FOOTNOTE: Be Warned.. ALL of the above mentioned in this chapter CAN and WILL give False buy and sell signals. It is at the Traders discretion whether to act on any of these signals. It is my recommendation that diligent monitoring should be applied if you are holding a stock that exhibits ANY of these patterns mentioned. TOP BY MPFX When looking at a chart we have the option to view the price formations in four main styles, these are: Line, Bar, Candle and Point and Figure. All of these have their strengths and weaknesses and which style you choose will be a matter of personal preference.

I personally elect to use three of the four types with point and figure the one I never use. The line chart is the one most of us would have seen many times before and is usually plotted using closing price data. This chart is good for visualizing the overall trend of a stock and on some charting programs it will allow you to see more data over a longer time span.

It's use is limited as it is basically what I call a one dimensional chart as it uses only one form of data. Good for glancing, but not for analyzing.

TOP Bar charts are probably the most widely used by traders and not only give us the closing price but also the high, low and opening prices. As traders we need to know as much as possible about a stock and its movements and these bars are the perfect tool for the job.

With a single glance at one of these bars we can get a feel for how investors traded this stock for the day and their general sentiment towards it. Small bars or bodies as they are Technically called are a sign the market maybe consolidating its position or thinking about its nest move. Long bodies could indicate the market is again on the move and looking to test new levels. Some charting packages will only show the close on the bar, many traders elect to use this style with great success.

Some say the opening price does not give a true indication of market sentiment and choose to ignore it. There is a marked difference when drawing trend lines on a line chart compared to a bar chart. With a bar chart you get the entire trading range and a trend line can be drawn using these ranges as opposed to only using closing price data on a line chart. To make this more clear please refer to diagrams opposite. These two charts are identical except one is a line chart and one is a bar.

The trend lines drawn in are the same for both charts based on the bar chart only. In the circled areas you can see the clear difference between the two. With a bar chart we are drawing trend line based on trading ranges rather than end of day closing prices. By doing this we are allowing ourselves a better chance of gaining a lower entry price and a higher exit level. We also increase the range in which the stock may trade thus allowing greater profit margins.

TOP Candle stick charting was developed by the Japanese several centuries ago and has undergone a resurgence in popularity in recent times. This form of chart is by far my personal favorite and I usually use it exclusively. Although more complex to understand, once mastered, candle charts can give you the best overall view of market sentiment. In this section I will give you a brief summary of candles but the purchase of a book dedicated to candle charting should be a must for anyone serious about developing their charting skills.

Candles are similar to bar charts in that they show all four data components open , close, high and low but that is where the similarities end. Candle charts use rectangular boxes that join the open and closing prices together, and use vertical thinner lines to define the trading range. The boxes are called the ' Real Body ' and the thin trading range line are called the ' wicks or shadow If the closing price is higher than the opening price the body will be white, if the closing price is lower than the opening price the body will be black.

Opposite is a basic list of common candle stick formations. large trading range. small trading range. Market tested higher levels but failed to close any higher than open. Market tested lower levels but failed to close lower than open. Also known as a ' Hammer ". The appearance of a hammer at the top of a trend could suggest lower prices may follow. Bearish sign. Also known as Hammer. The appearance of a hammer at the bottom of a trend could suggest higher prices may follow.

Bullish sign. Bullish at bottom. Bearish at top. Please note that Hammers are also referred to as ' umbrella lines ". They represent small trading ranges and are important in some candle chart patterns.

Again where they occur is of the up most importance. Opposite are 3 examples of Hammers. The bottom two are bullish while the top one is Bearish.

The appearance of Dark clouds is not a good sign. It is formed with a white real body followed by a Larger black real body that closed lower than the previous days close. As mentioned at the start of this chapter Candle stick charting is so involved that the purchase of a book solely dedicated to this subject should be must for any serious trader.

I have only scratched the surface of this invaluable method of charting in this chapter. Moving Averages have been around for many centuries and helps the trader to try and eliminate some of the volatility that is associated with stock prices.

There are three main types of moving averages: Simple, Exponential and Weighted. This suits my trading style and all examples shown here are based on this. I suggest that you experiment with all 3 on the same stock to see how all three behave just that little bit differently.

Moving averages are basically the share price smoothed out over a set time frame. They are calculated by adding all the closing prices together for a set number of days and then dividing this total by that set number of days.

