Step-By-Step Strategy & Guidelines

For Successful Forex Trading

By Maurice Perry

www.slumdogforex.com

Copyright © 2010

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Table of Contents

Table of Contents 2 Disclaimer 3

1 Introduction & Brief Overview of Forex Trading 4 2 Creating OANDA FXTrade Practice Account 8 3 Setting Up Chart Type: Candlestick 12 4 Setting Up Indicators: SMA 20 (Simple Moving Average) 17 5 Setting Up Indicators: EMAs (Exponential Moving Averages) 19 6 Setting Up Indicators: RSI (Relative Strength Index) 22 7 Setting Up Indicators: Slow Stochastic 25 8 Setting Up Pivot Points 28 9 Setting Up Trading User Preferences 36

10 Adjusting Leverage 41 11 Creating Multiple Time Chart Windows 43 12 Time of Day/ Volume Factor 47 13 Check Forex Factory Day Calendar 51 14 Determining Goal For The Day 55 15 Using the SMA 20 Indicator 62 16 Using the EMA 5 & 12 Indicators 67 17 Using the RSI Indicator 71 18 Using the Slow Stochastic Indicator 74 19 Drawing & Using Support & Resistance Lines 79 20 Using The Fibonacci Retracement Tool 87 21 How to Buy & Sell/Open & Close Trades 92 22 Trading Game Plan 100 23 Conclusion: Words of Wisdom 105

Slumdog Forex Trader’s Checklist 109 Basic Trading Terminology 110

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Disclaimer

Every individual investor’s success depends on his or her own background, instruction, devotion, dedication, perseverance, aspiration and inspiration. As with any business endeavor there is always the possibility of loss of capital and there is no guarantee the use of this book will result in profits or success. The information enclosed herein is intended strictly for instructive purposes. Nothing in this publication should be construed as an approval to buy or sell any security or to offer any investment counsel. It is possible the author of this book at this or a subsequent time in the future may own, buy, or sell securities discussed. Information provided herein has been obtained from sources believed to be reliable but no guarantee is made as to their precision or comprehensiveness. The advice of a knowledgeable legal, tax, accounting, or business professional should be sought at all times. U.S. Government Required Disclaimer – Trading foreign exchange markets on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in the Forex market, you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. Readers of this publication should also be aware of the following CFTC disclosure rule 4.41 regarding hypothetical performance results: HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN ACTUALLY EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS MADE THAT ANY USE OF THIS INFORMATION WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

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Chapter 1

Introduction & Brief Overview of Forex Trading

Hello, and welcome to Slumdog Forex. My name is Maurice Perry

and I’d like to thank you for purchasing this book tutorial. My hope and

desire is for the knowledge that I have gained over the last four years of

forex trading to be shared with you within the following chapters of this

book. So prepare to sit back, relax and enjoy the ride!

But before we get into any serious detail, I would like to first do a

brief overview of what forex trading actually is. Forex trading is the

trading or exchange of currencies. Whether it is the U.S. Dollar (USD)

traded or exchanged for the Euro, or the USD exchanged for the

Japanese Yen, forex trading is basically the exchanging of two different

currencies. It’s similar to if someone were to take a trip overseas to

another country. Let’s use Japan as an example. Some people would

like to have their money exchanged before they make it to their

destination, Japan in this instance. So they would go to their bank or a

local currency exchange in order to exchange the USD or a certain

amount or value of the USD for whatever the current value of the

Japanese Yen is. So upon arrival, they would not have to worry about

exchanging currencies there. Nor would they have to worry about the

exchange rates changing while in mid-air!

With forex trading, we basically look to buy another currency at

its lowest rate, and we wait until the value of that currency rises to a

certain level before we sell it. It’s similar to trading stocks and

commodities - buy low, sell high.

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One of the things that I really love about forex trading is that you

have the ability to trade virtually at any hour of the day, five days a

week. This definitely allows for more flexibility, especially if you have a

work schedule that may not be conducive for you to trade during

certain trading peak hours of the day. The beautiful thing is that forex

trading can be done 24 hours a day. For instance, let’s say that you

work 2nd shift and your work hours are from 3-11 PM. Well, when you

get off at 11 PM, the next major peak time of trading is typically

between the hours of 12 AM and 3 AM (CST). Let’s say that you work

3rd shift, from 11 PM to 7 AM. If you can get home by 8 AM, you would

get home just in time for the New York Stock Exchange (NYSE) opening

bell at 8:30 AM (CST). This would be in the midst of the major peak time

of trading activity. Also, you would be able to trade in the evening time

as well, between the peak hours of 6 PM and 9 PM (CST). So, the good

thing is the flexibility that exists with trading forex.

Forex rates, the price or value of a pair of currencies at any given

moment, are determined by three things:

1. Economic Factors

2. Political Conditions

3. Market Psychology

Economic factors consist of the ripple effect that may occur after

financial reports are released daily, weekly, monthly or quarterly.

Reports such as “New Home Sales”, “Non-Farm Employment Change”,

“Oil Inventory”, and many more can have drastic impact upon the

economy, and thus, will affect the value of a country’s currency as well.

Political conditions can affect the value of currencies when a

government becomes unstable or stabilizes. When there is a change of

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governmental structure of a nation, or in the case of America, when

one administration moves in, and another moves out, this can affect

the nation’s currency value. Or if there is indecisiveness on Capitol Hill

regarding legislation that may impact the economy, this can also cause

the fluctuation of the USD.

Market psychology analyzes the speculative tendencies of traders

as a whole. Traders will try to guess what direction the market may go

next, based off of previous movements and indicators that they have

set up. When there is a noticeable change of directions with the forex

rate, you may witness the rise in volume (indicates the worth of a

market move; high volume usually means a greater push in one

direction or the other – the more traders that trade in one direction

simultaneously, the greater the volume). I will talk more about volume,

as well as volatility later on in the book.

There are two strategies that are used in forex trading. One

strategy is called Fundamental Analysis. The other strategy is called

Technical Analysis. Fundamental Analysis is the use of what was

mentioned previously (Economic Factors, Political Conditions and

Market Psychology) to determine the general direction a currency may

be headed to, as well as when there could be a good time to buy or sell.

With Technical Analysis, the trader is using various indicators and

different levels to determine when is the proper time to buy or sell.

With the strategy that I use, which will be taught in Slumdog

Forex, both Fundamental Analysis, as well as Technical Analysis, are

used. We will pay attention to the financial reports that are released,

and will be aware of the political conditions of the countries of which

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are associated with the currencies that we are trading. But we will also

use technical indicators to assist us with our trading as well.

Probably the greatest thing about forex trading, especially with

the platform and service/broker that I trade with/through, is that you

could trade with as little as one dollar! Now granted, I’m not telling

you to just invest one dollar into forex trading. That’s not the message

that I want to convey. The point that I’m trying to make is that there is

not a minimum balance that is needed in order to have, or maintain a

forex account, especially with the broker that I use.

Before we dive into the “meat and potatoes” of forex trading and

our strategy, the first thing that I want to do is help get you started with

creating a practice account with OANDA FXTrade, the service/broker

and platform that I use to trade with. So in the next chapter, I will walk

you through the process of setting up your practice account.

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Chapter 2

Creating OANDA FXTrade Practice Account

Let’s get you started with creating a practice account. Open your

web browser, and in the web address bar, type the following web

address:

www.fxtrade.oanda.com

When the web page appears, look to the right side of the page

and you will find a section called “Get Started”. Here you will find two

links. One is for FXTrade. The second one is for FXGame. Click on the

link that says “OPEN AN FXGAME ACCOUNT” (see fig. 1). After clicking

on the link, you will be taken to a registration page.

Fig. 1

Proceed to fill out the information requested in the “Register

Now” box. You will fill out your name and email address. You will also

create a username and password, as well as select the type of currency

your want to use as your base currency. After this form is filled out,

click on “Register”.

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You will then receive an email that says “OANDA FXGame Account

Activation” in the subject heading. Within this email there will be a link

that you will have to click on in order to activate your account. When

you click on the link, you will be taken to a web page that lets you know

that your account has been activated (see fig. 2). There is a hyperlink

that you can click on – “Login to FXGame”. You will then be taken to the

OANDA Login page (see fig. 3).

Fig. 2

Fig. 3

When you arrive at the OANDA Login page, feel free to bookmark

this page with your web browser so that you’ll have easy access to it.

On my home PC, as well as my laptop, I set this page as my Home Page.

After doing that, you will see that the Account pull-down menu is

already set for “FXGame” and the Type pull-down menu will be set for

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“Trading Platform”. Type the username and password that you created,

then click the “Login” button. It may take a few seconds to verify the

username and password.

When the platform (see fig. 4) finally appears, go ahead and

maximize the window.

Fig. 4

If you ever wanted to change your password (which would

actually be a good idea to get in the habit of doing), in the upper-left

hand corner of the platform, you will see the “Account” pull-down

menu. Click on it, and scroll down until you see the line that says

“Change Password” (see fig. 5). When you click on that link, a dialog

box will pop up (see fig. 6). Here, in the space provided for “Old

Password”, you will have to type in your current password.

Underneath, for the “New Password”, proceed to type in your new

alpha-numeric password. Then confirm your new password below.

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Fig. 5 Fig. 6

Make sure that you remember your password, and write it down,

if necessary. When you are finished, click on the “Submit” button. The

dialog box will close, and another dialog box will appear to confirm that

the password has been successfully changed. Click on “OK”.

You are now finished with creating your practice account! Yeah!

Next, we will begin constructing your platform. We will start with

setting your chart type.

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Chapter 3

Setting Up Chart Type: Candlestick

In this chapter, I will begin showing you how to set up your chart.

We will start off by setting your chart type to “Candlestick”. The first

thing that we want to do is go to the pull down menu that is currently

set to “Close Price” (see fig. 7). Click on the arrow, and then select

“Candlestick”.

Fig. 7

When the “Candlestick” chart type appears, zoom into an area so

that you can see the two different shades of candlesticks vividly. Some

of the candlesticks should be shaded black, and the others should be

shaded gray. The black candlesticks are “ascending”, or “rising”

candlesticks. The gray candlesticks are “descending”, or “falling”

candlesticks (see fig. 8).

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Fig. 8

What I like to do is change the color of both of the candlesticks.

To do so, click on the body of a black candlestick first. A box should pop

up with “Rising Colour” and “Falling Colour”. Click on “Rising Colour”,

then scroll down and select “Purple” (see fig. 9). Then click on the body

of a gray candlestick. Click on “Falling Colour”, then scroll down and

select “Orange”. So now you should have purple rising candlesticks and

orange falling candlesticks (see fig. 10). I think this is a nice contrast to

help you visualize the difference between the two. No, I am not a Los

Angeles Lakers fan! Nor am I an LSU alum! I thought I’d just clear that

up really quick!

Fig. 9 Fig. 10

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Nonetheless, let me briefly explain the components of the

candlestick. There are three parts of the candlestick – The Body, The

Upper Stem, and The Lower Stem. The Body consists of the shaded area

of the candlestick. The Upper Stem is the line that rises up from the

body of the candlestick. The Lower Stem is the line that falls down from

the body of the candlestick (see fig. 11).

Fig. 11

Within each candlestick, there is vital information. If you hover

over one of the candlesticks and look at the lower left-hand corner of

the chart, you will see a gray rectangular box, showing the date and

time of that particular candlestick. In the bottom part of that box, you

will see the Open, Close, High and Low values for that candlestick.

