Switztrader Limited (Djordje Novakovic)

Difference between the Forex market and the Stock market

The stock market is the most traditional method to profit from an investment, you can invest in a company or something similar. With the stock market it’s rather difficult to perfect a system that will make you more than 10-15% returns on a year and it’s also impossible to know when the company will decide to go bankrupt or fail completely. You’ve huge places where you can trade the stock market.

At the opposite the forex market has no central market for the forex. The currency pairs traded in the FX market are products quoted by all the major banks. So as there is no central market place the broker is doing the transaction. So when you’re buying a pair it’s your broker who is selling it to you and not another trader.

In the Forex market you can use a bigger leverage and there is more liquidity (one FX day is equal to 1 month of stock market).

The forex market is active 5 days a week, 24 hours per day but it doesn’t mean that the market is always very active. It’s composed of 4 sessions: New York, London, Tokyo and Sydney. I don’t have a special time where I’m trading because I’m a swing trader so I can hold my positions for few days and make a good profit.

Who is trading the Forex market and why?

• We’ve a lot of companies and corporations:
  They have a vital aspect linked to the forex because of their activity. Huge companies are constantly looking to exchange currency because they’re working with a lot of countries and they need to pay them with their local money. For example, if you’re producing an iPhone from Chicago you need to be able to pay the engineer in the us (local money so no transaction) but you also need to pay the materials from Europe in euros and people in china who’re assembling the final product in yen.
• Hedge funds & investors:
  They’re one of the biggest forex players. Hedge funds usually have a large amount of capital that belongs to many clients and investors. Anything they make over their yearly percentage figure they keep for themselves, it’s how they make money.
• Central banks:
  The central banks are responsible for forex fixing. Any action taken by a central bank is most often implemented in order to stabilize or increase the competitiveness of a nation’s economy. Their actions policies and decisions trigger increases and decreases in the value of the country’s currency rates, mainly in the form of inflation. They’re able to play with the interest rate.
• Retail traders and small investors:
  When we’re saying retail traders we’re referring to traders who sit in an office or those who are at home trading their own accounts and learning just like you. The volume of retail traders is extremely low in comparison to the banks, hedge funds and other heavyweight financial institutions. We can note that because of the easy access to those new trading platforms and brokers the number of retail traders is growing at a rapid pace

Different times zones:

In the previous topic we quickly talked about the different trading sessions, but let’s talk about it in more details. Those different sessions are creating ‘’ movement in the market ‘’ those movements are representing the volatility. Of course this volatility doesn’t have an impact on you in your daily life, but if you’re using a leverage, you can take an advantage of this volatility and make money. This graphic is more visual; we can see the different trading session.

Now you know that the market is active, volatile during the different trading session, but you’re probably wondering, when is the market the most volatile during those different sessions?

The market is very volatile at the opening of every single session: 

• London session - 8AM 
• New York session - 1PM 
• Sydney session - 10PM
• Tokyo session - Midnight

Let me explain you with a simple metaphor why the market is so volatile at the opening of each session?

When you’ve your own company you’ve few competitors who’re not necessary at the same place as you, so they can take advantage of your when you’re sleeping. When you’re sleeping you’re not active, so your competitors are working hard to be few steps ahead of you, but when you’re waking up you’re back to the grind, you are Switztrader limited. here to correct those steps ahead. So your first action is to correct this distance between you and your competitors. Different trading sessions are exactly doing the same thing.

The best moment to trade the forex market is during the prime time. The reason why it’s interesting during this period of the day is because we’ve few sessions at the same time, so they’re all fighting.

Leverage:

It’s funny to see how many persons are claiming themselves traders, but they don’t know what is a leverage. At least some of them know that it helps you to get in bigger positions but they don’t know how it works behind.

What is a leverage?

The market is volatile but it moves in such small amounts, that we need to magnify the trade sizes in order to make any real money. Leverage is also called ‘’ the trade size multiplier ‘’.

How can the leverage multiple your lot size?

It’s pretty simple, it means that your Brooker lends you the additional capital, although no money changes hands. Depending of the Brookers, your leverage can be different. But Brookers are offering you a wide range of leverage, anywhere from 10:1 to as much as 500:1. Be careful, your localization, so your country can have some restriction. For example, US citizen can’t have a bigger leverage than 50:1

How does the leverage work?

If you’ve a 100:1 leverage, it means that you only need 1000$ to trade 100 000$ To find how much you can trade you have to multiply the first number (here the 100) with your capital. So if we’re taking another example à You have deposit 36 500$ in your trading account which is located in the US, and your Brooker is offering you the biggest leverage they can (so 50:1). You’ll be able to trade 36 500 x 50 which is 1 825 000$

Be careful with the leverage:

A lot of traders are ONLY seeing the positive aspect of the leverage because it helps you to increase your gain, but remember that because you’re using a leverage you’re also increasing your probability to lose. AND YES, you can’t only increase your profit without thinking about your losses. BE REALISTIC. Leverage is one of the main reason why traders fail: they’re going big without thinking about the possibility to lose. The day they lose, they lose all of their capital.

