beginners forex english

"Only those who will risk going too far can possibly find out how far one can go."

Albert Einstein

Chapter 1Advantages of the Forex Market

What is the Forex Market?

The Forex market is the trade arena which allows investors to trade foreign currencies throughout the trading day. This market is the largest in the world and has a daily turnover of 3 trillion USD.

The market is active 24 hours a day, 5 days a week. The value of the currencies changes every moment throughout the day according to supply and demand levels.

The Forex market is the most secure medium of investment in the world, in comparison to other channels with a risk factor, such as: stocks, options, bonds and more.

Just as in a regular market we buy and sell vegetables and in the stock market we buy and sell stocks. In the Forex market we buy and sell currencies, this is our product. There are more than 100 currency pairs in the world which can be traded.

Chapter 1: Advantages of the Forex Market

Currency exchange rates are uniform throughout the whole world. If the exchange rate of the Euro in relation to the USD is 1.5220 in London, it will be 1.5220 in Congo, New York, Australia and Hong Kong.

The Forex market is largely composed of speculators. Speculators are people like me, or perhaps like you, who buy and sell currencies to profit from the change in the exchange rate of a currency. Only five percent of the transactions are for real purposes of commerce such as: industry, tourism, etc. The remaining 95 percent are for speculation purposes.

This is the zero-sum game: the total gains are equal to the total losses.

What affects the Forex market?

The Forex market is affected solely by macroeconomic data, not by microeconomic data. What is macroeconomic data? Raising of the interest rate in a country, the unemployment rate of a country and political conflicts within the country. On the other hand, microeconomic data are the balance reports of a very large company in the country, a large business deal which a large company is about to execute and/or has executed, and more.

The microeconomic data does not interest the Forex market and does not affect it.

In other words, the Forex market is affected by large-scale and international events.

The Forex market is comprises of: currencies and commodities. Today, some brokers also allow trading of indices, futures contracts and certain stocks.

All the strategies and technical analyses that you will learn here are relevant for currencies as well as for commodities.

Before we learn what an exchange rate is and how we buy and sell currencies, let's understand more clearly the advantages of the Forex market based on the characteristics which I have presented so far:


The Forex market has 2 principle advantages:

The first advantage is: liquidity.

Have you ever bought a stock and couldn't sell it a specific moment?

Example: You have bought a particular stock. The stock had risen greatly in only a few months and all of a sudden the CEO resigned, at that moment there was a pause in the trade which lasted a few hours, and the next day the stock decreased by 10%.

You are stuck with the stock!

In the Forex market such a thing would never occur.

If you have Euros, Pounds, Swiss Francs or any other tradable currency, you can sell it at any point in time.

You will never get stuck with a currency, and this is a great advantage of currency trading. As traders, it doesn't matter what you buy, what important is that at any moment you can cash in your goods – there will always be a buyer.

There is one very important rule to remember: Until you cash in your goods, there is no knowing whether you have gained or lost.

The second advantage is: In the Forex market there is no control by external financial bodies.

A speculator, as great as he/she is, cannot influence the exchange rate.

Central banks intervene in the trading once every decade and are successful in effecting the value of the currency by a total of two percent, a movement of this kind lasts for only a few hours and then the exchange rate returns to its natural price.

This goes to say that currency trading is fair, and no body, as large as it may be, can affect the market.

On the other hand, in the case of stock and options, a large broker has the ability to inject tens of millions of USD and by doing so they can change the price of the stock by tens of percentage points – and unfortunately they do so from time to time. 10


What advantages do we have in a market which is influenced by macroeconomic data and not microeconomic data?

The first advantage – it is much easier to follow and trade, due to the availability and

minimal amount of data.

For stocks, for example, there are many factors which must be followed.

Imagine that you own 4-5 stocks in the NYSE. Let's assume that you are serious investors, not gamblers.

You have to know who the shareholders are in every company you invest in, what the multiplier

is, what the balance sheets look like, the gains and losses report, internal information, such as, for example, resignation of an executive, a large future contract, and so on and so forth. One must know so much information that following them on a daily basis would require many hours each day.

In the Forex market there are five to six significant data in a month. The firm through which you trade will provide you with these data in real time, and you, with the knowledge that you will gain, will trade accordingly.

Do you understand the significance? 5-6 pieces of significant information in a month, that's all. You won't have to live in constant chase after changes in companies in which you invest.


The second advantage – the important information reaches everyone at the same time.

Let's assume that I am the marketing manager of a large pharmaceutical company, and I am on a flight returning from China, and in my hands is a closed contract with the government of China, a contract which is expected to increase the profitability of the company by 100 billion USD a year.

Who knows about the deal? myself, the CEO, his wife and her brother. And they don't do anything with that knowledge, right? 'laughter' You made me laugh!!!

Until it is reported in the news that a huge deal took place with China, there are people who already know, who have made use of it, and the price of the stock already reflects the news. You will be in the second level of decision makers.

100 billion USD a year...Haven't you ever met someone who told you that he/she bought a specific stock based on insider information and the next day it rose by 20%? Yes, yes… it happens...

In the global foreign exchange market, when the American federal reserve Governor publish a decision to increase the interest rate, the whole world knows it in the same exact second and can respond immediately – to buy or sell the USD. There is nobody who has insider information beforehand and who make use of it in an unfair manner.


Market research and analysis

The two main approaches for analyzing the movements in the Forex market are the “fundamental analysis” approach and the “technical analysis” approach.

The fundamental analysis focuses on financial and economical theories, as well as political developments, to determine the forces of supply and demand.

The technical analysis focuses on price levels and trade volumes, and from these data expectations are formed for future levels of the market.

The main difference between technical analysts and fundamental analysts is that the fundamental analysts concentrate on causes of movements in the market, whereas technical analysts concentrate on the effects of movements in the market.


Exercises

Question 1:What is the turnover of the Foreign Exchange Market?

A. $100,000USD per dayB. $500,000,000USD per weekC. $3,000,000USD per dayD. Over $3,000,000,000,000USD per day

Question 2:Does a liquid market constitute an advantage for a trader?

A. Definitely, because this prevents the trader from being stuck with merchandise for which there is no supply or demand

B. No, a liquid market does not provide any relative advantageC. Sometimes, depending on the hours of tradeD. Yes, only in a time of data and notifications

Question 3:What are the main advantages of the Foreign Exchange Market?

A. There are no factors which can influence the marketB. It is very easy to follow the market due to availability and the small quantity of dataC. The information reaches everyone at the same timeD. All of the above answers are correct

Question 4:The Foreign Exchange Market is mainly influenced by:

A. Large, international eventsB. Micro dataC. Macro dataD. Answers A and C are correct

Exercises

Chapter 1: Exercises

Question 5: What is the percentage of speculators on the Foreign Exchange Market?

A. 10%B. 30%C. 75%D. 95%

Question 6:When the Euro's rate in London is 1.2000, what is the Euro's rate in Australia?

A. 1.3000B. 1.2500C. 1.2000D. All of the above answers are correct

Question 7:How much significant data is there on the Foreign Exchange Market during the course of a month?

A. 3B. 5-6C. 20D. 50

Answers:D,A,D,D,D,C,B


"The essence of knowledge is, having it, to apply it: not having it, to confess your ignorance."

Confucius

Chapter 2Elementary concepts of the Forex Market

Currency pairs , buying and selling rates

In foreign currency trading there are always currency pairs – the base currency and the counter currency.

The base currency – it is in essence our product, it is denoted on the left side of the pair. We always buy or sell the base currency.

The counter currency – it is the means of payment and is denoted on the right side of the pair. In a transaction involving the EUR/USD I buy or sell the Euro against the USD wherein the means of my payment is the USD.

Chapter 2: Elementary concepts of the Forex Market

The exchange rate is the price of one unit of the base currency in terms of the counter currency. Let's take a look at the Euro against the USD: One Euro is equal to 1.5220 USD.

Spread

Spread is the difference between the buying price and selling price and is the commission which you pay, as currency traders.