These values are located at different parts of the candlestick. The

“Open” is the top or bottom of the body of the candlestick that aligns

with the top or bottom of the previous candlestick (the previous

“Close”). The “Close” is the opposite end of the body (if the candlestick

body is orange, the “Close” will be at the bottom; if the candlestick

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body is purple, the “Close” will be at the top). The “High” is the top

peak of the Upper Stem of the candlestick. The “Low” is the lowest part

of the Lower Stem of the candlestick (see fig. 12).

Fig. 12

Sometimes you will find candlesticks with no body at all. This

means that the “Open” and Close” of the candlestick were at the same

value (see fig. 13).

Fig. 13

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Those are the basic components of the candlestick. You should

now save the profile. Go to Tools, and select “Save Current Profile”.

In the next chapter, we will set up the SMA 20 Indicator.

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Chapter 4

Setting Up Indicators: SMA 20 (Simple Moving Average)

Now I will show you how to begin setting up the various indicators

that I use. The first indicator that we will set up is called the SMA 20

line. SMA stands for Simple Moving Average. I’ll go into more detail

later.

To insert the indicator, if you have your platform open, look

towards the lower left hand corner of the chart. There you will see a

pull-down menu that says “Add Study” (see fig. 14). Go ahead and click

on the arrow of that pull-down menu. Then scroll up the list until you

see “SMA”, and then click on it (see fig. 15). After clicking on “SMA”,

next to the pull-down menu (which should now have “SMA”), there is a

value (14). Change that value to 20, and then click on the + sign to the

right of it (see fig. 16).

Fig. 14 Fig. 15 Fig. 16

If you look at your chart, you should now see a curvy line that is

somewhat following the direction of the candlesticks. This is the SMA

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20 line that we just created. We’re going to change the color of that

line to red. To do so, click anywhere on the line and a menu will pop up.

Scroll down until you see “Red”, and then click on it (see fig. 17).

After the color has been changed, save

the profile. Again, to save the profile,

go to the top of the screen and click on

“Tools”, then “Save Current Profile”.

Basically, the SMA line is a moving

average line. The value that we set for

our line, which was 20, tells the line to

take the average of the current

candlestick, and the previous 19

candlesticks. The location of that line at

the current candlestick illustrates the

average price/rate over those 20

candlesticks.

We will go into much more detail about how this indicator is used

with our trading, as well as how it will be used in conjunction with the

other indicators that we will be setting up. And speaking of other

indicators, the next indicator that we will set up will be two EMA

(Exponential Moving Average) lines.

Fig. 17

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Chapter 5

Setting Up Indicators: EMAs (Exponential Moving Averages)

In this chapter I will show you how to set up your EMA

(Exponential Moving Average) lines. There will be two different lines

that we will be setting up. To begin, click on “Add Study”, just as we did

with the SMA 20 set-up, and then select “EMA”. Change the value to

“12” and click on the “+” sign. Your platform should now have an

additional line now. This line is the EMA 12 line. Change the color of

this line to blue. Click on the line, then scroll down the list, and click on

“blue”. You should now have a red SMA 20 line and a blue EMA 12 line

(see fig. 18).

Fig. 18

Now, you will create one more EMA line. So click on “Add Study”,

and then select “EMA” again. This time, change the value to “5”, and

then click on the “+” sign. You should now see three lines. The third line

is your EMA 5 line. We’re going to change the color of this line to

yellow. Click on the line, and then scroll down the menu to select

“yellow”. So now, you should have three lines; red SMA 20 (created in

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previous chapter), blue EMA 12, and yellow EMA 5 (see Fig. 19). The

EMA 5 line is the faster moving line. It will always stick closest to the

current price/rate. The EMA 12 line will be the slower moving line. Its

movement will always lag behind that of the EMA 5 line. Thus, all three

of these indicators are called lagging indicators because all of them lag

behind the current price/rate. Go ahead and save the current profile to

lock in these additions to your profile.

Fig. 19

The EMA line is similar to the Simple Moving Average line in that

the location of the line is determined by the average of the current

candlestick with the previous candlesticks, according to the value that is

set for the line. However, the major difference is that for the EMA line,

more weight is placed on the latter few candlesticks. For instance, with

the EMA 5 line, the location of that line is determined by the rate of five

candlesticks, including the candlestick at its current location on the

chart. But, more emphasis, or weight will be placed on candlesticks #4

and #5 than candlesticks #1 and #2. So in essence, the curvature of an

EMA line will be slightly different than that of the SMA line in that it will

move a bit quicker into the direction of the current rate.

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I will talk later about how all three of these lines are used to

determine when to enter into trades and when to exit. But the next

indicator that I want to show you how to set up is the RSI indicator.

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Chapter 6

Setting Up Indicators: RSI (Relative Strength Index)

Okay, now we will set up our RSI (Relative Strength Index) indicator. The first thing that we’re going to do is click on “Add Study”, then scroll up and click on “RSI”. Now you should see three values, 14, 70 and 30 (see fig. 20).

Fig. 20

Change the first value, 14, to 21. Change the second value, 70, to 50. And change the third value, 30, to 50 as well. Afterwards, click on the “+” sign. A second chart will appear below our candlestick chart showing gray hatched areas (see fig. 21). This is the RSI indicator.

Fig. 21

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But we want to do a few more things to this indicator before we move

on. Look towards the upper right-hand corner of your chart. There you

will see an icon that looks like a forward slash. This is the “Draw

Trendline” button (see fig. 22). Click on it, then scroll down the menu

and click on “Horizontal Trendline” (see fig. 23).

Your cursor should now be

controlling a yellow horizontal line.

Drag this line down to the RSI chart

and click as close as you can to the

50.00 value (see fig. 24). Then click on

the line again and change the color of

that line to red. Also, we want to give

the line a bit of thickness so that it’s a

bit more visible on the chart. To do so,

Fig. 22 Fig. 23

Fig. 24

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click on the line again, and then scroll down the menu, and click on

“Style”. Then, click on “Thick” (see fig. 25).

Fig. 25

After modifying the horizontal line, proceed to save the current

profile.

The RSI indicator compares the magnitude of recent gains to

recent losses in an attempt to determine overbought and oversold

conditions of the forex pair that you will be trading. When the gray

shaded area rises above 70.00, it is considered to be in an “overbought”

range. When the gray shaded area falls below 30.00, it is considered to

be in an “oversold” range. However, the way that I utilize this RSI

indicator is different than the conventional way that it is used. I will

cover this later when I begin to talk about how to use the indicators.

In the next chapter, we will set up another indicator – the Slow

Stochastic Indicator.

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Chapter 7

Setting Up Indicators: Slow Stochastic

The next indicator to set up is the Slow Stochastic Indicator.

Similar to the RSI, it is typically used to identify overbought and

oversold conditions. A Stochastic value above 80 is considered

overbought and below 20 is considered oversold.

To create the Slow Stochastic indicator, click on “Add Study”, and

then click on “Slow Stochastic”. Just like the previous indicators, there

are some values that are preset, 14 and 3. For the first value, change

the 14 to 18. For the second value, leave it at 3. Then click on the “+”

sign. The Slow Stochastic Indicator is now visible below the RSI

Indicator (see fig. 26).

Fig. 26

Now, you will need to drop a few horizontal lines into this indicator. Click on the “Draw Trendline” icon in the upper right-hand corner of the chart, and select “Horizontal Trendline”. Drag the yellow horizontal line down to the Slow Stochastic chart and click as close as you can to the 50.00 mark (see fig. 27). It doesn’t have to be exactly 50.

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Fig. 27

Next, we want to duplicate this line and copy it to a few other levels. To do so, click on the line that we just dropped in at the 50.00 level, and then click on “Duplicate” (see fig. 28). Then drop the new line in at, or near the 80.00 level. Repeat the process a few more times and drop lines near the 20.00, 40.00 and 60.00 levels. Change the color of the middle line (50.00 level) to green. Also, Change the color of the 40.00 and 60.00 level lines to red (see fig. 29).

Fig. 29

Now we have our stochastic indicator set up, so go ahead and save the profile.

Fig. 28

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In the next chapter, I will show you how to determine critical horizontal levels on the chart. These horizontal levels are called pivot points.

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Chapter 8

Setting Up Pivot Points

In this chapter I will show you how to set up pivot points. Pivot

points are extremely important in technical analysis, in that they signify

the points where the overall trend in price, or rate changes. They can

be determined for any time frame, with the daily time frame being

most common. I like to set up the daily and 4-hour pivot points on my

charts.

To start, you will need to open your web browser. At the web

address bar, type in fx-charts.com (see fig. 30), and then hit “Enter”.

When you get to the page,

look towards the left side, and

you’ll find a heading that says

“Traders Toolbox”. If you scroll

down, you will see a bullet point

that says “Pivot Point Calculator”

(see fig. 31). Go ahead and click on that.

You will come to a page with the

heading “Forex Pivot Point Calculator”.

Near the top you will see the words

“High”, “Low”, and “Close”, all followed

by boxes to type values in. Below these,

there’s a “Calculate” button (fig. 32).

Fig. 30

Fig. 31

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However, before we can enter any

values into this page, we must go back to

our chart to find the previous week’s High,

Low and Close to help determine our pivot

points.

On the timeframe pull-down menu,

on the trading platform, select “1 Hour” (see fig. 33). On this “1 hour”

chart, we will scroll back to locate the highest point, lowest point, and

the close of the previous 24-hour period, beginning and ending at 2100

GMT. Visit http://www.timezoneconverter.com/cgi-bin/tzc.tzc to

convert times to your time zone.

If you can recall in

chapter three, I talked about

the components of the

candlestick. Each of those

candlesticks represents a

timeframe. So, scroll back or

expand the 1-Hour timeframe

chart until you’re able to see

the previous 24-hour period.

Since I’m in the central time

zone, my daily time period will

begin and end at 1600 hours, or 4 PM CDT (see fig. 34). Within this

window of time is where I will have to locate the “High”, “Low”, and

“Close” (see fig. 35-a, b & c). Please be aware that if you live in a time

zone that observes Daylight Saving Time, then you will have to adjust

the times accordingly, because the GMT time does not change.

Fig. 32

Fig. 33

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Fig. 34

I found that the “High” for the day was

1.25636. The “Low” for the day was

1.21777. The “Close” for the day was

1.23449.

So now that I have these three values,

I can go back to the pivot point calculator

and plug in these numbers, and then click

on “Calculate” (see fig. 36).

Fig. 36

You will now see the results below.

There are seven numbers that are

calculated. The first number is called the

Fig. 35-a

Fig. 35-b

Fig. 35-c

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Pivot Point. The next three are called Resistance Points, or Resistance

Levels. The other three are called Support Points, or Support Levels (fig.

37).

Fig. 37

Horizontal lines will now be placed on my platform at these seven

levels, beginning with the Pivot Point (PP), 1.2362. So, I now go back to

my chart and click on the “Draw Trendline” icon in the upper right-hand

corner of the chart, and click on “Horizontal Trendline”. Then I would

drag the line to as close as I can get to 1.2362 on the chart, and click

there. There will now be a yellow horizontal line in that location. I will

change the color to “White”, and change the style to “Thick”.

Next, I click on this line and

select “Duplicate”, and drag the

copied line to the first Resistance

Point/Level (R1), which is 1.25463.

Once I move as close as I can get to

1.25463, I will drop the line in, and

then change the color to “Green”. I will proceed to duplicate this R1

line to the locations of R2 (1.27479) and R3 (1.29322) (see Fig. 38).