Lot size:

A lot size is how you’ll determine what each pip you earn is worth. But what is a pip? A lot of traders don’t know the difference between a PIP and a Micropipette (also called pipette), but the difference is HUGE. If EURUSD goes from 1.1050 to 1.1051 then we’ve a variation of 1 PIP

If GBPUSD goes from 1.30542 to 1.30543 then we’ve a variation of 1 PIPETTE.

As you can see 1PIP is equal to 10 PIPETTE, so:

• 1 PIP = 10 PIPETTE 
• 10 PIPS = 100 PIPETTE 
• 100 PIPS = 1 000 PIPETTE

PIP is a very important information for you as a trader because, depending of the SPREAD of the Brooker you’ll decide to go with him or not.

Let’s say you’re choosing FXTM and you want to trade EURUSD at the current price of 1.10510.

• If you want to buy it then your Brooker will give it to you at a lower price. 
• If you want to sell it then your Brooker will give it to you at a higher price. This is the ‘’ spread ‘’

The spread is the difference between your Brooker price and the real price. If you want to buy EURUSD they will give it to you at a higher price, let’s say that this day FXTM is offering you a 1 PIP spread. Let’s also consider the fact that you placed a 1.00 lot size:

You’ll get EURUSD at the current price of: 1.10500 AND NOT 1.10510 - This is the reason why you’re directly in losses.

To understand how much in losses, you are you’ve to multiply your lot size by the number of PIPETTE (in your spread): - 1.00 (Lot size) x 10 PIPETTE (which is the SPREAD) = 10$ in losses when you’re getting in the trade.

Now let’s get back to the lot size system: When you place a trade you’ve to trade in a little currency block or units, these little blocs are called lots. A lot is a certain size of currency traded (a certain dollar amount), here are the different one:

It’s very important for you, as a trader, to use a proportional lot size, for your account. If you use a bad one you can easily get out of the trade. Let me illustrate it with an example:

You’ve a 1 000$ account, and during this beautiful month of August you’re deciding to trade big because you slept well. You are seeing a good opportunity with EURUSD at the current price of 1.10510, and your Brooker has a 1 PIP spread. So you are deciding to get in with a 10.00 lot size (so 5 mini lots) à You’re directly 10.00 x 10 = 100$ in losses. Because you were so impatient you didn’t check out the news, and unfortunately it was the NFP day and booom, EURUSD is dropping to 1.10410 you’re – 1000$ so your Brooker is automatically closing your position and you have blown your account.

Margin:

The margin is a deposit required to open and to maintain open positions. ATTENTION the margin is not a fee or a transaction cost, it’s simple a portion of your account equity set aside and allocated as a deposit to initiate the trade. It’s much easier to define how much your margin will be with an example:

• You’ve a 10 000$ account
• If you want to trade 2.00 lot size, it means that you’ll have 20 000$
• Your Brooker is offering you a 50:1 leverage

Margin = investment / leverage

Margin = 20 000$ / 50 = 400$

• Your Brooker will take 400$ to open your trades.
• When your trade is finished, they are ‘’ refunding ‘’ you those 400$

Risk management:

Risk management is one of the key element in the forex industry. A lot of traders are failing because they can’t respect their own risk management. I understand that sometimes we can be tempted to avoid our own rules and to trade bigger, but please respect your OWN risk management. You’re the only one who’s deciding if you want to risk 1, 2 or 3% per capital. You’ve to decide how much you’re willing to risk? Do you like the risk? Are you neutral? Are you scarred from the risk? Fixing your own limit of the risk is an important step for you as a trader. A lot of traders who’re failing think that the only reason why they are losing is because of their trades. In fact, most of those trades are pretty good at analyzing charts, but they’re not good at following the fundamental rules like, risk management and using the good lot size. Yes, using the realistic lot size shows that you’re using a correct Risk management:

Let’s take an easy example:

- You’ve a 10 000$ account

- You decided to risk 3%, you’re risking 300$

- Your Stop loss is: 50 pips

To find the correct lot size you’ve to use this formula: à Risk amount / by the stop loss size So for our example, we’ve to do: 300$ (RISK) / 50 (pips SL) = 6$ Per pip It means that you can use 6 micro lot, so you can trade 0.60$ per PIP

Let’s take another example:

- You’ve a 6 000$ account.

- You decided to risk 2%, You’re risking 120$

- Your SL is 30 pips down, 120$ / 30 (PIPS) = 4$ per PIP

It means that you can use a 4 micro lot, so you can trade 0.40$ per PIP. There are 3 elements that you should respect in the risk management:

1) You should have a good risk management a proper risk-reward:

- 1:1 means that you need to win one trade over two to be breakeven.

- 1:2 means that you need to win one trade over 3 to be breakeven.

- 2:1 means that you need to win 2 trade over 3 to be breakeven.

