Professional Documents
Culture Documents
CHAPTER 1. INTRODUCTION...............................................................................3
Entering the Trade ......................................................................................................................... 4
Exiting the trade............................................................................................................................. 6
Cut Your Losses Short .................................................................................................................7
Let Your Profits Run .....................................................................................................................8
Trading Mindset ............................................................................................................................. 8
Trading plan. ................................................................................................................................ 13
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CHAPTER 1. INTRODUCTION
The obvious reason as to why you are interested in trading currencies is the
unparalleled profit potential that forex market has to offer. Therefore, the purpose of
this course is to prepare you to enter the exciting field of currency trading and what is
more important, to put you on equal ground with successful traders. You may be a
beginning trader, made a few trades, lost some, won some, however you have come
to the conclusion that you dont have a real edge and if you continue you will slowly
burn most of the capital in your trading account. Or maybe you are already actively
trading currencies and you are always looking for new ideas to improve your
trading
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Figure 1-1
As we can observe on the chart above the trend during the given period is clearly
bullish, meaning that we were much more likely to make a profit during this period if
we were looking only for buying opportunities instead of focusing on both buy and
sell opportunities. It is clear that in most of the cases if we were taking sell positions
we would be stopped out resulting in losing trades. On the other hand if we were
looking only for buy positions we were likely to make some very profitable trades.
Another misconception that most of the forex trading strategies make is to
underestimate the power and importance of support and resistance areas when
looking for entry opportunities. Those strategies usually concentrate mostly on
lagging indicators that are most likely to get you into the trade when it is already too
late. Lets have a look at the figure below:
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Figure 1-2
As we can observe on the chart above the support and resistance areas have
extremely important role when it comes to price movement. What would you say if
you were told that these lines were drawn before the start of this trading day?
That's right. Successful traders know where the major support and resistance areas
will be located before they start looking for entry opportunities.
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a simple trailing stop as their exit strategy. Even though a trailing stop may work ok
in certain cases, definitely it is not the best option for a proper exit strategy.
Why? Because a trailing stop does not fulfil all the basic fundamental requirements
for a proper exit strategy. Especially when it comes to let your profits run.
So, which are the basic fundamental requirements for a proper exit strategy?
Well, lets show them to you:
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around just after you get out, but there is no way to know this in advance. It only
takes a few stubborn incidents to entirely devastate your initial trading capital.
Let Your Profits Run
As mentioned above, the key to currency trading success is to catch major
market movements. And for that purpose we need to give our trade a chance by
giving it some space for moving in our desired direction. The key issue is hereby to
determine the proper space depending on your current trade situation. It is not the
same situation, when you just have entered a trade or when you are already in with a
current positive balance of 150 pips. In the first case the main focus is to protect your
trading capital, in the second case you dont need to protect your capital any more as
you definitely will close your position with profits. The focus hereby is to give your
trade more space than when you entered the trade in order to make even more
money.
In order to be profitable in the long run we need to extract as much profit as possible
from every single trade. So we need to stay in the trade as long as the trade goes in
our direction. Most exit strategy methods out there, as for example a trailing stop, do
not fulfill above requirement as they will lead to exiting a position too soon. For this
purpose I have developed a Recursive Trailing Stop formula that extracts as much
profit from our trade as possible. You will learn about it in the Trading Strategy
chapter.
Trading Mindset
If you were ever watching somebody else trade, you have probably quickly
come to the wrong conclusion that trading is fairly easy. The same applies if you are
just observing the price action on the chart and placing the trades on paper or in your
head. There are two reasons for that. Number one reason is that you are not trading
with your own hard earned money and the second reason is that everything seems
simple after it has already happened. It seems that nothing is easier than predicting
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price movement by watching the chart. The problem with such conclusion is that the
certainty of the outcome comes after we have already seen the whole picture.
Basically we have seen the outcome of the trades that have already ended. For the
inexperienced observer it seems irrelevant since he is sure that he would have
reacted in the same way even if he did not see the whole picture. That is a mistake. I
am not sure if you have experienced such situations but I definitely did back in my
beginning trading days.
Now lets assume that you have an open 5 minute chart at 2 p.m. and you want to
enter a trade. There were some big down movements in the morning. Then, for
some short period of time it was a sideways market and now it is going down again.
At 14:25 you want to take some action. See the figure below.
Figure 1-3
Can you make the prediction as to where the price will move by observing the chart
above? Will it go down and for how many pips? Will it go up and for how long?
Tricky, isnt it?
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Figure 1-4
As we can see from the chart above, the first move was down, then it went up and at
present it is moving down again. Now think again about the situation from the chart
that we have observed earlier. At 14:25 you did not have the information that you
have now. If you entered on a long side would the price action trigger the stop loss?
If you entered on a short side would the price touch the take profit? You may say that
you would have entered on a short side, taken your 30 pip profit and exited the trade.
Again, it is easy to speculate about this when you have already seen the whole
chart.
Such price movements happen all of the time. In order to deal with them, first of all
you need to have a winning and proven trading strategy. We will get to the strategy
later in the course, however another aspect that we need to master in order to deal
with such erratic price movements is to have a winning trading mindset.
One needs to understand that forex trading even though it offers great opportunities
to make income is also a very risky endeavor. Basically you need to learn how to
deal with your emotions whether you are on a winning or a losing streak. Even the
best forex traders have losing streaks as even the most consistent trading systems
do not produce winning trades only.
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To have a winning mindset means to be able to deal with emotional highs that
happen during the winning streaks and emotional lows that happen during the losing
streaks.
Lets go through some mistakes that a lot of aspiring traders make.
This is a typical scenario. After demo trading for a while you have just funded your
forex account with real money. You are monitoring the charts and observing price
action. You see some bearish movement and you are eager to take action. You
realize how different it feels when you are trading with real money. You decide to
follow your own instincts instead of following the strategy you were testing in your
demo account. You want to make 20 pips just to get a feeling of how it is to make
real money. You enter a trade on the sell side. You are quite sure that the price will
reach your take profit of 20 pips so you dont even bother placing a stop loss.
However, as soon as you have entered the trade the price starts to move up. Half an
hour later you are 20 pips in minus. And your goal was 20 pips in plus. You are
starting to get nervous. One hour later and you are 40 pips in minus. You want to get
out but you still believe that the price will change the direction. The adrenaline is
rising. Another fifteen minutes and you are 60 pips in minus. This is more than you
can take and you get out of the trade. Now you are really nervous, you just wanted to
make 20 pips and you ended losing 60. You want to make up for your loss as quickly
as possible and before you know it you are making the same mistake again.