Fig. 38

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Now, I have to do the same for the Support Points/Levels. I’ll start

by copying the PP line to the first Support Point/Level (S1), which is

1.21604. When the line is dropped in place, change the color to

“Purple”; the style will already be set to “Thick”. Afterwards, I will

continue to duplicate this S1 line to the locations of S2 (1.19761) and S3

(1.17745). When finished, I now have all of my daily pivot points in

place (see fig. 39). I will now save my profile to be sure that these lines

are locked in.

Fig. 39

Then I would repeat the process to show the pivot points for the

4-Hour time frame. These pivot points will have to be updated more

frequently than the daily pivot points because they are determined by

the previous 4-hour block of market activity. The 4-Hour pivot point

blocks are as follows: 0900-1300 GMT, 1300-1700 GMT, 1700-2100

GMT, 2100-0100 GMT, 0100-0500 GMT, and 0500-0900 GMT (to

convert these times to your time zone, use the following website:

http://www.timezoneconverter.com/cgi-bin/tzc.tzc. To calculate these

pivot points, take the “High”, “Low” and “Close” of the previous 4-Hour

block and plug those values into the pivot point calculator. When the

values are given, draw horizontal lines at the appropriate locations on

the chart. Use the same color scheme as the daily pivot points (green-

resistance lines, white pivot point, purple support lines), but change the

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line type to “dotted” (see fig. 40). After these points are in place, save

the profile.

Fig. 40

As mentioned earlier in this chapter, pivot points can be a good

indicator to use to identify where a trend change may occur. They act

as “floors and ceilings” for the chart. Later on, I will talk about support

and resistance in more detail. But basically you’ll find that the price or

rate of a forex pair will bounce between two pivot point lines. When a

line is broken, it will either retrace back, or it will make a push to get to

the next line. These pivot points will be very instrumental, along with

our other technical indicators, to determine the proper times to be on

the look-out for trend changes.

Another website that you can utilize to get the pivot points is

www.actionforex.com. When you get to the site, hover over the

“Markets” button at the top of the page, and then select “Pivot Points”

(see fig. 41).

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Fig. 41

When the next page pops up, you will see the heading, “Standard

Pivot Points”. Underneath this heading, there is a series of hyperlinks to

different pivot point types. Below this area, there is a chart with the tab

“Hourly” highlighted. Click on the “Daily” tab. The daily pivot points for

EUR/USD pair are listed on the top line. For the 4-Hour pivot points,

click on the tab that says “4 Hours” (see fig. 42).

Fig. 42

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There may be a slight difference in the values of each of the

levels, but they are still in very close proximity and are valid for the

purpose in which we use them. So, if you want to find the high, low and

close and insert them into the calculator on www.fx-charts.com, that’s

fine. If you want to use the chart on www.actionforex.com, that’s fine

as well. Or, if you want to learn how to calculate the pivot points on

your own, you can check out the following site:

http://www.investopedia.com/ask/answers/forex/forex-pivot-

points.asp

Another website that you can use to determine pivot points is

http://www.pivotpointcalculator.com/. With this site, a fourth support

and resistance line is given.

Now that you have learned how to set up your trading platform

by creating the key indicators that we will be using, I will show you in

the next chapter how to set up your User Preferences.

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Chapter 9

Setting Up Trading User Preferences

Since you should have your indicators set up, now it’s time to show you how to set up your User Preferences. To start, click on “Tools” and then scroll down and click on “User Preferences” (see fig. 43). The User Preferences box will pop up with a variety of tabs. The first tab is the “Chart” tab. There will already be boxes checked for the first three items. This will remain as is. Click on the next two boxes to turn the Auto-Extend Trendlines Left/Right on. Everything else on this tab is okay as is (see fig. 44).

Fig. 43 Fig. 44

Click on the next tab, “Quotes”. Since I trade primarily with the EUR/USD pair, what I like to do is move that pair to the top of the Quote List. To do this, look at the right side, underneath the term “Quote List”. Scroll down until you find the pair, EUR/USD. Click on that

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pair, and then using the “Move Up” arrow towards the bottom of the box, click on that arrow until the EUR/USD pair is moved all the way to the top of the list (see fig. 45). Click on the “Apply” button.

Now, if you look at the left side of your platform, you’ll see two tabs – “Quote List” and “Quote Panel”. The “Quote List” tab should be highlighted. You will now see that the EUR/USD pair is at the top of the list (see fig. 46). If you click on the “Quote Panel” tab, you will also see that the EUR/USD pair is in the top left-hand corner of that list as well (see fig. 47). By the way, I use the Quote Panel for my platform. I’ll talk more about this later on when I talk about the different ways to buy and sell. Sometimes I trade the USD/JPY pair also. So if you want to, you can find that pair in the Quote List and move it up, just beneath the EUR/USD pair, and then click on “Apply.

Fig. 46 Fig. 47

Fig. 45

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The next tab is the “Trading” tab. (see fig. 48). Here, we will insert values and create parameters that will be preset in our trading orders. The pull-down menu at the top, for “Market”, will remain as “Default”.

We want all of the changes that will be made below to be valid for all trading pairs. Therefore, it will remain. For “Default Order Size”, click on the arrow for the pull-down menu, and select “%”. Then, for the box on the left, type “76.4”. The order size on every trade that I make is 76.4% of the total margin that is available. Margin is “borrowed money”. Using a lot of margin can be extremely risky because both gains and losses are amplified. While the potential for greater profit exists, great losses can occur as well. However, one of my main goals is to show you how to limit any losses that may occur, and teach you how to always be in situations to make gains the great majority of the time. We will talk about this later.

The next three lines can remain as is. Jump down to the “Default Stop Loss” line. The current setting for this in the pull-down menu is “% Price”. Change this to “% Balance”. Then, change the value to the left to “2”. For “Default Take Profit”, change this to “% Balance” as well.

Fig. 48

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Then change the value to “5”. Depending on your daily goal, which we will discuss later, this value may change.

For “Default Trailing Stop”, change the pull-down menu to “PIPS”. Set the value to “15”. “Default Limit Order Duration” can remain as is.

For the items at the bottom of the “Trading” tab, place checks in the boxes of the following:

Enable Stop Loss By Default

Enable Take Profit By Default

Enable Trailing Stop By Default

Remove the checkmark from “Confirm One-Click Trades”. Click on “Apply” afterwards.

The next tab, “Locale”, is for you to identify what time zone you are located. This is important because the time on the charts will be according to what you set it as here. So, for instance, I currently live in the Central Time Zone. Therefore, for the pull-down menu next to “Time Zone”, I selected “GMT-6”. Then, to the right, I selected “America/Chicago” (see fig. 49). Whatever is appropriate for you, make those selections. Then click on “Apply”.

Fig. 49

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For the “Sounds” tab, here you can upload any compatible sound files to your account to assign to various events/actions that will take place. For example, you can have different sounds assigned for the price hitting your “Take Profit” and “Stop Loss lines” so that if you were in another room, you will know when one of the actions takes place.

For the last tab, “Misc”, everything can remain as is. So, now, you can click on “Apply”, then “Save”.

In the next chapter, I will show you how to adjust the leverage setting for your account.

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Chapter 10

Adjusting Leverage

In this chapter, I will show you how to adjust your leverage setting. Leverage is when the investor only funds part of the amount traded. It is a ratio of the amount used in a transaction to the required deposit.

To start, click on the “Account” pull-down menu, and then click on “Change Leverage” (see fig. 50). A browser window will pop up, prompting you for your username, password and account number (see fig. 51).

Fig. 50 Fig. 51

If you don’t remember your account number written down somewhere, or saved with your confirmation email when you first set up the practice account, you can go back to your platform and look at the top left-hand corner of that window. There, you will see a six-digit number that follows your username and the active window (Primary) (see fig. 52). Now you can go back to the account leverage ticket and type in your username, password, and the six-digit account number. Afterwards, change the leverage to 50:1 (see fig. 53).

42

Fig. 52 Fig. 53

Next, click on “Submit”. A confirmation page will pop up. Click on the “Close” button.

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Chapter 11

Creating Multiple Time Chart Windows

Before creating any new windows, the first thing that I want to do is turn on a dashed horizontal line that moves with the current rates on our chart, as well as the indicators below (RSI and Slow Stochastic). To start, change the time frame on the base chart to “5 min”. Next, pan over to the upper right-hand corner of your chart and click on the “Chart Options” icon. The icon is just to the right of the “Sell” button. After clicking on it, select “Show Average Price” (see fig. 54).

Fig. 54

You should now see horizontal dashed lines on your price chart, RSI indicator and Slow Stochastic indicator (see fig. 55). On the price chart, the dashed line follows the movement of the average price for that particular time frame/candlestick. For the RSI indicator, the dashed line delineates the current relative strength for that particular pair. For the Stochastic indicator, the dashed line shows the real stochastic value. The wavy lines on the stochastic charts are lagging lines. Therefore, they will always trail the movement of this dashed line.

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Fig. 55

To create a new window, pan over to the upper right-hand corner once again. This time, find the overlapping boxes/windows icon, furthest to the right. When you hover over that icon, it will read “Open graph in new window” (see fig. 56). Click on the icon. You will see a duplicate of the base chart pop up in a new window. Stretch the sides of the window to make it half the size of the main chart. For this new window, change the time frame to “1 Hour” (see fig. 57). Next, go ahead and go to “Tools”, and click on “Save Current Profile”.

Fig. 56

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Fig. 57

If you would like to, you can create another window so that you will have three windows, showing three different time frames. Just click on the overlapping boxes icon on either of the charts, and a new window will pop up. You can resize this window, along with the first duplicated window, in order to be able to fit both of the new windows comfortably within the platform, without overlapping the account summary on the left side. You can change this middle window, or second duplicate to “15 min”, and leave the base chart window as the “5 min” time frame (see fig. 58).

Usually, I use the 1M chart to determine the entry points for trades. However, instead of creating another timeframe chart, I change the 1H chart to the 1M timeframe. The reason why I change the 1H chart is because the trend for this chart is slow in changing. So I already have an idea of what’s happening with the 1H chart indicators.

46

Fig. 58

I will talk about how to use all of these windows in conjunction with one another later. But in the next chapter, I will share information about the proper times to trade.

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Chapter 12

Time of Day/ Volume Factor

There are certain times of the day that are more conducive for successful forex trading than others. When trading, it is helpful to trade at the same time as many others, who may in fact, be using indicators and systems that are similar to yours. Because many traders use some type of lagging indicator to dictate when to open and close trades, a signal to trade in one way or the other will be followed by a strong rush of traders hopping on board and riding the “trend-train” to their destination!

The best time to trade, in my opinion, is between the hours of 6 AM and 12 PM CST. The reason why this is such a critical time to trade, especially the early hours of this range, is because of the following reasons:

1. It’s near the opening bell of the New York markets 2. It’s near the closing bell of the European markets 3. It’s the evening in Asia and Australia.

The hours around the opening bell (8:30 AM CST) is usually where you will be able to find the most market activity. Therefore, I typically trade between the hours of 7-11 AM CST. This is a peak time for trading because the volume is the greatest during this period. Volume is a significant gauge in technical analysis as it is used to determine the value of a market move. If the markets have made a strong price move, either up or down, the apparent force of that move depends on the volume for that time frame. The higher the volume during that price move, the more important the move.

So, not only are there people in North America that are trading at this time, but there are people in Europe, Asia and Australia that are trading as well. While it is 6 AM CST/7 AM EST in New York, it is only

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8 PM CST/9 PM EST in Japan. So Asian and Australian traders are also influencing the direction the forex rates go.

The next best time to trade, in my opinion, is between the hours of 1 AM and 3 AM CST. At this time, the Asian and Australian Markets are preparing to close. Meanwhile, the European markets are opening. So, once again, there is an overlapping of trading markets that will affect currency rates.