Traders who’re using a 2:1 risk-reward are in the long-term not profitable.

2) Don’t fail in the stacking system: 

- Stacking is when the trades goes wrong, traders are attempt to reenter in the trade. 

- Stacking is one of the main reason why traders are losing their money. If the market isn’t going in your direction 1 hour ago, it won’t change now.

3) Don’t be scarred of the losing streaks: 

- Sometimes it happens that you’ve few consecutive losing trades. If you’ve been consistent for a while, those ‘’ losing ‘’ trades are probably not from your fault. Maybe the market is slow, maybe there is some macroeconomic news. 

- Some traders are attempt to stop trading because of the losing streaks, but hella NO! Stick to your trading plan and it will pay off

Emotion control:

We generally say that 90% of traders are losing and this is the truth. Most of traders thing that the success on depends of your trading knowledge and not about the emotion control. If you don’t know how to keep calm when you see lose or if you don’t know how to accept a lost, then it will have an impact in your trades and in your future results. The trading strategy is just one piece of the puzzle. Balancing your emotions in line with your mental processes is vital. If you do not manage these aspects, you will find yourself unable to consistently make money in the market over the long-term.

A lot of people think that: - The forex market is an easy way to become rich very quickly. They think that they can turn 1 000$ into 100 000à within a matter of months. This absolutely the wrong mentality. The best traders on the world have a monthly return of 25-30%. They also think - They ‘’need’’ to make money because of their debt or something else, but no one is becoming quickly rich with trading. If it would be so easy everyone would be trading the forex market, but as you can see a lot of people are scared of it. So if you’re only trading for this ‘’need’’ you’ll be losing because in trading we’re trying to always win our trades but sometimes it happens that the market goes against us. So when you’ll see some negative, you’ll inevitably trade emotionally and you’ll directly close your trades.

You need to understand few things:

• Never doubt of yourself, this is the worst thing a trader can do. Always remind yourself that your opinion is all that matters, trust your own judgment.
• Don’t be fearful of the market, particularly for beginning traders or people who are losing few trades. If you’re not fear because of those reasons, it’s probably because you’re trading and risking too much. There is a simple solution for this: only trade and risk as much as you’re comfortable with losing.
• Don’t be greedy. Greed is possibly the most dangerous emotions, when you will win a trade you’ll probably feel on top of the world and this can cause the greed. If you see that your trade is going good, don’t add positions let’s take your profit.
• When you’re trading you should always have a goal. Trading without goal is like driving without a destination.
• Every day is not the good day for trading.
• Don’t over trade, only trade when you’re sure of you. Trading must be done with absolute clarity, your mindset has to be almost robotics and you cannot allow stress to dominate your actions.

Develop your traders edge:

This book is supposed to transform you. Through this formation you will become an independent trader. Trading is easy but when you are using wrong tools you’ll definitely lose and it will directly affect your motivation. Trading is not easy but it’s also not hard. To become a real trader, you need to understand that sometimes there is nothing to trade, sometimes it’s better to go out with your friends and spend your money in something you will appreciate whereas being stressed in front of your computer and losing your money.

As a trader you need to develop your trader’s edge:

• Creating an edge means that you have found your own way of trading. You found the advantage which gives you the highest probability to win your trade. Trading is all about probabilities. You have to find a good setup which will win most likely of the time.
• How do we find this edge? So I can give you all the knowledge that I’ve but if you’re not working hard it won’t be useful. You’ve to work your ass off until it pays. To find your own strategy you have to start with demo account. You’ll need at least 1 or two months of demo demo and demo.
• If you find your edge you’ll be able to kill the market because it would mean that you have found the strategy that is working for YOU

What I would recommend to you is to start with:

• Trading Plan: a trading plan is the name of your own document where you will note all of your winning and losing trades. Inside this document you’ll have to explain for each of your trades why you’re getting in this or this trade. Like that, through the time you’ll see which method is working or not for you.
• Risk management: Manage your account with your rules, don’t over trade and keep patience. During the lesson I’ll be explaining to find a good risk manage- ment à TP/SL & Lot size)
• Demo is great to build experience and to test your entries and exists live with- out losing your money. Once your edge is consistently wining you will be able to move to a live account.

Trader Mindset:

Only trade when you have chosen your trades meticulously, when all of your conditions have been respected. When you’re trading be 100% focus on what you’re doing don’t worry about what’s happening next to you: when you’re trading, you’re trading nothing else matter. Your mind needs to be clean and still. It has to be calm, I cannot say relaxed because you’re working with real money, this money is yours or this is the money of your client and you cannot lose it, but try to be as relaxed as you can. Stressed people are never successful. Be patient some days there is nothing to trade, it’s prefer to spend your money with your friends whereas in the forex market. Learning how to be patient is another piece of the puzzle.

Your analyses need to be clear and organized. If your chart is not clean then you won’t be glad to open your computer to look at them. At the opposite when they’re clean you’re happy to be here, to check if everything is ok, to see if there is a new opportunity. Don’t rush, if the market is near to your set-up don’t trade, only trade when it’s reaching your step- up.