For example: If, for instance, you want to convert USD to Euros at the bank. They will tell you that the buying price is 1.56 and that the selling price is 1.49. In other words, in order to buy one Euro you would have to pay a little more than one and a half USD. If in that very moment you would want to sell your one Euro to the bank, the bank will buy one Euro at a price slightly lower than one and a half USD, so if you sold 1000 USD to the bank you received 641 Euros. By selling the Euros back you will get only 955 USD.

You paid 1000 USD and received 955 USD, so where are the other 45 USD?

This is the profit of the CHANGE store – this is the commission they charge from their customers.

This is the only commission that you will pay; in the Forex market there are no additional commissions.

It is implied by such that we will always lose because of the spread in the first second after the trade.


Pips

Another important concept in the Forex market is “pips” – pip (singular), pips (plural)

In the Forex market the exchange rate rises by pips and falls by pips. For most of the currencies, the pips are denoted 4 places after the decimal point.

In other words, if the EUR/USD rate is 1.5220 then the number of the pip is 0.

If the exchange rate was previously 1.5220 and now it rose by one pip, the exchange rate will be 1.5221.

If the exchange rate fell by 10 pips, it would be 1.5210 and so on.

The Japanese Yen is different: For the Japanese Yen the pip is denoted at two places after the decimal point, meaning that, if the USD/JPY is at 88.57, then the pip is equal to 7. if the exchange rate rises by 3 pips it would be equal to 88.60 and if it decreases by 27 pips the exchange rate would be 88.30.


Average daily fluctuation

To become acquainted with the concept, the average daily fluctuation of the EUR/USD is about 100 pips a day. On more turbulent days the fluctuation reaches 200-300 pips, on calmer days the fluctuation reaches 50-60 pips.

And in terms of percentage?

If the exchange rate is currently 1.5220 and I want to announce tomorrow that it rose by one percent, it would be represented by a rise of 152 pips.

So if we said that the daily fluctuation of the EUR/USD is about 100 pips a day, by what percent does the EUR/USD fluctuate on average? About 0.7%-0.8%. and in more turbulent periods – 2% at most.

From this we can learn of a new and important advantage that exists in the Forex market – this market is stable, and I'm referring mainly to the major currencies: Euro, USD, Pound, Yen and Swiss Franc.

This is a stable market, with exchange rate fluctuations of half a percent up to one and a half percent throughout the day. There is no possibility that you will

trade a currency and lose 10%-15% in one day.

Value of pips

Let's now learn the value of every pip within the confines of a particular transaction. If the exchange rate of the EUR/USD is 1.5220 and you want to buy 100,000 Euros, how many USD do you have to pay? 152,200 USD, of course. A second passes and the exchange rate rises to 1.5221. By how many pips did the exchange rate rise? By one pip. And what is the current value of the 100,000 Euros? 152,210 USD. Which is 10 USD more.

The value of one pip in a transaction of 10,000 Euros is one USD.

In other words: In a transaction of 100,000 Euros, each pip has a value of 10 USD.

And in a transaction of one million Euros – 100 USD.


How are pips calculated?

We take the amount of the transaction that we have performed in terms of the base currency and divide by 10,000 – this is the value of one pip in terms of the counter currency.

For example: For a transaction of 100,000 Euros we divide by 10,000, and we get 10. This means that the value of every pip is $10.

If we execute a transaction of 30,000 Euros, every pip worth is 3 USD. For the Japanese Yen the calculation is slightly different. We divide the amount of the transaction in terms of the base currency by 100 and that is the value of the pip.

For example: A transaction of 100,000 USD in the currency pair USD/JPY, we divide by 100 and the result is 1,000 Yen. Assuming that the exchange rate is 88.00, we divide the 1,000 by 88, meaning, 11.36 USD per pip.

Example: We will take the currency pair of EUR/GBP and a transaction of 100,000 Euros, each pip is worth 100,000 divided by 10,000 and is therefore worth 10 USD. And in what currency are we paying in? In Pounds. Meaning that every pip is equal to 10 Pounds.

Size of the spreads

Do you know what the accepted ask/bid spread is for the EUR/USD exchange rate? 3 pips.

So in order to perform a transaction of 100,000 Euros, which is equal to 152,000 USD how much commission must one pay?If every pip is equal to 10 USD in a transaction of 100,000 Euros, and the spread is 3 pips, we will pay 30 USD in commission – a onetime payment which includes the purchase and the sale.


Commissions

If to compare the commissions rate paid in the stocks market we will notice that in the Forex market the commissions rate are very low.

For example, in a 10,000 Euro trade the stock's commission is half a percent hence 50 Euro. In Forex however you will pay only 3 USD commission for a 10,000 Euro trade, for a 100,000 Euro trade you will pay only 30 USD commission and so on and so forth.


Trading rules

If you trade a certain product, and you think that its price will rise, you will buy it and if its price indeed rises, you will profit when you sell it, and if you are wrong and its price goes down, you will lose.

For example, if you trade wood, and you think the wood price will rise, you buy 10 tons of wood when the wood price is 100 USD per ton. And later you sell it when the price rises to 150 USD per ton, you have profited 500 USD.

If you thought that the wood price would decrease, you would wait until the price reached 50 USD per ton, and then you would have bought the same 10 tons at only 500 USD.

The rules are:

A trader who thinks the value of his product is going to rise, buys more goods and waits for the price to rise in order to sell.

A trader who thinks that the value of a product is going to fall, rushes to sell the goods and make the most of his money.

Traders do not always have to lose everything or gain everything, the trade can be stopped in the middle, and such a situation will be expanded upon further later.

Let's translate this into terms of Forex market: If you expect the exchange rate of a currency to rise, you will buy it. If you expect the exchange rate of a currency to drop you will sell it.

The sum which you profit or lose depends on the volume of the transaction which you perform. The greater the transaction is, the more you can profit, but you will take on a greater risk and the smaller the transaction is, the smaller the profit will be but you will have taken on a smaller risk. Trading currencies is exactly like buying and selling wood, tomatoes or cucumbers. We buy the goods when we think the price will rise, and we sell the goods when we think the price will fall.


Transaction / Position

In order to complete a transaction we need to perform a purchase and a sale. If a purchase and a sale were not performed, then the transaction was not completed, and it doesn't matter if you are going to gain or lose in the course of the transaction. Remember, this is an important rule: realization of the gain or loss occurs only when the transaction is complete. Position is in essence a transaction.

Opening of the position - opening of a transaction for a currency pair. Open position – a position which hasn't yet been closed, in other words, the transaction has not yet been completed. Closed position – a transaction which has been completed, the actions of purchase and sale have been performed.

Leverage

What changes the whole picture, and turns the Forex market into a market of opportunities to profit a lot of money in a short span of time, is leverage.

But…of course, leverage causes trading to become more risky.

So what is leverage?

Brokers allow you to perform transactions in sums of money which are much larger than the amounts that you have in your account. Sometimes even up to 400 times more than what you have invested.

For example: You have deposited 1000 USD, the exchange rate of the Euro against the USD is 1.5220. And you believe that the price of the Euro is about to rise by 100 pips. That is your opinion.

You can pick up the phone and call the broker or give an order via the computer, 24 hours a day “please buy me 100,000 Euros”

Despite the fact that you have deposited 1000 USD and 100,000 Euros cost 152,000 USD, in this case you have taken advantage of a leverage of 152 times the money which you have in your account. In a transaction of 100,000 Euros, how much is each pip worth. We learned it already, remember? 10 USD. Let's assume that the exchange rate indeed rose to 1.5320. How many pips have you earned? 100. And how much money have you earned? 100*10 = 1000 USD.


Let's deduct the commission, and the net profit from the transaction will be 970 USD.

Nearly a 100% return in one day. How great!

But… what will happen if the exchange rate falls to 1.5120?

You have lost 100 pips, you have lost all of your 1000 USD.

Should you leverage?

Later on you will learn whether it is worthwhile to leverage your transactions and by how much. But one must always remember, for whoever wants to leverage – the option is always available, but it's risky.

When there is a leverage of 300 times you can perform a transaction of 300,000 Euros as well, and if the price rose by 100 pips, you can even earn a 300% return in one day. But if the exchange rate decreases by 33 pips, you have lost your whole investment.

Why do the firms allow us to leverage?