The third best time to trade is between the hours of 6 PM and 9 PM CST. The Asian and Australian markets open at 6 PM, and of course, traders in Europe, as well as America are still awake and may look to make quick gains as well.

There are a few things that you must be aware of when trading.

NEVER enter a trade five minutes prior to financial news releases/ economic reports

Before news releases/reports, there will be a lot of speculation. Some

will hedge their bets that the price/rate will go up. Some will think that

the price/rate will go down. This period of uncertainty creates what is

called volatility. Volatility refers to the amount of indecision or risk

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about the size of changes in a security's value. A higher volatility means

that a pair’s (i.e., EUR/USD) worth can probably be spread out over a

larger range of values. Meaning, the price of the pair can fluctuate

considerably over a short time period in either direction. A lower

volatility means that a pair's value does not rise and fall severely, but

instead, changes in value at a stable pace over a period of time.

WAIT five to ten minutes after financial/economic news releases

Usually, the market drastically reacts to news releases. The price/rate

will take off into one direction or the other. It will then move strongly in

that direction for a minute or two. Then the movement will slow down,

and then begin to retrace (reversal in the movement of a pair's price,

countering the prevailing trend). A lot of times, you’ll find that the

price/rate will actually retrace all the way back to where the price was

before the news report. At this point, sometimes it will continue in the

retraced direction, or it may rebound and go back into the direction

that it took after the news release. Sometimes, it will move side-ways

for a while after returning back to its previous location. But just as a

word of wisdom, simply wait for the extreme volatility and noise of the

pair to calm down before thinking about entering a trade.

NEVER trade while the Fed Chairman is speaking… EVER!!!

Something that I’ve noticed is that whenever the Fed Chairman speaks,

there is usually a lot of volatility in the markets. Market psychology

begins to affect the stability of the rate when traders try to decipher

every word that comes from the mouth of the chairman! In this

instance, just sit back, relax, listen to what is being said, but do not

react to it. Again, just wait five to ten minutes before you resume

trading.

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A website that I utilize to let me know when important

financial/economic news reports will be released is

www.forexfactory.com. I will cover this site in the next chapter and will

talk about its value to you, the forex trader.

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Chapter 13

Check Forex Factory Day Calendar

In this chapter, I will show you how to utilize the tools on Forex Factory’s website. Open your web browser, and go to http://www.forexfactory.com. When you arrive at the site, the first thing that you’ll see is a calendar of events, or reports that will be released for the current day (see Fig. 59).

Fig. 59

Each line shows a financial report that will be released at a given time of the day, which will directly impact a certain currency.

The probable impact of the report is delineated by a flag color system underneath the “Impact” heading. A red flag means potential high impact; an orange flag means medium impact; a yellow flag means low impact. I usually filter out the yellow flags. To do so, you can click on the green link to the right that says “Filter On” (blue when not activated), and then remove the checkmark from the box next to the

Fig. 60

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yellow flag (see fig. 60).

If you click on the blue folder to the right underneath the “Detail Heading” (see fig. 61), more information will be given in regards to that particular economic report, along with results from previous release dates (see fig. 62).

Fig. 61

Fig. 62

The specifications (Specs) of a particular report will show the Source (authors of the report), what the report measures, the usual effects of that data, how frequently the report is given, the next release date, general notes about the report, why traders should care about

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the report, and other names for the report. Under the “History” heading of the details, you will see the results of that same report in the past.

To the right of the “Details” icon, you will see the forecasted numbers, the previous report’s numbers, and the actual numbers that are released on that day (see fig. 63). In the “Actual” column, when the released data exceeds the forecast, the font color will be green. If the actual numbers are below the forecasted number, the text will be red.

Fig. 63

If you click on the icon furthest to the right, underneath the “Chart” header, a window will pop up which shows the results of that report over the last few years.

If you want to see the next day’s schedule of economic reports, click on the hyperlink just in the upper right-hand corner that says “Tomorrow”. Also, if you want to see the schedule for the remainder of the week, you can click on the hyperlink “This Week” (see fig. 64).

Fig. 64

At the bottom of the page, you will find a bunch of discussion threads and forums that have been created for different subject matter regarding forex trading. I highly recommend checking some of these threads out. There are people that have been trading forex for much longer than I have that share good advice and tips, as well as post

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images of charts, demonstrating their trading strategies. So definitely visit some of those forums. You don’t even have to say anything. Just browse through some of them.

To view the next week’s activities, there’s a calendar in the top left-hand corner of the page. You can click on the arrow to the left of that week to show the entire week’s worth of reports that will come out. Or, you can click on single days just to see that day’s reports (see fig. 65). You can also look at future months by clicking on the month and arrow in the upper left-hand corner of the calendar. To look at dates in the next year, click on the year as well.

This site is extremely useful to let you know when the reports are coming out so that you can stay away from trading during those times. If you can recall from the previous chapter, I talked about times when you shouldn’t be trading at all – 5-10 minutes prior to a news release and 5-10 minutes after a news release. So, definitely utilize this tool for the purpose of knowing when not to trade. But also, take time to browse the site and check out some of the information that is shared in the forums as well.

There is one last thing to be mindful of – make sure that you change the time that is located at the top of the page to reflect your time zone. If you create an account, you can save the changes. If not, you may have to update the time with each visit to the site.

In the next chapter, I will show you how to determine your goal for the day.

Fig. 65

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Chapter 14

Determining Goal For The Day

In this chapter, I will show you how to utilize the Excel Projection Chart that I created to help you determine your goal for each day that you trade. If you have not downloaded the Projection Chart, please do so at this time. If, or when you have downloaded the file, proceed to open it.

If you look at the bottom of the Excel window, you will see a series of tabs (see fig. 66). Each tab represents different amounts of increases per day. The tab furthest to the left is the “.5% Increases” tab. Then as you go from left to right, you’ll see tabs for daily gains of 1%, 2%, 3%, 4%, 5%, 7.5% and 10%.

For the sake of learning how to use the chart, we will start off by using the “3% Increases tab”. So click on that tab right now.

If you had a chance to see the video that was on the web site, or on a social networking site, you may remember me talking about the possibility of turning an initial investment of $100 into over $160K in 12 to 16 months. It seems kind of outlandish, but this is actually a very true statement.

Look at the top of the chart, and under column ‘C’, you’ll see “Starting Money”. Below this, you’ll see the first line, Day 1, with a starting amount of $100 (see fig. 67). This starting amount can be

Fig. 66

Fig. 67

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changed to whatever amount that you start with. Just click on that cell and then type in the correct amount, and hit ‘Enter’. The rest of the chart will update. But for now, leave it as $100. I just want to show you that if you started with only $100 on Day 1 of trading, and you make 3% gains daily for an entire year (which is approximately 250 trading days per year), you will end up with more than $160K for the year. If you take a look at fig. 68, you’ll see that at consistent gains of 3% daily, on the 250th day of trading, your starting amount will be $157,205.94. You

will finish the day with

$161,922.12 (see fig 68). I just wanted to show this to you to let you know that I wasn’t making that up! It’s just the power of compound interest/numbers!

Scroll back to the top. Now, you may have noticed an odd color scheme with the cyan, magenta and white rows. There is a method to my madness! This just visually helps me recognize weeks of trading, and breaks the chart down. The magenta lines are always Fridays. The cyan lines are the beginning of a 20 day trading cycle (remember, there are only 20+/- trading days in a month. This isn’t a monthly chart because the months have different amounts of trading days in them. So the easiest thing for me to do was create divisions of weeks.

If you take a look at column ‘B’, this is the “Date” column. So, on the day that you trade, type the date into the appropriate cell in this column. For example, let’s say that you begin trading on a Thursday. Do not start with the first cell on column ‘B’. But rather, start with the cell just above the magenta line, which indicates a Friday (see fig. 69).

Fig. 68

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Fig. 69

The next column to the right is the “Starting Money” column. The next column is the “Approx. Trade Amount” column. However, you don’t have to worry about adjusting this, or even typing it into your order ticket when triggering a trade (which we will get into later). This is just a ballpark estimate of what the order size may be. When we adjusted our user preferences, we placed a value in the Market Order Size box so that when we do trade, the order size will be preset accordingly.

The next two columns show what the individual trade goals would be for two trades. Each column shows a 1.5% gain. Seeking a small amount such as 3%, you can set your Take Profit for 3%, or set it for 1.5% and make a net total of two positive trades to equal 3%. Most likely, if you are trading for 1.5%, you may end up with a little more than 3% when you’re finished, due to compounding numbers.

The next column shows the “Target Projection” for the day. For instance, starting with $100, a 3% gain for the day will allow you to finish the day with $103. This is what the Target Projection will be for that day.

In the next column, you will type in your “Actual Finish” amount. So, let’s assume that you actually finish with $105.34. When you hit

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‘Enter’, in the column to the right, the “Balance Difference” column, it will show the difference between your “Actual Finish” amount and your “Starting Amount”. The next column to the right will show the actual percentage change for the day. Therefore, if you gained $5.34 for the day, since you started with $100, your “Actual % of Increase” will be 5.34% (see fig. 70).

Fig. 70

Something that I like to do, which also helps me to visually be able to see what I’ve done over a span of days is shade in the “Actual % of Increase” cell. If it has been a positive trading day, and I have either hit my goal or exceeded it, I would shade the cell in with a green color (see figs. 71 & 72).

Fig. 71 Fig. 72

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Now, let’s assume that on the next day, Friday, I didn’t meet my daily goal of 3%, but I did end up with a positive gain. I would then shade the “Actual % of Increase” cell with a lighter shade of green (see fig. 73).

Fig. 73

The column to the right, “Weekly Gains”, tallies the amount that was gained throughout that week. The next column, “Monthly Gains” (which are not always monthly gains), tallies the amount gained over a 20-trading day period. And the last column, “Interest/Added Funds”, allows you to plug in dollar amounts that you either add to, or withdraw from your forex account. When a number is plugged in, and you hit ‘Enter’, the following rows will be updated according to the new value.

Everything that I’ve just covered is similar to all of the other tabs that you may use. The only thing that changes between all of them is the percentage of gains.

You may have noticed that the tabs are different colors (green, yellow and orange). The green tabs, I consider extremely easy to achieve your personal goal. The yellow tabs may take a little longer to achieve your goal, based on various trading factors such as volume and time of the day. The orange tabs, a little longer. But honestly, with all of these tabs, as long as you abide by the trading rules/parameters that I

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will share with you in the next few chapters, you should have no problem achieving your goals, no matter what the percentage may be for the day. If you can catch a trend right when it’s beginning, especially in the morning, it may be very easy to hit 7.5% in just one trade. And even 10% with one trade is doable at times! There have been times when I’ve gained between 16%-18% with just one trade!

In terms of a strategy that I use, I personally try to hit the 7.5% mark daily. The way that I do this is by trading in the morning between 7 and 10 AM CST to get a small gain of 3%. Then in the evening time, I’ll try to get an even smaller gain, like 2%. So that leaves me with 2.5% left to gain. So if I’m up late at night, I’ll gain the remaining amount after 1 AM. However, sometimes, when I know there’s going to be a major run, I’ll gain all 7.5% in the morning. Or, I’ll gain half of it in the morning, and the other half in the evening. So, this is an example of how you really don’t have to stay in front of the computer forever to trade. All it takes is a few minutes at the right time to get in, and get out with small gains. And even if I don’t meet my goal of 7.5% everyday, I’m happy with a gain, period. I’m happy to end the day with more than I started the day with. That’s all that matters – small, consistent gains for an extended period of time!

