forex trading for beginners - wordpress.comtrading journal ..... 97. forex trading for beginners –...

FOREX TRADING FORBEGINNERSTutorialfromComparic.com

2017

Formorestrategiesandinformationvisit:http://comparic.com

Forextradingforbeginners–tutorialbyComparic.com|2

INDEXPart1.....................................................................................................................................................4HowcanIstartForextrading?..........................................................................................................................................7Practiceforextrading–demoaccounts........................................................................................................................9Howtolearntotradeforex............................................................................................................................................12Forextradingquestions–ourForextips....................................................................................................................18TradingplaninForexTrading.........................................................................................................................................26

Part2.Forextradingtoolsandstrategies....................................................................................28Whichtradingtoolisbestforyou?..............................................................................................................................28Whichstrategyisrightforyou?.....................................................................................................................................29PivotPoints...........................................................................................................................................................................30

StrategybasedonPivots.................................................................................................................................................32PivotPointstradeexamples..........................................................................................................................................33

Fibonaccitradingtools......................................................................................................................................................37PopularFibonaccitools...................................................................................................................................................37SetupinMetatrader.........................................................................................................................................................40FibonaccitradinginForex..............................................................................................................................................45HowtotradewithFibonacci?.......................................................................................................................................48Fibonaccitradeexamples...............................................................................................................................................49

Trailingstop..........................................................................................................................................................................52Howtousetrailingstoploss.........................................................................................................................................52Bestsettingsfortrailingstoploss...............................................................................................................................53Timeframefortrailingstoploss..................................................................................................................................54Strategyfortrailingstoploss........................................................................................................................................54Tradeexamples...................................................................................................................................................................56

Movingaveragesinforextrading(andnotonlyFX)...............................................................................................58Movingaverageasatrenddetector..........................................................................................................................60Movingaverageasasupportorresistance............................................................................................................62Howmanyaveragesshouldyouuse?........................................................................................................................63Rainbowchart.....................................................................................................................................................................64GMMA....................................................................................................................................................................................72

Part3.Moneyandpositionmanagement...................................................................................77Howtosetstoplossinforextrading...........................................................................................................................77TradepartialcloseinMetatrader.................................................................................................................................85Whentotakeprofit...........................................................................................................................................................90Tradingjournal....................................................................................................................................................................97


This isaforextradingguideforbeginners. I trytoanswerallquestionsaboutForextrading.Ifyouarenewtotradingoryoutradedstocksandwanttolearnmoreabout

Forextrading,thenthisguideisforyou.

ThegoalofthisguideistogiveyoupracticeknowledgesoyoucanunderstandForextradingbasicsandtradebyyourself.Ifyoudon’tunderstandsometerms,gotosites

likeInvestopedia,theycoveredalltermslikemargin,pipandmanyothers.


PART1.

Howtounderstandforextrading

Whenyoutradestocks,youcanselecthowmanystocksyouwanttobuyorsell(ifyouplantogoshort).WithForexyouaretradingacurrency.Youcan’tselectthatyouwant

tosell7523euros.Startingpointis1lotwhichis100,000unitsofbasecurrency.

1lotforEUR/USD=100,000euros2lotsforEUR/USD=200,000euros0.1lotforEUR/USD=10,000euros

Thatwayyoucandecidehowmuchbasecurrencyyouwanttoinvest.

Ofcourse,youdonothavetohaveallthatmoneyinyouraccount.Thankstoleverage

youhaveonlysplitofthatamount.

InForex,minimalmovementisonepip.Forstandardbasic1lot(100,000units)move

of1pipisequalto10$change.

WhypeoplearelosingmoneyinForex

Itisbecausetheydonotunderstandleverage.Itisverypowerful,yetverydangerous

perkthatyougetwhenyoudecidetotradeForex.

Withonly fewhundreddollars youcanopenpositionswhichareasbigas100,000dollarsoreurosand larger.Whenyouare right inyour trade, thenyoumakegood

money.Whenyouarewrong…well,youcanbeoutoffundsverysoon.

Thatiswhynewtradersshouldstartfromlowersizes–microlotsorevennanolots.Thisissimilartostockmarket.It isabadideatostartinvestinginstockmarketandlearnhowtoinvestwithreal100,000or500,000$.Therisk istoobig. It iseasierto

learnonsmallercapital.SameiswithForex.


Startsmall–Nano,microlots

Youwon’tgetrichfastbytradingmicroandnanolots,butthankstothemyouwillstayinthegameandyouwillhaveopportunitytolearnfromlivetrading.ThereasonwhysomanytraderslosealltheirmoneyintheForexisbecause:

• theirtradingcapitalistoosmall• theyopentoobigpositions,becausetheydonotunderstandleverage

Soyeah,itislikeinmanyadsyoucouldseeinthepast–“youcanopenaccountwithjust100$.Leverageeven1:500”.Intheend,youneedoneorfewpositionsof1lotsizetoblowupyouraccount.

Youshouldrememberthat1lotisabaseforcalculatingsizeofyourposition.

1lot=100,000unitsofacurrency

InMetaTrader4itwillbeonselectlistlike:


IfyouopenshortonEUR/USDofsize2lotsyouwillbeshorting200,000euros.Onepipwillbearound20$.Magicofleverage(andthecursesametime…).

Therearealsosmallerbasesizeslike:

1minilot(0.1)=10,000unitsofbasecurrency

Ifyouopen longpositiononEUR/USDofsize0.1thenyouwillbe longwith10.000euro.

InMetaTrader4itwillbeasVolumelistlike:

• 0.1(oneminilot)• 0.2(twominilots)• 0.3…

Onepipwillbeherearound1euro.

1microlot(0.01)=1000unitsofbasecurrency

InMetaTrader4itwillbeasVolumelistlike:

• 0.01(onemicrolot)• 0.02(twomicrolots)• 0.03(threemicrolots)• …

Goinglongwith0.01lotonEUR/USDmeansthatyouarelong1000euros.Onepipisherearound0.1euro.

1nanolot(0.001)=100unitsofbasecurrency

InMetaTrader4itwillbeonselectlistlike:

• 0.001(onenanolot)• 0.002(twonanolots)• …


Noteverybrokeroffertradesizesassmallasnanolotsormicrolots.Youshouldcheckitfirstintheoffer.

Tradingsizesaresimple.Firstyoumaygetconfused,becauseitisdifferentthantradesizes in stock trading. Try to do some operations on demo account, try differentpositionsizesandyouwillunderstandquicklywhatitisallaboutwithnano,micro,miniandfulllots.

HowcanIstartForextrading?

Ok,youwanttobecomeacurrencytrader.You’vereadaboutpips,leverageandallthatForextrading.Itistimetostartpractice.Youareinluck,todayitisveryeasyto

startForextrading.

SelectaForexBroker

Tostarttradingforex,youneedaForexbroker.Therearemanybrokersandfornewtraderitmaybehardtochoosethebestone.Remember,mostofthemofferademoaccount, where you can test their trading platform. You can start with our Forexbrokerssection.

Usually,registrationisquick,youneedonlysomerecentbillstoproveyouraddressisvalid.That’sit.

IfyoulookatForexbrokeroffer,makesurethatheallowstotradewithlowersizessuchasnanooratleastmicro.

Installtradingsoftware

OK,withselectedbrokeryouneedtoinstalltradingsoftware.ThiswillbeMetaTrader4platformorothercustomplatformfrombroker.


Some brokers use their own trading platform like eTorro. Of course every customplatformisbestintheworld;).Therearebrokerswhoonlyhavetheirownplatformand theydonotofferMetatraderplatform. Idon’t knowwhy,but someverywell-knownbransmissMT4inoffer.

The big advantageofMetatrader is that youhavemany custom indicators, expertadvisors.ItisagoodplatformoverallandIrecommendbrokerswhoofferMT4.

TradingfromMac

MetaTrader is aWindows application. If youhave aMac computerwithMacOSXsystem,thenyoumustusesoftwarelikeWinetorunMetaTrader4.SomebrokerslikeXMorHotForexofferMetatraderforMacOsXandtheyworkverygood.Youdon’tneedwine,setupisveryquick.ItestedMetatraderplatformsfromXMandHotForexonmyMacandtheyworkedfine.

BelowscreenofdemoMT4platformfromXM,runningonMACOSX:

It'sallthesameasonWindowsmachine.


FundyourForexaccount

Whenyouhaveregisteredanaccount,youcanaddfunds.Itisveryeasy.Youcanstartwith few hundred dollars onmini account.Minimum amount is different for eachbroker.

Testplatformondemo

Beforeyoudecidetoopenrealaccount,testaplatformondemo(especiallyifyouarenewtoForextrading).Youwillhavesomevirtual10kor100ktoplaywithondemo.Testhoworderplacingworks,howtoplacestop lossetc.Youdonotwantto learnthesethingswithyourrealcash.

Practiceforextrading–demoaccounts

ItishardtomakeprofitinForexthatiswhypracticeissoimportant.Youhavenow

manyoptionstopracticeyourtradingskillsandlearntotrade.

OK,butwhatisbest?Doyouneedtradingsimulator?Papertradingisagoodwayto

start–notrealpaperbutwithhelpofdemoaccountofcourse.

Wetalkaboutpapertradingwhenyouaretradingwithvirtualmoney.Yearsbeforesimulatorsyousimplyputtradesonapieceofpaper.Whenyoufeltreadytotradeonreal account, youmade a switch. In 1930’s it wasn’t that easy to open brokerageaccount,besidesfeesforopeningandclosingtradeswerealsohigh.Papertradesweregoodsolution–youcouldlearnhowtotradewithoutlosingrealmoney.


DemotradinginForex

Nowwhenwe are talking about paper trading,wemean tradingon simulators.Ofcourse,youcanusepencilandpaper,buttradingonsimulatorismuchbetterwaytogo.Youcaneasilyopenademoaccountandgetaccesstotradingplatformsoyoucantestit.Yourdemoaccountisfundedwithvirtualmoneyandyoucanplaceorders.

ThemainadvantagesofForexdemotrading

• youdonotputatriskrealmoney–yourslosesandgainsarevirtual,sothereisnoriskthatyouwillloseallyoutradingcapital

• youcantestyourtradingsystemanddifferenttradingstrategies• youcanseehowtouseleverage• ifyouareusingmechanicalsystem,youcantestitinpractice

Themaindisadvantagesofdemotrading

• youdonotputatriskrealmoney–youreactdifferentwhenitisrealmoneyyouarelosing

• youmaketradesthatyounormallywouldn’tmakewithrealmoney

Ispapertradingagoodwaytolearnhowtotrade?Generally,yes.IftradingForexissomethingnewforyouoryouwanttotesttotallynewstrategythenyes,itisok.

IwouldsaythatdemotradingisveryimportantwhenyouwanttostarttradeonForex.Asyouknow,oncurrencymarketweuseleverage.Therearedifferentpositionsizes.Thebasiconeis1lot.Youcanopenpositionasbigascouplelots(forexample5lots),orpositionsmallerthen1lot–thiswillbemicrolotornanolot.Ifitsoundsnotfamiliar,thenyouhavetotestitondemoaccount.Thingis,withleverageitisveryeasytoblewwholeaccountinmattersoffewminutes.Itiscrucialtomasterhowtomanagepositionsizeandunderstandwellhowitworks.Leveragecanbeyourbestfriendortheworstenemy.


Whenyouarebuildingmechanicaltradingsystem,thenit isalsogreatpossibilitytotestitondemoaccount.Soagain,demotradinginthatcaseisnotthatbad.

Inalongterm,demotradingisnotthewaytolearnhowtotrade.Youshouldswitchtorealaccountwithsmallfunds.Why?Becauseof…

Tradingandpsychology

When you are on demo and you switch to real money trading, you will noticedifference.Nowyoucare.Whenyouarelosingmoney,youfeelfear.Youhesitatetocloselosingposition“becauseitmayturnaround”(yeah,italwaysdoes;)).Whenyourtradeisinprofit,youaregreedy.Youhesitatetocloseposition,becauseitmaygoevenhigher.Hell,thismaybeatradeofyourlife.

