We are working hard every day to create the most convenient and financially beneficial conditions for entering the market. However, it is not enough to be truly successful in trading. As a trader you must be well versed in all aspects of trading: the functionality of the trading terminal, conducting technical, fundamental and graphical analysis, how our advisers can assist you, trading futures, the psychology of trading and much more.
We understand that the amount of things to learn seems overwhelming and that all of this may sound incredibly complicated for those interested in trading for the first time. Therefore, we have tried to gather all the information you need into one place and present it as simply as possible by dividing it into parts, making it easier for you to find the needed material.
We also wrote the text in question-answer form so you don't have to read the whole chapter to find the quick answer you need We hope that you will find the detailed information you need to take your trading to the next level!
Part 1. Introduction
Who are we?
We are Fort Financial Services, a brokerage company that helps investors start trading on the interbank market. And it doesn’t even matter how much money you put into your account initially. It may only take a small amount of money to start earning a profit. This market exists for the precise reason to earn profit by buying different instrument at lower price and selling them at higher prices. The worldwide economy stands on this principle and you can make your contribution to increase it and get your share of this ocean of money. When we mentioned products earlier, we weren’t of course talking about buying physical products and taking them home in boxes to store them until you find a buyer. Things are rather arbitrary in the financial market where benefit is derived from the difference of prices, i.e.; exchange rates (or metals, oil, stocks, indices, etc). These prices change every second — sometimes they rise and sometimes they fall. This whole process is much easier these days. You no longer have to fly across the ocean to an Exchange house like investors did in the early days. Now all you have to do is download a free program called the trading terminal. Thanks to the trading terminal, you can begin trading from anywhere in the world; from your office or from home, from the sea or from a cabin in the woods. The only requirement is to have access to the Internet. That is how millions of people around the world are trading on worldwide financial markets from their desktops, their laptops, their tablets and even their smartphones. Join them now!
What instruments can be traded in the financial markets?
On the international market, millions of traders are profiting from fluctuating currency exchange rates, changing costs of crude oil, gold, silver, stocks of major companies and many different products — coffee, wheat, corn, etc. A complete list can be found in your terminal, once downloaded. We’ll talk more about that later.
How do you get started?
The only things you need to get started trading on the world’s markets is the trading terminal, which requires only internet access, and a desire to start making money. The Terminal allows you to monitor changes in the prices of each instrument – how much sellers are currently selling them and how much buyers are currently willing to buy them. You can start buying and selling, and you don't even need to have a warehouse filled with oil or corn, or a safe full of different currencies. As we mentioned earlier, on the financial markets everything is arbitrary – except for profits and losses – and you need to be mentally prepared to deal with both of them because both are inevitable, especially to the beginning trader. But don’t panic! You will never lose more than you are willing to risk on the market. We’ll show you how to minimize losses a little later, but first let’s answer what is probably the most important question on you mind:
How much money do you need to get started? This may surprise you, but it does not take as much as you might think. As we mentioned earlier, the trading terminal is completely free to download. After you download and install the terminal, you begin training with a demo account. It’s up to you to decide how much virtual money you want to deposit in your demo account. This training will help you get acquainted with the Terminal, try some simple trades, work with advisers and conduct your first market analysis. When you feel more confident and want to try out your new skills on the real market, you open an account with our company and we give you a $5 trading bonus to welcome you as a client. This trading bonus means that you can start trading without worrying about losing your money – you can start trading with our money. Soon you will start to realize that being a trader isn’t scary after all; it’s actually very interesting! You can learn more about this welcome bonus by clicking here.
How to download the Terminal?
It is very easy and we offer different versions, depending on the type of device you will be using to trade: desktop computer (laptop) or mobile device. We also offer the MultiTerminal on our site, which is handy if you have several accounts and plan to actively trade on all of them. The MultiTerminal will allow you to track and monitor all your accounts. You can download our most popular and easy-to-use trading terminal, MetaTrader 4, right now.
|FortFs MT4 Terminal:||Download terminal|
|FortFs MultiTerminal:||Download terminal|
|iPhone, iPad:||Android:||Windows Mobile:|
How to install the Terminal?
Choose "Save file" from the pop-up window, and then double-click to start the installation. Press “Next” after the welcome screen.
Agree to the licensing agreement and then click "Next" again.
Choose an installation folder on your computer…
and after the installation is complete, click "Finish."
How to open a demo account?
When the Terminal starts for the first time, you will be automatically prompted to open a demo account, but if you accidentally close this window, it might get a little confusing:
To manually open a new demo account (you can have as many as you like), select “Open an account” from the “File” menu.
Even though this account is for training purposes and the data is fictional, be sure to enter your real e-mail address in order to receive important news and messages from us.
In the "Deposit" field, choose one of the preset amounts or manually enter any amount that you wish. We don’t recommend choosing huge amounts (like $10 Million) because it won’t help you to learn trading in real market. Generally, it’s best not to choose more than $ 5000. That is more than enough for you to learn everything you need to learn to start trading for real.
The “Leverage” field. To be honest, not even all active traders know what it is. But you will find out very soon – we’ll describe it in detail a little bit later. In the meantime, let's finish opening our demo account and leave the leverage ratio set to the default value of 1: 1000. Click the check box next to the phrase that you agree to receive news by email, then click "next" then "next" again and finally you will see this screen:...
We recommend you to save your Login details (both username and password) of your demo- account for later use. This disciplines you because in case of each new unprofitable trade you will open a new demo- account with 5000$ balance you won’t learn how to trade on the market. By the way, please note that your account has two passwords: one normal password for you to use for trading and another one called the “investor’s” password (you can give it to your friends and they can view your account and your trading, but will not be able to change anything). That’s all! Press "Finish." Congratulations! You have now officially joined the international community of traders! Now let’s learn how to trade!
Part 2. Getting to know the Trading Terminal
What is the leverage?
You probably already noticed while opening your demo account that the leverage ratio can be set to a number of different sizes: 1:20, 1:50, 1: 100, 1: 500 and 1: 1000. Leverage allows you to make transactions in amounts significantly larger than you have in your account. It reduces the margin, or the amount of funds that are “frozen” as a requirement for completing each trade. It is important to understand that the international financial market was not originally designed to serve individual traders who are sitting in front of personal computers. Major banks, trusts and investment companies are the ones that really control movement in the market. They exchange currency, buy and sell huge "lots" of goods, and of course, the daily volume of these transactions is impressively large. For the convenience of these big players in the market, there is a minimum transaction size of one lot. And one lot is usually equal to a rather large amount of money. For example, on the currency exchange market (Forex), one lot is equal to 100,000 units of a given currency, such as dollars. Of course, do not have access to such amount of money. That is when brokerage companies support traders by offering margin trading. Although margins are form of credit, they, like most things in the trading world, are conditional – they are only available while your transaction is active. During this time, the broker loans you the amount of money you need to make up the difference to 100,000 so you can purchase one lot. It gives you the opportunity to earn significantly more money trading on the market than if you only used the money you have in your account.
How do you choose the right margin ratio?