As new data becomes available the earliest entry is replaced with the latest entry thus keeping our 20 day total intact. The longer the time frame the less false signals. As most charting packages automatically construct all three types of moving averages I believe that time is better spent here explaining how to trade using them as opposed to their how they are mathematical made up.

This works as both a buy and sell signal and is one of the most widely used methods. The key to this method is the time frame. The basic rule is the longer the time frame the less false signals.

This is fine but with this you also get the longer the time frame the later the buy or sell signal. Day traders and short term speculative traders may elect for shorter time spans than a long term, more cautious trader. Ranges from 9 days to 24 months can be used. The most common used by traders would be 9, 20, 25, 30, 50, 75, and days. We now how have two indicators giving us signals. Interesting to note that the 50ma gave a sell signal before the support was broken but gave a buy signal after the resistance was broken.

It is interesting to note that such a small change can effect the timing of the signals. This is the preferred method by many traders and the method I personally elect to use. It involves the use two or more moving averages at the same time which are set at different times spans. When the moving averages cross each other, either a buy or sell signal is generated. When the faster moving average 25ma crosses above a slower moving average 50ma it is classed as a Buy signal.

When the faster moving average crosses below the slower moving average it is classed as a Sell signal. Once again the time frames used have a great impact on where the signals are generated on the charts. Below are all the same stock with a moving average added each time. It is of PBL daily. Make sure you use the same stock for the tests. This method is by far the best way to truly understand moving averages and will allow you develop your own set of trading criteria.

Some traders like to use up to 6 moving averages at a time believing that when all the averages converge to the same spot on the chart a change of trend is very near. This method definitely its merits as the lines converging is sometimes the first indictor to get the attention of the Technical Trader and is a sign that this stock should be placed in the ' watch closely basket '.

In summary I would like to advise that the best way to gain a real understanding of moving averages is to run tests. Please keep in mind that once you have tested the ma's on the one stock and you are comfortable with the settings you have chosen, try testing those settings on at least 50 others stocks to see if they still show the same results. The more time spent testing, the more comfortable you will be when making your trading decisions.

In closing I have included a chart opposite with the settings I use when trading. It is of PBL and is a current chart. I have included all signals that are relevant that have been discussed so far. PLEASE do not just copy my settings and take them as gospel.

This works for me and may not be suitable for you, PLUS it will not aid in your own development as a trader, please take the time to run the tests, you will be more than rewarded in the end. MACD MACD indicators are yet a further extension of the moving average theory.

They are part of the Momentum indicator family. MACD simply stands for Moving Average Convergence Divergence. The most common form used by traders is the MACD Histogram. It is constructed by measuring the convergence and the divergence of two moving averages. The most widely used time frame is a 12,26,9 macd. The 12 and 26 ma's are divided and plotted as the Red line, the 9 ma is plotted as the blue line. A horizontal line is drawn and is used as the point when these two moving averages are at the exact same level.

The 12,26 macd crosses the 9 ma This is called the Equilibrium Line. A dotted line is usually added which represents the zero line. Bars are used as a visual aid in determining the position of the faster moving average in relevance to the slower moving average.

Bars pointing above the Equilibrium Line indicate that the Macd average is above the 9 day moving average. Bars pointing below the Equilibrium Line indicate that the Macd average is below the 9 day moving average.

by MPFX There are 3 mains ways to trade when using Macd's. A buy signal is given when the bars first point above the equilibrium line. A sell signal is given when the bars first point down below the equilibrium line. The chart opposite shows two buy and two sell signals. It is interesting to note where the signals given correspond to the price action on the main chart.

The first two signals are pretty much spot on, but after the second sell signal was given, the price moved higher before moving down again. On the second buy signal the price drifted lower before moving up again.

The second sell signal was too low and the second buy signal was too high. This is important because traders who set tight stop losses on their trades run the risk of getting out of their trade only to watch the stock rebound. This is why it is so important not to rely on only one technical indicator, it is the culmination of many indicators that are positive or negative at the same time. On this next chart we have five signals being generated by the Macd.

The Red circle indicates 4 sell signals occurring within 2 weeks of each other. This is a what I mean by more than one indicator turning negative at same time, it does not have to happen on the same day. The Pink circle indicates that although the price did drop on both sell signals, the support line remained intact.

The price only crossed the 20ma on the first sell signal but remained above on the second. The 20 ma remained above the 50ma on both sell signals. Convergence means two separate objects heading towards the same meeting point. Divergence means two separate objects moving away from a meeting point. For the use in trading we are interested in the convergence or divergence of the price chart and the indicator that we have selected, in this case Macd.

