Marc Waltons - How to Trade Forex

www.Forex-FxTrader.com

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The contents of this e-Book are for informational purposes only. No part of this publication is a solicitation or an offer to buy or sell any financial market. Examples are provided for illustration purposes only and should not be construed as investment advice or strategy. All trade examples are hypothetical. No representation is made that any account or trader will or is likely to achieve profits or loses similar to those discussed in this e-Book. By purchasing this e-Book, and/or subscribing to our mailing list you will be deemed to have accepted these and all other terms found on our web page Forex-FXTrader.com in full. The information found in this e-Book is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to the law or regulation or which would subject us to any registration requirement within such jurisdiction or country.

CFTC RULE 4.41

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, IMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OROVER 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 BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

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Learn How to Trade Forex from an Ex-Forex Loser! 95% of Forex traders lose money. I know - I used to be one of them. But I now make more money in a day than I used to in a week with 25+ employees! My name is Marc Walton (many of you will know me from Twitter as marc12001). I make a living trading Forex from my home here in the sun-kissed Canary Islands. I started trading Forex from home (badly!) almost six years ago. In the last 18 months I have managed to recoup my initial $20,000 losses and move into a VERY healthy profit. I started posting advice on Twitter in January 2009. My real time advice so far has been over 85% accurate in 2009. So far this year (up to July 2009) I have gained over 7,000 pips! At only $10 a pip that would have earned you $70,000. I was Managing Director/CEO of a food company in the U.K. I semi-retired aged 42 - I was stressed out, working 60-70 hours a week. Sick and tired of the rat race, I wanted a better quality of life with my young family. My wife and I sold the house, cars and virtually everything else we owned and we emigrated (with only one suitcase each!) with our four kids to the Canary Islands (Spanish Islands off the West coast of Africa).

The only problem was that I needed to find a method of earning at least half of my previous income. I tried numerous Internet "get rich quick schemes" and Internet Marketing scams before I stumbled upon Forex trading. I had never heard of it before. If you haven't either, don't worry as I will explain everything that you need to know here in this e-Book. I now earn three times as much money as I used to and only work an average of twenty hours a week!

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Do not underestimate the value of what is inside this e-Book. The biggest difficulty I had learning Forex was the amount of times I got sidetracked with the latest "new system", the "greatest new Forex robot" or whatever the overhyped product of the week was. If you stay with me and read this book, you will learn. It may only be a stepping stone to something more detailed, or equally you may decide that Forex is not for you. Either way you will have hopefully learned something and it will only have cost you a little time. If you decide to take Forex seriously then there will come a point where you will need to invest some money into furthering your education: books, more advanced training, courses and or mentoring.

Why Would I Want To Help You?

1. I have a group to whom I already give, email lessons, tips, advice and signals. I am doing the work anyway, and this keeps me focused, disciplined and my routine fixed.

2. To stop you from being scammed. Forex is NOT a get rich scheme. 3. I hate to see people being ripped off. If you are new to Forex and thinking of

giving this “make loads of money working ten minutes a day” investment nonsense a try, then listen up. Forex is NOT investing. It is nearer to gambling.

Yes you heard me right! Forex is NOT investing. It is nearer to gambling. There are ways to win at Forex but it is risky and you can literally lose your shirt, if you don’t know what you are doing. Anyone who tells you differently is trying to sell you something. 95% of new Forex traders lose money. I see so many Internet “Forex product review" sites and adverts which state you will double your money in a month with Forex. Guess what? It’s not true! This type of advertising is so irresponsible it would be banned from the mainstream press. Those who claim to get rich overnight with Forex are either, liars, frauds OR they took such massive risks that they could just as easily have lost ALL their money in a month. A little later in the course I will show you what tricks to look for in these adverts. The one I mentioned earlier was trading $60 a pip without a stop loss. The Great British pound fell 400 pips in a day recently. Had you been long on the wrong side of that trade without a stop you would have lost $24,000 in 8 hours! Buyer beware!

4. I have spent thousands of hours at my computer and a small fortune (over $7,000) on training courses, mentoring and e-Books on how to trade Forex. I now have a great deal of knowledge.

5. First lesson learned: Most of the stuff I bought was garbage or vastly over priced, rehashed rubbish that is freely available on the Internet, if you know where to look.

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6. I was commissioned to write an article on how to get started in Forex for the man in the street. I got carried away and ended up writing a mini book! It’s all here for you, the key to winning at Forex is in your hands right now!

7. It actually improves my trading if I have people looking over my shoulder. The biggest problem I have in Forex is following my method’s rules. It is very easy to get over confident, over-trade and lose everything. I have found that in just a few months with Twitter, when if I have people looking over my shoulder I HAVE to stick to my trading rules. As a result my success has gone through the roof (average pips per month pre-Twitter was around 800. Since Twitter it is more than 1,000).

If you are completely new to Forex, start right at the very beginning with how the Forex market works and how you can get involved. For more experienced traders I have some tricks and techniques that may help you win more consistantly.

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Table of Contents What is Forex? ........................................................................................................ 8

History of the Forex Market .................................................................................. 8

Where is the Forex Market Based? ..................................................................... 8

Who Can Trade Forex? ......................................................................................... 9

How Can I Trade Forex? ....................................................................................... 9

Free Software ......................................................................................................... 9

I Have a Day Job. Can I Still Trade Forex? ....................................................... 10

There are 100s of Courses on the Internet - Why Listen to Me? ................... 11

Forex Training - The Course ................................................................................ 11

Aims of the Course .............................................................................................. 12

Forex Charts ......................................................................................................... 13

Candle Stick Explanation ................................................................................... 14

Forex Candle Examples ...................................................................................... 16

Bollinger Bands ..................................................................................................... 18

Moving Averages ................................................................................................ 21

Trading a 15 Minute Forex Chart ....................................................................... 22

34/55 EMAs ........................................................................................................... 23

Examples of EMAs in Action ............................................................................... 24

Forex Trade Example .......................................................................................... 26

Fibonacci .............................................................................................................. 28

Currency Pairs ...................................................................................................... 31

Forex Money Management ............................................................................... 33

Forex Rules ............................................................................................................ 36

Risk Reward in Forex ............................................................................................ 36

Forex Plan: Make a Plan. Fail to Plan, Plan to Fail. ......................................... 38

Forex Trends and Double Bottoms .................................................................... 43

Support and Resistance ..................................................................................... 46

Break Outs/Asian Session Break Out Strategy ................................................. 49

More Examples of Break Out Trades (Breaks of Support/Resistance) ......... 54

Forex News Trading (And Why I Won’t Do It) .................................................. 57

Conclusion ............................................................................................................ 59

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What is Forex? There are numerous different terms for the Forex market. Forex and FX are both short ways of saying 'foreign exchange'. It may also be called the currency market, the foreign currency market, the currency trading market, etc. All of these terms refer to the same international market on which the currencies of the world are exchanged and traded. At its most basic level, think of when you have to travel abroad and you need to change your $'s into the currency of the country you are going to visit. For example, if you were going to travel to England you would need to change your hard earned dollars into pounds. In Forex this trade is referred to as GBP - the Great British Pound. The exchange rate as of today as I am writing this article (27th June 2009) is 0.60, therefore, $1 will buy you 60 English pennies. (100 pence makes a British pound). Currencies are bought and sold just like any other commodity; coffee, steel, coal etc. The value of a currency is, in a sense, the value of the nation whose currency it is. Just like companies on the stock market. If a nation is successful the value of its currency increases and if it is going through a crisis the value drops. These fluctuations can be great and can happen very fast. The sums involved can be huge too. It is these daily fluctuations that we aim to take advantage of as a Forex trader.

History of the Forex Market Up until the 1970s, currencies had been stable relative to one another since the Second World War. What was called the 'Gold Standard' gave every currency a value in relation to the US dollar. This system was introduced in order to maintain a stable world economy. However, in the early 70s the USA abandoned the Gold Standard and the values of the different currencies began to change. Banks immediately began to exchange currencies for profit, buying low and selling high, instead of only making exchanges when they needed to transfer money from one country to another. In effect, each currency became a trade-able commodity. This was the beginning of Forex trading.

Where is the Forex Market Based? The trading of currencies, the "Forex market" is not housed in a physical building nor is it a specific business or entity. Rather it is a computerised network of traders, bankers and brokers situated all over the world. London and New York are the main centres of business, but practically every country is involved. Therefore it is possible to trade virtually every currency from anywhere in the world.