Let's say that you chose a margin of 1:20. When you make a purchase of one lot, only 1/20 part of the 100,000, or 5,000, comes from your account. The remaining amount is "lent" to you by your broker, but, again, only for the duration of the transaction. So, if the margin is 1:50, then your part of the transaction is $2,000. If the margin is 1: 100, it’s only $1000. A margin of 1:500 allows you to do a lot of trading with only $200. And, a margin of 1:1000, which is the default, gives you the opportunity to enter the market with tremendous volume, all with only $100! Now you can see how convenient and attractive trading is! Of course you must keep in mind that your profit is proportional to the amount of your contribution to the transaction, i.e., $100, not the whole $100,000. And don’t worry if $100 is too large a sum for you to invest right away. The market does not require you to purchase an entire lot at once. It’s actually recommended to purchase only a fraction of a lot (0.1 or 0.3). We’ll explain this in more detail a little bit later.
What volume is the best to start?
Of course if you start out with a huge volume transaction right away, you can count on substantial profits, but also substantial losses, which in this case could be devastating. That’s why most investors consider one lot to be big enough and prefer to trade in fractions of a lot. You can find more details in the Trading Terminal. For example, if you want to start a new transaction, you need to click on the large “New Order” button in the middle of the second panel on top. By clicking this button, you create a request to open a new transaction and your order must be fulfilled by your brokerage, i.e., FFS.
The “Order” Window
Note the "volume" field, where the default transaction amount is 1.00 lots. If you click on the arrow on the right side of it, you'll see that you can select any fraction of a lot, beginning with 0.01! Thanks to this feature, you can choose a smaller margin, like 1:20, and get a larger share of the profit from the trade, because more of your own funds will be used in the transaction. By the way, you can also manually enter the amount, let’s say 0.5 (half a lot) or 1.75, and FFS will add the remaining funds needed to enter the market according to the chosen margin. Now let's get to the most important point.
Which market should you choose to trade on?
The first market that we will teach you to trade on is the international currency market, or Forex. This is the most popular, and of course, the largest trading market. It’s also the easiest to understand. It is called the currency market because it coordinates the buying and selling of the world’s most popular product - money. You’ve probably already bought money, even if not through the Trading Terminal. If you’ve visited a currency exchange, you were likely conducting a simple transaction like trading dollars for euros. In fact, you were dealing with a pair of currencies – a euro-dollar currency pair (EUR/USD). On the electronic sign above the teller you saw how many dollars (USD) were equal to one euro (EUR) on that day. If, for example, it is said that one euro is equal to 1.238 dollars, then this number is called the quotation. In this case, the euro is the base currency, because it’s what you bought for your dollars. And the dollar is the quote currency because the euro is quoted in dollars at the rate of 1.238. Here we have the most popular currency pairs in the Forex market, ones that are in constant demand by traders all over the world. Let's find the EUR/USD currency pair in the Terminal.
Next you will see eight windows with charts and the first one is the euro-dollar chart. For convenience and clarity, let’s first close the remaining windows. To do this, click on the "X" in each window.
How do you set up a chart?
After closing the unnecessary windows, maximize the EUR/USD chart and take a look at information our Terminal provides. The most important and notable thing is undoubtedly the window itself. This is what you will be paying attention to when preparing for your transaction, while starting your transaction, and during your transaction – all the way until it’s closed. By the way, that quote that you saw on the sign of the exchange office is the end result of the previous day’s trading on the Forex market, i.e., at the end of the trading session. But during the day the currency pair experienced countless variations and changes, and traders had time to earn and lose huge sums of money. This graph shows us how the quotation of the currency pair changes every second. This change is displayed on the right:
And on the scale below the chart you can see the date and exact time when the change occurred. Using these scales, you can connect the vertical and horizontal dotted lines and easily determine the quotation (put simply, the price) of the currency pair at any given moment in time.
Not everyone likes the black background and green graphics, but don’t worry, you can stretch, rearrange and repaint everything in your Terminal.
Right-click anywhere in the chart window. A menu which contains all the basic options of the Terminal is displayed by clicking right mouse button in the chart window. Here you will find the most used options from all of the other menus. So, now we need to click on the Properties tab at the bottom.
Let’s take a look at our options.
You can choose one of three color schemes: green on black (the current setting), yellow on black, or black on a white background. The white background is probably the most pleasant. If you don’t like one of the standard color schemes, you can choose any colors you like - for the background, the text (quotes, date, name of currency pair), the dotted grid and for the graphics. You can also change the colors of several unfamiliar words: bar up, bar down, bullish candlestick, bearish candlestick and line. We’ll deal with them right away.
How the chart may look like?
Price movements can be represented by different symbols. Initially, your schedule is made up of separate small rectangles known as Japanese candlesticks.
They are called like that because they actually resemble candlesticks: they have a body, sometimes shaded, and there are two wicks – a top and bottom one. This system was invented by Japanese traders who had nothing to do with trading terminals. They used to make these marks as a matter of convenience in their notebooks where they recorded financial transactions. Even today, this system is the most convenient, informative and often used to monitor the movement of prices. Let's take a break from all that for a moment and click "OK" in the Properties window. Now let’s take a look at the top bar above the chart.
There you can see the buttons M1, M5,... MN, which indicate time intervals (time-frames). Right now we are viewing this chart at a time-frame of M5, in other words, we are seeing the price on a scale of five minutes. Note that this does not mean that the quote will change every 5 minutes. This time-frame only shows whether it is now predominantly up or down. In the five-minute view the price may be up, but if we look at, say, the monthly time-frame, MN, we can see that the price has been dropping steadily for several months and small, minute-to-minute fluctuations in price may not influence the overall picture at all.
But back to the M5 time-frame. During each five minute interval, the candlestick changes – it goes up, down, turns black, turns white; but once the 5 minutes is up, it is locked in and a new candlestick begins to form. In the half-hour time-frame (M30), each candlestick represents 30 minutes and in the weekly time-frame (W1), the candlestick will continue to change until the end of the week.
Black (shaded) candlesticks indicate that the quote of the EUR/USD pair has been dropping, and the white (unshaded) candlesticks indicate a rising quote. The "wick" on each candlestick (the small vertical dash on top) shows the highest price achieved; and the dash’s shadow under the candlestick shows the lowest price. The "body" of the candlestick also stops volumes. The top border in our five-minute time-frame view shows the opening quote of our EUR/USD pair, and the lower border indicates the price at the end of the five minute time-frame. Try to change time frames: if you click on the M1 (1 minute) time-frame you will see a price chart consisting of the "one minute" candlesticks; the M15 and M30 views show candlesticks for every 15 minutes and every half an hour. The H1 and H4 (1 hour and 4 hour) views will show them hourly and in 4-hour intervals. The W1 (1 week) view shows candlesticks for every week and the MN (month) view shows them month-to-month. This is the largest-scale view and is the easiest to use in order to find out how the price behaved a year or even a few years ago. The dates are located on the scale below the graph.
What time frame is best?
