Slumdog for Ex

7/29/2019 Slumdog for Ex

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Step-By-Step Strategy & Guidelines

For Successful Forex Trading

By Maurice Perry

www.slumdogforex.comCopyright 2010


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Table of Contents

Table of Contents 2

Disclaimer 3

1 Introduction & Brief Overview of Forex Trading 42 Creating OANDA FXTrade Practice Account 83 Setting Up Chart Type: Candlestick 124 Setting Up Indicators: SMA 20 (Simple Moving Average) 175 Setting Up Indicators: EMAs (Exponential Moving Averages) 196 Setting Up Indicators: RSI (Relative Strength Index) 227 Setting Up Indicators: Slow Stochastic 25

8 Setting Up Pivot Points 28

9 Setting Up Trading User Preferences 3610 Adjusting Leverage 4111 Creating Multiple Time Chart Windows 4312 Time of Day/ Volume Factor 47

13 Check Forex Factory Day Calendar 51

14 Determining Goal For The Day 55

15 Using the SMA 20 Indicator 62

16 Using the EMA 5 & 12 Indicators 67

17 Using the RSI Indicator 71

18 Using the Slow Stochastic Indicator 74

19 Drawing & Using Support & Resistance Lines 79

20 Using The Fibonacci Retracement Tool 87

21 How to Buy & Sell/Open & Close Trades 92

22 Trading Game Plan 100

23 Conclusion: Words of Wisdom 105

Slumdog Forex Traders Checklist 109

Basic Trading Terminology 110


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Disclaimer

Every individual investors success depends on his or her own background,instruction, devotion, dedication, perseverance, aspiration and inspiration. Aswith any business endeavor there is always the possibility of loss of capital and

there is no guarantee the use of this book will result in profits or success. Theinformation enclosed herein is intended strictly for instructive purposes. Nothingin this publication should be construed as an approval to buy or sell any securityor to offer any investment counsel. It is possible the author of this book at this ora subsequent time in the future may own, buy, or sell securities discussed.Information provided herein has been obtained from sources believed to bereliable but no guarantee is made as to their precision or comprehensiveness.The advice of a knowledgeable legal, tax, accounting, or business professionalshould be sought at all times.

U.S. Government Required Disclaimer Trading foreign exchange markets onmargin carries a high level of risk, and may not be suitable for all investors. Thehigh degree of leverage can work against you as well as for you. Before decidingto invest in the Forex market, you should carefully consider your investmentobjectives, level of experience, and risk appetite. The possibility exists that youcould sustain a loss of some or all of your initial investment and therefore youshould not invest money that you cannot afford to lose. You should be aware ofall the risks associated with foreign exchange trading, and seek advice from anindependent financial advisor if you have any doubts. Readers of this publicationshould also be aware of the following CFTC disclosurerule 4.41 regarding

hypothetical performance results:

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAININHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD,SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCETHE TRADES HAVE NOT BEEN ACTUALLY EXECUTED, THE RESULTS MAY HAVEUNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAINMARKET FACTORS SUCH AS LACK OF LIQUIDITY. SIMULATED TRADINGPROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY AREDESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS MADETHAT ANY USE OF THIS INFORMATION WILL OR IS LIKELY TO ACHIEVE

PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.


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Chapter 1

Introduction & Brief Overview of Forex Trading

Hello, and welcome to Slumdog Forex. My name is Maurice Perryand Id like to thank you for purchasing this book tutorial. My hope and

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

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

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

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

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

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

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

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

currencies. Its similar to if someone were to take a trip overseas to

another country. Lets use Japan as an example. Some people would

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

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

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

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

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

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

exchange rates changing while in mid-air!

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

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

certain level before we sell it. Its similar to trading stocks and

commodities - buy low, sell high.


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

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

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

work schedule that may not be conducive for you to trade duringcertain trading peak hours of the day. The beautiful thing is that forex

trading can be done 24 hours a day. For instance, lets say that you

work 2nd

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

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

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

3rd

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

get home just in time for the New York Stock Exchange (NYSE) openingbell at 8:30 AM (CST). This would be in the midst of the major peak time

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

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

thing is the flexibility that exists with trading forex.

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

moment, are determined by three things:

1.Economic Factors

2.Political Conditions

3.Market Psychology

Economic factors consist of the ripple effect that may occur after

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

Reports such as New Home Sales, Non-Farm Employment Change,Oil Inventory, and many more can have drastic impact upon the

economy, and thus, will affect the value of a countrys currency as well.

Political conditions can affect the value of currencies when a

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


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

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

the nations currency value. Or if there is indecisiveness on Capitol Hill

regarding legislation that may impact the economy, this can also causethe fluctuation of the USD.

Market psychology analyzes the speculative tendencies of traders

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

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

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

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

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

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

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

as well as volatility later on in the book.

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

strategy is called Fundamental Analysis. The other strategy is called

Technical Analysis. Fundamental Analysis is the use of what was

mentioned previously (Economic Factors, Political Conditions and

Market Psychology) to determine the general direction a currency may

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

With Technical Analysis, the trader is using various indicators and

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

With the strategy that I use, which will be taught in SlumdogForex, both Fundamental Analysis, as well as Technical Analysis, are

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

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


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

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

Probably the greatest thing about forex trading, especially with

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

could trade with as little as one dollar!Now granted, Im not telling

you to just invest one dollar into forex trading. Thats not the message

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

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

forex account, especially with the broker that I use.

Before we dive into the meat and potatoes of forex trading andour strategy, the first thing that I want to do is help get you started with

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

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

you through the process of setting up your practice account.


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Chapter 2

Creating OANDA FXTrade Practice Account

Lets get you started with creating a practice account. Open yourweb browser, and in the web address bar, type the following web

address:

www.fxtrade.oanda.com

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

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

links. One is for FXTrade. The second one is for FXGame. Click on thelink that says OPEN AN FXGAME ACCOUNT (see fig. 1). After clicking

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

Fig. 1

Proceed to fill out the information requested in the Register

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

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

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

click on Register.
http://www.fxtrade.oanda.com/http://www.fxtrade.oanda.com/http://www.fxtrade.oanda.com/


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You will then receive an email that says OANDA FXGame Account

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

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

you click on the link, you will be taken to a web page that lets you knowthat your account has been activated (see fig. 2). There is a hyperlink

that you can click onLogin to FXGame. You will then be taken to the

OANDA Login page (see fig. 3).