Take some time to plug in dollar amounts on each tab to help you identify a goal that you think you’ll be able to achieve. See what you can make after half of a year (125 days), one year, two years and five years (some of the larger percentage gains don’t go past two years, so you may need to copy and paste to enlarge the chart). Whether it’s .5% per day, 1% per day, 4% per day, decide which tab will work best for you and your own personal goals, AND STICK WITH THAT TAB! Do not get into the habit of switching tabs/goals. This can be detrimental to your overall efforts of making your goal. If you make more than your goal, fine. If you make less than your goal, fine. Just stick with your goal!

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Okay! Now it’s finally time to get into the good stuff! I will begin to show you how to use the various indicators in the following chapters!

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Chapter 15

Using the SMA 20 Indicator

I will now start going over the various indicators. The first indicator that I will talk about is the SMA 20 indicator. Next, I will talk about how each of the indicators are used in conjunction with the others.

If you can recall when we set up the SMA 20 indicator, it was the red line that was on our main chart (see fig. 74). It is a simple moving average line, a lagging indicator that illustrates the average price of the previous twenty candlesticks. For our purpose, this line divides our

chart into two different sections; an upper section, and a lower section (see fig. 75). The upper section is what I call the “Buy Only” section. The lower section is the “Sell Only” section (see fig. 76).

Fig. 74

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For instance, when the price or rate breaks above the red SMA 20 line, this is where you would enter into a “Buy” trade (see fig. 77). Then, when the price or rate falls below the red SMA 20 line, you would exit that “Buy” trade (see fig. 78).

Fig. 77 Fig. 78

Let’s assume that you were able to enter a “Buy” order at the

entry point of Fig. 77, and exit that “Buy” order at the exit point of Fig.

78, using the SMA 20 line only. If this were the case, then you would

close this trade out with a gain of approximately 16 PIPs (a PIP is the

smallest unit by which a forex quote can change. For example, if

Fig. 75 Fig. 76

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EUR/USD is now quoted at 1.4767 and it moves up 2 pips, it will be

quoted at 1.4769) (see fig. 79).

Fig. 79

Now, how about entering a “Sell” trade after the price dropped below the red SMA 20 line? You would then close the “Sell” order when the price crosses back above the red SMA 20 line. If this were the case, you would have closed the “Sell” order with a gain of 8 PIPs (see fig. 80).

Fig. 80

Considering the gain of the previous “Buy” order of 16 PIPs, and combining it with the gain of the “Sell” order of 8 PIPs, and the principle of compound numbers/interest, we will have close to a 7% gain (see Fig. 81).

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Fig. 81

Something that we must also keep in mind is where our Take Profit (TP) line is located. For instance, if our TP is set for 5%, then it would be placed nearly 19 PIPs away from our entry point. That being said, if our first trade would have hit the TP line, then we would have finished that first trade with a gain of 19 PIPs (see fig. 82).

Fig. 82

So, what happens when we sell? How does the TP line come into play? Well, in this case, the price/rate never hits the TP line (see fig.

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83). Therefore, I would have ended up with the same amount of PIPs as I did previously.

Fig. 83

To summarize, the SMA 20 line divides our chart into two sections; the “Buy” section and the “Sell” section. If you keep in mind that you are to only enter “Buy” orders when the price is above the SMA 20 line, and only enter “Sell” orders when the price is below the SMA 20 line, it will help you in regards to validating the other indicators that you will use.

In the next chapter, I will show you how to use the EMA indicators in conjunction with the SMA 20 line.

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Chapter 16

Using the EMA 5 & 12 Indicators

In the previous chapter I talked about how the SMA 20 line divides our chart into two halves; a “Buy only” half, and a “Sell only” half. Now I will talk about how the EMA lines are used in conjunction with the SMA line.

The first line that we created was the EMA 5 line, which is the yellow line (see fig. 84). The second line that we created was the EMA 12 line, which is the blue line (see fig. 85).

Fig. 84 Fig. 85

The key to the usage of the EMA lines is identifying where the two lines cross. For example, at the point where the blue EMA 12 line crosses beneath the yellow EMA 5 line, this signifies a “Buy” entry point (see fig. 86).

Fig. 86

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Adversely, when the blue EMA 12 line crosses above the yellow EMA 5 line, this signifies a “Sell” entry point (see fig. 87).

Fig. 87

Something that we want to see before entering into a “Buy” trade is if in fact there is a cross of the blue EMA 12 line beneath the yellow EMA 5 line, we want to make sure that the current rate at the cross location is above the red SMA 20 line (see fig. 88). If this is not the case, then we do not enter a trade here. Remember, so far, we are using both indicators to positively confirm each other. Therefore, if both don’t agree, then we do not enter a “Buy” trade.

To determine our “Buy” exit point, we look for the blue EMA 12 line to cross above the yellow EMA 5 line, while the rate crosses below the red SMA 20 line (see fig. 89).

Fig. 88

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Fig. 89

So, if we were to enter and exit trades as shown in the illustrations above, while utilizing the EMA lines and SMA line on the 1-Hour chart, we would have closed out with a gain of approximately 192 PIPs (see fig. 90).

A gain of 192 PIPS is roughly a 50.5% gain. This would be a super huge gain, for only close to 72 hours of trading. Granted, this would be the case if we were trading longer term. This example illustrates how great of an opportunity there is to make a lot of money with trading

Fig. 90

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forex. As long as we use our indicators to allow us to enter and exit trades properly, we will be successful.

So, to summarize the usage of the EMAs see the bullet points below:

FOR “BUY” ENTRY POINT: BBlluuee EEMMAA 1122 lliinnee crosses beneath

YYeellllooww EEMMAA 55 lliinnee, while rate of pair is above RReedd SSMMAA 2200 lliinnee.

CLOSING “BUY” ORDER: BBlluuee EEMMAA 1122 lliinnee crosses above YYeellllooww

EEMMAA 55 lliinnee, while rate of pair is below RReedd SSMMAA 2200 lliinnee.

FOR “SELL” ENTRY POINT: BBlluuee EEMMAA 1122 lliinnee crosses above YYeellllooww

EEMMAA 55 lliinnee, while rate of pair is below RReedd SSMMAA 2200 lliinnee.

CLOSING “SELL” ORDER: BBlluuee EEMMAA 1122 lliinnee crosses beneath

YYeellllooww EEMMAA 55 lliinnee, while rate of pair is above RReedd SSMMAA 2200 lliinnee.

In the next chapter, I will talk about the RSI Indicator, and how it is used with the EMAs and the SMA.

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Chapter 17

Using the RSI Indicator

In the two previous chapters, I talked about how to use the SMA and EMA indicators. Now, I will talk about how to use the RSI indicator, along with the previous two indicators.

The first thing to be mindful of in regards to the RSI indicator is that it is an indicator that determines when the rate of a pair is overbought or oversold. However, the way that I use it, and the way that it is set up graphically, is a bit different than normal. Just as the SMA 20 line divides the chart into two halves (a “Buy” half and a “Sell” half) (see fig. 91), the 50.00 red line on our RSI indicator divides that indicator into two halves as well; a “Buy” half and a “Sell” half (see fig. 92).

Fig. 91

Fig. 92

On the RSI indicator, when the gray shaded area crosses above the 50.00 red line, this signifies a “Buy” entry point. To close this trade out, the “Buy” exit point would be at the location where the gray

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shaded area crosses beneath the 50.00 red line (see fig. 93). Take a look at illustration 93. Notice how near the left edge of the green vertical shaded area, the gray shaded area crossing above the red 50.00 line on the RSI indicator coincides with the crossing of the blue EMA line underneath the yellow EMA line, as well as the rate being above the red SMA line. The indicators are verifying each other. Utilizing all three of the indicators in this instance gives us a pretty dependable sign that an up-trend has just begun, and that it would be the perfect time to enter into a “Buy” trade. To exit the trade, all three indicators assist us in making that decision as well. Looking at the right edge of the green shaded area, we see that the gray shaded area of the RSI indicator has briefly crossed below the red 50.00 line. Meanwhile, the blue EMA line has crossed above the yellow EMA line as well. Also, the rate dropped beneath the red SMA line. But as you can see, this was a very short-lived closing of that “Buy” order because the gray shaded area popped above the red 50.00 line again. In addition, the blue EMA line crossed beneath the yellow EMA line, and the rate jumped back above the red SMA line as well. Therefore, we would enter another “Buy” order at this location.

Fig. 93

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Just the opposite occurs when we are looking for a “Sell” entry point. When the gray shaded area crosses beneath the red 50.00 line on the RSI Indicator, this signifies a “Sell” entry point (see fig. 94). This entry point is verified by the blue EMA line crossing above the yellow EMA line, and also the rate falling below the red SMA line. Our “Sell” exit point is located where the gray shaded area of the RSI indicator crosses back above the red 50.00 line. The exit point is confirmed by the other indicators (the blue EMA line crossing beneath the yellow EMA line, and the rate crossing above the red SMA line).

So just as a re-cap of the information given regarding the RSI indicator, see the following bullet points:

When the gray shaded area is above the red 50.00 line, BUY!

When the gray shaded area is below the red 50.00 line, SELL! (see fig. 95)

Fig. 95

Fig. 94

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Chapter 18

Using the Slow Stochastic Indicator

The final indicator that I want to cover is the Slow Stochastic Indicator. I have shown you how to use the SMA 20 line, EMA 5 & 12 lines, and the RSI indicator, individually, as well as collectively. Now I will show you how to use the Slow Stochastic Indicator in conjunction with the previous indicators to assist you in identifying the appropriate time to enter trades.

The stochastic indicator is a tool that is used to identify the overbought and oversold conditions of a pair’s rate. It consists of two lagging lines that fluctuate in a vertical range between the values of 0 and 100. The two lines that let us know when the rate is overbought or oversold are the two yellow lines (80.00 and 20.00) (see fig. 97).

Fig. 97

When the slow stochastic value (which is determined by the moving white dashed line) is above the 80.00 line, the rate of the pair is nearing an overbought threshold. When the value falls beneath the 20.00 line, the rate of the pair is nearing an oversold threshold (see fig. 98).

Fig. 98

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So, before we even think about triggering a “Buy” order, we want to make sure that a few things happen, in regards to our slow stochastic indicator. First and foremost, when the rate crosses above the red SMA 20 line, the blue EMA 12 line crosses beneath the yellow EMA 5 line, and the gray shaded area of the RSI crosses above the red 50.00 line, we want to make sure that the current slow stochastic value

at that time falls within a “Buy” range. This range is between the values of 0 to 50.00 (anywhere below the green line) (see fig. 99). Or, at the very least, make sure that the slow stochastic value is below the red 60.00 line; the line of last resort! (see fig. 100).

Fig. 100

Take a look at fig. 101. I have drawn a blue vertical line on the chart that cuts through the candlestick chart, RSI indicator and slow stochastic indicator. The white arrow is pointing to the “Buy” entry point. Here, you see that the rate has crossed above the SMA line, and the EMA lines have crossed. On the RSI indicator, the gray shaded area has crossed above the red 50.00 line. On the slow stochastic

Fig. 99

Fig. 101

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indicator, the white dot denotes the current location of the slow stochastic value, which was below the red 60.00 line. All of the indicators are telling me that this would be a good time to enter a “Buy” trade. Thus, the beautiful bright green checkmark that you see!

What about “Sell” orders? Well, the exact opposite has to take place. We have to make sure that the current slow stochastic value falls within a “Sell” range. This range is between the values of 50.00 to 100.00 (anywhere above the green line) (see fig. 102). Likewise, at the very least, we must make sure that the slow stochastic value is above the red 40.00 line, our second line of last resort! (see fig. 103).