This will become clearer in the course of trade. If your goal is to open a trade in order to earn quick profits within a few minutes, then you can use any of the minute views. If you want to complete the sale within an hour and watch the movement on your computer monitor, you could use the M30 view. If you are willing to wait till the evening, then a clearer direction of the price movement, or trend, can be observed by using the H1 and H4 views. Despite the fact that waiting all day for your transaction to close may seem like an eternity, traders consider this to be a short period of time and actually call it "day trading." If you have nerves of steel and are willing to wait an entire week for a transaction to close (this is called medium-term trading), then choose the D1 time-frame view. If you decided to wait until the price will reach a long-term perspective, you can wait a month or more. In that case you need to use the weekly time-frame, W1.
What are bullish and bearish candlesticks?
First of all, let's get acquainted with the bulls and the bears. The first type is called bulls, because they «grab the bull by its horns” when they trade and their purchases raise the prices of goods, or in other words, currencies go up. And the second type is called bears because, like a bear paw, they lower prices with their selling. Every transaction on the financial market affects the movement of prices on the market, albeit a little bit. And if the bulls or the bears join together with other bulls and bears, the overall picture can change dramatically. When, for example, most of the bulls close their deals, and take their profits from the market, their power is weakened, leaving the market, and prices, under the influence of the bears, and prices start to fall.
So, the greater the bulls’ power, the higher the price rises, and the stronger the bears, the lower they are able to push the price. If, for example, encouraged by good news from the US economy, the market becomes "bullish" towards it, attracting those who want to buy United States dollars with other currencies due the fact that with optimistic news it will likely go up in value. During times like this, the vast majority of candlesticks will be white (not shaded), which indicates that the price increased during this period. Therefore, they are called "bullish.” It happens the same way in reverse. The same upbeat news from America, which causes the dollar’s value to increase, will cause the prices of gold and oil to drop. When the charts are dominated by black (shaded) candlesticks and the price goes down, it will be reported, for example, that "the gold market today was bearish."
How do you choose what to trade?
Actually, there is no correct answer to this question - you can earn money on any instrument. It really just a question of your experience, your level of sophistication with choosing beneficial market entry points, and lastly, just plain luck. As it was said, the most popular trading pairs are the euro-dollar (EURUSD) and gold-dollar (XAUUSD) pairs. Let's start with the inseparable euro-dollar pair and locate it in our Terminal. To the left of chart window, you will see the “Market Summary” panel – let’s have a look at it.
There you will see a clock showing the Terminal time - GMT +2. This is a unified time and it is the same for all traders within Fort Financial Services, regardless the time zone they are located. So, in the “Market Watch” window you will see a set of symbols - the tools which you will use to open transactions. To make sure you can see the complete list, click the right mouse button and select "Show All Symbols."
Of course, it will be very difficult to find pairs in this list at first, so in order to avoid confusion most traders study the descriptions of the various trading instruments that can be found on our website. Here you will find a table listing the meanings of each symbol, the commission amount taken by the market for each type of transaction (spread) and the broker’s fee for carrying your transaction through the night (swap). We’ll tell you more about that a little later, but for now let's find the EURUSD in the list. In order to quickly find this or any other tool, start by clicking anywhere in the “Market Watch” window. Then, start typing the first letters of the pair’s trading symbol. For example, to search for the euro-dollar symbol, type: "EUR..." and you will immediately find the EURUSD selection. Please note that the most popular currency pairs are at the top of the list: EURUSD (buy euros for dollars), GBPUSD (pounds for dollars), USDCAD (US dollar - Canadian dollar), USDJPY (dollar-yen), NZDUSD (New Zealand dollar - United States dollar), AUDUSD (Australian dollar - United States dollar), USDCHF (USD-Swiss franc), and then the list continues alphabetically. This is done to ensure that you do not have to search every time for these popular symbols. Once you have chosen the EURUSD symbol, you need to drag it to your chart window.
How do you open a deal?
Look at the EURUSD chart. It’s best to start out in the 15-minute time-frame (M15) view. Suppose that the price starts to drop and using your demo account you decide to open a selling deal, so that when the price falls even lower, you can close the deal and take your profit
And using your demo account you decide to open a selling deal, so that when the price falls even lower, you can close the deal and take your profit. To do this, click the "New Order" button on the top panel above the chart.
In this window, you first confirm the instrument you want to transact in the "Symbol" field. Then, in the "Volume" field, choose the amount of the transaction, i.e., a whole lot or a fraction of one (by the way, you can also type in the amount yourself). Next, in the "Comment" field you can attach a note to the transaction, for example: "Transaction Based on Election News from America." This is useful for analysis of your trading activity and eventually you’ll start to feel what news work for you and what news work against you. This is when you begin to develop your trading strategy. In addition, if you want to use trading robot, which will open the deal for you, you can use the "Comment" field to serve a useful purpose. You can enter a combination of different indicators upon which your trading strategy will be built. We'll talk about that in a future section, but for now just make note of this. Also in "New Order" window you need to choose the execution type: “market execution” (the deal opens immediately at the specified price) or "pending order" (you can specify at what level you would like the deal to open, and once the price reaches that mark, you will enter the market). For now, we’ll choose "market execution."
What do bid, ask and floating spread mean?
You may have noticed that in the “market watch” window there are two columns: "Bid" and "Ask." The best way to understand this is by looking at the "new order" window that we just opened. You see two buttons in the middle: "Sell" (red) and "Buy" (blue). Accordingly, the red chart on the left (bid) shows at what price you can open a sell transaction for the EURUSD instrument and the blue (Ask) chart - at what price you can open a buy transaction. These two rates differ slightly from each other, as well as from the price you see on the main chart in the Terminal. The difference between these quotations is the market commission, or spread. Let's click on “Sell” and open a transaction for the sale of our pair at the bid price.
The Bid price is always a little lower than the current price (and, of course, than the Ask price). At the bottom of your screen, below the chart, you will see all the information related to your open transaction and the changing size of your profit.
Once you open any transaction you will initially start out with slight minus until the price chart move for a few points and until you cover the spread. Only after that will you start earning money. If you click on “Buy,” transaction to Buy will be opened at the risk price and, as we previously mentioned, it will be “above market prices” meaning that it is a bit higher than on the chart." By the way, you may be wondering what the letter “f” means after the symbol in some currency pairs. This indicates a floating spread (flex), that is, a fluctuating commission spread. Depending on the market situation and the current news, the commission amount may go up or down, while the commission on pairs with fixed spreads remains the same no matter the conditions. In other words, the difference between the Bid and Ask prices in pairs with “f” at the end of the symbol are always changing, while the others remained unchanged.
How do you monitor an open position?