Thiskindofemotionsoccursonlywhenyouaretradingwithrealmoney.Youwilllearnovertimethatmostofyourlosescomefromnotfollowingtradingplanandallowingemotionstoplaytoobigroleinyourdecisionmakingprocess.

Youarenotabletoswitchoffyouremotions.Ontheotherhand,youmustbeawareofthemandnotallowtotakecontrol.Thatiswhyyouneedtohaveyourtradingplanonpaper.Writedownasmanythingsyoucaninyourtradingplan–thatwayyouwillminimizeimpactofemotionsinyourtrading.

Ok,solet’sseewheredemotradingisintradereducationprocess.

Demotradingintraderlearningprocess

1.Opendemoaccount2.Buildstrategyandtradingplan3.Testdifferentpositionsizes–addtotradingplansizeofpositions.Testdifferentcurrencypairs,differenttimeframes.4.Testyourtradingplan–setgoalssuchasdonotlosemoneyinnext3monthsetc.

Whenyouareprofitableondemo…


5.Openrealaccount6.Fundaccountwithmoneyyoucanaffordtolose7.Setrealisticgoalsandtradeaccordingtoyourtradingplan8.Tradesmallerpositions!

Whenyouareprofitable…9.Increasepositionsize

Howtolearntotradeforex

We'velearnedaboutforextradingbasics,aboutdemotrading.Questionstillstands–how to learn to trade forex? There are few steps you can take to learn it. Below I

mentionedmostimportantones.

Findamentor

It is not an easy task to find mentor. In most cases, there are no ads or otherinformationaboutmentoringpossibility.Initiativeshouldbeonyourside.Ifyoufollowtraderyoulike,thenyoucanaskhimaboutmentoring.Somewillsaynobecauseoflackoftime.Othersdonotliketomentorbecausenoteveryonehasteachingskills.Still,findingamentoristhefastestwaytolearntotradeForex.Withmentor,youwill

avoidmanymistakesandsometimessavemanyyearsoftrialanderrors.

Twoimportantthingstoremember.Donotapproachmentorifyoudon'thavebasicknowledgeabouttrading. It isnotaroleformentortoguideyouthroughthebasic

stuff.Youwantmentortoteachyouhowtotradesuccessfully,nottoteachbasics.

Anotherthingtoremember.Checkdifferentstylesoftrading.Decidewhichonesuitsyoubest.Doyouliketechnicalanalysismore?Thenlookformentorswhotrademainly


withTA.Youhaveajobandyouwanttolearnaboutlongtermtrading?Thendonot

lookforhelpfromdaytraders,justgoandlookforotherlong-terminvestors.

Learntotradeondemo

Beforeyoumovetotradingwithmoneystartwithdemo.Playwithdifferentcurrencies,instruments.Understandwhat leverage isallabout.Seehowspread isdifferent for

differentforexpairs.Testdifferenttradingstrategies.

Readtradingbooks(notonlyaboutforex)

Ofcourse,practiceismostimportantbutbookswillgiveyounewideashowyoucan

tradeforex.

Therearesomanybooksabouttrading,thatitishardtorecommendonlyfew.

Oneimportantthingsaboutbooks.Readingmoretradingbooksdoesnotmakeyouabettertrader.Itcangiveyousomeideas,youcanlearnsomethingnewbutyoumustpracticethisinlivemarket.Justaquickreminder,becauseImetmanyaspiringtraderswhowerereadingtoomuchandtradingtoolittle;).

Candlestickpatterns

Norevolutionhere.JapaneseCandlestickChartingTechniquesbySteveNisonisstillagoodchoice.

Chartpatterns

IrecommendbooksfromThomasBulkowskilikeGettingStartedinChartPatterns.Hedidasolidstudyaboutchartpatternsandincludedhowoftenyoucanprofitwiththem.

Multipletimeframes


http://www.technicalanalysisbook.com/ I recommend Technical Analysis Book byBrianShannon(fromalphatrends.net).Heisastocktraderbutknowledgefromthisbookisuniversal.ItwillgiveyouideashowtouseandtrademultipletimeframesandIcansayfrommyexperience–thisiscrucial.

Tradingpsychology

Goodtradingsystemisnotenoughtostayprofitable.Traderpsychologyanddisciplineisakeyfactortosuccess.Therearemanybooksaboutthattopic,butyoucanstartwithTradingZonebyMarkDouglas.

PivotPoints

IusepivotpointsondailybasisandIwrotesomearticlesaboutthem.Ifyouwanttolearnmore,IcanrecommendtwobooksaboutPivotPoints.

Ifyouaretotallynewtothetopic,CandlestickandPivotPointTradingTriggersbyJohnL.Personisagoodchoice.Youcanlearnherehowpivotworks,howtousethemandseesomesetupsexamples.

FormoreadvancedstuffaboutPivots,IrecommendSecretsofaPivotBossbyFrankOchoa. One of best trading books. Not a cheap one, but worth its price. Lot ofknowledgeandtradingideas.

Fibonacci

Asyouknow,IamabigFibonaccifan.Iwritealotaboutthattopic,butifyouwanttoreadabookaboutFibonacci,thenthereisonepositionIcanrecommend.ItisFibonacciTrading. Master Price Advantage by Carolyn Boroden. It is a good introduction tovariousFibotools.

Ichimoku

TherearefewbooksaboutIchimokuKinkoHyo.Ireadthemall,butIcanrecommendonlyIchimokuChartsbyElliottNicolle.IuseIchimokuonlyasadditionalindicator,butitisstillimportantone.EspeciallyinForex.


Readblogs

Therearemanygoodtradingblogswhichyoucanfollow.Belowfewofmyfavorites:

http://comparic.com–yournumberonesourceforForexknowledge

http://alphatrends.net/blog/–mostlyaboutstocksandsomecontentispremiumonly.Still,greatfreevideosummariesofmarket.

http://thepatternsite.com/Blog.html–blogfromThomasBulkowski.OK,itlookslikeitwasstartedinthe90’sandisratheraboutstocks.Still,agreatsourcefornewtraderstolearnmoreaboutpricepatternsandhowtosetupatrade.

http://www.babypips.com/blogs – great site for new traders. Lots of resources,trainingmaterials. Even complicated things arewell explained. I like articles abouttradingsystems–youcanlearnherehowyoucancomeupwithatradingsystemandhowtotestit.

http://www.theforexguy.com/–lotsofgood,educationalmaterials.Especiallygreatsiteifyouwanttolearnmoreabouttradingforexwithpriceaction.

http://www.forexcrunch.com/–oneofthebestblogs/portalsaboutFX.Lotsofnewsandgoodeducationalarticles.

http://www.newtraderu.com/–Stevewritesininterestingwayabouttrading.Youcanfindheremany trading tips andmaterialsnotonly about technicalsbut alsoabouttradingpsychologyandriskmanagement.Steveisalsoveryactiveontwitter.

https://wwww.dailyfx.com/ - it isamixof forexportalandblog.Youwill findherenewssection,butalsogoodeducationalarticles.

https://www.youtube.com/user/DailyFXNews–Dailyfx.comhasalsoagreatYouTubechannel,whereyoucanwatchdailyanalysisfromtheirexperts.

http://www.forexlive.com/–ifyoulookformostimportant,shortforexnews’sthenthisisagreatsite.Also,activeontwitter.


Watchwebinars

Youcanfindmanygreatwebinarswhicharefree.Fxstreet.comisagoodexample,youcanalsofindwebinarsorganizedbybrokers.Someareabouttechnicalanalysis,someaboutpsychology, fundamentals. Theyare runbydifferent traders. They showyou

screensoitisveryeasytoseehowothersaretrading,whatismostimportantforthem.

What’smore,youhavechatwindow.Inmostcases,youcanaskquestionsduringa

webinarorthereisdedicatedQ&Asessionrightafterwebinarsfinish.

Gotocourses

Yes,manyForextradersarelosingmoney.Brokersknowthat.Thatismainreasonwhytheyorganizefreetradingcourses(onlineandstationary).Oftentheyhirewellknown

traderswhoteachyouabouttrading.

Ofcourse,noteverycourseisfree.Sometimesyoucanfindgoodtradingcoursewhichcostsquitealot.Decisionisyours.Icansayfrommyperspectivethatyoucanlearnalotduringsuchcourses.Iattendedfewofthem,eachwas2-dayslong.Imustsay–thiswasaknowledgebasedontradingexperienceandithelpedmetojumpintoanother

level.

Followothertradersontwitter/fb

Socialmediaaregreat.Thereissomuchvaluableinformationhere,betterthancats:)

Lookfortradersviahashtagsandothersearchterms.

Twitterisagreatapp.Mostpeoplefollowherecelebrities,butyoucanfindalsomanygreat specialists. Traders too. They share their quick thoughts about market,

sometimestheytwitsomechartorinterestinglink.


Which forex trader you should follow? You can start with this listhttps://www.newtraderu.com/2015/12/13/best-25-traders-follow-twitter-2015/ andseewhichyoulikemost.Myfavorites?Dante,alphatrendsandStewie.

Forums

I do not read any forex forums. I used to, but for me there is toomuch bullshit.Thousandsofsystems,manyargues…Itisnotforme,butifitisyourthingthengoandcheckhttp://www.forexfactory.com/forum.php.

Whatisthemainpointofallthissources?

Thereisnoonereadytogotradingsystem.Youmustbuildtradingsystembyyourself.Yourtradingstylewillchangeovertheyears.Tobesuccessfulyoushouldlearnfromothers, seewhat they are doing. Thatway you can improve your systemand your

approachtotrading.


Forextradingquestions–ourForextips

Nakedtradingandpriceaction

Youmusttryitatleastonce.Asstatedbefore,mostindicatorsarecalculatedbasedonprice.Yet,stillmanytraderscan’treadasinglethingfromachart.Itisallbecausetheyrelaysoheavyonindicatorsanddonotputenoughattentiontopriceitself.

Goalhere is to removeall indicators, allmovingaverages andother indicator fromchart.Youwantcharttobenaked.Thiswayyoucanseeclearlypriceactionandmakedecisionsbasedonpriceitself.

Ihavereadabouttraderwhousesindicatorsandothertools.Everyfewweeksheturnsthemoffandtradeonlybasedonpriceaction.

Whyisthatimportant?Thankstonakedtradingyouwilllearnmuchfasteraboutpriceaction.Therearemomentswhenitiscrucial.Youwillgetfirstsignalsfrompriceandthen, later, from indicators. Therefore, it is important to knowhow to spot signalswhichpricegivesyou.

Fundamentalvstechnicalanalysis

Itisapersonalchoice.

Onlyoneadvicehere.Donotignoretheotherside.Ifsomeonesaysthatheistechnicaltraderanddonotlookatfundamentalsandnews,thenheisnotsomeoneyouwanttofollow

Therearesomanyevidencesthatnewscanmovethemarket.Manybigplayerssimplyclosealltradesbeforeimportantnews,becausemarketcanbeunpredictable.

Imostlyusetechnicalanalysis,butIalwaysstartthedayfromcheckingnewsscheduleforcurrentday.

Goodsourcefornewsanddata?http://www.forexfactory.com.


Avoidmagictradingsystems!

WhenyoubrowseInternetlookingforinfoaboutForex,mostlikelyyouwillseeadsorreviewsofsomesuperautomatictradingsystems.Inadescription,youwillseelistoftradesmadeonhistoricaldataeven10yearsback:

Looksgreat.Where is a catch?These systemsareoptimized forhistoricaldata.Onmanytimes,youwillseethatpossibledrawdownisverybig.Itisbecauseauthorsuseverywidestoplosses.Thiswaymanytradesareclosedeventuallywithprofit,butwhensomethinggoeswrong,youendupwithhugeloss.

Anotherwaytoconthesystemistooptimizerobotforhistoricaldata.Whenyouputthatsamerobotinreallivetradingresultsarenotsogreatanymore.

Thereisnomagicautomatedsystemfor99$or999$.Forgetaboutit.Workhard,learn,trade.

Forexmajorcurrencypairs

Youcanseea lotofpairs inyourbrokersoffer,butfourofthemaremostpopular.Traderscallthemmajors:

• EUR/USD:TheeuroandtheU.S.dollar.


