While many traders hope for that One Big Win that will magically transform them into millionaires overnight, they are more likely to be confronted with the One Big Loss that will threaten their survival in the forex market if they do not exercise careful money management. If a trader has a big loss, he or she will have to spend more time to get back to where he or she was before, instead of using the time to make profits. Traders who burn out quickly in the market are those who do not show respect for risk.

On the other hand, traders who have flourished are those who fully understand the importance of stringent money management and incorporate that into their trading approach.

There is no way around to recouping slowly, unless you want to drive yourself to total destruction by risking more and more of your equity to try to make back your losses.

Holding on to a losing trade for too long is the biggest cause of a big drawdown. Be well-capitalised Most new traders run out of money even before they see any profits in their trading account.

Indeed, those who are new to trading most likely do not have a good understanding of the risks and dangers that are lurking in the market, and few even know what drawdown means or have even heard of this word.

Many of them do know that trading can be very risky if they do not know what they are doing or how things work in the currency market and, to them, one of the obvious but incorrect ways to limit this risk is by allocating just a small amount of money to their trading account. There are also many new traders who begin their trading business with little initial capital as they simply do not have enough money. Whatever their reasons may be, being under-capitalised will be more than just a mistake; it is often the prelude to trading failure.

Forex traders who want to set themselves up for success must be well-capitalised. Never mind that some retail brokers are offering a minimum account deposit of just a few hundred dollars — a paltry amount that almost every one can afford. Sufficient initial capital must be available to cushion the impact of a string of consecutive losses, so that you do not wipe out your trading account.

A series of losses is really not that uncommon in trading, and all traders must be financially prepared for it. Those with insufficient trading capital tend to set really tight stops, which will naturally then lead to a higher probability of being stopped out.

They also tend to have a good chunk of their account eaten away by unreasonably large losses in relation to their trading account, if they do not set tight stops. So it seems that whichever way they turn, they are setting themselves up for failure, unless they are willing to trade smaller lot sizes.

Looking outside of trading, many other businesses fail because the owners often do not have enough capital to tide them over the initial starting phase. For example, a new restaurant owner must set aside enough money to pay the rent of the restaurant for at least a few months to a few years, assuming that the restaurant would not make any net profits in that period of time.

If the owner only has enough to pay for two months rent from his or her own pocket, and the restaurant is still not making enough to cover the rent and other expenses in the third month, how do you think the business is going to sustain itself? The entire business could fail, not because of the business model, but because of the lack of sufficient capital to keep the business running while the customer base builds up.

Trading, as I have mentioned before, must be treated just like any other business, not a frivolous casual pursuit. The point is this: by starting off sufficiently capitalised, you are more likely to adhere to your money management rules and, by doing so, you are really giving yourself a good fighting chance in the market. Losses are really just part of the trading game. If trading losses are kept manageable and reasonable, they should not dent your trading account too much, provided that you are well-capitalised.

Knowing when to get out of a losing position in the currency market is a very important tool of risk management. Stop-loss orders allow traders to set an exit point for a losing trade, and are the best weapon against emotional trading. While I recommend that traders place a stop-loss order at the time of placing their entry order, mental stops may also be used — but preferably by traders who are more disciplined.

From experience, it is much wiser to have a wider but reasonable stop than to have an unreasonably tight stop. Generally, a stop-loss order should not be shifted in the losing direction while a position is opened.

A good trader should know beforehand when to cut his or her losses, and also when to get out of the market with profits. It is indeed the elusive factor that courts the relentless determination of its seekers. Want to know where it lies? It only exists in the creative part of the mind — together with fairies and gnomes.

There is no perfect formula or strategy that can achieve that unrealistic goal because people who are involved in the financial markets evolve with changing market circumstances, even though certain old habits die hard.

Despite the non- existence of the magic formula, there are certainly high probability ways of trading the forex market. While the bulk of this book is focused on the Method part, you need to combine Method with both Money and Mind in order to attain success in the trading business. The old question: technicals or fundamentals? There are generally three broad categories of forex traders pertaining to what they base their trading decisions on: 1. the technical trader, 2.

the fundamental trader, 3. the trader who combines both technicals and fundamentals. Each type of trader has a distinctively different way of interpreting the currency market based on his or her own opinions. Technical trading A technical trader believes that historical data has a big role in the forecasting of future price action, and is thus devoted to currency price chart analysis, making use of various charting tools such as support and resistance levels, trendlines and a myriad of chart indicators to understand past price behaviour so as to predict what the market will do next.

Most forex traders employ some kind of technical analysis to help them make trading decisions. Technical traders assume that everything that is to be known about the market has already been factored into the current price. Fundamental traders believe that the exchange rate of currencies are largely driven by economic and geopolitical conditions, aside from central bank interventions, and will keep track of economic data such as trade balances, inflation, Gross Domestic Product GDP , unemployment rates, interest rates and so on.

They are also concerned about what policymakers have to say regarding the monetary policy of the country, and will keep on top of these when speeches are scheduled.

Combing technicals and fundamentals Since there are advantages of analyzing the forex market from these two different fields, it would be too restrictive to just side with one area and ignore the other. The most effective traders tend to make trading decisions based on a combination of both technical and fundamental factors in order to get a feel of the overall market sentiment, and then decide to either trade that sentiment or to trade against it taking a contrarian approach.

The strategies taught in this book must always be combined with the prevailing market sentiment, which is influenced mainly by fundamentals. Some strategies may work well for some traders, but may not have the same results for others over a period of time. This may seem puzzling for some people who are wondering that if something works for someone, then it should work for other people as well. In trading, there are so many other factors specific to each trader that can influence the overall trading performance — his or her emotions, psychology, trading time frame, money management rules, lifestyle, trading capital and so on.

The strategies included in this book are open to customisation according to your own personal preference. Many traders do not give themselves the fighting chance and time to stay in the game as they are prone to getting wiped out very quickly. The Ten Rules For Forex Trading I list here ten rules that I think are important for trading forex. Dos 1. When trying out a new trading strategy, always test it in a demo account, or with a small amount of money, before you commit more money to it. Always keep a record of each of your trades, with details of: why you got in, how you got out and why it turned out the way it did.

