Forex Trading Intermediate

Concepts

Major trading sessions Tokyo: 11PM - 8AM (GMT) Slow-paced market 6% of daily transaction volume London: 8AM - 5PM (GMT) The most volatile market 35% of daily transaction volume New York: 1PM – 9PM (GMT) Most volatile during the US/Europe overlap 17% of daily transaction volume

Currency types Safe haven currencies: they outperform in times of crisis or uncertainty, investors buying them is known as flight-to-quality Commodity currencies: from countries which depend heavily on the export of certain raw materials CHF JPY USD XAU AUD NZD CAD

Markets correlation USD index: the USD’s performance against a basket of six currencies provides sentiment of the overall FX markets Gold: more than a commodity, gold is a currency and tends to be inversely correlated to the dollar Oil: priced in dollar, the two markets tend to be inversely correlated Knowing different markets helps the trader gauge the market conditions and take on appropriate exposure Positive correlation: move in the same direction Negative or inverse correlation: move in opposite direction

Swap A swap/rollover is an interest fee for overnight open positions Swap rate is the interest rate differential between the two paired currencies Swap = (Pip Value * Swap Rate * Number of Nights) / 10 Example: short 1 lot of EUR/USD with an account in EUR 1 lot = 100,000, Pip value = $10, Swap rate = 0.54, Number of nights = 1 Swap fee: (10 * 0.54 * 1) / 10 = $0.54

Order fill An order is filled when it is executed in the market You buy at the Ask price, and close by selling at the Bid price You sell at the Bid price, and close by buying back at the Ask price The spread can affect your fills MT4 charts are drawn on bid price If you sold at 1.342 and your take profit is 1.3409 (green line), it would not have been filled here Same if you had a buy limit order at 1.3409, it would have been missed Ask price Bid price

Strategies

Common chart patterns Head & Shoulder is a reversal pattern Head Left shoulder Right shoulder H&S necklace H&S necklace Right shoulder Left shoulder Head

Continuation triangle Common chart patterns Triangles, wedges, rectangles and flags are consolidation patterns, can be used in range or breakout trading Reversal wedge Continuation triangle

Trade breakouts Longs and shorts exchange hands in consolidation and positions are built for the next move A breakout likely leads to a directional move The longer the consolidation the larger the breakout move The stop-loss should be placed outside the range The trendline suggest a downtrend Market consolidates for more sellers to jump in Flag Descending triangle Sharp drops suggest trend continuation

A simple indicator: MA crossing An indicator is best used in conjunction with patterns Moving averages reveal the current market conditions The faster MA crossing over the slower one may signal an uptrend The faster MA crossing under the slower one may signal a downtrend SMA 50 SMA 20

Market sentiment The market is crowd psychology driven by emotions, it is not always in line with fundamentals An overcrowded market is meant to reverse as it will run out of buyers or sellers The reversal can be swift and brutal when everyone tries to get out Bullish: buyers-controlled market, the price can go above its fundamental-justified value Bearish: sellers-controlled market, the price can go below its fundamental-justified value

Use the sentiment at your advantage Sentiment reveals players’ positions and can be used to join a trend or spot a potential reversal First bull/bear can easily get killed, so avoid or trade smaller than usual Once the market has chosen its side, volume will increase, amplifying the directional move First bears More bears More bears confirmation Bears’ train about to leave Late partiers Last bulls Last bulls out Bulls stopped out Bears take profit and rush for exit Consolidation Trend

Combine fundamental & technical Fundamental analysis provides directions, to buy or sell Technical analysis gives confirmation and trading signals Even if the RBA kept the rate unchanged for months, only when the price started to turn offered safer entry opportunities Head Left shoulder MA crossing The market topped as traders expect RBA to keep the rate unchanged for a foreseeable future. AUD started a downtrend Right shoulder

Multiple time frame analysis Using both long and short time frames helps confirm market direction In this daily chart, the oil is pulling back to the support line If the line holds, the price is likely to revert back to its previous uptrend The trader is waiting for a confirmation In this H4 chart, the strong price momentum confirms the support as a valid entry point This signal gives an buying opportunity to the trader to go long D1 chart H4 chart Daily support Daily support

Trade management

Define your risk Never let one single trade wreck your account Before each trade, you need to define you risk parameter % of your account equity, experienced traders never risk more than 2-3% Number of pips as stop-loss Your stop-loss must be specific to your strategy, based on: Chart patterns Indicators Volatility Don’t set your stop-loss purely based on a dollar amount, the market could not care less

How to set a stop-loss? A stop-loss has to be relevant to the strategy, limiting the downside yet letting enough room for the price to develop Sell into new low as market becomes bearish Buy as market is in an upward channel Good SL SL too tight SL too tight Good SL

What is slippage? Difference between the expected and the executed prices Slippage can occur in normal and volatile markets, the amount of the slippage depends on the liquidity In a volatile market, a trader’s expected stop price may not be available, the order will be filled at the next available price Slippage can be positive (better price) and negative (worse price) Actual filled price Trader’s SL

Position sizing Knowing your size for each trade is key to your risk management You have a $10,000 account and you want to risk only 1% or $100 on a EURUSD trade, how many lots should you trade? If your stop-loss is 20 pips ($200/lot) Reduce the size by half to 0.5 lot ($50,000 nominal) If your stop-loss is 5 pips ($50/lot) Double the size to 2 lots ($200,000 nominal) Equity risk (%) Constant Trade-dependent Trade size Point of risk Strategy-dependent

How to manage winning trades? Break-even point: stop-loss moved to your entry price, even if the market turns, you will be stopped at no loss As the price goes in your favour, use a trailing stop to let your profit run while securing some profit The trade is closed when stopped out with profit SL moved higher SL moved higher SL moved higher Break-even point Initial SL

How to manage losing trades? Never let a losing trade go beyond your risk parameter Be careful with averaging down (buying more as price drops) Buying cheap might get you great deals in street markets, but there usually is a good reason why traders are dumping a currency If your risk threshold has been hit, get out, observe and reassess Going against the market becomes emotional trading and no trader can afford that

Psychology

Making money is easy… Keeping it is the challenge. Here are some common mistakes Overconfidence Beginner’s luck can lead to overconfidence and excessive risk-taking (high- levered position, no SL) Lack of strategy A strategy with clear rules of entry and exit keeps emotions at bay Overtrading Be selective and choose only high probability trades Following the herd Follow your own plan before jumping into any trend

Trading: a game of probability Which game would you play? 60% chance of winning and get £10 40% chance of losing and pay £20 40% chance of winning and get £20 60% chance of losing and pay £10 Even with a lower win rate, each time you play B, you can expect to earn £2 B’s greater pay-out (higher risk-reward) makes the trader profitable over time

The significance of one trade Each trade is significant in your learning process Does your strategy fit your personality, schedule? Did you follow your rules? What needs to be improved for the next trade? Each trade is insignificant in your P&L Focus on making a good trade A trade that is from your strategy A trade executed by following your set rules A good trade can be profitable or lost but a series of good trades is profitable over time

From beginner to profitable High return High win rate Zero risk Consistency High risk-reward ratio Small drawdowns

Thank you!