get started e book

© Copyright by Easy Forex LTD 2012

Get Started in Forex

© Copyright by Easy Forex LTD 2012 2

Introduction l easy-forex eBook

Congratulations! You have taken your first step towards becoming a forex trader. We are pleasedto provide you with this forex education book for beginners that will help you learn about theforex market, explain the history of forex and give you some great tips and strategies for tradingsuccess. Education is the key to successful trading and with almost $4 trillion traded each dayglobally, the forex market is huge, exciting and captivating.

At easy-forex we believe that everyone should have access to the forex market, which is whywe pioneered online currency trading to make it accessible for beginners and expert traders alikeand developed our award-winning web based trading platform.

Our fast and straightforward registration means you can be trading within minutes. And, withjust one easy-forex account, you can trade forex using web, desktop or mobile platforms, fromany location in the world, at any time.

We support all of our traders with personal service and for those clients who would like to taketheir trading to the next level, we offer our award-winning dealing room services.

So, happy reading and we look forward to supporting you on yourforex journey with us.

Welcome to forex trading

With best wishes

Michael KonnarisChief Executive Officer

Mi�ael Konnaris

Michael KonnarisCEO of easy-forex group

With over 20 years of experience in theforex market Mr Konnaris is a specialist inthe field of currency trading. He has heldsenior posts with large financial institutions suchas NatWest Bank and the Royal Bank of Scotlandin the UK. Mr Konnaris joined easy-forex in 2005 asChief Dealer, was appointed Chief Operating Officerin 2010 and Chief Executive Officer in 2011. Milestoneproduct and management innovations under hisstewardship have ensured that easy-forex remainsa world leader in the online forex market.

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3© Copyright by Easy Forex LTD 2012

Contents

Chapter 1

Chapter 2

Chapter 3

Chapter 4

Chapter 5

The who, what, where and when of forexForex basics

Getting started

Fundamental analysis

Technical analysis

Pulling it all together

The how of forex

A brief overview

A basic practical guide

How to develop a trading plan

04

09

14

24

42

Throughout this book you will find additional information on the topic under discussionin the 'Tell me more' box, like this one. Also, at the end of each chapter, we give youtips on where to go to learn more. Any terms you don’t understand can be looked up inour online forex glossary on the easy-forex website.

Tell me more

Risk warning: Forex, commodities and CFDs (OTC Trading) are leveraged products that carry substantial riskof loss up to your invested capital and may not be suitable for everyone. Please ensure that you understandfully the risks involved and do not invest money you cannot afford to lose. The information provided can underno circumstances be considered a recommendation to engage in any trade. Read more in our Risk Disclaimer.




Chapter 1 l Forex basics

Chapter 1 Forex basics

The forex market is the world’s most excitingand dynamic market. With $4 trillion tradedevery day, it is also the largest financial marketin the world.

Forex (or FX) stands for ‘foreign exchange’which a traveller will know as the currencythat you buy when visiting another country.For example, you may sell euros and buydollars for your trip to the USA. The onlineforex market is, however, 90% speculative,which means that you don’t take possession ofthe actual, physical currency. Rather, you openand close deals and make either a profit or losswhich gets reflected in your online account.

The forex market is an over-the-counter (orOTC) market which means that trading takesplace directly between two parties withoutdealing through an exchange. This means youcan conveniently access the virtual marketonline anywhere in the world.

What is the forex market?The forex market has several advantages overother types of trading, such as traditional stocks:

Unique features

Liquidity. The high volumes traded globallylead to high liquidity. The big advantage ofliquidity is that you can always find demandto sell or buy the currency pair you wish.

Increased leverage. Leverage is when you‘borrow’ money so that you can use a smallinvestment to get a greater yield. Most stockmarkets offer 1:2 leverage. With forex, 1:100and higher is common. This means youropportunities for gain are greatly enhanced.Remember though that your risk increases too.

Increased opportunities. Forex marketconditions can change at any time inresponse to real-time events. While youmust be aware of the risks such changingmarkets can pose, remember that volatilemarkets also offer high profit opportunities.

Easy access. At easy-forex you can starttrading forex with a low first deposit. Youcan fund your account with a debit or creditcard and start trading within minutes.

No commissions. easy-forex does notcharge you a commission. Instead, as themarket maker, we make our money fromthe spread (i.e. the difference between thebuy and sell price), as well as any rolling feesif you have kept a trade open overnight.

Controllable risk. Forex traders set astop loss which means you set the maximumamount you are prepared to risk. At easy-forexwe guarantee your stop loss on our platforms.



In forex trading you mainly trade currencies,which are always traded in pairs. There arefour major currency pairs (called the majors)which are mostly traded against the US dollar.They are the euro/dollar (EUR /USD), the Britishpound/dollar (GBP/USD), the dollar/Japaneseyen (USD/JPY) and the dollar/Swiss franc(USD/CHF). Trading in the four major pairsmakes up the majority of the market and themost commonly traded currency pair is theeuro/dollar (EUR/USD).

What do you trade?You can also trade hundreds of other currenciesagainst each other (called cross currenciesbecause the exchange rate is calculated viathe US dollar), but remember that the majorsare the most liquid. At easy-forex you can alsotrade precious metals (gold, silver), indicesand commodities like oil and gas.

Tell me more In a pair, the first currency is called the ‘base’ currency and the second is called the ‘counter’ currency. When you buy a currency pair you are always buying the base currency and selling the counter currency. Conversely, when you sell the pair, you always sell the base and buy the counter. For example if the exchange rate of the euro/dollar currency pair is 1.4100 this means that you need 1.41 US dollars to buy 1 euro. This also means that if you sell 1 euro you will get 1.4100 US dollars. Let us say

you bought 10,000 euros against the US dollar. At an exchange rate of 1.4100 this means you wouldpay $14,100 (1 euro = $1.41, therefore €10,000 = $14,100). The next day the euro rises against the dollar and the exchange rate goes to 1.4200. This means that for every euro that you bought, you have earned 1 cent, which in this case means you would have profited by

$100 ($14,200 minus $14,100). If you had decided to trade in the opposite direction by selling the currency pair, this means you would have sold the euro to buy the dollar and in our example the dollar then decreased in value against the euro. You sold 10,000 euros at 1.41, which means that for every euro that you sold you would have lost 1 cent. For a trade valued at 10,000 euros that would have been a loss of $100($14,200 minus $14,100).



There are two parties involved in an onlineforex deal: you as the trader and the marketmaker, for example easy-forex. A marketmaker is a company that facilitates trading byoffering an ask and bid price on a currency,literally making the market for traders to trade in.

Individual forex traders like you make up thefastest-growing segment of the global forexmarket. The other players include the inter-bank market which is mostly made up of thelargest commercial banks and securitiesdealers, after which you have the smaller banks,multi-national corporations and hedge funds.

Who trades?Because forex is a truly global market, you cantrade 24 hours a day, five days a week. As oneregion’s market day ends, the next region’smarket day begins. This means you can trade onany region’s news as developments take place.