Have a personalised trading plan and update it as you learn from the market. If you are unsure of a trade, stay out. It is better to miss an opportunity than to have a loss. When trading, keep up-to-date with both the fundamentals and technicals affecting the market. A trader in the dark is a trader in the red. It will affect you emotionally, and you will most likely lose it to irrational trading. Always know why you are getting into a trade, and how you are going to get out of it.

Just be concerned about being profitable. Chances are that your account will be decimated before you can recoup your losses and go into profit. Vent your frustrations elsewhere after a loss. Do you see it as a big mechanical matrix which is devoid of emotions? Or do you think of it in mathematical and probability terms? Perhaps, you may even view it as just a vast network of computers which are designed to cheat the trader sitting in front of his or her computer and trading electronically.

Most traders I know have a love-hate relationship with the forex market, thinking that the market is, in turn, either against them or for them. To me, the forex market is nothing more than the compressed display of emotions at any one time emanating from currency speculators around the world. It is similar to a big living organism, like a human being, which is made up of numerous cells, with each cell carrying out its own function and interacting with other cells of the body, working to keep the body alive with round-the-clock chemical and biological processes.

The forex market is alive as a macro living organism, which comprises a vast number of market participants acting out their perceptions and emotions, thus driving the blood around the invisible entity. The participation of each player, whether the player is an institutional dealer or an independent trader, is akin to the individual functioning of a cell, which collectively will constitute the whole organism — the forex market in this case.

Knowing what the market thinks and how it thinks is crucial to trading success because, ultimately, the trader is dealing with other traders out there, and needs to know what they are thinking. Even if you see the market as an enemy, what could be better than knowing the weak points and being able to read the mind of your adversary?

In this chapter, I shall focus on how you can better understand the market, and use that knowledge as one of your trading weapons. Market sentiment is simply what the majority of the market is perceived to be thinking or feeling about the market — it is the most important factor that drives the currency market. This is so because traders tend to act based on what they feel and think of certain currencies, regarding their strength or weakness relative to other currencies.

Market sentiment sums up the overall dominating emotion of the majority of the market participants, and explains the current actions of the market, as well as the future course of actions of the market.

The trend adopted by the forex market is actually a reflection of the current market sentiment, which in turn guides the trading decisions of other traders, whether they should long or short a currency pair. In the process of making educated trading decisions, traders have to weigh a multitude of factors which could influence the bias of a currency, before making up their minds about the current and future state of certain currencies. There are three main types of sentiment when it comes to forming opinions in the forex market: 1.

bullish, 2. bearish or 3. just plain confused. If the majority of the market wants to sell that currency, the market sentiment is deemed to be bearish; if the majority wants to buy that currency, the market sentiment is bullish; and when most market participants are unsure of what to do at the moment, the sentiment ends up being mixed.

Market sentiment acts like a fickle lover, capable of changing its mind based on certain incoming new information which can upset the existing sentiment.

One moment everyone could be buying the US dollar in anticipation of a stronger dollar; the next second they could all be dumping it as they fear the dollar would start to weaken due to the impact of some new piece of information, which is almost always some fundamental news. Interest rates Trends in interest rates are one of the most significant factors influencing market sentiment, as interest rates play a huge role affecting the supply and demand of currencies.

Every currency in the world has interest rates attached to them, and these rates are decided by central banks. Some currencies have higher interest rates than others, and these are usually the currencies that attract the most attention from savvy international investors who are always looking across the global landscape in the continual search for a better interest rate yield on fixed-income investments.

This, of course, also depends on the geopolitical or economic risks of that particular currency. Just like when a bank lends money to a higher-risk borrower, high-risk currencies require a significantly higher interest rate for investors to consider keeping money in those currencies.

What causes fluctuations in interest rates? The value of money can and does decrease when there is an upward revision of prices of most goods and services in a country. The nice word for this erosion in value is, of course, inflation. Controlling inflation Central banks are responsible for ensuring price stability in their own country, and one of the ways they employ to fight inflationary pressures is through the setting of interest rates.

If inflation risks are seen to be edging upward in, say, the US, the Fed would raise the federal funds rate, which is the rate at which banks charge each other for overnight loans. When the overnight rate is changed, retail banks will change their prime lending rates accordingly, hence affecting businesses and individuals. An increase in interest rates is an attempt to make money more expensive to borrow so that there will be a gradual decrease in demand for that currency, thus slowing down an overheated economy.

Interest rates and currencies The most important way in which interest rates can influence currency prices is through the widespread practice of the carry trade. A carry trade involves the borrowing and subsequent selling of a certain currency with a relatively low interest rate, then using the funds to buy a currency which gives a higher interest rate, in an attempt to gain the difference between these two rates — which is known as the interest rate differential.

The trader is paid interest on the currency he or she is long in, and must pay interest on the currency he or she is shorting. This difference is the cost of carry. Therefore, a currency with a higher interest rate tends to be highly sought after by investors looking for a higher return on their investments. The increased demand for that particular currency will thus push up the currency price against other currencies.

For instance, in there was a strong interest among Japanese investors to invest in New Zealand dollar-denominated assets due to rising interest rates in New Zealand. The then near-zero interest rates in Japan forced a lot of Japanese investors to look outside of their country for better yields on cash deposits or fixed- income instruments.

See Figure 5. When forex traders anticipate this kind of situation, they become more inclined to buy that high-interest-rate currency as well, knowing that there is likely to be massive buying interest for that currency. So, in general, rising interest rates in a country should boost the market sentiment regarding the currency of that country.

The opposite is true too: when interest rates are cut in a country, that would result in quite a bearish sentiment regarding the currency of that country, and traders would be more willing to sell than buy that particular currency. Economic growth Besides interest rates, economic growth of countries can also have a big impact on the overall currency market sentiment. Since the United States has the largest economy in the world, the US economy is a key factor in determining the overall market sentiment, especially of currency pairs that have the USD component.