Who Can Trade Forex? The market is still dominated by Investment banks, Major corporations and other large financial institutions that are responsible for 98% of the $2+ trillion a day that changes hands on the Forex markets. Until recently it was only possible to trade Forex if you had a large pot of money (less than $500,000 and brokers really weren't interested). However, it is now possible to trade as a private individual through a broker from as little as $250. There are now a large number of people involved in Forex trading through their home computers, although because they trade much smaller amounts than the institutions, they only account for around 2% of the total Forex market. It is now possible, nay easy, to trade from your home computer or laptop. You have real time access to the same information that the professional, Wall Street traders have.

How Can I Trade Forex? With the increased power of home computers, and the opening up of competition in the marketplace, the market has come within reach of the “man in the street”. The final piece of the jig-saw that enabled you or me to be able to trade from home came with the arrival of free, highly sophisticated, downloadable trading platforms such as MetaTrader.

Free Software I will explain in the training course how you can download your free copy of the MetaTrader trading platform. This comes with a free demonstration account where you get to play with the big boys, using the same information that they have, but without risking a penny. British tax payers have an added bonus that they can pay no tax on any winnings that they make spread betting Forex as it is classified as gambling. To my mind Forex is a form of gambling (you can learn how to reduce the risks considerably, but it is still gambling). Anyone who tells you it is investing is misleading you and probably trying to sell you something.

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I Have a Day Job. Can I Still Trade Forex? If you are new to Forex and have a day job then don’t worry. There are lots of part-time traders around the world. The market runs 24 hours a day, five days a week. The week starts on Monday morning in Sydney, Australia (that is, 10 pm Sunday GMT) and ends at 9 pm GMT on Friday in New York. During that time it is always possible to trade currencies somewhere in the world.

The Least Stressful Way to Trade Forex? I use a number of Forex trading strategies with the Daily Charts. Below are some of the Forex strategies and systems I outline in this book (combined with a few others): If you are only able to trade on the Daily Charts, don’t worry, in my experience it is actually the least stressful way to trade Forex. You only need to spend 15/20 minutes a day doing your analysis. Place the trade and walk away! The strategies are the same, but there are larger stop losses. However this does not mean you risk more money, you simply reduce the amount of money that you risk per pip. For example, let’s say you have $1,000 in your account and are risking 5% per trade. On a trade with a 50 pip stop you would risk $1 per pip. If it was a 100 pip stop you would still risk $50, but your risk per pip would only be 50 cents. I use a number of strategies to trade the daily charts.

1) The Forex strategies that I have outlined so far in the book. 2) A while ago I was introduced to a well known Forex trader/author, Dean

Saunders. Dean has written an e-Book that is specifically aimed at those who can (or wish) to trade the Daily Charts. He calls it his “10 Minute Forex Wealth Builder”.

3) Dean has also created a simple piece of signal software that alerts you to possible trades. The signal tells you where to enter the trade, what stop loss to use and which profit targets to take. It is called the LMT Forex Formula. It does the work for you. I have over 500 registered followers on my blog who are using this system.

4) Finally I am looking for “break out trades” as explained later in this e-Book.

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http://www.forex-fxtrader.com/recommends/10minutewealth.php

http://www.forex-fxtrader.com/recommends/lmtformula.php

There are 100s of Courses on the Internet - Why Listen to Me? There are 100s of Courses on the Internet - Why Listen to Me?

I am a regular guy. My trading style is down to earth. Uncomplicated.

I am no financial wizard. I failed math 3 times in high school. I have no idea what an algorithm is let alone know how to use it.

I am one of the 5% who makes regular money from Forex.

I have taken bits and pieces from over $7,000 of training and 1,000's of hours of hands on practical experience and devised systems that are easy to follow.

I will let you have a copy of my template with all the EMAs that I am going to explain to you in this course

How I turned from a Forex loser into a winner. Join the elite 5% who win.

Avoid 3 years of hard work and the dumb mistakes I made in losing $20,000

E mail updates of the day’s trades and the $1,000,000 challenge progress report.

Learn how to analyse where the market is going next and alternative trading strategies.

Free trading platform, installation guide and a copy of my charts layout template.

HONEST reviews of Forex courses, books and robots 95% of which I don't recommend! The best cost less than $70!

Why all my Forex robots went into the bin, including FapTurbo and Evolution!

Forex Training - The Course

This course was originally written for those who are completely new to Forex. Right from the point of explaining what a pip and a candle is. If you have some experience then obviously select the areas that you feel are most relevant. However, it would be wise to have a look at all the sections. I have a particular way of using a collection of EMAs and Fibonacci that may be new to even the most experienced Forex traders. Most importantly, they work.

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Aims of the Course It is always difficult to know where to begin with any educational information as there will be readers with lots of different levels of knowledge. Some of you may know nothing about trading Forex. Others may have been trading successfully for many years. What I am trying to convey here is a basic outline of the things that you need to know to get started. I do not pretend that this is a complete course, but hopefully you will be able to decide whether Forex is for you or not, without having to spend a penny!

Getting started. How to trade the Forex market from your home computer (including how to open a free demo account).*

Which basic indicators you need to learn to get started; there are 100's - just stick to a few: Candle patterns and formations, a few EMAs and a couple of others.

Copy of my template to have you up and running in minutes - this alone will save you hours and hours of work with your meta trader learning curve.

Which are the best currency pairs to trade for the beginner?

Trading strategies and What strategies to avoid like the plague!

One of the most important. Trader psychology. Discipline – my biggest downfall in the early years and I still have problems with it today.

Money and risk management.

How to interpret the signals and do your own analysis.

Open a mini account* (allows you to trade 10% of a normal stake).

Open a live account (it may have seemed easy with a demo account - be prepared for the adrenalin rush of having real money on the table)!

Examples of trades that I personally made. Analysis, Entries, exits, strategies.

Ongoing tuition.

Forex Forum membership. Learn and exchange ideas with like-minded individuals.

*For more details of our recommended brokers, please visit http://forex-fxtrader.com/blog/forex-broker-how-to-find-a-good-one

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http://forex-fxtrader.com/blog/forex-broker-how-to-find-a-good-one

Forex Charts There are two main types of trading styles for Forex. Those who trade on fundamental analysis - news releases, the state of a country’s economy, unemployment, house sales, retail sales, etc, and those who trade by charts using a range of indicators and mathematical formulations – i.e. technical analysis.

In my Forex trading system I use a combination of both. For many years I traded shares, based purely on fundamentals. I, like many, thought that the chartists were insane! However the more I have learned of charting the more I have come to appreciate (in my pocket) that it is not hocus-pocus. I will show you the indicators that I use and how to interpret them. If you are a complete beginner then the next screenshot is designed to confuse the hell out of you!

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Don't panic! I will take you step by step through the jungle of Forex indicators. In the next section I will explain how we use "candles" to indicate where price has been, where it is now and where it may go next.

Fig. 1

Candle Stick Explanation Some experts will tell you that Forex candle stick patterns are just mumbo-jumbo. But I make a lot of money from them in conjunction with other indicators; there is definitely something in it! There are 100's of books on the subject and hundreds of different patterns. You don't need to know them all to get started in Forex, but being able to recognise the more obvious ones will certainly help your trading. Never trade on candles alone. They are just a possible piece of the jig saw when helping you to decide whether to take a trade or not. Candle sticks are displayed as different colours depending on the market activity: Green for up and red for down. I like to keep things nice and simple! Candle sticks are the same on whichever time frame you choose. If you are not familiar with candle sticks see the diagram below for an explanation of the basics.

The bottom of the body of the green candle is where the price opened. The low is the lowest that the price reached in that period of time. Conversely the top of the "wick" was the highest point. The top of the body of the candle is where the price closed. A red candle is exactly the opposite.

Therefore a green candle can be said to be a bullish candle (a bull market is when the price is going up) and a red is a bearish candle (going down). Gosh this is so easy. Right?