Fig. 2

Fig. 3

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

this page with your web browser so that youll have easy access to it.

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

After doing that, you will see that theAccountpull-down menu is

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


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

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

username and password.

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

maximize the window.

Fig. 4

If you ever wanted to change your password (which would

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

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

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

Change Password (see fig. 5). When you click on that link, a dialogbox will pop up (see fig. 6). Here, in the space provided for Old

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

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

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


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Fig. 5 Fig. 6

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

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

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

the password has been successfully changed. Click on OK.

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

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

setting your chart type.


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Chapter 3

Setting Up Chart Type: Candlestick

In this chapter, I will begin showing you how to set up your chart.We will start off by setting your chart type to Candlestick. The first

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

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

Candlestick.

Fig. 7

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

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

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

shaded gray. The black candlesticks are ascending, or rising

candlesticks. The gray candlesticks are descending, or falling

candlesticks (see fig. 8).


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Fig. 8

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

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

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

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

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

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

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

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

Angeles Lakers fan! Nor am I an LSU alum! I thought Id just clear thatup really quick!

Fig. 9 Fig. 10


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Nonetheless, let me briefly explain the components of the

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

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

of the candlestick. The Upper Stem is the line that rises up from thebody of the candlestick. The Lower Stem is the line that falls down from

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

Fig. 11

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

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

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

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

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

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

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

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

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

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


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

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

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

Fig. 12

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

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

value (see fig. 13).

Fig. 13


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Those are the basic components of the candlestick. You should

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

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


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Chapter 4

Setting Up Indicators: SMA 20

(Simple Moving Average)

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

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

line. SMA stands for Simple Moving Average. Ill go into more detail

later.

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

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

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

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

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

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

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

right of it (see fig. 16).

Fig. 14 Fig. 15 Fig. 16

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

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


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20 line that we just created. Were going to change the color of that

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

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

After the color has been changed, save

the profile. Again, to save the profile,

go to the top of the screen and click on

Tools, then Save Current Profile.

Basically, the SMA line is a moving

average line. The value that we set for

our line, which was 20, tells the line totake the average of the current

candlestick, and the previous 19

candlesticks. The location of that line at

the current candlestick illustrates the

average price/rate over those 20

candlesticks.

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

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

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

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

(Exponential Moving Average) lines.

Fig. 17


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Chapter 5

Setting Up Indicators: EMAs

(Exponential Moving Averages)

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

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

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

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

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

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

this line to blue. Click on the line, then scroll down the list, and click onblue. You should now have a red SMA 20 line and a blue EMA 12 line

(see fig. 18).

Fig. 18

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

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

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

is your EMA 5 line. Were going to change the color of this line to

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

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


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

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

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

movement will always lag behind that of the EMA 5 line. Thus, all threeof these indicators are called lagging indicators because all of them lag

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

lock in these additions to your profile.

Fig. 19

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

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

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

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

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

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

candlesticks, including the candlestick at its current location on the

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

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

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

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


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

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

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


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Chapter 6

Setting Up Indicators: RSI

(Relative Strength Index)

Okay, now we will set up our RSI (Relative Strength Index)

indicator. The first thing that were going to do is click on Add Study,

then scroll up and click on RSI. Now you should see three values, 14,

70 and 30 (see fig. 20).

Fig. 20

Change the first value, 14, to 21. Change the second value, 70, to 50.

And change the third value, 30, to 50 as well. Afterwards, click on the

+ sign. A second chart will appear below our candlestick chartshowing gray hatched areas (see fig. 21). This is the RSI indicator.

Fig. 21


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

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

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

Trendline button (see fig. 22). Click on it, then scroll down the menuand click on Horizontal Trendline (see fig. 23).

Your cursor should now be

controlling a yellow horizontal line.

Drag this line down to the RSI chart

and click as close as you can to the

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

the line again and change the color of

that line to red. Also, we want to give

the line a bit of thickness so that its a

bit more visible on the chart. To do so,

Fig. 22 Fig. 23

Fig. 24


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

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

Fig. 25

After modifying the horizontal line, proceed to save the current

profile.

The RSI indicator compares the magnitude of recent gains torecent losses in an attempt to determine overbought and oversold

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

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

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

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

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

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

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

Stochastic Indicator.


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Chapter 7

Setting Up Indicators: Slow Stochastic

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

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

oversold conditions. A Stochastic value above 80 is considered

overbought and below 20 is considered oversold.

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

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

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

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

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

Indicator (see fig. 26).

Fig. 26

Now, you will need to drop a few horizontal lines into this

indicator. Click on the Draw Trendline icon in the upper right-hand

corner of the chart, and select Horizontal Trendline. Drag the yellow

horizontal line down to the Slow Stochastic chart and click as close as

you can to the 50.00 mark (see fig. 27). It doesnt have to be exactly 50.


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Fig. 27

Next, we want to duplicate this

line and copy it to a few other levels. To

do so, click on the line that we just

dropped in at the 50.00 level, and thenclick on Duplicate (see fig. 28). Then

drop the new line in at, or near the

80.00 level. Repeat the process a few

more times and drop lines near the

20.00, 40.00 and 60.00 levels. Change

the color of the middle line (50.00 level)

to green. Also, Change the color of the

40.00 and 60.00 level lines to red (see fig. 29).

Fig. 29Now we have our stochastic indicator set up, so go ahead and

save the profile.

Fig. 28


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In the next chapter, I will show you how to determine critical

horizontal levels on the chart. These horizontal levels are called pivot

points.


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Chapter 8

Setting Up Pivot Points

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

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

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

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

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

charts.

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

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

When you get to the page,

look towards the left side, and

youll find a heading that says

Traders Toolbox. If you scroll

down, you will see a bullet point

that says Pivot Point Calculator(see fig. 31). Go ahead and click on that.

You will come to a page with the

heading Forex Pivot Point Calculator.

Near the top you will see the words

High, Low, and Close, all followed

by boxes to type values in. Below these,

theres a Calculate button (fig. 32).