A robust economic expansion, coupled with a healthy labour market, tends to boost consumer spending in that country, and this helps companies and businesses to flourish. A country with a strong economy is in a better position to attract more overseas investments into the country, as investors generally prefer to invest in a solid economy that is growing at a steady pace.

Forex traders, expecting this consequence, will put on their bullish cap to buy that currency before the investors do. Gross Domestic Product GDP , 2. the unemployment rate, and 3. trade balance data. These are explained below. Unemployment rate The unemployment data reports the state of the labour market of a country.

Trade balance data Another widely watched economic indicator is the trade balance data. Trade balance measures the difference between the value of imports and exports of goods and services of a country. If a country exports more than it imports, it has a trade surplus. For example, if the US imports an increased amount of goods and services from Europe, US dollars will have to be sold in exchange to buy euros to pay for those imports.

The resulting outflow of US dollars from the United States could potentially cause a depreciation of the US dollar against the euro or other currencies, and that can affect market sentiment surrounding the USD. The opposite scenario is true for a country that is experiencing a trade surplus. Global geopolitical uncertainties such as terrorism, transitional change of government or nuclear threats can cause investors to lose faith in some particular currencies, and they may prefer to shift their assets into a safe haven currency when these circumstances arise.

Market sentiment is very sensitive to such geopolitical developments, and can cause a strong bias towards a particular currency. For example, during periods of high tension in the Middle East in , the market formed a very bullish sentiment towards the US dollar, which became the preferred currency to hold in such turbulent times, replacing the traditional status of the Swiss franc as the safe haven currency.

Forex traders should be keenly aware of the current geopolitical environment in order to keep track of any potential change in market sentiment, which could impact currency prices. But how can you get an idea of the overall sentiment of the market? You can do so by reading reports by analysts and financial journalists in news wires or by visiting online trading forums to see what other traders are discussing.

However, these ways of getting a feel of the current market sentiment are not too accurate; you may think that other traders are in a buying or selling mood, but that may not be what is really happening in reality. Here are some of the more effective ways of gauging market sentiment: 1. The Commitment of Traders COT report 2. Commitment Of Traders COT report What is the COT? The COT report provides traders with detailed positioning information about the futures market, and is, in my opinion, one of the most underrated tools that forex traders can make use of to enhance their trading performance.

The report is compiled and released weekly by the Commodity Futures Trading Commission CFTC in the United States every Friday at Eastern Time, and records open interest information about the futures market based on the previous Tuesday.

Anyone can access the COT report for free on the CFTC website www. There are basically two types of reports available: the futures-only COT report and the futures-and-options-combined COT report. I usually just access the futures- only report for a glimpse of what has happened in the futures dimension of the forex market. In order to get through to the currency futures data, you have to wade past other commodities like milk, feeder cattle and so on, so a little patience is required.

Even though the data arrives three days late, the information nonetheless can be helpful since many traders spend their weekend analyzing the COT report. The time lag between reporting and release is the main handicap of the COT data, but despite this limitation, you can still use it as a sentiment tool. Figure 5. You can see the long and short positions held by traders in each of the three main categories defined by the CFTC, as explained below.

Some notes to the figure above. For example, a German car-maker, who exports to the US, expects to receive 10 million euros worth of sales within the next quarter. To hedge against the possibility of a US dollar decline which would affect the amount of euros it would receive once converted, the German car-maker would short 10 million in Euro FX futures.

On the other hand, if a US car manufacturer exports 10 million US dollars worth of cars within the next quarter, it would long the equivalent in Euro FX futures contracts. The COT report tells you the long and short positions undertaken by participants from each category. When it comes to analyzing information pertaining to currency futures in the COT report, it is generally more relevant for traders to focus on the non- commercial participants rather than on the commercial participants.

The reason behind this is that these large speculators trade the futures contracts mainly for profits, and do not have the intention to take delivery of the underlying asset, which in this case would be cash. Large speculators, however, will usually close their losing positions instead of rolling them over to the next month. Why use The COT? The COT report allows you to gauge market sentiment in the currency futures market, which also influences the spot forex market.

Currency futures are basically spot prices which are adjusted by the forwards derived by interest rate differentials to arrive at a future delivery price.

Unlike spot forex which does not have a centralised exchange at the time of writing, currency futures are cleared at the Chicago Mercantile Exchange.

Price quotation One of the many differences between spot forex and currency futures lies in their quoting convention. In the currency futures market, currency futures are mostly quoted as the foreign currency directly against the US dollar. That said, spot forex and currency futures do have one similarity: the spot and futures prices of a currency tend to move in tandem.

When either the spot or futures price of a currency rises, the other also tends to rise, and when either falls, the other also tends to fall. What is of concern to us is whether the non-commercials are net long or short in that currency futures.

In order to determine the volume of contracts that these large speculators are holding net long or short positions of for that particular currency futures, you just need to calculate the difference between the longs and shorts, that is, subtract the number of short contracts from the number of long contracts.

A positive figure shows the number of net long contracts, while a negative figure shows the number of net short contracts. As you can see in Figure 5. The non-commercials are long 98, contracts and short 12, contracts.

Therefore, they are overall net long 85, contracts - Usually, when a particular currency is trending up against the US dollar, the non- commercials tend to register a net long position since these large speculators tend to ride on the existing trend. The opposite situation is true too: the non-commercials tend to register a net short position when a particular currency is trending down against the US dollar.

Knowing whether this category has been net long or short a few days ago only indicates to us the positioning in retrospect; this information is only useful if you compare the latest net positioning with the positioning figures from the past few weeks or months.

By comparing the latest net positioning with that of the past few weeks or months, you can tell if the latest net long or net short positioning is skewing towards an extreme reading. My observation of the financial markets is that dramatic price moves, usually at major turning points, tend to occur when the majority of the market is positioned incorrectly.

And since the large speculators are more inclined to close their losing positions than the commercial hedgers, it is beneficial for us to keep an eye on their net directional positioning as well as their net contract volume in the currency futures market.