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I was searching the Internet and came across this video that explains the main candle patterns better than I can on paper. Some of the most well known candle patterns and their significance are:

Spinning Top Doji Bearish Engulfing Pattern Bullish Engulfing Pattern Dark Cloud Cover Piercing Pattern Bearish Harami Bullish Harami Hammer Hanging Man Morning Star

The guy’s accent in this video is amazing. The best guess I have is a cross between Welsh and West Indian (he’s actually Swedish)! But the content is brilliant and explained very simply: http://www.youtube.com/watch?v=f9EozCtA6XE For a more detailed examples of the different formations, check out this link, http://www.alpari-forex.com/en/market/japanese_candle

http://www.youtube.com/watch?v=f9EozCtA6XE

http://www.alpari-forex.com/en/market/japanese_candle

Forex Candle Examples These are some of the main candle formations that I look out for in my trading: Evening Star The grey, cross-shaped candle at the top is called a "doji." This pattern at the top of an uptrend signifies that the market is likely to turn bearish, i.e. down:

Morning Star The grey, cross shaped candle at the bottom is also called a doji. This pattern signifies that the market is turning bullish, i.e. up:

Hanging Man At the top on uptrend, this shows possible reversal back down.

Hammer Found at the bottom of a down trend, this could signify a reversal back up.

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For now you do not need any more. If you want to learn in far greater detail, the accepted bible on the subject, written by Steve Nison can be found below at www.Amazon.com If you are a beginner then the original book is better. The latest version seems to presume you know something about the subject.

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http://www.forex-fxtrader.com/recommends/stevenison.php

Bollinger Bands Bollinger Bands were invented by John Bollinger as a means of determining what could be considered as high or low around a given price. You can get a detailed description of them here: http://en.wikipedia.org/wiki/Bollinger_Bands Bollinger Bands can be used to generate buy and sell signals but that is not their primary use. The main purpose of the bands is to:

To identify areas of high and low volatility. To identify periods when prices are at an extreme and possibly ready for a

reversal. To identify a trending market.

Never use Bollinger Bands alone to take a trade. Everything that I am showing you here is a part of the jig-saw that helps me make a decision to trade or not. None should be taken in isolation. One way I use the Bollinger Bands is to look for areas where the candles go outside of the lines. Often (but not always immediately) price will return and or reverse at these points. Figure 1 shows clearly with the first two arrows left-to-right that price has reversed after piercing the bands. Now, at arrow three, I would be looking for other reasons to support my theory. There are a number of clues in Figure 1, without any other indicators. Can you spot them? a) The price previously bounced back down from this same height - this is called a double top. b) The red candle at arrow three is an engulfing candle. So without any other indicators we have a good clue that price would reverse.

Fig. 1

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http://en.wikipedia.org/wiki/Bollinger_Bands

Figure 2: For similar reasons the arrow is pointing to an area where it is reasonable to presume that a reversal may occur. This steeply pointing down (in this case) band is sometimes known as a "never in a million" Bollinger. The angle is so steep that price cannot possibly break through. This works a lot, perhaps more than 90% of the time in my experience.

Fig. 2 Figure 3: Here we have yet another example of price going outside the Bollinger Bands, only to return (pullback). We can use Bollinger’s for clues for entries, pullbacks and exits.

Fig. 3

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In the following diagram, Figure 4 we have at point 1, further examples of price leaving and re-entering the bands. At the arrows we have the more conventional use of the bands, signifying the drying up of volatility in the market, in this case at the close of the London market:

Fig. 4

This is followed by a squeezing of the bands to create a ranging/side-ways market:

Fig. 5

Finally, an opening and explosion of price, in this case following an extraordinary news announcement:

Fig. 6

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Moving Averages

An SMA (Simple Moving Average) is the price of a candle at a specific time - its open, mid or close. I use the closing price of a candle. A Moving Average line is created by dividing the closing price by the time frame. Thus a 10 day moving average on a Daily Chart would represent the average 10 day closing price divided by 10 days.

Like many traders, I only use EMAs (Exponential Moving Averages). An EMA is weighted so that price is more relevant to the most recent candles closing prices and reacts quicker to recent changes and is therefore more sensitive. As with all technical indicators, there is no one type of average that a trader can use to guarantee success, but by using trial and error you can undoubtedly improve your comfort level with all types of indicators and, as a result, increase your odds of making wise trading decisions. The first pair of indicators I use are 5 EMA (brown line) and 8 EMA (black line). The smaller the number, the quicker the indicator reacts. Therefore the 1 EMA would be the fastest and the 500 EMA the slowest. When I used to only trade 15 Minute Forex Charts, this was the first indicator I would look at. Now I do my research on a 4 Hour/Daily Chart, then 1 Hour and finally 15 Minutes.

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Trading a 15 Minute Forex Chart 5 EMA/8 EMA Crosses When I was just trading 15 Minute Charts, various other EMAs and indicators would signal a trade. I would then look at the 5/8 EMAs to determine entry. If I was looking to short, but the 5/8 EMAs were pointing upwards, then I would wait for the 5 EMA (brown) to cross downwards over the 8 EMA (black). If they did not cross I would not place the trade. In Figure 1, below, the first two candles are going up with the 5 and 8 EMAs pointing up. The third candle is a reversal candle, so now I start to thinking of entering my short position. The 4th candle is now a confirmation of the reversal. Finally the 5EMA crosses the 8 EMA and points down. Now I enter a short trade. Once the trade has been entered, I would place the stop, 5 pips plus the spread above the third candle. The exit would be when the 5/8 crosses back up. This particular example below is text-book - the kind you often see in Forex adverts. Easy? No. It doesn't always work. In fact if you just traded this method you would lose.

Fig. 1

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34/55 EMAs The 2nd pair of indicators I use are the 34 EMA (light blue) and the 55 EMA (dark blue). In the following 15 Minute Chart example let’s assume it is the confirmation of the 5/8 EMA cross up (the second red arrow), on the 1st chart that we have just looked at in Figure 1. Thus, the 5/8 EMA cross has given us a clue to enter long (buy/upwards). Now the candles have broken and closed above - 3rd candle - the 34/55 EMAs. If we were not already in the trade we would enter at the close of this 3rd candle. The best clue is that the 34 EMA (light blue) crosses the 55 EMA (dark blue) in an upwards direction.

Fig. 2

TIP: In my experience, on the 15 Minute Chart there is an average 80+ pip move on Cable and 60 + pips move on the EUR/$ after a 34/55 cross, from the opening of the jaws, after the cross. See the red arrow below. Sometimes the candle that triggers the cross can take a lot of these pips, but the 80+/60+ can give you a clue to possible areas to take profits. Finally, see Figure 3, the strongest EMA of them all for me is the 200EMA (green). As I explained earlier the lower the number, the quicker the EMA reacts. Therefore a 200 day EMA is slow to change direction and can be used, on all time frames, as a clue to direction. In the following example, the candles are below the 200EMA. Therefore, until a candle breaks it and closes above, we will only look to short (sell) as the 200EMA is telling us that the direction is DOWN. The candles have risen to almost touch it a few times, but they have reversed away. This is where we have to be careful. Imagine a 5/8 cross was telling us that the market is going to go up, but a 200EMA, which is pointing down, was near to our entry (on multiple timeframes) do not take the trade. Instead look for reasons to short it here:

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Fig. 3

Examples of EMAs in Action 21st April 2009 - Analysis from my blog - www.Forex-FXtrader.com/blog Yesterday’s Euro: The 55EMA was clearly in control. This chart shows how price rejected each time it hit/came close to the 55 EMA. You could have shorted here each time for a low risk trade (stop say 10/15 pips the other side of EMA). Great risk/reward ratio.

23rd April results +130 pips from my blog. On the 4 Hour Chart it was a fairly obvious trade set up. This was my biggest trade of the day. I posted on twitter as it was happening. “A brave trader would consider shorting euro GBP NOW. It has just rejected at 0.8990 area for 4th time. Risky but small stop, good risk/reward.”

I had a few followers on Twitter that thought I was mad! It looks obvious now, but at the time there was a lot going on that suggested it was going to go UP not down.

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http://www.forex-fxtrader.com/blog

So, I went to the 15 Minute Chart. On the 15 Minute Chart, below, the yellow line is the overnight Asian range high which again had failed to break. Price had spiked above the overnight range, but the candle did not close above. I shorted at start of red candle after the spike at 0.8985 with a stop just the other side of psych level at 0.9005. Thus a 20 pip stop loss for a potential gain of 70 + pips. It was a bit risky (hey this Forex), but great risk reward ratio. I took 20 pips off the 1st lot +20 pips with a second target 200 EMA 15 minute + 60 pips.