The answer is simple: It is preferable for them that we perform a transaction of one million Euros rather than a transaction of 10,000 Euros, in this way the broker earns a commission of 300 USD and not 3 USD.

Later on you will learn what your interest is as traders, and why you shouldn't be tempted to leverage transactions.


Exercises

Question 1:What is the meaning of the word “SPREAD”?

A. The base exchange rateB. The currency exchange rateC. The secondary currency exchange rateD. The difference between the selling price and the purchase price

Question 2:What is the average daily fluctuation of the main currencies on the Foreign Exchange Market?

A. 10%B. 1%C. 15%D. 100%

Question 3:In a EUR/USD currency pair, you purchased Euro. The deal is for €150,000. What is the value of each pip?

A. 1.5$ B. 10$ C. 15$ D. 20$

Question 4:What is the secondary currency (or variable currency) and where is it to be found?

A. The secondary currency is our product and it is always found on the right hand side of the currency pair

B. The secondary currency is the method of payment and is always found on the left hand side of the currency pair

C. The secondary currency is our product and is always found on the left hand side of the currency pair

D. The secondary currency is the method of payment and is always found on the right hand side of the currency pair


Exercises

Question 5:At the time of the deal opening, the account will be in a state of:

A. A positive balance of 10 pipsB. A negative balance of 10 pipsC. A positive balance of the spreadD. A negative balance of the spread

Question 6:In a EUR/USD currency pair, the currency rate is 1.2200/1.2203. You purchased €200,000. The currency rate reached 1.2250/1.2253 and you closed the position. How many pips did you make?

A. 57.B. 47.C. 50.D. 53.

Question 7:In a EUR/USD currency pair, the currency rate is 1.2200/1.2203. You purchased €200,000. The currency rate reached 1.2250/1.2253 and you closed the position. How much money did you make?

A. 1140$ B. 940$ C. 1000$ D. 1060$

Answers:D,B,C,D,D,B,B


"Hold knowledge as though you would be in fear of losing it."

Confucius

Chapter 3Orders and directives in the Forex market

Stop-loss order

The meaning of this order is just as its name implies. The order cuts off our transaction at an exchange rate that was predetermined, or rather, it limits our loss, if there is one, to an amount which is known and determined in advance.

For example, if we bought Euros at a particular exchange rate and we placed a stop-loss order of 100 pips below the exchange rate of purchase, we know that for this transaction we can only lose 100 pips.

Chapter 3: Orders and directives in the Forex market

The advantages are:

This order obliges us to make an orderly and timely plan for our position and to manage risks in advance.

It prevents large losses and limits our loss to a maximal sum which is known in advance.

It prevents the intervention of emotions, “Hunch” which may affect our decisions. The order is put into action in a computerized and fixed manner.

It prevents the need to constantly follow our position.

Stop-loss makes the Forex market the most secure market in the world

Let's assume that the exchange rate is 1.5220 and you think that the rate will rise to 1.5320. If you want to gain 1000 USD through a transaction of 100,000 Euros, but are not prepared to take a risk of more than 200 USD, what will you do? Pick up the phone and call the broker, and request to “buy me 100,000 Euros, and place a stop-loss order at an exchange rate of 1.5200, 20 pips below the entry rate”.

In other words, if the exchange rate rises, great – we have gained. If the exchange rate falls and reaches 1.5200, the transaction will be closed at the moment the exchange rate reaches a rate determined by the order and our loss will only be 200 USD.

Thanks to the stop-loss order we have placed we can rest easy and not lose more than what we allowed ourselves to lose. There is no channel of investment in which you can set your risk with absolute certainty.


Consequently, we have another important advantage in the Forex market: stop-loss order – it is possible to determine the maximum risk in a transaction. We will learn more about this directive later.

Question: I have 1,000 USD in my account, I bought 100,000 Euros at an exchange rate of 1.5220. The rate fell by 120 pips. What will my position be?

Its very simple, in a transaction of 100,000 Euros every pip is worth 10 USD, or rather, 120 pips is equal to 1,200 USD. Will the bank allow me to go below my level of collateral? Never.

Remember: When you don't define a stop-loss in a transaction, the stop-loss is the sum of money that you have in your account with the broker. If you have no remaining collateral, the transaction will be immediately terminated. Therefore it is important to place a stop-loss order.

Trailing stop

I want to teach an interesting trading strategy. You have the ability to shift the stop-loss, and with little risk you are able to make a lot of money. The strategy is applied through a trailing stop. For example, you've entered a transaction of 100,000 Euros, every pip worth one USD, at 1.5220, and you've defined stop-loss at $50, which means that the transaction will be automatically closed at an exchange rate of 1.5170. If the exchange rate reaches the stop-loss order rate, then we've lost 50 USD. The next day we perform another transaction, and again we arrive at the stop-loss limit. We've lost another 50 USD.

The day has finally come, and in the third transaction the exchange rate begins to rise. By the end of the day the exchange rate rose by 100 pips. Now we can raise the stop-loss limit to the point of entry. Now we lose no money in the transaction. We are now involved in a transaction with the potential of infinite profit without risk.

It will either fall back down to the original entry rate for which we set the stop-loss at, or a rising trend will develop. What is a rising trend? A rising trend is a situation in which the exchange rate begins to rise and rise. In the global financial markets there are always trends. Trends of 700 pips, 1000 pips or even more can be noticed.

Back to our story: The next day the Euro rises by 100 more pips. When it is 200 pips above the exchange rate of purchase, we can move the stop-loss limit higher.


It is very similar to wave surfing: as long as the wave has not ended we don't get out. If it is a transaction of 10,000 Euros and each pip is worth $1, then a mediocre wave of 700 pips will give us a profit of 700 USD, or if we get on a bigger wave, we can profit 1,500 USD in a week or two with a risk of 50 USD.

In many trading platforms there is a “trailing stop” order, which means that there is an automatic trailing stop, you don't have to sit in front the computer all the time. Such an order follows every movement of every pip in the market and the stop adjusts itself accordingly.

Take-profit order

A “take profit” order is intended for a scenario in which a transaction is profitable and the changes in the exchange rate are reflecting increased profits. If a client is not interested in constantly following the transaction but is rather interested in getting out of the market at a predetermined profit, all the client has to do is place a take-profit at an exchange rate which is higher than the purchase rate, or rather, determine a monetary amount at which he/she would like to exit the transaction.

For example:we have bought Euros at a particular exchange rate and we placed a take-profit order at 100 pips above the exchange rate of purchase. We know that in this specific transaction we can only profit a maximum of 100 pips.

automatic trailing stop, you don't have to sit in


These two orders do not entail any payment of commission: They can be placed at the beginning of the transaction, be changed in the course of the exchange, be moved or removed, as long as they haven't been executed. It is important to note that there are brokers who allow you to place the order only after the transaction has been opened. On the other hand, there are brokers who allow you to place these orders at the beginning of the transaction, it is all subject to the firm policies.

Future order - limit

Limit order – is a trade order which allows a transaction to be performed at a better price than the current market price.

For example: Let's assume that the market price for the currency pair EUR/USD currently stands at 1.3500. The trader expects the Euro to rise up to 1.4000 in the long term, but in the short term the trader believes that the value of the Euro will decrease and is therefore not interested in buying the Euro at the current price of 1.3500, but rather wants to wait for a small decrease, until 1.3300 and then buy at a lower price.

The limit order will be executed only when the price falls to 1.3300 – in condition that the exchange rate reaches this value, of course.

Future order – stop

This order functions similarly to the limit order, but in the opposite direction.

Utilization of this order is relatively rare and a portion of the brokers do not offer this option at all.

For example: Let's assume that the market price for trading of the currency pair EUR/USD stands at 1.3500. A purchase stop order would be set at above 1.3800.

A sale stop order would be set at below 1.3200.


A trader can set a future stop order, which allows the trader, on the one hand, to enter the transaction in the direction of the market at the time when one of the limits is reached – 1.3800 or 1.3200, and on the other hand, provides the trader the privilege of performing the transaction when he/she is not in front of a computer screen. 10

One-Cancels-the-Other (OCO) order

An OCO order is a combination of the stop order and limit order for a future transaction.