If these large non-commercials are positioned on the wrong side of the market, you can expect liquidation of these positions, with the extent of liquidation depending on the total volume of contracts traded in the wrong direction. Such mass unwinding of positions tends to bring about a powerful price move in the opposite direction which could last for a few days, and it is this turning point that you could detect with the COT data before the reversal scene actually plays out.

Example: COT — using extreme position An example of this was played out in the week through November 17, In this case, all those who had the intention to go long on GBP had already done so.

X-axis displays the dates for every three weeks even though the data for every week is shown on the chart. Y-axis displays the net number of speculative contracts. Positive numbers indicate net long positioning, while negative numbers indicate net short positioning. The presence of an extreme reading allows you to be prepared for a possible trend reversal which could occur when large speculators liquidate their positions.

A mere increase or decrease of contracts for a particular currency futures does not indicate anything which could be of predictive value, as it simply shows you what has happened, but not what could possibly happen in a high-probability scenario. COT data is a diamond in the rough What deters many traders from using the COT report is its raw organisation of data, but that is not good enough an excuse to completely neglect this little treasure trove.

The information from the COT report can be transferred into a spreadsheet so that further analysis can be conducted in a more suitable format. Analysis of the COT report does not always throw up trading opportunities in the spot forex market, but when it does, you will be better prepared for a potential turn of tide, and be more confident in your trades. Even though entries and exits cannot be timed solely based on the COT data, it can be an extremely useful tool to have in your toolbox to gauge the overall market sentiment.

The forex market is very efficient at discounting future expectations by incorporating them into current prices. Very often, when news comes out better than is expected by economists and analysts, the currency of that country is more likely to soar against another currency.

When the news is worse than expected, that currency is more likely to fall against another currency. However, if the news or data turn out to be worse than expected and still the currency price soars, that is, the market reacts in a very bullish way to worse than expected data, a bright red flag should be waving at you.

The opposite situation also applies: if price action remains very bearish to much better than expected news, it signals a highly suspect price move. In short, you should look out for a contrarian market reaction to better or worse than expected news. Under these circumstances, it is better to assume that the price move is hardly supported by substance, and could reverse sometime soon.

A bullish price move that is not accompanied by evidence will soon be due for a reality check, just like a bearish price move that is not accompanied by evidence is very likely to be corrected very soon. For example, if a piece of news turns out to be worse than expected, and assuming that there are no pre-release rumours or leaks of the news, and the currency pair rallies to break above a significant resistance level, you have reasons to suspect that the breakout move is likely to be false and unsustainable.

Even if the currency pair manages to make new highs later on, you should be prepared for a possible trend reversal very soon. The relative significance of news will vary from time to time. Summary As you have seen, market sentiment can be used, and should be used, to time your trade and identify profitable trading conditions. The Market Sentiment Strategy has to be applied in conjunction with other strategies as it does not have precise entry and exit signals. Once you get a sense of the current market sentiment, you can then decide whether it is best to trade with or against the sentiment, taking into account all other factors.

While it may be sensible to trade in the direction of the current sentiment, sometimes, trading against the sentiment can also be a profitable strategy, provided that you have valid reasons to do so. For example, when the COT report indicates extreme positioning of the market, or when the market seems to be feeding off false euphoria on worse than expected news, it may be better to trade against the overall sentiment. You should, however, wait for a more precise signal that the current sentiment is wearing off before going against it, as sometimes false euphoria can last for quite some time before resulting in a reversal.

This signal could be a failed breakout of some sort or some other pattern failure. Always keep in mind that currency prices are, after all, the expressed perceptions of traders and market sentiment is really the blood that drives the market on the whole. Being able to ride on a trend is akin to making full use of the wind direction to steer your ship towards your destination.

For a ship to go against the wind requires a tremendous amount of effort — one has to fight the stubborn resistance from the opposing wind. Indeed, for most of the time, it pays more to be on the side of the current trend than to go against it. In the forex market, trend riders can capture any trend regardless of whether it is rising or falling in an attempt to generate trading profits.

Forex tends to have quite trending markets, regardless of which time frame you are looking at — trends are often formed on hourly, daily or weekly charts.

With trends possibly having a long lifespan stretching to months, or even years, it is no wonder that many traders and fund managers exalt the strategy of hitching onto trends, with the glorious aim of capturing enormous profits from start to finish.

Trend riding is one of my favourite trading approaches, and I often ride the uptrend or downtrend after the trend has been established, rather than anticipating the move before it happens. I would say that even though the trend is your friend most of the times, one has to use a variety of methods to distinguish between a continuation of the trend and a possible trend reversal. But before you can ride on trends, you first need to identify what the current trend is, and to determine the time frame of the trend.

The question of what kind of trend is in place cannot be separated from the time frame that a trend is in. Trends are, after all, used to determine the relative direction of prices in a market over different time periods. There are mainly three types of trends in terms of time measurement: 1. primary long-term , 2. intermediate medium-term , and 3. These are discussed in further detail below. Primary trend A primary trend lasts the longest period of time, and its lifespan may range between eight months and two years.

This is the major trend that can be spotted easily on longer term charts such as the daily, weekly or monthly charts. Long-term traders who trade according to the primary trend are the most concerned about the fundamental picture of the currency pairs that they are trading, since fundamental factors will provide these traders with an idea of supply and demand on a bigger scale. Intermediate trend Within a primary trend, there will be counter-cyclical trends, and such price movements form the intermediate trend.

This type of trend could last from a month to as long as eight months. Knowing what the intermediate trend is of great importance to the position trader who tends to hold positions for several weeks or months at one go.

Short-term trend A short-term trend can last for a few days to as long as a month. It appears during the course of the intermediate trend due to global capital flows reacting to daily economic news and political situations. Day traders are concerned with spotting and identifying short-term trends and as such short-term price movements are aplenty in the currency market, and can provide significant profit opportunities within a very short period of time.

You can easily gauge the direction of a trend by looking at the price chart of a currency pair. A trend can be defined as a series of higher lows and higher highs in an uptrend, and a series of lower highs and lower lows in a downtrend.