Fig. 30

Fig. 31


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However, before we can enter any

values into this page, we must go back to

our chart to find the previous weeks High,

Low and Close to help determine our pivotpoints.

On the timeframe pull-down menu,

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

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

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

GMT. Visithttp://www.timezoneconverter.com/cgi-bin/tzc.tzcto

convert times to your time zone.

If you can recall in

chapter three, I talked about

the components of the

candlestick. Each of those

candlesticks represents a

timeframe. So, scroll back or

expand the 1-Hour timeframe

chart until youre able to see

the previous 24-hour period.

Since Im in the central time

zone, my daily time period will

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

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

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

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

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

Fig. 32

Fig. 33
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Fig. 34

I found that the High for the day was

1.25636. The Low for the day was

1.21777. The Close for the day was

1.23449.

So now that I have these three values,

I can go back to the pivot point calculator

and plug in these numbers, and then click

on Calculate (see fig. 36).

Fig. 36

You will now see the results below.There are seven numbers that are

calculated. The first number is called the

Fig. 35-a

Fig. 35-b

Fig. 35-c


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

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

37).

Fig. 37

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

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

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

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

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

there. There will now be a yellow horizontal line in that location. I willchange the color to White, and change the style to Thick.

Next, I click on this line and

select Duplicate, and drag the

copied line to the first Resistance

Point/Level (R1), which is 1.25463.

Once I move as close as I can get to

1.25463, I will drop the line in, and

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

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

Fig. 38


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

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

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

Purple; the style will already be set to Thick. Afterwards, I willcontinue to duplicate this S1 line to the locations of S2 (1.19761) and S3

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

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

are locked in.

Fig. 39Then I would repeat the process to show the pivot points for the

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

frequently than the daily pivot points because they are determined by

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

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

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

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

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

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

block and plug those values into the pivot point calculator. When thevalues are given, draw horizontal lines at the appropriate locations on

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

resistance lines, white pivot point, purple support lines), but change the
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line type to dotted (see fig. 40). After these points are in place, save

the profile.

Fig. 40

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

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

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

and resistance in more detail. But basically youll find that the price or

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

line is broken, it will either retrace back, or it will make a push to get tothe next line. These pivot points will be very instrumental, along with

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

the look-out for trend changes.

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

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

Markets button at the top of the page, and then select Pivot Points(see fig. 41).
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Fig. 41

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

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

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

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

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

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

Fig. 42


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

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

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

close and insert them into the calculator onwww.fx-charts.com, thatsfine. If you want to use the chart onwww.actionforex.com, thats fine

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

your own, you can check out the following site:

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

points.asp

Another website that you can use to determine pivot points ishttp://www.pivotpointcalculator.com/. With this site, a fourth support

and resistance line is given.

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

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

the next chapter how to set up your User Preferences.
http://www.fx-charts.com/http://www.fx-charts.com/http://www.fx-charts.com/http://www.actionforex.com/http://www.actionforex.com/http://www.actionforex.com/http://www.investopedia.com/ask/answers/forex/forex-pivot-points.asphttp://www.investopedia.com/ask/answers/forex/forex-pivot-points.asphttp://www.investopedia.com/ask/answers/forex/forex-pivot-points.asphttp://www.pivotpointcalculator.com/http://www.pivotpointcalculator.com/http://www.pivotpointcalculator.com/http://www.investopedia.com/ask/answers/forex/forex-pivot-points.asphttp://www.investopedia.com/ask/answers/forex/forex-pivot-points.asphttp://www.actionforex.com/http://www.fx-charts.com/


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Chapter 9

Setting Up Trading User Preferences

Since you should have your indicators set up, now its time to

show you how to set up your User Preferences. To start, click on

Tools and then scroll down and click on User Preferences (see fig.

43). The User Preferences box will pop up with a variety of tabs. The

first tab is the Chart tab. There will already be boxes checked for the

first three items. This will remain as is. Click on the next two boxes to

turn the Auto-Extend Trendlines Left/Right on. Everything else on this

tab is okay as is (see fig. 44).

Fig. 43 Fig. 44

Click on the next tab, Quotes. Since I trade primarily with the

EUR/USD pair, what I like to do is move that pair to the top of the

Quote List. To do this, look at the right side, underneath the term

Quote List. Scroll down until you find the pair, EUR/USD. Click on that


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pair, and then using the Move Up arrow towards the bottom of the

box, click on that arrow until the EUR/USD pair is moved all the way to

the top of the list (see fig. 45). Click on the Apply button.

Now, if you look atthe left side of your

platform, youll see two

tabsQuote List and

Quote Panel. The Quote

List tab should be

highlighted. You will now

see that the EUR/USD pair

is at the top of the list (seefig. 46). If you click on the

Quote Panel tab, you will

also see that the EUR/USD

pair is in the top left-hand

corner of that list as well

(see fig. 47). By the way, I

use the Quote Panel for my

platform. Ill talk more about this later on when I talk about thedifferent ways to buy and sell. Sometimes I trade the USD/JPY pair also.

So if you want to, you can find that pair in the Quote List and move it

up, just beneath the EUR/USD pair, and then click on Apply.

Fig. 46 Fig. 47

Fig. 45


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The next tab is the Trading tab. (see fig. 48). Here, we will insert

values and create parameters that will be preset in our trading orders.

The pull-down menu at the top, for Market, will remain as Default.

We want all of thechanges that will be made

below to be valid for all

trading pairs. Therefore, it

will remain. For Default

Order Size, click on the

arrow for the pull-down

menu, and select %.

Then, for the box on theleft, type 76.4. The

order size on every trade

that I make is 76.4% of

the total margin that is

available. Margin is

borrowed money. Using

a lot of margin can be

extremely risky becauseboth gains and losses are

amplified. While the potential for greater profit exists, great losses can

occur as well. However, one of my main goals is to show you how to

limit any losses that may occur, and teach you how to always be in

situations to make gains the great majority of the time. We will talk

about this later.

The next three lines can remain as is. Jump down to the DefaultStop Loss line. The current setting for this in the pull-down menu is %

Price. Change this to % Balance. Then, change the value to the left

to 2. For Default Take Profit, change this to % Balance as well.

Fig. 48


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Then change the value to 5. Depending on your daily goal, which we

will discuss later, this value may change.