What we are looking for is lower lows on the price chart and higher lows on the Macd. This creates a buy signal or at least should alert the trader to a possible trend reversal.

Using this method is a good visual aid for seeing that a trend is slowly running out of steam. Most technical traders use what is called a lead indicator. This is the indicator that is the first to show signs of an impending trend change. Momentum indicators are usually high on this list. The same applies when we are searching for sell signals. Instead of the lines converging, this time we are looking for divergence of the price and the Macd. We are looking for the price to be making higher highs but the Macd to be setting lower highs.

Again these signals are only part of the equation when look to buy and sell. If a trader only looks to use one indicator he will get caught out more times than not, but on the other hand, I believe the use of too many indicators is just as a fatal mistake as using only one.

It is a fine balance of the indicators that you feel most comfortable with. The third method used is to use the macd line crossing the zero line as a buy signal and the macd line making a clear break of the histogram bars as a sell signal. This method creates the least amount of buy and sell signals but also the least amount of false signals.

This method is also the slowest to generate a signal and is good for the longer term trend changes. Of course it still generates false signals like ALL indicators so advice mentioned already above about multiply signals should be heeded. Time Fames. Choosing which time frames to use varies greatly and experimentation is by far the best way to educate yourself.

Again use the same stock and adjust the settings of the macd to see the difference in where buy and sell signals are being generated. Some standard time frames are : 12, 26, 9 8, 17, 9 12 ,25, 9 Please take the time to do your OWN experimentation. As you can see above a faster Macd gives an earlier buy signal but many more false signals. These lines are plotted on a chart with a range of 0 As most charting packages do all these calculations for us I believe that time is better spent learning to read them as opposed to their mathematical make up.

by MPFX Once again there a several ways to trade using the stochastic indicator. The first is by the use of bands at the 20 and 80 mark. A stock is considered overbought Sell Signal when the stochastic is at or above the 80 level. A stock is considered oversold Buy Signal when the stochastic is at or below the 20 level. Of course this does not mean sell when it hits 80 and buy when it reaches 20, as false signals are common place as the chart opposite illustrates.

It does however indicate that the trend, in either direction, is running out of steam. Once again there are many false signals given using this method. On the chart opposite you can see 5 signals being given. Only 2 of these are valid and would have resulted in profit or saved losses. The third method that can be used is by the addition of trend lines to the stochastic chart in the exact same manner as you would on a price chart.

To do this, all you need to know is the size of the position. You would multiply your position size by the number of pips increased , Euros x 0. Whether this ends up being a profit or a loss depends upon whether your position was long or short.

This is how profit or loss is calculated using pips and position sizes. Since the USD is the counter currency in this particular pair, the price will accrue in dollars. The profit and loss will be displayed in Swiss francs in this currency pair because the counter currency is CHF.

Assume you have an open short position of ,, and the price suffers a 50 pip decline; that move represents a CHF profit , x 0. If you wish to know how much that profit is in USD, the next question that will enter your mind is how much are Swiss francs in dollars? While this is not a complicated calculation, there are plenty of online currency conversion calculators that can do this for you if you prefer to avoid doing the math yourself.

Your position size will determine the amount of risk you take on in specific trades, so traders must know how to calculate this before opening any positions.

There are no definite rules about how much risk you are recommended to take in any one trade. It is strongly recommended that you keep your position sizes within these guidelines and not take too much risk. As with the profit and loss calculations, there are position sizing calculators available online that you can utilize to calculate your position size depending on the amount of risk you are willing to take on.

You can find one of these position size calculators here. One of the significant advantages of forex is the amount of leverage available in the forex markets. These levels are significantly higher than those found in other kinds of markets like the stock market.

While leverage can be a wonderfully helpful tool, it is a double-edged sword. It can propel your profits upward ten-fold, or it can wipe out your entire account within a day. Leverage allows you to gain a larger amount of exposure to the market with smaller amounts of capital.

It essentially magnifies your position to maximize the effect of price movements on your returns or losses. If the market begins to move against you, your forex broker will have established ratios of margin balances to keep your positions open. If your account falls below those ratios, your broker will likely have reserved the right to close your positions and lock in your losses, even if only for a moment. This means that when you use leverage, there is always a chance of losing the entire amount you invested.