• USD/JPY:TheU.S.dollarandtheJapaneseyen.• GBP/USD:TheBritishpoundsterlingandtheU.S.dollar.• USD/CHF:TheU.S.dollarandtheSwissfranc.

Whichpairisbesttotrade?

Ithinkthatitisbesttostartwithmajors,becauseyouhavetherethelowestspreadsand best liquidity. Maybe without USD/CHF, because after Swiss central bankinterventionsitisnotgoodpairtotrade.

EUR/USDisstillagoodpairtotrade;itisgreatbothonlowertimeframesandonbiggerones.

IalsorecommendtocheckYenpairs,especiallyGBP/JPY.Hereyoucanfindmanygoodtrendmoves,evenonlowertimeframes.Onchartbelowthereis1-hourGBP/JPYchart.Ittookonlycoupleofdaysforthispairtomovemorethan1300pipsup.


OtherYenpairsarealsonicetotrade.

Now,becauseofBrexititisgoodtokeepcloseeyeonGBPpairs.Poundisgenerallygettingweakerandweakeracrosstheboard.Thankstothatwecanseeheresomestrongmovesbothdownandstrongcorrectionsup.

Itisnotrecommendedtotradeonexoticpairs.Therearetworeasonsforthat:

- Highspreads–costsoftradingherecanbeveryhigh- Liquidityisnotthatgoodasonmajorpairs

Unlessyouhavesomelong-termapproach;maybeyouareresidentofthatcountry.Butsticktothemostpopularpairs.

Howmanypairsshouldyoutrade?

Asanewtrader,youshouldstartwithonepair.Why?Twoormorepairsarehardtofollow.Rememberthatyoushouldchecksituationonfewtimeframestotakeatrade.Withtwoormorepairsyouwillstruggletofollowpriceactions.Selectonepair.Itisenough.

Everypairhasitsowncharacteristic.Ifyoujumpbetweenpairs,youwon’tnoticethis.Also, it is importanttochecksituationonhighertimeframes.Whenyoudothatonmanytradingpairs,itishardtofollowpriceactionfornewtraders.

DoIneed10displays?

You probably saw photos of trade stations where traders have 4, 6 or evenmoredisplays.Itisnotnecessary;youcaneasilystartwithyourcurrentsetup.

Sowhytradersusesomanydisplays?Coupleofreasons.Theyfollowactiononmanypairs.Theyalsofollownews,checkimportantlevelsonothertimeframes.Simply,itismucheasiertodoallthatwithfewdisplays.


Butifyoustarttrading,don’tworryaboutthat.

Ifyouwanttohavemorethanonemonitor,itisnotthatcostly.YoucanbuyaPCwithgraphiccardwhichhastwoslotsfordisplaysoryoucanuseSLItechnology(morethanonegraphiccardinonecomputer).Displaysarealsonotexpensive.Youcanbuya24inchdisplay foraround150–200$;32 inchdisplaysarealsorathercheapandcostaround400$.

HowmuchmoneydoIneedtostartforextrading

This is one ofmost popular questions about Forex trading – howmuchmoney is

enoughtostarttrading.IwilltrytoanswerthisasgoodasIcan.

Remember,youcanopentradingaccountwithaslittleas100$(orevenlessinsomecases).Isitenoughtotrade?Technically,yes.Withthatmoney,youcanplacetradesifbrokerhasnanoormicrolotsinhisoffer.Sothereyougo,100$isenoughtotrade

forex.

Butisitenoughifyouareseriousabouttrading?No.

No,youwon’tearnbig$inayear,startingwith300$.Fewhundredbucksareokforstart in learningprocess.Youcanplaywiththatmoney,makesomemistakes, learnnewthings,growasayoungtrader.

Whenyoulearnhowtotrade,usemoneyyoucanaffordtolose.Thatisveryimportant.Nevertradewithmoneyyoucan’tlose.Thisisbrutalgame.Savesomemoneyforyourtradingaccount.

Peopleseeallthatadverts,readaboutleverageandthinkthattheydonotneedthatmuchcapital.Thatisahugemistake.

Tradingfulltimeisdifferent.Youneedsolidcapitalbecausewiththatcapitalyoucanmake profits. So howmuch do you need? Depends from trader, but 10,000$ is aminimuminmyopinion.Optimalamountforstartisinrange10,000–50,000$.The


amount isstronglyconnectedtoyourtradingsystem(howyouhandlerisk level,doyoutradeshorttermorlongterm,andmanyotherthings).

When you follow, the path described above (demo -> real with small capital andmicro/nano)andyoucanmakemoney,youwillbeabletocounthowmuchmoneyyouneedtothinkaboutgoingfulltime.

IlikethequotefromAlexanderElder.Hesaidthatyoucanstartthinkingabouttradingasfulltimecareerwhenyoumakemoremoneyinamonthfromtradingthenfromyourdayjob.Simpleasthat.

Rememberthatyouneedcapitalforstartbecauseyoumustfollowsomeriskratiorules(definedbyyou).Youcanfollowruletonotrisk1%or0.5%capitalatcurrenttime.Trytousethatinrealmoneytradingandyouwillunderstandquicklywhyyouneedallthatmoneyforstart.

Timeframe

Anotherbigquestion–whichtimeframeisthebest?Again,itdependsfromtradingstyles,butIcangiveyoufewtips.

Thelowertimeframe,themoreautomatictradingyouwillsee.Ontimeframes,suchlowas1minutethereisnotimetothinkslowlyandanalyzeyourdecisiontwice.Whenprice hit some important level, youmay see strong countermove from that point(because of orders from robots).Generally,Idonottradelowerthan5mintimeframe.

Whenyouare lookingforswingtrades,thenyoushould lookathighertimeframessuchas1hour+.

Ofcourse,youdonotlookonlyatonetimeframe.Youshouldcheckhighertimeframestoknowwhatisgoingon.

Onlowertimeframeitmaylooklikethereisadowntrend,buthighertimeframesmaysuggestthatmaintrendisup.


ButIhaveajob…

OK,itisnotlikethereisonlyoneproperwaytotradeForex.Ifyoustartyourtradingadventure,youprobablydonothavetimetolookawholedayatchart.Isthereanotherwaytodoit?Yes.Youcanswitchtohighertimeframesuchas1hour,4hourorsimplystartwithEODtrading.EOD–EndofDayTradingistradingwhereyoubaseyourtradingdecisionsondailychart.Ofcourse,youhavepositionopen for fewdays,your stoplossesarewider,butalsothereisachancetogetabiggermovefromstrongerswingmove.

Willyourstrategyworkonlowertimeframes?Yes.Donotworryaboutthat.Inmostcasesyourstrategywillbeperfectlyfineonlowertimeframes.Youmayneedtomodifyitandrebuildmoreorless,butitshouldbeasolidstrategytomoveontotradeonlowertimeframes.

There is a great article about EOD trading by Forex Guy. You can read it here athttp://www.theforexguy.com/forex-end-of-day-trading/.

Howmuchdoforextradersmakeaday

This is a commonquestion.Peoplewant to knowhowmuchmoney canyoumaketradingForex.Thepopularbelieveisthatyoucangetrichsofasthere.Thatismore

complicatedthanthat.

IthinkthattherearetwothingsthatcreatefakerealityofForextrading:

1) DemocontestsTherearealotofdemocontestsoutthere.Youcanwinsomeniceprizes.Problemisthattheyusually lastforefewweeks/othershortperiod.Asaresult, it issimplyagamblingcontest,notatradingcontest.Forgetmoneymanagement,strategy…Towinherepeoplestartmultipleaccountsandtradewithhighestleveragepossible.Itisnotthewaytheywouldtradewithrealmoneyondailybasis.

2) Realresultswithonlypercentagereturns


Thatisinterestingthing.OnceIhadanaccountatverywell-knownFXbroker.Therewasnocontest,justamotivationalnewsletteronceeachmonthwithbestresultsoftheirclients.OK,notabadthing–theywereshowingthatpeoplearemakingmoney.Thing is, results were presented only in percentage gains. That’s it. Basically thisnumbers tellyounothing.Even if somebodyearned1000%hemightsimplyplacedsomegamblingtradeonhis100$accountandheearnedwithluckyshot.

Thebigpicturehereisveryunclear.Thatisanatureofthisbusiness–brokerswantmoreclientssotheydowhattheydo.PeopleknowthatmanypeoplelosemoneyonForex,andyettheythinkthattheyarebetterthantherest.Intheirmind,theycansee

millionstheycanmakehere.

If you want to have overview how traders are doing in contests, head tohttp://www.myfxbook.com/contests. You can find here both demo and real Forex

contests.Ontheright,youhaveanalysiswithmoredataabouteachcontest.

IencourageyoutofollowsometradersonTwitterorsimplytocheckreal-moneyForexcontests.Youwillseetotallydifferentsideoftrading.Iknowtraders(whotradeforaliving)whosometimesplaceonly5to10tradesperweek.Thereareweeksthatthisislessthen5trades.Theyarewatchingchartsalldaylong,buttheywaitfortheirbestsetups.Numberoftradesdependsfromtradingstylebutstill–itisadifferentstory

whenyouareriskingyourrealmoney.

Thereisnospecificanswer–howmuchmoneydoForextradermake.Onethingwecanbesure–thesearenotamountslikeindemotrading.

Isdaytradingforyou-tradingforexforaliving

Manynewtradersthinkthattheyshouldbedaytradingtomakesomeseriousmoney.Thatisamistake.Thereisnothingwrongwithdaytrading,butnowyouhavemanypossibilitiestotradeonhighertimeframes.Youhavependingorders,youcaneasilysetstoplossandprofittargetorsettrailingstoploss.Thankstothatitiseasytomanage

yourpositions,evenifyouhavetobeawayfromcomputerforsometime.

There is also one addition fact, important for new Forex traders. There are biggerchancesthatyouwilllosemoneyonlowertimeframethanonhighertimeframe.It


shouldbeasolidargumentfornewtraderstostarttradingForexonhighertimeframeslike1-houror4-hours.Theyhavemuchbiggerchancesheretostayinthegameandto

makesomeprofit.

Onlowertimeframeyoucanmeetsooftensuddenchangesinprice.What’smore,algotradingistakingnowbigpartinpricemovements.Youhavetobeinfrontofyour

screenallthetimetofollowactionandreactintime.Itisveryhard.

Aspointedbefore,youcanmakegoodprofitonhighertimeframesandyoudonot

havetofollowpriceactionforthewholeday.

Also,tradingonhighertimeframeisapasstodaydaytrading.Youshouldprovetoyourself that you canmakemoney on higher frame, that you can trade. Youmustcollectenoughtradingcapital.Youcan’tjustjumpinandstartdaytradingwhenyouarenotanexperiencedtraderandjusthopethatyoucanmakeit.Numbersareagainst

yousoyoumustbeprepared.

Stressisanotherimportantfactor.Whenyouaredaytrading,youopenlargerpositions

forshortertimeofperiod.Itisnotforeveryone.

TradingplaninForexTrading

Youmusthaveone.Simpleasthat.Ofcourse,thereisawholelearningprocessandyouwill be testing different Forex trading strategies. Eventually you should decide

whatworksbestforyouandexplorethatpart.

Yourgoalistocreatetradingplan.Youshouldwritedownthingslike:

- whichcurrencypairyoutrade- whichtimeframesyoutrade- whenyouenteratrade(basedonwhatstrategy/signals)- whenyouexitatrade(basedonwhatstrategy/signals)- stoplosses–whatisyourriskpertrade- takingprofitsandmoneymanagement


Ifyoudonothavethingslikethiswrittendown,thenyouwillbechanginglotofthingsatonce.Thatwayyouwillneverfindoutwhatyouaredoingwrong.Imentionedearlierthattherearetraderswhocanwatchpriceactionandwaitfor1or2traderswhichfitentryconditionsfromtheirtradingplan.Thankstothefactthattheyhaveastrategy,

theyknowwhattheyarewaitingfor.

Whenyoudonothavethatkindofinformation(fromyourtradingplan)thenyouact

basedonahunchoremotions.Thatisnotawayhowyouwanttotrade.