If you view your transaction in the "Trade" tab below the chart, you will see the following: "order" (the transaction ID of your deal, or ticker), time (the exact Terminal time when the was opened), type (Buy/Sell or pending order), volume (how many lots or fractions are involved in the deal), "symbol" (instrument used in trading), price (the market quote at which you carried out the transaction), "S/L" (the level at which you set your stop loss), and "T/P" (where you set your profit line, or take profit). Then there are the charts: “Price,” which shows the current price and is constantly changing, "Commission" (this is an additional fee for trading stocks and futures contracts; in our case this chart shows zero), the "Swap" chart (this is the amount of the Commission that will be paid in order to carry your transaction through the night to the next trading session) and "Profit" (how much you currently have earned or lost). Such gain or loss is called "paper" or "floating" because you have not yet received it (after all, the deal is not closed) and they are constantly changing, or “floating.” Click right mouse button anywhere in the window, and you will see another tab called “Profit.” There you can choose displaying mode: in points of price movement, in currency of your account (it can be dollars, euros, as well as rubles) or in currency of the transaction.
It is most convenient, of course, to see your income in the currency used for your deposit. When your transaction is closed, you are able to find it here, but you need to access it through the “Account History” tab. The second line, or “Take Profit” line, will be highlighted in green if the position is closed with a profit.
And those that will be closed with a loss by stop loss order will turn red.
If you decide to close the transaction manually, they will not be highlighted.
You will receive a “Daily Statement” of your completed transactions via email to the address you listed when you set up your account. Also, this information is available to you at any time in your account in "History" and "Records" sections.
How do you limit your losses?
So, since we have opened a deal, over time we will either start earning or lose funds, if we did not accurately predict the direction of prices. In both cases, we need two types of safeties. The first limits our possible loss (stop loss), and the second helps us to take our profits at the right time (take profit). Since we chose to open a Sell transaction, the higher the price goes, the more we lose. So our stop loss should be set at a level higher than the opening price of the transaction. For example, let’s suppose its 10-15 points to start out. Have a look at the quote and set the limit. To do this, go back to the panel below the chart where the line with your transaction is located. Click right mouse button and select "modify or delete order.”
In the new window, you will see that you can use the default stop-loss or manually enter your own quote.
You will also see the “take profit” field nearby. Here you can also choose to keep the default quote or enter your own.
For a sell transaction, the stop loss should be set above the opening price and while take profit should be set below the price. For buy transactions it’s vice versa. Professional traders recommend to set the take profit three times higher than the stop loss. Let’s do the same now. It turns out that it should be 30 points above the current price. You can increase the value of take profit and stop loss manually as well as by using the up-down arrows. One arrow step is equal to one price point. There are some traders who like to set the take profit the same as the stop loss, preferring a difference of 10-15 points. This is called "market noise." They believe that this way the transaction will almost certainly be completed the same day, as the price fluctuates up and down. But, this is not always the case. So, the option that works best for you will be found after a few training trades on your demo account. Of course, there is no 100% guarantee of earnings using one method or many different trading strategies have been developed over time using market indicators and trading robots, which traders call "advisers." In the third section of our training we will talk more about not just opening transactions, but doing so intelligently. Since our deal hasn’t closed yet, let's get acquainted with the Terminal.
What other important functions does the Terminal offer?
We already mentioned that you can change and move almost everything in the Terminal. So, the size and location of all the windows and panels in your terminal can be changed by dragging and stretching the charts. Try to adjust your trading desktop in a way that is the most convenient to you. You can close any windows you don't need by clicking on the X in the upper right-hand corner. If you want to increase the size of your charts, you can click on the magnifying glass with the plus or minus on the top panel.
Nearby you will find the "auto scroll" button.
If you click it, then every time the price changes even one point, the chart will shift to show you the current price at that moment, even if you have scrolled back to see what happened yesterday. This makes it difficult to view historical data. It’s better to deactivate this function first before scrolling back through historical data.
You will also see an "indicators" button, which is duplicated in the "Navigator" window. A lot of things are duplicated in the Terminal in order to give you the option of creating the view that suits you best.
In the "Navigator" window, which is located to the left of the chart, you will find information about the account which is is currently open (you can change it). Here, you will also see the list of technical indicators that can be used to examine the movement of prices and make predictions about where they will go next.
In the same terminal window, you will also find some pre-loaded trading robots that can conduct transactions on their own according to their programmed algorithms, indicators that have been uploaded by other traders, as well as scripts – trading scenarios that you can program yourself.
To do it, click the right mouse button on a script and choose "Edit" or "Create" if you want to re-write the entire script.
In addition, you can click right button on any indicator or script and select "Add to Favorites." In the nearby “Navigator” tab, you will see only those scripts or indicators that you have added to your favorites.
Also, any indicator can be dragged to a chart to see how it looks and how it can help you in your trading.
What is the volumes chart?
This is a helper chart which, if you drag it to the main chart, will place itself at the bottom right corner of the window and will indicate how many lots participated in your various transactions during the chosen period of time. The more lots are opened in the market at that time, the higher the columns will be. So, how do you build a volumes chart? Upon opening the Terminal, press Ctrl + L or choose “Volume” from the drop-down menu at the top of the “Charts” tab.
Another chart with columns of varying sizes will appear under your main chart. Let's open the 1-minute view of the EURUSD instrument. Now, each candlestick shows the range in which the price fluctuated during the last minute and under each candlestick you see a volume column that indicates the volume of transactions opened by traders (i.e., did they take a risk, invest, or did they just wait and watch).
It is important to know that if the small columns are getting shorter and shorter, that means that the trading volume is going down, signaling a reduced interest among traders in the current pricing dynamics (future growth expectation may be waning). Consequently, you can expect the current trend to reverse itself (possibly a sharp decrease) or simply a temporary stabilization of prices (flat). Columns that are increasing in height signal an increasing trading volume and increasing interest among traders in the current price. Most likely this trend will be strengthening.
What is on the top panel?
Just like in a web browser, the upper panel of the Terminal is the most important and will never go away, even if you close all the other windows. You can customize the toolbar by right-clicking on it with your mouse. The default menus are:
File - this button is useful if you want to open anything (new account, new schedule), change users, save anything or exit the Terminal.
View - this menu is used to configure the way your terminal looks. Here you can change the menu language, customize the toolbar, as well as remove or add any window. So if a window suddenly disappears, now you know where to go to get it back.
Insert – by clicking on this button, you can choose additional lines for your chart. These indicators can help you to predict the direction of price in the near future: will they rise or fall. There is also an option to add text to your chart. This can be handy if you want to create a reminder for yourself.
Charts – here you will find a list of all the objects that you have dragged onto your chart during your experimenting. You can remove some of them or all at once. There are also duplicated functions such as time-frames, bars or candlesticks, zoom-in or zoom-out, etc.
Tools – you can start a new transaction from this menu, launch the MetaTrader editor to write a script, access advisers or view an archive of prices in the form of a table for a specific instrument over any period of time.
Window - click on this menu to change your settings, for example, to display several charts for different instruments. To get started, click "new window" and select instrument that appears. Then, when you have a lot of windows opened, you can cascade them horizontally or vertically.
Help – this is a very important one. Here you will find links to technical analysis training: you can participate in automated strategy competitions and learn all about mobile trading. If you want to learn how to write successful scripts and create trading robots that will make your market trading more successful, you can visit the MQL4 or MQL5 communities. Here you will find a tutorial, various documents, articles, codes list, and even access to the MQL Developers Forum.