The forex market is open 24 hours a day from the Monday morning open in Sydneyto the close on Friday evening in New York. Each trading day can be broken downinto three sessions: the Asian, the European (EU) and the US. Generally these are referredto as the Tokyo, London and New York sessions. The Asian session opens around21:00 GMT (summer hours) and closes around 08:00 GMT. This overlaps with theEU session which opens around 06:00 GMT and closes around 16:00 GMT. Then the USsession, which overlaps with the EU session, opens around 13:30 GMT and closesaround 21:00 GMT. Then the cycle starts over again with the Asian open.

This means you can theoretically trade forex non-stop from 21:00 Sunday GMT(summer hours) until 21:00 GMT Friday!

The times when two sessions overlap are the most exciting as it is then that you willfind high volumes being traded and maximum volatility which presents opportunities.The European session has the most volume traded since it is sandwiched betweenthe Asian and the US sessions. Approximately 50% of the daily forex volume goesthrough the EU session.

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When to trade



Online, anywhere, anytime, on the device ofyour choice. You have full control to monitorthe status of your trades, modify the terms ofyour open deals, close deals, or withdrawprofits. The ability to access your deals 24/7is a great benefit of online trading.

Where can I trade?

At easy-forex, we like to keep things simple foryou, and all transaction-related calculations areautomatically done for you by the easy- forexplatform. It’s simple to use and easy tounderstand. Your account is in a ‘base currency’of your choice, often the local currency whereyou live. You trade using your base currency nomatter which currency pair you choose to trade.

A number of economic indicators affect currency prices, ranging from unemploymentto Gross Domestic Product (GDP) to retail sales data. One of the most influentialindicators is interest rates. A change in interest rates in one country can have an impacton many other exchange rates at the same time. For example, when the FederalReserve Bank (Fed) of the United States announces a change in the interest rate atwhich it loans to banks, this influences the value of the US dollar, which is involvedin nearly 90% of all forex transactions.

Politics are closely related to economics and so it is natural for changes in governmentor policy to also play a role in currency price fluctuation.

Finally, geography can play an important role. Think of the earthquake in Japan in March2011 and the effect it had on the value of the Japanese yen.

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What happensto my investment?

You can profit from forex trading by correctlydetermining whether one currency in a currencypair will go up (strengthen) or go down (weaken)relative to the other currency in the pair. Withforex, you can profit whether the market isrising or falling. This is because currencies aretraded in pairs. The key is to buy when a currencyis low and sell it back once it is high. In chapter 2we take you step by step through a trade.

Traders develop trading strategies based ontechnical and fundamental analysis. Technicalanalysis (chapter 4) is the use of charts andother statistical measures to predict futureprice movements based on past prices, whilefundamental analysis (chapter 3) looks at how

How do I make a profit?

As with any marketplace, the main factor behindchanges in exchange rates is supply anddemand. In the forex market there are howevermany other factors that cause prices to fluctuateas well. These factors may be of an economic,political or geographical nature. Fundamentalanalysis (chapter 3) explains how you can usethese factors to forecast currency ratemovements.

What drives forex prices?

macro-economic data re leases, newsannouncements and other reports may causerates to change.



While forex trading is risky, the risk can beminimised through the use of various controlsyou can put in place. For example, throughsetting a stop loss, you ensure that you cannotlose more than the amount you decide to riskon a trade (also called your ‘margin’). In thisway, your loss is capped while your potentialprofit is unlimited. You are strongly advisednever to risk more than you can afford to lose.We also advise you to start with an investmentthat is comfortable for you and to continue toeducate yourself as your interest in tradingincreases.

How risky is forex trading?

This chapter covered the what, where, when andwho of forex trading. If you are happy that youunderstand the information, move on to chapter 2which deals with the how of forex trading.

Pulling it together

Need more?Visit our learn centre to see:

Education videos

Forex articles

FAQs

Remember you can also:

Look up terms in our online glossary

Call a personal account manager,contact us at [email protected] post your questions/commentson our Facebook page.






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Chapter 2 l Getting started

Chapter 2 Getting started

It’s simple. Register on the easy-forex websiteand deposit the amount you wish to invest intoyour account. We accept many different paymenttypes which vary according to the region youlive in. Generally, we accept deposits via mostmajor credit or debit cards, bank wire transfersand ewallets. Contact your account servicemanager through our Live Chat or [email protected] to find out which paymentsolutions are available to you. Once yourdeposit has been received, you are ready tostart trading.

How do I start trading?Your personal account service manager willprovide you with one-on-one training andsupport. If you are new to forex or not readyto start trading yet, you can open a free demoaccount or try our trade simulator where youcan experience trading under real marketconditions without risking any real money.However, the best way to really understand thepsychology of trading is to trade in a live accountwith real funds. You can get started by openinga mini account with a low first deposit andmaking small trades.





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What is a spread?

One pip is the smallest unit of change in price.It stands for ‘percentage in point’. Becausemost currency pairs are quoted with four

What is a pip?

Let’s look at a EUR/USD example. If the price moves from 1.2853 to 1.2873, it has goneup by 20 pips. If it goes from 1.2853 down to 1.2792, it’s gone down by 61 pips. Pipsprovide an easy way to calculate the profit or loss (also known as the P&L) on a trade.To turn that pip movement into a profit or loss, all you need to know is the size of yourdeal. For a 100,000 EUR/USD position, a 20-pip move equates to $200 (€100,000 ×0.0020 = $200). For a 50,000 EUR/USD position, the 61-point move translates into $305(€50,000 × 0.0061 = $305). Depending on which direction you decide to trade in(either to buy or to sell) you could make or lose the calculated corresponding amount.

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called the spread, which is the difference betweenwhat you pay to buy a currency to what youget when you sell it.

The spread is essentially the cost of yourtrading. You may come across brokersadvertising low spreads but be sure to checkwhat other commissions and costs they maybe charging you. With easy-forex you onlypay the spread.

When looking to trade a currency there arealways two prices. On the currency table(from the previous page) the price you canbuy for is on the right side and is called theask or the buy price. The price you can sellat is on the left side and is called the bid orthe sell price. Remember when you buy apair you are buying the base currency andselling the counter and when you sell a pairyou are selling the base and buying the counter.The difference between these two prices is

Our web trading platform is fully web-based and does not require the download andinstallation of software, unlike many other online market makers. Traders are onlyrequired to log in, ensure they have available funds to trade and if not, top up theiraccounts and trade. In this chapter we take you step by step through a forex deal,but first here are some of the terms you will come across as you plan your first trade.

The easy-forex advantage

decimal points, one pip usually equals 0.0001but there are some currency pairs such as theUSD/JPY where 1 pip equals 0.01.



The forex market is bi-directional, meaningthat you can trade both ways. You can buy orsell depending on your strategy. ‘Long’ meansto buy, and you will go long when you arelooking for prices to appreciate, or rise. If youare going ‘short’ you are selling because youare looking for prices to fall. Going short isjust as common in currency trading as goinglong. If you are ‘square’ or ‘flat’, it means thatyour buy positions exactly offset your sellpositions, or that you have no positions in themarket at all.

What do ‘long’ and ‘short’ mean?Through the use of leverage, traders are ableto invest a small amount of money and trademuch larger deal sizes. This is useful becausethe movement in currency rates can be verysmall, and larger trades represent largerprofits/losses for every pip change in the rate.