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So, never, ever invest money that you can not afford to lose
Yet another mistake that many beginning traders make is that they are too eager to
enter a trade. They think that if they didnt enter some trade the opportunity is lost.
I can understand that. Everyone likes to see action. However, you really havent
missed anything. You should enter only those trades that meet all of the criteria that
your trading system requires. Look at the picture below.
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Figure 1-5
Those are the price movements that happened during one trading day. Price is
constantly moving. There were and there will be many, many opportunities to enter a
trade. Dont feel bad that you have missed some trades. It is much better to miss a
trade than it is to enter a bad one.
Dont overtrade. Enter only those trades that fully meet your criteria. No
compromise there.
Trading plan.
There are several variables that need to be taken into account when creating
a trading plan. Please do not confuse a trading plan with a trading strategy or a
trading system. Our trading system is outlined in the last chapter of this course and
should be taken as is without improvisation. The trading plan on the other hand
should be created by each trader individually. It should take into account what is your
trading objective. Of course, your trading objective is to make money. How much
money? This may sound as a dumb question as obviously you want to take as much
money as possible. On the other hand you need to understand that making more
money involves taking more risk and investing more time. So the next question is:
How much time can you invest? How much risk can you handle without falling under
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pressure? How much money can you invest money that you can afford to lose? All
of those questions fall under the definition of a trading plan. Most people do not
think of trading as a business and that is a mistake. Trading should be treated as any
other business venture and every successful business venture must have a business
plan.
He who fails to plan, plans to fail
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CHAPTER 2.
GENERAL FOREX TRADING INFO
In this chapter I want to give you some general trading tips that may help you
to improve your trading, especially if you are a novice trader. If you are already an
experienced trader this chapter might not be of interest to you, so you might just
throw a glance at it.
When trading currencies, you dont trade a single currency, but always
currency pairs. Thats the reason why when looking at forex quotes you will always
see the currencies quoted in pairs, as for example EURUSD, GBPUSD or USDCAD.
To every pair you will see an exchange rate quoted. The first currency of the pair is
known as the base currency, the second one as the counter or quote currency.
The exchange rate gives the amount of the quote currency which needs to be sold
to buy 1 unit of the base currency.
EURUSD is the rate of 1 euro in US dollars, GBPJPY 1 British pound in Japanese
yens, i.e., the first currency is always defined in terms of the second one. For
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example in picture below the exchange rate of 1.5736 means that for 1 euro you can
get 1.5736 US dollars. You could also write it like 1 euro / 1.5736 US dollar.
Figure 2-6
Even though there are 100s of currency pairs out there, you should pay only
attention to the major currency pairs, which are the most traded. It is estimated that
activity in these currencies comprises more than 85% of the daily foreign exchange
volume.
Liquidity is essential when trading foreign currencies. Currencies that are illiquid
generally will have wider trading costs (spreads), they also will have a much greater
chance to have "fast market" conditions where liquidity can be non-existent and
volatility greatly increased, and they are also often more susceptible to short term
market manipulation or deception, like false technical breakouts.
The major currency pairs are assumed to be:
EURUSD
USDJYP
USDCHF
GBPUSD
AUDUSD
USDCAD
GBPEUR
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CURRENCY PAIR
LOT SIZE
EURUSD
100,000 euros
10,000 euros
USDJYP
100,000 US dollars
10,000 US dollars
USDCHF
100,000 US dollars
10,000 US dollars
GBPUSD
AUDUSD
USDCAD
100,000 US dollars
10,000 US dollars
Table 2-1
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The pip is the smallest price change of the exchange rate. For example when
trading EURUSD the smallest price change is 0.0001, for example a move from
1.5231 to 1.5232 is called a 1 pip move. Below you can find the pip definition for the
major currency pairs:
CURRENCY PAIR
PIP SIZE
EURUSD
0.0001
USDCHF
0.0001
GBPUSD
0.0001
AUDUSD
0.0001
USDCAD
0.0001
USDJYP
0.01
Table 2-2
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CURRENCY PAIR
EURUSD
10 US dollars
USDCHF
10 Swiss francs
GBPUSD
10 US dollars
AUDUSD
10 US dollars
USDCAD
10 Canadian dollars
USDJYP
Sold 3 lots of EURUSD at 1.5675 and bought them at 1.5610. In this example, we
made 65 pips profit (as we sold at a higher price than we bought). The pip value for
EURUSD is 10 USD, so the total profit = 3 lots x 65 pips x 10 USD pip value per lot =
1,950 US dollars.
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Example 2:
Bought 2 mini lots of GBPUSD at 1.9170 and sold them at 1.9250: In this example,
we made 80 pips profit (as we bought at a lower price than we bought). The pip
value for GBPUSD is 10 USD, so the total profit = 0.2 lots x 80 pips x 10 USD pip
value per lot = 160 US dollars.
Example 1:
Sold 5 mini lots of EURGBP at 0.7915 and bought them at 0.7815: In this example
we made 100 pips. The pip value for EURGBP is 10 GBP, so the total profit is 0,5
lots x 100 pips x 10 GBP per pip = 500 British pounds.
The exchange rate of GBPUSD was 1.8500 (for 1 British pound you can get 1.85 US
dollars), when the position was closed:
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Bought 2 lots of USDJPY at 105.60 and sold them at 105.20: In this example, we
made 40 pips (as we sold at a lower price than we bought). The pip value for
USDJPY is 1000 JPY, so the total profit is = 2 lots x 40 pips x 1000 YPJ pip value
per lot = 80,000 JPY yen.
The exchange rate of USDJPY was 105.20 (for 1 US dollar you can get 105.20 JPY
yen), when the position was closed. In order to get the amount of dollars we need to
divide by the exchange rate.