For Default Trailing Stop, change the pull-down menu to PIPS.

Set the value to 15. Default Limit Order Duration can remain as is.

For the items at the bottom of the Trading tab, place checks in

the boxes of the following:

Enable Stop Loss By Default

Enable Take Profit By Default

Enable Trailing Stop By Default

Remove the checkmark from Confirm One-Click Trades. Click onApply afterwards.

The next tab,

Locale, is for you to

identify what time zone

you are located. This is

important because the

time on the charts will be

according to what you

set it as here. So, for

instance, I currently live

in the Central Time Zone.

Therefore, for the pull-

down menu next to

Time Zone, I selected

GMT-6. Then, to theright, I selected

America/Chicago (see

fig. 49). Whatever is

appropriate for you,

make those selections. Then click on Apply.

Fig. 49


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For the Sounds tab, here you can upload any compatible sound

files to your account to assign to various events/actions that will take

place. For example, you can have different sounds assigned for the

price hitting your Take Profit and Stop Loss lines so that if you were

in another room, you will know when one of the actions takes place.

For the last tab, Misc, everything can remain as is. So, now, you

can click on Apply, then Save.

In the next chapter, I will show you how to adjust the leverage

setting for your account.


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Chapter 10

Adjusting Leverage

In this chapter, I will show you how to adjust your leverage

setting. Leverage is when the investor only funds part of the amount

traded. It is a ratio of the amount used in a transaction to the required

deposit.

To start, click on the Account pull-down menu, and then click on

Change Leverage (see fig. 50). A browser window will pop up,

prompting you for your username, password and account number (see

fig. 51).

Fig. 50 Fig. 51

If you dont remember your account number written down

somewhere, or saved with your confirmation email when you first set

up the practice account, you can go back to your platform and look at

the top left-hand corner of that window. There, you will see a six-digit

number that follows your username and the active window (Primary)(see fig. 52). Now you can go back to the account leverage ticket and

type in your username, password, and the six-digit account number.

Afterwards, change the leverage to 50:1 (see fig. 53).


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Fig. 52 Fig. 53

Next, click on Submit. A confirmation page will pop up. Click on

the Close button.


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Chapter 11

Creating Multiple Time Chart Windows

Before creating any new windows, the first thing that I want to do

is turn on a dashed horizontal line that moves with the current rates on

our chart, as well as the indicators below (RSI and Slow Stochastic). To

start, change the time frame on the base chart to 5 min. Next, pan

over to the upper right-hand corner of your chart and click on the

Chart Options icon. The icon is just to the right of the Sell button.

After clicking on it, select Show Average Price (see fig. 54).

Fig. 54

You should now see horizontal dashed lines on your price chart,

RSI indicator and Slow Stochastic indicator (see fig. 55). On the price

chart, the dashed line follows the movement of the average price for

that particular time frame/candlestick. For the RSI indicator, the dashedline delineates the current relative strength for that particular pair. For

the Stochastic indicator, the dashed line shows the real stochastic

value. The wavy lines on the stochastic charts are lagging lines.

Therefore, they will always trail the movement of this dashed line.


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Fig. 55

To create a new window, pan over to the upper right-hand corner

once again. This time, find the overlapping boxes/windows icon,

furthest to the right. When you hover over that icon, it will read Opengraph in new window (see fig. 56). Click on the icon. You will see a

duplicate of the base chart

pop up in a new window.

Stretch the sides of the

window to make it half the

size of the main chart. For

this new window, change

the time frame to 1 Hour(see fig. 57). Next, go ahead

and go to Tools, and click

on Save Current Profile.Fig. 56


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Fig. 57

If you would like to, you can create another window so that you

will have three windows, showing three different time frames. Just click

on the overlapping boxes icon on either of the charts, and a new

window will pop up. You can resize this window, along with the first

duplicated window, in order to be able to fit both of the new windowscomfortably within the platform, without overlapping the account

summary on the left side. You can change this middle window, or

second duplicate to 15 min, and leave the base chart window as the

5 min time frame (see fig. 58).

Usually, I use the 1M chart to determine the entry points for

trades. However, instead of creating another timeframe chart, I change

the 1H chart to the 1M timeframe. The reason why I change the 1Hchart is because the trend for this chart is slow in changing. So I already

have an idea of whats happening with the 1H chart indicators.


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Fig. 58

I will talk about how to use all of these windows in conjunction

with one another later. But in the next chapter, I will share information

about the proper times to trade.


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Chapter 12

Time of Day/ Volume Factor

There are certain times of the day that are more conducive for

successful forex trading than others. When trading, it is helpful to trade

at the same time as many others, who may in fact, be using indicators

and systems that are similar to yours. Because many traders use some

type of lagging indicator to dictate when to open and close trades, a

signal to trade in one way or the other will be followed by a strong rush

of traders hopping on board and riding the trend-train to their

destination!

The best time to trade, in my opinion, is between the hours of6AM and 12 PM CST. The reason why this is such a critical time to trade,

especially the early hours of this range, is because of the following

reasons:

1. Its near the opening bell of the New York markets

2. Its near the closing bell of the European markets

3. Its the evening in Asia and Australia.

The hours around the opening bell (8:30 AM CST) is usually where

you will be able to find the most market activity. Therefore, I

typically trade between the hours of 7-11 AM CST. This is a peak time

for trading because the volume is the greatest during this period.

Volume is a significant gauge in technical analysis as it is used to

determine the value of a market move. If the markets have made a

strong price move, either up or down, the apparent force of that

move depends on the volume for that time frame. The higher thevolume during that price move, the more important the move.

So, not only are there people in North America that are trading at

this time, but there are people in Europe, Asia and Australia that are

trading as well. While it is 6 AM CST/9 AM EST in New York, it is only


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8 PM CST/9 PM EST in Japan. So Asian and Australian traders are also

influencing the direction the forex rates go.

The next best time to trade, in my opinion, is between the hours

of 1 AM and 3 AM CST. At this time, the Asian and AustralianMarkets are preparing to close. Meanwhile, the European markets

are opening. So, once again, there is an overlapping of trading

markets that will affect currency rates.