Leverage allows you to trade with more moneythan you have in your account, because youeffectively “leverage” your free balance to opena larger trade.

Leverage is shown as a ratio, for example 1:100.Note that leverage amplifies both potentialprofits and losses alike.

Margin and leverage

Tell me moreLet’s say you decide to buy 100,000 EUR and sell USD at a rate of 1.4100. Your accountleverage is 1:200. Do you need 100,000 US dollars to open the trade? No! With a leverageof 1:200 you will need to put down only 1/200 of the deal size as the margin, which worksout to $500.

Calculate the margin:Leverage 1:200Deal size = 100,000Divide 100,000 by 200= 500Margin = $500

This is the amount that will be used to cover your potential losses. In other words, themargin is the actual amount that you are risking to lose if the trade goes against you.



Setting a stop loss is a way to limit your risk.You decide upfront what your maximum losscould be by choosing the stop loss rate. If themarket reaches that rate, your deal will beautomatically closed. Since you are the personsetting the rate, you are in control of yourinvestment.

Setting a take profit rate works in the same way.You decide on a desirable profit amount andyour deal is automatically closed when theprofit rate you have chosen is reached. Usinga take profit rate helps you to control yourtrading without having to continuously monitoryour position.

Stop loss and take profitYou can decide to open a day trade, limit orderor forward order.

Types of orders

A day trade, also known as a market order,is an order to buy or sell at the best availableprice. This type of order is typically executedimmediately.

A limit order is an order to open a day tradedeal at a rate that you have pre-definedwhen and if the market reaches that rate.The limit order will remain pending (i.e.waiting to be turned into a day trade) untilthe market reaches that rate, or the timeexpires. It has the usual features of a daytrade, including a margin requirement.

A forward is a contract where the buyerand seller agree to buy or sell an asset orcurrency at a spot rate for a specified datein the future. It has the usual features ofa day trade, including a margin requirement.

All three types of orders can have tailoredstop loss and take profit rates set by you, inorder to help you manage your risk.

At easy-forex we protect our traders by guaranteeing the stop loss, take profitand limit order rates on the easy-forex platforms.





If you are day trading, you usually hold yourposition open anywhere from a few minutesto a few hours and generally not longerthan a day - hence the name, “day trading”.A medium-term trader will look to get the generalmarket direction right and profit from moresignificant currency rate moves. This kind oftrading requires many of the same skills thata day trader would use, especially when it comesto entering and exiting positions. However italso demands a broader view on the markets,additional analytical work as well as muchmore patience. Chapter 3 and 4 provide youwith the basic tools and knowledge to takeyour trading further.

How long should I holdmy position open?

This chapter covered the how of forex trading.We explained some terms and then took youstep by step through a forex deal on theeasy-forex platform. Now let’s move on tochapter 3, which covers the basics offundamental analysis.

Pulling it together

Need more?Visit our learn centre where you candownload our eBook guide to forex.



Call a personal account manager,contact us at [email protected] post your questions/commentson our Facebook page.






Chapter 3 l Fundamental analysis

Chapter 3 Fundamental analysis

Fundamental analysis can be defined as thestudy of a country’s economic and financialperformance in order to determine the fairmarket value and future direction of its currency.Fundamentals focus on factors that determineexchange rates, such as countries’ economichealth, political stability, and environmentalevents. A popular way to gauge the health ofa country’s economy is through looking at itseconomic indicators and data releases, whichis why every trader should be familiar with themand how they influence the value of a currency.

Fundamental analysis andmarket moving events

may seem like good news. However, the marketwill react negatively to this release if theexpectation was that unemployment would fallto 4.5%. For this reason, you should alwaysknow what the market is expecting in order toevaluate whether the actual data release is apositive or a negative surprise. You should alsonote that the more a data release deviatesfrom expectations, the more it will impact onexchange rates.

In the short term, the market typically reacts toany data release within half an hour from thetime it is announced. After that, exchange ratesusually settle and give you a chance to analysethe longer term implications of the news.

You can follow the day’s major data releasesand expected results on the easy-forex financialcalendar, under the research & analysis sectionof our website.

Now let’s have a look at some major indicatorsevery trader should know and follow.

Data releasesData releases on their own are not as importantas whether they come out above or belowmarket expectations. In other words, in additionto knowing the data that will be released, it isalso important to know what the market isexpecting the data to come out as. For example,if unemployment comes out at 5%, lower thanthe previous month’s data release of 5.1%, this






Interest rates are perhaps the single mostimportant indicator when it comes to determininga currency’s long term value. In fact, mostother economic indicators affect a currency’sexchange rate because they imply a potentialchange in interest rates. Central banks usuallyannounce interest rates every month, with thewhole forex market closely watching to seewhat they will do.

By adjusting interest rates, a central bankcan control the supply of its currency, directlyaffecting its value. If interest rates are increased,it becomes more expensive to borrow andmore attractive to save, causing the amount

Interest ratesof money in circulation to shrink as peoplestore more money in the banks. The moneysupply is thereby reduced, and as lower supplycauses higher prices, the domestic currencystrengthens. Conversely, if interest rates arecut, borrowing from banks becomes cheaperand saving becomes less attractive, causingthe supply of money in free circulation toincrease, resulting in a weaker currency.

Major sources that release interest rateannouncements are outlined in the tablebelow. Note that you should focus on rateannouncements from the countries whosecurrencies you are trading.

Country Source Acronym Frequency Biggestimpact on

USA

UK

EuroZone

Japan

Canada

Switzerland

Australia

New Zealand

Federal Open Market Committee

Bank of England

European Central Bank

Bank of Japan

Bank of Canada

Swiss National Bank

Reserve Bank of Australia

Reserve Bank of New Zealand

FOMC

BOE

ECB

BOJ

BOC

SNB

RBA

RBNZ

8 times per year

Monthly

Monthly

14 times per year

8 times per year

Quarterly

Monthly

8 times per year

USD

GBP

EUR

JPY

CAD

CHF

AUD

NZD

Traders compare the actual interest rate announcement to what the market is/wasexpecting (forecasting). If rates are higher than expected, the currency is likely tostrengthen, while rates below expectations usually cause the value of the currency to fall.

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A country’s Gross Domestic Product is thevalue of all goods and services producedwithin a country in a given time period.It represents the health of a country’s economy,

Gross Domestic Product (GDP)

High inflation erodes the value of a currencyand is therefore considered very bad for anyeconomy in most circumstances. Central banksnormally target an inflation level of around2-3%, and if their target is exceeded, theyusually take action to get back to the desiredlevels.

When inflation is high, the market begins toexpect that central banks may increaseinterest rates, reducing the supply of money

Inflation

which directly affects the strength of its currency.GDP is normally released monthly or quarterly,and the outcome is compared to the country’sforecasted growth.

Traders compare the actual GDP with what the market is/was expecting. If GDP exceedsthe forecast, the currency is likely to strengthen, while a lower than expected GDP releasetends to weaken the currency.

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in the economy, and lowering inflation. Theexpectation of an interest rate hike will causethe currency to strengthen, as the marketprices-in the anticipated change in an effortto benefit from an announcement before it isofficially made.