Be careful when you’re jumping from Demo too Real, there is a big difference. On demo you don’t have emotion control so you’ll more easily win your trades, you’ll feel invincible but then when you’ll go live you’ll be under prepared. To be honest most of my students who becomes really successful are on demo for a period of 3 to 6 months before going live. Don’t rush it’s not because you’re spending one more month on demo ago that the forex market will disappear. We’ve the whole life in front of us! The market will always be here, even ten years from now.

I always say that trading is an art, don’t try to make it looks harder than it really is

What types of trader I want you to be?

Technical trader

To be honest 90% of the market is purely technical. This style is rarely used in other financial markets. The technical analysis entails the study of historical currency price chart in order to recognize patterns and technical signals. So you’re a kind of artist who’s trying to understand how this lovely market is working by using your own tools. In technical analysis we generally use simple tools as trend lines, support and resistance, candlesticks and few indicators. You can note that your technical analyze can be different depending of your time frame.

Who is swinging.

Swing trading is a style which is trades based on a medium term market views. Swing traders are generally using 4H, daily, weekly and monthly timeframes. A swing trade can be hold from 1 day to few months. When you’re a swing trader you’re not stressed, you’re not waiting behind your computer counting every single pips before hitting your take profit. Swing traders are generally trading the trend, they rather prefer to go with the trend. They trend is their friends.

• Fundamental trading is something more complicate where you need to work with different types of economic models.
• Scalp trading is not working consistently in the forex industry. If you can win once or twice take your profit but stop or it will burn you.

Technical Analyze, Forex Market First step, trend-lines

What is a trend line?

The first thing that you have to do when you’re opening your charts is to watch if we’ve bearish or bullish trend. What’s bearish and what’s bullish? Bullish means it’s going up. Bearish means it’s going down. It is necessary to know the type of your trend because we never sell in a bullish trend and never buy in a bearish trend.

Few things about trend lines:

- To find your trend-line you have to go at the weekly chart.

- Trend-line need to touch shadows.

- They also need to be parallel (90% of the time)

Example of trend line:

Some tip for trend-line:

- Trends lines generally break at the end of the year as a new trend is begins.

- Trend lines are extremely important because they release a lot of information’s:

Now you know what’s a trend-line but what do we’ve behind it?

When we’ve a peak formation low or a peak formation high, several spikes may appear which are all apparently contained by a trend-line. But what is really happening here? The market maker (MM) is trapping volume and it’s important to notice that each subsequent spike it’s not lower or higher than the previous so that any new trades taken in the direction of the spike do not have an opportunity to become profitable: they become trapped. We can see in the example below, the speak low is identified and followed by 2 further downward spikes. The important feature to notice is that each of the spikes is higher than the previous which prevents short position holders from taking any profit whilst potentially encouraging new short in this region. So in a bullish trend there is no logic to sell and in a bearish trend there is no logic to buy.

Now let’s talk about Wedge zone:

(type of trend) In the example below you can observe that on the lower boundary of the wedge the peaks become slightly higher each time it comes down to the line. ( à So there is no logic to sell) This has the effect of ensuring that none of the trades that are taken short in these region can turn a profit. Similarly, on the upper boundary of the wedge, the same thing is happening with each of the peaks becoming progressively lower and trapping the higher level longs and pulling them down. (No logic to buy). I would recommend to you to not trade Wedge zones: they’re risky. There is no way of predicting which direction the price will ultimately breakout. This will be determinate by the net volume that occur. In other words, if there is a greater build-up of short positions over the long positions then then wedge will break up.

Resistance and support

What’s a Support?

The support is the price level to which historically a stock has had difficulty falling below. It is thought of as the level at which a lot of buyers tend to enter the stock.

What is a resistance?

A resistance is an area of resistance which indicates that the stock or index is finding it difficult to break through it, and may decrease soon after. The more times that the stock or index has failed at breaking through the resistance level, the more formidable that area of resistance becomes.

When you’re trading you have different kinds of resistance and supports. We have stronger resistance and stronger supports that we call major resistance and major supports. Major Resistance and support are very hard to break; to break them you generally need economic news.

How to find Major resistance and Major support?

- To find them you have to refer to the daily charts

- The major resistance is the highest resistance

- The major support is the lowest support.

Then you can look for the intra resistance and intra supports. They’re situated between the major resistance and the major support.

Why do we use Resistance and Supports?

Resistance and supports levels are widely used by experienced traders, to formulate trading strategies. For example, if a stock is approaching to a resistance level, maybe you could look for a sell position, and close your buy position. The market is bouncing between the resistance and supports. So generally people are using the concept of buy low sell high.

Let’s analyze one chart:

Here we’re in a bullish trend, which means we only buy. As I explained to you, we buy low, so we’re buying when the market is near to the support. All of the orange area are positions that I traded.

Stochastic

What is the stochastic?