80,000 JPY yen / USDJPY exchange rate = 80,000 JPY yen x 1 US dollar / 105.20
JPY yen = $760.46 US dollars
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Summary Tables
Currency
Profit in US dollars:
Profit in euros:
Pair
EURUSD
10 US dollars
10 US dollars / EURUSD
USDCHF
GBPUSD
10 US dollars
10 US dollars / EURUSD
AUDUSD
10 US dollars
10 US dollars / EURUSD
USDCAD
USDJYP
Table 2-4
Currency
Pair
EURUSD
10 US dollars x USDCAD
10 US dollars / AUDUSD
USDCHF
GBPUSD
10 US dollars x USDCAD
10 US dollars / AUDUSD
AUDUSD
10 US dollars x USDCAD
10 US dollars / AUDUSD
USDCAD
10 Canadian dollars
USDJYP
Table 2-5
Currency
Pair
EURUSD
10 US dollars / GBPUSD
10 US dollars x USDJYP
USDCHF
GBPUSD
10 US dollars / GBPUSD
10 US dollars x USDJYP
AUDUSD
10 US dollars / GBPUSD
10 US dollars x USDJYP
USDCAD
USDJYP
Table 2-6
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Before you can start trading you need the following trading equipment:
a forex broker
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broker is earning from you. If you would buy and sell immediately 1 lot EUR/USD,
then you would make a loss of $20: as you would buy at 1.5701 and sell at
1.5703 $100,000 x (1.5703 - 1.5701) = $20.
Figure 2-7
More trades you do, more money your broker makes. This is why many brokers
that cater to currency traders prefer traders who make many trades during the
day. They even hold courses that teach you how to scalp in and out of positions
all day long. Although this approach has worked out for some traders who were
trading highflying Nasdaq stocks in the late 90s for a currency trader it is a sure
way to slowly lose all of his money.
Here is an example of the danger of such a strategy. Lets say a trader has
$2,000 in capital and is using 1:5 leverage to buy/sell $10,000 per trade and lets
say that he trades 20 times daily as some of these courses and strategies teach.
Average spread being around 5 pips he would spend $5 per trade. At 20 trades
per day this would equal $100 per day in spreads. It is five percent of the traders
capital each day just in spreads. 20 trading days a month and it would equal
100% of traders capital each month. You are better spending your money
anywhere else.
The importance of spreads depends greatly on your trading style and your
trading strategy. If your strategy generates several entry signals per day and you
are using relatively tight stops in order to limit your losses, then spread size is
very important to you. With such trading style the difference between a broker
that has average spread of 4 pips and a broker that has an average spread of 8
pips is of huge importance. 5 trades per day can mean $40 per day, $800 per
month, $9,600 per year if you are trading in $10,000 per trade. Adds up quickly,
doesnt it?
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Some forex brokers will request, in addition to the spread, a commission per
trade. For example they may ask 5$ for every lot you want to trade. One would
normally assume that brokers asking for commission are in any case more
expensive than the other commission-free ones. Well, that is not always the
case, as brokers asking for commissions offer typically much lower spreads than
the commission-free ones. For example assume that we have a broker A that
requests for trading the major currency pair EUR/USD 3 pips and a broker B that
requests for trading the same currency pair 1 pip plus 5$ per lot. Which would be
the costs for trading 1 lot EUR/USD? With broker A the costs would be $30 per
trade (3 pips x $100,000), with broker B the costs would be $15 per trade (1 pips
x $100,000 + 5$)!
So dont automatically disregard the brokers requesting commissions.
Sometimes they are cheaper than the commission-free ones! In the table below
you can find the trading costs of several forex brokers at the time of this writing.
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Below you can find a list of brokers that are appropriate for forex trading (see Table
6.1).
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Account
Conditions
Trading Costs
Forex Broker
Min.
Max.
Commi-
Deposit
Leverage
ssion
$200
100:1
No
$2,000
100:1
No
Company Reliability
Spread
Since
Regulated By
2 to 4
2004
FSA (UK)
2 to 3
2002
SFBC(CH)
on
Majors
www.alpari-idc.com
www.ac-markets.com
NFA(US),
FSA(UK),
$2,000
100:1
No
2 to 3
1989
ASIC(AU),
BAFIN(DE),
OSC(CA)
www.cmcmarkets.com/us
$200
400:1
No
3 to 4
2003
CFTC/NFA (US)
$300
200:1
No
1 to 2
2004
SFBC(CH)
$250
200:1
No
2 to 3
1998
CFTC/NFA (US)
$2,000
200:1
No
3 to 4
2006
Polyreg (CH)
www.cmsfx.com
www.crownforex.com
www.forex.com
www.forex.ch
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Forex
Broker
Account
Trading Costs
Company Reliability
Conditions
Min.
Max.
Commi-
Deposit
Leverage
ssion
$500
200:1
No
$250
400:1
$500
200:1
Spread
Since
Regulated By
2 to 4
2004
NFA (US)
No
3 to 5
2001
CFTC/NFA (US)
No
3 to 5
on
Majors
www.fxlite.com
www.fxsol.com
CFTC/NFA (US)
www.gfsforex.com
CFTC/SEC (US),
$250
400:1
No
3 to 5
2001
www.gftforex.com
FSA (Japan),
ASIC (Australia)
$7,500
50:1
$3/100k
1 to 2
2000
$5,000
50:1
$2/100k
2 to 2
1998
$250
100:1
No
2 to 3
2001
$400
100:1
Yes
1 to 2
2002
CFTC/NFA (US)
www.hotspotfx.com
www.interactivebrokers.co
m
www.interbankfx.com
NFA(US),
CFTC(US)
CFTC/NFA (US)
www.mbtrading.com
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$200
100:1
No
3 to 5
2000
CFTC/NFA (US)
$2,000
200:1
No
2 to 3
2005
SFBC(CH)
$1
50:1
No
1.2 to 2.5
2001
CFTC/NFA (US)
$2,000
100:1
No
2 to 3
1998
DFSA(DK)
www.mgforex.com
www.migfx.ch
www.oanda.com
www.saxobank.com
Table 2-7
Charting Software
In order to implement our strategy you need charting software capable to
place some TA indicators (MA and RSI) and capable to draw lines on the chart.
These features are usually provided by any charting software, so you should be able
to implement our strategy regardless which charting software you are using.
Usually when you open an account in a brokerage firm, you get free or discounted
charting software. If you do not feel comfortable with the provided charting software,
we recommend that you to take a closer look at the following charting software
programs. Most of them provide a one month free trial period so you can try several
of them before you decide which one suits your needs. Here is a short list of some of
the software providers. There are many others out there and you can find them by
doing simple Google searching.
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Free Charts
Metatrader
Website: http://www.metaquotes.net/metatrader/
Metatrader offers several technical indicators and time frames, but what sets the package apart is its
built-in language for programming custom indicators and trading strategies. With this feature you can
analyze the market, enter pending orders, and automatically trigger trades generated by your
strategy. It is the best charting software for free out there.