Common measures of inflation include theConsumer Price Index (CPI) and the ProducerPrice Index (PPI), and are usually releasedon a monthly basis.

If inflation is above expectations, the currency is likely to strengthen, while lower thanexpected inflation is likely to weaken the currency.

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Without people who work, there would be noeconomic activity. For this reason, unemploymentis an important gauge of the health of a country’seconomy and the pace of its economic growth.Increasing unemployment (or decreasingemployment, as it is sometimes also referred to as),has a negative effect on a country’s economicgrowth, while decreasing unemployment(or rising employment) is seen as a positivesign for the economy.

Because rising unemployment signals a troubledeconomy, the market expects the central bankto reduce interest rates in order to increasethe supply of money and help boost economicactivity and growth. As we saw earlier, theexpectation of a rate cut tends to weaken thecurrency.

The converse is true when unemployment isfalling – a fast growing economy may soon

Unemploymentexperience increased inflation because of allthe financial activity taking place, and to preventinflation from getting out of hand central banksare likely to increase interest rates. As a resultof the expected rate hike, the currency is likelyto appreciate.

As well as unemployment and employmentfigures, other common labour-related indicatorsare US Non Farm Payrolls (NFP), PrivatePayrolls and Claimant Count, and usually comeout on a monthly basis. By far the most importantemployment indicator is the US NFP, as ittends to have the greatest effect on the forexmarket. It represents the change in the numberof employed people during the previous month(excluding the farming industry), and is releasedshortly after the month ends, on the first Fridayof the following month.

Higher than expected unemployment (or lower than expected employment) normallycauses the currency to weaken, while lower than expected unemployment (or higherthan expected employment) usually results in a stronger currency.

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As we saw with unemployment, it is peoplewho drive the economy, so their income andtheir demand for goods and services directlyaffect a country’s economic growth. Whenconsumers demand more, economies tend togrow faster, and when their demand shrinks,we experience an economic slowdown.

Consumer-related data

This number represents the difference betweenthe value of goods and services that a countryexports and the value that it imports them at.A surplus occurs if the value of exports isgreater than the value of imports, and a deficitoccurs if the value of imports is greater thanthe value of exports.

Trade balance

Common consumer-related indicators includeretail sales, durable goods orders, consumerconfidence, consumer sentiment and ZEW(economic sentiment), and tend to come outon a monthly basis.

Higher than expected sales, orders, confidence or sentiment usually result in a strongercurrency, and data releases below expectations cause the currency to weaken.

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It is in a country’s interest to export more thanit imports and thereby generate money that itcan use to further its growth. This figure isusually released on a monthly basis.

A greater than expected figure tends to be good for the currency, while a lower datarelease tends to be bad for the currency.

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In addition to scheduled data releases, as atrader you should also closely follow theopinions of influential figures who vote on acountry’s monetary and fiscal policies. Lookout for any hints of economic improvement orworsening, changes in policy stance, or anythingthat can signal the future of a country’s economicstate and affect the value of its currency.

In the US, the Chairman of the Federal Reserveand voting members of the Federal Open MarketCommittee (FOMC) are figures of influence

Speeches, press conferences& meeting minutes

who can move the markets and are closelyobserved by traders. Other notable figuresinclude the President of the European CentralBank (ECB), Governors of the Bank of England(BOE), Bank of Japan (BOJ), Bank of Canada(BOC), Reserve Bank of Australia (RBA) andReserve Bank of New Zealand (RBNZ), membersof the UK Monetary Policy Committee (MPC),and the Chairman of the Swiss National Bank(SNB), among others. Furthermore, tradersalso pay attention to releases of central bankmeeting minutes.

If the message is dovish (pessimistic) this tends to hurt the currency, while a hawkish(optimistic) tone generally boosts the currency’s value.

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Why technical traders shouldfollow news releasesTechnical analysis is the study of historical pricemovements. It is less likely to work when marketfocus turns to important fundamental factors oreconomic data, as market participants becomemore sensitive to any developments. Major

The easy-forex advantage: financial calendarThe easy-forex financial calendar on our website is available in multiple languages, andis designed to provide you with all the information you need about upcoming data releasesand announcements in a clear, easy-to-understand way. It tells you the previous andexpected data releases, the time at which they will be announced, and their expecteddegree of impact on the markets – shown as either low, medium or high.

The financial calendar is an important tool in forex trading. The market usually reacts toeconomic news and can get volatile if the news is different from what is expected.By watching the financial calendar, you can prepare your trading strategy in advanceand open specific positions to try and benefit from market volatility. Placing trades inanticipation of or in reaction to data releases is called trading the news.

economic data releases such as US Non FarmPayrolls can cause large market moves andincreased volatility, which can disrupt technicaltrends and levels of support and resistance.





How other financial instrumentsand sentiment move theforex marketIn addition to data releases, the forex marketcan also be moved by financial instrumentssuch as stocks, bonds and commodities, anda savvy trader always keeps one eye ondevelopments in other major financial markets.

A quick look at stocks and stock indices cantell a lot about the market’s sentiment, whichis very useful information for every trader.Market sentiment refers to how confidentinvestors feel about the markets – the more

confident they are, the greater their appetitefor risk. Stocks rise when sentiment is good(also known as ‘risk appetite’), and fall whensentiment is negative (also known as ‘riskaversion’).

When gauging market sentiment, investorsusually look at stock indices such as the S&Pand Nasdaq in the US, the DAX in Germanyor the FTSE in the UK. You too can follow ortrade any of these indices with easy-forex.

A case-study of positivesentiment moving theforex marketLet’s look at what would happen to the EUR/JPYduring an economic boom, when marketsentiment is positive and risk appetite is high.During a period of economic growth investorstend to feel good about taking on increased risk.One way they can do this is by choosing toborrow money from Japan (which usuallykeeps very low interest rates) and store thesefunds in banks abroad where interest rates arehigher – in our example, this is the EuroZone.Because they feel safe to take on extra riskwhich is associated with the euro, they essentiallysell the JPY and buy the EUR, aiming to earna profit. This example explains why we oftenobserve the EUR/JPY rising when economicsentiment is good and investors have anappetite for risk.

This logic can be generalised and applied tomany different forex pairs. When we have apositive market sentiment and stock indices rise,investors are buying higher yielding assets,including currencies like the EUR, GBP, AUD,NZD and CAD. Demand for these higher

yielding currencies usually causes them toappreciate against the lower yielding and saferones, which include the JPY, CHF and USD.Positive sentiment and risk appetite can applyupward pressure on numerous USD, CHF andJPY pairs, including EUR/USD, GBP/USD,AUD/USD, EUR/CHF, GBP/CHF, AUD/CHF,GBP/JPY and AUD/JPY, to name a few. If youdecide to trade the JPY and CHF crosses, beprepared for big moves, as they are among themore volatile forex pairs.

In contrast, when market sentiment turnsnegative and stock indices decline, higheryielding and more risky currencies like the EUR,GBP, AUD, NZD and CAD often depreciate invalue. Negative market sentiment and riskaversion may be caused by the release ofworse-than-expected economic data, geopoliticalrisk events, or anything that would scareinvestors off from taking on large risks. For thisreason, traders should pay attention to allscheduled data releases relevant to theinstrument they are trading.