The third best time to trade is between the hours of 6 PM and 9

PM CST. The Asian and Australian markets open at 6 PM, and of

course, traders in Europe, as well as America are still awake and may

look to make quick gains as well.

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

NEVER enter a trade five minutes prior to financial news

releases/ economic reports

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

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

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

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


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

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

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

considerably over a short time period in either direction. A lowervolatility means that a pair's value does not rise and fall severely, but

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

WAIT five to ten minutes after financial/economic news releases

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

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

that direction for a minute or two. Then the movement will slow down,and then begin to retrace (reversal in the movement of a pair's price,

countering the prevailing trend). A lot of times, youll find that the

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

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

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

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

for a while after returning back to its previous location. But just as aword of wisdom, simply wait for the extreme volatility and noise of the

pair to calm down before thinking about entering a trade.

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

Something that Ive noticed is that whenever the Fed Chairman speaks,

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

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

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

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

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

trading.


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A website that I utilize to let me know when important

financial/economic news reports will be released is

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

talk about its value to you, the forex trader.
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Chapter 13

Check Forex Factory Day Calendar

In this chapter, I will show you how to utilize the tools on Forex

Factorys website. Open your web browser, and go to

http://www.forexfactory.com. When you arrive at the site, the first

thing that youll see is a calendar of events, or reports that will be

released for the current day (see Fig. 59).

Fig. 59

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

The probable impact of the report is

delineated by a flag color system

underneath the Impact heading. A red

flag means potential high impact; an orange

flag means medium impact; a yellow flag

means low impact. I usually filter out theyellow flags. To do so, you can click on the

green link to the right that says Filter On

(blue when not activated), and then remove

the checkmark from the box next to theFig. 60
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yellow flag (see fig. 60).

If you click on the blue folder to the right underneath the Detail

Heading (see fig. 61), more information will be given in regards to that

particular economic report, along with results from previous releasedates (see fig. 62).

Fig. 61

Fig. 62

The specifications (Specs) of a particular report will show the

Source (authors of the report), what the report measures, the usual

effects of that data, how frequently the report is given, the next release

date, general notes about the report, why traders should care about


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the report, and other names for the report. Under the History

heading of the details, you will see the results of that same report in

the past.

To the right of the Details icon, you will see the forecastednumbers, the previous reports numbers, and the actual numbers that

are released on that day (see fig. 63). In the Actual column, when the

released data exceeds the forecast, the font color will be green. If the

actual numbers are below the forecasted number, the text will be red.

Fig. 63

If you click on the icon furthest to the right, underneath the

Chart header, a window will pop up which shows the results of that

report over the last few years.

If you want to see the next days schedule of economic reports,

click on the hyperlink just in the upper right-hand corner that says

Tomorrow. Also, if you want to see the schedule for the remainder ofthe week, you can click on the hyperlink This Week (see fig. 64).

Fig. 64

At the bottom of the page, you will find a bunch of discussion

threads and forums that have been created for different subject matter

regarding forex trading. I highly recommend checking some of these

threads out. There are people that have been trading forex for much

longer than I have that share good advice and tips, as well as post


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images of charts, demonstrating their trading strategies. So definitely

visit some of those forums. You dont even have to say anything. Just

browse through some of them.

To view the next weeksactivities, theres a calendar in the top

left-hand corner of the page. You can

click on the arrow to the left of that

week to show the entire weeks worth

of reports that will come out. Or, you

can click on single days just to see that

days reports (see fig. 65). You can

also look at future months by clickingon the month and arrow in the upper

left-hand corner of the calendar. To

look at dates in the next year, click on

the year as well.

This site is extremely useful to let you know when the reports are

coming out so that you can stay away from trading during those times.

If you can recall from the previous chapter, I talked about times whenyou shouldnt be trading at all 5-10 minutes prior to a news release

and 5-10 minutes after a news release. So, definitely utilize this tool for

the purpose of knowing when not to trade. But also, take time to

browse the site and check out some of the information that is shared in

the forums as well.

There is one last thing to be mindful of make sure that you

change the time that is located at the top of the page to reflect your

time zone. If you create an account, you can save the changes. If not,

you may have to update the time with each visit to the site.

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

for the day.

Fig. 65


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Chapter 14

Determining Goal For The Day

In this chapter, I will show you how to utilize the Excel Projection

Chart that I created to help you determine your goal for each day that

you trade. If you have not downloaded the Projection Chart, please do

so at this time. If, or when you have downloaded the file, proceed to

open it.

If you look at the bottom of the Excel window, you will see a

series of tabs (see fig. 66). Each tab represents different amounts of

increases per day. The tab furthest to the left is the .5% Increases tab.

Then as you go from left to right, youll see tabs for daily gains of 1%,2%, 3%, 4%, 5%, 7.5% and 10%.

For the sake of learning how to use the chart, we will start off by

using the 3% Increases tab. So click on that tab right now.

If you had a chance to see the video that was on the web site, or

on a social networking site, you may remember me talking about the

possibility of turning an initial investment of $100 into over $160K in 12

to 16 months. It seems kind of outlandish, but this is actually a very true

statement.

Look at the top of the

chart, and under column C,

youll see Starting Money.

Below this, youll see the first

line, Day 1, with a starting

amount of $100 (see fig. 67).

This starting amount can be

Fig. 66

Fig. 67


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changed to whatever amount that you start with. Just click on that cell

and then type in the correct amount, and hit Enter. The rest of the

chart will update. But for now, leave it as $100. I just want to show you

that if you started with only $100 on Day 1 of trading, and you make 3%

gains daily for an entire year (which is approximately 250 trading days

per year), you will end up with more than $160K for the year. If you

take a look at fig. 68, youll see that at consistent gains of 3% daily, on

the 250th

day of trading, your starting amount will be $157,205.94. You

will finish the day with

$161,922.12 (see fig 68). I just wanted to show this to you to let you

know that I wasnt making that up! Its just the power of compound

interest/numbers!

Scroll back to the top. Now, you may have noticed an odd colorscheme with the cyan, magenta and white rows. There is a method to

my madness! This just visually helps me recognize weeks of trading, and

breaks the chart down. The magenta lines are always Fridays. The cyan

lines are the beginning of a 20 day trading cycle (remember, there are

only 20+/- trading days in a month. This isnt a monthly chart because

the months have different amounts of trading days in them. So the

easiest thing for me to do was create divisions of weeks.