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Fxtrek
Website: http://quote2.fxtrek.com/misc/fxcm2.asp
Costs: $115/Month plus Data feed $50/month for the FX
FXtrek offers a suite of increasingly sophisticated packages. Here you can gain access to FXtrek's
free package, which makes for an extremely efficient starter kit for the beginning technician. The
charts feature the most popular time frames, including tick and 1 minute. In addition, it offers the
most commonly used indicators used for FX analysis. Java-based.
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Stratagem
Website: http://scharts.fxcorporate.com/
Designed for ease of use, this package contains a menu bar that allows you to execute the most
common charting actions with a single click of the mouse. The user friendly layout offers you the ability
to organize and tile workspaces. This package includes 14 technical indicators, 7 different time frames,
and a multiple-chart viewing capability. Java-based.
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Premium Charts
Esignal
Website: http://www.esignal.com
Costs: $115/Month plus Data feed $50/month for the FX
E-signal is a well established name in the charting software arena. E-signal offer reliable charts with a
slew of technical indicators, drawing tools, as well as alerts, back testing capabilities, and a helpful
support team. Windows based.
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Amibroker
Website: http://www.amibroker.com/
Costs: SOFTWARE COST: Professional - $229.00 one time purchase fee. Standard $149.00 one time purchase fee, FX DATA FEED COST: Varies based on Data feed
Provider AmiBroker offers a robust professional charting package with such features as
alerts back-testing, and indicator customization all accessible via a clear, user-friendly
interface. AmiBroker is also noted for their exceptional Customer Support team, which
distinguishes itself with superior service quality and efficiency. Windows based.
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CQG
Website: http://www.cqg.com/
Costs: SOFTWARE COST: $545/month, FX DATA FEED COST: $100/month
CQG charts offer a robust charting solution with alerts, back testing, the ability to
export to excel, and a large number of technical indicators. CQG provides
worldwide data coverage including futures, options, and stock exchanges.
Windows based.
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As we did not want to confuse our reader with too much information at once,
we decided to monitor only one currency pair in our examples.
Once you get more comfortable using our strategy, we recommend that you monitor
more than one currency pair at the same time. That way, you will get more entry
signals and in consequence you will enter more trades generating a higher profit.
First you have to decide how many currency pairs you are going to monitor at once.
We recommend starting with two currency pairs, as it is a manageable number of
currency pairs. If at any time you do not get enough entry signals, you can just
increase the number of monitored currency pairs.
Once we enter a trade for a particular currency pair, then we concentrate only on
that currency pair until we exit the position. After closing the trade, we return again to
monitor more currency pairs to get an entry signal.
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traders will sell to protect themselves against additional losses. By doing so, they will
drive the price of that instrument/currency lower and that will prompt some traders to
start short selling in anticipation of further decline. Prices continue the downward
trend, forcing traders who were long on that particular instrument/currency to sell
their positions because it is going below their stop limits. This creates a domino
effect as the price continues to decline. However, at this point, successful traders
realize that most of the current price action was created artificially. They start to
enter the positions on the buy side and more often than not price starts to reverse.
The losing traders have already sold their positions based on the TA tools. The
winning traders buy the instrument/currency because they understand that
fluctuation was temporary, and they seize the opportunity based on the losing
traders reactions.
No TA tool by itself will give you reliable buy or sell signals. There is no Holy
Grail or magic black box that will give you the perfect, accurate signal. However,
combining of the right group of TA indicators with discipline and adequate trading
capital has been the road to fortune for many traders. There is no reason why you
cannot emulate their success.
Technical Analysis is similar to studying history. Historians are usually able to
make the most accurate predictions of future and outcomes of events. Usually the
past repeats itself. History proves that people historically behave in the same
manner in the similar situations. Great empires start to fall when everybody starts
thinking that they are invincible. The same thing happens in currency markets. Every
time when there has been a long lasting bull market in any major currency, new
experts come from the woodwork claiming that this time it is different, that for this
currency sky is the limit, fundamentals are strong there are hundred reasons why
this currency should continue to appreciate. And now everybody starts to buy this
currency more and more. Money is borrowed, leveraged and put into this currency.
However, when no fresh money is coming in to feed this beast, it has to start to feed
of itself. There comes the bear. If traders who were among the last to join the party
looked at the charts of previous times, they would have noticed that many technical
indicators were behaving similarly as they had in the past.
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Moving Average
Moving average is one of the most widely used TA indicators. Moving
average is calculated by finding the average price of the trading instrument over a
set number of periods. It is called a moving average because as the newest period
is added, the oldest period is dropped. MA crossovers are used in many trading
systems as buy or sell signals. Usually combinations of two or three MA intervals are
used. Another popular way of observing buy and sell signals is by using single,
longer term MA such as 20 day MA. Buy signals occur when the current price
crosses MA from below to above. The sell signal occurs when current price crosses
MA from above to below.
Figure 3-8
Figure above is a daily candlestick chart for EUR/USD covering a five-month period.
Blue line represents 20 day Moving Average. As we can observe from the chart
when the price crosses blue line from the above to below it is usually a negative
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signal and the trend becomes bearish for a certain period of time. Then, when the
price crosses the blue line from below to above, sentiment changes and the trend
becomes bullish for a certain period of time.
Figure 3-9
Figure above is 1-hour candlestick chart for EUR/USD covering a five-day period.
Red line represents 4 hour moving average and blue line represents 12 hour moving
average. Buy signal occurs when 12 period MA (blue line) crosses 4 period MA (red
line) from above to below and sell signal occurs when 12 period MA crosses 4 period
MA from below to above.
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values that it can have are between 0 and 1000. Sudden short-term movements in
an instruments price do not affect it. Therefore, it looks at the overall picture and
eliminates much of the marketplace noise. RSI is usually used in combination with
other indicators. RSI value of 30 or less is generally considered as buy signal and
RSI value of 70 or more is considered as sell signal.
Figure 3-10
Figure above is a daily candlestick chart for EUR/USD. The RSI value is represented
by the blue line on the bottom part of the chart. From the chart above we can
observe that when the RSI starts reaching upper horizontal line price is often
peaking and is starting to reverse its course and when the RSI starts reaching lower
horizontal line price is often bottoming and is starting to reverse. Traders also look
for the divergence between price movement and RSI (price moving up and RSI
moving down and vice versa). If you see such movement, it is very likely that price is
about to change direction.
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all know supply and demand determine the price of goods in this case of the
currencies traded. To recollect the law of support and demand in forex: as the
demand for some currency increases the price of this currency will also increase and
v.v. if the supply for some currency increases the price will decrease.