AsIsaid,whenyoustarttolearnhowtotradeForex,itisnormalthatyouwillbetestingdifferentsystemsandstrategies.Intheend,youshouldchooseoneandtakeyourtimetomasterit.Andtradingplancanhelpinthatalot.


PART 2. FOREX TRADING TOOLS ANDSTRATEGIES

Inthispartofguide,wewilllookintodifferenttradingtoolsandstrategies.Ofcoursethisisstillmorelikeoverviewbecausetopicitselfisverywide.Iwantyoutoseethat

thereisachoicetomake.

Whichtradingtoolisbestforyou?

Therearemanytools likeoscillators,averagesandothers.Commonmistakeamongnewtradersistomixeverythingup.Theyfeelmorecomfortablewhentherearemoretoolsonchart.Thiswayitishardtolearnwithonespecifictool.Becauseyouhaveso

manytoolsonchartyouwillactondifferentsignals.

Yes,someindicatorsworkgreattogetherbutyoushouldknowwhatareyoulooking

for.Thismaybeveryconfusing.Resultisalwaysthesame–noprogress.

Trytostartwithfewaveragesandoneoscillator(ifyouplantousethattools).Trade

withthatsetupforsometime–atleastforfewweeks.Trytooptimizeparameters.

Onemorething,readaboutyourtradingtools.Whatisformulabehindthem,howtheywork.Sometimesyoucanseescreenwith2or3oscillatorswhicharebasicallyverylike

eachother.Thereisnopointinthat.Trytounderstandhowyourindicatorworks.


Whichstrategyisrightforyou?

Therearemanyapproacheshere.Sometradersprefertofollowtrendonlongertimeframes.Othersliketoopenpositionsmoreoften–theyareswingtrading.Addtothat

possibilitytotradefundamental,towriteyourowntradingrobotortradenaked.

Thatisagoodthing.Butwhataboutbeststrategyfornewtraders?Iwouldsaythatitshouldbeastrategythatallowsyoutotradeonhighertimeframesandprofitonlongermoves. It doesn’t have to be trend following strategy, it can be also swing trading

strategy.

Iwroteaboutitbefore,butImentionitagain.Mostnewtradersthinkthattheymusttradeonlowertimeframestomakemoney.Forthemtheselowtimeframesarelikedeepdangerouswaterfornewdiver.Thisisaplacewheresometimesmorethanhalfoftradesisdonebyrobots.WehavealsoHighFrequencyTrading.Andbiggestofall-

risktoovertrade.

Onhighertimeframethereismoretimetoanalyzecurrentsituation,tocheckothertimeframes.Whenyoucatchagoodmove,youcanmakesometimesverylargeprofit.Tomakemoneyonlowertimeframeyoumustinvestwithhighleverage.Andfornew

tradershighleverageisakiller.

Whatsettingsarebestformystochastic/macd/rsi/otheroneurusd/gbpjpy/other?

Please,don’taskthatquestion.Therearesomanydifferentsetups.Eachcurrencyhas

itsowncharacteristic.Eachtimeframeisdifferent.

Justusepricehistory.Withthatyoucanselectthebestsettingsforyourtools.

Mostcommonmistake–invisiblepriceaction

Themostimportantthingtorememberisthatallisbasedonprice.Ifyouaddtomanyindicators,averagesandothertoolsthenyoumaymissimportantpriceaction.Thatiswhyitisgoodtotradeonnakedchart–atleastfromtimetotime.Thankstothatyou

willbemoreawareofpricemovements.


PivotPoints

Inmyopiniononeofthemostimportanttoolforyourtrading.

Whatisonthechart

Wehavefewhorizontallines:

Pivotline–thisisthemiddleline

R1,R2,R3…-resistancelines,abovePivotline

S1,S2,S3…-supportlines,belowPivotline

WecancalculatemorehigherlevelslikeS4,R4andsoonbutinpracticeyouwillneed

onlylevels1,2and3.

Theselinesarecalculatedbasedonpreviousperiod(tobespecificinformulawecan

findhigh,low,close).Becauseofthatwehave:

1-hourPivotPoints–calculatedonhigh,low,closeofprevioushour

4-hourPivotPoints–calculatedonhigh,low,closeofprevious4hours

DailyPivotPoints–calculatedonhigh,low,closeofpreviousday

WeeklyPivotPoints–calculatedonhigh,low,closeofpreviousweek

MonthlyPivotPoints–calculatedonhigh,low,closeofpreviousmonth

YearlyPivotPoints–calculatedonhigh,low,closeofpreviousyear

Asyoucanexpect,Rlinesworkasresistanceforprice,Slinesassupport.Ideahereisthatpricetendtomovearoundpivotline.Eveninanuptrend,afterhittingaresistance

wecanexpectacorrectiondowntothepivotline.


Likeintheexamplebelow.Pricewasmovingaroundpivotline(blackline).ThenwesawastrongmovedowntotheS2area.Thenapullbackandagainmovearoundpivotline.Whenthereisnocleartrendinplace,wecanseesuchbehaviorwherepivotline

iscenterforpriceaction.

WhichPivotsarebestforyou?

Soweknowthattherearedaily,weekly,monthly…Whichoneisbestforyou?Dependsfromyourmaintimeframeandtradingstyle.ThemostpopularareofcoursedailyPivotPoints.YouhavetotestitbyyourselfwhichPivotsworksbestforyourtrading.Asa

littlehelp,wecantryseparatethemlikethis:

1h,4hPivots–suitableforlowestTFs

DailyPivotpoints–suitableforTFfrom1mto1h

Weeklypivots–suitableforFTlike4h,daily

Monthly–suitableforTFlike4h,daily,weekly

Yearly–suitableforTFlikeweekly,monthly


StrategybasedonPivots

YoucanbuildyourmaintradingstrategybasedonPivotsoryoucanusethemasan

additiontootherstrategy.

Fewimportantnotesaboutpivots.

WhenpriceisbelowPivotline,thislinemayactasaresistance.Similarsituationwith

priceabovePivot,itwillworkassupport.

Mostimportantaresecondlines.So,inotherwords,thereisabigchancethatthemaintargetforcurrentmovewillbeS2orR2.Thesearelevelswheretradersliketotakeprofits.Becauseofthatyoucanexpectcorrectionmovefromtheselines.

R3,S3.TherearetimeswhentrendisverystrongandpricemoveuptotheR3ordowntotheS3line.Inthatcase,youshouldtakeprofitatS3orR3.Donothopeformovetocontinue.InmostcasesitwillendatS3orR3.Ofcourse,youcanclosepartofyourpositionat3rdlineandlettherestroll.Still,frommyexperienceIcantellthatitisvery

unusualforpricetomovehigherthanR3lineorlowerthanS3line.

Pivotsfromhighertimeframe.Therearetimeswhenitisgoodtochecksituationforhighertimeframes.Iliketoopenseparatechartforthat.TherearesituationswhenlinesfromtwodifferentPivotsareneartoeachother.ForexamplewemayhavedailyR2nearweeklyR1.Thisisveryimportantinformationforusbecauseweknowwhere

isthestrongsupportandwhereweshouldtakeprofits.


PivotPointstradeexamples

USD/JPYH1,weeklypivots


ThisisanhourlychartofUSD/JPYwithweeklyPivotpoints.Trendisup.PriceisabovePivot line.Aftera rangemove therewasabreakabove trend lineandyoucanseestrongmoveup.ItendedexactlyatR3level.Itisararesituation.InmostcasesyouwillseethatpricerespectresistancelinesatR1andR2.Sometimesthereisnewsorsome

otherreasonforthatkindofstrongmove.

GBP/JPY5mdailyPivotlines


OnchartabovewehaveGBP/JPY,5mchartwithdailyPivotlines.Itisaninteresting

situation.ForthefirstpartofadaypricewasabovePivotlinewhichworkedassupport.

Latersituationchanged.Pivotstoppedtoworkassupport,therewasalsoaresistancefrommovingaverage.Suddenly,GBP/JPYtanked.Wecanseethatitwentstraightto

theS2line.

Thatchartshowswhyitisimportanttosettakeprofitorders.ItwasonlyamomentwhenpricewasatS2lineandtherewasastrongbounceback.Youwouldnotbeable

tocloseitmanually.

EUR/USD,4hmonthlyPivotPoints


LastexampleisEUR/USD,4hchartwithmonthlyPivotPoints.Itisrarewhenyoucheckmonthlypivotlines,butasyoucanseetheyalsowork.InthiscasePivotlineworkedas

aresistance,latermoveupendedatmonthlyR2.


Fibonaccitradingtools

TherearemanytoolsbasedonFibonaccinumbers.Belowshortoverview.

PopularFibonaccitools

Fibonacciretracement

Fibonacci retracement is the most popular tool used by traders who are trading withFibonacci.Ithelpsyoutopredictwherecorrectionmightend.

DoyourememberhowinthebeginningofthisarticleIwroteaboutnatureoftrends?Whenprice is inanuptrend, there isasequenceofhigherhighs,but there isalsoasequenceofhigherlows,orsimplycorrections.Thisissomethingnaturalforuptrend–pricemoveup,upandsuddenlyitisfallingdown.Thatiscorrectionanditisagoodthing,becauseitletyoutoenterpositionforbetterprice.

Fibonacci retracement helps you to find places where correction might stop. With thatknowledgeyoucanplantoenterapositionfromthereinadirectionofmaintrend.

Fibonacciexpansion

Youcanalsopredictwheretherewillbethenexthighorlow.YoucandothiswithFibonacciexpansion.Todothatyouneedtofindthreepoints.AandBfrommainswing(lowandhigh)and point C where correction ended (similar points as you would be looking to drawretracement levelsbuthereyouhave toknow/decidewherecorrectionended).With thatpointsyouareabletodrawFibonacciexpansionandinresultyouhavefewprojectionswheremightbenexthigh/low.Therearemorelevels,butstandardare61.8%,100%and161.8%.


Thereisalsoextensionbasedonlyontwopoints(AandB),whichalsogivesprojectionlevels,butlet’sdonotcomplicatethingstoomuch.

Fibonaccitimezones

Interestingtoolwhichyoudrawhorizontally.Thereismanywaysyoucandrawit–fromhightohigh,hightolow,lowtohigh…Inaresultyouhaveverticallines,whichrepresentstimewhentheremightbeendofmoveorsomechangeofdirection.

Fibonacciarc

Itisanothertoolwhichrepresentsareasofsupport/resistance,butinanotherway.YoudrawFibonacciarcfromhightoloworlowtohigh.Asaresultyoucanseethreecurves38.2%,50%and61.8%whichrepresentspossibleplacewherepriceactionmightstop/reverse.


Fibonacciarcexample

FibonacciFan

Withthistoolyougetthreediagonallines.EachoneofthemrepresentsFibonacciratioandwhen price is getting close to this lines, you know that thismight be area of support orresistance.Youdrawatrendlinebetweenlowandhightogetthislines.

Actually,thistoolisprettyhandy.Trytoexerciseonhistoricaldata,ortestitinyourtrading.Itisallaboutselectingrightlowandhighandyouwillgetgoodresults.

Fibonaccifanexample

TherearesomeothertoolsbasedonFibonaccinumbers,butthesearemostknown.Ifyouareconfusedrightnowandyoudonotknowwhichoneyoushoulduse,thenletmegiveyousmalladvice. Start from Fibonacci retracement and master using it. Then add to your toolboxFibonacciexpansion–itisimportanttool,becauseitletyoupredictthebestpointstocloseposition.


MostpopularcombinationisFibonacciExtension+FibonacciRetracement:

FibonacciExtension–theyworkaspossibletargetforthemove(takeprofitarea)

FibonacciRetracement–theyworkassupportduringacorrection

SetupinMetatrader

Nowlet’shavealookhowtosetupFibonaccisoyouhavemostpopularlevelsinplace.

Belowyoucanfindinstructionswithmostpopularsetup.

WherecanyoufindFibonacciRetracementinMetaTrader4?