Explore the Terminal a little bit on your own - open and close menus and windows – and try to get used to the way everything works. The Terminal interface is very user-friendly and, as we mentioned before, much of it is duplicated in several locations. Then, after your experimenting, the answer to the following question will definitely come in handy:
What do you do if you have deleted something and don't know how to recover it?
If you accidentally delete…
…the main trading window (the “Terminal” window), press Ctrl + T
…the panel with all of the trading symbols (“Market Watch”), press Ctrl + M
…the “Navigator” panel, press Ctrl + N
…the dotted grid on a chart, press Ctrl + G
…the volume chart, press Ctrl + L
…the chart window: just drag and drop any instrument or currency pair into the empty space and a new window will appear.
If you accidentally drag one of the windows somewhere and don’t know how to get it back, click on the window’s header-tab and drag it where you want. Note: the "Terminal" window’s header-tab is on the left side, not on the top.
Part 3: Technical Analysis
How do you display pending orders?
Before we start dealing with technical analysis, we want to tell you about one more important thing – order types. Actually when you analyze the market situation, you inevitably make predictions where the price will be in the near future. After you make your prediction, you'll probably want to open a deal right away and then, a little later, when the price will reach its top and start to move the other direction, it will be the ideal time to close your open positio! But, you don’t have to sit at your Terminal and wait for the price to reach your pre-decided level to open a transaction like this. You can simply program a “pending order” for that price level, i.e. an order to your broker to open a transaction, which is deferred in time. Here are a few examples.
Let's say you have analyzed the market situation and are predicting that the price will still fall a bit more, down to a level of 1.3145, then turn around and start going up.
So, it makes sense for you to wait to open your transaction until the price is lowest. To do this, open a "new order" and then in the "Type" field select "pending order." Because you want to buy at a price that is below the current one, this type of order is called a Buy Limit (or limit-order to buy). Next, choose at which price you want your transaction to open (i.e., when the order should be fulfilled). In our case we should enter 1.3145. Next, choose the volume with which you want to enter the market and also be sure to set your stop loss and take profit levels. Additionally, you can set the expiration date of the order.
If the transaction does not open before that date then we, as your broker, will simply delete it.
Here’s another example: Let’s say the price is currently rising, but you have analyzed its movement and are confident that it will reach 1.4410 and then immediately turn downwards. That would be the perfect time to open a sell transaction!
In this case, your pending order is called a Sell Limit, i.e., your selling transaction will be opened at a price above the current one. You set up this type of order in the same way as you would a Buy Limit.
One last example: Let’s say it’s not clear in which direction the price will go from the current level of 1.3184 and no available indicators can offer any hints. Then you decide: If the price rises by 10 points and reaches 1.3195, that will mean that it will continue to grow and that would be a good time to open a buy transaction (Buy Stop - buy above the current price). Furthermore, if the price goes down by the same ten points, then it will likely continue to go down, and it’s a good time to open s sell transaction (Sell Stop - sell below the current price).
These orders are created the same way as the previous ones. And one more very important thing: any order to buy, even a pending order, will be opened at the Ask price and closed at the Bid price. Any order to sell is opened at the Bid price and closed at the Ask price.
Now since you understand the different types of orders, we can proceed directly to the subject of technical analysis.
What is technical analysis?
Technical analysis involves studying the historical movement of a price and predicting where it will go in the future. You do this on the basis of those charts that you see in the Terminal. Right now, if you look at the chart for the EURUSD currency pair, you can say whether the price of this instrument is rising or falling. If you scroll back, you can see how the price behaved last month or even last year. You may be confused why you need to care what price was that long ago, but in practice, you will find that history repeats itself. Not always, of course, but most of the time.
For example, if you open the EURUSD chart with an MN (monthly) time-frame, you will see that from April 1 to December 1, 2007, the price increased, and from April 1 to December 1, 2008, it declined. Then, from April 1 to December 1, 2009, it went up again. The movement was not clear in the following year and then, from April 1 to December 1, 2011, it declined some more. After that there was another period of uncertain movement, and you can assume that in the period from April 1 to December 1, 2013, the chart will go up.
Of course, any analysis, one way or another, is pretty subjective. After all, even after looking at the same data and following the same indicators, analysts are almost diametrically opposed. It is therefore important to not just look at the chart, but also be familiar with what is going on in the world. All quotes are affected by economic and political changes, and even the psychological mood of traders. That’s why you shouldn’t take technical analysis as the Holy Grail of successful trading. That simply isn’t true, however, it can be very useful in figuring out and understanding much about the behavior of prices.
What is technical analysis based on?
We’ve already talked about one aspect of technical analysis – the various types of charts. In the Terminal, charts are displayed using "Japanese Candlesticks" which is the analysis of where the price went (where it began and ended) during a specific period. Another type of chart we mentioned is the bar chart, which looks like this:
Just like Japanese Candlesticks, they show the opening price (the little line on the left), the closing price (sideway lines to the right), the maximum price (upper line) and the minimum price (the lowest point) during the specified time period. There is also a line graph (picture). This line is created automatically for each quote after the completion of each time period. Of course, you don’t always need to look at this detailed timetable. Just hover your cursor over a bar or candlestick and a little window will pop up that gives you all the important information: the time of opening, the maximum value (high), minimum value (low), the closing price and the number of ticks (volume), i.e., how many times the price changed during the specified time period.
Another aspect of technical analysis, in addition to the types of charts, is the direction of prices, i.e., the trend, and it’s channel.
What is a channel?
Every trend has a beginning, an end, and a range, within which the price fluctuates, not going outside the trend. Some traders argue that the emergence of each trend can be seen by the naked eye and they do not need any additional tools. This may be true, but this approach is only indirectly related to technical analysis. So if you discover a trend that is forming or has already formed, or have a clear indication of the direction of prices, you should outline it with two straight lines in order to identify the boundaries of the channel in which this trend will vary.
What types of trends are there?
If the price on the chart is moving upwards, then it’s a “Bullish” trend.
To determine it you need to, remember: the amplitude of the movement upwards must be greater than the amplitude of the downward movement in price.
Another type of trend is the downward one, or “Bearish.”
Here the opposite is true: the amplitude of downward movement in price should be greater than the amplitude of the upwards movement.
There is also one other direction – flat, which is horizontal or nearly horizontal price movement.
Most methods of technical analysis are geared towards trend trading. Traders even have a saying: "The Trend is your friend." This means that once you have determined the direction the price is currently moving, you should open your transaction in this direction, i.e., according to the current trend.
How long can trend last?
