STRATEGY eBOOK A summarization of the tips and strategies (ProForexTrades)
Maybe you are not sure where to start as you get into trading. In case you’re completely new to this, let’s cover some forex basics. Feel free to skip to the end of this section if you are already comfortable with our trading skills.
What is Forex? How does it work? What am I trading?
Forex can seem very complicated if you try to read about it at some sources, but it simply means “foreign exchange market”. Say you are living in the US and you go on vacation in Europe: when you exchange USD to EUR, that is forex. You are exchanging one currency for another. Doing the math at the end of your trip, you realize that your leftover Euros are actually worth more than your USD. You exchange the currencies once again and end up with more money than you had before the fi rst exchange. You probably already see the potential here. Imagine harnessing this concept many more times at a much faster rate, and instead of conducting the trades in person, you do it all online. “Betting” on whether the price of each currency will increase or decrease, you also have the option to add a layer to your investments, something that is not possible if you are investing in stocks.
What is a broker? What is MetaTrader 4? What is leverage?
Handling your buying and selling, a broker frees you up to research and discover profi table trades, optimizing your time and resources. When you use a broker, you can buy and sell hundreds of thousands of dollars in currency instantly via the broker’s online dashboard. On the MetaTrader 4 app, you enter your broker login credentials – and get started making your trades immediately. Wherever you are, you can check your trades on the app. While MetaTrader 4 may work for beginners, we recommend the Oanda app, which features a more powerful platform (if it’s available in your country). For trading on a regular basis, we believe that Oanda is superior to MetaTrader 4, equipping you with the tools you need to operate at a high level. Of course, if you are only getting your feet wet, you may consider opening a demo account on MetaTrader 4 which will let you try trading with no risk and no additional cost.
How do you make a trade? How do you set an SL/ TP? How do you enter a signal?
Once you have downloaded the MetaTrader 4 app, open “Settings,” select “New Account,” and tap “Open a Demo Account.” You can then view all the pairs that you can trade on the “Quotes” page. Selecting a currency pair, you will see the option to trade it or pull up a chart. If you tap “Trade,” you’ll see how to put in a signal. A signal is when someone tells you which trade to take, and in the example below, you can see a signal that we sent out and instructions for entering it into MetaTrader 4. We’ll talk more about why following signals could be a good or bad idea later on in the book. The Take Profi t (TP) and Stop Loss (SL) are important because they will automatically close the trade for us when we hit our target levels, a necessity for any trader who wants to maintain consistency in their trades and avoid waking up to an empty account because of trades that got out of control. Please be careful when you are taking signals: many new traders end up paralyzed by signals, never learning how to trade for themselves. Even though signals can be convenient when you are starting out, trading is never going to be as easy as copying signals. If it were, everyone would be doing it. It’s much better to walk on your own two feet! For a guide about how to use Oanda, we have video tutorials available on our Training Channel.
What types of trades are there?
This is a question that we get often. Basically, there are three types of trades: day trades and scalping (short-term), swing trades (medium-term), and long-term trades. For a day trade, you are closing the trade before the day is over, which is what the typical “forex trader” claims to do. To succeed at this type of trading, you will need to work a signifi cant number of hours to get any substantial gains. Working a full-time job, you probably can’t day trade on the side. For a swing trade, you may remain in a position anywhere from two days to one month. This is the type of trade that we send on our signal group. There are two reasons for that: day trades are too quick for our international clients (and differing time zones), and swing trades are ideal for teaching new students by showing them more gradual progress. This is also the type of trade that will lead to the most consistent results in our experience. Ultimately, the type of trade that you pursue will come down to your preference. We encourage you to try both day trades and swing trades and see which one fi ts your needs better, applying our technical analysis whichever way you choose to go. When we see a high volatility in the major time frame charts, we try to send trades in smaller time frames to avoid possible fakeouts and traps.
Our Most Popular Trading Methods
In this section, we are going to show you our most popular and most used tips and tricks. Once you grasp these concepts fully, you will have a reliable set of tools to start trading and to improve the consistency of your trades.
Risk Management
The way that we see it, poor risk management skills are the top reason that traders fail, end up discouraged, and quit. Read that sentence back because there is no way to overstate how important risk management skills are. Imagine saving up $1,000 and trying your hand at trading with it. You make some poor trades over the next seven days, and you watch as your balance drops from $1,000 to $550 to $230 to $20. How discouraging would that be? The fact of the matter is that this happens all the time. No one knows exactly what they are doing when they are only starting out. The key is risk management. Many new traders will come out on top early on, turning their $1,000 into $1,500, and let their greed overwhelm their senses. They will envision themselves turning their small amount of money into a fortune overnight. If you realize that this is never going to happen, you will be much better off. You earned $500 profi t off a $1,000 investment, but we guarantee you will not be able to do that over and over. As you try – and make riskier trades – you will set yourself up for disappointment, in the form of a disappearing account value. How do you do earn a fortune as a forex trader? Why is it that 60% of traders are correct about their trades but 95% of traders lose money? The answer is simple: it’s risk management. Starting out (and our founder did this himself), you may risk 30-50% of your account on a single trade. One bad trade, following this strategy, will net you losses of as much as $500, and within three or four trades, you will fi nd your account emptied of its value. The correct amount to risk is not 30-50% but 1-5%. We recommend hovering around 2% risk per trade, which minimizes your loss on any single trade to $20 (in a $1,000 account). This is a manageable loss level for almost anyone, and it will prevent the sort of devastating losses that will discourage you from continuing to learn and try. Reframe the question in your mind. Instead of asking “How do I stop making bad trades?” ask yourself “How do I minimize the pain that I feel from my losses so that I can keep moving forward?” When you are on the right trading platform, it should be easy for you to calculate and manage your risk. This is one of the reasons that Oanda’s FxTrade app is so useful: on Oanda, you can calculate how much risk you face with each trade. MetaTrader 4, however, leaves you guessing or running the calculations yourself. To earn a living from trading, you need to know precisely how much money you stand to lose if one of your trades doesn’t work out. Check out the examples below, and for a more detailed tutorial, we have tutorial videos available in our Training Group.