GototopbarandfindFibonacciRetracementicon:

OryoucangotothetopmenuandselectInsert->Fibonacci->Retracement:


HowtochangeFibonacciretracementandextensionlevels?WhenyouhaveselectedFibonaccitooldescribedinpoint1.,drawitonachart.Now,

doubleclickonthelinethatgoesfrom0to100%:


Andclickmouserightbutton.Next,selectFiboproperties:

Fibonacciretracementandextensionlevelslist

InFiboproperties,gotothesecondtab.Youwillfindthereatablewithtwocolumns:

LevelandDescription:


Probably youwill see some default values. You can edit fields and add new ones.

Correctthelistinthesecondtabsoitlookslikelistbelow:

Level Description0 0.00.236 23.60.382 38.20.5 50.00.618 61.80.786 78.61 100-0.27 127-0.382 138.2-0.618 161.8-1 200


ThesearelevelsthatIuseinmydailytrading.Sure,youcancustomizethislistsoitfityourtradingstyle.Youcanaddlevels like261.8,150etc. Inmyexperience,youare

goodtogowiththelistIprovidedabove:


FibonaccitradinginForex

TodrawFibonacci,weneedtoselectaswingmove.Additionally,wehavetotrytodothatintherightdirection.Thatiswhyitiscrucialtounderstandpricebehavior,trends,swings.

Let’s start from tricky question and basics of price behavior. Inwhich direction, can pricemove?Youprobablywouldanswer:upanddown.Thatiscorrectanswer,onlythatthereisone“but”.Whatifthereisnomaintrend?Ifthereisnostrongtrend,pricewillprobablymovesideways.Statisticssaysthatpriceisabout30%oftimeintrendandrestofthistimeismovinginrange.Whymovinginrangeissobadthing?Becausethereisnocleardirectionandpricemoveupanddownsoitisveryhardtomakemoneyinthatkindofmovement.Justlookatchartbelow,isitsomethingyouwouldliketotrade?

sidewaymoveexample

Ithinkso.Whatwewanttotradeistrendingmarket.Goingintotrenddirectionincreasesyourchancesofsuccess.Lookatthisbeautifultrendbelow.Isn’t itsomethingyouwouldliketotrade?Ontheshortsideofcourse!

downtrendexample


WewanttouseFibonaccitechniqueinthatkindofmarket.BeforeIgofurtherandexplainmoreaboutthis,thereisanotherimportantthingyoumustlearn.

Howtorecognizetrend?

Youshouldbeabletoeasyrecognizeifthereisatrendinplaceornot.Sometimesitishardbecauseofthe“noise”,buttherearesometipsyoucanuse.

Lookforhigherhighsandhigherlows,ifyouarelookingforuptrend.Ihaveprobablyshowedyou this charts before, but this is important. On chart below you can see an example ofuptrend.Youcanseethateveryhighishigherthanthepreviousone,andeverylowishigherthanpreviouslow.

higherhighsequence

Whenyoucanfindtheseelementsonchart,thenyouhaveidentifiedanuptrend.

Indowntrendyoushould look for lower lowsand lowerhighs.Each low is lower than thepreviousone,andeachhighislowerthanprevioushigh.Justlikeonchartbelow:


lowerlowsequence

Ifyouareabletoidentifylowerlowssequence,thanyouhavefoundadowntrendandyoucanplantoentershortposition.

Inrangemarketthereisnosequence,thereforethereisnotrend.

Youcanalsousesimplertoolstodefinetrend.Mostpopularmovingaverageisagoodchoice.Letssayyouareusing200simplemovingaverage.Whenmovingaverageisrisingandpriceisabovethatline,thanthereisastrongchancethattrendisup.Iftrendisdown,pricewillbeunder200SMA.Ofcoursethismethoddoesnotmakeyou100%sure,butthechancesaregood.

200SMAasahelpintrendidentyfying

So,whatreallyFibonaccitradingis?

Now,whenyouknowwhatkindoftrendsthereareandhowtorecognizethecurrenttrend,wecanmovetoanswerthequestionfromtitle.WhatisFibonaccitradingabout?

Fibonaccitradingisatechnique,whereyouareusingtoolsbasedonFibonaccinumberstopredictpossibleturningpoints(ifyouwanttoreadwhatitisFibonaccinumber,justgohere).


TherearemanytoolswhichyoucanusefortradingwithFibonacci.Eachofthemdoadifferentjob.Somearemoreimportant,someless.Lestreviewthemquickly.

HowtotradewithFibonacci?

Nowyouknowwhatdoes itmeanFibonaccitrading,andwhatkindsofFibonaccitoolswehave (plentyof them!).There isonemore importantquestiontoanswer.Howshouldyoutradewiththesetools?

Notice that all this tools give you a potential level of support/resistance or potential exitpoints.Thisisveryvaluableinformation!Buthowtouseitforyourbenefits?Ofcourse,Iamnotabletoansweryouinfewwords,butIcangiveyousomeadvicewhatshouldyoudo.

Youshouldbuildtradingplan.ThemaincoreofyourtradingplanwillbeFibonaccitools.AsIwrotebefore,firstincludeFibonacciretracementandextensiontoyourplan.Next,youneedsomesignalswhichhelpyoutoenterandexitpositions.Thelogichereisthatwhenpriceisinuptrendandcorrectionoccur,youdrawretracementlevels.Whenpriceisnearoneofthem,youdonotknowwhichonewillbeasupport.Thatisok,becauseyoudefineyourownsignalandwhenpricereturntomoveupfromcorrection,yougetyoursignal.Itmightbesomethingsimplelikemovingaveragescrossoverorsignalfromsomeoscillator.

Samewithclosingposition.Youshoulddefineonwhichsignalyouwillexityourposition.Itwillbeprobablynearoneofexpansionlevels,soyouwillbereadytoact.

The last,very importantpartofyourtradingplan ismoneymanagement.Youshouldkeepyourlossessmall.Itisveryimportanttotradesmartandnottorisktoomuch.

Some of this information are not very specific, but the whole topic about trading withFibonacciisverywide.Intheend,itisaboutpractice,practice,practice.Youshouldbetestingnewideasandgettingexperience.TradingwithFibonacciisgreat,becauseyouhavepossiblesupportandresistancelevelsandevenexitpoints.Ofcourse,theyareonlypossiblelevels,butonmanytimestheyworkexcellent.Youneedtobuildyourwholetradingplanaroundtheselevels, so around Fibonacci tools. Add to this entry and exit signals and proper moneymanagementsystemandyouareongreatwaytosuccessintrading.

ABCDandFibonaccitrading

TherearemoreadvancedtechniquestotradewithFibonacci,butyoushouldstartwithABCD.Thisissimpleyetpowerfulapproach.Inshort,welookforaswing.BasedonthatswingwedrawourFibonaccilines(AandB).Next,wewaitforacorrectiontoretracement–C.AfterthatweopenatradeandwaitforcontinuationmovetowardsD(whichisanextensionline).


Lookatsomeexamplesbelow,itshouldbeclear.

Fibonaccitradeexamples

GBP/JPY1hourchart

HerewehaveexampleofGBP/JPY.Wecanseethatafterstrongmovedown(fromAtoB)therewasacorrectionup.ThiswasagoodmomenttodrawFibonaccilinesandwaitforsignaltogo short.Correctionendedat78.6%andafter that therewere signals fromMACDandStochastic.Thisshorttradeworkedwell.Moveendedat138.2FibonacciextensionanditwasourDpoint.


EUR/USD30m

InthisEUR/USDexampletimeframeis30m.WeareinanuptrendandafterstrongmovetotheBtherewasacorrection.Itwasratherdeep,downtothe78.6retracementline(ourCpoint).NextEUR/USDreturnedtotheuptrend.Wesawsomesignalstogolong.Thiswasastrongmoveup,withshortstopat161.8%extensionline.Eventuallymoveendedat200%extensionline,thiswasourDpoint.


DAX15m

Thisis15mchartofDAX.Itisagoodexample,becauseitshowshowuniversalFibonacci

toolsare.Theyworkwithcurrency,withcommodities,stocks,indices…

Onthechart,wecan’tseetheleftside–therewasanuptrendmovebefore.Itended,pricewentdownbelowaverages.TherewasacorrectiontotheC(50%retracement).Fromtheresomemoveintherangeandstrongmovedowntothe200%extensionline

(D).


Trailingstop

TrailingstopisanothergreattoolwhichcanhelpinyourForextrading.Itissimple,but

canhelpyoutocatchbigmoves.

Thereare few typesof trailing stop losses. Sometimes theyarebuilt in the tradingplatform. You can’t find them inMetatrader so youmust download and install it.

Searchforchandeliermt4trailingstoplossandyoushouldfindthebestversion.

Howtousetrailingstoploss

Ideabehindtrailingstoplossisverysimple.Ifpriceisabovetrailingline,youshouldbe

long.

Ifitisbelowtrailingline,youshouldbeshort.Simpleasthat.

Themainadvantageoftrailingstoplossisthatitallowsyoutostayinthetrendand

takebigprofitofthat.

Exampleaboveshowsratherwellhowitworks.Itworksasstopline.Youcanseethat

whenmoveupendedandpriceclosedbelowblueline,itwastimetoclosetrade.


Bestsettingsfortrailingstoploss

Itisacommonquestion–bestsettingsfortrailingstoploss.Youshouldworkitoutbyyourself.Onesettingsmayworkgreatonspecificcurrencyandtimeframebuttheycanbeoutofplaceonanother.Thatiswhyitisbesttotestsettingsonpricehistory.YoucanplaywithLengthandATRPeriodbut it isKvparameterwhich interestyou

most.

Itisnotalwaysthateasy

Trailingstoplossiseasytouse,buttherearethingsyoushouldrememberabout.Itworksgreatwhentrendisstrong.Therearetimeswheremovesarestrongorwhen

thereisnospecificdirection.

When there is a rangemove, youcaneasilyovertradeand losemoney. So,weare

talkingaboutsituationslikethis:


Timeframefortrailingstoploss

Timeframedependsfromyourtradingstyle,butyoucantrytrailingstoplossontimeframeslike15m,30m,1h.Trendsherecanlastforsometimeandprofitmaybegood.Ifyougolowerwithtrailingstoplike1m,5mitismuchharder–mainlybecauserapid

moves.

Strategyfortrailingstoploss

Youcanuseonlytrailingstoplossbutitworksbestwhenyoujoinitwithothertools.Asalways,youwanttotradeinthedirectionofcurrenttrend.Thatiswhyitisoktojointrailingstoplosswithaverages.Thankstothatyoucanfilterfalsesignals,likeinexamplebelow.Aftermovedowntherewasachangeintrailingstoplossandsignaltogolong.Asyoucansee,pricewasthenbelowaverage.Thatmeansthatitwasbestto

waitforbreakaboveit.Itdidn’thappen.Itwasafalsesignalafterall.


Tradeexamples

GBP/JPY,30m

First,therewasasignaltogolongandstrongmoveup.Whenmoveended,priceclosedbelowblueline,itwassignaltoclose.Next,pricewasbelowredline(signaltogoshort)but it was above moving average. It was best to wait for another confirmation.Eventually,pricebrokebelowthataverage,butnoticethatitwasstillabovesupportline.Itisimportanttodrawsupport/resistancelinesbecausetheyhelpustomake

tradingdecision.


USD/JPY,4h

Thisisagoodexamplethatsometimestrailingstoplosscanhelpyoutocatchreallybig

moves.Ifyouarealongtermtrader,youcaneasilyuseitinyourstrategy.


Movingaveragesinforextrading(andnotonlyFX)

That is a common problem among investors. They are looking for best working movingaverages.Butdoyouknowtherearefewwaysyoucanusemovingaverageinyourtradingplan?

Domovingaveragescrossoversworks?

TaketennewtradersandtellthemtocreatetradingsystemandIamsurethatmorethan70%of themwill usemoving average crossovers as apart of their system. It is not a surprise.Movingaveragesareoneoftheoldesttechnicalindicators.Theyareinusesince20’sofXXcenturysoalmost100years.Ofcourse,over timepeople findmoresophisticatedwaysofusingthem.Also,wehavemanymoretypesofaverages,buttheconceptsbehindcreatingthemarestillsimilar.

Butdotheywork?