In reality, prices do not always go higher in an uptrend, but still tend to bounce off areas of support, just like prices do not always make lower lows in a downtrend, but still tend to bounce off areas of resistance. There are three trend directions a currency pair could take: 1. uptrend, 2. downtrend or 3. Uptrend In an uptrend, the base currency which is the first currency symbol in a pair appreciates in value. An uptrend is characterised by a series of higher highs and higher lows.

However in real life, sometimes the currency does not make higher highs, but still makes higher lows. Downtrend On the other hand, in a downtrend, the base currency depreciates in value.

A downtrend is characterised by a series of lower highs and lower lows, but similarly, the currency does not always make lower lows, but still tends to make lower highs. Sideways trend If a currency pair does not go much higher or much lower, we can say that it is going sideways. When this happens the prices are moving within a narrow range, and are neither appreciating nor depreciating much in value.

For the Trend Riding Strategy, I shall focus only on the uptrend and the downtrend. The stages of a trend are not clear- cut, and that includes the starting and ending stages; and each stage can vary in length of time. Nascent trend 2. Fully charged trend 3. Aging trend 4. End of trend Figure 6. As you can see, Stage 1 of the uptrend started when the currency pair first emerged from the down trendline. Later, a double top formation hinted that the uptrend was at Stage 3 when the trend was beginning to show signs of weariness.

Stage 1: Nascent trend Right after a reversal, the embryonic trend emerges into the new territory with the greatest amount of uncertainty, as traders have the least amount of confidence in the direction of the nascent trend.

Price moves are often sharp, and may even retest the price levels seen before the entry into the new territory as bulls and bears wrestle for power.

This characterises Stage 1 of a trend, and it is where aggressive traders get into the currency market, hoping to be right about the new direction of the trend and reap potentially the most profits by getting in early.

Since this stage of the trend has the greatest level of uncertainty, it is also where the risk of trend failure is greatest. Stage 2: Fully charged trend By the time the trend reaches Stage 2, it is fully charged.

Either the bulls or the bears have won the battle over the other by now, and are persistently pushing the currency prices higher during an uptrend, or lower during a downtrend. The highly confident behaviour of the bulls in the uptrend and of the bears in the downtrend gives little room for uncertainty about the trend direction.

There is a pretty large flaw in this way of marking trendlines. If you use only two swing points, then you could find a trendline anywhere on the chart at any time. This does not make it a reliable support or resistance level and somewhere you should look to find trades, it just makes it two random points connecting. If you flip to your own chart now you will see what I mean. I have added an example below; see how we could make any number of trendlines? To have a confirmed trendline and a support or resistance we could look to find trades at, we need a minimum of three swing points to line up.

This shows that price has continually respected a level and is not just a random point. The easiest way for you to mark your trendlines in all three market types is to find the recent swing highs and lows. Using your charts trendline tools, see if these highs and lows match. Just like a normal horizontal support and resistance level, the market will false break a trend line. Also keep in mind when marking your trendlines that they are not perfect exact lines.

Trendlines are zones of support and resistance and zones where you are going to look for trades. Whilst trendlines are a great technical analysis tool, you should be using them with other price action analysis to create even better trade setups.

You can increase your chances of making winning trades by lining up trendlines with horizontal support and resistance areas to find sweet spots. You have to take a risk if you want to get any kind of reward. Use the quick start checklist on the next page as your motivator to move forward with your dreams and goals of a bright financial future trading the Forex.

Below is a simple Quick Start Checklist to help you get moving fast. Get started today. This is going to allow you to get familiar with how to read quotes and place trades on their platform. Step 2: Pick Your Trading Platform The two recommended charting and trading platforms of choice are MetaTrader 4 and Ninja Trader. MetaTrader 4, or MT4 for short, is the most widely used Forex charting and trading platform in the world.

Ninja Trader is another common charting and trading platform that can be used with multiple brokers. Click here to download it. Once you have downloaded MetaTrader 4 from your broker of choice you can download and install the template. To load the template on a chart simply follow the instructions here.

Step 3: Look For Trade Setups Using These Four Simple Steps 1. Identify the trend on the higher time-frame see rule 1 above 2. Move down time frames and look for a pull-back against the larger trend see rule 2 above 3. In this case you will use a buy stop to buy and a sell stop to sell. Conclusion Keeping things simple as a trader is a way to almost guarantee long-term success. The best traders in the world have become very good at mastering simple strategies.

Simple strategies give you as the trader a better ability to execute the strategy with precision and accuracy thereby reducing the number of mistakes you make.

In my experience mistakes are one of the greatest cost factors to a new trader. Some mistakes can even be devastating to a newbie trader. This makes it all the more important to keep things simple.

My philosophy has always been centered around what I call the K. stands for Keep It Simple To Succeed. The Continuation Method is a simple strategy that newbies to veterans alike can put into their trading arsenal immediately and start to see results. Try it out today and let us know what you think. His first experience in trading was interning with a currency trading fund. He was so convinced that trading would be a big part of his future that he sold his mortgage brokerage firm, and went to work as an intern for minimum wage.

After 12 months as a junior trader he got an opportunity to manage a small private fund for the firm. Shortly after, in , Mr. Robles became a CTA and launched his own currency-trading firm, YourForexMentor. Robles has since traded millions of dollars in client funds and has educated thousands of traders around the world through his books, seminars and online courses.

Robles also speaks in the U. and abroad on trend following, technical analysis and money management for the FOREX markets. But did you know that a good entry is the least important part of a profitable trading equation? The truth is that your exit in the trade is far more important than your entry. The exit in a trend ultimately determines whether you take a profit or a loss. That means the right exit can help you maximize profits and minimize losses. The right exit can turn a losing trade in to a winning trade.

Conversely, the wrong exit can turn a winning trade in to a losing trade. Then market reverses and crosses over where your Take Profit was set. Why do average traders lose money consistently? Markets do this: Markets spike up and down, taking out levels along the way. You are almost guaranteeing that the market will stop out your order for a loss.