The stochastic oscillator is an indicator that measures overbought and oversold conditions in the currency market. The two lines are similar to MACD lines in the sense that one line is faster than the other. The stochastic tells us when the market is overbought or oversold, it is on a scale of 0 to 100.

- From 0 to 20 we say that the market is oversold.

- From 80 to 100 we say that the market is overbought.

- When the stochastic is between 20 and 80, it is useless.

When the market is overbought it means that the price will drop à Therefore we sell. When the market is oversold it means that the price will go up à Therefore we buy. That’s the basis of the Stochastic. Many forex traders use the stochastic in different ways but the main purpose of this indicator is to show us where the market condition could be overbought or oversold.

Personal example of how I use stochastic:

This indicator helps us to determine when we want to get in a trade. For example, when in a bullish trend, we’re near to a resistance and we want to buy, we can refer us to the stochastic to confirm that this entry is good:

What can we notice? 

- In this example we can clearly see the correlation between support and the stochastic. 

- If there is no link between them it’s probably that you have drawn the wrong resistance and the wrong support.

Parabolic SAR

What is the parabolic SAR?

The parabolic SAR is an indicator that shows us the trend, it is totally different of the stochastic. It’s composed of dots which can be above the candles or below. The parabolic SAR is very simple:

- When the dots are below the candles it means that it is a bullish area so we can buy.

- When the dots are above the candles it means that it is a bearish area so we sell.

How do we use the parabolic SAR?

The parabolic SAR is not useful at the beginning it won’t help you to find the good entry, to find the trend. If you want to use this tool to find you entries, you’ll always be late and probably lose most of your trades. I use this tool help me to determine when I should close my trade. For example, if I’m in a buying position the dots are below the candles. I’ll hold my trade until the dots start being above the candles.

Here an example: 

When the dots are showing a buy positions with EURGBP, purchases are easy. But then when they’re showing a selling, it must be closed. It means that we reached our take profit.

Elliot waves

What’s the Elliott waves?

Elliott wave is a theory developed by Ralph Nelson Elliott. This theory identified a certain structure to price movement in the financial markets. The basic Elliott wave is composed of 5 wave/impulse sequences and 3 corrective waves. People generally find this strategy pretty hard to understand but I’m going to show you how it can be easily used. Elliott wave illustrates that EVERY action is followed by a reaction.

There are two types of waves:

- Impulse ones move with the trend (Wave 1, 3 and 5)

- And Corrective ones move against the trend. (Wave 2 and 4)

Some rules to respect:

Rule 1: Wave 2 cannot retrace more than 100% of the Wave 1.

Rule 2: Wave 3 cannot retrace more than 100% of the wave 2.

Rule 3: If Wave 3 is very long, wave 5 will be short.

- We generally buy at the end of the 2nd and 4th steps.

- Elliott waves are generally present at the daily and 4H charts

- Do not only focus on Elliott wave. Elliott wave is extra information, if there is no Elliott wave it does not matter.

Elliott wave is not only composed of the 1,2,3,4,5 steps but also the A, B, C correction. I personally don’t trade each step of the Elliott wave correction I just put a sell order when it reaches the 5th step.

Example of Elliott waves:

Candlesticks

There are two types of candles: bearish and bullish one. 

- A bullish candle is a candle which is going up, it means that if it is opening at 36.00 it will close at 36.50 

- A bearish candle is the exact opposite of this one. So if the candle opens at 36.00 it will close at 35.00

Candles have a rectangle form and they generally have shadows but it's possible to have a candle without any shadows. Shadow represent the highest level and the lowest level that the candle reached during the time frame selected. There are different types of candles: the 5 minutes’ candle, 1 hour, 4 hours, daily, the weekly, monthly... So if we take a daily candle each candle represents a day, so you will have from 28 to 31 candles per month. You also have the same with the 1 hour charts, each candle represents 1 hour so we have 24 candles per day.

Most important thing with candlesticks:

The 1st and perhaps most important thing to understand about candlesticks and price action is that in the wrong market conditions they have little or no meaning. You’ll see that a hammer in the middle of the trend is relatively meaningless. At the opposite, a hammer at the high or a low of the day has a great deal of significance. à Candlesticks are like books; they deliver us information about what will happen in the market.

DODJI CANDELSTICKS:

What is a Dodji candle?

You need to have a micro-candle that has the same opening and closing price but has big shadows. The Dodji candles is the most popular candlestick. The Dodji is a pivot candlestick, it changes the trend: if it's going up after the Dodji it will go down, but if it's going down it will then go up.

We ALAWYS Trade Dodji when they are near the resistance or the support.

When the Dodji is near to the resistance - We sell

When the Dodji is near to the support - We buy

It is important to be careful when the Dodji is in the middle as it is too risky to trade.

MARUBOZU CANDELSTICKS:

What is a MARUBOZU?

A marabou is a full candle that has no shadows. It only pushes one way, pushing up or down. This is a conviction candlestick.

How to trade it?