Correlation between currenciesand oil or gold

Correlation is a statistical term describing therelationship between two variables. Professionalforex traders have long known that tradingcurrencies requires looking beyond the worldof forex, because currencies are moved bymany factors - supply and demand, politics,interest rates, economic growth, and so on.More specifically, since economic growth andexports are directly related to a country'sdomestic industry, it is natural for somecurrencies to be heavily correlated with pricesof the main commodities a country exportsor imports.

Highest correlations with gold and oil can befound with the Australian dollar (large goldexporter), and the Canadian dollar (large oilexporter). Another currency that is affected byoil prices but has a weaker correlation is theJapanese yen (large oil importer). Knowing whichcurrency is correlated with which commoditycan help you understand and predict certainmarket movements before they happen,increasing your chances of success.

Gold and the Australian dollarTrading the Australian dollar (AUD) is very similarto trading gold. As the world's third-largestproducer of the precious metal, the Australiandollar and the precious metal are highlycorrelated – for example, their monthlycorrelation between 2000 and 2012 was 89%.

During times of market uncertainty such aseconomic or political troubles, gold, representedby the symbol XAU, serves as a safe havenand a hedge against inflation. As commoditiessuch as gold act as a store of value that is likely

to outlast market uncertainty in these troubledtimes, their price tends to rise. As gold iscommonly traded against the USD, the twohave a mostly inverse relationship, meaningthat a higher gold price generally results in aweaker US dollar and vice versa. When theUS dollar depreciates, it becomes cheaper tobuy gold. Therefore AUD which is correlatedto gold also rises. The AUD is commonlyreferred to as a commodity currency because ofits heavy reliance on the export of metals suchas gold.



The Canadian dollarand the Japanese yenJust like the AUD is affected by the price ofgold, the currency of a country like Canadawhich is a large oil producer tends to beaffected by changes in the price of oil.The Canadian dollar (CAD) usually strengthenson increases in the price of oil, and weakenswhen oil price falls. On the other hand, acountry like Japan which is heavily reliant on oilimports benefits when oil is cheap, but isnegatively affected when oil prices rise.

Pulling it togetherThis chapter covered the basics of fundamentalanalysis and took a look at some other marketmoving events. It also explained ways you canstay up to date with the latest market-movingevents.

At easy-forex we make tracking the fundamentalssimple for you, by providing all relevanteconomic data releases in the financial calendarpage in our research and analysis section.However, as we live in a dynamic and everchanging world, not all news is scheduled, andmarket-moving events can happen at any time.easy-forex helps you stay informed via anSMS news service, keeping you up to date onbreaking news. You can also get our daily andweekly outlooks which give information on

Note that correlations can become stronger orweaker with time, and the relationship betweenAUD/USD & Gold and CAD/JPY & Oil istherefore not always stable. For this reason,as a trader you should always have a sufficientlyfunded account and be cautious when placinga trade on a currency pair based on recent oilor gold price moves.

both fundamental and technical analysis. Youcan read the major newsfeeds from Reutersand Market News Internat ional on theeasy-forex platform, and watch daily videonews reports.

You have now learned about the basics ofhow you can use fundamental analysis in yourtrading. But there’s more to learn. Our nextchapter deals with technical analysis. Tradersoften use a combination of both fundamentaland technical analysis to help them assess themarkets and identify when to place a trade,when to wait, and when to exit.

Need more?Visit our learn centre or check out our economic indicator definitions

Remember you can also:Look up terms in our online glossary

Read more articles on our blog

Call a personal account service manager, join us on live chat, contact us [email protected] or post your question/comments on our Facebook page.




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Chapter 4 l Technical analysis

Chapter 4 Technical analysis

Technical analysis is the study of historicalprice movements by using charts in order topredict future price movements. Charts, andall the various technical analysis indicatorsthat can be applied to them, are essential toolsfor traders. In its most basic form, technicalanalysis helps you to identify entry and exitpoints for your trading.

ChartsCharts are a major tool in forex trading. A forexchart is a graph representing the movementof market prices during a specific time period.There are many kinds of charts, each of whichhelps to visually analyse market conditions,

Charts are used by both technical and fundamental analysts. The technical analyststudies the “micro” movements, trying to match the actual price move with knownpatterns. The fundamental analyst tries to find correlation between the trend seenon the chart and “macro” events, which are usually either political or economic.

Tell me more

In this chapter we introduce a few differentcharts, go through some basic concepts andexplain some of the popular indicators. Once youunderstand some of the more basic conceptsof technical analysis you can continue yourforex education in the easy-forex learn centre.

identify behavioral patterns, and assess andcreate forecasts. When traders performtechnical analysis, they usually overlay lineson a chart and apply technical indicators toreach conclusions about future price action.



Three of the most popular chart types are bar,candlestick and line charts. At easy-forex, youcan view all three types, and choose the onethat best suits your trading strategy.

Aside from choosing a chart type, when lookingat a chart traders also need to select whichtimeframe they want to analyse. A chart isusually composed of many points or bars orcandlesticks, each representing a period of time.In a 30 minute timeframe, the individual point

Types of chartsor bar or candlestick shows what happened tothe price by plotting the opening, closing, highand/or low price of each 30 minute interval.Timeframes can be chosen and changed bytraders, and we’ll look at them in more detaillater.

Let's take a closer look at each of the differentchart types a trader can follow and the benefitsof each choice.



This chart type is least informative and linecharts are mostly useful for identifying trends.However, this type of chart is the least informativeas it only shows the closing price for a seriesof periods.

Line chart

Bar charts provide traders with four key piecesof information within any timeframe: the opening,closing, high and low prices during each interval.Bar charts can be viewed in many differenttimeframes, and hence a single bar cansummarise price movements over the pastminute, over the past month or even furtherback in time. Different traders use timeframesin various ways, although a good rule of thumbis that the longer the timeframe, the greaterits significance, as it accounts for more data andhence better reflects the market’s psychology.

Bar chart

Candlestick charts are similar to bar charts asthey also contain each interval’s open, close,low and high prices. The main difference isthat the candlestick chart has a body, whichrepresents the range between the opening andthe closing prices of a particular timeframe.In this example, when the candle’s body is red,it means that the closing price was lower thanthe opening. When the body is green, it meansthat the closing price was higher than theopening. Above and below the candlestick’sbody are the ‘wicks’. The top of the wickrepresents the highest price reached within theinterval, and the bottom of the wick representsthe lowest price.

Candlestick chart

Line chart

Bar chart

Candlestick chart



This depends on your trading strategy andhow long you like to keep your deals open for.Available timeframe views usually include:tick-by-tick; 1, 5, 15 and 30 minutes; 1, 2 and4 hours; 1 day and 1 week. A day trader would

Timeframes

What timeframe should I lookat on a chart?

normally start by looking at a longer timeframeto gauge the long term trend and then movedown the scale of time periods to 1 hour, 30minutes or 5 minutes, to look for entry and exitsignals.



Imagine throwing a tennis ball on the floorreally hard. It bounces and then hits theceiling before coming back to the floor andbouncing again. This is analogous to how

Support and resistancehow to trade them

support and resistance work on a chart; theprice is the ball, the support is the floor andthe resistance is the ceiling.