On FxTrade by Oanda (pictured on the right), you get to decide how much you want to buy and sell according to the units, enabling a greater level of precision in your lot sizing. You can risk less than a 0.01 lot size, equivalent to 1,000 units. This is less than the lot size you can risk on MetaTrader 4. Let’s go back to the GBP/USD signal from before. That signal was SL: 1.2600 and TP: 1.3363. Entering that information into Oanda, you will see how many pips away the SL and TP are. From here, you can increase and decrease your units on the left to match up to 2% of your account balance. You can also see how many “available units” you can purchase on the right side of Oanda, so say that we want to risk $20 out of a $1,000 account: we simply try several different numbers until the “stop loss – USD amount” equals $20 (in this case, 900 units or $19.98 if the trade goes bad). This is the fast, effi cient way to see how much you could lose or gain. As you can see, we could gain $49 or lose $20 here. While this isn’t the “overnight fortune” that many other traders promise, it is the intelligent way to do risk management.
Working with Multiple TPs
We sometimes send trades where there are multiple TPs (Take Profi ts). All this means is that there are two milestones we believe the trade will hit, a short-term milestone and a longer-term milestone. Using multiple TPs, we also help decrease our risk and lock in our profi ts if the trade goes bad. Going back to the GBP/ USD signal once again, we see SL: 1.2600, TP1: 1.3129, and TP2: 1.3363. You make two trades here, splitting the risk: instead of putting 900 units on either side, you put 450 units on one side and 450 units on the other, risking the same amount of money but breaking up the risk.
R:R (Risk Reward Ratio)
The risk reward ratio is a basic principle of forex trading, and we use it as a foundation in our strategy. Defi ning how much you can lose versus how much you can gain, the risk-reward ratio is 1:2.5 in the GBP/USD signal. This is because we risk $20 to gain $50, and 20:50 can be reduced down to 1:2.5. Check out these examples of good and bad R:R. On the left, you see that the R:R is 1:1. This is bad. On the right, however, the R:R is 1:4 – which is good. When forex traders take trades where the R:R is less than 1:1, it explains how they can be right 60% of the time and lose money 95% of the money. Even if they are right, they are still losing more money than they can afford. Sticking to R:R between 1:3 and 1:4, you can lose three trades in a row and still turn a profi t. These trades are rarer, but as you become more experienced, you will recognize them more often. Combining 2% risk management and trades of 1:3 R:R and higher, you will drastically improve your chances of turning a profi t. This will, of course, take discipline and hard work. There are no easy outs here!
Trading Channels
Some of our favorite patterns to trade on the charts are channels. If you look closely, you can see that the price moves in repeating patterns like a channel. See the example below.
You may look at that example and think that you know the secret formula to trading. It is not that easy, though. Channels can be unpredictable, and prices will break out unexpectedly sometimes. We trade channels because they are often consistent and because they can pay off if you catch the price at the top or bottom of a channel (make sure to trade with the trend), but you can see below what erratic behavior looks like in a channel.
See that? This channel has been behaving consistently for quite some time, but it ended in a place that would have been impossible to predict. As it always does, the market makes the fi nal decision. Perfect predictions are always impossible to make, but professional traders learn how to recognize better opportunities.
As you can see in this example, the trade looked like it was forming a smaller channel. Then, it continued downward, touching the bottom of the main channel. Because the timeframe was smaller, the trade was out of reach for us. Making smaller trades, you may struggle to see when the price will increase and when it will decrease – and especially which way it will go before touching the bottom of the channel.
In this example, the trade is making a “fake out” because the price dips below the channel and then comes back up into the channel to behave like you would expect it to behave. An amateur trader would short as soon as he sees a breakout from the channel, quickly losing money as the price comes back up during a retest. It is crucial that you don’t chase the price. If you’re wrong, then you’re wrong. You pull out of the trade and take the lesson for what it’s worth. Chasing the price from buy/sell/buy/sell/buy, you need to go back to the drawing board and stop grasping at straws. Trade another pair or come back to the trade another day. We have all seen trade “fake outs,” and when we set up our SL, we try to take these into consideration.
Support and resistance (or S/R)
Support and resistance (or S/R) is a fundamental strategy of price action, and we combine it with our other techniquest for the best result. The way it works is this: price movement will tend to respect certain levels so that if the price gets stopped three times by a certain level, it’s likely to get stopped the fourth time too. This is the idea of S/R in action.
Another example of S/R is that the price will often respect even price levels (1.000, 0.600, 27.500, etc.) because traders usually close and open around these levels (increasing liquidity), working from the emotion they feel due to even prices. Large banks will also enter and exit trades at these even levels, shaping price movement deeply. Check out these examples. Here, the price has been respecting the top green line and pushing down into an upward wedge. It could go up and break resistance or go down and continue to bounce in the wedge.