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Forex Trade Example The following is another "text book" example (believe me they do not always work this easily) of multiple reasons for why we would go long (buy) on this Forex pair. This trade was signalled to me from my 4 Hour Charts. I then went down to this 15 Minute Chart to look for a good place to enter.

1. At point 1 we have a reversal candle at a 200 EMA. The red candle has also spiked through the Bollinger Band. As I said before the 200 EMA is, in my experience, the strongest EMA and the hardest to break. Sometimes the 200 EMA is in the same area on multiple time frames. This is an even stronger signal that price is likely to reverse.

2. We have a 5/8 cross indicating that price is now "likely" to go up. I did not enter yet as I was waiting for price to confirm a break above (candle closed above) the 34/55 EMAs. The danger was that price would bounce/be trapped between the 200 EMA and the 34/55.

3. On this trade I went long/bought the pair at point 3. The stop was only just below the bottom of the red candle, + 5 pips. Therefore if the trade had lost my risk was quite small (30 pips). Remember this trade was based on my 4 Hour Charts where I am looking for a minimum 80 pip move. Only the entry was based on the 15 Minute Chart.

4. I took 50% of my profit at the touch of the upper Bollinger Band ( it was also a psychological number (whole number 1.3800). I then moved my stop on the remaining 50% of my trade, initially to just below the 34/55 cross and then to entry when it carried on moving up. I am looking for an average 80 pip move based on my 4 Hour Chart. Also, as I mentioned earlier, I often find that price moves 80 pips on the GBP after a 34/55 cross so I was confident that there was more to come in this move.

5. The candle at point 5 has now broken through, and closed above the

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psychological number of 1.3800. Therefore I was again confident that price would keep going up. My only doubt was the Bollinger Bands being broken at points 5 and 6. However the candles that were spiking the Bollinger Bands were all green. As priced moved up I adjusted the stop loss upwards to lock in profits.

6. I exited the rest of the trade at the 1st red reversal/engulfing candle for a 110 pip gain. Shortly after there was a 5/8 cross to the downside which would definitely have taken me out of the trade.

Fibonacci This has to be one of the most fascinating mathematical calculations used in Forex and life. I am absolutely rubbish at Maths. I can work out the basics; P&L, profit percentages, lot sizes, etc, but throw algebra and fractions at me then I am lost. When all of my kids reached 12 years of age I could no longer help them with their homework! But Fibonacci and the Golden Ratio blew my mind. It is far too complex a story for me to relate now, but the important thing for budding Forex traders is that it works. (If you want to know more about this fascinating subject check out the links at the bottom of the page). Some Forex systems trade solely using Fibonacci. Personally I think that’s a little bit nuts. There are lots of indicators available to a Forex trader, some would argue too many. So, as with all things in life, we need to find a fair balance. If you use too many indicators then the danger is you never make a trade as there is always going to one indicator that contradicts the rest. "This is known as paralysis by analysis." Fibonacci for me is an essential part of my trading tool kit. The basic premise of Fibonacci is that it provides areas of Support and Resistance and most importantly areas where a reversal is likely. Therefore we can use “Fibs”, as Forex traders call them, to look for entries and exits. Why Fibonacci Works Because so many traders use Fibs, they become a self-fulfilling prophecy. If 90% of traders have them on their screens, then they are going to be looking for the same thing. The way in which Fibs work is this. Markets rarely, if ever, go up or down in a straight line. What happens is that a strong movement (as buy and sell orders automatically kick in) is normally followed by a period of reflection - known in Forex as a pullback. Basically traders are taking a time out whilst they decide where the market is going next. A trader who trades only with Fibs is looking for entries and exits around the 50% area and specifically at the golden number, 61.8%. The following example, which took place February 2009 on the GBP 4 Hour Chart, is a classic example of Fibonacci in action.

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The market was heading down, so I set the Fibs going down. With me so far? The market then retraced initially to 50%, which would have given a Fib trader a possible entry point. The market then ranged between 23.6 retracement and 100% before pulling back for a text book 61.8% entry. The exit on this was spookily text book as well. From my experience a 50% retracement will often stop at 100% (as below) and 61.8 will stop at 121.4

If you would like to know more about Leonardo Fibonacci have a look here http://en.wikipedia.org/wiki/Fibonacci How to Use Fibonacci in Forex I use my Fib settings upside down! (I can't remember why, but I think it may be FX Bootcamp’s method). This way seems more logical to me. In the following example I have set the Fib tool in MetaTrader in an upwards direction. Price has obviously been going up. Therefore I have set the Fib from the top of the days highest candle wick (100%) to the lowest (0%).

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http://en.wikipedia.org/wiki/Fibonacci

I am looking for price to pullback for a further long entry. The main Fib area of interest is the 50% and 61.8% areas. If price in this area starts to show signs of reversing back up I would go long (buy). This would be with the trend that is obviously going up. I would also be looking for other clues; EMAs crossing, reversal candles, MACD, RSI indicators, etc to confirm. As I said before, I don't trade off just 1 particular tool, but rather look for a number of them coming together at the same time to give me more confidence in placing a trade. If, however the price was to fall (and close) below the 78.6 level I would consider that price has broken back down. Therefore I would start looking for clues to go short (sell). In the following example we have a text book Fibonacci move. This was on the Cable (GBP/USD) 4 Hour Chart in February 2009. As you can clearly see, price retraced to EXACTLY 61.8 of the previous move down. Price then went to EXACTLY 121.4 Fib. TIP: You will often find with Fibs that a 61.8 retracement will go to 121.4. A 50% will go to 100%. These are all clues for areas to exit/take profit.

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Currency Pairs The most commonly exchanged currencies involve the US dollar against other currencies. There are common abbreviations that you need to familiarise yourself with. The four most traded major currencies are:

The British Pound vs. United States Dollar: GBP/USD, often referred to as "Cable". The name "Cable" stems from the days when the market was connected by a huge Cable that ran under the Atlantic, connecting the markets in New York and London).

The Euro vs. United States Dollar: EUR/USD. United States Dollar vs. Japanese Yen: USD/JPY. United States Dollar vs. Swiss Franc: USD/CHF, also known as "the Swissy".

I only trade GBP/USD and EUR/USD on a regular basis. I have traded lots of other exotic pairs and it is those exotic ones where I have made most of my losses. I have found that it is best to specialise. Get a "feel" for a pair. Each has its own characteristics. If you are new to Forex I strongly recommend that you start with these two, GBP/USD and EUR/USD.

Here are a few more. You do not need to remember them as we will only be specialising in the big four. • Australian Dollar vs. United States Dollar: AUD/USD, "Aussie". • New Zealand Dollar vs. United States Dollar: NZD/USD, "Kiwi". • United States Dollar vs. Canadian Dollar: USD/CAD, "Loonie". To further complicate matters there are other hybrid pairs known as "crosses". For example the GBP/JPY is a cross pair. The price is not based directly on the USD, but arrived at by calculating the value of the GBP/USD and the USD/JPY. As a result of which this particular cross pair is highly volatile (I have lost 50 pips in seconds on too many occasions to mention). The spread is also up to 4 times bigger than the majors.

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Do not touch these pairs: GBP/YEN and GBP/CHF with a barge pole! At least until you have lots of experience, even now I avoid it like the plague! It is easier, less stressful, and less volatile to stick with Cable and the EUR/USD. Both generally behave in a more predictable fashion. For a more detailed explanation of some of the terminology have a look at http://en.wikipedia.org/wiki/Currency_pair As I said earlier, the 4 majors are the only currency pairs that you need to be concerned with at this stage. Ignore Internet chat rooms and Forums where someone is extolling the virtues of the Icelandic Kroner/against the Swahili Dollar or other exotic nonsense. You first need to learn the basics. In actual fact I now only specialise in Cable and the EUR/USD and EUR/GBP. I do not trade the CHF. I only use it for confirmation/correlation. Correlation refers to how one currency pair reacts with another. 80+% of the time when the CHF is going up, the Euro is going down. Therefore if I am looking to place a sell order - go short – on the Euro, I want to see that the CHF is going in the opposite direction. If not, I need to investigate further before entering a trade.