Support levels represent ‘floors’ - areas wherebuying tends to be strong. If the price falls toa strong support, then sellers in the market areless keen to sell at a cheaper price and buyersare happy to buy at that attractively low level.This drives the price up, or at least stops it fromfalling any lower. By knowing the support levels,you can identify good buying opportunities,because that’s where buyers are supposed tobe strong and push the price up. However, if

the price falls below a support level, this is alsoa trade signal. It shows that sellers are stillstronger than buyers, and may prompt buyersto close their trades and more traders to selleven more of the traded security.

The next chart shows EUR/USD repeatedlyfinding support at 1.4000 between June andSeptember, finally breaking below in September,and dropping even lower after that.



Resistance levels are the opposite of supportlevels, as they can act as a ‘ceiling’ to rallies.If the price rises to a strong resistance level,chances are that buyers might be reluctant tobuy at these high prices, whereas sellers aremore comfortable to sell as they consider theirentry price a good one. This dynamic tends todrive the price down, or at least keep it frommoving higher. By knowing the resistance levelsyou can recognise possible selling opportunities.

The reason support and resistance levels existis because markets remember prices wherebuyers or sellers tend to cluster. For example,if EUR/USD rises to 1.5000 and then reverseslower, the next time it reaches that price, themarket will remember what happened last time,and buyers and sellers will begin positioningthemselves for another reversal both knowingwhat happened last time at 1.5000.

Support and resistance



‘Trend’ is a term used to describe prices movingin the same direction over time. When pricesare generally rising, this is known as an uptrend,and when they are falling, this is a downtrend.Prices tend to trend only 20-30% of the time,which means that the remaining 70-80% theyare trading in a range or without a clear direction.For this reason, it is important to have a clearway of identifying the existence of a trend, orlack thereof.

There is a simple rule traders use to confirm atrend. In an uptrend, we look for two consecutivehigher highs and higher lows and a third higherhigh confirms the uptrend.

Trend lines - how to trade them

The more times a support or resistance level has been touched and confirmed, the strongerit is considered to be. As a general rule of thumb, a price level is considered as asupport or resistance if it has been tested at least three times. Exceptions can be aroundnumbers such as EUR/USD 1.5000, 1.4900, 1,2000 etc or OILUSD $100, $200 etcwhich are considered psychological supports and resistances.

Support and resistance levels found on longer-term time frames are considered strongerand more significant. Start by analysing long-term charts and then move to shorter-term charts.

If you are trading in the direction of a trend and that trend approaches a resistance orsupport, a good idea would be to tighten your stop loss to protect your profits in casethe price reverses against your trade.

Once a support level is broken in a downtrend, it often turns into a resistance level inan uptrend (and vice-versa).

Tell me more

In a downtrend, we look for two consecutivelower lows and lower highs, with a third lowerlow confirming the downtrend. Start by checkingfor a trend on a shorter time frame, and onceyou identify it, run the same check on a longertimeframe. For example, if you confirm a trendon the 30 minute chart, look at the 4 hour chartand also confirm it there. If you get confirmation,go back to the first time frame and look for agood entry point. Remember, the trend is yourfriend, meaning it is less risky to trade in thesame direction as the trend than to go against it.For this reason, if you identify an uptrend it issafer to buy, and if you find a downtrend, it issafer to sell.



Eventually, the price will stop following the trendand fail to reach a new high or low. It will stall,and then reverse direction. Traders often useanother rule to identify trend completions orreversals. During an uptrend, if the pricereverses down and dips below the most recentlow, then it may be a sign that the uptrend hasbroken. Similarly, if during a downtrend theprice bounces up and rises above the mostrecent high, the downtrend may have cometo an end (see image above).

Drawing a trend line on your chart can helpyou see the trend and decide when to enteror exit a trade. To draw an uptrend line youneed to connect at least three lows. For adowntrend line you need to connect at leastthree highs.

For a downtrend line you need to connect atleast three highs (see next image).

Traders can place limit orders to buy at the support line



Draw the lines through the edges of congested or ‘busy’ areas rather than the extremehigh or low points. If a trend line can be drawn using the body rather than the wick ofa candle, the body should be used. The extreme points are still important as highsand lows, but are not that useful for trend lines.

The breaking of a well-established trend line may signal the trend is changing direction,Note that a trend line break is only valid if the candlestick closes on the other sideof the line.

Tell me more

When using trend lines:

Trend lines are used in many different ways by different traders. New traders usuallyopen a trade when they see something unusual happen in the market, whereas anexperienced trader waits for prices to finish the unusual movement and then opens atrade, knowing that the price will most likely return to its long-term trend.

Traders can place limit orders to sell at the resistance line



We are about to look at a few major indicatorsthat can be used during technical analysis bytraders. Each indicator is suitable for differentsituations, so you need to know which work bestunder different conditions and base your choiceof indicator on your specific needs. Some, likeMA and MACD, work best in trending markets,while others such as the RSI are good foridentifying trend turning points.

Before choosing an indicator, you should first

Popular indicatorsidentify the market environment. The marketcan be in a range, in a trend, or trading sidewayswith no clear direction. Once you have completedthis quick analysis, you are ready to choosethe best indicator for your needs.

A common mistake beginners make is applyingthe same three or four indicators during allmarket environments. This tends to produceconflicting signals and makes it hard to correctlyidentify good entry and exit points.

The chart below shows Moving Averages (MAs)for 20, 50 and 100 days. You can see the MAsgenerally moving with the price, and the pricecrossing the MAs when it changes direction.MAs are what we call a lagging indicator,meaning they follow the trend. You can alsonotice that the longer MA is a lot smoother thanthe shorter MAs – this is because it averagesout more prices and is less sensitive to new pricesas they only make up a small part of the average.

Moving averagesThere are three types of MAs; the SimpleMoving Average (SMA), the Exponential MovingAverage (EMA), and the Weighted MovingAverage (WMA). The SMA is a straightforwardaverage of the last “x” prices. For example,a 10-day SMA shows the average price of thelast 10 days. So if we calculate the averageof the last 10 days for every day over a longperiod of time and we connect the values,the SMA line is created.



The WMA is a weighted moving average where,as we go back in time, weights of each pricedecrease in arithmetical progression. Althoughit is a more complex indicator than the SMA,it is also more popular since it puts more weighton current prices.

Another weighted MA is the EMA, alsosometimes referred to as the ExponentiallyWeighted Moving Average (EWMA). In general,the 50 and 200 day EMA are used as signalsof long term trends. For example, when theEMA rises it shows the market is bullish andcan indicate an uptrend. If the price candlecloses on the other side of the EMA line, thiscan indicate a change in direction of the trend.

Aside from identifying trends, EMAs are alsoused to signal trading opportunities. You couldplot two EMAs with a different number of periodson the same chart, for example a 12-periodEMA and a 26-period EMA, and look out forthe lines crossing - depending on whether theshorter period EMA is heading above or belowthe longer period EMA, it can be seen as a signalto buy or sell, respectively. Note that when theEMA goes flat and only fluctuates a little, itidentifies a trendless market, and one shouldnot trade using indicators suited for trendingmarkets.