It is possible that the trade will respect this S/R level and bounce back down. This is not an exact science, though, and to see where the prices could bounce, you should combine it with other strategies. We’ll go over other indicators for showing S/R later on.
This is a graphic representation of a chart, just something to highlight support and resistance concepts. See how the price is respecting horizontal S/R levels while also respecting the channel? You should train your eye to notice both of these things. It’s important to use S/R along with your other strategies.
Elliott Wave Theory
Ralph Nelson Elliott (28 July 1871 – 15 January 1948), the namesake of Elliott Wave Theory, was an American accountant and author. Inspired by the Dow Theory and observations found in nature, Elliott concluded that he could predict the movement of the stock market by observing and identifying a repetitive pattern of waves. He was able to analyze markets in greater depth, identifying the specifi c characteristics of wave patterns and making detailed market predictions based on these patterns. Simply put, Elliott said that movement in the direction of the trend is unfolding in fi ve waves (called motive waves) while any correction against the trend is in three waves (called corrective waves). The movement in the direction of the trend is labeled as 1, 2, 3, 4, and 5. The three-wave correction is labeled as a, b, and c. We can see these patterns in long-term as well as short term charts. Ideally, we can identify smaller patterns within larger patterns. In this sense, Elliott Waves are like a piece of broccoli, where the smaller piece, if broken off from the bigger piece, does, in fact, look like a small version of the big piece. Using this information (about smaller patterns fi tting into bigger patterns), coupled with the Fibonacci relationships between the waves, we can make predictions about trading opportunities with solid R:R ratios.
What is supply and demand?
If supply is higher than demand, then price will go down and vice versa. This law rules all markets. Shaped by large fi nancial institutions (banks, hedge funds, etc.), markets respond to economic events, and as institutions make big decisions, they cause strong movement, in turn creating supply and demand zones. When prices return to previous levels, other fi nancial institutions make new orders of the same type, causing the price to go back in the same direction that it was moving before the original big decision. You can see in this example that there are big, bullish candles after a consolidation period, marked as our demand zone here. Once the price returns to our demand zone, there is an infl ux of long orders, pushing the price back up.
Common Patterns
You should know the four basic patterns of supply and demand.
The Drop-Base-Rally Pattern
In this pattern, the price moves down (drop), pauses (base), and then moves up (rally). Acting as a consolidation period, the base will usually form a rectangle or triangle, and once the price goes up aggressively, we can identify the demand zone, which will run from the lowest point of the base to the highest point of the base. Most times, when the price comes back to the demand zone, it acts as an S/R level, pushing the price up again. To make this trade, enter long when the price reaches the demand zone (entering a by limit order), putting the SL level at the bottom of the zone and the TP level at the highest point between the actual price and the base. The R:R ratio for this pattern will change from 4 to 7, and we don’t recommend making the trade if the risk:reward ratio is lower than 2.
The Rally-Base-Drop pattern is just the Drop-Base-Rally pattern in reverse..
The Drop-Base-Drop pattern
In this pattern, the price moves down (drop), pauses (base), and then moves down again (drop). Once again acting as a consolidation period, the base will form a rectangle or triangle normally, which can then create a fl ag pattern for the bearish trend. When the price goes down for the second drop, we can identify the supply zone, which will run from the lowest point of the base to the highest point of the base. The price then returns to the supply zone, acting as an S/R level, pushing the prices down again. Enter short when the price reaches the zone (entering a sell limit order), putting the SL level at the top of the zone and the TP level at the lowest point between the actual price and the base. Like the other patterns, the R:R ratio will range from 4 to 7 and we don’t recommend making the trade if the ratio is lower than 2. The Rally-Base-Rally pattern is the inverse of the Drop-Base-Drop pattern.
How do you identify supply and demand levels?
As we have seen, there are four major supply and demand patterns. To identify each of them, try to detect strong bullish and bearish candles, which large fi nancial institutions cause with their major decisions. If you notice this aggressive movement, look for a previous consolidation zone or rectangle pattern, checking for a recent rally or drop at the beginning of the consolidation. This way, you can see double top or bottom opportunities (if there is a drop-and-rally or a rally-and-drop). You can also see a fl ag pattern (if there are two rallies or two drops).
Price Action Patterns
Bullish Channel
In this pattern, there are two parallel (similarly sloped) bullish trend lines and a preceding bullish trend. There are several ways to trade this: - Sell when the price touches the upper trend line and buy when the price touches the lower trend line. - Wait for a breakout and sell. - Wait for the breakout and retest, and sell; the less risky but also the rarer case. - Aim to trade with the trend, avoiding the risk inherent to trading against the trend. The TP and SL may vary in function of other price action structures and patterns, such as trend lines, S/R levels, etc.
Bearish Channel
In this pattern, on the other and, there are two par- allel bearish trend lines plus a preceding bearish trend. There are several ways to trade this: - Sell when the price touches the upper trend line and buy when the price touches the lower trend line. - Wait for a breakout and buy. - Wait for the breakout and retest and buy, the less risky and rarer case. The TP and SL may vary in function of other price action structures and patterns, such as trend lines, S/R levels, etc.
