Guide to Forex Trading Basics

Let’s Start
LX Global Solutions www.lxcapital.net

• The financial markets are risky. There is a real risk of
losing money in any Stocks or Futures or Currency
markets or Options market, and the individual must
decide his or her own financial ability to trade in such
markets. Mirror Forex Pvt. Ltd. ,its directors, officers
and or employees are not Responsible for any
Investment for trading.
• No guarantees nor warranties have been implied as to
the profitability of any individual who may use the
techniques and indicators learnt or used in this Forex,
Stocks, Futures and Options course. No advice has
been offered as to the individual’s financial decisions
or ability to execute transactions in any trading
market with the course contents learnt in this course.
RISK DISCLAIMER

FOREX MARKET
• Opened to small investors in 1995
• Prior to 1995, the requirement was to
have $1 million USD in cash or assets
to trade Forex
• Margin requirements have changed for
the small investor since then
• Small investor can even open an
account with $500 USD and trade
Forex

FOREX MARKET
 De-centralized market.
 Many locations in the world.
 For example: Sydney, Tokyo, Hong
Kong, Singapore, Frankfurt,
London, and New York
 Starts: New Zealand/Sydney
 Ends: New York

Comparison
Volume in Forex is more then all other world Markets
COMBINED
$5 Trillion
$300 Billion
$100 Billion
US Stock Market US Treasury
Bond Market
FOREX

• To make money
• To learn a technique of making money
• Be your own boss and choose your own
hours
• Trade comfortably from home
• To have more time for what you want
to do:
► spend more time with your families
► to play Golf.
WHY TRADE?

KEYS TO SUCCESS
• STRONG DESIRE/INTEREST
• PATIENCE
• A VALID TRADING PLAN
• CONFIDENCE IN TRADING PLAN
• EMOTIONAL DISCIPLINE
• RIGID MONEY MANAGEMENT
• ADEQUATE CAPITAL

Success =
SELF DISCIPLINE + KNOWLEDGE + EXPERIENCE +
SKILL
= Profits
FORMULA FOR SUCCESS

A TRADING SYSTEM
• Watch the markets religiously but without
trading
• Begin demo trading the most promising
ideas
• Know the primary chart pattern that
repeats everyday
• Learn the techniques necessary to be a
consistent winner in the forex market
• Know why market act in a non-random
pattern that repeats everyday

Market Nature
• Struggle between bulls and bears
• Market moves in waves . At any given
time, market is doing one of the
following 3 things:
– Trending UP
– Trending DOWN
– Sideways movement

Trending UP Trending DOWN
Higher highs,
Higher Lows
Lower Highs,
Lower Lows
Sideways Movements

•NO Boss, NO employees
•Work from home or ANYWHERE
IN THE WORLD
•No Selling, No inventory
•Minimal investment
•Unlimited potential
•Low overhead
•Part time or Full time
Trading as an Ideal

WHY SOME TRADERS LOSE MONEY
•NO EXPERIENCE
•LACK OF KNOWLEDGE
•NO SELF DISCIPLINE
•NO TRAINING
•NO FOCUS
•NO MONEY MANAGEMENT

CHARACTERISTICS OF A SUCCESSFUL
TRADER
• A SENSE OF HUMOR
• EMOTIONAL CONTROL
• ABILITY TO FOCUS
• FOLLOW THE TRADING PLAN
• ALWAYS SEEKING TO IMPROVE AND
LEARN
• LITTLE OR NO EGO – STRONG SELF
CONCEPT
• ACCEPTANCE OF LOSING TRADES

CRITICAL MISTAKES TO AVOID
• TRADING WITHOUT A PLAN
- Relying on “Gut Feel”
- Not paying attention to news reaction
(forexfactory.com)
• IMPATIENCE
- Trading too frequently
- Overconfidence – “This is easy”
• POOR MONEY MANAGEMENT
- Not using stops – Trading too large
- Hoping the pain will end
- Trades becoming “Investments”

MONEY MANAGEMENT
• Don’t trade with ‘scared money’
• Don’t risk more than 5% of your
capital on any trade
• If your trading Performance is
struggling:
- Reduce lot size, revert to demo trading or
take a vacation
- Key: Learn to succeed before going broke
on the learning curve