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http://en.wikipedia.org/wiki/Currency_pair

Forex Money Management Many people have asked me to explain Forex money management. Managing your money is the most important part of Forex. If you have none left, you can't be a Forex trader! One trader sent me this via email, so I will use his figures to show you how I would manage his account: "I will be opening a $10,000 live account and I want to make a profit of $2,000 a month ($100 a day) and risk no more than $1,000 a month. I've been trying a demo account with a credit of $10k and have been successful in making a $100 a day, but since I don't have a good money management plan, I would risk too much on trades sometimes." The most important part of Forex trading is to not lose your trading bank. To do this we need to strictly control the amount of money we are willing to risk per trade.

Presuming that you have traded a demo account and now feel confident enough in your methods to get in to Forex for real. This is how I would approach this trader’s account:

1. I would leave $8,000 in the bank and only start with $2,000. Why? Often a new trader will blow their bank in a short period of time. A simple conclusion: It would be better to blow a $2,000 bank than a $10,000, then go back to a demo and learn from your mistakes.

2. Making trades on a demo account is nothing like the adrenalin rush you get when you have real money on the table. On a $10,000 account I recommend that you risk no more than 2.5% of your account per trade. Why? Because if you have a losing streak you would need to lose 40 times before you wipe your bank out. On a $10.000 account that would be risking $250. But believe me that that if you go straight to risking $250 per trade and have a few losses early on you can scare yourself from pulling the trigger later on. Remember fear and greed rule the Forex market.

3. As I have explained many times before in the free lessons section: http://www.Forex-FXtrader.com/blog, 95% of new traders lose money. Often a new trader will blow their bank in a short period of time. There is a strange psychology that comes in to play when you are, say, $1,500 down. You now have $500 left. Mentally you seem to write it off. You now ignore all the rules

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and keep going for the "big one" to win it all back. The obvious outcome is that you lose everything.

I have done this twice in my early days. You know you should stop, but the urge to "win it back" over rides your common sense, (revenge trading is a very dangerous habit to avoid). Now they have lost everything, most Forex traders will quit. The rest dust themselves down, go back to a demo account and come back again when they have another bank - not unlike a gambler in a casino. (Personally I think that Forex is far nearer to gambling than investing. Anyone who suggests you "invest" your life savings in Forex is seriously not to be trusted.) Correlation No matter which path you choose, decide on your rules and write them down. "I will risk a maximum of 5% per trade." Be careful here because some Forex pairs are directly correlated. Correlation refers to the way pairs react in relation to each other. Especially the EUR/USD and the USD/CHF. In April 2009 when the CHF was going up, the EUR/USD was going down 92% of the time. Over the last 12 months the average is 80%.

Therefore a buy on the USD/CHF is almost identical to a sell on the EUR/USD. I mainly trade the EUR/USD because this pair moves, on average, 30 pips more per day than the CHF, thus you have the opportunity to gain more pips. However, I closely watch the CHF to assist, especially in deciding on entries and exits. If I was to take both trades and my rules say only risk 5% of my bank per trade, I would have to risk 2.5% on the euro part and 2.5% on the CHF. Also, you have to consider that a GBP/USD and EUR/USD trade is very similar in that both are betting that the $ is going to go either up or down. In April 2009 the EUR/USD and GBP/USD went in the same direction 62% of the time. Again you have to take this into consideration and establish a rule before you start to trade. Back to the question I was asked by our new trader. Let’s assume he takes my advice and decides to start with a $2,000 micro-account. His maximum risk will be

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5%/$100 per trade. My method of trading is to buy two lots. With the first lot I look for a profit of at least 20 pips. I bank it and then move the stop on the 2nd lot to entry (breakeven). This way I bank some pips and have the chance of catching a big move with the second. If the trader decides to trade this way, he needs to split his 5% risk over 2 trades. That is 2.5% per lot. There is a good micro-lot position size calculator here: http://www.Forexcalc.com/ Money management is fundamental to your success in Forex. You have to make rules, but most importantly, you have to follow those rules. My biggest weakness in Forex trading is discipline. I have rules, but unless there is someone looking over my shoulder, I am prone to break those rules. I have always worked for myself, so I am not used to doing what I am told!

For more information on correlations visit: http://tiny.cc/May2009726 For average daily ranges of major currencies visit:

http://www.global-view.com/forex-trading-tools/chartpts.html

http://www.forexcalc.com/

http://tiny.cc/May2009726


Forex Rules

1. I will only enter a trade if ALL my conditions are met - in my case this is if a number of indicators and EMAs are all pointing the same way at the close of a candle on a 4 Hour Chart.

2. I will determine my stop loss and exit BEFORE I place a trade; meaning I will determine where I think that he market will stop in the short term (my first exit point) and I will remove at least 50% of my winnings at this stage. I will then move my stop to the entry point or more and leave the balance to run to my next calculated stop point (second exit).

3. I will never risk more than 5% of my account balance in a single trade/position.

4. If my trade would be against the trend, I will only risk 2.5% of my account. 5. My risk reward ratio is at least 1 to 1: I will only enter a trade when I have

calculated that there is a likelihood of a gain (reward) at least equal to my stop loss (risk) and better if possible. For example if the market has stopped at its all time high on 3 occasions and it is only 20 pips away from my entry, I will not take the trade.

6. I will not enter trades too late/ Chase price i.e. I missed the entry but decide to dive in anyway. I will not gamble with my family’s money.

Risk Reward in Forex

The secret to becoming a successful Forex trader is the ability to maximise your gains and minimise your losses. This is easier said than done! In my first month trading Forex I won 65% of the trades and yet I somehow managed to lose money ! Obviously my losses were bigger than my wins, a common problem for the new Forex trader. The solution was to look more closely at my FX trading style. I was getting out of trades too early and my losses were too high. Conventional wisdom says that you should not enter a trade unless your potential gain is at least double your potential loss. Thus, your risk/ reward ratio is 1:2. Seems easy enough, but how can the new trader determine what is the potential gain in a trade?

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I use a combination of indicators and logic. Unfortunately there are a myriad of different things we need to consider and these can also vary depending on the time-frame we are trading.

The following are just a few that we might want to consider if we were looking to day trade on smaller time charts (15 Minute/1 Hour) with a 50 pip stop;

1. Average daily range. If the GBP has moved 180 pips so far today and the average daily range is 200 pips, then I would not take the trade if I was expecting price to extend beyond that limit. There are always exceptional days in Forex when the movement can be double, but the % likelihood says that 200 is more likely. Therefore to risk 50 pips to win 20 is a no go.

2. If your potential trade is only 30 pips away from previous strong support or resistance, this could be a trend line, a double top/double bottom. A strong psychological level, perhaps $1.50 to the GBP.

3. Equally, Fibonacci lines are often areas that price will bounce off, as are pivot points and Bollinger Bands.

4. Counter trend. More conservative traders will only trade with the trend. Your potential trade has lots of reasons to enter, but the trend is in the opposite direction.

5. Personally I never take a trade if price is near to lots of EMAs on different time-frames that it has to break; especially the 200 EMA. This also depends on the direction of the EMAs. For example, if I was looking to long a pair and the 200EMA was pointing down or even flat I would not take the trade.

I hope this gives you insight as to what to look for when taking a trade and the importance of having a risk reward ratio of at least 1:2. If you have any questions regarding this e-Book, please post them on the blog or in the Forum on my website: www.Forex-FxTrader.com

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http://www.forex-fxtrader.com/

Forex Plan: Make a Plan. Fail to Plan, Plan to Fail. 95% of Forex Traders Fail. Ouch! Many years ago I read a report entitled, "What they still don't teach you at Harvard Business School". The results of this report have stuck in my mind and I have tried to apply their findings to any project that I get involved with. More recently I applied it to my Forex trading with amazing results. A survey was conducted in 1979, amongst the MBA Harvard graduates of that year. The question was whether they, as individuals, had created clear, written goals for their future plans. Had they made plans to accomplish those goals?

84% had no specific goals. 13% had clear, specific goals. 3% had clear, specific goals and had written them down.

Eight years later they followed up the survey and found:

The 13% who had clear goals were earning twice as much as the 84% who had no goals.

The 3% who had clear written goals were earning 10 times more than the other 97% combined!