Fromthebeginningofusingma’stradersweretryingtofindprofitablecrossoversignals.YoumaybefamiliarwithconceptsuchasGoldenCrossandDeathCross.Butthereisnoonesimpleanswer to the question.When there is a strong trend then signals frommoving averagecrossoversworkgreat:


strongdowntrendandgoodsellsignalsfromaveragecrossovers

When there isnocleardirection– themarket ismoving sidewaysorwhat’sworse isverychoppy,thenqualityofbuyandsellsignalsfrommovingaveragesisverylow:

nocleartrendandmanyfalsesignalsfromcrossovers


Soitdependsmorefromthewayyouaregoingtouseaverages–doesyourtradingplantakessuchascenariointoanaccount?

Butwait,thereisanotherwayofusingmovingaverages

Istartedfromcrossoverstopicbecausemanynewtradersthinkthatthisisthemainwayofusingthem.Theyarewrong.Belowyoucanfindfewexampleshowyoucanuseaveragesindifferentways.

Movingaverageasatrenddetector

Yousimplytakelongertimeframeandobservewherethepriceis.So,intheexamplebelowwearelookingat200movingaverage.Whenpriceisabovethataveragethenthatisasignalforusthattheoveralltrendisup:

priceabove200movingaverage


Whenpriceissittingbackbelowaverageformostofthetime,thenit’ssignthatsellersarestrongernow:

pricebelow200movingaverage

Whatisthedirectionofaverage?

Youshouldalsopayattentionatwhatdirectionmovingaverageispointing.Ifit’spointingup,thentherearebetterchancesthattrendupwillcontinue.

Whenit’spointingdownthenitispossible,thatthereisacorrectiontakingaplaceordowntrendwillcontinuetoexpand.


Ispricecrossingthroughmovingaverage?

This is also a valid signal.When price formost of the timewas right below average andsuddenlyiscrossingthroughtotheothersidethanitisasignthatoverallsentimentmaybechanginglikeintheexamplebelow:

pricecrossingthroughaverage

Movingaverageasasupportorresistance

Thatisaveryimportantfunction.Someaveragesarecommonlyusedbytraders,forexample50,100or200averages.Theyareverypopularandwhenpriceismovingnearthemthenyoucanexpectreaction.Ifpricewasmostofthetimeaboveaverage,itispossiblethattherewillbesupport.Checktheexamplebelow:


supportat50,100and200averages

On theotherhand, if theprice isbelowaveragesand ismoving closer to them, then it ispossiblethataverageswillworkasaresistancearea.

Asyoualreadyknow,knowledgeaboutpossiblesupportandresistanceareasisveryworthy.Youcanwritethisintoyourtradingplanandclosetradesatbettermoments.

Howmanyaveragesshouldyouuse?

Itdependsstronglyfromtraderandtradingstyle.Forbeginners,Isuggesttoputonchartatleastoneaveragefromeachgroup.Wecandivideaveragesinthreemaingroups:

• Short-termgroup–averagesfromaround1to20.Theyarehelpfulwhenyouwanttocheckthecurrentshort-termtrend.

• Mediumtermgroup–withaveragesfromaround20to50.• Longtermgroup–averagesfromperiodfrom50up.Withlongtermaveragesyoucan

seebetterthebiggerpicture.

Periodsmaybedifferentforsometraders.Thevaluesfromabovearetheretogiveyousomeideaaboutscopeofeachgroup.So,youjustwanttohaveoneaveragefromshort-termgroup,onefrommediumandonefromlongtermgroup.Youmaycreatesetlike:

• 10,50,200• 5,33,100• 7,21,200• anyothercombination


Ithinkthatthegoodstartistouse13,50and200movingaverage.

13,55,and200movingaveragesoneur/usdchart

Testitandseewhichoneisthebestforyourtradingplan.

Othertoolsbasedonaverages

There are many trading strategies based on averages. Most popular use of averages areRainbowMovingAveragesandGMMA.Let’shaveacloserlook.

Rainbowchart

Rainbowchartisverypopular;youcanfinditinmanytradingplatforms.IfthereisnoRainbowchart,thenyoucanbuilditbyyourself.

How?Rainbowisusuallyconstructedfrommovingaverageswithperiodrange2–200.Itmaybesomethinglikeaverages2,3,4,5,6,7,8,9,10,11,12,13,14,15…andsoon.Foraveragesfromhighergroupsdistanceiswider,thatiswhyinlastgroupwehave125,130,135…Orifyouneednumbersforallrainbowaverages,hereyougo:


2,3,4,5,6,7,8,9,10,11,12,13,14,15–1stgroup

17,19,21,23,25,27,29,31,33,35,37,39,41–2ndgroup

44,47,40,53,56,59,62,65,68,71,74–3rdgroup

78,82,86,90,94,98,102,106,110,114,118,122–4thgroup

125,130,135,140,145,150,155,160,165,170,175,180,185,190,195,200–5thgroup

Usuallytheyaredividedinto4or5groups.Youmayhaveforexamplegroupslike:

Averages2to15–redcolorAverages17to41–yellowcolorAverages44to74–greencolorAverages78to122–bluecolorAverages125to200–violetcolor

Oryoucanusedifferentcolors,theyarehereonlytoseparatevisuallyeachgroup.

Youcanusetypeofaverageswhichisbestforyou.Iuseinmostcasesexponentialaveragesorlinearweightedaverages.


TheideabehindRainbow

Youcanseethatthisisasimpletool.Ithelpsyoutocheckcurrentsituation.Obviously,thisisatoolfortraderswhowanttotradewithtrends.WithRainbowtool,theyseecurrenttrend.Also,thereisaninformationaboutsupportandresistanceareas.WideRainbowmeansthatsupport/resistanceisstrong,narrowthatitmaybeweak.

Rangemoves

Likeothertoolswhichhelpwithcatchingtrendsanditisgreatwiththat.Asalways,problemiswithrangemoves.Thereisabigriskthatyouwillovertradewhenthereisnocleartrendinplace.InsituationslikethisyouwillnoticethatRainbowisnarrowanditischangingdirectionsalot.Likeintheexamplebelow:


YoucanseerightawaythatRainbowisratherflatandpriceismovingupanddown.Thingwithrangemovesisthatitisratherhardtospottheminthebeginning.Afterawhile,likeinchartaboveyouknowthatyouaredealingwithrangemove.Beforethatitisnotsoobvious.

It comes with practice. Check higher time frames, use trend lines so you have betterunderstandingofcurrentsituation.

Rainbowand…

Frommy experience with Rainbow tool I can tell that it is best to join them with otherindicators.ForexampleyoumaybuildyourstrategyaroundRainbowandMACD,youcanaddalsoPivotlines.BelowyoucanseeRainbowwithtwoIchimokuKijunSenlines(Kijunsetto26and60)andPivotpoints.


YoucanmixRainbowwithothertradingtoolsyoulikemost.Overall,inmyopinionRainbowcanbeverypowerfulwhenjoinedwithothertoolswithgoodtradingstrategy.


Rainbowtradeexamples

EUR/USD,H1

Onthis1-hourEUR/USDchartwecanseerainbowaverages,twoKijunSenlines(26,60)andMACDoscillator.

Afterlonguptrend,therewasastrongmovedown.Wasitachangeintrend?Wecanseethatlongestaveragesgropup(violet)isstillwideinthisplace,likeothergroups.Thisisnotagoodplacetogoshort.Youcanclosepositionherebutitlooksliketrendisup.SituationlikethisisnotrareandwithhelpofRainbowyoucantradeinrightdirectionandyoucanavoidtradingagainstmaintrend.

LaterwecanseethatblueKijunlinecrossedagainwithsecondKijunandEUR/USDmovedhigher–thiswasagoodpointtogolongagain.


GBP/JPY,30m

Onthis30mGBP/JPYchartwehaveRainbow,twoKijunlines,dailyPivotsandoscillators.

Youcanseethatbreakbelowsupportwasastartforastrongmovedown.Youcouldenteratthebreak(becauseearliertrendwasalsodownanditwasacorrectionup)orwaitforreenterlater.ThisisagoodexamplethatRainbowistrendindicator(weknowhowstrongistrend,direction)andlongerKijunlineisourtrailingstoplossline.Thankstothatyoucanmaximizeprofitsfromyourtrades,becauseyouwillstayintradeaslongaspossible.


AUD/NZD,H4

We have here 4h chart of AUD/NZD. Earlier trend was down. Then it looked only like acorrectionmovebutwecanseethatpricefailedtoclosebelowKijunlines.Also,Rainbowlinesweregettingmorenarrow.Itcouldbeastartofarangemovebutitturnedouttobeastartofmoveup.


GMMA

GMMAisanothertoolbasedonmovingaverages.ItwasintroducedbyAustraliantraderDarylGuppy.HeisusingitinstockmarketbutitworksgreatinForex.LikeRainbowitisbesttojoinGMMAwithothertools.

ConstructionofGMMA

Wehavetwogroupsofmovingaverages:

3,5,8,10,12,15–thisgrouprepresentsshorttermtraders

30,35,40,45,50,55,60–thisgrouprepresentslongtermtraders

YoucanbuildinbyyourselfinMetatrader.IusedMAincolorindicatorwhichyoucaneasilyinstallinyourMT4platform.Itallowsyoutohave3colorsforeachaverage;differentformoveup,movedownandrangemove.Inthechartaboveyoucanseethatduringacorrectionmovecolorschangedtoblueandlightblue,thenafterawhilebacktobrownandred.

Youcanusetypeofaverageswhichisbestforyou.Iuseinmostcasesexponentialaveragesorlinearweightedaverages.


MaingoalofGMMA–howtouseit

Whenpricemoves,wehavemaintrendandshorttermmoves(correction).Longtermtraderswanttoprofitfromthemaintrend.Shorttermtraderswanttoprofitfromthisshortmoves.Eachgrouphasdifferentgoals,butwhenyoujointhistwogroupstogetheryoucanseewhatisgoingonrightnowwiththemarket.

Youcanuseittodecideabouttradedirection.Wheneachgroupis,wideandseparatedfromeachother,trendisstrong.Ifnot,itispossiblygoodideatowaitforsituationtobeclear.Moreintradeexamples.

ProblemswithGMMA

Like Rainbow, GMMA is great in trendingmarkets but can be dangerouswhenmarket ismovinginarange.Therearesignalsthatwemighthavearangemarket–averageswillbeclose to each other; short term group will oscillate around long term group. Like in theexample:

Itisagoodtocheckothertimeframes,drawsupportandresistancelines,uselongeraverages(200periodlong)soyoucanavoidtradinginsuchmarketconditions.


Tradeexamples

GBP/USD,15m

Wehavehere15mchartofGBP/USD. It isasimpleexamplehowyoucanjoinGMMAandtrendlinesandbreakoutstrategy.Ofcourse,herewehaveonlyoneline,buttherearemorecomplexpatterns.Logicisthesame–youdrawtrendlinesandwaitforabreakout.ThankstotheGMMAlines,youplaceatradeaccordingtothedirectionofmaintrend.


DAX,30m

Onthis30mDAXchartwe joinedGMMAwithFibonnaciRetracementandExtension lines.GMMAlinesworkverywellwithFibonacci.Theyhelpyoutoseethedirectionofmove.Also,itiseasiertospotacorrection.

Inthisexamplepriceafterswingmovetherewasacorrectiondowntothe50%retracementline.Afterthatwesawacontinuationmoveuptothe161.8%extensionline.Easyandclearsetupwhichyoucouldexecutewithhelpoftrendlinesoryourfavoriteoscillator.


USD/JPY,H4

Onchart4-hourUSD/JPYwithGMMA,MACDandweeklyPivotPoints.ThisisexamplehowyoucanmixGMMAwithdifferenttools.WithhelpofPivotPoints,wecantakeprofitwhenpriceisgettingclosertooneofSlines.HereitwentdowntoS3andlatertoS2line.Gmmahelpsyoutotradeindirectionoftrend,PivotPointstotakeprofitsatbestplaces.