The trading platform follows the market for the trader, and will execute stop and limit orders (but not both) at the moment in which the market arrives at a limit order or stop order, the order will be executed and the other order will be immediately cancelled.

The two orders are valid until they are cancelled in one of the following scenarios:

Good Till Cancel – the trade order is valid until it is cancelled by the trader, who executes the cancellation through an order on an internet trading program or through a telephone conversation with the broker.

Good Till Date – the trade order is valid until the date that is set by the trader. In other words: if by a certain date a trade order was not executed, it automatically gets cancelled by the broker or by the trading program.


Breakaway gap

In situations where there is a gap in the price or the areas in the graph in which there was no trading, most brokers cannot undertake to execute orders. In the case in which a client set an order and there was a breakaway gap, the broker will try to remove the trader from the transaction at the best available price.

There are brokers who promise their clients realization of orders at a promised exchange rate under any market condition.

Difference in interest rate between currencies – Rollover

Before we discuss this subject it is necessary to note that most brokers perform a rollover in an automatic manner and that there is no need for intervention by the trader. In order to understand the meaning of the rollover one must know that the interest rate between countries is not identical and that they are determined by the local government from time to time, as part of the monetary policy.

Rollover interest is the interest paid or received for holding a position overnight. Every currency has its own interest rate and because Forex trade is conducted in currency pairs, every transaction contains not just two currencies but also their interest rates. If the interest of the currency


which you have bought is higher than the interest rate of the currency you have sold, you receive the rollover interest (positive rollover). If the interest rate of the currency you have bought is lower than that of the currency you have sold, you will pay the rollover interest (negative rollover). Rollover interest can add significant costs or profits to your trade.

Example: When you buy the EUR/USD pair, you buy the Euro and sell the USD in order to pay for it. The interest in the Euro block is 1% and the interest rate in the Unites States is 1.5%. Since in this case you bought the currency with the lower interest rate, you will pay the rollover interest – 0.50% on an annual basis.Conversely, if you sell the EUR/USD currency pair, you will pay the interest on the Euro and you will gain the interest on the USD, and you will receive a rollover interest of 0.5%.

The mathematical formula is:0.5% from the difference in the interest rates between the countries, divided by 365 days, multiplied by the transaction amount.

Delays in execution or lack of execution of transactions

Such delays occur in the following cases: When economical data is publicized, and there are problems in your internet connection or when there is overloading of servers at the brokerage or the bank. Information that arrives at a delay of tenths of a second can be rejected.

If you thought that the inter-bank system was perfect, think again. The inter-bank systems can also present a “re-quote” message, bank systems can also experience rejection of transactions or partial execution of an order.


Exercises

Question 1: Which order is given in order to take a profit?

A. STOP LOSSB. SELL STOPC. SELL LIMITD. TAKE PROFIT

Question 2:Which order is given to end a loss?

A. STOP LOSSB. SELL STOPC. BUY STOPD. All of the above answers are correct

Question 3:Is it possible to place STOP LOSS and TAKE PROFIT orders in one open position?

A. Yes B. NoC. SometimesD. All of the above answers are correct

Question 4:Is it possible to have an adverse balance which is in excess of the securities placed with the broker?

A. No, neverB. Yes C. Only in the event of a significant global occurrence D. It depends on whether the market is fluid


Exercises

Question 5:You have placed instructions/directions on the trading platform and turned off the computer. Will these specifications remain valid?

A. YesB. NoC. Only if the computer remains turned onD. Answers A and B are the correct answers.

Question 6:You commenced a transaction in a EUR/USD currency pair, in the amount of €30,000 at a rate of 1.2200. You purchased Euros and placed a STOP LOSS order at 1.2100. In for this transaction to be profitable, does the rate need to go up or go down?

A. Go upB. Go downC. Remain as it isD. All of the above answers are correct

Question 7:You commenced a transaction in a EUR/USD currency pair, in the amount of €30,000 at a rate of 1.2200. You purchased Euros and placed a STOP LOSS order at 1.2100. In the event that the order is caught, how much have you lost?

A. If the order is caught, the transaction will profit as a resultB. $300 USDC. $30 USDD. There is no possibility of placing a STOP LOSS order which is lower than the purchase

price

Answers:D,A,A,A,A,A,B


"On the other side of fear lies freedom."

Chapter 4A winning tactic for the beginner trader

A winning strategy

What is our goal in trading?

Our goal, ultimately, is to invest a certain amount of money and profit as much as possible. Let's say 20% return in one year. If you invested 100,000 USD, the return would be 20,000 USD a year – the dream of every investor.

Let's do some calculating and examine how much one would have to profit a day?Not considering weekends and holidays, we arrive at 200 active and full trading days. In other words, we have to make 100 USD a day.

Chapter 4: A winning tactic for the beginner trader

If you invested 100,000 USD in stocks, and theoretically stocks can fall 10-15% in a day, we've seen it happen lately, it would mean that you are risking 10,000-15,000 USD a day in the stock market in order to profit 100 USD a day.

Why risk so much, if you can perform a transaction of 10,000 USD in the Forex market, risk less and gain more?

In this lesson I will teach you a winning strategy, it all depends on you, and how much motivation, will and patience you have to execute it.

Market analysis

In the money market there are analysts, economists and forecasters. Everyone is trying to forecast which way the market will go, and whether or not it will rise or fall. If they can do it – I can forecast as well, if the Euro will rise or fall, and we already mentioned that it is much easier to forecast the Forex market, you too can learn how to do it and you can always seek their help.

Remember: In this market nobody has an advantage over you.

Let's go back to the transaction we were discussing, the 10,000 Euro transaction. The value of each pip is 1 USD. Assuming that I was right and the Euro rose by 100 pips in a day, I profited 100 USD in one day. I will place a stop-loss order at 50 pips and risk 50 USD,

or I will place a stop-loss order at 100 pips and risk a maximum of 100 USD. Why do I have to risk

10,000 to 15,000 USD in the money market in order to make 100 USD, when in the Forex market I can

risk a maximum of 100 USD?

Now we arrive at the interesting part of the lesson. We will see how we set the level of risk in the Forex market to commission payments alone, meaning 3 pips a transaction, and how we will be able to have a 50% annual return.


I have a young child; five years old, Jonathan, and I will make him a Forex investment manager. I have a portfolio with 10,000 USD in it, and every morning on the way to school I ask him: Jonathan my dear, what is daddy going to do today? Will he buy Euros or sell USD? Whatever the child says that is what I do. If he says buy, I buy 10,000 Euros. If he says sell I sell 10,000 USD. And so forth, for 100 days. For every transaction I set a stop-loss order of 100 pips and a take-profit order of 100 pips. That means that if the child is right, I make 100 USD, and if he is wrong I lose 100 USD. How many times, do you think, out of 100 transactions, did my son make 100 USD and how many times did he lose 100 USD? The answer is 50-50. It's statistics. Ultimately, it comes out to fifty-fifty.

My son guesses, and the Euro can rise or fall, there is no other possibility. It's like flipping a coin.

What will my sons account balance be after 100 transactions? 50 profitable transactions and 50 non-profitable transactions. 10,000 USD is the original amount minus the commissions that will be paid. Assuming that commission is 3 pips, and every pip is 1 USD, then 3 times 100, or rather, 300 USD. Meaning, my account will come to 9,700 USD.

A five years old child trades without any knowledge in the field and only loses commission.

How do you explain it, a five years old child is better than experienced Forex traders? How does he only risk commission? I will teach you now.

To arrive at a situation in which the maximum risk is the commission alone, one must abide by two rules.


The integrating rule – proper leverage + statistical information = guaranteed victory

In order to achieve minimal risk, you need to divide your portfolio into many smaller portions. it can also be said on another way: it is forbidden to risk more than 2-3 percent of the portfolio on one transaction. What does this mean? If I open a minimal portfolio of 10,000 USD, I don't risk more than 200 – 300 USD in one transaction. How do I do this? I set a stop-loss order at a distance of 200-300 pips. And why? When you flip a coin, you can get sequences of heads or tails. It is not one time heads one time tails. It can be: five times tails and three times heads.

When we add up the results, it comes out to 50-50.