Every broker will have its policies and regulations concerning its margin requirements. To understand what this means, it is best to look at an example. This means that for every 10 trades, you win 2. We have mentioned the use of online forex calculators throughout this post. You can use these calculators to do everything from calculating profits to accessing your risk. To run these calculations, especially your risk, you will need to input specific information into the calculator to perform the calculations.

After reading this post, I hope that you will realize that while there is some mathematics involved in trading forex, it is a far cry from the problems of higher-order mathematics that Einstein contended with.

Unlocks access to the leading crypto trading analysis, signals and trading tools. World class development team backed by Quant developers and VC investors. Our Forex trading PDF, it is widely believed that forex is one of the biggest and most fluid or liquid asset markets in the world. Sometimes referred to as FX, currencies are traded 24 hours per day — 7 days per week.

In simple terms, refers to the process of exchanging one currency to another — and generally speaking, this will be for tourism, commerce, trading and many other reasons. In this forex trading PDF we are going to talk about what forex trading is and some of the commonly used terminology in the industry.

Essentially, it is the action of selling or buying foreign currencies. Of course, these are all used by banks, corporations and investors for a variety of reasons like profit, making a trade, exchanging foreign currencies and tourism. One of the major benefits with forex trading is that after opening a position, traders are able to put in place an automatic stop loss as well as at profit levels this closes the trade.

The forex market is a place to buy or sell against each other a variety of national currencies, globally. Wherever two foreign currencies are being traded, you can be sure that a forex market exists regardless of the time zone.

In this section of our forex trading PDF, we are going to run through some of the most commonly used forex trading terminologies in the industry. The pip represents the smallest amount possible a currency quote can alter. For instance, 0. The differentiation between the sale price and the purchase price of a currency pair is known as the spread.

The least popular least commonly used currency pairs usually have a low spread. In some cases, this can be even less than a pip. When trading the most commonly used currency pairs the spread is often at its lowest. The total value of the currency pair needs to surpass the spread in order for the forex trade to become profitable. In order for forex brokers to increase the number of trades available to its customers, they need to provide capital in the way of leverage.

Before you can trade using leverage, you must sign up to a forex broker and open a margin account. Contingent on the broker and the size of the position, leverage is usually capped at if you are a retail client non-professional trader. Some offshore forex brokers will offer much more than this if you are seeking higher limits. It is because of the aforementioned example that you should exercise caution when using leverage.

Should the worst possible scenario happen and your account falls below 0, you should contact your forex broker and ask for its policy on negative balance protection. The good news is that all forex brokers which are regulated by ESMA the European Securities and Markets Authority will be able to provide you with this extra level of protection, ensuring that you never become in debt with your broker. Margins are a good way for traders to build up their exposure. Put simply, in order for a trader to maintain position and place a trade, the trader needs to put forward a specific amount of money first — this is the margin.

Rather than being a transaction cost, the margin can be compared to a security deposit. This will be held by the broker during an open forex trade. It is commonplace for forex brokers to give their customers access to leverage see above. In order for you to lower your risk of exposure and offset your balance, you might consider hedging. This is a procedure which involves traders selling and buying financial instruments. When there are movements in currencies, a hedging strategy can reduce the risk of disadvantageous price shifts.

The protection of this technique is often a short term solution. Traders often turn to hedge in a panic as a result of the financial media reporting volatility in currency markets. This is usually down to huge events like geopolitical turmoil conflict in the middle east , global health crisis COVID and of course the great financial crisis of To counteract negative price movements, market players will tactically take advantage of attainable financial instruments in the market.

This is hedging against risk in its truest form. Hedging will give you some flexibility when it comes to enhancing your forex trading experience, but there are still no guarantees that you will be totally protected from any losses or risks. While it can take some time to get your head around heading in the forex markets, the overarching concept is that it presents both outcomes.

That is to say, irrespective of which way the markets move, you will remain at the break-even point less some trading commissions.

More specifically, the spot trade is a spot transaction, with reference to the sale or the purchase of a currency. Essentially, spot forex is to both sell and buy foreign currencies. A good example of this is if you were to purchase a certain amount of South African rands ZAR , and exchange that for US dollars USD.

If the value of the ZAR increases, you are able to exchange your USD back to ZAR, meaning you get more money back in comparison to the amount you originally paid.

CFD is basically a contract which portrays the price movement of financial instruments. So, without having to own the asset, you can still make the most of price movements, whilst also avoiding the need to sell or buy vast amounts of currency. CFDs are also accessible in bonds, commodities , cryptocurrencies, stocks, indices and of course — forex. With a CFD you are able to trade in price movements, cutting out the need to buy them at all.