PART3.MONEYANDPOSITIONMANAGEMENT

Howtosetstoplossinforextrading

Thisisthemostcommonproblemamongtraders.Howtosetstoplosstoprotectpositionbutnottobestoppedouttoosoon?ThegoodnewsisthatsettingstoplosseswithFibonaccitradingtoolsiseasier.Inthisarticleyoucanreadaboutbasicsofsettingstoplossesandsomemoreadvancedtips.

Shouldyouusestoplossorders?

LatelyI’vereadfewopinionsthatusingstoplossesisbad.Iamnotgoingtofightwitheverybodyhere.Ifsomeprotraderthinksthatstoplossesarenotnecessarythenitishischoice.Ifhemakesmoney,thatisgood.Butifyouareanewinvestor,strugglingtocloseayearwithaprofit,thanusingstoplossesisnecessary.

Let’ssayitclearandloud:stoplossesarenotperfect.Itisnotsomethingthatwillmakeyourichorprofitabletrader.Itisalsonotsomething100%accurate.Yousetyourstoplossesandyourstoplossesareasgoodasgoodtraderyouare.

Whystoplossesaregood?

Stoplossesaregoodbecausetheyprotectyoufromyourgridandimpulsivedecisions.Howmanytimeshaveyouwaitedtoolongtoclosethelosingtrade?Youwerehopingthatthisisonlyacorrectionandinaminutebuyerswillcomeback.

Emotionsareyourworstadvisor.Youcannotturnthemofftotally,butyoucanworkonminimalizingtheirimpactonyourtrading.Stoplossorderisoneofthetoolswhichmayhelpyoutoachievethat.


Theideaofstoploss

The ideaof good stop loss placing is to help you keep your losses small and avoidemotionstakingcontroloveryourdecisions.Thiswayyoucanhavethreelosingtradesinarow,butyourlosstogetherfromthesethreetradeswon’tbesuchabig.Thenexttrademaybemuchmoreprofitable.

Let’slookatexample.

Johnwantstobuy200sharesofYYYCompanyat12$.Heiswillingtorisk1.2$oneachshare.Hehasagood

feelingaboutthiscompanyandhistradingplangiveshimagreenlight.Heboughtitandtwodayslaterhewas

stoppedout.Hislostwas1.2$x200shares=240$.

Nextdayhedecidestoenterothertrade.TherewasabreakoutonVVVchart.Hebuys80sharesat20$andset

hisstoploss1.5$lower.Inthebeginningitlooksgood,butsuddenlythereisarumoraboutYYYproblemsand

sharesstarttofall.Hewasstoppedout.Hislossis1.5$x80shares=120$.

He is nothappyabout that, buthe is lookingatotheropportunities.Hehas fewpossible candidates, buthe

decidedtowaitforanotherconfirmationfromhistradingplan.FewdayslaterthereisaconfirmationsignalonHHHCompany’schart.Hebuys50sharesfor42$andsetshisstopat38.5$.Thereisnottoomuchactionnextdays, but eventually stock starts to move up.

InnextfewweeksHHHgoesupto52$andJohndecidetoclosethetrade,becausethereisastrongresistance

nearthatlevel.Heclosespositionat52$andhisprofitis50sharesx(52$-42$)=500$.

Onprevioustwotradeshehaslost360$,sohisprofitis500$-360$=140$.Ok,heisnotreach,butitisnotsobad.Butwhatifhislossesfromprevioustradeswerebigger?Thenhestillwouldbetryingtoearnbackhismoney.

Exampleissimple,butIhopethatyougetthemainidea.Thatisalifeofinvestors.Youwillbestoppedout.Yourgoalistolookforprofitabletradesandthankstothemearnmoneyforprofitandtocoveryourlosses.


Risk/ratioreward

There is a very popular goal to keep your risk/reward ratio at 1:2 or even 1:3proportions. Thatmeans that trader iswilling to risk forexample2$per shareandexpecttoearn4$pershare(1:2)or6$(1:3).

Iftherisk/rewardratioisaround1:1,theydonotenteratradebecauseitisnotworththatrisk.

Risk/rewarddescriptionisagoodtopicforanotherarticle.Fornowlet’sstaywiththeriskpart.Experiencedtraders,whoarelookingforgoodopportunities,knowwheretoputstop.Theydonotenteratradeandthenwonder:“Hmm,maybeherewillbeagoodplaceforstoploss”.Theybasicallyknowthatwhentheythinkaboutenteringatrade,becausetheyarelookingforgoodrisk/rewardratio.Keepthatinmind.

Whentosetstoplosses?

Thebestpracticeistosetstoplossinthesametimeyouareplacingyourorder.Youshouldknowinadvancewhereyouwanttosetyourstoploss.Whenyouareplacingyourorder,yousetstoplossrightway.Why?BecauselateryouareprobablygoingtohesitatetoplaceSL.Youmightalsoplaceitinawrongplace,becauseofemotions.

Whereshouldyousetstoploss?

Itishardtoanswerinfewwords,buttherearesomegoodrulesyoucanfollow.Beforewereviewthem,let’slearnmoreabouttwomostcommonmistakes.

Mistake1:Placingstoptootight.

Whenstoplossissettootightthenthereisastrongchancethatyouwillbestoppedatfirstbiggermoveorstophunt.Marketsareveryvolatiletodayanditiseasytobestopped out when your stop is too close.I’venoticedthatthishappenstotraderswhodonotwanttolosetoomuchmoney.Becausestoplossisveryneartheentrypoint,whenitgetstriggered,lossonaccount


issmall.Themainproblemisthattightstoplossesgettriggeredveryoften.Soonyouhavedozensofsmalllosseswhichaltogetherareonehugelossonyouraccount.

Mistake2:Placingstoptoowide.

Nobodylikestobestoppedoutfromatrade.Sometradersplacetheirstoplossesverywidetoavoidthat.Theydonotwanttobecaughtduringstophuntingorcorrection.Wide stop losses are triggered rarely, but when it happens – loss is very big.Onsomeoccasionthatworks,butonmanytimestheyareeventuallystoppedoutandlossfromthatisverybig.

Sowhatistheanswerhere?Youhavetofindsomethinginthemiddle!Ok,Iknowthatthisisnottheanswer;).

Startfromlookingcloselyatpriceaction.Ifyouhavereadmyothersarticles,yousawthe next chart, but this is an answer for your problem.Iassumethatyouaretryingtoinvestinatrendingmarket.Whenthereisnotrend,youdonottrade.Whatweknowisthatinanuptrendwehaveasequenceofhigherhighsandhigherlows,justlikeonthechart.Ifthetrendisstrongandhealthy,youcaneasilyseethatsequencejustlookingattheprice.Whenthereissomethingwrongwithtrend,pricehasproblemtomakenexthigh–signthatcorrectionispossible.


Settingstoplossbelowlastlow

Withallthatinformationyoucanplaceyourstopbelowlastsignificantlow,whenyouare ina longposition.When trend ishealthy,youshouldmakeyourmoney.Whentrendisveryweak,youwillbestoppedout.It isagoodthingbecauseprobablythepricewillgoevenlowerthanyourstoploss.

Italsoworksinadowntrend.Youaresimplylookingtoplaceyourstoplossabovelasthigh.

Placingastoplossinadowntrend


Lookatthelogichere.Ifpriceinadowntrendwillmanagetobreakaboverecenthigh,thenthereisastrongchancethatbuyersaretryingtotakeoverthecontrol.Youdonotwanttobeshort inthatsituation.Youwanttocloseyourpositionand lookforotheropportunities.

Raisingstoploss

Iamahugefanofthatmethod,yetmanypeopledonotuseit.Itisverysimple,soinyournexttradestrytouseit.

Howdoesitwork?Youplaceyourstoplosswhenyouareopeningatrade.Onsomeoccasionsyouwillbestoppedoutprettyfast.Othertimestradewillgoasyouwantedto.That isgood,butwhatdoyoudowhenyourtrade isprofitable? Itstillcanturnaroundandtriggeryourstoplossandfromprofitabletradeyouwillendwithaloss.Thatwasmymistakeactually formanyyears. Ihadsomanyprofitabletrades forawhile,butIwasclosingitwithloss.

Nowwhenmytradeisprofitable,Iamsimplyraisingmystoplosstotheentrypoint.Thiswayevenifpriceisgoingtoturnagainstmyposition,Idonotloseasingledollar.Whentoraisestoptoentrypoint?Notassoonasyourtradeisprofitable.Justwaitsometimeandseehowthingsare.Youhavetoworkoutyourownsystem.Iusuallywaituntilpriceisatleasttwiceasfarfromentrypointasmystoplossis.Soinatradewhereentrypositionwasat20andstoplosssetat18(2$lowerfromentryprice),Iraisestoplossto20assoonaspricewillgoupto24$(twiceasstoplossso2×2$=4$).SometimesIraiseitearlier–itreallydependsfromsituation.

Whenthepriceisstillgoingup,Iamraisingmystopevenfurther.Why?Toprotectmyprofit.Ifpricewillfailtoreachmytarget,Istillbooksomeprofitfromthattrade.Itiscalledtrailingstop,becauseyourstoplossispracticallyfollowingthepriceallthetime.Whenpricegoesup,soisyourstoploss.Ofcourseifpriceinanuptrendisdown,youarenotloweringyourstop.Therearemanymethodsofusingtrailingstoploss.Youcanwatchthismoviebelowtoseehowsometradersareusingthistechnique.


1%rule

Sometradersareusing2%rule,butthis isnotthemost importantthingaboutthatrule.1%rulemeansthatyoucanriskonly1%ofyourtradingcapitalonanysingletrade.

Forexample,whenyourtradingaccountis20000$,thanyoucanrisk20000$*1%=200$onanysingletrade.

Yes,youcanriskonly200$pertrade.Manytradersdonothavebigenoughaccounts,sotheyaresimplyjustignoringthisrule.Thetruthis,thisisagreatrule,whichhelpsyoutosurvive.Evenifyouwillhave20losingtradesinarow,youstillhavemorethanhalfofmoneyonyouraccount.Withoutthatrule,youwouldbeprobablylookingformoneyforyournextaccount.

Itisverywidetopic;Iamgoingtowriteaboutthisinseparatearticle.Itisyourdecisiontousethisruleornot.IamusingthisruleandIcansaythatonmanytimesitsavedmyaccount.Jointhisrulewithgoodstoplossplacingandyouwillbesomuchbettertrader.

StoplosseswithFibonaccitrading

WhenyouaretradingwithFibonaccinumbers,itiseasytousestoplosses.

WhenIamlookingtoenteralongposition,Iwaitforacorrectiontotheretracementline.WhenIenteraftersomeconfirmationsignal,mystoplosswouldusuallygobelow61.8%or78%line:


Settingstoplossbelow78%retracementline

Whenpricewillclosebelowthoselines,thenIdonotwanttobeinthattradebecausepriceshouldgoupfromtheselevels,notbelowthem.

WhenIgolongonbreakout,thenmystoplossgoesbelowthenearestretracementline:

SettingstoplosswithFibonacciretracement(afterbreakout)

Why?BecauseIassumethattrendisstrongenoughthatlasthighwasbroken,sopriceshouldgoup.Whenitdoesnot,thenprobablythereissomethingwrongwiththetrendorthisisafalsebreakout.Itakeasmalllossandwaitforanothersetup.

Conclusion

Stoplossplacingisanimportanttopic.Manytradershavedifferentwaysofdoingthat.Youshouldworkonyourtradingplanandpracticedifferentwaysofplacingstoplosses.Itcomeswithtime,butitisworthittopractice.StoplosscanbeagreattoolinyourtradingandIhopethatI’vemanagedtoshowyouthatinmyarticle.


TradepartialcloseinMetatrader

Noteveryoneknowsthatyoucanclosepartofatradeandlettheotherpartkeeponrunning. I use this approach inMetatrader. If you use other trading software, you

shouldcheckmanual.

Sohowtoclosepartofthetrade?Itissimple.First,fromopentradesselecttradeyou

wanttomodify.RightclickonitandclickModifyorDeleteOrder:

Nextyouwillseepopupwithoptions.MakesurethatTypeissettoMarketExecution.InVolumelineselectsizeofpositionyouwanttoclose.YoucanseeintheexamplethatIhave2.0lotsopenonGermany30IndexCashandIwanttoclosehalfofitsoIset

volumeto1.0.Next,clickyellowClosebuttonatthebottom.