According to philosophically-minded traders, each trend experiences a beginning, a period of maturity, old age and finally, death. Based on the duration of its "life" each one can be identified as a short, medium or long-term trend. When you open the chart of any instrument in the M5 or M15 time-frame, you will be able to see and identify short-term trends. When you look at the H1 or H4 time-frames, you can look for medium-term trends, or day trends, and with the D1 and W1 views you can get an idea of the general tendencies of the price movement. There is also such thing as a global trend, or long-term trend, which may last a year or more. In order to view it, you need the monthly time-frame, MN. Many professional traders believe that by this principle you can only determine the movement of prices in a particular direction if the trend lasts for the entire trading session (around nine hours). That's when they are confirmed and can say “Yes, the trend is upward (or downward).” Perhaps this is a good rule to follow in most cases, but there are also situations where its beneficial to recognize in advance that a strong trend is about to begin. However, nobody can predict these trends with 100% certainty.
How does a trend form? Like everything in this world, every trend has a beginning, and the impetus for its creation could be a political or economic event, because the price doesn’t start changing on its own. There is always a reason and the most obvious catalyst is the news. A new quarterly report, the inflation rate, the results of elections, unemployment and jobs numbers, a change in the GDP, a flood, a terrorist attack or military strike - all this and much more can easily cause prices to change direction. So, technical analysis alone is not enough in order to really understand what’s happening on a chart and why. This is where fundamental analysis, which includes everything we listed above, becomes helpful. It helps to understand how the news affects the behavior of prices. We’ll discuss it in some more details in the next section.
In addition to the news, an upwards or downwards trend can also begin at the end of a flat trend. This is called consolidation. This is when the price seemingly accumulates (is consolidated) at the same level. Thus if you see that for, let’s say, half a day or even a whole day, the price hasn’t changed much and its movement has been frozen in one spot, we will soon have a pronounced trend. Typically, this consolidation of prices comes ahead of critical data (news). The market tends to freeze in anticipation, not knowing which direction is better to open transactions. This type of flat trend is quite often seen during lunch hours (in GMT), at the end of the year and before major holidays, when few participants are left in the market and their volume is simply not great enough to substantially affect the price.
What is the level of support and resistance?
You can see a much clearer trend in the H4 chart. Try to look more globally by capturing information about several days at a time. For example, although the chart for EURUSD from January 11th to January 25, 2013 shows the price was moving up and down, in general, the movement was in a single channel.
Let's build this channel. On the top panel above the chart window you will see a button with a horizontal line. Click it and then position it on your chart. You should place it at 1.3264. That positions it at the bottom of the "shadow" of our candlestick – you only need one to mark the lowest point on your chart.
This is the supporting level. We are talking about level precisely - we’ll explain lines later. This level is designated using a horizontal line. It acts as a “support” for our trend and “prevents” it from dropping lower. This border is actually psychological. You aren’t the only one that placed it there. So did thousands of other traders around the world and they (i.e. the "bulls") will not allow the price to drop below this mark. Now we need an upper bound for our trend. We will also use the horizontal line tool to place our upper bound on highest point of the highest candlestick, which would be at 1.33980. This level is called the resistance level.
The price will reach this level and then go down again due to the fact that the "bears,” focused on selling, will not allow it to go any higher. Notice how the candle initially rose up to the "resistance" level and then completely stopped, as if concentrating on the middle of the channel. This is a sign that a big change in movement is coming. As soon as the chart crosses either the support or resistance level, it figuratively breaks this level. This is called a pass. For example, when the price passes the resistance level, it means that there are more traders in the market willing to buy this instrument at a higher price. Conversely, when the chart passes through the support level, it means that the bears "won" and the number of people willing to sell has increased dramatically.
This “breakout” can be real, as in our case, when the price went through the resistance level and continued upwards, or fake, when the price breaks though the boundary and then returns to the channel.
What is the line of support and resistance?
First of all, levels and lines are completely different things.
We have outlined the levels, which again, are always horizontal. The support and resistance lines are placed at any angle using the trend line tool. You can find this button in the same place on the top panel. The resistance line now joins together the repeating highs at the tops of the candles (two or more), and the support line connects their lower shadows.
If you use the “Equidistant Channel" button, you can add two parallel lines to your chart. However, in order to make this you will have to do some practicing. After you place this channel on the chart, double-click on the line and you will see the "anchor" points, which you can use to drag the line in either direction.
What is the gap? A gap is a break in the quotation. If you take a look at, say, the five-minute chart of EURUSD from December 24-26, 2012 onwards, you will be able to see one.
You can also describe a gap as a sudden jump in prices. It happens, as in the example during the days after market closure (December 25th was Christmas and the market was closed). It turns out that the price at which the previous trading session closed is not the same as the quotation with which the new trading day began. Most often this happens when the head of the Central Bank or the Finance Minister gives a press conference or a meeting of OPEC countries or G8 Summit takes place - in general, a significant event occurs on a day when the market is closed, and it leads to sharp price changes
However, a gap can be seen within a trading day after, for example, the publication of some important market-related data (GDP numbers, inflation statistics, a change in interest rates), which dramatically increases the number of traders who want to buy a specific instrument (the gap is upwards), or those who want to sell it (the gap is downwards).
How do you trade on gaps?
Many traders will open a new transaction on a Friday night, expecting a possible gap on the following Monday. After all, this is a great chance to earn several dozen of points! But be prepared: a gap can happen both in the direction you expect, and in the opposite direction. Then, instead of your profit jumping, you may "jump" into a sizeable minus. But remember, a gap may not happen at all because it is the exception, rather than the rule. For deals that traders open one hour before the close of trading on Friday to catch the “gap" our company sets a margin of 1:33, so be careful.
A less risky way to earn is based on the assertion that the market is always trying to "work off" any gaps.
For example, if an upwards gap occurs, within the next few hours the price will work its way back down to close the “hole” that has formed in the price. If the market fails to close the gap that means that the new trend is too strong. In these cases, the upper bound of the gap can become a powerful level of support and the price will continue to rise.
And the reverse situation: if the gap occurs in downward movement and does not recover, the lower bound will become the level of resistance and the price will continue to move lower and lower.
What are the indicators?
We explained earlier that in the “Navigator” window there are many different indicators that can help you trade. Drag and drop a few into your chart to see what they look like, if you have not done so already. You should also understand that these indicators will help you analyze past price movement, but there is no indicator that will predict future movement on your chart. They are only programmed with the mathematical formulas for past prices. You can see that there are lines that are located either on the main chart, or underneath it.
You can use though all the indicators together, but, nevertheless, if you open a transaction in the wrong direction you will start to lose money. This can happen if the trader does not understand this main principle: price controls indicators, not the other way around Indicators just help you graphically depict what has already happened, but they don’t predict future movement.
What are the types of indicators?
In the list of indicators in the Terminal you will find, for example, the Moving Average and the Bollinger Bands indicators. See how they look and remember that they are trend indicators.
They clearly show upwards and downwards trends which are actually the easiest to detect.
The second type of indicators is called oscillators, which depict the "oscillation of parameters.” These indicators are displayed in a separate window and are usually depicted in the form of bar charts.
In the “Navigator” window you'll see the word Oscillator next to the names of some indicators. However, there are also other oscillators that are unmarked – e.g., MACD, which stands for the Moving Average Convergence/Divergence. This indicator works well when the market is flat, and helps determine when the price is going to change direction and go either up or down.