If you take a look at column B, this is the Date column. So, on

the day that you trade, type the date into the appropriate cell in this

column. For example, lets say that you begin trading on a Thursday. Do

not start with the first cell on column B. But rather, start with the cell

just above the magenta line, which indicates a Friday (see fig. 69).

Fig. 68


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Fig. 69

The next column to the right is the Starting Money column. The

next column is the Approx. Trade Amount column. However, you

dont have to worry about adjusting this, or even typing it into your

order ticket when triggering a trade (which we will get into later). This

is just a ballpark estimate of what the order size may be. When we

adjusted our user preferences, we placed a value in the Market Order

Size box so that when we do trade, the order size will be preset

accordingly.

The next two columns show what the individual trade goals wouldbe for two trades. Each column shows a 1.5% gain. Seeking a small

amount such as 3%, you can set your Take Profit for 3%, or set it for

1.5% and make a net total of two positive trades to equal 3%. Most

likely, if you are trading for 1.5%, you may end up with a little more

than 3% when youre finished, due to compounding numbers.

The next column shows the Target Projection for the day. For

instance, starting with $100, a 3% gain for the day will allow you tofinish the day with $103. This is what the Target Projection will be for

that day.

In the next column, you will type in your Actual Finish amount.

So, lets assume that you actually finish with $105.34. When you hit


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Enter, in the column to the right, the Balance Difference column, it

will show the difference between your Actual Finish amount and your

Starting Amount. The next column to the right will show the actual

percentage change for the day. Therefore, if you gained $5.34 for the

day, since you started with $100, your Actual % of Increase will be

5.34% (see fig. 70).

Fig. 70

Something that I like to do, which also helps me to visually be able

to see what Ive done over a span of days is shade in the Actual % of

Increase cell. If it has been a positive trading day, and I have either hit

my goal or exceeded it, I would shade the cell in with a green color (see

figs. 71 & 72).

Fig. 71 Fig. 72


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Now, lets assume that on the next day, Friday, I didnt meet my

daily goal of 3%, but I did end up with a positive gain. I would then

shade the Actual % of Increase cell with a lighter shade of green (see

fig. 73).

Fig. 73

The column to the right, Weekly Gains, tallies the amount that

was gained throughout that week. The next column, Monthly Gains

(which are not always monthly gains), tallies the amount gained over a

20-trading day period. And the last column, Interest/Added Funds,

allows you to plug in dollar amounts that you either add to, or

withdraw from your forex account. When a number is plugged in, andyou hit Enter, the following rows will be updated according to the new

value.

Everything that Ive just covered is similar to all of the other tabs

that you may use. The only thing that changes between all of them is

the percentage of gains.

You may have noticed that the tabs are different colors (green,

yellow and orange). The green tabs, I consider extremely easy to

achieve your personal goal. The yellow tabs may take a little longer to

achieve your goal, based on various trading factors such as volume and

time of the day. The orange tabs, a little longer. But honestly, with all of

these tabs, as long as you abide by the trading rules/parameters that I


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will share with you in the next few chapters, you should have no

problem achieving your goals, no matter what the percentage may be

for the day. If you can catch a trend right when its beginning, especially

in the morning, it may be very easy to hit 7.5% in just one trade. And

even 10% with one trade is doable at times! There have been times

when Ive gained between 16%-18% with just one trade!

In terms of a strategy that I use, I personally try to hit the 7.5%

mark daily. The way that I do this is by trading in the morning between

7 and 10 AM CST to get a small gain of 3%. Then in the evening time, Ill

try to get an even smaller gain, like 2%. So that leaves me with 2.5% left

to gain. So if Im up late at night, Ill gain the remaining amount after 1

AM. However, sometimes, when I know theres going to be a major run,Ill gain all 7.5% in the morning. Or, Ill gain half of it in the morning, and

the other half in the evening. So, this is an example of how you really

dont have to stay in front of the computer forever to trade. All it takes

is a few minutes at the right time to get in, and get out with small gains.

And even if I dont meet my goal of 7.5% everyday, Im happy with a

gain, period. Im happy to end the day with more than I started the day

with. Thats all that matters small, consistent gains for an extended

period of time!

Take some time to plug in dollar amounts on each tab to help you

identify a goal that you think youll be able to achieve. See what you

can make after half of a year (125 days), one year, two years and five

years (some of the larger percentage gains dont go past two years, so

you may need to copy and paste to enlarge the chart). Whether its .5%

per day, 1% per day, 4% per day, decide which tab will work best for

you and your own personal goals, AND STICK WITH THAT TAB! Do notget into the habit of switching tabs/goals. This can be detrimental to

your overall efforts of making your goal. If you make more than your

goal, fine. If you make less than your goal, fine. Just stick with your

goal!


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Okay! Now its finally time to get into the good stuff! I will begin

to show you how to use the various indicators in the following

chapters!


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Chapter 15

Using the SMA 20 Indicator

I will now start going over the various indicators. The first

indicator that I will talk about is the SMA 20 indicator. Next, I will talk

about how each of the indicators are used in conjunction with the

others.

If you can recall when we set up the SMA 20 indicator, it was the

red line that was on our main chart (see fig. 74). It is a simple moving

average line, a lagging indicator that illustrates the average price of the

previous twenty candlesticks. For our purpose, this line divides our

chart into two different sections; an upper section, and a lower section

(see fig. 75). The upper section is what I call the Buy Only section. The

lower section is the Sell Only section (see fig. 76).

Fig. 74


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For instance, when the price or rate breaks above the red SMA 20

line, this is where you would enter into a Buy trade (see fig. 77).

Then, when the price or rate falls below the red SMA 20 line, you would

exit that Buy trade (see fig. 78).

Fig. 77 Fig. 78

Lets assume that you were able to enter a Buy order at the

entry point of Fig. 77, and exit that Buy order at the exit point of Fig.78, using the SMA 20 line only. If this were the case, then you would

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

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

Fig. 75 Fig. 76


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

quoted at 1.4769) (see fig. 79).