Fig. 102

Fig. 103

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Take a look at fig. 104. A blue vertical line is drawn on the chart, cutting through the candlestick chart, RSI indicator and slow stochastic indicator. The white arrow is pointing to the “Sell” entry point. Here, you see that the rate has crossed below the SMA line, and the EMA lines have crossed. On the RSI indicator, the gray shaded area has crossed below the red 50.00 line. On the slow stochastic indicator, the white dot denotes the current location of the slow stochastic value, which was above the red 40.00 line. All of the indicators are telling me that this would be a good time to enter a “Sell” trade.

What you will inevitably notice is that the majority of your trade entry points will have a slow stochastic value that falls within the range of 40.00 and 60.00. I like to call this range “The Sweet Spot” (see fig. 105).

Fig. 105

Fig. 104

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So, this is how I use the slow stochastic indicator in conjunction with the other indicators. It prevents me from entering into “Buy” trades when the rate is close to being overbought. It also prevents me from entering into “Sell” trades when the rate is close to being oversold. I always want to enter trades at the precise time, when momentum is first building for the new trend/direction. I don’t want to enter trades when they’re half-baked, or near burnout/exhaustion. Therefore, I wait until I know there’s “enough gas in the tank” of the slow stochastic indicator, which will help me get to my final destination, my Take Profit line! I hope that makes sense!

Okay. In the next chapter, I’m going to discuss something that is absolutely critical for all traders to understand. It is the concept of Support and Resistance, the staple of trading with all known markets.

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Chapter 19

Drawing & Using Support & Resistance Lines

A foundational principle of any type of trading that you may do is

the concept of Support and Resistance. Support is a level at which a

rate has had difficulty falling below. It is also thought of as the level at

which many traders consider entering into a “Buy” trade. Resistance is

a level at which a rate has had difficulty breaking above. It is also

thought of as the level at which many traders consider entering into a

“Sell” trade (see fig. 106).

Fig. 106

I like to start off by drawing support and resistance lines on the 1

Hour (1H) chart first. Maximize the 1H chart and locate the previous

two high points and previous two low points on the chart. The two high

points are resistance points #1 and #2. The two low points are support

points #1 and #2. Click on the “Draw Trendline” icon in the upper right

hand corner of the chart, and then select “Trendline” (see fig. 107).

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Fig. 107

Draw a trendline that connects the two high points, resistance

points #1 and #2 (see fig. 108). Then repeat the process to draw a

trendline through the two low points, support points #1 and #2 (see fig.

109).

Fig. 108 Fig. 109

By connecting those four points, the angled support and

resistance lines are created (see fig. 110). These two lines will act as

two barriers that withhold the movement of the pair’s rate. The rate

will oscillate between the two lines until one of the lines is finally

broken.

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Some traders that use support and resistance lines as a primary

tool for their trading will place Limit Orders near either the support or

resistance line in anticipation of a retrace/rebound into the opposite

direction. For instance, take a look at fig. 111.

This image shows a “Limit Buy Order” box (I will discuss Market

and Limit Orders in chapter 21). It is placed a few PIPs above the

support line, in anticipation of the current rate falling towards that line,

and then retracing back to the resistance line. However, there is a

chance that the price/rate could break through that support line, and

then continue to the next line of support.

Fig. 110

Fig. 111

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I use Support and Resistance lines in tandem with the other

indicators that I covered in the previous chapters. I draw my trendlines

on the chart, and then use the indicators to determine the proper time

to enter a trade.

Take a look at fig. 112. You’ll

see that the support and

resistance lines are drawn in on

the chart (I usually change the

color of them to cyan). But before

entering a trade, there is

something that I must do – check

the indicators. In the illustration,

you’ll notice that 1) the blue and

yellow EMAs have crossed and

the current rate is below the red

SMA line, 2) the RSI value is under

50.00, and 3) the slow stochastic

value is within our “sweet spot”.

Therefore, all of the indicators give the “okay” for entering into a “Sell”

trade (order location identified in illustration). Now, in regards to the

Take Profit (TP) line, there are two locations where we may encounter

support. The first location is the white Pivot Point line. The second

location is the cyan Support line. In the instance where a known barrier

may be (either support or resistance), I will more often than not move

my TP line about 3-4 PIPs above the next line of support (in the case of

a resistance line, 3-4 PIPS below). The reason for doing this is because I

do not want to jeopardize my gains if a retrace occurs at that next line

of support (the white Pivot Point). If no Pivot Point would have been in

Fig. 112

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this location, then I would have moved my TP line 3-4 PIPs above the

Support line. The trade will be closed out when either the rate hits my

TP line, hits the adjusted Stop Loss line, or when the RSI crosses back

above 50.00 on the shorter timeframe chart.

You would also want to draw Support and Resistance lines on the

15M chart, as well as any other charts that have been created. Just

repeat the process. Keep in mind that these lines will have to be drawn

in every day before you begin to trade. It will only take a minute to

draw them on all of the charts.

So, what happens when the price/rate breaks through either the

support or resistance line? Well, the first thing that has to be

determined is if it was a true break or not, and whether it has enough

momentum/strength to continue. When the price/rate breaks through

the support line, it is called a “Breakdown”. When the price/rate breaks

through the resistance line, it is called a “Breakout”. Usually, you will

hardly see a breakdown during a downtrend. Meaning, if the general

direction of the price/rate is moving down, the support line will hardly

ever be broken or penetrated for an extended period of time. And just

the opposite happens during an uptrend. You will be hard-pressed to

find a breakout during an uptrend. The reason for this is because the

stochastic value at these lines is so overbought or oversold that running

any further is typically out of the question.

A sign of a potential break of either a support or resistance line is

when the price/rate has trouble reaching the next line in the oscillating

period (see fig. 113 & 114). The retrace from the previous line becomes

so weak that it barely makes it half-way to the next line, before the

stochastic value has bottomed out, or hit the ceiling.

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Fig. 113

Fig. 114

Something that you may notice from the illustrations above is that

after a breakout or breakdown, the previous high or low points act as

lines of resistance or support. For instance, in Fig. 113, you see how

after the breakout, the price/rate will move to the next line of

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resistance, R1, which was the previous high peak. Sometimes, what

happens after R1 is reached, the price/rate will retrace back to the

previous resistance line, which now will act as a support level. This is a

critical juncture. It could bounce off of this former resistance line and

continue moving up, eventually breaking through R1 and heading to the

next point of resistance, R2. Or, the rate could break back through the

original resistance line and continue the previous downtrend. This is

what’s called a “Fake-out”, or “False Break”. This is why it is extremely

critical to use the indicators to determine trend changes.

Some traders would actually offset (duplicate) their support and

resistance lines outward around 10 PIPs to make sure that they don’t

get caught in a false break situation. Then they would place limit orders

just above or below the offset lines (see fig. 115).

Fig. 115

However, once again, I must reiterate the importance of using the

indicators to determine when to enter and exit trades. You do not want

to develop a habit of anticipation and speculation. Stick with trading

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what you see, in regards to the indicators. Support and resistance lines

are extremely useful tools that can forewarn you of potential trend

changes. Nonetheless, I believe that it would not be wise to use these

lines exclusively. The more tools/indicators that convey the same thing,

the better!

In the next chapter, I’m going to briefly talk about another useful

tool that you can use. It’s called the Fibonacci Retracement tool.

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Chapter 20

Using the Fibonacci Retracement Tool

Fibonacci retracement is a popular device used by numerous

technical traders to assist with the recognizing of calculated locations

for market/limit orders, TP lines and Stop Loss (SL) lines. The tool helps

demonstrate the likelihood that a pair’s rate will retrace a significant

amount of an original move and find support or resistance at key,

calculated Fibonacci levels. The levels are created by drawing a

trendline between two extreme (high and low) points and then dividing

the vertical distance between those two points by the key Fibonacci

ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.

To utilize the Fibonacci

retracement tool, maximize your

1H window and then change the

timeframe to 3 Hours. You may

need to squeeze the chart using

the horizontal adjusters, located

at the lower-right hand corner of

the platform (see. fig. 116). This

will allow you to see the last

major peak and trough (low

point). You could probably take a

look at your indicators to help determine where those two points may

be. The peak will be located above and before the location of the

crossing EMAs and RSI, with the rate moving down. The trough will be

located below and before the location of the crossing EMAs and RSI,

with the rate moving up (see fig. 117).

Fig. 116

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Fig. 117

To draw the Fibonacci

retracement tool onto the chart,

click on the “Draw Trendline”

icon, and then select “Fibonacci

Retracement” (see fig. 118).

Before I continue, I want to

make this point clear. When

inserting the Fibonacci

retracement overlay, always

remember to go from right to

left. Meaning, the first click that

you will make is on the high

point or low point to the right.

You would then drag the overlay

to the high point, or low point to the left. In the example that you will

Fig. 118

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see in the illustration, the overlay will be dragged from the low point on

the right, to the high point on the left.

Proceed to click as close as possible to the low point (or high

point) to the right. You will then notice that there are a series of lines

tethered to the mouse cursor. Click on the high point (or low point) to

the left. The Fibonacci retracement overlay is now in place (see fig.

119).

Fig. 119

You can change the color of the Fibonacci Retracement overlay by

clicking on the diagonal line that is drawn through the high point and

low point. The menu will pop up where you can choose your color. I like

to use blue for the overlay because it seems to stand out a bit more.

So, you’ll notice that the Fibonacci Retracement overlay consists

of two solid horizontal lines drawn through the high point and low

point. There are also four dashed horizontal lines between the two

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solid lines. All of these lines represent the Fibonacci ratios that I talked

about earlier in this chapter (see fig. 120).

Fig. 120

The Fibonacci ratios / levels act as support and resistance lines. I

talked about the significance of understanding support and resistance

in the previous chapter. These Fibonacci levels are simply additional

horizontal levels that you must be cognizant of while trading. The rate

will bounce between the Fibonacci levels until there is a breakout or

breakdown. The levels that are considered to be most common are the

38.2%, 61.8% and 100% levels. So, for instance, if a pair’s rate can break

through the 23.6% line with enough momentum, there’s a good

possibility that it will continue to rise until it hits the 38.2% level.

Likewise, if the rate breaks through the 50.0% level with momentum,

there’s a good chance that the 61.8% level will be reached. Now, if

either the 0% or 100% levels are ever broken with good momentum,

the rate will possibly run to the next line of support or resistance,

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whether that is a pivot point line, or the horizontal level of a previous

high or low point.

Now, you’re probably thinking, “This chart looks a mess right

now!” It’s not as bad as you may think. Keep in mind that although you

can draw this Fibonacci Retracement overlay on any timeframe, I

usually only draw it onto the 3 Hour timeframe. So, if you wanted to

have this on your 15 Min and 5 Min charts, then I’d suggest changing

the timeframe on those charts to 3 Hour, and then drawing it in.

Afterwards, change the timeframe back, and then save the profile.

In the next chapter, I will show you the various ways to buy, sell,

open and close positions.

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Chapter 21

How to Buy & Sell / Open & Close Trades

Now that I have shown you in previous chapters how to use the

various indicators and tools to determine when to open and close

trades, I will now show you the various ways that you can buy and sell,

or, open and close positions.

The following diagrams display the various methods you can use

to open the Order Box, which will be discussed in further detail later in

this chapter.