What are then support and resistance?
Support is created at points below current price where there are enough buyers to
prevent and eventually reverse decline of the underlying instruments price.
Resistance is created at points above the current price where there are enough
sellers to stop and eventually reverse advance in the underlying instruments price.
If the price breaks through support then support becomes resistance level and if the
price breaks through resistance then resistance becomes support.
And what we are trying to do, is nothing else than forecast the price of currencies at
the given time. So if we can find out what are the support and resistance levels, we
could with high probability tell in which direction price will move.
Support and resistance are often established around key exponential moving
average such as 20 day MA and 50 day MA or around key Fibonacci Retracement
levels. Sometimes they simply establish around round numbers such as 1.15, 1.10,
0.75 etc
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Figure 3-11
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Now the battle is about to begin and you should get ready for it. Before you
go any further ask yourself the following questions:
Are you willing to invest your time, money and effort in a profession in which
success is not guaranteed? Are you comfortable with and aware of the fact that the
chances of failure are high?
Do you have a comfortable basic knowledge of the Currency Markets in
general? Are you familiar with key concepts and terms as related to currency/forex
trading?
Have you opened an account with an online broker/dealer that meets the
criteria that we have outlined? Have you set aside the amount of money that you are
willing to risk?
Are you set up with the necessary hardware and Internet connection? We will
assume that you will be using two monitors for the purpose of this strategy. If you
havent installed two monitors yet, you will have to jump between the screens.
Eventually, if you are serious enough about trading, you will realize that using only
one monitor puts you at a disadvantage.
Have you found a decent data feed and charting software provider?
Before we start...
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Although the core of our strategy is Support and Resistance we will also be using
two of the most basic technical tools that are used for confirmation purposes.
150 Period Moving Average
Moving average is one of the most widely used TA indicators. Moving
average is calculated by finding the average price of the trading instrument over a
set number of periods. It is called a moving average because as the newest period
is added, the oldest period is dropped. Most of the trading systems out there use MA
crossovers as buy or sell signals. Our strategy will not be using MA indicator for such
purposes. The only purpose of using MA indicator in our strategy is to determine
current market sentiment. 150 Period means that in your charting software you will
enter value of 150 when you are setting your MA indicator.
Lets have a look at the figure below:
Figure 4-1
Figure above is a 5 minute candlestick chart for EUR/USD currency pair. The
blue line represents 150 Period Moving Average. If the current price is above the
blue line the market sentiment, for the purpose of our strategy is considered bullish.
If the current price is below the blue line the market sentiment for the purpose of our
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strategy is considered bearish. Obviously in the figure above, the market sentiment
is bearish. The application of this will be shown later in the chapter.
4 Period Relative Strength Index
For the purpose of our strategy we will be using RSI in a different manner
than it is used by most of the trading systems out there. Most of the trading systems
use 14 Period Relative strength index or RSI(14) in order to determine overbought or
oversold market conditions.
In our strategy we will be using 4 Period Relative Strength Index or RSI(4) in order to
confirm whether the price is likely to make a breakthrough through predetermined
support and resistance lines or to bounce off them. 4 Period means that in your
charting software you will enter the value of 4 when you are setting your RSI
indicator. Also during the setting make sure that upper and lower bands are set up at
values of 70 and 30.
Let's have a look at the figure below.
Figure 4-2
Figure above is a 5 Minute candlestick chart for the EUR/USD currency pair. The
lower portion of the figure represents RSI(4) and the black lines are representing 30
and 70 areas. For the purpose of our strategy we only need to determine if the
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current RSI(4) is above 70, below 30 or in between those two values. The application
of this will be shown later in the chapter.
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Figure 4-3
Figure 4-4
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Figure 4-5
Figures 1, 2 and 3 are 15-min candlestick charts for EUR/USD, USD/CAD and
GBP/USD respectively. What do they all have in common? We can observe that the
time of the lowest trading volume for all of them is at approximately 5pm EST or
10pm GMT. That is the time when almost all of the forex trading centers around the
world are closed. Therefore we will use 10pm GMT as the time when previous
trading day ends and the new trading day begins. Here is an example: You live in
Europe. It is Thursday morning 9amGMT. Previous trading day has started on
Tuesday 10pmGMT and it has ended Wednesday 10pmGMT. Another example: You
live in North America. It is Thursday morning 9amEST. Previous trading day has
started on Tuesday 5pm EST and it has ended Wednesday 5pm EST.
For those who dont know:
Eastern Standard Time (EST) = Greenwich Mean Time (GMT) 5
Why it is important to determine when does the trading day start and when does it
end?
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It is important because our strategy will be based on 3 day Pivot Points and in order
to calculate 3 day Pivots we will need to combine 3 trading days into a single period.
We will get to that later in the strategy.
Economic Calendar
Another important place to look at is Global Economic Calendar that has
exact times and dates of all the major economic reports and events during current
week. If you are trading EUR/USD you need to pay attention to the reports coming
out of EU and US. If you are trading USD/CAD you need to pay attention to the
reports coming out of US and Canada etc Some of the important indicators that
you should pay attention to are Weekly Jobless Claims, CPI, University of Michigan
Sentiment, Federal Reserve or Central Bank Meetings However you will not look
at those indicators as trading signals because by the time you get the news it is
already too late, price has already started moving. The reason you need to be aware
of those reports and events is that at those times markets can get extremely volatile
and for a beginning trader it is best to stay out of the market at such times. It doesnt
mean that you cannot have a trade going on if there is a report due to come out.
Those reports come out almost every day so you cannot avoid them. If you are
already in the market you should watch the situation closely at those times and be
ready to quickly react. Figure shown below is an hourly EUR/USD candlestick chart.
You can notice that majority of the time price is trading in a close range and then
suddenly there is a sudden upward or downward price move. Majority of those
sudden moves happen immediately after the economic reports that we have
described above come out. Again, if you are beginning trader, dont enter your trades
just before such reports are due to come out.
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Figure 4-6
One
of
the
places
where
you
can
find
economic
calendar
is:
http://www.forexnews.com
Figure shown below is an example of how a Global Calendar can look like however
at the time when you are reading this course the website mentioned above can
change and you will have to find the calendar someplace else. Here is another place
where you may find a complete economic calendar: http://www.dailyfx.com/calendar/
Or
if
you
are
looking
for
US
calendar
you
http://biz.yahoo.com/c/e.html
may
find
it
at:
or
http://moneycentral.msn.com/investor/calendar/econ/current.asp
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Figure 4-7
As we have already mentioned our goal is to catch larger currency swings as thats
where the real money is in currency trading. However, in order to be able to do so,
we have to choose the best possible place of entry or the place that has the highest
probability that the trade will go in our direction. Before we start to look for the place
of entry (it doesnt matter at what time of the day we plan to place our trades) we
need to do a preparation.