This section of our forex trading PDF is all about forex charts. When it comes to a MetaTrader platform, traders can use bar charts, line charts and candlestick charts. You can usually toggle between the different charts, depending on your preferences, fairly easily.

The first record of the now-famous candlestick chart was used in Japan during the s and proved invaluable for rice traders. These days, this price chart is without a doubt one the most popular amongst traders all over the world.

Much like the OHLC bar chart see below , candlestick charts provide low, high, open and close values for a predetermined time frame. Live forex traders love this chart due to its visual appearance and the range of price action patterns utilised.

This allows you to gain a better understanding of how live trading works before you take any big financial risks in the market. As the title suggests, this one is a bar chart, and each time frame a trader is looking at will be displayed as a bar. In other words, if you are viewing a daily chart you will see that every bar equates to a full trading day. With this price chart, traders are able to establish who is controlling the market, whether it be sellers or buyers. OHLC analysis was the starting block for the creation of the ever-popular candlestick charts please further down.

It is a great tool for looking at the bigger picture when it comes to trends. The line chart arranges the close prices at the end of that time frame; so in this case, at the end of the day, the line will connect the closing price of that day. In this section of our forex trading PDF, we are going to talk about the different ways in which you can sell and buy a forex position as well as things to look out for. When it comes to forex trading you can trade both short and long, but always make sure you have a good understanding of forex trading before embarking on trades.

After all, forex trading can be a bit complex to begin with, especially when mixing long and short trades. In a nutshell, going long is usually a term used for buying. So, when traders expect the price of an asset to rise, they will go long. When forex traders expect the price of an asset to fall, they will go short. This means benefiting from buying at a lesser value. To achieve this, you simply need to place a sell order. The current exchange rate of a forex pair is always based on market forces.

This will change on a second-by-second basis. As we noted earlier, you also need to take the spread into account, so there will always be a slight variation in pricing. For instance, if you exchange 1 USD for 17 ZAR, the sale and purchase price offered by your forex broker will be either side of that figure.

The currency pairs with the most notable supply and demand attached to them will be considered the most liquid in the forex market. The supply and demand aspect is thanks to the investment of importers, exporters, banks and traders — to name a few.

The most liquid currency pairs are therefore the ones in high demand. When you feel you are ready to take the plunge and begin live trading, you need to select a forex trading system.

There is a vast amount of trading strategies for you to pick from. This is because investors, speculators, corporations and banks have been trading for decades. In this part of the forex trading PDF, we are going to explain a few of the strategies available to you. If you want to buy and sell currency pairs from the comfort of your home or even via your mobile device , you will need to use a trading platform.

Otherwise referred to as a forex broker, there are literally hundreds of trading platforms active in the online space.

This makes it extremely difficult to know which broker to sign up with. In the below sections of our forex trading PDF, we explain some of the considerations that you need to make.

You should also look out for analysis tools available to you. In some cases, this might be embedded, while some offer tools such as technical analysis and fundamental analysis. This is because it will save you a lot of leg work having to move between different sites and sources of information.

Some of the fastest and easiest trading platforms are MetaTrader 5 MT5 and MetaTrader 4 MT4. Crucially, both MT4 and MT5 are fast and receptive trading platforms, both providing live market data and access to sophisticated charts. It is essential before you begin trading seriously that you fully trust the trading platform you intend on using. This is especially the case if you intend on using a scalping strategy, for example. However, if you like to trade, it is vital for your peace of mind and your finances that you are fully confident with the fast execution of data transfer.

This is also the case with the precision of quoted prices, and the speed of order processing. All of these things are going to help you to have a successful forex trading experience. To enable you to make the most of new opportunities, the ideal forex broker will be available to you 24 hours a day and 7 days a week, in line with the forex market opening hours.

To save you from having to request that your broker takes action for you, your forex broker should enable you to manage your account and your trades separately.

What is the pip in forex? Best MT5 Forex Trading pdf Broker We have picked RoboMarkets as the best tutorials on forex trading MT5 Broker. While it is crucial to understand when is the best time to analyze the charts and make the bids, it is equally important to know when NOT to open positions. It has several different account levels that make it easy for anyone to open an account. Everything you find on BrokerTested is based on reliable data and unbiased information. It is constructed by measuring the convergence and the divergence of two moving averages. Now how do you know when a trend starts and when it is going to end?

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