Forex Basics

Our definition of a successful trader is having the ability to do three things:

Make pips

Keep pips

Repeat the process

If you can repeatedly do these three things, then you're on your way to being a successful forex trader! It is not going to be easy but it is worth it if you can discipline yourself to stick with it.

What is Forex?

The Foreign currency exchange market is also referred to as the “FX market”, just plain “forex” or the “foreign currency market”.

It is close to a $4 trillion a day market vs the New York Stock Exchange of $74 Billion a day.

The retail market is where the individual traders are found versus the banks, large corporations, and Hedge funds.
In the spot market, currencies are traded immediately or "on the spot," using the current market price.

The retail market is called the spot market and has trading volume of about $1.49 trillion a day.

The spot forex market is spread all over the globe with no central location.

Speculators make up more than 90% of the forex market. The forex market is very liquid. This makes it very easy for anyone to buy and sell currencies.

The forex Market is:

Simple

Traded 24/7

Very liquid

Low cost to trade

Know Before You Go

Here are some things you need to know before you consider trading currencies.

All forex traders do lose money on trades. Some of the biggest reasons they lose money are:

Lack of planning

Training

Discipline

Poor money management rules

If you are a perfectionist or you hate to lose at anything at any time you will probably have a hard time adjusting to trading because all traders lose trades form time to time.

Trading forex is not for you if you are unemployed, if you have a small income, if you have a lot of credit card debt, or if you can't afford to pay your basic living expenses, and have to take money from your food budget.

You should have $2,000 to $3000 you can afford to lose. You should start with a mini account even if you have a lot of money. This is will give you time to adjust to trading real money. You can’t start a trading account with a few hundred dollars and expect to make a full time living trading.

Currency trading is very popular because it is so large, liquid and it moves in such strong trends. With these attributes it would seem like everyone would be making piles of money. The truth is only a few traders make money.

The problem is that many traders come with the hope of making a boat load of money,, but in reality, they lack the discipline required for really learning the art of trading. Most people usually lack discipline in other areas of their lives. If you do not know how to discipline your self then how are you going to succeed in one of the most difficult, but financially rewarding, endeavors known to man?

Short term trading IS NOT for amateurs, and it is rarely the path to making money quickly.

A trading strategy that involves taking a massive degree of risk means suffering inconsistent trading performance and large losses. A trader who does this probably doesn't even have a trading strategy it is just an expensive hobby or a legal form of gambling.

Forex Trading is NOT a Get-Rich-Quick Scheme

Forex trading is a SKILL that takes TIME to learn but it is learnable.

Skilled traders can and do make money in this field. However, like any other occupation or career, success doesn't just happen overnight. Forex trading isn't a piece of cake The truth is that even expert traders with years of experience still encounter periodic losses.

The sooner you learn that there are NO shortcuts to forex trading.

It takes lots and lots of PRACTICE and EXPERIENCE to master.

There is no substitute for hard work, deliberate practice, and diligence.

Practice trading on a DEMO ACCOUNT until you find a method that you know inside and out, basically, find the way that works for you!!!

Trading Forex vs. Stocks

Stocks = over 8000

Currencies = a few dozen

It is easier to track a few dozen pairs vs. thousands of stocks

Who Trades the Forex Market?

The Super Banks

Large Commercial Companies

Governments and Central Banks

The Speculators

Individual Traders

Reasons To Trade Forex

No commissions…Brokers get paid through the “bid-ask spread”

Low Transaction costs…bid/ask spread is generally between 0.1% to 0.07%

No fixed lot size…you determine the size of lot to be traded

No middlemen…you to trade directly with the market responsible for the pricing on a particular currency pair.

A 24-hour market…It opens Monday morning in Australia and closes at the end of the market in New York on Friday Unlike stocks no one can corner the market…for an extended period of time

High Leverage…For example, a forex broker may offer 50-to-1 leverage, which means that a $100 dollar margin deposit would enable a trader to buy or sell $5,000 worth of currencies. With $600 dollars, one could trade with $30,000 dollars and so on.

High Liquidity…with so many traders you are never locked in a trade. There is always some one wanting to take the other side of your trade.

Easy to get started…Online forex brokers offer "mini" and "micro" trading accounts, some with a minimum account deposit of $25. (Though not recommended)

No cost tools…free demo account, real-time news, and free charts

Terminology

PIP = price interest point. The unit of measurement to express the change in value between two currencies is called a "Pip".

If the market moves up or down it is moving by an increment of a PIP, or a fraction of a PIP.

Lot = the size of the trade you enter into the market.

The lot size can be .25, .50 1.0 or 3.0

What ever size of a trade you decide to make

Margin Trading

LOT NUMBER OF UNITS

Nano = 100 units

Micro = 1,000 units

Mini = 10,000 units

Standard = 100,000 units

You can trade with a small trading account to get started.