Statistics is on your side, when there are many transactions. And as we said, out of 20 flips, the coin can land 13 times on heads and 7 times on tails, but there is no need to worry – it will balance out later. What can we do statistics is an exact science. Therefore it is forbidden to arrive at situation in which you have no money left for trading because then the game will end and the whole theory which I am teaching you is discounted.

What is the chance that my son, on the way to school, will lose 20 times in a row or that I will flip a coin 20 times and it will land on heads? The answer: one half to the 20th power, in other words, 1 in a million. The chance that you will lose 20 times in a row, even if you are a 5 years old child, is one in a million.

And what is the chance that I will lose 30 times in a row? One in a billion.

It will never happen, you will never be able to erase your entire portfolio. Statistics is on your side. So never forget the rule: don't risk in one deal more than 2-3 percent, so that if you lose in a few transactions in a row, nothing happened, you have enough money to continue trading and in the eventually the account will balance out.


Trap 1: size of leverage

Let's see why everybody falls into the trap.

Let's discuss the significance of the size of leverage: you learned a trading strategy and you are starting to gain, the strategy works. The day comes that you have been trading in the market already for a couple of months and you are making very substantial gains. You've become experts in the Euro – your life is the Euro. And then, one day, you are sure that the Euro is on a rising streak. You read it in articles, the graph of the technical analysis shows a jumping point, and the G8 is convening and they say that they have to fight the strengthening of the Euro. Everybody already knows: the Euro is moving upwards and your saying “my money is doing nothing, why don't I make a large transaction of one million Euros? There is no doubt that the Euro is going to rise.”

And then, you think: “No, no, we said it's forbidden to leverage.” You hanged in there, you didn't let your emotions get to you and you went by the book – you opened a transaction of 10,000 Euros, well, that was obvious: the Euro rose by 100 pips. At the end of the day you feel like a loser that you made a small transaction. You gained 100 USD, because if you had leveraged, you would have gained 10,000 USD. And you say to yourself: “My money was doing nothing and we didn't make use of it – no big deal, what's important is that I am sticking to the rules that I have set for myself.” Another day passes, and you say “Today the Euro is definitely correcting itself and it is going down,” and you open another small transaction and you were right. And so forth for another one or two times. Now, you begin to break down. And then comes the day when you are sure the Euro will rise, and you are tempted to open a 100,000 Euro transaction. And then what happens? The market is on your side, you profit! You earned a tenfold increase – 1,000 USD in a day. It's fun making 1,000 USD in a day, right? Now you begin to get carried away. You are able to make 1,000 USD in a day, 2,000, 3,000 USD, and then you lose 5,000 USD in one day. Without noticing you've ended up in the big casino of the world. Ultimately, in the casino everybody loses money. Statistics.

Question: do you think that now you can go back and trade in 10,000 Euro transactions? Not anymore.


Trap 2: improper use of stop-loss and take-profit.

You've placed a stop-loss order for 100 pips below the entry price and a take profit order at 100 pips above the entry price. The price drops by 100 pips, it arrives at the exchange rate for which you have set the stop-loss order, the stop-loss goes into action and the transaction is automatically closed. And as the transaction closes – the exchange rate goes back up by 200 pips. After two days you do a similar transaction, the market falls and the transaction is automatically closed at the stop-loss point, it drops another 10-15 pips and then rises again by 250 pips. At this point you are telling yourself: “If only I had moved the stop-loss limit a little lower, I wouldn't have gotten out with a loss of 100 USD, I would have come out with a profit of 100 USD.” After a few times of this happening (and believe me it happen a lot), you break and say to yourself: “For the next transaction I am moving the stop-loss limit another 20 pips, a total of 120 pips.”

You start a transaction with the new stop-loss limit. The price goes down by 110 pips and then makes a u-turn and rises and you end the day with a profit of 100 USD instead of a loss of 100 USD. You were satisfied – because you moved the stop-loss limit by 20 additional pips and you made money. Great! The next day the exact same thing happens. And the third day comes, the price drops and you move the stop-loss limit back to 150 pips and you make money! The fourth time it falls more and more and you move it to 200, 250, 300, 350, even 400 pips, and now you've lost 4000 USD. And you know that there is no chance the exchange rate will go back to where it previously was.

You couldn't close the position at 300 $ so at 4000 $ your hand will tremble. In addition, you are certain that there is no chance that the market will continue to move against your position all the time.

Trap 3: deterioration

Ok, you have to arrange more money. You got a loan from some friends. You know that the currency will correct itself, but you don't know when will it come. If you've already been there, you won't be there when it comes? For emotional reasons you can't close the position and you continue to get more loans and the loss continues to grow.

Guys, do you insure your homes? Do you pay a premium on your insurance? Do you have life insurance? You got car insurance? The stop-loss order is your insurance premium, so that you never lose more than you can allow yourself to lose.


Do you know what a balance sheet of losing clients in the Forex market looks like? 98% of their transactions are profitable.

Most traders gain in small amounts and lose in huge amounts. That's how most people go down.

But whoever knows how not to lose more than 2-3 percent in a transaction and whoever knows how to leverage, sets the risk in the Forex market to a loss of commissions only. And you know yourself and your character, and you know – no one will force you to leverage 100 fold.

Whoever knows that his character will not allow him to leverage and is not able to risk only 2-3 percent of their portfolio in a transaction,

should not get involved in the Forex market it is better for him to go gamble in Las Vegas, he'll enjoy it more there.

How to profit

Until now we have discussed how to protect our portfolios and how we only lose commissions. But you don't want to learn how to lose commissions or fund brokers. You want to learn how to make money.

Now begins the interesting part of the lesson. Let's see how much money can be earned in the Forex market in one year, by risking commissions only.

Is there an economist in the world who knows how to evaluate with certainty where the Euro will go, in what direction gold or the NASDAQ will go? What will the interest rate be? Will there be inflation?


What is a bachelor's degree in economics, a master, a doctorate, a Nobel Prize, an investment firm, a portfolio manager – why does this whole industry exist anyway?

Simply in order to understand that it is possible to evaluate with certainty in order to break the balance.

By how much? You will see in a moment.

Proper capital management

In order to set the amount of risk only to the amount of commissions that we will pay, one needs financial knowledge that will allow him to break the balance and carry out a few more profitable transactions in contrast to losing transactions.

What do you need to learn to know when the Euro will rise?

First thing – technical analysis. This is analysis of prices of a certain currency in order to identify trends, etc. And what is the first rule in economics? Go with the trend of the market. It's a science, and that has to be learned, it's not complicated. In our advanced lessons we will teach you how to look at the graph and learn how to identify a trend. Is it an exact science? Not always, otherwise everybody would be profiting. But, if you conduct all your transactions from today and onwards in unison with the trend and not against it, eventually you will be able to have a few more profitable transactions than losing ones. That is the whole game.

The second thing that needs to be learned is analysis of economic data. One can explain that when the interest rate in a country rises, the value of the local currency rises, because the demand for deposits in this currency increase, people buy it and then it strengthens.

Even a parsley merchant in the market, after 20 years, knows exactly what the quality of the parsley is. He looks at the leaves and immediately knows if it's a good product or not. He has no degree in advanced parsley studies but he lives and breathes parsley.

Experience worth more than education. Similarly for you, after a few years of trading the Euro, you will come to understand the Euro. You will be awaken in the middle of the night, and be able to say that the exchange of the Euro is 1.4266, that at 10 in the morning there is light trading and at

certain currency in order to identify trends, etc. And what


night it's latent. One must be cautious around Christmas time, and that when the interest rate is lowered it flies upward.

So you have to, go and learn technical analysis, know the economical data, experiment, practice and profit.

Now let's see what you can do if you acquire the minimal knowledge and experience when we break the balance.

Now I will show you a simple business template: I open a business, the name of the business is: Euro and Sons Ltd. I deposit 10,000 USD, and I am the Euro king of the world.

There are those who sell pizzas, those who sell tomatoes and my business it to buy and sell Euros. I work for ten minutes a day, a make one deal on the way to school with my son, Jonathan, remember him from before? Either I earn 100 USD or I lose 100 USD. In contrast to my son, I don't guess. I read financial newspapers, I read analysts, I do forecasting, put in my experience, and make a rational financial decision. My son, out of 22 transactions in a month, loses 11 times and earns 11 times. How many pips does he lose each month on commissions? If we assume that the spread is 3 pips, then 66 pips, he loses 3 times 22 transactions.