How do you reverse this problem? This simple logic works with any entry strategy and it is designed to put active traders in a position to win more trades and deposit more money into their accounts. It is very difficult to trade profitably in chaotic market conditions. This means you have a negative risk to reward ratio.

o For example, if the ATR for your time frame at the time of entry is 7 pips, you want your take profit to be pips. But if you are winning better than 70 percent of your trades, you are still making money consistently. If the market is expanding, the zones are stretched. If the market is contracting, the zones are tightened. With the zones automatically plotted for you, you can find more high probability trades, and dramatically reduce your risk of getting stopped-out on your trades.

January of is when it all started. Since then, we have grown tremendously and are widely considered one of the premier educational resources for Forex traders. In a world where the opportunity to make a good living is dwindling by the day the forex market still offers that dream. This market has literally changed my life and I firmly believe that with the right strategy and direction anyone can be just as successful.

Most people see this in the news and get discouraged; I however believe this is the best way to predict future price movements. The simple truth is if you can track the manipulation then you can track the next direction in the market with a much higher probability. How The Retail Forex Trader Gets Manipulated Here is a simple question to ask yourself.

Are you trading a reactive or predictive strategy? Are you reacting to movement in the market or predicting movement? The point is Smart Money often buys into a falling market and sells into a rising market. The trouble with retail trading strategies is they rely on a rising market to create buy signals and they use a falling market to create sell signals.

On the other hand the banks are often selling into rising markets and buying into falling markets. Blindly reacting to the action of the market often results in being the victim of smart money manipulation.

The key behind this manipulation is the need or search for liquidity. In very simple terms that means the vast majority of the volume is controlled by a very small group of institutions. For the last 5 years we have been educating trader on how this consolidation of volume leads to what we term as daily market manipulation. For years traders have been taught that the forex market is too large to be manipulated.

Maybe you were taught the same thing as you first started to trade? Over the last 2 years forex market manipulation in the news has shattered the old belief that the FX market is too large to be manipulated. Simply put the old adage that the forex market is too large to be manipulated has been completely blown out of the water time and time again.

Think about it this way. Think about a stock for a minute. In this example we will use Apple AAPL. Do you think that those 10 individuals would have the ability to move the price of that stock if they were responsible for 56 or the 70 million shares that traded hands? Of course they would! The same is thus true for the forex market.

What we do however know to be true is the sheer consolidation of volume forces these banks to search out liquidity. Remember the main function of the banks is to make the market.

So while it may be true that the majority of the volume is processed through them they may not be taking a position. They may be filling a position for a client, processing general order flow for worldwide commerce, or one of many other reasons. What matters is when they desire to enter or fill a posi- tion they must search out the liquidity to both enter as well as exit a position. This constant and daily search for liquidity is at the core of our bank trading strategy.

How then can we identify these likely areas of liquidity manipulation points , and how do we know if or when to enter the market?

The Strategy I firmly believe that simplicity is the key to long term success. Over optimization and compli- cated strategies tend to not only be hard to follow but they also tend to do well in some mar- ket conditions only to then give back everything and more when market conditions change. The bank trading strategy has been tested through all market conditions going back to On the opposite side of the spectrum produced the most stagnant daily range ever seen in the last 25 years.

Regardless of market type, volatility, or range the bank trading strategy stands the test of time because it focuses on the constant that does not waver…that is the majority control of the banks.

As I said in the beginning I firmly believe in simplicity. Therefore I use this same approach when identifying potential manipulation points. If you were to take 1, traders and place them in a room what is one strategy all traders would understand? Some would understand a variety of indicators, some would use chart patterns or price patterns, while others may use strategies involving volume or countless thousands of other strategies and systems. One thing however, that every single trader would more than likely understand and a strong majority would use in one way or another is, support and resistance.

Nothing else attracts traders and thus liquidity like major previous turning points in the market. This fact is true of the largest hedge funds, trading institutions, prop fims, ect. More than anything else previous turning points in the market attract and consolidate liquidity from all market participants, ranging from retail all the way to institutional.

So am I simply saying to look for reversals from support and resistance, NO! The key is finding areas that the rest of the market is going to view as significant. I recommend picking manipulation points from the chart that you intend to take your entries from. Because I use the 15M chart for all my entries, I also use the 15M chart to pick all manipulation points.

The longer the time frame, the longer term perspective you should take with that trade. Trades taken off of 15M levels are intra-day trades and thus they should have intra-day targets.

Trades taken from daily levels should have targets that correspond to longer term price swings. For the examples in this book I will use the 15M chart. I start picking manipulation points for the following day during the Asian session.

For those in the markets that are short the likely stop location becomes the last high. Placing initial stops or trailing stops down to the most recent high or low is one of the most frequently used techniques and unfortunately is one of the worst locations to do so.

If Smart Money is going to continue the price to the downside they will likely drive the market into and through the previous high area of liquidity before continuing the price down. This allows them to sell into any buying pressure triggered by hitting stops above the previous highs. Therefore, if the market breaks through the first manipulation point without producing a trade we have additional levels selected.

Beyond the most recent high or low as shown above, we will frequently use the previous days overall high or low. This often represents another point of interest that is not only a key stop location but also a breakout point. Either way these areas often attract entry and exit orders and thus are frequently broken before the market changes direction. If we have multiple manipulation points then how do we know which level to take the trade from? How do we know if the market is just going to break through this manipulation point or if they intend to actually reverse the price from this level.

To make that decision one entry technique that we use is the confirmation entry. Using this technique we look to take short positions from manipulation points that are above the current price when the trading day starts and long entries from manipulation points below the current price.

Confirmation Entry Technique The beauty of the confirmation entry is how mechanical it is. One of the biggest struggles new traders have is the inability to take consistent entries.

Because the confirmation entry has a black and white rule set it allows traders to produce consistent results without discretionary trade analysis.

This entry technique has 3 simple steps. Step 1 — The first step in the confirmation entry is a 3 pip break of the pre-selected manipulation point. This is the only rule of the stop run candle. How the candle closes is not important.