Bollinger bands is a technical analysis toolthat helps measure volatility, and are made upof two lines moving around an exponentialmoving average. The lines above and belowthe EMA form the Bollinger bands and aredesigned so that 95% of prices fall within thebands. The bands widen when market volatilityincreases and narrow when it decreases.This is a useful feature because if the averageprice move is 50 pips in a quiet market andexpands to 100 pips in a volatile market, youwill need to adjust your trading to account forthese bigger moves. The price that you chooseto enter the market will move further away fromthe market in volatile times, giving a betterentry that is adjusted to the current situationrather than past activity. Furthermore,duringtimes of high volatility when bands are wide,you will need to place your stop loss further

Bollinger bandsaway from your entry point. The opposite istrue for times of low volatility where the bandsare narrow, and the stop loss may be placedcloser to the entry point. Remember, asalways, the Bollinger bands are best used incombination with other indicators to avoidfalse signals.

Bollinger bands work well in both ranging andtrending markets. In ranging markets, they mayforecast reversals, as prices are likely to bounceoff the upper and lower bands. In trendingmarkets, after we identify the trend directionon the daily chart, we can look to sell when theprice touches the upper Bollinger Band if themarket is in a downtrend, and look to buy whenthe price touches the lower Bollinger Band ifthe market is in an uptrend.

Trending market - EURUSD daily chart

When the direction of the trend on the dailychart is down, tests of the upper Bollinger bandcan offer good entry opportunities for selling



MACD stands for Moving Average ConvergenceDivergence, and is an indicator designed todetect momentum change and signal overboughtor oversold conditions. It is made up of twoparameters: the ‘MACD line’ showing thedifference between 12 and 26 period EMA,and the ‘signal line’ showing the nine day EMAof the MACD line. Sometimes it also containsa histogram which gives a visual representationof the difference between the MACD line andthe signal line.

Overbought and oversold s ignals aregenerated when the MACD line moves farabove or far below the signal line - the higherabove the signal line the MACD line is, the moreoverbought the currency, the lower below thesignal line, the more oversold the instrument.

MACD

Ranging market - reversals at the bands

When the market is trading sideways in a range,the price tends to reverse at the bands



Aside from showing overbought and oversoldconditions, MACD also gives signals when thesignal line and the MACD lines cross over

each other. The MACD line crossing abovethe signal line is a buy signal, and crossingbelow is a sell signal.

MACD is much higherthan the signal line,showing an overboughtmarket where pricemay stop rising

MACD is far belowthe signal line,pointing towards anoversold market whereprice may stop falling

A sell signal isgenerated when theMACD line crossesbelow the signal line



Finally, you can also get important informationby looking at the slope of the MACD linerelative to the price trend. Most often, they willmove up or down in tandem, but occasionallythey will either converge towards each otheror diverge away from one another. When yousee the price moving higher while the MACD

is moving lower, this is a signal that the trend isweakening, and that we may even see a trendreversal soon. The reverse also holds that whenthe price moves lower while the MACD moveshigher, then the signal is that the trend isweakening.

The price and the MACD line are convergingtowards each other - the price is movinglower while the MACD is moving higher.This signals the downward trend is weakening.



RSIThe RSI or Relative Strength Index is anindicator that measures the strength of allupward movements against the strength of alldownward movements, and identifies turningpoints by indicating overbought and oversoldlevels. In trending markets, it can detectmomentum change; while in ranging markets,it can spot overbought or oversold conditions.

The RSI gives a reading between 0 and 100.If it is greater than 50, the upward force isstronger than the downward force, and if it isbelow 50, the downward force exceeds theupward force. For us to derive any signal fromthe RSI though, we normally look for readingsgreater than 70 or 80, or below 30 or 20. AnRSI above 70 indicates that the instrument weare looking at is overbought, pointing to apotential sell opportunity. A more conservativetrader may wait for the RSI to exceed 80before selling, as this is considered an evenstronger overbought signal. By the same logic,the opposite is true when the RSI is low - anRSI below 30 indicates an oversold marketand gives a potential buy signal, while an RSIbelow 20 gives an even stronger buy signal.

For example, if RSI is rising above 70, whichis your preferred RSI reference level, you maychoose to sell the instrument when the priceturns back down below the reference level of70, placing your stop loss just above the mostrecent high. Note that a common mistake isto sell the instrument as soon as the RSIreaches your overbought level, and not waitfor it to move back down. This can be a costlymistake as the RSI can continue to move upwith the price, so always wait for a move lowerbefore getting in. Again, the exact opposite istrue if prices are moving in the other direction;when the RSI reaches or passes below youroversold level and then rises back up above it,this can be considered a buy signal and youmay choose to buy the instrument, with astop loss below the most recent low.

Most traders use 70 as their overboughtreference level and 30 as their oversold level,and the most common parameter setting forthe RSI is period 14. However, whateverlevels you use in your trading, you should stillstick to the rules we just mentioned, waitingfor the RSI to come out of the extreme zonesbefore acting.

RSI < 30 indicates the market isoversold, and gives a buy signalwhen RSI rises back up above 30

RSI > 70 indicates an overboughtmarket and a selling opportunitywhen RSI dips back below 70



Another signal that can be derived from theRSI is based on the way it moves relative tothe instrument price. If you see that the priceis near a support or a resistance, and the RSI

starts to diverge from the trend and move inthe opposite direction, we can expect the trendto weaken, or perhaps even reverse.

This chapter covered the basics of technicalanalysis. Once you are comfortable with thebasics, you can move on to more advancedtechnical analysis, using additional indicatorsand oscillators. You can expect to come acrossterms like Fibonacci extension and retracement,SAR, ADX, Commodity Channel Index, and more.Don’t be put off by the technical names oncethey are applied in practice they are not nearlyso daunting. And remember, with our advancedcharting software, you can try out these andmany more technical indicators on theinstrument of your choice and work your waytowards making more informed trading decisions!

Pulling it togetherNeed more?



Find out more about technical analysisin our learn centre or view ourstandard charts

Call a personal account servicemanager, join us on live chat,contact us at [email protected] post your question/commentson our Facebook page.

The price is making lower lows while the RSIis making higher lows, signalling divergence.After such a pattern, we can expect thedowntrend to slow down or reverse.










At easy-forex we make technical analysis easy, and provide full support to help you getthe most out of the resources available. View our standard charts here or login to accessour advanced ProRealTime charts and professional technical analysis levels fromTrading Central.

Open your easy-forex account and get access to leading web based charting softwarepreferred by industry professionals enabling you to:

Analyse currencies, precious metals, commodities or indices

View trend lines, draw support and resistance lines and insert Fibonacci retracements

Choose from a variety of chart styles including line, bar and candlestick

Zoom in to magnify areas to scrutinise or zoom out for a wider perspective.






Chapter 5 l Pulling it all together

Chapter 5 Pulling it all together

It goes without saying that understanding thenature of the forex market, knowing how toapply fundamental and technical analyses, andbeing able to assess the direction of a trendare necessary skills for every trader.