The goal of the business plan: to be better than my son. Only once a month. Take the information that I have and translate it into victory. Instead of 11-11, I would be 12-10 in my favor. Is it possible?Guys, if you didn't understand, we start the trade in the Forex market with a 50% chance. I want to win against the market just once with knowledge. Is it certain that I will be able to complete one transaction better in my favor out of 22 transactions? No, there is no guarantee in business, but there is no chance without risk. And if I lose, I would only lose commission, I wouldn't get loans from my friends or from banks I would never get in trouble in this market.

Most of the traders in the world know how to identify the trend, but their problem is money management. I, personally, have been successful for years now working in this manner. Most of the traders who have learned this lesson and the coming lessons have succeeded in breaking the balance, but unfortunately haven't been successful in abiding by the instructions and rules which I set before them.


simple matematics

Let's see what happens if I succeed in one transaction which is one more success in my favor, let's do some simple mathematics:

We spoke about 12 profitable transactions against 10 losing ones, right?

12 profitable transactions multiplied by 100 pips gives 1200 pips in a month.10 losing transactions multiplied by 100 pips gives 1000 pips in a month.

How much is 1200 minus 1000? 200 pips. We will subtract the commission (the spread) that I paid to execute the transactions – 3 pips times 22 transactions is equal to 66 pips of commission.

The total collective gain is 200 pips, minus 66 pips of commission, we earned 134 pips in a month.

I want to claim the following, if you will: if you learn Euro, if you learn technical analysis, understand the important data which affect the Euro, you will get used to it, and then once a month you will succeed more than a five year old. If it wasn't possible we wouldn't have taught it to you. If it doesn't work out for you, stop trading. It appears that you didn't understand that if the graph is rising and you are told to buy, you need to buy. It appears you didn't understand that if the bank's governor raises the interest rate, the currency will rise. But if you were successful and understood, then you have 134 pips in a month, by working 10 minutes a day, that's all.

Let's translate it into money: You have 10,000 USD in your account. Let's assume that you start


with a transaction of 30,000 Euros (3 fold leverage) for this transaction each pip is worth 3 USD. 3 USD times 134 pips is 402 USD. 4.02% return in a year it comes to 48.24 percent. By risking commission alone!

And what if you attain more experience and knowledge and have 13 profitable transactions in contrast to 9 losing transactions and not 12-10? It's already a 96.5% return. Do you know of any investment with such a return? Because I – really don't.

What amount should you invest?

Take the minimal amount of money you are willing to earn in a month and multiply it by 20. Why? We spoke of 5% monthly returns, so if you want to make 500 USD in a month, put in 10,000 USD to open an account. But don't lie to yourself, don't put in 10,000 USD to earn 5,000 USD in a month, because you will surely lose. Why? Because whoever tries to have a 50% return in a month, leverages himself too much and will never succeed.

Tools for success

We will give you comprehensive on-line courses, you will get used to it, you will learn and then you will begin trading.

If you see over time that you can earn 134 pips a month, enlarge your portfolio and start larger transactions, you'll enlarge your portfolio and you will operate in a way that each pip will be worth 20 USD.

You've learned here the basic elements of secure Forex trading, and the sums you can achieve on your own when you become an experienced trader.

Do you know how great it is to earn a weekly salary without being dependent on anyone, from


anywhere in the world? Maybe you won't become a millionaire by doing this, but if they throw you to any place in the world, with a laptop and a little money, you can earn a good living, because you will have the skill and knowledge to evaluate in which direction the Euro will go once a month.

Now that you have learned and understood the basic functions of the market, we recommend that you continue with our firm's advanced course. a course which teaches technical analysis and a few more trade strategies.


"The four most dangerous words in investing are: this time it's different."

John Templeton

Chapter 5 Beginners trader strategies

A. Trend signal Strategy

General DescriptionIn the trend signal strategy, we look for a candlestick that indicates a return to a previous trend following a correction.This strategy is appropriate for timeframes of 15 minutes and higher, where the bigger the timeframe, the higher the level of precision. This strategy is suitable for all currency pairs, commodities, indices, stocks and futures contracts.

Position Management A signal for entering a buy trade is triggered when an upwards trend, followed by a correction (downtrend), has been identified, and a long bullish candlestick appears whose length includes the three preceding bearish candlesticks. A signal for entering a sell trade is triggered when an downwards trend, followed by a correction

Chapter 5: Beginners trader strategies

(uptrend), has been identified, and a long bearish candlestick appears whose length includes the three preceding bullish candlesticks. The trade should be entered at the start of the first candlestick that opens after the signal.The stop loss should be set at a distance equal to 20% the length of the correcting candlestick, and moved at the start of each new wave in order to lock in profits.

Example Long Trade:In this example, we review the strategy in the AUD/USD currency pair, in a one hour timeframe, where an uptrend and subsequent correction have been identified. The signal is received by a long, corrective bullish candlestick, whose length includes the three preceding bearish candlesticks.

After identifying this signal, we will enter a long position at the start of the next candlestick. The correcting candlestick is 72 pips long, with 20% of 72 being 14 pips, meaning that the stop loss will be placed at the opening value of the new candlestick minus 24 pips. In this case, the value is 0.9689.


The stop loss will be adjusted for each uptrend wave, in order to lock in profits.

Example Short Trade:In this example, we review the strategy in the GBP/JPY currency pair, in a one hour timeframe, where a downtrend and subsequent correction have been identified. The signal is received by a long, corrective bearish candlestick, whose length includes the three preceding bullish candlesticks.

After identifying this signal, we will enter a short position at the start of the next candlestick. The correcting candlestick is 1792 pips long, with 20% of 1792 being 358 pips, meaning that the stop loss will be set for the opening value of the new candlestick minus 358 pips. In this case, the value is 199.81.

The stop loss will be adjusted for each downtrend wave, in order to lock in profits.In this example, we would have earned 7163 pips over a period of 7 months.


B. Tunnel Strategy

General DescriptionIn this strategy, we are looking for a break in a tunnel pattern.The strategy is suitable for timeframes of 4 hours or higher. This strategy is suitable for all currency pairs, commodities, indices, stocks and futures contracts.

Position Management A tunnel is identified when several peaks and troughs have formed within a uniform trend.A break in the tunnel is signaled when the rate exceeds the tunnel values by 30 pips.A long position will be entered when the tunnel is in a downtrend and the tunnel is broken in an upwards direction.A short position will be entered when the tunnel is in a uptrend and tunnel is broken in an downwards direction.The stop loss will be set 20 pips from the opposite border of the tunnel, and will be adjusted for each new wave until it is triggered.

Example Long Trade:In this example, we review the strategy in the EUR/USD currency pair, in a 4 hour timeframe. The downtrend is identified by the tunnel borders being the peaks and troughs of the candlesticks, as noted. Enter a long position when a candlestick appears which breaks 30 pips over the tunnel, as can be seen here. The stop loss will be set 20 pips from the opposite border of the tunnel, and will be adjusted for each new wave until it gets triggered.


Example Short Trade:In this example, we test the strategy in the GBP/USD currency pair, in a weekly timeframe. The uptrend can be identified when the tunnel borders are the peaks and troughs of the candlesticks, as displayed. Enter a short position when a candlestick appears which breaks 30 pips below the tunnel, as can be seen here. The stop loss will be set 20 pips from the opposite border of the tunnel, and will be adjusted for each new wave until it gets triggered.

According to this example, we would have earned 131 pips over a period of 3 months.


C. Fractal Strategy

General DescriptionIn the fractal strategy, we are looking for:A combination of averages and fractals which indicate the possibility of a future trend.This strategy is suited for timeframes of 15 minutes and up, where the longer the timeframe, the higher the level of precision. This strategy is suitable for:All currency pairs, commodities, indices, stocks and futures contracts.Indicators used: Alligator, Fractals.