Other indicators may show very different things. For example, the Zig Zag indicator, which you can find in the list of customs indicators, weeds out any minor price fluctuations and shows only the clear direction of the trend. The Volume Level indicator can confirm whether a pass you noticed is a real or fake one. If the volume is increasing (the right column is taller than the left) then the pass is real and the price is likely to continue to go in that direction. There are lots of indicators, among which, for example, the Fractals indicator, which helps to detect the bottom or the top of a channel in which the price is moving. Thanks to this indicator we come to another important aspect: fractals.
What is a fractal?
This term was invented by Bill Williams, the founder of a trade group called Profirunity. A fractal is a specific combination of candlesticks or bars. There is a buy fractal, which consists of five consecutive candlesticks. In this type of fractal the center candlestick should contain the highest top (it is called the fractal point) and the two following candlesticks, lower tops.
Fractals are shaped like "arrowheads." The arrowhead indicates the direction the market will go. There are also selling fractals (downwards arrows) where the Central of five candlesticks contains the lowest minimum and is followed by two lower ones where the bottoms of the shadows are higher. It is important to remember that the lows on candlesticks or bars do not have any effect on buying fractals and, conversely the highs mean nothing for selling fractals.
How do you trade on Fractals?
Basic principle is that if the price exceeds the upper maximum of a buying fractal, then you should buy, and if the price is lower than the minimum of a selling fractal, then you should sell.
To make it easier to identify these fractals, you can use the fractals indicator, which you will find in the Terminal in the “Navigator” window. Drag it to your chart, pick a color, and you'll see a lot of fractals appear on the chart and each of them is represented by an up or down arrowhead.
What are Fibonacci lines?
They are also called grids and you can find the button to activate this interesting indicator on the upper panel of the Terminal. Surely you've heard of the scientist Leonardo Fibonacci, who was born during the late middle-ages in Pisa. By studying nature, talking with mathematicians and even watching two rabbits breed, he came to the conclusion that everything in our world is built on a system of numbers. The Galaxy, the human body, nature, mathematics – all are subject to a numerical sequence where each consecutive number is the sum of the previous two: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc. In addition, these numbers are linked to each other by a very curious correlation. For example, each number is approximately 1.618 times more than the previous one, and each previous number constitutes approximately 0.618 of the next.
Taking this information into consideration, American financier Ralph Nelson Elliott speculated that psychology, mathematics and finance (the major "whales" of the market), in one way or another, are subject to the laws of those numbers. So, why not use them to predict the behavior of prices? As a result, several indicators were developed, one of which you have in your Terminal and it is called the Fibonacci Lines indicator. The principle of this indicator is that when the price nears one of these lines, the trend either changes or is confirmed. Quite often these lines end up becoming strong and precise support and resistance levels.
How do you set a Fibonacci line?
To begin we will choose the hourly time-frame (H1). This is the best one for viewing the entire trading day. Look at the chart and try to determine a point of strong impulse (i.e., a moment when the price receives a powerful impetus for movement up or down). The Zip Zag indicator can help you do that. So, let's find the two most outstanding points: the maximum and minimum, and then set the Fibonacci grid from the lower to the upper one, or from 100 to 0.
Note that we have now placed this indicator taking into consideration the entire shadow of the Japanese candlesticks because they reflect the real range of the price movement. Another point: if you can notice that the market goes up, then you should adjust your levels (minimum rate). To do this, click on it and drag the grid slightly to the right and up. That way, 100 will mark the lowest point and the highest point will be 0. The more you drag your mouse to the right, the less the distance will be between the lines.
If you see that the chart is going down and the grid needs to be "flipped" then identify the highest point, which we will mark at 100. Pull the grid slightly to the right and down, then 0 will coincide with the minimum price.
After you have set the grid, right-click on the chart and select the “Objects List.” There you will find Fibo. Click on "Properties" which are located on the right side and change the following setting in the General tab. Then, in the Levels tab, select a color for the lines and it is better to make them thicker for easier distinguishing on the chart. In the Options tab, check the box for "ray." Then the levels will appear like rays, from the starting point to infinity. In the View tab, you can either check the bos next to "Show in all time-frames,” or select a single time period and place a second, more global or more local grid.
That’s it! Now click "OK." To learn more about Fibonacci lines, see the very interesting book by Robert Fisher entitled "Fibonacci Applications and Strategies for Traders."
How do you trade using Fibonacci levels?
Generally, the principle for upwards or downwards movement is identical - the same levels are used
. In our case we will analyze the upward movement of prices. For your convenience, we will use a line graph instead of candlesticks or bars.
Now watch our low point - 100. Another strong level of resistance through which the price will very likely pass, although with difficulty, is 50. A level of 38.2 is a little less, but the price almost always holds steady. But, the price will always pass 23.6 without stopping – this is important to keep in mind. The upper level 0 is a powerful level of resistance, similar to a concrete wall. Thus, if you properly set the Fibonacci grid for upward motion, then you should buy between 100 and 61.8, and take profit between 61.8 and 50. You can also buy a little higher than the 38.2 and take profit before hitting 0. From 0, the price will go down, And at 0, you can place a pending order to sell (sell limit) with the take profit just above 38.2. The price will go down further from 0 and if it reaches 100, then you can place an order to sell just below this level with a take profit slightly higher than 161.8. Incidentally, at this point you can place a pending order to buy with a take profit of 10-15 points (from this point a roll-back or even a reversal is possible). You can also place this type of order at 261.8, but you don’t often see it on a chart.
You may ask why we choose such a small take-profit. The thing is that the price will not necessarily jump back from this level. It could simply slow down and then continue further. Do you remember the saying "the trend is your friend?" It turns out that you are opening a trade up against the trend, so be sure to place the stop loss almost immediately after the 161.8 or 261.8 (if it is visible) lines. By the way, instead of using a small take profit for such deals, it’s more convenient to set a trailing stop.
What is a trailing stop?
This function transfers your Stop Loss at break-even. You’ll understand what that means in a moment. Open any transaction, such as an order to buy. Then, in the "Terminal" window, right-click on it and select "trailing stop." In the drop-down menu, you can set the number of points. Let’s pick 15.
After placing a trailing stop, the following occurs. As soon as your transaction begins to make a profit, your stop loss will automatically be set for 15 points from the current price. As it continues to improve, your stop loss moves the same distance to stay at the 15 points setting If the price begins to drop, the stop loss doesn’t move, so even if the market flips and the price will not increase more, your transaction will be closed by the stop loss and you'll get the profit! Some traders use the trailing stop instead of the standard stop loss and take profit settings. Basically, the trailing stop is an insurance policy in case the price reverses and starts working against you.
What is the Elliott wave?
We have already told you about Ralf Nelson Elliot, the financier and founder of this curious and confusing wave theory. The essence of it is that people are trading on the market, so their decisions are, of course, based on psychology, which is also subject to the market. For many, the idea that market prices behave like waves (they rise and fall) seems obvious. This is the basic essence of Elliott waves, which can be seen on the chart with the naked eye. Elliott also said that the market is always in either a bearish or bullish phase. He divided waves into two types: impulse waves, which create trends (bullish or bearish) and lead the market into motion, and corrective waves, which traders also call kickbacks, because they move against the trend for a while.