PUT THE POWER OF PATTERN
RECOGNITION IN YOUR TRADING
• Learn how to put the probabilities of
winning in your favor by focusing on the
price
• Know the primary chart pattern that
repeats everyday
• Learn to trade without fear
• Learn the techniques necessary to be a
consistent winner in the stock market
• Understand the harmony in the forex
market and why it must move up and
down

FOREX MARKET
• Trade possibilities in approx. 30 currency
pairs
• Focus on 6 currencies: USD, GBP, JPY,
CHF, CAD, AUD, EUR
• Best pair to trade in terms of volume and
volatility is EUR/USD
• No gaps
• Immediate execution
• Leverage 500:1

FOREX MARKET
• 1 standard lot = $100,000 1 pip = $10 USD
• 1 mini lot = $10,000 1 pip = $1 USD
• 1 micro lot = $1,000 1 pip= $0.10 USD
• Our objective is to capture pips

Bearish Market
Uptrend
Uptrend
Uptrend
Downtrend
Downtrend
Downtrend
Sideways Trend
Sideways Trend
Sideways Trend

Timing in the Forex Market
• Forbidden timing to trade : 1 am – 5 am
– No major markets open
– Minimum movement
– Financial institutions are still executing transactions but not
large enough to move the market
– Market consolidates (sideways/choppy) and moving in the range
of 5-20 pips
– During this time, there is more risks, can have losing trades and
may be frustrating
• Best time to trade : 2pm – 11 pm
– During these times there are major movements in the market due
to some fundamental economic news announcements

Trading Types
• Short term trading (Day trading)
– Closing all positions at the end of the day
– Swing trading (3-10 days)
• Long term trading (6 months – 2 years)
• Note: Day trading margins are much less then swing
or long term trading margins

Break Time

LEVEL 2 COURSE

Candlestick Anatomy
High
“Upper
Shadow”
Low
“Lower
Shadow”
Range
Open
Close Open
Close
Japanese Candlestick:

Reversal Price Patterns
Candle types
Doji
Engulfing
Hammer
Hanging man
Harami
Harami Cross
Inverted Hammer
Shooting Star
• Morning Star
• Evening Star
• Tweezers top
• Tweezers bottom
• High Wave Candles
• Spinning Tops

Doji
Four types of Dojis:
Common, Long-Legged, Dragon Fly and
Gravestone
Dojis open and close are at the same price
level.
Common Doji

Engulfing Bullish Pattern
• Forms when a small red candlestick is followed by a
large green candlestick that completely eclipses or
"engulfs“ the red candlestick. The shadows or tails of
the small candlestick are short, which enables the
body of the large candlestick to cover the entire
previous candlestick.

Engulfing Bearish Pattern
Consists of a small green candlestick with short shadows
or tails followed by a large red candlestick that eclipses or
"engulfs" the small green one.
Smaller body

Hammer
Occurs when a security trades significantly
lower than its opening, but rallies later to
close either above or close to its opening
price. This pattern forms a hammer-shaped
candlestick.
Body is red if stock
closed lower. Body
is green if it closed
higher.

Hanging Man
A bearish candlestick pattern that forms at the end of an uptrend. It
is created when there is a significant sell-off, but buyers are able to
push this stock back up so that it closes at or near the opening
price. Generally the large sell-off is seen as an early indication that
the bulls (buyers) are losing control and demand for the asset is
waning.

Bullish Harami
Bullish Harami Pattern is characterized by a small green
real body contained within a prior relatively long red
real body. “Harami” is an old Japanese word for
“pregnant”. The long red candlestick is “the mother”
and the small candlestick is “the baby”.

Bearish Harami
Bearish Harami Pattern is a two-candlestick pattern
composed of a small red real body contained within a
prior relatively long green real body. “Harami” is an old
Japanese word for “pregnant”. The long green
candlestick is “the mother” and the small red candlestick
is “the baby”.

Bullish Harami Cross
Bullish Harami Cross Pattern is a Doji preceded
by a long red real body. The Bullish Harami
Cross Pattern is a major bullish reversal
pattern. It is more significant than a regular
Bullish Harami Pattern.