Buy/Sell button – In the upper left hand corner of the platform

Fig. 121

Buy or Sell – Under “Account” pull-down menu

Fig. 122

Buy Button/Sell Button – Located at the upper right-hand corner of the platform on any of the multiple time chart windows that were created

Fig. 123

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Click on Chart – If you click anywhere on the chart, a box will pop up with the option to open a market order (buy/sell) or a limit order (buy/sell)

Fig. 124

Quote List – Click on the left side of the third cell for a market sell; click on the right side for a market buy (illus. shows left side-sell)

Fig. 125

Quote Panel – Click on either the Sell or Buy buttons to open the order box

Fig. 126

After you click on any of the above, the order box will appear in

the middle of the platform (see fig. 127). You will notice that at the top,

there are two tabs – one for Market Order, the other for Limit Order.

The Market Order tab should be highlighted. Below the tab heading,

you will see two radio buttons – one for “Buy” and one for “Sell”. The

“Buy” radio button should be marked, unless you designated opening a

sell position by either clicking on the Sell button on either the Quote

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List (see fig. 125) , Quote Panel (see fig.

126), clicking on the platform and

selecting “Market Sell” (see fig. 124), or

clicking on the “Sell” button in the upper

right-hand corner of the platform (see

fig. 123). Below the “Buy” radio button

is the “Market” line, which is the current

pair that you are trading. Do not change

this at all, or else, you’ll be trading

another pair; i.e., CHF/JPY! The next

section is the “Units”, or, how much

money will be used to open the

position. Remember, that this value is

predetermined by our settings in the

User Preferences. The “Quote” is the

current rate of the pair. This number will

change until the order is submitted.

Below the Quote, there are two radio buttons – one for Price and the

other for PIPs. You can leave the Price button marked. The next two

boxes will be left unchecked. The “Take Profit” and “Stop Loss” boxes

should be checked, and you can check the Trailing Stop box as well. The

values that are to the right are the prices at which the position will be

closed for a profit or loss. These values are also predetermined because

of the amount of PIPs we designated for each of these in the User

Preferences.

At the bottom of the window there is some information that is

given regarding the ramifications of the order. At that particular time, it

gives you the value in USD per PIP, how much you will be trading in

Fig. 127

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USD, the amount of margin used, as well as the amount that will be

gained or lost over a certain amount of PIPs. Click “Submit” to start the

trade.

For the Limit Order tab (see fig.

128), everything is similar to the Market

Order tab, except for designating when

the Limit Order will expire. We preset

this for 1 week in the User Preferences.

In the information section at the bottom

of the box, you will see the date and

time that the order will expire.

If you do want to use Limit Orders,

I highly suggest clicking on the chart

itself in the location that you want your

Limit Order to be placed. The options

similar to Fig. 124 will pop up. Just

select either “Limit Buy” or “Limit Sell”.

Then the Limit Order dialog box will pop

up. When you click on “Submit”, a small

orange box should be in the location you clicked on if it was a Sell Limit

Order. If it was a Buy Limit Order, a small blue box will be placed in the

location you clicked on.

Limit trades are triggered, or opened, when the rate of the pair

touches, or crosses those limits. Like the Market Order, the trade will

be closed when either the rate hits the Take Profit line, or the Stop Loss

line.

Fig. 128

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The limit trade boxes can be moved up or down by clicking on the

box, clicking on “Modify Order”, and then clicking where you want the

Limit Order to be moved to. The Order can be canceled by clicking on

the box, and then clicking on “Cancel Order” (see fig 129).

Fig. 129

You can also cancel or modify the parameters of the Limit Trade

order by clicking on the “Orders” tab at the top of the page (see. fig.

130). If there are multiple Limit Orders that have not been activated,

Fig. 130

you can find the one that

you want to modify by

finding out the ticket

number. If you hover

over the small limit

order box and then look

to the upper left-hand

corner of the chart, you

will see the ticket information (see fig. 131). Simply find the line that

matches the ticket number of that Limit Order box, and click on it.

Afterwards, a Limit Order ticket box will pop up. The “Cancel” radio

Fig. 131

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button will be marked. To proceed to cancel, simply click “Submit”. If

you would like to modify the parameters of that limit order, click on the

“Modify” radio button, and adjust the parameters as necessary.

I primarily use the Quote Panel when I trigger trades. There is a

reason for this. There is a feature available that allows you to click only

once on either the “Buy” or “Sell” buttons on the Quote Panel, and a

trade is triggered immediately. If you look just to the right of the

“Quote Panel” tab, you will see an icon that shows a finger pushing

down on a button. This is the “One-Click Mode” icon (see fig. 132).

Fig. 132

After clicking on the “One-Click Mode” icon, if you hover over

either the “Sell” or “Buy” buttons, the information that would normally

be located at the bottom of the Market Order ticket will be displayed in

a manila dialog box. But once you click on either button, a trade will be

triggered instantly. I use this because sometimes when opening a

market order, while that ticket is up, the price continues to move in the

direction that you want to trade. Thus, you could lose out on a few

PIPs. With One-Click Mode, I’m able to maximize the amount of PIPs

that I’m able to gain. It’s just 3-5 seconds quicker, and with trading

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forex at peak times, those 3-5 seconds could mean missing out on .5%-

1% gain at times.

There are three ways that the Buy or Sell Order can be closed.

1) Rate hits Take Profit Line

2) Rate hits Stop Loss Line (or trailing stop loss line)

3) Manually Closing Order

To "manually" close the order (regardless of "Buy" or "Sell"), click

on the Ticket Order line under the "Trades" tab at the top of the screen

(Trade tab should already be the active tab, and the Ticket Order line is

the white line with information regarding that active trade) (see fig.

133).

Fig. 133

After clicking on that Ticket Order Line, a Ticket dialog box will pop

up (with the order number). You will see that the "Close" radio button

is already active (see fig. 134).

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Fig. 134

To close the trade, click on the "Submit" button at the bottom of this

dialog box. The trade will then be closed out.

So, I’ve covered all the ways that you can open trades and close

trades. Decide which way works best for you. If you want to utilize Limit

Orders, you may do so. If you want to trade using Market Orders only,

that’s fine as well. In regards to closing the trade, closing either

manually, or allowing the rate to hit the Take Profit Line or Stop Loss

Line, is acceptable.

In the next chapter, I will layout a basic trading game plan that

you will be able to use at virtually any time of the day.

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Chapter 22

Trading Game Plan

Alright! Up to this point I have laid the foundation in regards to understanding the various indicators, utilizing tools such as Forex Factory, the pivot point calculator, and the excel projection chart. Now, I want to give you a very simple game plan that you can utilize every time you trade. But, just like with any type of sports event, the game isn’t the only thing that happens. There are pre-game warm-ups and post game interviews too! With aerobics, there’s a warm-up time, the actual workout itself, then a cool-down period. The same thing will apply to your forex trading. There’s “Pre-Trade Preparation”, “Execution”, and “Post-Trading Analysis”.

PRE-TRADE PREPARATION

Modify Daily/4-Hour Pivot Points – Make sure that the pivot points have been updated before trading. It is imperative that these lines of potential support and resistance are accurate.

Modify Fibonacci Retracement Tool (If Necessary) – If you insert the Fibonacci Retracement Tool into the 1H chart (after changing it to 3H), then you may not have to modify it for a while. However, if either the upper bound or lower bound is broken, then after a true retrace (trend change determined by the indicators), you will have to delete the previous Fib. Retracement Tool, and then insert another one.

Check Forex Factory for Upcoming Financial News Reports – It is important that you check to see what economic data will be released before you start trading. This will prevent you from being caught with a position open and it being pre-maturely stopped by a sudden increase of volatility in the market.

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Check Projection Chart for Day’s Goal – The projection chart is like the road map to your future financial freedom. Never trade without a specific goal in mind. Identify your target. Then determine how many trades it will take to reach your target.

Adjust TP According to Trading Strategy for Day’s Goal – If your daily goal is only 2%, then make sure you change the Take Profit amount to 2% of Balance in the User Preferences. If your daily goal is 5%, decide whether you want to set the TP amount to 5%, or gain that 5% in two trades, gaining 2.5% with each trade.

Draw Support and Resistance Lines on 1H, 15M & 5M Charts – This is a very critical step that you must take before trading. You will need to know where all areas of support and resistance are on these charts.

EXECUTION

Entering a Trade – You will want to utilize the 1M chart to enter trades, whether going long (buying) or short (selling). Something that I take into consideration is what the trends, RSI and Slow Stochastic values are on the 5M and 15M charts. The ideal scenario for entering into a “Buy” position is when the 5M and 15M chart RSI values are below the 50.00 mark, and the Slow Stochastic values are within the “sweet spot” (between 40.00 and 60.00). If this is the case, change one of the charts to the 1M time frame, and then wait until all of the indicators signify the appropriate time for entry (see fig. 135). Look for just the opposite when preparing to enter a “Sell” position. The benefit of using the 1M chart for entry is it allows you to be able to “ride the wave” of a trend change as close to its beginning as possible, which could be an additional 7-10 PIPs, in comparison to just using the 5M chart indicators to determine entry.

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Fig. 135

How long you keep a position open is dependent upon your daily goal and your personal strategy. If your goal is to gain anything below 5%, you may be able to do so with just one transaction, especially if your TP line is closer to your entry point than the next line of support or resistance.

If you are thinking about trading more long-term, a tactic that I sometimes use is starting off by entering a position on the 1M chart, but if the indicators on the larger time charts begin to cross in the direction of the trend as well, then I would use the RSI value of the next smallest timeframe chart to determine my exit point. For example, if the 1H chart eventually crosses in favor of a “Buy” position, then I wouldn’t exit, or close that position until I see the RSI value of the 15M chart cross below 50.00. Likewise, if the 15M chart crosses in favor of a “Buy” position, then I would use the RSI value of the 5M chart to

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determine the exit point. Of course, the opposite applies for all short positions.

Moving the Stop Loss (SL) Line Above or Below Entry Point – THIS IS VERY IMPORTANT! Something that you want to get into the habit of doing is moving the red SL line just above or below your entry point so that if there is a sudden retracing of the rate, when the rate hits your SL line, you won’t lose money. If your TP is more than 10 PIPs away (3%), wait until the rate moves 8-10 PIPs away, towards your TP line, before moving the SL line just above your entry point (for a sell position, move SL line just below entry point). To move the line, just click on it, and click on “Modify Stop Loss Line”. You will then be able to drag it to its new position. This is a critical part of limiting any losses and managing your money. Afterwards, continue to manually drag the SL line along the red SMA 20 line, lagging 3-4 candlesticks behind the current/active candlestick. This will help you finish with a positive gain, regardless of retracement, while at the same time, allowing some “wiggle room” for any volatility or price action that may take place so that your trade won’t be pre-maturely stopped.

Redraw Trendlines if Necessary – If a trendline is broken and a new peak or trough is set, be sure to update the trendlines.

POST-TRADING ANALYSIS

Type results Into Projection Chart – Whatever your final result is, make sure that you plug it into the projection chart so that you’ll have your goal for the next day.

Journal About Your Trading Experience – It’s good to write about how your trading day went. Talk about the difficulties of the day, what you could have done differently, or any new things that you may have learned, or recognized. This can prove to be helpful in regards to

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mentally recalling situations that worked for you, and identifying situations that could be detrimental.

In the final chapter, I will conclude by sharing some very important

things to keep in mind while trading.

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Chapter 23

Conclusion: Words of Wisdom

All good things must come to an end! Hopefully, I was able to

clearly lay the foundation for successful forex trading. From learning

how to set up your practice account and platform, to understanding the

proper steps to take before trading each day, to being cognizant of

economic factors that could affect the movement of a forex pair, to

understanding your daily goal, to proper execution of trades, I know

that with this information, you will be well on your way to future

prosperity!