The only criteria I look for is whether or not the manipulation point has been broken by 3 pips. The illustration below shows 3 valid stop run candles that visually look different. Although they all look slightly different they all satisfy the one rule of the stop run candle by breaking the manipulation point by at least 3 pips. First a candle must break an upper manipulation point by 3 pips as discussed in step one.

All three examples below show a valid stop run followed by confirmation candle. The pullback serves the purpose of allowing us to use a 20 pip stop loss while still getting the stop loss above the high when taking a short or below the low of the stop run when taking a long.

Simply put, when the entry price would be within 15 pips from the high or low of the stop run then the entry can be take. At that point if a 20 pip stop is used it will allow the stop to clear the high or low of the stop run candle. Here is an illustration of a 3 candle confirmation entry. The confirmation entry can however be a total of 5 candles as a maximum. Candle 1 will create the stop run but there may not be a confirmation candle until the 4th candle and then the 5th candle could provide the pullback.

It is also important to understand what invalidates a trade setup. When two consecutive candles open and close beyond the manipulation point the trade gets thrown out and we then wait for the market to come into the next selected manipulation point. This is a basic overview of a confirmation entry. The video below is over an hour long breakdown of the confirmation entry and all different aspects of it. The video is actually from one of our training sessions we run twice per week as part of the continuing education.

Imagine you take 1 trade per day. With an average of 22 trading days a month that would give us 22 different trades. It is important however to keep in mind what your goal is. About 4 years ago I started to take flight lessons. Before I ever flew for the first time I had read most of the flight training books and I technically knew how to fly.

Do you think that book knowledge qualified me to actually fly a plane? Of course not! The fact is there is a massive difference between book knowledge and applied knowledge.

If people took learning to trade as seriously as they would learning to do something like fly a plane the success rate would be much higher. Crashing a plane can literally mean your life and therefore the process of learning is extremely serious.

When we teach people to trade we take the same approach. That is why our bank trading course is just the start. After someone goes through the course and learns the mechanics of the strategy, next comes the application phase.

We use 4 different tools to give everyone the best chance at learning to trade. In that video we do review what happened during the previous day based off of the prior days DMR. More importantly we preview the upcoming day. In that preview I choose the exact manipulation points I will be looking to trade from. We also select the expected direction for the following day based on market cycle something we did not cover.

Because the confirmation entry is mechanical you know exactly what happened based on the previous days review. You also have an exact trade plan for the following day. All that is required is to simply wait for a valid entry at one of the pre-selected levels. During both days the room runs from AM Eastern for the London session and AM Eastern for the New York Session. During the room we cover the previous trading day as well as any trades setting up while we are in the room.

The room offers a great opportunity to break down different aspects of the strategy and get questions answered on any trade setups. While most prefer to email us directly, the forum allows new members to view others members trade journals, get questions answered, as well as share their own thoughts.

Like most, he started trading forex thinking it would be rather easy. The unfortunate part of that common belief is it leads to failure. As most other forex traders do, he began searching out every strategy, software, EA, and signal service with negative results. For the last 5 years he has been and continues to teach his bank trading strategy at Day Trading Forex Live. In this chapter, you will learn how the banks hide their plan of action through their volume activity by using algorithmic high frequency protocols that they have designed to hide their real intent from the Retail Trader.

A wise man once said the truth will set you free but in this case, the truth will greatly improve your trading consistency. You will learn to take fear and doubt away from your decision process before entering the trade. Because of this, many of you turn to chart pattern recognition programs that do not work for you either. So do yourself a favor and continue reading this chapter and make sure to watch video.

We will demonstrate how we made over pips in one night using this system. One of the things that you will discover is that with PhoenixTradingStrategies. com you have reached the finish line. We are the final frontier when it comes to Order Flow trading and Volume Price Analysis. What Is the Forex Made Of? The Forex is a market created by a network of banks that are in the business of buying and selling currencies. There is some merit to that, but I will show you that they have a different agenda that does not always apply to the major pairs.

What are the majors? The whole purpose of this theory and the protocols are designed around managing their risk and exposure with currencies in the market. You see the banks cannot have too much exposure of one particular currency and must maintain a balance between the 8 eight major currencies. So they will buy and sell currencies all day long to manage their risk.

Currency Portfolio Rebalancing is the idea that money is in continuous motion but that there is a balance that must be maintained between the portfolio of the eight 8 major pairs. While some currencies are trading within a specific frequency of balance others are taken out of balance and then brought back into balance. The example below portrays this concept. It depicts how money is in continuous motion by showing that no currency can trade out of balance for too long without it being brought back into balance.

For example, the orange line represents the GBP British Pound and shows how it had been trading at frequency of strength before being weakened and brought back into balance. The same thing happened to the NZD the blue line which was weakened against all seven 7 other currencies and then traded back into balance for the portfolio of 8 eight currencies.

The purple line represent the JPY Japanese Yen that was trading in the middle and in perfect balance. This showed that there was no particular interest by the Market Makers to take it out of balance. In theory, it seems logical but how do you apply it in a real trade? This is a good question, and we will get to how you apply it in the live trading later. This has been a way to keep the retail trader in the dark.

So we have created a volume indicator that will help the retail trader decode their order flow by synthetically creating volume that can be interpreted and show the degree of interest that the banks have in rebalancing their risk at certain price levels. We are able to isolate buying and selling volume numerically per bar per time frame.

So for example, if you are on the 15 fifteen minute time frame, this indicator will show how many millions they are selling and buying in the same candle giving you the depth of the market per candle that you could never see before. As we continue, you will discover that our volume indicator is better than anything that you have ever used to define order flow because it is easy to interpret and can tell you if that candle is really bullish with bullish volume or is really a bullish candle with bearish volume.

In the example below, you will see how we identify all the volume in the candle that we tagged with a white arrow. Just that one candle had a total of More importantly is that within that candle we were able to isolate in panel 2 two, the buying and selling volume that was quoted inside that bar. Showing the real emotion that drove the candle to go long. This has never really been seen before by the Retail Forex Trader. Now imagine if you knew when it mattered to look at the volume and understand that they were rebalancing their risk by offsetting their short positions before driving the trade long the way they did here.

