasbeenusedwidelybythereferencesbutforpractical purposespipismoreconvenient. 3

  9. 3.InvestmentUnits(lots) AlotinForexmeanstheportionoftradinginvestmentin comparisonto$100,000.Forexampleifyouinvest$10,000in a trade it will be $10,000/$100,000=0.1 lot. It is very importantthatyouchooseyourtradinglotsizeaccordingto youraccountbalance.Usuallyinvesting3%upto5%ofthe totalbalanceinasingletradeisconsideredsafe. 4.GenerosityofBrokers(Leverage) OneoftheadvantagesofForexmarketthatmakesitvery attractive is that the brokers usually multiply your investmentamountineachtradeby50-500times.Thisis calledleverage.Forexampleifyouinvest$50inatradewith aleverageof100,actuallyyouwillentertothemarketwith $5,000. In this case your trade lot size will be $5,000/ $100,000=0.05,orifyouwanttotrade0.1lotatleverageof 150youshouldinvest(0.1x$100,000)/150=$66inthistrade. So, your required investment in each trade will be determinedbyyourlotsizeandtheleveragelevelofthe broker. Using the leverage offer of the broker depends on your choiceandtherearelotsofcontroversiesarounditbecause althoughyoucanmultiplyyourprofitifyouleverageyour investment,inthesametimethereisariskofagreatloss(if the currency goes in wrong direction). But to end this argumentwehavetosayifourtradingsystem(orstrategy) 4

  10. isquitereliableanditsprofit/lossratioishighwhynotuse leverageadvantage.Leverageisbadinacasewhichtherisk oflossishigherthanwin. 5.ForexCharts Forexchartsarethedrawingsofcurrencypricesinvarious timeframes.Thesearedrawninformsoflinesorcandles (bars). Candle form is traders standard and the most beneficial form for trading purpose because each single candleshowstheopening,closing,maximumandminimum ofthepriceinaspecifictimeframe.Ifacandlebodyopens atalowerandclosesatahigherpriceitiscalledbullishor longandisdrawningreen(orblue).Maximumandminimum spotpricesinthesamecandleareshownbyspikes.Ifthe priceopensinahigherandclosesinalowerpricethecandle orchartiscalledbearishorshortandisshowninred. Candle(orbar)chartsarethebestvisualtooltoanalyzea tradingopportunity.Inthisway,havingtopqualitychartsare veryimportant.Agoodchartshouldbeclear,exact(bothin pricinganddrawing)andwell-scaled.Onlyonsuchaquality chartyouwillbeabletospotprices,compare,evaluateor calculatethemorrealizethepatterns. Belowyoucanfindfourqualityonlinechartingtools.You shouldenableJavaonyourbrowsertoseethecharts. https://www.tradingview.com/e/ 5

  11. http://www.netdania.com/(gotofivestarchartundercharts tab) http://www.fxempire.com/ https://www.dukascopy.com/swiss/english/marketwatch/ charts/ Exercise1.Gotohttps://www.tradingview.com/e/andtypeEURUSD(in the top left search box), check candle forms, prices, pips and timeframes. Exercise2.Openyourtradingplatformandcheckitsavailabletradinglot sizesandleverages. Exercise3.Youwanttoriskonly$25ofyouraccountbalanceontrading. Ifyourleverageisx200,whichlotsizeshouldyoutrade? 6.TrendandReversal Ifacurrencygoesupordowncontinuallyforalongtime(a fewdaysorweeks),wesaythatitisinatrend.Trendsare caused by large scale (fundamental) economic events or factors(growth,recession,highimpactnews,etc.).Ineach tradewehavetoconsiderthetrend(whichIhavecalledit background trend effect) to increase the chance of our success.Whenatrendendsandstarttoreversewecallsuch thingareversal. 6

  12. Figure6.1Anuptrend Figure6.2Adowntrend 7

  13. Figure6.3Areversal Distinguishingatruefromafakereversalisveryimportant intrendtrading.Therearemanysimple(MovingAverage Cross,RegressionLine)oradvanced(HurstExponent,Market MeannessIndex,etc.)indicatorsandmethodsthatclaimto sensethestrengthoftrendandthetimeofpricereversal andsignalittothetraderbutafterstudyofmanyofthemI concludedthatthereisnotaholygrailmethodorindicator thattellyoupreciselyifthetrendwillcontinueorwhenthe market will reverse. They work but with a significant percentage of error because the price movement has a stochasticandheteroscedasticnatureandonlyGodexactly knowswhatwillhappeninthefuture.Also,thereisnota meaningful difference between accuracy of advanced and simplemethodsoftrendandreversalprediction.Inrealizing trendandreversal,maybeexperienceandasenseof 8

  14. intuition are more helpful. However, two very simple methodscanbeusefulandyoucanusethemtoidentifya reversalwithmediocresuccess.Inthefirstmethodyoucan drawtwoExponentialMovingAveragesforexampleEMA(9) andEMA(15).WhenthefastEMA(9)crossoverorcrossunder theslowEMA(15),itisasignofareversal.Theothermethod is using of two regression lines. In an uptrend draw a regressionlinetangenttolowerlowsandoneregression linetangenttothelatesttwohigherhighs.Ifthesetwolines crosseachotherinsomepointitcanbeapotentialreversal point and if not, the trend may probably continue. In downtrend,drawalinetangenttohigherhighsandaline tangenttothelatesttwolowerlows.Iftwolinescrosseach otherthecrosspointcanbeapotentialreversalandifnot thedowntrendmorelikelywillcontinue. Figure6.4Confirmingareversalbycrossoftwo regressionlines 9

  15. Figure6.5Confirmingareversalbycrossoftwo regressionlines Figure6.6Confirmingareversalbycrossoverofafast andaslowEMA 10