Bearish Harami Cross
Bearish Harami Cross Pattern is a Doji preceded by a
long green real body. The Bearish Harami Cross Pattern
is a major reversal pattern and is more significant than a
regular Bearish Harami Pattern

Bullish Inverted Hammer
Bullish Inverted Hammer Pattern is a
candlestick characterized by a long upper
shadow and a small real body preceded by a
long red real body.

Bearish Inverted Hammer
There is a long string of green candles, and then suddenly
a red candle appears. The body is very short and has a
sizeable upper wick. Prices have started at a low point,
but made up for it.

Shooting Star
Shooting Star Pattern suggests that prices may be
approaching to a top. It looks like its name, a
shooting star. The shooting star is a small real body
characterized by a long upper shadow, which gaps
away from the prior real body.

Morning Star
This is a three-candlestick bullish formation that signals a
major bottom. It is composed of a first long red body, a
second small real body, green or red, gapping lower to form a
star. These two candlesticks define a basic star pattern. The
third is a green candlestick that closes well into the first
session’s red real body. Third candlestick shows that the
market turned bullish now.

Evening Star
This is a major top reversal pattern formed by three
candlesticks. The first candlestick is a long green body; the
second one is a small real body that may be green. It is
characteristically marked with a gap in higher direction
thus forming a star. In fact, the first two candlesticks form a
basic star pattern. Finally we see the red candlestick with a
closing price well within first session’s green real body.
This pattern clearly shows that the market now
turned bearish.

Tweezers Top
High at the same price.
Size of body is irrelevant.
Lows can be uneven but tops
have to be the same

Tweezers Bottom
Low at the same price.
Size of body is irrelevant.
Highs can be uneven but
bottom have to be the same

High Wave Candles
Bearish pattern

Spinning Top
Small real bodies
Bearish pattern

Types of Orders
Market Order
Limit Order
Stop Market
Stop Limit

Market Order
When you want to buy or sell at current market
price
Limit Order
When you are expecting a market to fill your buy/sell
order at your predetermined price

Stop Market
An order placed with a broker to close a position
when it reaches a certain price. A stop-loss order is
designed to limit an investor's loss
Stop Limit
An order placed with a broker that combines the
features of stop order with those of a limit order. A
stop-limit order will be executed at a specified
price (or better) after a given stop price has been
reached. Once the stop price is reached, the stop-
limit order becomes a limit order to buy (or sell) at
the limit price or better.

Support
The price level 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
The price at which a stock or market can trade, but not
exceed, for a certain period of time
Market is Nothing but support or resistance.
Resistance

LEVEL 3 COURSE

Stochastic Oscillator
Oversold
Overbough
t 80
20

Stochastic Oscillator

TIPS
• Always take a look at the time frame larger than the one you've
chosen to trade with.
It gives the bigger picture of market price movements and thus helps to
clearly define the trend. For example, when trading with 15 minute time
frame, take a look at 1 hour charts.
• Simplicity is the key when choosing a Forex system
A trading system which is overloaded with indicators and
trading rules stands little chance to become a winner.
Watching to many charts and indicators makes a mess on the
working table, while trading signals begin contradict each
other...
So, keep it simple. If doing it right, Simpler can be
smarter!

Why there is so much talk about having a Forex trading system?
If you want to be consistently successful in Forex, you need a Trading
System, and here is why:- Without a trading system you won't be able to
analyse what you did right and what you did wrong.
- Without a trading system your trading preferences will change all the
time: every new trade could easily have different reasons behind it.
Without a trading system you can be late on entries due to constant
hesitation as a result of battling with your intuition or a sudden second
opinion.
- Without a trading system you'll have more doubts about the best time to
exit a trade or the best place to keep a protective stop.
Without a trading system you cannot trade consistently and demand a
disciplined trading from yourself.
- Without a trading system you cannot fully work out your
money management and risks.
- Without a trading system you'll be prone to fear of losing and every time
you would need to regain the confidence.
TIPS

Thank
You
Hope this session will help you to improve your trading skills

Guide to Forex Trading Basics

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