If the Marubozu breaks the resistance, the bullish Marubozu show us that the breakout has been successful and there is no possibility of sale. Our resistance is now our support.

If the Marubozu is near the resistance and it’s bearish it means it's going to change the market trend, and it's going to go down.

HAMMER/ HANGING MAN CANDELSTICKS:

What is a Hammer?

It's a bullish reversal signal. It means if the trend is going up, it's going to go down immediately after. If it's going down, it's going to go up after the Hammer. The Hammer is composed of a Long Lower shadow, (at least 2x the size of the real body) but no upper shadow, and a small real body.

How do we trade it?

The Hammer is a pivot candle which means it changes the trend. So the HAMMER here represents a buying action. The trend is going down, then goes up. The hanging man is the same candlestick as the Hammer, they only have a different name.

SHOTING STAR/ INVERTED HAMMER CANDLESTICK: 

What are Shooting stars/inverted hammers?

It's the exact opposite of the hammer. So it's not a bullish reversal signal but a bearish reversal one. It means the same as the hammer, so if the trend is going up, it's going to go down immediately after. If it's going down, it's going to go up after the Hammer. The Shooting star is composed of a Long Upper shadow, (at least 2x the size of the real body) but no lower shadow, and a small real body.

How to trade it?

The star is a pivot candles so it changes the trend, so the ' Shooting star ' here represents a selling action. The trend was going down, now it will go up. The inverted Hammer is also going to ensure an upward trend.

DARK CLOUD COVER PATTERN CANDELSTICKS:

What is a Dark Cloud Cover?

The first is a long bullish candle, the second one is bearish that closes below the middle point of the 1st candle. They generally don't have shadows, but they can. The real body needs to be big. We need to see a change in a market that is not a micro-change. The dark cloud cover needs to be done during a strong upward trend.

How to trade it?

The first one is a Dark cloud cover because it formed after a strong upward trend. But the second one is not a Dark cloud cover because it’s a down trend

THE BULLISH PIERCING PATTERN:

What is a Bullish piercing pattern?

The first is a long bearish candle. The second one is bullish that is closing below the middle point of the 1st candle. The real body needs to be big. We need to see a change in a market. The dark cloud cover needs to be done during a strong upward trend.

RISING THREE METHOD CANDLESTICKS: 

What is a Rising three method candles? 

The first one is a long bullish candle. The next 3 candles are small and are bearish. The 4th one is a long bullish candle that closes above the first bullish candles. The 3rd candle can sometimes also be bearish.

FALLING THREE METHOD CANDLESTICKS: 

What is a Falling three method candle?

The first one is a long bearish candle. The next 3 candles are small and are bullish, but the 4th one is a long bearish candle that close above the first bearish candles. The 3rd candles can sometimes also be bullish.

How to trade the RISING AND THE FALLING three methods? 

RISING:

When you have an uptrend, and you see long candles like the first one, you need to wait and see a candle confirmation. Here, you would sell after the 2nd bearish candlestick. It can also be traded after the high level. It is important to sell after a Dodji or another special candle.

FALLING: 

It must be traded during a DOWNTREND. When after the first long bearish candle and the 2nd bullish candle can be seen: buy, take profit and then close. Then you can also sell the long bearish candlestick.

THREE WHITE SOLDIERS:

What do we need?

The three white soldiers are a bit harder to trade, and are rarer, but are tradeable.

We need to have 3 candlesticks with real large bodies,

They also need to have small or no shadows.

The first candle is usually a bullish piercing or engulfing candle.

The second candles have to be bigger than the first ones.

The third one should be at least the same size as the second candle.

THREE BLACK CROWS:

What is needed: the same as a Three with soldiers, but for a bearish zone.

The last thing with candlesticks:

After a big drop the market must chop à So it will go up.

After three days (max 4) of drop the market must chop - So it will go up.

After a big rise the market needs more guys - So it will go down.

After three days (max4) of rise the market needs more guys - So it will go down.

That’s nice for swing positions: If you are in a bullish trend you bought when it was near to the support and now it’s going up. Then you see 3 bearish candle so you know that you can rebuy. Of course this new positions needs to be smaller than the 1st one.

This is not a real strategy this is more something we can notice in the market. It cannot guarantee you a 100%-win ratio.

Here is the key to your success: 

Generally, people think that there is only one real strategy in the forex market but that is wrong. In the forex market you need to learn FEW strategies. When you’ve all of the knowledge needed you can finally start to trade. But how? If you want to trade you need to know and understand all the information that the charts reveal. Here is an example:

- Candle rejecting the support. Buy.

- Dodji candle, so changing the market trend. Going down now will go up. Buy.

- Stochastic is oversold so it means it will go up. Buy.

- RAS sell signal stopped, now we have a Buy signal Buy.

- Kind of Elliott wave done (5th step reached so ABC correction) Buy.

- Support, simple strategy of buy low. Buy.

Bollinger Band

What’s the Bollinger band?