WHAT AN AWESOME STATISTIC. JUST THINK ABOUT IT FOR A MOMENT. If you want to be one of the 3% who succeed long term, not only in Forex but in life, you have to have a clear, written plan. If you do not have a plan, how do you know where you are going? How will you get there without a road map? This is not rocket science! So, how do I get started? Step 1: Make a Life Plan Have an overall long-term aim. Some call it a vision. Write it down. It could be like any of the following:

“I want to retire in 2 years time (that’s mine)! "I want to lose 20lbs in weight, to live a longer healthier life." "I want to become a disciplined professional Forex trader". "I want to earn a million dollars within the next 2 years".

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Step 2: Set Specific, Achievable Goals with a Deadline For example, your vision could be to "make a million dollars trading Forex", but that’s too vague. The goals need to be something specific like: “By the end of this week I will increase my trading account by a minimum of 15 pips per day. I will do this by following my Forex trading plan. I will be disciplined and do my utmost to achieve this target. By the end of this month I will increase my trading account by 20%...” Again, write it down and put it somewhere you will see it. If you are talking about a diet then the fridge is an obvious place, inside and outside! If you work at a computer, stick a "post it" on the screen. Change your screen saver to show your message. Place it at the side of your bed, so it is the 1st thing you see on a morning and the last thing at night. Psychologists call this positive reinforcement. Step 3: Specific Forex Plan First you will need to find a trading style and system that you feel comfortable with (lots of advice about this as we go along). Secondly, the hardest part of Forex for many people, me included, is discipline. You need rules. "I will only enter a trade if steps 1,2,3,4 occur. The maximum I am willing on any trade (vitally important) is x% of my bank...” This sounds so simple, believe me it is not. The two biggest drivers in Forex are fear and greed. Fear of losing and greed in wanting to win, win, win, now, now, now! Daily Forex Routine I usually trade the first four hours of the London Forex session. 8am GMT to 12.00pm. In preparation for the session I start an hour earlier.

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Step 1: I trade mainly from charts but I do check out what news announcements are due for the day ahead. News can shift price dramatically in seconds, so if I am considering a trade on the GBP/USD but there is an interest rate news release due this morning I will have to consider carefully whether to wait until after the news, before entering a trade. To check out the news I go to: http://www.Forexfactory.com/calendar.php As a general rule of thumb I will not to enter trades if big (red) news is due in the next hour. I never trade on the first Friday of the month. Nonfarm Payrolls (U.S.A employment news) is released and the markets go idiotically silly! Step 2: I check out the average daily range of the main pairs that I trade. The average daily range is the amount of pips movement there is per FX trading day. For example at the time of writing this the GBP/USD moves an average of 250 pips per day. Therefore if there has been a big movement of say 180+ pips overnight during the Asian session, there is only a likelihood of a limited further move today so I will not trade that pair today. To check out the average daily range of the major pairs go to: http://www.global-view.com/forex-trading-tools/chartpts.html Step 3: I look at the longer term, Daily FX Charts. What I am looking for is the long term trend of the market. The following is an example of a market trending down on a Daily chart. Price has rejected a move upwards twice and at point A is coming back to this same area. At point A we would now be looking for reasons, EMA's, MACD, etc for the price to go back down again, with a possible target of 100's of pips to the bottom trend line.

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http://www.forexfactory.com/calendar.php


Alternatively, if it breaks upwards through this top line at point A, we are looking for an equally big move upwards! Breaks of major daily trend lines can be very strong and quickly move 100's of pips. Step 4: Having made a note of the long term trend and the area of interest I now go to the 1 Hour Chart, with all the EMA indicators, for clues as to where price is going to go today. On the next page I will show you a trade that I have just entered. How I used the Daily Chart for guidance and then went to the 1 Hour and 15 Minute Charts for confirmation and entry. Forex Trade Example from Daily Chart Twitter 14. 04. 2009, 8.10 am GMT - "EUR/GBPVERY interesting on Daily. Last 5 days moved sideways along 61.8 Fib; if it breaks now it could pop to 88 area (150 pips below). As you can see on this EUR/GBP Daily chart, Figure 1, the bottom trend line has held on three or four separate occasions. On the third small arrow from the left I made a 45 pip profit on the move upwards. On the large down arrow I posted on twitter that a break of this line down could signal a big move down. Thus, I went next to the 1 Hour Chart, with all my EMAs on, for clues to support my theory that I was going to short (sell) this pair.

Fig. 1

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Figure 2: As you can see on the 1 Hour Chart the price of the pair is below the 34/55 EMAs which are also pointing down. Also price can be said to be riding the 5 EMA down. The 5/8 EMA cross down took place earlier. Everything is pointing down:

Fig. 2

Finally the Bollinger Bands have opened down as well. The trade is looking good for a short. My final check is to go to the 15 Minute Chart for my entry:

Fig. 3

This is the 15 Minute FX Chart for the pair. The yellow line that I have an arrow pointing to was the lowest point price had made in the Asian session. Again all the EMAs are pointing down and we are below the 200EMA. Price is riding the 5EMA. The Bollinger Bands are open. The dotted green line was my entry point (break of overnight low). The dotted red line is my stop loss (emergency exit). I have put the stop loss here as it is above the 200EMA on the 15 Minute Chart. Above the 34/55 EMAs on the 15 and 30 Minute and 1 Hour Charts above the highest point of the previous 4 Hour candle. The final part of the strategy? Cross fingers and hope! I can do no more! If it loses it loses. I can justify to my trade journal that all the reasons for entry were good. If it doesn't work, simply move on to the next trade. Losses are part of Forex. If Forex were easy and behaved logically everybody would be doing it.

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Forex Trends and Double Bottoms Many of my subscribers have trouble recognising when a currency pair is in an uptrend or a down trend. The answer is they are often in both at the same time! This is where experience in Forex combined with something like the LMT Forex Formula work hand in hand. If you are relatively new to Forex and are trading the LMT you need to read as much of the lessons on the site and the blog. Please do not freak yourself out with this. If you are trading the LMT just follow the basic rules; if you are not sure, stay out. You can learn all of this mumbo jumbo as you go along ! Below is a screen shot of Cable (GBP/USD) on the Daily FX Chart, from 9th June 2009:

Fig. 1

As you can see, price is clearly in an uptrend. It has hit the top trend line (yellow) which is taken from a point in March. Price has hit the trend line and bounced off. This is quite normal in Forex. Often a price will hit a trend line and bounce back down (same as hitting an EMA). The difficulty is predicting where the pullback is going to stop or is it going to become a full blown reversal. To aid us in deciding this we have a number of things in our armoury.

1. The first is Fibonacci As explained in an earlier chapter. I put the Fib tool at the top, 100% is at the recent high. Look how price has pulled back to the 38.2 line and bounced off (to the pip on the Daily Chart; it’s incredible).

2. Secondly, in this example we have the bottom Daily trend line in exactly the same area as the 38.2.

3. This area was also the psychological area/whole number of 1.5800

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4. If you look along the 38.2 line to the left. When price was going up it hesitated at 1.5800. Pulled back and bounced back 3 times in this same area.

The more indicators we have in the same area, e.g. Fibs, trend lines, psychological numbers, the more likely is that price will rebound in this area. An experienced trader would place a buy order just below this area (maybe 30 pips) and take the trade. It is low risk and the risk reward is excellent - risking 30 pips to go 1,000 pips all the way possibly to 1.6800 area (the top trend line again). Now we are fairly confident we go and look at the next time frame down, in this case the 4 Hour Chart (Figure 2):

Fig. 2

This is the same pair on a 4 Hour FX Chart. The right hand arrow is the 1.5800 area/38.2 Fib/trend line, same as in Figure 1 above. Notice how price struggled on the way up and rejected (resistance 1st arrow on the left). Then this line became support at arrows 2 and 3. So for the experienced trader he has all the reasons above from the Daily Chart AND this info on the 4 Hour. Excellent! Now he places a buy order at 1.5800, with a stop just below the double bottom at 1.5765 (you could count this example as a treble or quadruple bottom.) At the start of this page I asked how you can be in an uptrend and a down trend at the same time. Go back to Figure 1 and refresh your memory. We are clearly in an uptrend.

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Fig. 3

However on the 4 Hour Chart we are in a down trend! This is the same pair at the same point in time, but on a 4 Hour Forex Chart. The dotted yellow lines (1 is the top one) are the Daily up trend lines as in Figure 1. The two bold yellow lines (2 is the top one) are showing that on the 4 Hour Chart we are clearly in a down trend! The absolute perfect place to take the trade above was 1.5784, where the bottom of the daily trend line & the 4 hour cross. Again the stop only needed to be 20 pips below this area for a possible target of approx 270 pips in the 1.6150 area (top trend line). As you can see price hit the trend line to the pip. These trades do not come along every day but they are out there and a 1: 13 risk reward ratio is brilliant.