Bullish Flag
Now in this pattern, we see two parallel bullish trend lines that could form a channel, rectangle, or wedge with a preceding bearish trend. There are several ways to trade this: - Sell when the price touches the upper trend line (in this case, we don’t recommend to buy when the price touches the lower trend line as the preceding bearish momentum could drive the price to the SL easily). - Wait for a breakout and sell. - Wait for the breakout and retest and sell, which is as before the less risky and rarer case. The TP and SL may vary in function of other price action structures and patterns, such as trend lines, S/R levels, etc.
Bearish Flag
Continuing on, we see in this pattern that there are two parallel bearish trend lines that could form a channel, rectangle, or wedge with a preceding bullish trend. There are several ways to trade this: - Buy when the price touches the lower trend line (in this case, we don’t recommend to sell when the price touches the upper trend line as the preceding bullish momentum could drive the price to the SL easily). - Wait for a breakout and buy. - Wait for the breakout and retest and buy, which is (as you remember) the less risky and rarer case. The TP and SL may vary in function of other price action structures and patterns, such as trendlines, S/R levels, etc.
Double Top
Two swing-high points combine with a horizontal line (support and resistance level) in this pattern, and they should be around the same price. There are several ways to trade this: - Sell at the moment of the identifi cation of the second swing-high in combination with a great Risk:Reward Ratio; but this is accompanied by a lower probability of completion. - Sell at the level of the lowest point between the swing-highs, which a sell stop order can help with. The ideal SL placement is above the swing-highs, and the TP should be determined in function to other price action structures and patterns.
Double Bottom
Here we are looking at two swing-low points with a horizontal line (the support and resis- tance level), so they should be at the same price. There are several ways to trade this: - Buy at the moment of the identifi cation of the second swing-low. - Buy at the level of the highest point between the swing-lows, using a buy stop order. The ideal SL placement is above the swing- highs. TP should be set according to other price action structures and patterns.
Head and Shoulders
Cool name, right? This is one of the most complex price action patterns, consisting of one important swing-high (head) and two smaller high pivot points at the left and right (shoulders). There are several ways to trade this - Sell when the price crosses the neckline (defi ned as the union of the two swing-lows between each shoulder and the head). - Wait for the breakout and retest and sell, the rarer and less risky case. The TP and SL may vary in function of other price action structures and patterns, such as trend lines, S/R levels, etc.
Inverted Head and Shoulders
This pattern is just the inverse of the original pattern, but instead of the bears regaining power at the end of the structure, the bulls regain power. There are several ways to trade this: - Buy when the price crosses the neckline (union of the 2 swing-highs between each shoulder and the head). - Wait for the breakout and retest and buy, the rarer and less risky case.
Bullish and Bearish Pennants
These patterns consist of the price creating a consolidation in the market, which will eventually converge at a future point. This pattern requires more attention than regular bullish or bearish patterns because the market could break in any direction. Be sure to wait for a breakout before trying to trade this pattern. Here are several ways to trade it: - Buy or sell when the price reaches the end of the consolidation, if other technical analyses are telling you to believe that it will break a certain direction. - Wait for a breakout and buy/sell. - Wait for the breakout and buy/sell after a retest, the rarer and less risky case. Your TP and SL levels may vary in relation to other price action structures and patterns, such as trendlines, S/R levels, etc.
Rising Wedge
This pattern consists of two bearish trend lines with different slopes, and the lower trend line should have more slope than the upper one so that they will converge at some point in the future. There are several ways to trade this. - Sell when the price touches the upper trend line and buy when the price touches the lower trend line. - Wait for a breakout and sell. - Wait for the breakout and retest and sell, the rarer and less risky case. The TP and SL may vary in function of other price action structures and patterns, such as trend lines, S/R levels, etc.
Falling Wedge
This pattern consists of two bullish trend lines with different slope, and the upper trend line should have more slope than the lower one so that they will converge at a point in the future. There are several ways to trade this: - Sell when the price touches the upper trend line and buy when the price touches the lower trend line. - Wait for a breakout and buy. - Wait for the breakout and retest and sell, the rarer and less risky case. The TP and SL may vary in function of other price action structures and patterns, such as trend- lines, S/R levels, etc.
Bullish Triangle
This pattern consists of a single bullish trend line and an S/R level above the trend line, so the pressure the two levels exert will move the price aggressively. There are several ways to trade this: - Sell when the price touches the support and resistance level and buy when the price touches the lower trend line. - Wait for a breakout and buy. - Wait for the breakout and retest and buy, the rarer and less risky case. The TP and SL may vary in function of other price action structures and patterns, such as trend lines, S/R levels, etc.
Bearish Triangle
This pattern consists of a single bearish trend line and an S/R level below the trend line, so the pressure the two levels exert will move the price aggressively. There are several ways to trade this: - Buy when the price touches the S/R level and sell when the price touches the upper trend line. - Wait for a breakout and sell. - Wait for the breakout and retest and sell, the rarer and less risky case. The TP and SL may vary in function of other price action structures and patterns, such as trend lines, S/R levels, etc.
Bullish Rectangle
This pattern consists of two S/R levels, which you can think of as a consolidation zone. The price remains in this zone until there is a bullish pressure. There are several ways to trade this: - Sell when the price touches the upper S/R level and buy when the price touches the lower S/R level. - Wait for a breakout and buy. - Wait for the breakout and retest and buy, the rarer and less risky case. The TP and SL may vary in function of other price action structures and patterns, such as trendlines, S/R levels, etc.