Now that we’ve seen how to be a swing trader, I’ve to show you how a real trader can scalp. Scalping is riskier, there is more speculation. When you’re a swing trader you’re always trading the trend. At the opposite a scalper trader can sell in a bullish trend or buy in a bearish trend. I personally think that the best scalping strategy is the Bollinger bander. Be careful, this tool can be used for swinging or scalping. I’m going to show many ways of how the Bollinger bander can be used.

The composition of the Bollinger bander:

The Set-up is:

Length: 20

Standard deviation: 2

There are 3 lines:

- The highest one which is a kind of resistance

- The lowest one which is a kind of support

- The middle one which is the moving average.

In our case we will only focus on the resistance and the support.

The Bollinger band is an indicator that is used to measure the market volatility. Basically, this tool tells us whether the market is quiet or whether the market is loud. When the market is quiet the band is contracted:

When the market is loud the band is expanded:

How is this information important?

When the Bollinger bands are contracted it means that the market is in a consolidation area. If they’re contracted near to a support it means it will go up.

If they’re contracted and near to a resistance it means it will go down.

So to conclude this first part with Bollinger band, this tool helps us to see when a breakout will appear. When the bands are contract it means that a break out will happen. If they’re near to the support the breakout will be bullish, if they’re near to the resistance the break out will push down. Like I told you before the Bollinger band is composed of the 2 important lines, the highest one : resistance and the lowest one: support. When a candle is closing under the Bollinger band resistance we can consider that we’ve a good opportunity to sell.

Here is an example of all of the information’s that you can mix with the Bollinger band:

The 2nd way of how do we use the stochastic:

(Only at the 4H charts) This is probably the only strategy that I would recommend to you to directly trade from your phone on MetaTrader4. This is only a logical part that you can understand after having some experience in the forex market and understanding how everything is working behind it. If you don’t understand just buy and sell when the conditions are respected. If the highest line (resistance) of the BB is broken, then we sell. WHY? Because it means that in this short period there is too many people who bought this pair and this is the reason why this pair is rising up. But market makers need to correct that, so to trap you they’ll sell a higher volume than all of the retail traders and it will go back to the initial trend in the short term. If the lowest line (support) of the BB is broken, then we buy.

Fibonacci

How do we use it?

A lot of people are contacting me to understand how Fibonacci works. There is an infinite way to use this tool, but I prefer to use it as an indicator which shows us resistance and support. Fibonacci retracement lines are based on the Fibonacci sequence and are considered a predictive technical indicator providing feedback on possible future exchange rate levels. Some traders only swear by the accuracy which Fibonacci retracement give us. A small part of trader think that Fibonacci is more an art than a science. But trading is an Art, isn’t it?

I’m going to show how I’m using this tool:

- I always use it at Daily chart.

- It’s only giving me confirmation of my resistance and supports.

- When you’re drawing the Fibonacci retracement you’ve to draw it thank to the shadows.

Here is a virgin chart where I draw: 

- Weekly trend: Bearish, so only sell positions. 

- Daily Resistances and supports. We see that the market broke the last support which becomes a new resistance. The candle is trying to go back up. Let’s see if we will have a candle rejection or not.

NOW I’m going to show you how I use Fibonacci to confirm that my resistance and support are ok.

Now let’s insert the Fibonacci like I explained to you.

As we can see the Fibonacci retracement is showing us that I’ve draw the good resistance and the good support. And as excepted, it dropped:

Not let me tell you what people think about Fibonacci: Fibonacci is composed of few ratios:

The first set of ratios is used as a price retracement levels and is used in trading as possible support and resistance levels. The reasons we have this expectation is that traders all over the world are watching these levels and placing buy and sell order at these levels which becomes a self-fulfilling expectation. The second set is used as price extension levels and is used in trading as possible profit taking levels. Again, traders all over the world are watching these levels and placing buy and sell orders to take profits at these levels which becomes a self-fulfilling expectation.

Fundamental Part of the Forex Market: Economic news

Every day the market sees the release of important piece of economic data. The FED minutes, US CPI or manufacturing number and Eurozone interest rate are called macroeconomic data. And these data releases impact price action, both long term and short term. Fundamental announcement is a vital part of trading Forex, stocks and pretty much all markets. The help to move the Market along faster, creating huge liquidity in short periods of time. They also create a lot of volatility, this combined with liquidity can be taken advantage of. The general consensus is and always has been the Market will follow the economic numbers. Let’s talk about the most important factors: Interest rates and higher interest rates: First of all, you need to understand the difference between the real interest rate and the interest rate in the economy. BUT don’t worry, even if you don’t understand it doesn’t really matter because 90% of the time on the economic calendar you’ll only have the economic interest rate and not the real interest rate.

If I’m talking about the real interest rate of the country, yes there is the economies interest rate but not only there is a lot of other elements. I made this example with 2 models: IS-LM and Mundell-Fleming.