However, one of the most important, yet alsomost overlooked aspects of trading is relatedto emotions. Successful traders are aware oftheir emotions while trading and have learnthow to be disciplined and make rational ratherthan emotional decisions.

The two emotions that can cause most damageare fear and hope. Fear, which usually creepsup on traders while in profit, can make themdoubt the likelihood of taking their initial desired

Emotional trading - fear & hopeprofit amount. This may push them into gettingout of a trade too early and realise a muchsmaller profit than initially planned. It may alsoprevent them from taking advantage of a goodtrading opportunity. Hope, which creeps upwhen a trade is losing, can cause the trader tohold onto a poor trade for far too long.

Small profits and larger losses are the last thingwe want to see in our trading accounts, so whydo we do it? If you can relate to what you havejust read about emotional trading, read on aswe look at a few examples when emotionslead to bad trading decisions and assess howwe can fix it.



Alex

Alex’s two previous trades closed with a loss, and this is weighing onhis mind. He is afraid that the next position he takes will result in a losstoo. Because of his fear of loss, he delays placing another trade whenhis methodology tells him to do so and waits for extra confirmation thathis idea is okay, at which point it is too late. His hesitation causes himto miss a perfectly good entry opportunity.

Anna opens a trade with a take profit amount of $1,000, and the tradegoes into profit. It jumps from $200 to $550 to $750, and Anna continueswaiting for her $1,000 target. Because prices don’t usually move in astraight line, the price temporarily reverses, bringing her unrealised profitdown to $200. When Anna sees her profit fall, she starts to worry thatshe will miss her chance of taking any profit at all, and this fear becomesintensified as the profit drops to only $50. She closes her trade themoment she sees it back up at $200. The emotion of fear causes herto take a much smaller profit than what she initially targeted. In thisexample, had she waited another 10 minutes, the price would havecontinued moving in her favour and her deal would have closed withher target profit of $1,000.

Anna

Mark sees a potential opportunity and opens a trade, but it quickly turnsagainst him. As he didn’t plan to lose his margin so quickly, he decidesto wait for some time, hoping that the market will move back in his favour.He sees the loss on the trade grow from -$100 to -$400 to -$850 inminutes, approaching his margin amount of $1,000, and because hedoesn’t want to take this loss, he quickly increases the margin to $2,000.He thinks that if he keeps his stop loss a safe distance out, it is just amatter of time before the price turns around and he closes the tradeat zero. After some waiting, his loss shrinks to -$300 and then -$150,and he continues watching the trade for a chance to close with zerolosses. Unfortunately, the market moves against him again and he seesthe loss at -$450, and then later at -$900. At this point, the hope ofavoiding a loss completely controls his trading decisions; he may movehis stop loss even further out so that the market does not take him out,or he may ignore the trade hoping that it will get back to at least break-even.What was supposed to be a day-trade turns into a position trade of afew days, and may even become a long-term ‘buy and hold’ strategy,with Mark unable to discern the right time to close the deal. After a lotof waiting and hoping, the trade closes with a -$3,000 loss because headded even more money to his margin in the hope of saving the trade.

Mark



Had Alex demo-tested his trading strategyuntil he was happy with it and had he beenaware that even a winning strategy cansometimes have a series of losing trades, hemay have been more confident and takenadvantage of the good trade set-up thatappeared. Similarly, had Anna known that herimpulse to close the deal is emotional ratherthan rational and probably not a good idea,

Plan your tradeand trade your plan

she would have ended up with a bigger profit.Lastly, if Mark stuck to his planned maximumloss of $1,000, he could have afforded to placethree losing trades instead of just one, andchances are, some of his trades would havebeen profitable and boosted his account!

So, we can see these traders are makingmistakes by acting on their emotions of fear andhope. Does any of the above sound familiar?

There are ways in which traders can put theiremotions aside and avoid the above mistakes.In order to avoid missing trading opportunities,you should have a strategy which gives clearentry and exit signals when a number ofpre-defined factors coincide. Realise that justas some trades will win, some will lose, and itis no cause to panic or doubt a tried and testedstrategy. Test your strategy extensively on ademo account or a live account with smallerdeals, until you are confident to follow it withoutquestion.

The good newsThe next step is to enter and exit the marketevery time the pre-defined signals arise,irrespective of the performance of your lastfew trades, and irrespective of your ‘feelings’about what the right move is. Every successfultrader realises that no matter what tradingstrategy they use, each and every losingtrade might turn in their favour, or might hittheir stop loss. The stop loss is in place tominimise potential losses, and should remainin place no matter what. It is the trade strategythat should dictate where the target profitand loss levels are and not the trader’sfear or hope.


One of the great benefits of trading on the easy-forex platforms is that you can setstop loss and take profit limits that allow you to take some of the emotion out of trading.Plan and test your strategy, set your limits and keep your goal in sight.




A consistently successful trader always has adefined trading method. Guessing or going byyour gut doesn’t always work. Without a definedtrading method there is no way for you to knowwhat constitutes a buy or a sell signal, or toeven consistently identify the trend. Decidewhat your method is, which technical indicatorsor other tools (e.g. candlestick analysis, etc.)you will use, what your buy or sell signals are,and finally define how you plan to exit a position,with a take profit and a stop loss in place.

A trading plan in five simple steps

1. Define your trading strategy

Once you have defined a method or a systemthat works for you, follow it. It is important tostick to the levels you selected for your stoploss and your take profit, always targeting alarger profit than the amount you are willingto lose. Adding to your margin and movingyour stop loss further is likely to result in largerlosses. Your stop loss should be placed at alevel where you can accept that the market hasmoved against you and you are willing to takethe loss.

2. Be disciplined

The goal for every trader in their first year oftrading should simply be to stay in the game.You can’t experience above-average returnswithout exposing yourself to above-averagerisk and as a new trader you should not takeon more risk. Remember, you should only riskwhat you can afford to lose. So be realistic withthe stop loss and take profit limits you set.

3. Be realistic with your expectations



Markets trend only 20-30% of the time, and therest of the time they are not moving in oneclear direction. This means that you need tobe patient, and wait for trends to form and giveyou good trading opportunities. For example,if you’re a medium-term trader, there will usuallybe only two or three good trading moves inthe market in any given week. All too often,because trading can be so exciting, new traderswant to trade all the time. But this means youare probably over-trading, and doing it at amuch lower standard too. Patience is important,so be prepared to wait and stick to your tradingstrategy.

4. Be patient

This is a very important point, and it explainswhy many traders lose the balance in theiraccount after just a few trades. While new tradersmay risk half or even their entire free balanceon one trade, experienced traders tend to limittheir risk on any given position to 1- 5% of theirportfolio. If we apply this rule to ourselves, thenfor every $5,000 we have in our trading account,we can risk only $50-$250 on any one trade.If you have a small trading account, then tradesmall, or top it up so that you can trade thedeal sizes you want.

5. Manage your money effectively

And remember: plan yourtrade, and trade your plan.Always!



Since 2003, we have guided many new traders like yourself into the exciting world of forex trading.In our experience, education and information are key to successful trading. When people fail,it’s usually because they risk too much too early, before they understand what to do. We encourageand help you get the information and understanding you need before you start to trade.This way you will have the right tools, the right knowledge, and the right attitude to trading.

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