Bearish Rectangle
This pattern consists of two S/R levels, which you can think of as a consolidation zone as the price remains in this zone until there is a bearish pressure. There are several ways to trade this: - Sell when the price touches the upper S/R level and buy when the price touches the lower S/R level. - Wait for a breakout and sell. - Wait for the breakout and retest and sell, the rarer and less risky case.
Candlesticks Patterns
Pin Bars
A pin bar is a candlestick where the body is small and the wick is large. We use this term to refer to indecision in the market, where there are high volumes of trades in a large price range, as represented by a candle where the open and close prices are similar to each other. We can classify these further, into three types, depending on the wick: - Hanging Man: when a pin bar is at the top of a wave - Hammer: when a pin bar is at the bottom of a wave - Spinning Bottom: when a candle has two large wicks Combining pin bars with your current price action strategy, you can identify bear traps, improving your entries and detecting a possible bounce in a trend line or channel.
Tweezer Top and Bottom
A Tweezer Top and Bottom candlestick pattern is a formation of two candles. One is bullish, and the other is bearish. The effect of these patterns is the same as that of a pin bar, and if you merge these two candles into one, you will have a pin bar (a candle with similar open and close prices). Trade this pattern as you would trade a pin bar: for example, if you see an S/R level that crosses this pattern (bear trap), it could communicate trend reversal to you.
You fi nd the Golden Zone in an area between 61.8% and 38.2% Fibonacci levels. It’s true that all Fibonacci levels tend to act as S/R levels, but the Golden Zone is the most powerful. When you detect a tradeable Golden Zone, keep in mind that isn’t the only price area where the trend will change, but rather an area of high market strength. You should also remember that the price may not change its direction, so to increase your accuracy and consistency, stick to the risk management we advise.
How to Confi rm Supply and Demand Zones with Fibonacci Retracements and the Golden Zone:
As we have seen, a supply or demand level isn’t a specifi c level where the price could change direction. Rather, it is an area between two levels where the price could reverse its trend direction if enough of the opposite volume is traded. To confi rm one of these zones with Fibonacci retracements, take the Fibonacci tool and draw it from a swing high to a swing low. To confi rm this, select the fi rst point of a rally or drop before the consolidation zone and the lowest or highest point of the drop or rally after the consolidation zone. The Pitchfork tool is a popular trading tool to spot turning points or support and resistance levels. To use it, start by analyzing three pivot points. Then, select it in Gann and Fibonacci tools, beginning at the earliest point, which we will base our pitchfork structure around. After that, select the structure peak and bottom. This tool will then draw fi ve parallel lines to form your pitchfork structure. You can use this tool in the same way you’d use trend lines, looking for short and long opportunities when the price breaks S/R levels. The Parallel Line tool is one of the most popular trading tools available, drawing two parallel trend lines that make a channel. In TradingView, it’s easily modifi able, and you can even set customizable colors. To use it correctly, you should fi rst spot four pivot points for its placement. Aim to spot more than four points to make the structure more stable, increasing reliability for possible breakouts and price retests. If the zone is set inside the Golden Zone, the demand or supply zone could have greater power.
TradingView Tools
Pitchfork
The Pitchfork tool is a popular trading tool to spot turning points or support and resistance levels. To use it, start by analyzing three pivot points. Then, select it in Gann and Fibonacci tools, beginning at the earliest point, which we will base our pitchfork structure around. After that, select the structure peak and bottom. This tool will then draw fi ve parallel lines to form your pitchfork structure. You can use this tool in the same way you’d use trend lines, looking for short and long opportunities when the price breaks S/R levels.
Parallel Line
The Parallel Line tool is one of the most popular trading tools available, drawing two parallel trend lines that make a channel. In TradingView, it’s easily modifi able, and you can even set customizable colors. To use it correctly, you should fi rst spot four pivot points for its placement. Aim to spot more than four points to make the structure more stable, increasing reliability for possible breakouts and price retests.
Horizontal Line
The Horizontal Line tool is a very useful tool in TradingView. To draw one, select the tool, beginning at a point in the chart, and after that, there will be a horizontal line. You can also try out the semi-horizontal line, which will only extend to the right, not to the left. This tool is useful for identifying and marking S/R levels.
Short Order
Fibonacci Arcs
The Fibonacci Arcs is a little-known tool in TradingView. As with the normal Fibonacci Retracements tool, arcs represent potential zones of support and resistance that vary over time. To put this into a chart, select a pivot point for the center of the arcs and another pivot point where the first arc will pass. Combining Fibonacci Retracements and a half-circle, it creates arcs that intersect the baseline at the common Fibonacci levels.
Fibonacci Retracement
The Fibonacci Retracement is a trending market tool that you can use to fi nd potential S/R points. To put it on a chart, you just have to detect one maximum and minimum point. If the trend is bearish, select fi rst the high point and later the low point, and if the trend is bullish, select fi rst the low point and later the high point.
Trendline
The trendline is one of the most used tools in price action trading. This is the base of almost every pattern and probably is the most common form of technical analysis in forex trading. To construct a trendline, you just have to pick two or more pivot points and join them. They will then act as dynamic S/R levels. The more often price tests the trendline without breaking it, the stronger the trendline is.
Data Range
The Data Range tool in TradingView is one of the simplest tools, empowering you to identify the length of a structure. You should use this tool with limit orders. Usually, limit orders have an expiration time, after which the order will expire and become unavailable. To use this tool, you just have to select it and put it into a chart, dragging it to place it and measuring the number of bars and time that you want.