Spread = the difference between the bid and the ask

Bid = The price you sell at

Ask = The price you buy at

The Brokers and banks make their money on the spread. This sometimes called the cost of doing business. All trades have to pay the spread.

Currency Pairs = currencies are traded against each other in the spot market

they are always traded in pairs

Examples:

GBP/USD = Great British Pound…United States Dollar

EUR/JPY = Euro…Japanese Yen

CAD/AUD = Canadian Dollar … Australia Dollar

The pair on the Left is called the BASE currency pair

The pair on the Right is called the QUIOTE currency pair

A CROSS CURRENCY is any pair in which neither currency is the U.S. dollar.

When the price charts are going up the Base pair strengthens against the QUOTE pair

When the price charts are going down the Quote pair strengthens against the Base Pair.

Rollover = If you hold a trade over night or past 5:00 pm EST, you will have to pay or be paid what is called SWAP. This is an interest rate the banks charge for

Long and Shot

Long means: "going long" or taking a "long position." Just remember: long = buy.

Short means: "going short" or taking a "short position". Just remember: short = sell.

borrowing money to trade. This is where we get the large leverage in forex, by borrowing from the banks.

Major Currencies

Symbol	Country	Currency
USD	United States	Dollar
EUR	Euro zone members	Euro
JPY	Japan	Yen
GBP	Great Britain	Pound
CHF	Switzerland	Franc
CAD	Canada	Dollar
AUD	Australia	Dollar
NZD	New Zealand	Dollar

Marks Open and Close

Daylight Savings

Time Zone	EDT	GMT
Sydney Open Sydney Close	6:00 PM 3:00 AM	10:00 PM 7:00 AM
Tokyo Open Tokyo Close	7:00 PM 4:00 AM	11:00 PM 8:00 AM
London Open London Close	3:00 AM 12:00 PM	7:00 AM 4:00 PM
New York Open New York Close	8:00 AM 5:00 PM	12:00 PM 9:00 PM

Standard Time

Time Zone	EST	GMT
Sydney Open Sydney Close	4:00 PM 1:00 AM	9:00 PM 6:00 AM
Tokyo Open Tokyo Close	6:00 PM 3:00 AM	11:00 PM 8:00 AM
London Open London Close	3:00 AM 12:00 PM	8:00 AM 5:00 PM
New York Open New York Close	8:00 AM 5:00 PM	1:00 PM 10:00 PM

Trading sessions

Tokyo Session

London Session

New York session

Session Overlaps

Tokyo – London Overlap

London – New York Overlap

When two or more sessions over lap, as a general rule there is an increase in volume in the forex market.

If any trends were established during the European session, we could see the trend continue, as U.S. traders decide to jump in and establish their positions after reading up what happened earlier in the day.

Times to trade

Best Times to Trade:

When two sessions are overlapping of course! These are also the times where major news events come out to potentially spark some volatility and directional movements.

The European session tends to be the busiest out of the three.

The middle of the week typically shows the most movement, Tuesday, Wednesday, Thursday.

Worst Times to Trade:

Sundays – Traders are still enjoying their weekend!

Fridays - liquidity dies down during the latter part of the U.S. session.

Holidays - everybody is taking a break.

Major news events - you don't want to get whipsawed!

Basic Order Types

Market order = A market order is an order to buy or sell at the best available price.

Limit Entry Order = A limit entry is an order placed to buy below the market or sell above the market at a certain price.

Stop-Loss Order = A stop-loss order is a type of order linked to a trade for the purpose of preventing additional losses if price goes against you.

Trailing Stop = A trailing stop is a type of stop-loss order attached to a trade that moves as price fluctuates.

When to go from Demo to Real Money?

When you know the trading platform

When you know how your broker executes orders

When you have an 80% win level on a demo account

When you are making money on a demo account. Note (you may have more winning trades than losing trades and still be losing money)

You need to have a trading plan.

Three ways to analyze the market

Technical

Where we look at historical patterns through the use of indicators to read what the market is telling us.

Fundamental

Looking at the market by analyzing economic, social, and political forces that affects the supply and demand of an asset.

Sentiment

The market will move based on what a large number of other traders think…thus how they place trades causes the market to move one direction or the other.

To sum it up in our own words…

A trader once told us to look at what the fundamentals (economic, News, etc) is saying. Make a decision as to which way you thing the market will move. Then go to your technical indicators to verify if you are right or not.

We are basically Technical traders

Types of Charts

Line Charts

Bar Charts

Candlestick Charts

Line Chart

Bar Chart

Candlestick Chart

Support and Resistance

Support and resistance are levels where price will potentially stall and sometimes even reverse.

We cover support and resistance more in the course training.