Then to the far left that candle looks like a shooting star and is a great example of a bearish candle with bullish volume because the little gray line on the red volume bar shows that the volume settled with a bullish outcome. So, YES, interpreting volume does matter at certain price levels where they have decided to trade away from.

The example below shows a graphic display of that powerful information that will alert you hours in advance so you can plan your entry, stop loss and even price target without fear. The Gold Dots are the Phoenix Power Dots. In the example above, you can see how using a 30 minute time frame plotted the Gold Dots at hours above the green line. The green line is an additional price level that was plotted on a higher time frame, and represents a key area of support that the banks refused to break.

This is because if the banks break this area of support, it would trigger other algorithms from other banks that would create a selling frenzy, instead of driving prices higher and offsetting their short positions. And where you see the Power Dots form is exactly where the banks do a lot of high frequency trading so when you combine the Phoenix Volume with it you can see how desperate they are per candle to rebalance their orders but never trade below the Power Dots because their intent here was always to go long pips to the upside.

Now think about this the Power Dots began to form five 5 hours before the trade went long. So you had a five 5 hour window to determine your entry, stop loss and take profit target. In the example below, we combine all the indicators together to tell you the story. You can see in the data box on the left the Power Dots formed at 1. So the price of 1. The first Gold Power Dot shows the amount of volume that they were desperate to sell.

In Panel 2 on the Data box you can see that they were desperate to offset Million on the sell side against Million on the buy side. Leaving Million that they could not offset in that candle. So you see this price level is where they were going to do all their high frequency trading to get out of their short positions before driving this trade long. Thus, the reason why we call this Order Flow Trading with Volume Price Analysis.

So when you see the combination of facts and numbers, is it fair to say that they have counter programmed candlesticks? Finally, we put you in control of the trade by creating a Market Analyzer that will alert you when the Gold Power Dots form in any of the 28 currency pairs that you prefer to trade.

Without a doubt one of the easiest and also best ways to start stacking the odds in your favor is to start making trades that are inline with the trend. The simple reason for this is because when trading with the trend you are trading with the obvious direction that price is currently moving. Whilst that does not ensure that price will continue moving in the same direction, it does increase your trades odds of being a winner.

The other reason is because trends can last for long periods of time. Unlike other markets such as ranging markets where price is chopping up and down, a trend can make an extended move in one direction for a long period of time.

This gives you the chance to use a smaller stop loss and make far bigger winning trades. NOTE: You can download your free trend trading strategies PDF guide below. Free PDF Guide: Get Your Trend Trading Strategies PDF Trading Guide. The simple answer to this question is yes. Trend trading is one of the most popular ways to trade all different kinds of markets from Forex through to stocks.

The reason why trend trading is so popular is because once you know how to do it correctly, then you can find trend trades in many different markets and on all time frames. This allows you to find many different trading opportunities that have the ability to become very profitable trades. A trend trader is simply a trader who is looking to find the obvious trend either higher or lower and make large profits by riding the next wave in the market.

Whilst there are many different trend trading strategies you can use, in this lesson I am going to teach you a very simple strategy you can use to find trades in many different markets and time frames. The most common mistake trend traders make is looking for trends in all markets and time frames.

This is a huge tip: price spends far, far more time moving in range and sideways patterns than it does moving in clear trends. If you are looking for trends in every market, then you will be making trend trades when there simply is no trend. Trends should be easy to spot. Because trend trading is so popular and can be used in many different markets, there are many strategies that can be used.

This is also true for trend trading strategies. You just need to find high probability trades and then ride that next wave that price makes higher or lower. When you move to your price action chart you should be able to quickly see if price is making an obvious move higher or lower.

If you are struggling to find a clear move higher or lower, then the chances are there is no trend. The other easy way to find trends and also when new trends are starting is looking at the swing highs and lows. A trend will form a series of swing points. See the example chart below. Price is in a trend lower.

With this trend we have a series of lower highs and also lower lows. Important point: Even in the strongest of trends price will always make these swing points and rotations. These swing points and pullbacks are also often the best times to find high probability trades. There are many different ways you can do this, but using the swing points and support and resistance levels offer some of the highest probability entries.

See the example below. Price action is first in a trend higher. When we see this we begin looking for a long trade. When price makes a rotation and swing lower into the support area we can then look to get long. We could take a long trade as soon as price hits this support area or we could increase our trades odds even further. A way of increasing our odds would be to use candlestick patterns to confirm the trade entry.

In this example below we have found the trend higher, price has moved back to the support and then it forms a large bullish engulfing bar that would confirm our long entry. The best way to use the moving average when trend trading is using two moving averages and using the crossover. The first is the 50 period EMA and the second is the 21 period EMA. When we see the faster moving 21 period EMA cross above the slower moving 50 period EMA we can see the trend changing to an uptrend.

The key with the crossover is looking for the two moving averages to widen. When the moving averages start to widen it shows us that the trend is very strong. Read more about trend trading indicators here. You can use trend trading in all of your favorite market types and on all time frames. It allows you to use smaller stop losses and gives you the chance to make very large running winning trades.

There are many different trend trading strategies you can use. The best thing you can do is get a free set of demo trading charts and start practicing to see what is your favorite. I hunt pips each day in the charts with price action technical analysis and indicators. My goal is to get as many pips as possible and help you understand how to use indicators and price action together successfully in your own trading. Skip to content.

Table of Contents. Pip Hunter I hunt pips each day in the charts with price action technical analysis and indicators.

Who this book is for This book is primarily for those who are new to the world of currency trading and are curious about how they can make money from the forex market. Interest rates and currencies The most important way in which interest rates can influence currency prices is through the widespread practice of the carry trade. This strategy works well in markets with no significant volatility and no obvious trends. Some mistakes can even be devastating to a newbie trader. This makes it extremely difficult to know which broker to sign up with. Day trading involves the process of buying and selling currencies in just 1 trading day.

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