NFP

To summaries: For that kind of news if we’ve a higher interest rate it will provoke an appreciation of our currency. So today you, the British investor, you’re giving me 1£ for 1.3CHF but tomorrow you’ll give me 1£ for 1.2CHF, so you’ll receive less, so you won’t continue to invest in my country because it becomes too expensive for you. But 90% of the time the interest rate works like that:

• Lower interest rates will provoke a currency de-value. There is less investment, due to the lower rate of return. Interest rate drive the flow of money, which is the very back bone of the Forex Markets.
• A Higher interest rates at the opposite will provoke a better value for the currency. More people will invest in the country.
• Manufacturing data are strong data for industrialized countries. It’s positive if the No’s are higher than expected, and Bearish if the No’s are lower than expected.
• Employment data: higher employment, weak inflation and a strong consumer confidence No’s will be positive for the currency. If we have a weak employment, consumer confidence and a strong inflation it will have a negative impact on the currency.

Special information’s: (not always true)

If the price of the Crude oil increase, then WTI will rise up.

If we’ve growth of the inflation gold will rise up.

What’s the NFP?

NFP is the Non-Farm Payroll. This is a statistic researched recorded and reported by the US bureau of Labor Statistics intended to represent the total number of paid US. Workers of any business, excluding the following employees:

• General government employees 
• Private household employees
• Employees of non-profit organizations that provide assistant to individuals 
• Farm employees

The NFP is reported monthly, on the first Friday on the month and is used to assist government policy makers and economist determine the current state of the economy and predict future levels of economic activity. So it’s normal that NFP create a lot of volatility and havoc in the market. Straight after the data release there will be sudden spikes in price across all USD pairs.

More elements. How everything is working in the market:

A large number of transactions are required to shift the price. It costs about 10 000 lots to move the market by one pip. If one institution places an order to buy 1 000 000 000$ which is 10 000 contracts of Euro then it would require 10 000 trader selling one contract each, or 100 000 traders selling 0.1 A market maker is someone who has the intermediaries function in sales and purchases between two currencies. For example, a bank will function as a market maker when it collects sellers of the US dollar to then sell to investors who have Euros in exchange. The value of each currency is based on the current market value. What you need to understand is that Market Makers (MM’S) are traders and their objective is to make money. The major difference between them and other trader is that they’ve massive volumes, so they can move the price as they wish. So to make money they achieve this:

Including traders to take positions:

They play with a range of price movement to trick traders into taking a position in a given direction but then reversing it again. For example: MM can sell a specific currency at a certain price and then buy it back at a lower price when the retail traders feels to much pain from the currency value moving backward and wanting to sell it again.

Create panic and fear to induce traders to become emotional and think irrationally:

Quick moves

Spike candles

News releases

Inexplicable price behavior.

Hit the stops and clear the board:

This forces traders into ‘’margin trouble’’ and ultimately out of the game. One of the most powerful tool they’ve.

Brokers and dealers have mechanisms available to them for manipulating price to enable the process of taking money from traders, who are also their clients.. That’s sad. Traders transactions are dealt from their house and they never make it to the interbank market so it’s very easy for them to manipulate price to their own advantage. They have a number of additional tools at their disposition:

• Requoting the pair
• Trigger all stops in a given price range
• Changing the spread - This is why the scalping method often fail.
• Throw a price spike to hit stop lost. 
• Target traders who are in a margin trouble and move price against their positions to ‘’finish them off’’.

STEP 1: here the Money makers oups.. the market makers already knew that this pair will go back up. But as we can see there is a resistance so if we’re trading at the daily timeframe it doesn’t really matter because the daily candle didn’t break the support. But if we’re at the 4H charts or 1H then we have a problem: the candle broke the support so should we continue to short//sell this position? The answer is NO! Market makers are playing with you; they’re trying to show you the wrong direction like that you’ll sell but then it will rise up.

With my strategy we call the 1st candle: candle rejection.

STEP 2: here we’ve a dodji candle which is another information that the price will go back up. For short term trader it a weird zone where they don’t know what’s happening because the candle number 1 broke the support, but then it’s rising up.

STEP 3: here we’re holding, nothing special is happening: consolidation zone.

STEP 4: Our profit is here!

Few rules to respect in trading:

1. The most important rule for me is, when you want to get in a trade be sure about it, never trade when you're scarred. Sometimes there is nothing to trade, so don't be aggressive with the market, take your time.
2. The second one is when you close your trade and you see that it’s still going up, don’t rebuy, it’s too risky! If you closed your trades it means, there is a reason. Better to trade safely.
3. Be careful with the risk management, don't trade 0.50 lot size if you only have 200$ on your account: use the leverage.
4. NEVER, NEVER listen the others, if you trust in you you’ll be successful. Never trust the others. You're the future Warren Buffet.
5. Your analyze need to be CLEAN. Don't try to put 100 resistances, 100 supports and 20 trend-lines, just try to do your analyze clearly, trading is already an art, it has to be beautiful.
6. When you are trading all of the strategies are not good for you, try to find your own strategy, and this strategy will make the difference between you and the others.