Position Management A signal is received when the following conditions are met: deeply non-trending market, characterized by a crossing of the three average lines of the Alligator indicator, and after the values of a fractal pair converge more than the pair that preceded them.A candlestick appears which passes the fractal rate at the peak of a long trade or the trough of (for) a short position, plus a security range of 30 pips, in order to prevent a “false” break. The stop loss should be set 30 pips from the value of the opposite fractal.The trade should be exited when a candlestick appears whose closing value is within the range of averages.

IndicatorsWe will add the following indicators: the Alligator indicator, found in Insert->Indicators->Bill Williams->Alligator, and will leave it with the default values of 13,8,5 and a shift value of 8,5,3. We will also add the Fractals indicator, found in Insert->Indicators->Bill Williams->Fractals.

Example Long Trade:In this example, we test the strategy in the GBP/USD currency pair, in a 4 hour timeframe. A preliminary signal is received when the indicator’s moving averages cross over, and a fractal pair appears which is more converged than the pairs that preceded it.


The buy position should be entered when the value exceeds the upper fractal by 30 pips. An example of this can be seen here. The stop loss should be set 30 pips from the value of the lower fractal. The trade should be exited when a candlestick appears whose closing value is within the range of averages.

Example Short Trade:In this example, we test the strategy in the EUR/GBP currency pair, in a 4 hour timeframe. A preliminary signal is received when the indicator’s moving averages cross over, and a fractal pair appears which is more converged than the pairs that preceded it.


The sell position should be entered when the rate passes the lower fractal by 30 pips. An example of this can be seen here. The stop loss should be set 30 pips from the value of the upper fractal. The trade should be exited when a candlestick appears whose closing rate is within the range of averages.

In this example, we would have earned 239 pips over a period of 6.5 days.


D. Fishing Strip Strategy

General DescriptionThe fishing line strategy involves looking for turning points. These points indicate the possibility of a change in trend direction, and enable us to act accordingly.This strategy is suited for timeframes of 15 minutes and up, where the bigger the timeframe, the higher the level of precision. This strategy is suitable for all currency pairs, commodities, indices, stocks and futures contracts.Indicators used: Bollinger Bands.

long TradeA preliminary signal is received when the first candlestick closes below the fishing strip, and the following candlestick closes within the strip. The trade should be entered at the start of the third candlestick. The stop loss should be set 5 pips below the lowest value reached by the first candlestick. The trade should be exited once 100 pips have been earned, or when the other end of the line has been reached - whichever happens first.

Short TradeA preliminary signal is received when the first candlestick closes below the fishing strip, and the following candlestick closes within the line. The trade should be entered at the start of the third candlestick. The stop loss should be set 5 pips above the highest rate reached by the first candlestick. Profits should be taken once 100 pips have been earned, or the other end of the line has been reached - whichever happens first.

IndicatorsAdd the relevant indicator by selecting Insert->Indicators->Trend->Bollinger Bands. Use the default settings of 20,0,2, and configure it with the color black.

Example Long Trade:In this example, we review the strategy in the USD/JPY currency pair, in a 4 hour timeframe. As can be seen, the first candlestick closed below the strip, and the second candlestick closed within the strip.


The buy position will be entered at the start of the third candlestick. The stop loss should be set 5 pips below the lowest value reached by the first candlestick.

As can be seen, the stop loss is triggered, but immediately afterwards, a signal can be seen by the first candlestick being closed below the strip, and the second candlestick closed within the strip, meaning that we will enter another buy long position at the start of the third candlestick. The stop loss should be set 5 pips below the lowest value reached by the first candlestick. The trade should be exited once 100 pips have been earned, or the other end of the strip has been reached - whichever happens first. As can be seen, in this case the rate reaches the other end of the strip.


Example Short Trade:In this example, we test the strategy in the USD/JPY currency pair, in a 4 hour timeframe. As can be seen, the first candlestick closed below the strip, and the second candlestick closed within the strip.

The sell position will be entered at the start of the third candlestick. The stop loss should be set 5 pips above the highest value reached by the first candlestick. The trade should be exited once 100 pips have been earned, or the other end of the line has been reached - whichever happens first. As can be seen, in this case the rate reaches the other end of the strip.


In this example, we would have earned 53 pips over a period of 3.5 days.

Good luck.

Please keep in mind that using those strategies does not guarantee profits as market conditions could vary and currency trading involves substantial risk of loss and may not be suitable to all investors


Remember before selling:After a series of successes – take a vacation.

After a series of failures – take a break and come learn!

Be patient and work based on predetermined plans.

You don’t have to trade every day – the market isn't going anywhere.

Don't trade against the trend – identify the trend and join it.

A common mistake that should be highlighted: don't earn small and lose big.

Don't let losses grow. Use the stop-loss order in every deal

Don't be "married" to the deal. Be quick to change direction if that's what the chart shows.

Forget about losses and learn from them.

And most importantly:

Don't worry about the small losses, but get excited and enjoy the big profits.

Good luck!

A

AccountRecord of all transactions. Account BalanceAmount of money in an account. AppreciationA currency is said to appreciate when price rises in response to market demand; an increase in the value of an asset. ArbitrageTaking advantage of countervailing prices in different markets by the purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market to profit from small price differentials.

Ask, OfferThe price, or rate, that a willing seller is prepared to sell at.

AusieThe Australian Dollar B

Back OfficeThe departments and processes related to the settlement of financial transactions (i.e. written confirmation and settlement of trades, record keeping).

Balance of PaymentsA record of transactions with the rest of the world over a particular time period. These include merchandise, services and capital flows. Balance of TradeThe value of a country's exports minus its imports. Bar ChartA type of chart which consists of four significant points: the high and the low prices, which form the vertical bar, the opening price, which is marked with a little horizontal line to the left of the bar, and the closing price, which is marked with a little horizontal line of the right of the bar.

Base CurrencyThe currency in which an investor or issuer maintains its book of accounts; the currency that other currencies are quoted against. In the forex market, the US Dollar is normally considered the `base` currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. Basis PointOne hundredth of a percent.

BearAn investor who believes that prices/the market will decline.

Chapter 6Glossary of concepts

Chapter 6: Glossary of concepts

Bear MarketA market distinguished by a prolonged period of declining prices accompanied with widespread pessimism.

BidThe price that a buyer is prepared to purchase at; the price offered for a currency. BondsBonds are tradable instruments (debt securities) which are issued by a borrower to raise capital. They pay either fixed or floating interest, known as the coupon. As interest rates fall, bond prices rise and vice versa.

BrokerAn individual, or firm, that acts as an intermediary, putting together buyers and sellers usually for a fee or commission. In contrast, a `dealer` commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party.

BubaBundesbank, Central Bank of Germany BullAn investor who believes that prices/the market will rise.

Bull MarketA market distinguished by a prolonged period of rising prices (Opposite of bear market).

C

Candlestick ChartA chart that indicates the trading range for the

day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded. Central BankA government or quasi-governmental organization that manages a country`s monetary policy a prints a nation's currency. For example, the US central bank is the Federal Reserve, others include the ECB, BOE, BOJ. ChartistAn individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader. ClearingThe process of settling a trade

Closed PositionExposures in Foreign Currencies that no longer exist. The process to close a position is to sell or buy a certain amount of currency to offset an equal amount of the open position. This will ‘square' the position. CommissionA transaction fee charged by a broker. ConfirmationA document exchanged by counterparts to a transaction that confirms the terms of said transaction.

ContractThe standard unit of trading.


Counter PartyThe participant, either a bank or customer, with whom the financial transaction is made. Cross RateAn exchange rate between two currencies. The cross rate is said to be non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/CHF quote would be considered a cross rate, whereas in the UK or Switzerland it would be one of the primary currency pairs traded.

CurrencyAny form of money issued by a government or central bank and used as legal tender and a basis for trade. Currency PairThe two currencies that make up a foreign exchange rate. For Example, EUR/USD

Currency RiskThe risk of incurring losses resulting from an adverse change in exchange rates.

D

Day TradingOpening and closing the same position or positions within the same trading session. DealerAn individual or firm that acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together

buyers and sellers for a fee or commission. DeficitA negative balance of trade or payments. DeliveryAn actual delivery where both sides transfer possession of the currencies traded.