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Lets say it is 8pm EST or 1am GMT and we are planning to trade tomorrow
morning. First we need to calculate 3 day pivot points as those are the most
important S/R areas that we will be looking at.
How to calculate 3 day pivots?
You may be asking why arent we using a single day pivot points and the answer is
that our particular approach will attempt to catch larger moves and 3 day Pivots will
be better at eliminating much of the intraday noise.
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Figure 4-8
Figure above is a 15 minute bar chart covering a three day period for EUR/USD.
From the chart we can observe values for the 3 Day High, 3 Day Low and 3 Day
Close. From those values we will calculate pivot values. In our example those are
the values covering period from Nov/15/2009 to Nov/18/2009. Those are the values
that we would use if we were to trade on Nov/19/2009. If we were to trade on
Nov/6/2009 we would then calculate pivot values for the period Nov/16/2009 to
Nov/19/2009.
We will use classic formula to calculate pivot values.
PP = (High + Low + Close)/3
Support = 2*PP High
Resistance = 2*PP Low
In our example:
3 Day High = 1.5016
3 Day Low = 1.4805
3 Day Close = 1.4960
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Figure 4-9
Figure above is a five minute candlestick chart for EUR/USD currency pair.
As you can see we have drawn the support and resistance lines that we have
already calculated. Support and resistance lines are R1, 3 Day High, 3 Day Close,
Pivot Point, S1 and 3 Day Low. On the figure above you can not see R1 and 3 Day
Low as they are not close to current price action. The thin blue line is representing
150 Period Moving Average and on the bottom of the chart there is 4 Period Relative
Strength Index.
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Figure 4-10
Please note that Pivot Point and 3 Day Close are acting both as Support and
Resistance lines.
Confirmation with 4 Period RSI.
Bullish Breaktrough signal will be taken ONLY if current RSI(4) is higher than 70.
Bullish Bouncing signal will be taken ONLY if current RSI(4) is in between 30 and 70.
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Figure 4-11
Please note that Pivot Point and 3 Day Close are acting both as Support and
Resistance lines.
Confirmation with 4 Period RSI.
Bearish Breaktrough signal will be taken ONLY if current RSI(4) is lower than 30.
Bearish Bouncing signal will be taken ONLY if current RSI(4) is in between 30 and
70.
What kind of order should you use to enter the trade?
The only negative consequence you may get from not entering a trade is just
that; you havent entered a trade. It is better to miss a trading opportunity than to
have your order filled at a price that is far from your entry target price. If you feel the
opportunity gap is closing too quickly, simply wait for the next opportunity to come
along. Its worth it to save your money than risk losing it simply because youve got
an itchy trigger finger. To get into the trade you should always use Limit orders.
What size should you be trading with?
If you are a beginning trader you should start very small and when you are
able to build up your account you can start trading with larger amounts. This applies
even if you are starting with substantial start up capital. You need time to perfect
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your trading strategy. It is much better to preserve your capital for later on, when you
become more formidable market participant.
Money Management
As explained earlier in the course the leverage basically gives a trader the
possibility to control a higher capital, than his real start up capital. That way he is
able to control larger lot size and to make higher profit, if the trade goes in his
direction. But at the same time he is taking higher risk, if the trade goes against him.
Resuming, leverage is a powerful tool but it should be used by traders carefully!
Example 1: EURUSD, 4 percent per trade risk level, $1,000 account size, 40 pips
stop loss
Well, let us assume that you want to trade EURUSD using our Support Resistance
Strategy and that your account size is $1,000. First of all you need to define how
much risk you want to take every time you enter a trade. For example, lets say you
want to take a risk level of 4% per trade ($40 per trade). Ok, in our Support
Resistance Trading Strategy after entering the market we place a 40 pips stop order
in order to cut possible losses short. That means the maximum loss we may suffer is
40 pips. Now, we need to calculate the lot size we will use according to the defined
risk level of 4%:
Maximum loss in dollars $1000 * 0.04 = $40
Lotsize = maximumloss in dollars/stoploss in pips * $10 = $40/40*$10 = 0.1
That means that in this case we would be using 0.1 lot size when entering a trade.
Example 2: GBPUSD, 4 percent per trade risk level, $2,000 account size, 100 pips
stop loss
Well, let us assume that you want to trade GBPUSD using our Support Resistance
Trading Strategy and that your account size is $2,000. First of all you need to define
how much risk you want to take very time you enter a trade. For example, lets say
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you want to take a risk level of 4% per trade ($80 per trade). Ok, in our Support
Resistance Trading Strategy after entering the market we place 100 pips stop order
in order to cut possible losses short. That means the maximum loss we may suffer is
100 pips. Now, it is about to calculate the lot size we will use according to the
defined risk level of 4%:
Maximum loss in dollars = $2,000 * 0.04 = $80
That means that in this case we would be using 0.08 lot size when entering the
trade.
Immediately after entering the market we place a stop order a number of pips below
entry price if the entry signal was bullish or a number pips above entry price if the
entry signal was bearish. If our stop loss is reached we will get out of the trade
immediately, no questions asked. You cannot cut corners with the stop loss rule. It
needs to be followed every single time without exception. Failure to follow the stop
loss rule is the number one reason for failure among beginning traders. It is true that
sometimes price will turn around just after you get out, but there is no way to know
this in advance. It only takes a few stubborn incidents to entirely devastate your
initial trading capital.
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How many pips away from the entry price should you place your stop loss.
This depends on how much time do you intend to spend in front of the screen
monitoring the trade. If you have plenty of time and if you wish to monitor your trade
often you should use 40 pips as your initial stop loss. If you can monitor your trade
but not that often you should place your initial stop loss at 80 pips away from the
entry price. If you have very little time to monitor your trade you should place your
stop loss at most at 120 pips away from the entry price. Again 40 pips is the
minimum, 120 pips is the maximum. Everything in between is up to you and shoud
reflect your available time and trading style. The risk per trade should stay constant
at 4% per trade and it is controlled by lot size as explained in the earlier paragraph.