But before I close, I would like to share some “Words of Wisdom”

with you. Throughout the years of forex trading, I’ve taken my lumps,

bumps and bruises, like most beginners and novices. However, I count

it all joy, in regards to the amount of knowledge, understanding and

wisdom that I’ve gained over this period of time. While trading,

something that I use to do is write down some lines and clichés onto

post-it sticky notes. These notes would literally cover the outside edges

of my monitor! Though it seemed weird to my wife at the time, the

notes really helped me stay focused and remember the many little

things while trading. I would read each note every day before trading.

That way, those reminders would be fresh in my mind. So, if you want

to, you can do the same! Just jot the following bullet points down on

post-it notes and apply them to your monitor! It just may help you also!

THE TREND IS YOUR FRIEND! – Probably the most important

thing to keep in mind while trading. This is a very famous cliché in

the realm of trading. You’ll find yourself getting into a lot of

trouble if you make a habit of fighting against the current trend.

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DISCIPLINE! – When you develop your game plan or determine

your goal for the day, stick with it.

PATIENCE! – Rome wasn’t built in a day, and your forex account

balance won’t be built in a day either!

LITTLE BY LITTLE! – Understand that little gain upon little gain

equals big gains over time. This is the basic element of

compounding interest or compounding numbers.

LOW VOLUME, NO TRADING! – If it seems as if there is little

movement, especially in the evening time or non-peak hours, you

may want to think about not trading at all. Use discretion. If you

do trade during these times, you may want to chop your goal in

half for the day.

DON’T TRY TO CATCH A FALLING KNIFE! WAIT UNTIL IT HITS THE

FLOOR BEFORE YOU PICK IT UP! – Do not try to predict or

assume that there will be a retrace or turn-around in the market.

Wait until a definite “floor or ceiling” has been determined.

DON’T SPECULATE! USE THE INDICATORS! – You have created

the various indicators for a reason - to alert you when a trend has

truly changed.

TRADE WHAT YOU SEE, NOT WHAT YOU THINK! – Again, do not

speculate. Only trade what your indicators tell you to trade.

BE CONTENT WITH THE CROSS! – Be comfortable with waiting on

the various indicators to cross, i.e., the pair’s rate crossing above

or below the SMA 20 line, the EMA 5 & 12 lines crossing, and the

RSI value crossing above or below 50.00. Once again, I cannot

reiterate this enough; stay away from speculation! If there is not

a definitive signal from all of the indicators, do not open a

position.

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NO TRADING 5 MINUTES BEFORE ECONOMIC NEWS REPORTS! –

You will want to stay away from the speculative volatility before

the financial/economic news reports are released.

WAIT 5-10 MINUTES AFTER ECONOMIC NEWS REPORTS! – You

do not want to get caught in the craziness that happens

immediately after a lot of the news reports. Some people try to

take advantage of the potential major swings. But this can eat

you alive as well. So the safest bet is to be still until the “noise” of

the pair has diminished, and a general direction for the pair is

determined.

TIGHTEN STOP LOSS LINE! –I usually move my SL line above or

below my entry point when the rate of the pair moves 8-10 PIPs

away from the entry point, and towards my Take Profit line. After

this, I then move the SL line to the point on the SMA 20 line that

is 3-4 candlesticks behind the current candlestick. This will allow

me to, at worst, be able to close out a trade breaking even, or

with a positive gain in the event of a sudden retracement. This is

a critical tactic to use to make sure that losses do not occur.

KNOW WHEN TO FOLD ‘EM! – Another key element of managing

your money is to know when to walk away from trading for the

day. If you achieve your goal for the day, walk away. Contrarily, if

you so happen to lose 8% or more for the day, walk away, and try

again the next day. You may lose a battle, but it doesn’t mean

you’ve lost the war!

REGARDLESS OF DAILY GOAL, 20% OR GREATER, YOU’RE DONE

FOR THE DAY! – If you are not trading to hit your TP line, but you

are waiting for the RSI on the shorter timeframe to cross above or

below 50.00, if your percentage gained reaches 20%, PLEASE

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close the position and enjoy the rest of your day AWAY FROM

THE PLATFORM! I had times where I’ve gained 20%+ in one day,

but lost it all back, and then some. So, to prevent you from

making the same silly mistakes I made, please take heed of this

advice! It’s easy to get sucked into believing that you can

continue to make that type of gain throughout the rest of the

day. The truth is that the longer you trade in one session, the

more dangerous it can be for you. So, allow 20% to be your cap.

With the strategy and margin that we use, a 20% gain is

approximately 76 PIPs.

STAY FOCUSED!!! – Understand what your goal is. Know what

your strategy is to achieve that goal. Be attentive during your

trading time, and limit the amount of distractions around you as

best as possible.

So, there you have it! Some words of wisdom to propel you and

keep you on track for financial freedom!

Practice using these indicators in the practice account for a few

months. Discover a comfortable daily goal for yourself and determine

the amount of time that you will be able to trade. For some, a 1-2%

gain may be all that they can do. For others, 5-7% may be the daily goal.

The most important thing to remember is to make sure that you are

making positive gains daily.

I would love to get some feedback as you utilize the information

that I’ve shared with you in this book. Feel free to email me at any time

at feedback@slumdogforex.com.

Thanks, once again, and happy trading!

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SLUMDOG FOREX

TRADER’S DAILY CHECKLIST

Modify Pivot Points (Daily and 4-Hour)

Modify Fibonacci Retracements (If Necessary)

Check Forex Factory for upcoming financial news reports

Check Projection Chart for day’s goal

Adjust TP according to trading strategy for day’s goal

Draw Support and Resistance lines on 1H, 15M & 5M charts

Identify prevailing trends on all charts

Use indicators to enter trade on 1M chart

Exit trade at TP Line, moved SL Line, RSI cross

Type results into Projection Chart

Stop trading! Be content with the gains! Enjoy the day!

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Basic Trading Terminology

Ask Price: The price requested by the trader. This usually indicates the

lowest price a seller will accept.

Base Currency: The currency that the investor buys or sells (i.e. EUR in

EURUSD).

Bid/Ask: The Bid rate is the rate at which you can sell. The Ask (or offer)

rate is the rate at which you can buy.

Bid Price: The price offered by the trader. This usually indicates the

highest price a purchaser will pay.

Breakdown: A price movement through an identified level of support,

which is usually followed by heavy volume and sharp declines.

Technical traders will short sell the underlying asset when the price of

the security breaks below a support level because it is a clear indication

that the bears are in control and that additional selling pressure is likely

to follow.

Breakout: A price movement through an identified level of resistance,

which is usually followed by heavy volume and increased volatility.

Traders will buy the underlying asset when the price breaks above a

level of resistance. Once a resistance level is broken, it is regarded as

the next level of support when the asset experiences a pullback. Most

traders use chart patterns and other technical tools such as trend lines

to identify possible candidates that are likely to break through a

support/resistance level.

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Channel: The technical range between support and resistance levels

that a stock price has traded in for a specific period of time.

Cross: When trading with currencies, the investor buys one currency

with another. These two currencies form the cross: for example,

EURUSD.

Exchange Rate: What one currency is worth in terms of another, for

example the Australian dollar might be worth 69 US cents or 85 yen.

Exponential Moving Average (EMA): A type of moving average that is

similar to a simple moving average, except that more weight is given to

the latest data. The exponential moving average is also known as

"exponentially weighted moving average". (MA): An indicator

frequently used in technical analysis showing the average value of a

security's price over a set period. Moving averages are generally used

to measure momentum and define areas of possible support and

resistance.

Fakeout: term used in technical analysis to refer to a situation in which

a trader enters into a position in anticipation of a future transaction

signal or price movement, but the signal or movement never develops

and the asset moves in the opposite direction.

Leverage: The investor only funds part of the amount traded.

Long: To buy.

Margin: Buying with borrowed money can be extremely risky because

both gains and losses are amplified. That is, while the potential for

greater profit exists, this comes at a hefty price - the potential for

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greater losses. Margin also subjects the investor to a number of unique

risks such as interest payments for use of the borrowed money.

Margin Used: The amount of your account balance and Unrealized P&L

that is reserved for margin. This amount is equal to the Position Value

multiplied by your margin ratio. The margin ratio is the inverse of

leverage; for example, 50:1 leverage equals a 0.02 margin ratio.

Margin Available: The amount of your Balance and Unrealized P&L

available as margin for new trading transactions. It is equal to your Net

Asset Value minus Margin Used.

PIP: The smallest unit by which a Forex cross price quote changes. So if

EURUSD bid is now quoted at 0.9767 and it moves up 2 pips, it will be

quoted at 0.9769.

Relative Strength Index (RSI): A technical momentum indicator that

compares the magnitude of recent gains to recent losses in an attempt

to determine overbought and oversold conditions of an asset. It is

calculated using the following formula:

RSI = 100 - 100 / 1 + RS

RS = Average of x days' up closes / Average of x days' down closes

The RSI is best used as a valuable complement to other stock-picking

tools.

Resistance: The price/pair stops rising because sellers start to

outnumber buyers.

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Retracement: A reversal in the movement of a pair's price, countering

the prevailing trend.

Reversal: A change in the direction of a price trend. On a price chart,

reversals undergo a recognizable change in the price structure. An

uptrend, which is a series of higher highs and higher lows, reverses into

a downtrend by changing to a series of lower highs and lower lows. A

downtrend, which is a series of lower highs and lower lows, reverses

into an uptrend by changing to a series of higher highs and higher lows.

It is also referred to as a "trend reversal", "rally" or "correction".

Scalping: Opening and closing a position in seconds or minutes for a

few pips of profit

Secondary Currency: The currency that the investor trades the base

currency against (i.e. USD in EURUSD).

Short: To sell.

Short Position: A position that benefits from a decline in market prices.

Sideways Trend: Describes the horizontal price movement that occurs

when the forces of supply and demand are nearly equal. A sideways

trend is often regarded as a period of consolidation before the price

continues in the direction of the previous move. A sideways price trend

is also commonly known as a "horizontal trend".

Spread: The difference between the bid and the ask rate.

Stochastic: Typically used to identify overbought and oversold

conditions, the indicator consists of two lines: % K and %D. These two

lines fluctuate in a vertical range between 0 and 100. Readings above

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80 are considered overbought and readings below 20 are considered

oversold.

Support: The price level which, historically, a stock has had difficulty

falling below. It is thought of as the level at which a lot of buyers tend

to enter the market.

Trading Forex: A currency trade is the simultaneous buying of one

currency and selling of another one.

Trend: The general direction of a market or of the price of an asset.

Trends can vary in length from short, to intermediate, to long term. If

you can identify a trend, it can be highly profitable, because you will be

able to trade with the trend. As a general strategy, it is best to trade

with trends, meaning that if the general trend of the market is headed

up, you should be very cautious about taking any positions that rely on

the trend going in the opposite direction. A trend can also apply to

interest rates, yields, equities and any other market which is

characterized by a long-term movement in price or volume.

Trendline: A line that is drawn over pivot highs or under pivot lows to

show the prevailing direction of price. Trendlines are a visual

representation of support and resistance in any time frame.

Volatility: Refers to the amount of uncertainty or risk about the size of

changes in a security's value. A higher volatility means that a security's

value can potentially be spread out over a larger range of values. This

means that the price of the security can change dramatically over a

short time period in either direction. A lower volatility means that a

security's value does not fluctuate dramatically, but changes in value at

a steady pace over a period of time.

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Volume: Volume is an important indicator in technical analysis as it is

used to measure the worth of a market move. If the markets have

made strong price move either up or down the perceived strength of

that move depends on the volume for that period. The higher the

volume during that price move the more significant the move.