DepositThe borrowing and lending of cash. The rate that money is borrowed/lent at is known as the deposit rate (or depo rate). Certificates of Deposit (CD`S) are also tradable instruments. DepreciationA decline in the value of a currency due to market forces. DerivativeA contract that changes in value in relation to the price movements of a related or underlying security, future or other physical instrument. An Option is the most common derivative instrument. DevaluationThe deliberate downward adjustment of a currency's price, normally by official announcement. E

ECB - European Central BankThe Central Bank for the European Monetary Union.

End Of Day (Mark-to-Market)Traders account for their positions in two ways: accrual or mark-to-market. An accrual


system accounts only for cash flows when they occur, hence, it only shows a profit or loss when realized. The mark-to-market method values the trader`s book at the end of each working day using the closing market rates or revaluation rates. Any profit or loss is booked and the trader will start the next day with a net position. EuroThe currency of the European Monetary Union (EMU) which replaced the European Currency Unit (ECU) Execution DateThe date on which a trade occurs.

F

Fed - Federal ReserveThe Central Bank for the United States. Fixed Exchange Rate (Representative Rate)An official exchange rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates fluctuate between definite upper and lower bands, leading to intervention. Flat (Square, Balanced)To be neither long nor short is the same as to be flat or square. One would have a flat book if he has no positions or if all the positions cancel each other out.

FOMC - Federal Open Market CommitteeThe Federal Reserve monetary committee. Forex - Foreign ExchangeThe simultaneous buying of one currency

and selling of another in an over-the-counter market. Most major FX is quoted against the US Dollar. ForwardThe pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved.

Forward PointsThe pips added to or subtracted from the current exchange rate to calculate a forward price.

FRA - Forward Rate AgreementsFRA`s are transactions that allow one to borrow/lend at a stated interest rate over a specific time period in the future.

Front and Back OfficeThe front office usually comprises of the trading room and other main business activities.

Fundamental AnalysisAnalysis of economic and political information with the objective of determining future movements in a financial market.

Futures ContractAn obligation to exchange a good or instrument at a set price on a future date. The primary difference between a Future and a Forward is that Futures are typically traded over an exchange (Exchange- Traded Contacts - ETC), versus forwards, which are considered Over The Counter (OTC) contracts. An OTC is any contract NOT traded on an exchange.


G

G5The five leading industrial countries, being US, Germany, Japan, France, UK.

G7The seven leading industrial countries, being US, Germany, Japan, France, UK, Canada, Italy.

GDP - Gross Domestic ProductTotal value of a country's output, income or expenditure produced within the country's physical borders. GNP - Gross National ProductGNP - Gross National Product - Gross domestic product plus income earned from investment or work abroad.

GTC - Good-Till-CancelledAn order left with a Dealer to buy or sell at a fixed price. The GTC will remain in place until executed or cancelled.

H

HedgeA position or combination of positions that reduces the risk of your primary position. High/LowUsually the highest traded price and the lowest traded price for the underlying instrument for the current trading day.

I

InflationAn economic condition where there is an

increase in the price of consumer goods, thereby eroding purchasing power. Initial MarginThe initial deposit of collateral required to enter into a position as a guarantee on future performance.

Interbank RatesThe Foreign Exchange rates at which large international banks quote other large international banks. InterventionAction by a central bank to effect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.

IRS - Interest Rate SwapsAn exchange of two debt obligations that have different payment streams. The transaction usually exchanges two parallel loans; one fixed the other floating.

K

KiwiThe New-Zealand Dollar.

L

Leading IndicatorsEconomic variables that are considered to predict future economic activity (i.e. Unemployment, Consumer Price Index, Producer Price Index, Retail Sales, Personal Income, Prime Rate, Discount Rate, and Federal Funds Rate).


LeverageAlso called margin. The ratio of the amount used in a transaction to the required security deposit.

Libor - London InterBank Offered RateThe London Inter-Bank Offered Rate. Large international banks use LIBOR when borrowing from another bank. LiquidationThe closing of an existing position through the execution of an offsetting transaction. LiquidityThe ability of a market to accept large transaction with minimal to no impact on price stability.

LongA position to purchase more of an instrument than is sold, hence, an appreciation in value if market prices increase.

Long PositionA position that appreciates in value if market prices increase. When the base currency in the pair is bought, the position is said to be long. LoonieThe Canadian Dollar. LotA unit to measure the amount of the deal. The value of the deal always corresponds to an integer number

M

MarginThe required equity that an investor must deposit to collateralize a position.

Market MakerA dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial instrument. Market OrderAn order to buy/sell at the best price available when the order reaches the market.

O

OCO - One Cancels the OtherA contingent order where the execution of one part of the order automatically cancels the other part. Open orderAn order that will be executed when a market moves to its designated price. Normally associated with Good ‘til Cancelled Orders. Open PositionAn active trade with corresponding unrealized P&L, which has not been offset by an equal and opposite deal. OptionsAn agreement that allows the holder to have the option to buy/sell a specific security at a certain price within a certain time. Two types of options – call and put. A call is the right to buy while a put is the right to sell. One can write or buy call and put options.


OrderAn order is an instruction, from a client to a broker to trade. An order can be placed at a specific price or at the market price. Also, it can be good until filled or until close of business.

Overnight PositionA trade that remains open until the next business day.

P

Points, PipsThe term used in currency market to represent the smallest incremental move an exchange rate can make. Depending on context, normally one basis point (0.0001 in the case of EUR/USD, GBD/USD, USD/CHF and 01 in the case of USD/JPY/)

PositionA position is a trading view expressed by buying or selling. It can refer to the amount of a currency either owned or owed by an investor. PremiumIn the currency markets, it is the amount of points added to the spot price to determine a forward or futures price.

Profit/Loss (P&L)The actual “realized” gain or loss resulting from trading activities on Closed Positions, plus the theoretical “unrealized” gain or loss on Open Positions that have been Mark-to-Market.

Q

QuoteAn indicative market price; shows the highest bid and/or lowest ask price available on a security at any given time.

R

RallyA recovery in price after a period of decline. RangeThe difference between the highest and lowest price of a future recorded during a given trading session. RateThe price of one currency in terms of another.

Repo - Re-purchaseThis type of trade involves the sale and later re-purchase of an instrument, at a specified time and date. Occurs in the short-term money market. ResistanceA term used in technical analysis indicating a specific price level at which a currency will have the inability to cross above. Recurring failure for the price to move above that point produces a pattern that can usually be shaped by a straight line.

Risk ManagementTo hedge one's risk they will employ financial analysis and trading techniques.


Roll-OverProcess whereby the settlement of a deal is rolled forward to another value date. The cost of this process is based on the interest rate differential of the two currencies. S

SettlementThe process by which a trade is entered into the books and records of the counterparts to a transaction. The settlement of currency trades may or may not involve the actual physical exchange of one currency for another. ShortTo go `short` is to have sold an instrument without actually owning it, and to hold a short position with expectations that the price will decline so it can be bought back in the future at a profit.

Short PositionAn investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short.

SpotA transaction that occurs immediately, but the funds will usually change hands within two days after deal is struck. Spot PriceThe current market price. Settlement of spot transactions usually occurs within two business days. SpreadThe difference between the bid and offer

(ask) prices; used to measure market liquidity. Narrower spreads usually signify high liquidity. Stop Loss OrderAn order to buy/sell at an agreed price. One could also have a pre-arranged stop order, whereby an open position is automatically liquidated when a specified price is reached or passed. Support LevelsA technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of resistance. SwapA currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate. T

Technical AnalysisAn effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc. TickA minimum change in price, up or down.

Tomorrow Next (Tom/Next)Simultaneous buying and selling of a currency for delivery the following day. Two Way PriceBoth the bid and ask rate is quoted for a Forex transaction.


U

US Prime RateThe interest rate at which US banks will lend to their prime corporate customers. V

Value DateThe date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date

is normally two business days forward. Also known as maturity date.

VolatilityA statistical measure of a market or a security's price movements over time and is calculated by using standard deviation. Associated with high volatility is a high degree of risk. VolumeThe number, or value, of securities traded during a specific period.


I would like to thank you for participating in the course, and wish you success in any future

path you may choose.

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