Gann Box
The Gann Box tool is a Fibonacci-based tool, combining two Fibonacci retracements tools. Instead of only having the y-axis (vertically), though, we have two: one in the x-axis (horizontal) and other in the y-axis (vertically). The Fibonacci retracement marks the points where you can spot an S/R level. For example, the 0.382 and 0.618 ratios are the points where candles can have a special relevance, marking S/R levels or pivot points. You can use this tool to measure and detect recurring price cycles.
Price Range
The Price Range tool in TradingView is another very simple tool, helping you measure the price range of a structure. You should use this tool with price action breakout patterns, like wedges and channels. For example, you can use it to determine the TP and SL levels, measuring the difference between maximums and minimums. To use this tool, you just have to select it and put it into a chart, dragging it to place it and measuring the number of points that you want.
Special Dates
There are some days in the calendar where the forex market could be inactive (low liquidity) or even closed. Even though the forex market is technically open 24 hours, 5 days a week, there are some exceptions:
Low-liquidity days:
- January 21st: Martin Luther King
- July 4th: Independence Day
- September 2nd: Labor Day
- November 28th: Thanksgiving
Forex Market closed:
- January 1st: New Year
- December 25th: Christmas Day
Trading on these days can be risky because big fi nancial institutions are closed, causing a liquidity shortage that leads to abnormally spreads and swaps.
Trading Hours
There are some days in the calendar where the forex market could be inactive (low liquidity) or even closed. Even though the forex market is technically open 24 hours, 5 days a week, there are some exceptions:
Session Hours (GMT)
- US Session: 13:00 – 21:00
- European Session: 08:00 – 16:00
- Asiatic Session: 01:00 – 08:00
European Session
The European session, the main stock market of which is the London Stock Exchange, is one of the most liquid of all the sessions, and it tends to follow price action structures and patterns. You can usually spot an open gap between the Asiatic and European Session.
US Session
This is the largest session because the US econ- omy is the largest in the world. It is also very liquid, comparable to the European session.
Asiatic Session
The Asiatic session is the least liquid period of the day. It tends to have a gap at the beginning (because of the accumulated orders placed between the close of the US session and the bell of the Asiatic session). In addition, it tends to have bigger spreads and less activity than the other two sessions.
Overlap
TheOverlap is a time period between 13:00 and 16:00 where the European session and the US session run simultaneously. This is the most liquid period of the day, combining the liquidity of the two biggest sessions in the world.
Watchlist
A watchlist is a list of securities monitored for potential trading or investing opportunities. You can compose a watchlist with actual limit and stop orders, current trades, and possible trading opportunities. This can help you keep an eye on potential pairs that could lead to lucrative trading opportunities. We recommend the apps Google Keep, Apple Notes, or Evernote to maintain your watchlist because they are each compatible with multiple platforms. We also use TradingView.com and Investing.com to place alarms on the pairs in our watchlist.
Wolfe Waves
The Wolfe Wave is a variation of the Elliott Wave: instead of a series of five waves (three rallies/drops and two consolidation zones), a Wolfe Wave consists of a channel/wedge with the first four waves and the fifth wave breaks following the same direction of the pattern (bullish fakeout for bullish wedge/channel and bearish fakeout for bearish wedge/channel). The Wolfe Wave Theory is an advanced trading strategy that enables you to trade fakeouts. You can use this strategy in channels and wedges. To get started, identify a four-wave channel or wedge and a fakeout that will act as the fifth wave. The entry price will be the crossing of the price and the trendline formed by connecting the first wave and the third wave. You will set the SL below the end of the fifth wave, and you will have fixed TP level for this strategy, which will be the extrapolation of waves 1 and 4. Close the trade when the price reaches the extrapolation of the trendline formed by connecting the fi rst and fourth waves. You should get an R:R ratio of 1:5 to 1:9.
Harmonic Patterns
Harmonic Patterns are complex applications of Fibonacci Retracements. A Harmonic Pattern is a structure that forms when the price completes a path following specifi c Fibonacci levels. The most common one is the Gartley pattern, and Harmonic Patterns usually have fi ve points (XABCD) or four in the case of the AB=CD (ABCD)
How do you draw a Harmonic Pattern?
To draw a Harmonic Pattern, the fi rst thing that you need to do is identify an uptrend, marking its beginning and its end.
Once you have the first part of the pattern, mark the 61.8% level, keeping in mind that to find it, you need the Fibonacci Retracement tool. In the tool, select the pivot low point to begin the uptrend and later the pivot high to finish it.
In this case, we see a fixed level where the second wave can fi nish, and it can’t finish below that level. If the wave does end below that level, the pattern will be invalidated. Once you have identified the first two waves, spot the range where the third wave can finish.
The pattern can fi nish between 38.2% and 88.6% of the anterior wave, so we should mark these levels.All that is left for us to do now is identify the last point where the pattern can finish. In this case, we have two conditions: the fourth wave should finish at 78.6% of the first wave and also within 127% and 161.8% of the previous wave.
If the 78.6% level of the fi rst wave stays outside the range of the preceding wave, the structure is impossible.