Thiswayyoucanclosepartofyourtradeandlefttheotherpartopen.

Whyyoushouldusepartialclose?

Everyexperiencedtraderwilltellyouthatprofitonyouropenpositionisonlyvirtual.OnlywhenyoucloseatradeandbookprofitthenyoucansaythatyoumadeXdollarson that trade. There aremany situationswhenmarket can turn around in split ofseconds.Ifyoutradelongerthanfewmonths,thenyouprobablysawflashcrashesorsomeotherstrongmoves.Ifmarketgoesagainstyoufromnicetemporaryprofityou

canhavealoss.

Withpartialcloseyoucanhavebettercontrolwithmoneymanagementandposition

sizing.Next,Ishowyousomeexampleswhenyoucanusepartialclose.


Partialcloseandstoploss

Whenyouclosepartofyourtradethenyouhavesomepartleftopen.So,youbooksomeprofit,butwhataboutthisopenpart?Whereisyourstoploss?Itisalwaysagoodideatomoveyourstoplosstotheentrypoint.Thatwayifsomethinggoeswrongwith

thatopenpartthenyouwon’tlosemoney.

Whenyoucanusepartialclose?

Ofcourse,inmostcasesitwillbewhenyouareprofitable.Youarenotsureifthisisanendofamovebutyouwanttobooksomeprofit.

There aremany situationswhen you can close part of your trade. Some examples

below.

Longtermtrading

Inlongtermtradingyoukeepyourtradeopensolongasyoucan.

Youmayseesignalsthattrendisgettingweaker.Maybepricehasproblemswithsomeresistanceareaandthereisarangemove.Orpriceisapproachingveryimportantlevel.Whenyouhaveniceprofitonyourcurrenttradeitisagoodideatoclosepartofit.You

canalwaysreentertradeoncorrectionmove.

Resistanceareasandtrendreversals

Thereare levelswhicharevery important for traders. Itmaybesomepivot lineorresistancelinebasedonpricehistory.Let’ssaythattradersarelong.Whentradeisin

profit,theysettakeprofit(TP)orderonR2line.

Wealsohavetradingrobots.ProgrammersknowthataroundR2linewecanexpectsomesell-offbecauseofTPorders.Theyprogramrobotstogoshortfromthatlevelfor

shorttimeofperiod.


Thiswaywecanseesomerapidpriceactionsnearimportantlevels.

Ifweareinprofitandseethatpriceisgettingclosertosucharea,wecanclosepartof

tradehere.

Fewtargets

WhatiftrendisstrongandpricecangotoR3line?WhenweusePivotswehavefewsupportandresistancelines.SamethingwithFibonacci–therearefewextensionlines

wheretraderscanclosetheirtrades.Inthesecases,wecanusepartialclose.

Let’schecktheexamplechartbelowanddiscussthissituation.


On chart, you can see Fibonacci retracement and extension lines. We open shortposition,2lotsonEUR/USD.Everythinggoeswell,thereisastrongmovedown.Weknowfromourexperiencethat161.8%isoftentargetforTPorders.Still,moveisstrongandwehaveanothergoodtargetat200%extensionline.Thebestwaytohandlethissituationistoclosepartoftradeat161.8%extension.Next,wemovestoplosstotheentrypoint–thatwayevenifpricesuddenlygobackwewon’tloseanymoney.Last

thingtodoistosettakeprofittargetfor200%extensionline.

Ofcourse,youcantradewithothersystem.IuseFibonacci inexamplebutyoucanhavefewtargetsbasedontrendlinesorPivotlinesorsomeothertradingtechnique.Themostimportantthingheretorememberisthatyoucanmanageyourtrade.Withpartialcloseyoucanprotectyourprofit.Whenyouchangeyourstoplosstotheentrypoint,youmakesurethatyouwon’tlosemoney.Andpartofthetradewhichisleft

open–sometimesitwillworkout,sometimesnot.


Whentotakeprofit

Takingprofitsisveryimportant:)Thisisamomentwhenyoubookyourprofits.Closinga tradewillbedifferent forevery strategy. In thispart Iwill share some important

thoughtsbasedonmyexperience.

SignalsfromMa’s/Oscillatorsarenotsogreat

Icanstillseepeopletradingwithsignalsfrommovingaveragesoroscillators.That’snotthatbadthing.Iusethemtoo,mainlytodecidetoenteratrade.Buttheylagandthatisabadthingwhenyouwanttoclosetradeatbestpossibleplace.Asmentionedbefore,wecanseestrongmovesaround important levels– tradersknowverywellwherearetheseareasforcurrentdayorweek.Ontopofthatwehavealgotrading.

Whenyouarewaitingforaclosesignalfromoscillator,prosarealreadyoutoftrade.

Ontheexamplebelowyoucansee5mchartofEUR/USD.MoveupwasstrongbutitendedatR1line(red).IfyoulookcloselyyoucanspotlongshadowsoncandlesnearR1line.Pricetriedtomovehigherbutthiswasastrongresistancearea.Wecanassumethattradersusedthisleveltoclosetradesandbookprofits.IfyouwantedtocloselongtradebasedonMACD(orotheroscillator,MACDisonlyasanexamplehere)thenyouwouldbesolatewithyourdecisions.Samesituationiswithmovingaverages,lookhow

lateaveragecrosswas.


Pivotpointsareveryimportant

IwrotemoreaboutPivotpointsearlierinthisguide.Youcanbuildthewholetradingstrategy around Pivot points. You can also use other strategy but still use them to

decidewhentocloseatrade.

ThegreatthingaboutPivotpoints isthatwehavemanytypesofPPbasedontime

frame.Sowehave:


Lowerthandaily–forexamplehourly,4handsoon.

Daily–Pivot line,supportandresistancelinesarebasedonpreviousdayhigh, low,close

Weekly-Pivotline,supportandresistancelinesarebasedonpreviousweekhigh,low,close

Monthlypivots-Pivotline,supportandresistancelinesarebasedonpreviousmonth

high,low,close

Yearly-Pivotline,supportandresistancelinesarebasedonpreviousyearhigh,low,close

ThankstothateveryonecanselectthebestPivotsfortheirstrategy.Youtradelongterm? Then weekly or monthly pivots will be a good addition to your trading.

Daytrader?ThenyouhavedailyPivotsandlower.

HowtousePivotpointstocloseatrade

Themiddlelineispivot.Abovepivotwehaveresistancelines,belowaresupportlines.Inmostcases,wewanttohaveonchartlinesfrom1to3soS1,S2,S3,R1,R2,R3.You

cancalculatemorelevelslikeR4,R5,S4,S5butitisveryraretousethem.

Themostimportantlinesare2s–R2,S2.Ofcourse,pricecanstopatanylevel,butmanytraderswillconfirmthatonmanytimesR2andS2linesaretargetsfortraders.ThatiswhywhenpriceisnearS2orR2itisagoodideatocloseatradeortoclosepart

oftrade.

Sometimestrendwillbestrongandpricecanmovethroughsecondlinetothethirdline(S3orR3.Icantellfrommyexperience–inthatsituationsettakeprofittargetat

thirdline.Whenitishit,closetradeandendtrading:).


IhadtimeswhenitlookedlikeArmageddon–trenddownwassostrong.IsawthattherewasS3was inplacebut I ignored itandkeptpositionopen,hopingformovedown.InmostcasesS3worked,pricewentbackabovethatlevel.SimilarstorywithR3

line.

Itisveryrareforpricetomovebehindthirdline–ofcoursetheremaybesomepoliticaloreconomicnews.Inthatcasepriceignoreimportantlevelsbecausewehavemassorders.Buttheseareexceptions.TrustmewhenIsayfrommyexperiencethatS3/R3

lineisyourlasttargetwhenyoushouldhaveprofitwhichisgoodenough.

Let’schecksomeexamples:

Onchartbelowwehave1-hourGBP/JPYwithweeklyPivotPoints.Youcanseethatuptrendwasstrong,buttwoweeks inarowmoveendedatR3 line.Even instrongtrendR3/S3linearerespected,traderswanttocashprofitandinsituationslikethis

theydoitatthirdline.Thereisnohopingformoreorsomewishfulthinking.


Nextwehave5mDAX.MovedownwasrapidbutitstoppedrightatS2line.IfyouhadPivot lineson your chart youwould know that you should look for exit from short

aroundthatarea.

Fibonacciworksgreattoo

Fibonacciextensionlinesaregreatwhenitcomestosetprofittarget.

Thereisonedisadvantagewiththismethod.YoushouldknowhowtodrawFibonaccilinesonchart.WithPivots there isadifferentstory– linesarecalculatedbasedonformulasothereisnoguessing.OntheotherhandtradingwithFibonacciisnotthat

hardsoitisgoodtolearnhowtousethem.


WithFibonacciwehave:

ABmove–thisisamovewhichisusedtocalculateextensions

Extensionpointsabove/belowBpoint–possibleexitlevels

WithPivotswehadS2/R2linesasmostpossibletargets.WithFiboextensionsthislevelis161.8%.Onmanytimesthiswillbetargetfortraders.Ifpricegoeshigherwehave200%andthen227%,238.2%andsoon…Butyouaremostinterestedinlevels

lowersthan200%.


Tosumup,extensionsare:

127%

138.2%

161.8%

200%

Sometimestradersliketouse150%extension

YoucanalsolookforareaswhereyouhaveFiboextensionandotherlinelikepivotorsupport/resistance.Thatwayitiseasiertoselectwheretoclosetrade.

Don’tforgetaboutsupport/resistancelines

Tradersknowwhereimportantsupportandresistancelines.Youshouldknowthattoo.Itisbesttoswitchtohighertimeframeandtherelookformostimportantlevels.Whyisthissoimportant?Theselineswillbeprofittargetsforthemsoyoushouldbeawareof most important areas. That way you won’t be surprised with sudden direction

change.


Tradingjournal

Wetalkedaboutstoploss,takingprofit.Thereisonemoreimportantthingweshouldtalkaboutwhenitcomestopositionmanagement.Yes,tradingjournal.Yousee,thisguideshouldhelpyoutolearnhowtotradeForex.Youshouldknowyourmistakesandlearnfromthem.

Mybiggestmistakeinfirstyearsoftradingwasnottorunatradingjournal.Istartedfewtimes,butIwastoolazytokeepitrunning.Intheend,Istruggledtobeprofitable.

Then I started journal in form of spreadsheet. It was ok. Beside info such as entry, exit,profit/lossithasinformationabouttradingsignals.But…Iamnotstrictmechanicaltrader.Iusetradingsignals,butIalsoanalyzethecurrentmarketsituation,highertimeframesandmanyotherthings.

Thereisbetterwaytorunyourtradingdiary.

Writeitdowninanotebook.

IsawontwitterthatfewoftraderswhichIfollowdothat.Theykeepdiaryinformofnotebook.Theydescribetrade,whatwasthecurrentsituation,howdiditlookfromtechnicalanalysisperspective.Latertheywritehowitended.Ortheysimplywritenewthingstheyhavelearned.

Ibelievethisisthebestwaytodoit.Thankstothatdescriptionyoucanalsowritewhatyouwere thinking,whatwas themainmotivation to take the trade. Later it is easier to spotmistakesyouaredoinginyourdecisionprocess.

Another important tool you can use is MyFXBool. I recommend running normal tradingjournal,butalsokeeptrackoftradeswithMyFXBook.

MyFXBookiseasytouse.TheywholeideaisthatitconnectswithyourMetatraderplatform.ThenthankstotheMT4publishingoptionsMyFXBookcanreceiveyourtradesandresults.That’sallgoingoninthebackground.

Whenyoulogin,youhavesomuchvaluabledata.Notonlyobviouslikegainforthewholetime,eachweek,month.Youcanalsoseewhatisyouraverageprofit,loss,numberofshortswon,longswonandmanyothers.Thankstothatyoucanseeclearlyyourresults.

forex trading for beginners - wordpress.comtrading journal ..... 97. forex trading for beginners –...

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