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Support and Resistance Taken from my blog post “Potential 400 pips, 28th June 2009”. The GBP/USD could present us with some very good trades on Monday, both with and without the LMT. Take a look at the 4 Hour Forex Chart below. Notice how price has been trapped within a 400 pip range for the last few weeks. 400 pips @ $10 a pip will give you $4,000 and is a month’s worth of pips if we can catch this move! Price has failed to break the upper resistance line of 1.6600 since the 3rd of June (recent high). Price did actually “spike” through to 1.6620 on the 11th of June, but the candle closed back down below. Price promptly fell back to 1.6200 which has acted as strong support three of four times.

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GBP/USD trending sideways on 4 Hour Forex Chart.

Fig. 1

Notice how the price at the last bounce back up returned up off the Daily trend line which has been supporting price since April (diagonal yellow line). So how do we use this information to grab some of those pips? Lots of traders will be sat with orders placed to sell the pair at 1.6600 with a stop above 1.6625 (more conservative may go to 1.6670 recent 3rd June high). If you see that price is turning back down before there, look for reasons to support your theory - Fibs, EMAs rolling over, etc. This is not an LMT trade. For LMT followers do not take a buy signal near to the top resistance line unless price breaks and closes above the 1.6600 resistance line. However if price falls back to 1.6200/ Daily trend line and we get an LMT trade, that would be great. If price comes back down to the Daily trend line (as I write this that would be the 1.6300 area), all of us need to look for reasons to buy with a stop either just the other side of the trend line (look for Fibs/EMAs to help you decide) or more conservatively

the other side of the 1.6200 strong support. 1.6180 is the recent low, so below that would be ultra conservative. Adjust your stake accordingly. The other option is of course that price may break through (up or down). Do not be tempted to dive in. Wait for a candle to close. Often price will break through an area of strong support or resistance. Come back to that line and then continue the move. This is known as resistance becoming support or vice versa.

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This is the same 4 Hour FX Chart, just before the move shown in Figure 1.

Fig. 2

Working from the left, notice how price twice failed to break up through the 1.6200 line and the doji (indecision) candle. The 6th candle finally breaks and closes above. The very next candle price comes back down and touches the line before continuing back up. That is a pullback. That is where we should enter. Resistance has now become support. The second arrow shows how price comes back down to this area and (line is still continuing as support) price bounces back up again. Then we have a red candle that comes down and pierces (but doesn’t close). Finally a candle closes below the line. The next green candle comes back up and touches the line (pullback entry). The support line is now acting as resistance. This is all basic Forex chart tactics. Support and resistance are main areas to look for price to react. The secret is to plan ahead. Be sat waiting, like a bear waiting for a salmon, at just the place you know something is likely to happen If you are new and a conservative trader, stay out until price goes back the way you expect. To be safe wait until price is in an uptrend on both time-frames, as it was

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earlier in the month. A more experienced and aggressive trader would trade it down on a 4 Hour. Wait for a turn and then trade it back up. The best way for me as a slightly more cautious experienced trader is to leave it alone until it bounces on the 4 Hour and then get in. You are now in a trade on the 4 Hour Chart (uptrend) that could well turn in to a 1,000 pip Daily (uptrend) movement. One of my favourite methods of trading Forex is break outs from areas of support and resistance. On the next few pages I show you examples as were posted on the blog, most before the event!

Break Outs/Asian Session Break Out Strategy This first example is a 15 Minute break out strategy for the London open. However the principal is the same for all break out trades, i.e. price breaks through an area of support and resistance, the candle must close and then we look for pullbacks on the next few candles. Posted on my blog on June 26th entitled “Free Forex strategy”: Most Forex strategies revolve around support and resistance. Price either bounces off previous areas or breaks through. FX traders are looking at these areas to see how price reacts and look for clues as to where the price is going next. This can be on any Forex chart; 5 Minute through to weekly. There are numerous examples of this here on the blog, mainly referring to trades on 4 Hour Charts (my preferred time frame). The strategy that I am going to show you is very simple and relies upon the Asian (Tokyo) session being relatively quiet (it is most of the time). The price of a pair often bounces between 2 horizontal lines, above and below price;

USD/CHF trapped between two horizontal lines during the Asian session. As you can see in the diagram, the CHF has been trapped in a tight (30 pip) overnight range. The average daily move on the CHF in the last few months has been 150 pips. Therefore it is reasonable to assume that at some point (London Forex market open or just before is the normal time) the price of this pair is going to set off up or down for a possible 120 pips. The London open or the Hour before is usually the catalyst for this movement. What we need to look for is a break through one of these trend lines and a pullback.

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Eight times out of ten, price will break through this overnight range and then pullback inside. If you dive in at the first sign of a break you will lose nearly every time. I have been there, believe me! Entry is critical on this type of trade. Where you enter depends on your risk tolerance. Under normal circumstances I would take the trade from the pullback to the 34/55 EMA (the top arrow in this chart). The beauty of entering here is that you would only need to place your stop 15 pips away (just above the Asian overnight high). Therefore you have a risk reward of 15 pips to gain a potential 120! However, the reason I used this particular example is that price throughout the night failed to break the (green) 200 EMA. I never take a break out trade that is near to the 200EMA until a candle breaks and closes through it.

So on this occasion I would need to look for entry after the break of the 200EMA. Either a pullback, which is my preferred entry or a move 5 pips below the closed candle that did break the 200EMA, i.e. the second arrow on the chart. Again the risk reward is excellent. I would place my stop 20 pips away – just above the 34/55 EMAs with a potential gain of 100+ pips. This particular break out moved 200+ pips in total. Unfortunately I wasn’t trading and missed it!

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Blog post July 18th, 2009: In these summer months with reduced numbers of Forex traders and hence reduced liquidity in the Forex markets, it can be very difficult to trade. In many ways the best advice is simply to have a break and do not trade. However, there are low risk trades out there, but you need to be patient and disciplined in your approach. I find it best when the Forex markets are bouncing around to stay away from the smaller time frames and go to the 4 Hour and Daily Forex Charts. This way you avoid most of the intra-day choppiness and you have much more time to plan your trades. Below are some great Forex trade examples taken from this current week. I mentioned in last week’s update that the EUR/CAD and USD/CAD looked good for a move. These were both potential moves off the 4 Hour and Daily Forex Charts. I said: “Ironically CAD (which I normally avoid) is holding above 78.6% Fib on Daily for last week, and trend has been up for a while. Could go up to 1.1800 or if breaks down to 1.1450. It broke down, straight through 1.1450 all the way to 1.1112. for a 400 pip gain. You read it here first!

Unfortunately I don’t usually trade this pair, it whip- saws far too much for my liking. Ironically it was one of the best movers of the week. I spotted it but didn’t take it. On the next page is a detailed explanation as to what happened and how you could use this knowledge to improve your future Forex trading. There are also a few tricks you can use to catch some of these bigger moves and integrate this knowledge with the LMT Forex Formula that many of my followers are trading.

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Detailed Explanation of What Alerted Me to a Possible Trade Here we can see price bouncing between the two Fib lines (0 and 78.6) on the Daily Chart for over a week. The doji candle (top red arrow) was the first indication that price might be reversing. As it was, price broke and closed down below the 78.6 support line. The very next candle came back up and touched this area before setting off back down (support became resistance), a fundamental rule in Forex trading.

Fig. 1 There was an even better example of this kind of break out trade on this week’s EURO/CAD. On the following page is a 4 Hour Forex trade example.

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EUR/CAD break out on a 4 Hour Forex Chart: As you can see in Figure 2, price for the EUR/CAD was squeezed into a narrow price band which coincided with my Fib levels (100 and 23.4%). Once price entered this range it had multiple attempts at breaking out but either spiked or pulled back completely. When this situation arises it is indicative of buyers and sellers being in agreement, but it does seem to forge a build up of latent energy. Once this energy is released price will often race away.