Distance Ratios on Harmonic Patterns
We build Harmonic Patterns using Fibonacci Re- tracements, and the relationship between two points will always be a Fibonacci ratio. We write the distance using two more points of reference. For example, the end of the second wave of the Gartley Pattern (point B) will be 61.8% of the previous wave (XA), so the ratio for point B will be XAB: 0.618 If we know that point C (end of the third wave) should be between 38.2% and 61.8% of the pre- vious wave (AB), the ratio for point C will be ABC: 0.382-0.618 Because point D (end of the fourth wave) is the last point of the structure, it has two different ra- tios based on the reference wave. We will take the last one (third wave BC), and because point D should be between 127% and 161.8%, the ratio for point C will be BCD: 1.27-1.618. The last step is to get the ratio between the fi rst wave (XA) and the last point (D), and because its Fibonacci relation is 78.6%, the second ratio of point D will be XAD: 0.786.
Common Harmonic Patterns
AB=CD
The AB=CD pattern is the only harmonic that has four points and exhibits the relationship between two drops or rallies. We know that the height and number of bars of one wave will be equal to the third wave, and the second wave usually acts as a flag pattern and consolidation zone for the structure, finishing at the 0.618 Fibonacci level of the fi rst wave in most cases. ABC: 0.618-0.786 BCD: 1.27-1.618
Gartley Pattern
The Gartley pattern was the fi rst Harmonic Pat- tern and it’s a classical fi ve-point (XABCD) Harmonic Pattern. XAB: 0.618 ABC: 0.382-0.886 BCD: 1.27-1.618 XAD: 0.786
Bat Pattern
The Bat pattern is one of the series of Harmonic Patterns developed in 2001, and it is highly precise. XAB: 0.382-0.5 ABC: 0.382-0.0.886 BCD: 1.618-2.618 XAD: 0.886
Butterfly Pattern
The Butterfly pattern is one of the series of Harmonic Patterns developed in 2001, and like the Bat, it is also highly precise. XAB: 0.786 ABC: 0.382-0.886 BCD: 1.618-2.618 XAD: 1.27-1.618
Crab Pattern
The Crab Pattern is one of the series of Harmonic Patterns developed in 2001. Again, it’s highly precise. XAB: 0.382-0.618 ABC: 0.382-0.886 BCD: 2.24-3.618 XAD: 1.618
Trendlines
What are trendlines?
Trendlines are some of the most popular tools in price action trading, forming the basis of almost every pattern. In forex trading, trendlines are prob- ably the most common form of technical analysis. To construct a trendline, just pick two or more pivot points and join them. That’s all there is to it. Often, they will act as dynamic S/R levels, and the more prices test the trendline without breaking it, the stronger the trendline is.
How do you identify them?
Trendlines are the union of two swing-highs or swing-lows. The more pivot points they connect, the more reliable they will be.
How do you trade them?
You can trendlines in different ways. For bullish trendlines, there are three main ways to trade them: - Enter long once the price makes a drop and hits the trendline, making an exception for a bullish bounce. - Enter short once the price breaks the trendline.
Indicators
An indicator is basically just an overlay on your chart, illustrating statistical and mathematical information. You’ve probably heard other traders claim they are trading a “magical indicator” that will show you the foolproof spots to enter and exit a trade. We’re here to tell you that the magical indicator, unfortunately, doesn’t exist. While indicators can help you see how the market is behaving and will behave, there is no indicator that will tell you what to do. You may feel tempted to look through tons of indicators when you are starting out, accepting the chaos and wondering where to go from there. This is common. We aren’t going to spend a bunch of time re- viewing indicators because only about 10% of our success comes from indicators. Indicators should be like the salt for your meal, adding to it but not making it up entirely. Next, we’re going to discuss the indicators that are actually helpful for us.
Some of you might have a chart that looks like this. If that’s you and all those indicators help you, good for you. The odds are strong that you don’t use them all, though. They’re just there so you can tell yourself you know what you’re doing. Personally, we only trade with 1-2 indicators at a time. It’s important to remember that a new indicator should not add to your strategy! You should be learning the concepts of forex and how the market behaves and then look for an indicator that helps you identify those patterns! A lot of traders will watch a YouTube video about an indicator and think “Wow, that makes sense. What that guy showed me worked for him!” Chances are, how- ever, it’s just going to confuse you.
RSI (Relative Strength Index)
RSI (relative strength index) is a helpful tool for identifying when the market is overbought or oversold. When the RSI graph goes to the top, you can conclude it may be overbought, and when it’s at the bottom, you can conclude that it may be oversold. Knowing this, you can tell when the price may make a potential drop/rally. Again, you can’t rely on RSI or any other indicator by itself. There’s no indicator that will be right 100% of the time, which is why you need to make your decisions based on strategies, not indicators. Look at the RSI example below. To sum all this up, you should realize that indi- cators can help you identify market trends but that they are not always right. You need to know what you’re doing and develop a trading strategy so that you can interpret them properly and give them the right weight in your mind.
Signals
As many of you know, we post signals in our trading room. Before you make any assumptions about that, realize this: you should be wary about the people who are offering to sell you their sig- nals. The vast majority of people do not know what they’re talking about, and when they fail at trading on their own, they launch a signal service to compensate. Another reason why beginners can fail from signals is because they lack the fundamental understanding of how to trade and manage their money. When they get a few win- ning trades, they increase their positions. Then the next few trades may fail and they’ll lose a big portion of their accounts. You cannot master the markets until you master your mind, no matter where you get your trades from. We only send signals as tools for teaching our students, not as specifi c directions. Com- bining an understanding of signals with a solid course, training videos, and real-world trading experience, you can actually learn how to do this for yourself. The last thing you should ever do is accept someone’s signals blindly. If they are offering a get-rich-quick scheme, recognize it for what it is (uselessness) and skip out on it. It bears repeating that we don’t offer get-rich-quick schemes: we are offering you education that will require you to work and build your skillset steadily over time.