Let Your Profits Run
Once you are in the trade and the price has started moving in your direction,
you need to extract as much profit as possible. Not being able to do so will make you
a losing trader in the long run. How can a trader lose if he only takes small profits at
a time? Profit is profit, isnt it? Not exactly Profit of $550 is not the same as a profit
of $850. If such profits are followed by three losses of $200 each, profit of $550 will
become a $50 loss, while profit of $850 will become a $250 win. Do you get my
point? Profits are always followed by losses and if the profits are small they will not
make up for the losses that will eventually and surely follow. However, becoming too
greedy can turn a small profit into a loss. This will also make you lose money in the
long run.
The best solution to resolving these conflicts is to use Recursive Trailing Stops.
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Here an example for the usage of the Recursive Trailing Stop Order formula:
Figure 4-12
If the price moves 40 pips in our direction, here it means that the price reaches
1.4320, then the stop order is readjusted to:
New Stop Order = 1.4240 + 0.0040 x 0.85 = 1.4240 + 0.0034 = 1.4274
If the price moves again 40 pips in our direction, here it means that the price
reaches 1.4360, then the stop order is readjusted to:
New stop order = 1.4274+ 0.0034 x 0.85 = 1.4274 + 0.0029 = 1.4303
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And so forth
If we were using 80 pips as our initial stop loss than we would wait the price to move
80 pips in our direction in order to start using our Recursive Trailing Stop. The same
applies if were using 120 pips as our initial stop loss. In that case we would wait the
price to move 120 pips in our direction before applying the formula.
What type of order should you use when exiting the trade?
When entering a trade I have recommended using a limit order because you can
afford not to take a trade at a price that doesnt meet your standards. When exiting a
trade the opposite is true. You cannot afford to stay in a bad trade. Therefore, when
exiting we will use market order, which will get us out of the trade quickly, even
though it will cost us additional spread points.
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CHAPTER 5. EXAMPLES
It is December 3, 10pm EST and we are getting ready for the next trading day as we
have described earlier in the strategy.
Figure below is a 15-minute candlestick chart for EUR/USD covering period of the
previous three trading days.
Figure 5-1
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As we can observe from the chart during the period of the past three days we can
determine the values of 3 Day Low, 3 Day High and 3 Day Close. They are as
follows:
3 Day Low = 1.4969
3 Day High = 1.5141
3 Day Close = 1.5043
From those values we will now calculate Pivot Point and major S/R areas.
Pivot Point = (3 Day Low + 3 Day High + 3 Day Close)/3
Pivot Point = (1.4969 + 1.5141 + 1.5043)/3 = 1.5051
Support (S1) = 2*PivotPoint 3 Day High
Support (S1) = 2*1.5051 1.5141 = 1.4961
Resistance (R1) = 2*PivotPoint 3 Day Low
Resistance (R1) = 2*1.5051 1.4969 = 1.5133
Ok, now we have the necessary S/R lines for the next trading day.
Figure below shows us what happens the next day.
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Figure 5-2
Figure above is a 5 min EUR/USD candlestick chart for the December 4., covering
the period of approximately 10 trading hours. Green lines represent Resistance
levels, Blue lines represent Support and Resistance levels and Red lines represent
Support levels that we have calculated the previous night. Of course, we could have
calculated those levels at any time during the current trading day as they would stay
the same. The thin blue line represents 150 period Moving Average and TA tool on
the bottom of the chart is 4 period RSI. As we can observe on the chart an excellent
entry opportunity occured at approximately 8:30 am as at that time the price moved
below 150 MA, RSI was below 30 and the price made a bearish breakthrough
through the Support line (in this case 3 Day Close). At that time we would have
placed sell order for EUR/USD and placed our stop loss at (40 120) pips above
the entry price. The lot size is calculated according to our Money Management
formula. After that, we would manage the trade using our Recursive Trailing Stop
formula.
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Figure below is a 15-minute candlestick chart for GBP/USD covering period of the
previous three trading days. It is December 2, 9pm EST and we are getting ready for
the next trading day as we have described earlier in the strategy.
Figure 5-3
As we can observe from the chart during the period of the past three days we can
determine the values of 3 Day Low, 3 Day High and 3 Day Close. They are as
follows:
3 Day Low = 1.6378
3 Day High = 1.6695
3 Day Close = 1.6632
From those values we will now calculate Pivot Point and major S/R areas.
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Figure 5-4
Figure above is a 5 min GBP/USD candlestick chart for the December 3., covering
the period of approximately 9 trading hours. Green lines represent Resistance levels,
Blue lines represent Support and Resistance levels and Red lines represent Support
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levels that we have calculated the previous night. In this case we can not see the
Red lines as they are out of focus. Of course, we could have calculated those levels
at any time during the current trading day as they would stay the same. The thin blue
line represents 150 period Moving Average and TA tool on the bottom of the chart is
4 period RSI. As we can observe on the chart an excellent entry opportunity occured
at approximately 7.20 am as at that time the price was below 150 MA, RSI was
below 30 and the price made a bearish breakthrough through the Support line (in this
case 3 Day Close). At that time we would have placed sell order for GBP/USD and
placed our stop loss at (40 120)
It is December 3, 10pm EST and we are getting ready for the next trading day as we
have described earlier in the strategy. Figure below is a 15-minute candlestick chart
for USD/CAD covering period of the previous three trading days.
Figure 5-5
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As we can observe from the chart during the period of the past three days we can
determine the values of 3 Day Low, 3 Day High and 3 Day Close. They are as
follows:
3 Day Low = 1.0410
3 Day High = 1.0584
3 Day Close = 1.0573
From those values we will now calculate Pivot Point and major S/R areas.
Pivot Point = (3 Day Low + 3 Day High + 3 Day Close)/3
Pivot Point = (1.0410 + 1.0584 + 1.0573)/3 = 1.0522
Support (S1) = 2*PivotPoint 3 Day High
Support (S1) = 2*1.0522 1.0584 = 1.0460
Resistance (R1) = 2*PivotPoint 3 Day Low
Resistance (R1) = 2*1.0522 1.0410 = 1.0634
Ok, now we have the necessary S/R lines for the next trading day.
Figure below shows us what happens the next day.