  16. 7.SupportandResistanceRevisited Manyexpertsbelievethatsupportandresistancearethe mostimportantconceptsinForex.Iexplainthemandtheir useheresoyoucanjudgeyourselfhowmuchtheymay worth. Supportisazonewherethecurrencypricecanhardlypassit togodownfurther.Itisnotafixpricebutapricerange(or level)thateachtimethepricereachesit,losemomentum andstopsthere.Ontheotherside,resistanceisazone(or level)whereresiststhepricetogoupfurther.Ifwedrawan hourlyora4-hourchartforeachofthecurrencypairswe canseetopanddownlevelsthatpricehastestedthemmany timesbutneverhaspassedthemasifthoselevelsactas barriersforit.Ifwetakeacloserlookatthecharts,there are several intermediate support and resistance levels betweenweeklyormonthlyhighorlowprices.Weeklyor monthly highs and lows are called major support or resistancelevels.Thepriceswingsaroundthemforawhile andthengoesupordowntoreachanotherintermediate levelasifitjumpsbetweentheselevels.Ifwerevisitthe chartsweunderstandthatassoonasthepriceunleashes fromonelevel,almostinalltimesgoesnon-stoptoreach the nearest level, then heads for another level in its neighborhood.Thisisapointthatneedsgreatattention.If thisistrue,sothereisplentyoftradingopportunitiesduring acurrencymovementfromonesupportorresistancelevel toanotherone.Actually,experiencedtraderstakethefull advantageofthispropertytomakebigbucksonForex. 11

  17. InthisbookIusuallyusesupport/resistancebecausethey areinterchangeable.Onepriceleveloncewasasupportnow canactasaresistanceandoncearesistancelevelnowcan actasasupportlevelfortheprice. Figure7.1Support/resistancelevels However,supportandresistancehaveadeepermeaning.A supportoccurswhenaseriesofpositiveeconomicfactors forcethepricetostopweakeningandpushitupward.Just thesame,resistancetakesplacewhenaseriesofnegative economicfactorscauseanupwardpricetostop.Atthese levels,thecurrencyhasreacheditsfullpotentialandcannot proceedfurther.Togofurtherandpassthebarrieritneeds morepositiveornegativeeconomicaldrives.Fromthispoint ofviewwecanresemblesupportandresistanceasthetwo polesofanelectromagnetwiththeprice(likeapieceofiron) swingsinbetween.Thereasonoftheiron(orprice)swingis thecurrentofelectricity(inourcaseeconomicaldrives). 12

  18. Whenthecurrentincreases,thepricejumpsupandwhenit decreases,thepricefallsdown. So,asmarttradertakesthemostoutofallthesetheories. Tradinghasaverycloserelationshipwithprobability.So,if we take it to account, the chance of breaking a strong supportorresistanceismuchlessthanthechanceofprice rebound.Accordingtothislogic,ifwebuyatsupportorsell atresistance,withahighprobabilitywewillbeontheprofit side.Mathsaysthisandallweknowthatmathisright. Exercise4.Chartmajorcurrenciesinvarioustimeframes(1,2,3,4-hour anddaily)onhttps://www.tradingview.com/e/andfindtheirmajorand intermediate support and resistance levels. Note that the price is releasedfromalevelandgoesnon-stoptorestonanotherlevel. 8.ConsolidationandBreakout Ifthepriceswingsinarelativelytightrange(15-25pips)fora longtime(afewhoursormore)itissaidthatthecurrencyis in consolidation. If we zoom in a 1-hour consolidation by charting shorter time frames (for example 15-minute charts),wecanseeseveralzigzagmoves.Assoonaswe zoomoutthesameconsolidationtoa4-hourchart,that consolidation transforms to a single 4-hour small body candle(thatmayhaveequalheadandtailpins).So,different charting time frames can hide or show a consolidation. Moreover,anyshortbody(child)equilateralpinbarinany timeframeisaconsolidationifitisbrokendowntosmaller timeframes. 13

  19. Having a look at the behind scene, it will be found that consolidation actually happens when economic forces (or supply-demand pressure) reach a very tight balance. Positiveandnegativeforcesfighteachothertoovercome andpushthepriceuporpullitdown.Duringaconsolidation periodthisdoesnottakeplaceuntiloneoftheforceswins and causes a fast, big move. Such an explosive move is calledbreakout.Inotherwords,breakoutisthereleaseof currencyfromatightconsolidationrangeandheadingfast upward or downward seeking to reach new price levels (usuallyatamajorsupportorresistance).Generalruleis thatthemomentumofabreakoutisproportionatetothe duration of its consolidation. Longer time consolidations usuallysignalthatbiggerbreakoutsareontheway. Now,thequestionis:whenabreakoutwillhappenandwhat willbethedirectionofthemove?Theansweris:abreakout happens when the involving economic forces get out of balanceanditgoestothedirectionthatthewinnerforces determine.Toknowabouttheseforcesweneedtolearn moreabouteconomy,andcurrencydynamics. Infact,thechallengeofbreakouttradingisrealizingthe directionofthebreakout.Ifweknowthisbeforehandwitha good probability, trading breakouts will be turned to an enjoyable fun. Fortunately, we have a leading signal that solvesthisdifficulty.Yes,thecorrelatedcurrencypairs(see chapter 14 for details about correlation). Because global marketsarenotsynchronousinalltimes,inmanycasesa currencypaircorrelated(positivelyornegatively)toour 14

  20. intended currency pair has started its move sooner and signalsusthetendencyofthemarket.Wecanfollowthis leadingsignalandbuyorsellourtargetcurrencypair.See thebelowexamplesformoreclarification. Figure8.1Aconsolidation/breakouttradingopportunity Figure8.2Aconsolidation/breakouttradingopportunity 15

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