What are signals for anyway?
Our signals are helpful because they afford you a glimpse into our trades so that you can learn from what we’re doing. They may earn you a little starter cash, but they are primarily educational tools. You can spend years learning about forex and still not know it all, and we can’t fi t all of the information you need into one tiny eBook. Subscribing to our Training Room and Live Trading Room, you can see how we set up our trades and how we apply the knowledge we have presented here. Soon, you’ll be able to recognize the patterns we have taught you and fi nd them in the wild. As a subscriber, you will also get access to our support team 24/7. Many of our clients reach out to us periodically to ask about our trades and to get our opinions on pairs. When you are starting out, this information will be invaluable. You should not be paying for signals for your whole life, but rather to cultivate the right mindset and process- es, as they do have their place. If you’re serious about taking your trading to the next level, reach out to our Team to learn more!
Trade Examples
EUR/AUD 1D From: 09/01/2018 To: 03/12/2018 For this trade, our team spotted the price bouncing on the rising trend line. We saw that the price had broken the support, so we had our signal group enter a sell. Once the trade hit about 390 pips of profit, we saw that it was making a pullback and that it would be likely to move towards the monthly low and touch down somewhere near that bottom resistance. We had our signal group enter another sell during the pullback for an additional 460 Pips of Profit. This trade brought our group an average 850 pips of profit.
USD/TRY 1D From: 27/03/2019 To: 31/07/2019 For this trade, we waited for the price to break through the support line it had been following for about a month. We then waited for the price to retrace up a little before the bears came in with a downward movement. The bears finally came in with the downward wave we were expecting and formed a bearish channel that brought the trade to our TP with 473 pips.
NZD/CHF 2D From: 01/08/2018 To: 20/05/2019 For this trade, we waited for the price to break through the channel it had been bouncing along for about 9 months. We then waited for the price to create a consolidation zone that acted as a bearish channel and gave our final confi rmation for the price to break the bullish channel. The bears fi nally came in with the downward wave we were expecting and brought the trade to our TP with 133 pips.
NZD/JPY 1D From: 01/12/2018 To: 07/05/2019 For this trade, we waited for the price to break through the channel it had been bouncing for about 9 months. We then waited for the price to create a consolidation zone that acted as a bearish channel and gave our final confi rmation for the price to break the bullish channel. The bears fi nally came in with the downward wave we were expecting and brought the trade to our TP with 133 pips.
GBP/AUD 8H From: 30/08/2019 To: 16/10/2019 For this trade, we saw that the price was bouncing inside a bullish channel (bullish long-term out- look). The price touched the bottom of the channel and bounced, starting a bullish trendline. A market entry order was set at the end of the pennant, expecting a rally. TP was set just below the upper trendline and SL at the bullish channel structure. The bears took control of the price and made a drop, but the bulls still maintained strength and respected the support from our original trading plan. After a couple of bounces, the bulls came in with some huge power which pushed the price right to our target, and automatically closed the trade after hitting TP.
From: 28/10/2019 To: 21/01/2020 Price was bouncing inside a falling wedge after breaking the rising wedge in a bearish long-term outlook. A market entry order was set at the retest on the trendline, and we expected a powerful bearish wave as the bullish trendline had a lot of slope. SL was set above the previous high (supply zone), and TP was set at the bottom of the structure. The price created a symmetrical triangle that acted as a consolidation zone for the previous uptrend (flag pattern). The price dropped to the bottom of the wedge after touching the supply zone, breaking the bearish triangle, but it didn’t hit the TP level. We closed the trade early as we saw that a shoulders and head pattern could drive the price at the top of the pattern again.
AUD/JPY 2D From: 26/12/2019 To: 31/01/2020 Price was bouncing inside a rising wedge and completed a five-wave Elliott Wave pattern. As the five-wave pattern ended, we expected an upcoming ABC pattern. A market entry order was set at the top of the rising wedge (end of the fifth wave). SL was set above the golden zone and TP at the bearish trendline. The price dropped to the bearish trendline and made a retest on wave A, but we didn’t close the trade, instead waiting for a price consolidation before another drop. At the end of wave B, the bears came in with lots of momentum and pushed the price to our target, creating the last wave for an Elliott Wave pattern.
USD/CAD 1D From: 15/01/2020 To: 03/02/2020 Price was bouncing in a bearish flag and made a fakeout. The fifth wave created a bearish trendline where the price was bouncing until the sixth wave broke it. The entry price was set above the bearish trendline inside the flag, and the Wolfe Wave strategy helped to confirm the trade. TP was set below the upper trendline, while SL was set at the previous swing low (end of the fifth wave). The price hit the stop order without entering the loss zone, and we closed the trade early as we saw that the weekend gap and Brexit fundamentals could drive the price to the SL level easily.
Conclusion
This eBook isn’t going to make you a millionaire overnight. If you haven’t realized it already, nothing is. Entering the world of trading equipped with a couple more tools, though, you can start making more consistent and profi table trades. All in all, you’re going to become a successful trader by pursuing your goal and never giving up. Instead of wasting your money on a Gucci belt, spend it on a forex course (even if it’s not one of ours). If you start learning to invest in yourself and your own education, you’ll fi nd that that’s the most valuable asset you have. Thank you for taking the time to read this eBook, and if you have any questions feel free to DM us on Instagram.
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