Fig. 79

Now, how about entering a Sell trade after the price dropped

below the red SMA 20 line? You would then close the Sell order when

the price crosses back above the red SMA 20 line. If this were the case,

you would have closed the Sell order with a gain of 8 PIPs (see fig.

80).

Fig. 80

Considering the gain of the previous Buy order of 16 PIPs, andcombining it with the gain of the Sell order of 8 PIPs, and the principle

of compound numbers/interest, we will have close to a 7% gain (see

Fig. 81).


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Fig. 81

Something that we must also keep in mind is where our Take

Profit (TP) line is located. For instance, if our TP is set for 5%, then it

would be placed nearly 19 PIPs away from our entry point. That being

said, if our first trade would have hit the TP line, then we would have

finished that first trade with a gain of 19 PIPs (see fig. 82).

Fig. 82

So, what happens when we sell? How does the TP line come into

play? Well, in this case, the price/rate never hits the TP line (see fig.


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

I did previously.

Fig. 83

To summarize, the SMA 20 line divides our chart into two

sections; the Buy section and the Sell section. If you keep in mind

that you are to only enter Buy orders when the price is above the

SMA 20 line, and only enter Sell orders when the price is below the

SMA 20 line, it will help you in regards to validating the other indicators

that you will use.

In the next chapter, I will show you how to use the EMA indicators

in conjunction with the SMA 20 line.


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Chapter 16

Using the EMA 5 & 12 Indicators

In the previous chapter I talked about how the SMA 20 line

divides our chart into two halves; a Buy only half, and a Sell only

half. Now I will talk about how the EMA lines are used in conjunction

with the SMA line.

The first line that we created was the EMA 5 line, which is the

yellow line (see fig. 84). The second line that we created was the EMA

12 line, which is the blue line (see fig. 85).

Fig. 84 Fig. 85

The key to the usage of the EMA lines is identifying where the two

lines cross. For example, at the point where the blue EMA 12 line

crosses beneath the yellow EMA 5 line, this signifies a Buy entry point

(see fig. 86).

Fig. 86


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Adversely, when the blue EMA 12 line crosses above the yellow

EMA 5 line, this signifies a Sell entry point (see fig. 87).

Fig. 87Something that we

want to see beforeentering into a Buy

trade is if in fact there is a

cross of the blue EMA 12

line beneath the yellow

EMA 5 line, we want to

make sure that the

current rate at the cross

location is above the red

SMA 20 line (see fig. 88).

If this is not the case,

then we do not enter a

trade here. Remember,

so far, we are using both indicators to positively confirm each other.

Therefore, if both dont agree, then we do not enter a Buy trade.

To determine our Buy exit point, we look for the blue EMA 12line to cross above the yellow EMA 5 line, while the rate crosses below

the red SMA 20 line (see fig. 89).

Fig. 88


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Fig. 89

So, if we were to enter and exit trades as shown in the

illustrations above, while utilizing the EMA lines and SMA line on the 1-

Hour chart, we would have closed out with a gain of approximately 192

PIPs (see fig. 90).

A gain of 192 PIPS is roughly a 50.5% gain. This would be a super

huge gain, for only close to 72 hours of trading. Granted, this would be

the case if we were trading longer term. This example illustrates how

great of an opportunity there is to make a lot of money with trading

Fig. 90


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forex. As long as we use our indicators to allow us to enter and exit

trades properly, we will be successful.

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

below:

FOR BUY ENTRY POINT: BBlluuee EEMMAA 1122 lliinnee crosses beneath

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

CLOSINGBUYORDER:BBlluuee EEMMAA 1122 lliinnee crosses above YYeellllooww

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

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

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

CLOSINGSELL ORDER: BBlluuee EEMMAA 1122 lliinnee crosses beneathYYeellllooww EEMMAA 55 lliinnee, while rate of pair is above RReedd SSMMAA 2200 lliinnee.

In the next chapter, I will talk about the RSI Indicator, and how it

is used with the EMAs and the SMA.


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Chapter 17

Using the RSI Indicator

In the two previous chapters, I talked about how to use the SMA

and EMA indicators. Now, I will talk about how to use the RSI indicator,

along with the previous two indicators.

The first thing to be mindful of in regards to the RSI indicator is

that it is an indicator that determines when the rate of a pair is

overbought or oversold. However, the way that I use it, and the way

that it is set up graphically, is a bit different than normal. Just as the

SMA 20 line divides the chart into two halves (a Buy half and a Sell

half) (see fig. 91), the 50.00 red line on our RSI indicator divides thatindicator into two halves as well; a Buy half and a Sell half (see fig.

92).

Fig. 91

Fig. 92On the RSI indicator, when the gray shaded area crosses above

the 50.00 red line, this signifies a Buy entry point. To close this trade

out, the Buy exit point would be at the location where the gray


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shaded area crosses beneath the

50.00 red line (see fig. 93). Take a

look at illustration 93. Notice how

near the left edge of the green

vertical shaded area, the gray

shaded area crossing above the red

50.00 line on the RSI indicator

coincides with the crossing of the

blue EMA line underneath the

yellow EMA line, as well as the rate

being above the red SMA line. The

indicators are verifying each other.

Utilizing all three of the indicators in

this instance gives us a pretty

dependable sign that an up-trend

has just begun, and that it would be

the perfect time to enter into a

Buy trade. To exit the trade, all

three indicators assist us in making

that decision as well. Looking at the right edge of the green shadedarea, we see that the gray shaded area of the RSI indicator has briefly

crossed below the red 50.00 line. Meanwhile, the blue EMA line has

crossed above the yellow EMA line as well. Also, the rate dropped

beneath the red SMA line. But as you can see, this was a very short-

lived closing of that Buy order because the gray shaded area popped

above the red 50.00 line again. In addition, the blue EMA line crossed

beneath the yellow EMA line, and the rate jumped back above the red

SMA line as well. Therefore, we would enter another Buy order at thislocation.

Fig. 93


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Just the opposite

occurs when we are

looking for a Sell entry

point. When the gray

shaded area crosses

beneath the red 50.00

line on the RSI Indicator,

this signifies a Sell entry

point (see fig. 94). This

entry point is verified by

the blue EMA line

crossing above the yellow

EMA line, and also the

rate falling below the red

SMA line. Our Sell exit

point is located where the gray shaded area of the RSI indicator crosses

back above the red 50.00 line. The exit point is confirmed by the other

indicators (the blue EMA line crossing beneath the yellow EMA line, and

the rate crossing above the red SMA line).