Figure 5-6
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Figure above is a 5 min USD/CAD candlestick chart for the December 4., covering
period of approximately 9 trading hours. Green lines represent Resistance levels,
Blue lines represent Support and Resistance levels and Red lines represent Support
levels that we have calculated the previous night. Of course, we could have
calculated those levels at any time during the current trading day as they would stay
the same. The thin blue line represents 150 period Moving Average and TA tool on
the bottom of the chart is 4 period RSI. As we can observe on the chart an excellent
entry opportunity occured at approximately 7:00 am as at that time the price was
below 150 MA, RSI was below 30 and the price made a bearish breakthrough
through the Support line (in this case Pivot Point). At that time we would have placed
sell order for USD/CAD and placed our stop loss at (40 120) pips above the entry
price. The lot size is calculated according to our Money Management formula. After
that, we would manage the trade using our Recursive Trailing Stop formula.
It is November 30, 10pm EST and we are getting ready for the next trading day as
we have described earlier in the strategy.
Figure below is a 15-minute candlestick chart for EUR/USD covering period of the
previous three trading days.
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Figure 5-7
As we can observe from the chart during the period of the past three days we can
determine the values of 3 Day Low, 3 Day High and 3 Day Close. They are as
follows:
3 Day Low = 1.4826
3 Day High = 1.5084
3 Day Close = 1.5006
From those values we will now calculate Pivot Point and major S/R areas.
Pivot Point = (3 Day Low + 3 Day High + 3 Day Close)/3
Pivot Point = (1.4826 + 1.5084 + 1.5006)/3 = 1.4972
Support (S1) = 2*PivotPoint 3 Day High
Support (S1) = 2*1.4972 1.5084 = 1.4860
Resistance (R1) = 2*PivotPoint 3 Day Low
Resistance (R1) = 2*1.4972 1.4826 = 1.5118
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Ok, now we have the necessary S/R lines for the next trading day.
Figure below shows us what happens the next day.
Figure 5-8
Figure above is a 5 min EUR/USD candlestick chart for the December 1., covering
the period of approximately 11 trading hours. Green lines represent Resistance
levels, Blue lines represent Support and Resistance levels and Red lines represent
Support levels that we have calculated the previous night. In this case we can not
see the Red lines as they are our of focus. Of course, we could have calculated
those levels at any time during the current trading day as they would stay the same.
The thin blue line represents 150 period Moving Average and TA tool on the bottom
of the chart is 4 period RSI. As we can observe on the chart an excellent entry
opportunity occured at approximately 2.00 am as at that time the price moved above
150 MA, RSI was above 30 and the price made a bullish breakthrough through the
Support line (in this case 3 Day Close). At that time we would have placed buy order
for EUR/USD and placed our stop loss at (40 120) pips below the entry price. If
this opportunity was missed there was another buy signal at 8.25 am as the price
made a bullish breakthrough through 3 Day High Resistancel line. The lot size is
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Figure below is a 15-minute candlestick chart for GBP/USD covering period of the
previous three trading days. It is November 30, 10pm EST and we are getting ready
for the next trading day as we have described earlier in the strategy.
Figure 5-9
As we can observe from the chart during the period of the past three days we can
determine the values of 3 Day Low, 3 Day High and 3 Day Close. They are as
follows:
3 Day Low = 1.6268
3 Day High = 1.6593
3 Day Close = 1.6439
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From those values we will now calculate Pivot Point and major S/R areas.
Pivot Point = (3 Day Low + 3 Day High + 3 Day Close)/3
Pivot Point = (1.6268 + 1.6593 + 1.6439)/3 = 1.6433
Support (S1) = 2*PivotPoint 3 Day High
Support (S1) = 2*1.6433 1.6593 = 1.6273
Resistance (R1) = 2*PivotPoint 3 Day Low
Resistance (R1) = 2*1.6433 1.6268 = 1.6598
Ok, now we have the necessary S/R lines for the next trading day.
Figure below shows us what happens the next day.
Figure 5-10
Figure above is a 5 min GBP/USD candlestick chart for the December 1., covering
the period of approximately 8 trading hours. Green lines represent Resistance levels,
Blue lines represent Support and Resistance levels and Red lines represent Support
levels that we have calculated the previous night. In this case we can not see the
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Red lines as they are out of focus. Of course, we could have calculated those levels
at any time during the current trading day as they would stay the same. The thin blue
line represents 150 period Moving Average and TA tool on the bottom of the chart is
4 period RSI. As we can observe on the chart an excellent entry opportunity
occurred at approximately 3.05 am as at that time the price was above 150 MA, RSI
was below in between 30 and 70 and the price made a bullish bounce off the
Support line (in this case 3 Day Close). At that time we would have placed buy order
for GBP/USD and placed our stop loss at (40 120) pips below the entry price. The
lot size is calculated according to our Money Management formula. After that, we
would manage the trade using our Recursive Trailing Stop formula.
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Figure 5-11
As we can observe from the chart during the period of the past three days we can
determine the values of 3 Day Low, 3 Day High and 3 Day Close. They are as
follows:
3 Day Low = 1.0528
3 Day High = 1.0750
3 Day Close = 1.0560
From those values we will now calculate Pivot Point and major S/R areas.
Pivot Point = (3 Day Low + 3 Day High + 3 Day Close)/3
Pivot Point = (1.0528 + 1.0750 + 1.0560)/3 = 1.0612
Support (S1) = 2*PivotPoint 3 Day High
Support (S1) = 2*1.0612 1.0750 = 1.0474
Resistance (R1) = 2*PivotPoint 3 Day Low
Resistance (R1) = 2*1.0612 1.0528 = 1.0696
Ok, now we have the necessary S/R lines for the next trading day.
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Figure 5-12
Figure above is a 5 min USD/CAD candlestick chart for the December 1., covering
the period of approximately 9 trading hours. Green lines represent Resistance levels,
Blue lines represent Support and Resistance levels and Red lines represent Support
levels that we have calculated the previous night. In this case we can not see the
Green lines as they are out of focus. Of course, we could have calculated those
levels at any time during the current trading day as they would stay the same. The
thin blue line represents 150 period Moving Average and TA tool on the bottom of
the chart is 4 period RSI. As we can observe on the chart an excellent entry
opportunity occurred at approximately 2.20 am as at that time the price was below
150 MA, RSI was below 30 and the price made a bearish breakthrough through the
Support line (in this case 3 Day Low). At that time we would have placed sell order
for USD/CAD and placed our stop loss at (40 120) pips above the entry price. If
this opportunity was missed another sell signal occurred at 4.00 am as the price
made a bearish breakthrough through S1 support line. The lot size is calculated
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according to our Money Management formula. After that, we would manage the
trade using our Recursive Trailing Stop formula.
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82