Fig. 2 Notice the dotted blue line. This is the recent high of price which was rejected 4 or 5 times on the far left. This would have kept us out of going long (up) in this area, as you should never take a trade with such a poor risk reward ratio, i.e. the chances of price failing to break and then bouncing back down here were very strong. Had price broken up you should wait for price to break through and stay above this area. Another trick that I use is to only take a trade if price moves 5 pips plus the spread beyond the breakout. My preferred method of dealing with break outs is to wait for price to break out and close through support or resistance. Then look for the next candle to pullback to this area. For example when price finally broke down through the 1.6130 area, the very next candle came back up and touched this area before bouncing off and racing down 400 pips in a fairly straight line. You would have only needed to place your stop 20/30 pips above this former support line therefore your potential risk reward was great as well. Notice how price stopped at 78.6 Fib area again.

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More Examples of Break Out Trades (Breaks of Support/Resistance) Below are some examples of the trade calls I send out to my subscribers every weekend. Here, I’m applying the techniques outlined in this document to give some spookily accurate signals! With some practice, you will also be able to pick up trades like these.

-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=- In last week’s blog post entitled “Forex Trade Examples”, I gave you detailed analysis as to how to trade break outs on the Forex 4 Hour Charts. In the “Forex Trade Tip” analysis of last week I told you to look out for such a move on the CAD. The result if you took my advice was 300 pips on the USD/CAD and 130+ on the EUR/CAD. This is what I posted on the blog before the move on the CAD this week:

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Fig. 1

“There is a doji candle on the Daily Chart which signifies indecision. Price has now entered a tight range, which is normal after a big move such as last week’s. If it breaks out and upwards, it could go to the 1.1400 area or down to 1.0800″. Price broke out and down and hit a low of 1.0792! The doji candle was the first indication that price might be reversing. If we had decided to long this pair we would have had to wait for a candle to break above and close before taking a trade. As it was price broke and closed down below the 78.6/support line. The very next candle came back up and touched this area before setting off back down (support became resistance) a fundamental rule in Forex trading.

There was also an LMT signal on the Wednesday morning that would have got you in for a 200 pip move. In the current markets, lots of pairs are at trend lines as well as horizontal support and resistance lines. I would strongly advise you not to take trades that are very near to these areas, as they will quite possibly bounce off. The more conservative way to trade is to wait for confirmed breaks on the 4 Hour Charts. A confirmed break is when a candle breaks and closes through a line. The EUR/CAD also gave us an identical trade, this time for a 130 pip gain. This was also signalled by the LMT (Low Maintenance Forex trading) software that we use.

The red arrow shows where I entered the trade at a confirmed break of the support line. The vertical red line is where the LMT gave a sell signal. Had you simply entered the LMT trade you would have made 130 pips. In thin markets that is an amazing achievement from a simple piece of software. The Forex week ahead posted on my blog 25th July 2009: You need to look very carefully at support and resistance areas this week. Lots of pairs are struggling at recent highs and lows. Take a look for example at the following EUR/USD Chart:

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As you can see, price has failed to break (and close) through the horizontal resistance line all week. Be very careful going long here, even if you get an LMT signal. Even if it does break up here, the recent May high was only in the 1.4300 area. Price is now being squeezed between the horizontal resistance line and the diagonal support line, to form a triangle pattern. The nearer price gets to the point of the triangle, the more explosive the break out is in either direction. If price broke down here the first target would be at the 1.4000 area again. If it breaks that then 1.3850 will be next. What happened next?

Price spiked up to 1.4304 (OK I was four pips out! Price then fell 300 pips to 1.4007. Seven pips out this time. Darn it! There are also a few tricks you can use to catch some of these bigger moves and integrate this knowledge with the LMT Forex Formula that many of my followers are trading.

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Forex News Trading (And Why I Won’t Do It) News trading was my next step along the path to enlightenment, NOT! Every day in Forex there are news releases, National Banks e.g. Bank of England Interest Rates decision or governments release unemployment or other details. Any of these can cause a major shift in the value of a currency in seconds.

Some experienced traders do make money trading the Forex news. If you are new to Forex then I strongly recommend that you leave it well alone. Personally I still avoid it. To me it is Forex at its silliest. You will soon learn that Forex is completely and utterly illogical. Trying to dive in the time of a news announcement is fraught with danger. In my opinion, news trading the Forex market is simply gambling. The price can move rapidly against you in seconds. You bet that as the news was good for a particular economy that the currency would go up. Logical, right? With Forex, NO! Nonfarm Payrolls (NFP) and Why You Should Avoid It Like The Plague! For example: In the EUR/USD Chart below (7th August 2009) news came out saying that unemployment had fallen in the U.S.A which should be good news for the American economy. You “bet” that the USD will go up. Suddenly the price of the euro shoots up 40+ pips. Then it drops 100+ pips in a matter of minutes. In the process it wipes out the stop losses of tens of thousands of traders in seconds. I have seen it happen time and time again. You just lost a chunk of money and then the “experts” will come out with some rubbish to justify the move. Really, I suspect that they are more interested in justifying their jobs! News trading was the best way I ever found to lose money in Forex. Particularly NFP (Nonfarm Payrolls). I never trade NFP (the first Friday of every month) and finish at the latest noon GMT every Friday anyway.

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Figure 1: EUR/USD7 August 2009 NFP: 15 Minute Chart This was a textbook NFP day. This is the most volatile, regular event in the Forex calendar. The morning trading before NFP is usually stagnant, with hardly any movement. See how the EUR/USD was stuck in a 40 pip range prior to the news. Sometimes (not on this occasion) price will start to spike prior to the news and take your stop. The news came out (13.30 GMT). Bang. Price shoots up and down 140 pips in less than 15 Minutes. I will explain in greater detail in the blog updates.

Fig. 1

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Conclusion Hopefully things are a little clearer now. If you have questions please visit the Blog/Forum: www.forex-fxtrader.com/blog The first three years I traded Forex, mainly on the 15 minute charts, my net loss was in the region of $20,000. I started to make money consistently when I moved to the longer timeframes, 4 Hours and more recently Daily. If I was starting Forex today that is where I would concentrate my efforts. You have longer to plan. Do not need to spend all day at your computer & it is generally less stressful. If you wish to take your Forex education to the next level then you need to find a system that suits your style/mentality. I have spent over $8,000 on Forex courses, DVDs, conferences & e-Books. Most of them were not worth the paper that they were written on (or not). Every Forex robot that I have tried (including FapTurbo Evolution) has gone been returned for a refund. The following are a few, low cost Forex products that I have bought and DO recommend. All have a 60 day refund guarantee, so you have no risk. Daily Forex Trading Strategy Dean Saunders got me away from trading the shorter time frames. His “10 Minute Forex Wealth Builder” course is designed specifically for those who can only trade Forex part time and/or off the Daily Charts. I have just finished reading Forex Confidante by Tom Strignano. This is one of the best Forex trading book s I have read. Tom is a veteran Forex trader of 25 years, including years heading trading desks for major banks, with 25+ traders under his control. This is a great book for you to understand how the big banks trade. Tom gives you his strategy in a no fluff style. Again he prefers the 4 hour & daily charts. He also has a signal service for those who don’t want to do any work, but be warned it is expensive AND it is a very hands-on system. If you can master his system from the book you will save yourself a fortune & be able to trade on your own, when you choose. Forex Automatic Buy/Sell Signal Software I have over 500 registered members on my site just for Dean Saunders’ Signal software, the LMT Forex Formula. We have had phenomenal success with this simple system. When the markets are trending this is 80+% successful. It tells you every 4 Hours or Daily what trade to take, what the profit target is and the stop-loss. This is the best semi-automated system I have seen in six years’ trading Forex. It gives you the chance to earn straight away whilst you learn more about the market.


http://www.forex-fxtrader.com/recommends/10minutewealth.php

http://www.forex-fxtrader.com/recommends/fxconfidante.php

http://www.forex-fxtrader.com/recommends/lmtformula.php

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Forex Education/Manual Trading Systems The best way to learn to trade Forex is to study, study and study some more. If you have the time then the Trader’s Secret Library is the best, least expensive educational site on the Internet in my opinion. For less than $70 you have 20+ of the best Forex trading strategies in the world. You also get in-depth training, weekly training webinars and a very active Forum. To your Forex success Regards,

Marc Walton

http://www.forex-fxtrader.com/recommends/tradersecretlibrary.php

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Marc Waltons - How to Trade Forex