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

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

When the gray shaded area is below the red 50.00 line, SELL! (see

fig. 95)

Fig. 95

Fig. 94


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Chapter 18

Using the Slow Stochastic Indicator

The final indicator that I want to cover is the Slow Stochastic

Indicator. I have shown you how to use the SMA 20 line, EMA 5 & 12

lines, and the RSI indicator, individually, as well as collectively. Now I

will show you how to use the Slow Stochastic Indicator in conjunction

with the previous indicators to assist you in identifying the appropriate

time to enter trades.

The stochastic indicator is a tool that is used to identify the

overbought and oversold conditions of a pairs rate. It consists of two

lagging lines that fluctuate in a vertical range between the values of 0and 100. The two lines that let us know when the rate is overbought or

oversold are the two yellow lines (80.00 and 20.00) (see fig. 97).

Fig. 97

When the slow stochastic value (which is determined by the

moving white dashed line) is above the 80.00 line, the rate of the pair is

nearing an overbought threshold. When the value falls beneath the

20.00 line, the rate of the pair is nearing an oversold threshold (see fig.

98).

Fig. 98


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So, before we even think about triggering a Buy order, we want

to make sure that a few things happen, in regards to our slow

stochastic indicator. First and foremost, when the rate crosses above

the red SMA 20 line, the blue EMA 12 line crosses beneath the yellow

EMA 5 line, and the gray shaded area of the RSI crosses above the red

50.00 line, we want to make sure that the current slow stochastic value

at that time falls within a Buy range. This range is between the valuesof 0 to 50.00 (anywhere below the green line) (see fig. 99). Or, at the

very least, make sure that the slow stochastic value is below the red

60.00 line; the line of last resort! (see fig. 100).

Fig. 100

Take a look at fig. 101. I have drawn a

blue vertical line on the chart that cuts

through the candlestick chart, RSI indicator

and slow stochastic indicator. The white

arrow is pointing to the Buy entry point.Here, you see that the rate has crossed

above the SMA line, and the EMA lines

have crossed. On the RSI indicator, the

gray shaded area has crossed above the

red 50.00 line. On the slow stochastic

Fig. 99

Fig. 101


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indicator, the white dot denotes the current location of the slow

stochastic value, which was below the red 60.00 line. All of the

indicators are telling me that this would be a good time to enter a

Buy trade. Thus, the beautiful bright green checkmark that you see!

What about Sell orders? Well, the exact opposite has to take

place. We have to make sure that the current slow stochastic value falls

within a Sell range. This range is between the values of 50.00 to

100.00 (anywhere above the green line) (see fig. 102). Likewise, at the

very least, we must make sure that the slow stochastic value is above

the red 40.00 line, our second line of last resort! (see fig. 103).

Fig. 102

Fig. 103


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Take a look at fig. 104. A blue vertical line

is drawn on the chart, cutting through the

candlestick chart, RSI indicator and slow

stochastic indicator. The white arrow is

pointing to the Sell entry point. Here,

you see that the rate has crossed below

the SMA line, and the EMA lines have

crossed. On the RSI indicator, the gray

shaded area has crossed below the red

50.00 line. On the slow stochastic

indicator, the white dot denotes the

current location of the slow stochastic value, which was above the red

40.00 line. All of the indicators are telling me that this would be a good

time to enter a Sell trade.

What you will inevitably notice is that the majority of your trade

entry points will have a slow stochastic value that falls within the range

of 40.00 and 60.00. I like to call this range TheSweet Spot (see fig.

105).

Fig. 105

Fig. 104


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So, this is how I use the slow stochastic indicator in conjunction

with the other indicators. It prevents me from entering into Buy

trades when the rate is close to being overbought. It also prevents me

from entering into Sell trades when the rate is close to being

oversold. I always want to enter trades at the precise time, when

momentum is first building for the new trend/direction. I dont want to

enter trades when theyre half-baked, or near burnout/exhaustion.

Therefore, I wait until I know theres enough gas in the tank of the

slow stochastic indicator, which will help me get to my final destination,

my Take Profit line! I hope that makes sense!

Okay. In the next chapter, Im going to discuss something that is

absolutely critical for all traders to understand. It is the concept ofSupport and Resistance, the staple of trading with all known markets.


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Chapter 19

Drawing & Using Support & Resistance Lines

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

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

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

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

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

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

Sell trade (see fig. 106).

Fig. 106

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

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

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

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

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

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


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Fig. 107

Draw a trendline that connects the two high points, resistance

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

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

109).

Fig. 108 Fig. 109

By connecting those four points, the angled support and

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

two barriers that withhold the movement of the pairs rate. The rate

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

broken.


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Some traders that use support and resistance lines as a primary

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

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

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

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

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

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

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

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

then continue to the next line of support.

Fig. 110

Fig. 111


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I use Support and Resistance lines in tandem with the other

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

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

to enter a trade.

Take a look at fig. 112. Youll

see that the support and

resistance lines are drawn in on

the chart (I usually change the

color of them to cyan). But before

entering a trade, there is

something that I must do check

the indicators. In the illustration,

youll notice that 1) the blue and

yellow EMAs have crossed and

the current rate is below the red

SMA line, 2) the RSI value is under

50.00, and 3) the slow stochasticvalue is within our sweet spot.

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

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

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

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

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

may be (either support or resistance), I will more often than not movemy TP line about 3-4 PIPs above the next line of support (in the case of

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

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

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

Fig. 112


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

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

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

above 50.00 on the shorter timeframe chart.

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

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

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

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

draw them on all of the charts.

So, what happens when the price/rate breaks through either thesupport or resistance line? Well, the first thing that has to be

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

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

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

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

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

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

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

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

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

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

any further is typically out of the question.

A sign of a potential break of either a support or resistance line iswhen the price/rate has trouble reaching the next line in the oscillating

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

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

stochastic value has bottomed out, or hit the ceiling.


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Fig. 113

Fig. 114

Something that you may notice from the illustrations above is that

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

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

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

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