It is curious also how Elliot uses the Fibonacci principle to explain his wave theory mathematically: the number of waves involved in forming a trend coincides numerically with the next! A global bearish wave consists of one large wave, three medium waves and 13 smaller ones. Additionally, in the same global wave are 55 very small waves, and so forth. Another example of the use of Fibonacci numbers is in the interim periods. For example, a movement that has lasted for more than 3 days should not change its direction before the 5th day. If it lasts more than 5 days, it shouldn’t end before the 8th day. Nine-day trends will not end before 13 days, and so on. By the way, this also applies to trends lasting hours, days, weeks, and even months! This is, of course, an idealistic model that is not often reflected with any degree of accuracy in real life. Even Elliott himself admitted that deviations can occur both in time and scope.
You can take a more in-depth look into trading with wave theory by reading Tom Joseph’s book called "Practical Applications of a Mechanical Trading System (using simplified Elliot Wave Analysis).”
What is the “hour of silence” and the “hour of power?”
The Forex market, on which you already know how to trade currency pairs, is open 24 hours a day, Monday through Friday, with a daily trading session (we mentioned that earlier). We also mentioned that the greatest trading activity happens during the Asian, European and American sessions. So, you need to remember that, when two of these sessions meet (they overlap in time), you can see very strong movement on the market - the “hour of power.” This makes sense because during this period there are more traders in the market, making more trades, and creating bigger volume. At the same time, before each session and immediately after it, the market is calm, flat, or in other words - the “hour of silence.” It’s as if the market is waiting to see what will change when new players join the trading. Of course, the term “hour of silence” is more of an expression than an actual rule as these periods of calm usually last not one, but two to three hours.
How do you use the hour of power and the hour of silence to your favor in trading?
This can be a useful time to conduct analytical activities. During an hour of silence, you can determine the levels of support and resistance, so that when new session begins, you can watch to see the direction of the breakout. Typically, the price will continue to move in this direction. For the Asian session, its best to set these levels from 02:00 to 08:00 in Terminal time (+2 GMT) and the best time-frames to use are M15 and M30. The most telling period before the American trading session will be from 14:00 to 16:00 hours.
How do you prepare a trading schedule?
Most likely, you have not yet decided which indicators are the best to use in your chart in order to maximize profit and most accurately analyze the market situation. Of course, there is no correct answer to this question, but it’s best to start with the most obvious indicators so that you don't get stuck. And it also helps to pick different colors and thicknesses for them. For example, try combining the Zig Zag, Fractals and Stochastic indicators. We didn't have time to tell you about the stochastic one yet. This indicator opens in a separate window, it’s very interesting and definitely worth taking a look at. You will see that it consists of two lines. One of them, by default is pale green and the other one is a dotted red line. To explain this indicator simply, when the green line crosses the red one and seemingly sits on top of it, then the price goes up.
If the green line dips down and then crosses back over the red one that indicates that the price is going to go down.
Let's summarize quickly. The Zig Zag indicator will show you a clear trend of prices without too much "noise." Based on the direction of the arrow in the Fractals grid, you will be able to decide whether to open a transaction to buy or sell; and the Stochastic indicator validates your intent. And don't forget about support and resistance levels, and it is best to start trading with the M15 time-frame.
In the next two sections we will give you a lot of useful information on how you can predict the behavior of prices and make a profit.
Part 4. Graphical Analysis
What is graphical analysis?
We introduced you to graphical analysis earlier when had analyzed levels and lines of support and resistance. Graphical analysis is partly technical, but nonetheless a quite independent method for predicting the future movement of prices. When people talk about this type of analysis, they most often mean the forming (or drawing) of different shapes on a chart over the course of their trading activity. And each of these figures, though not always easily distinguishable, can give a reasonably clear indication of what will happen to the price in the future. There are traders who say that graphical analysis does not work. However, they just don't know how to quickly interpret the shape on the chart and don’t always remember what it means, therefore they think it doesn’t work. Three different people can look at the same chart and recognize three completely different shapes and make three different predictions - all because this type of analysis is quite subjective, and therefore, may not be very reliable. It doesn’t make sense to clog your head with things that are not likely to be useful.
It should be noted that it’s very important that you don’t just look for these figures and blindly follow their signals. You also need to pay attention to the precise location the figure appears on the chart. Another point: it is best to examine multiple time-frames in order to determine, for example, if the signal to sell that you saw on the 5-minute time frame isn’t just a small correction (maybe a couple of points), while the main trend (very strong) can be seen quite differently using the hourly view, which may show a completely different figure. Therefore, it’s best to start with a search for a "global" figure on the one-day or 4-hour time frame view, then go shorter and shorter. You will then have a clear understanding of reliability of the signal was that you saw on the M15 chart.
What are the advantages of graphical analysis?
There are actually many advantages and even beginners can see them. For example, some people perceive images better than reading text. When you open up your Terminal and spend a couple of hours of fun searching for these figures, you'll see that they appear quite often. The market is actually built on them and they will help you better understand its structure and the principles that control its movement. Another plus is that by using these shapes, you will soon be able to quickly determine when a new trend is forming, in which direction it will go, and when it will end. This will give you an advantage over those traders that neglect graphical analysis. Let's mention one more advantage: this method can be the foundation of a very profitable trading strategy. It can be combined with, say, the results of a fundamental analysis. Then you can see what kinds of figures are formed on the market and make a decision with 100% confidence.
Important note: in order to create figures which are used in graphical analysis, you'll need to use the trend line on the top panel of the Terminal. You simply install it anywhere on your chart. Now double click on it and three points will appear that you can move any way you want in order to create the shape. One more thing: it’s better to add figures on a line chart, not on a candlestick or bar chart. Then, during your analysis, you can switch back to the format you find most convenient.
What figures are used in graphical analysis?There are a lot of them and new ones appear all the time, as a result of the “fantasy games” of experienced traders. Be that as it may, all the figures are designed to either confirm an existing trend and secure it (called continuation figures), or reject it and report that movement in the current direction is coming to an end and market is on the verge of a turnaround (these are called pivot figures). The appearance of each of these figures leads to one obvious signal: buy or sell. But there is also another kind of figure that can easily confirm a trend, as well as a reversal. As soon as you see that this figure appeared on a chart, you watch the price to determine whether it goes up or down, with the trend or against. If it goes along the trend, it will continue to move in that direction, and if it changes its direction, then the market’s mood will change. To be honest, trend figures can be aptly called "flags" and "pennants."
Reversal Figures (most of them) include: "Head and shoulders" (direct and inverted), "Twin tops", "Double bottom", "Triple top", "Bottom", "Triple Diamond (Rhombus)", "Ascending and descending Wedge" and the "Divergent triangle."
Figures of "Waiting" include: the "Symmetrical triangle", "Rising" and "Down". In our examples we will use different time frames and you will learn to see these figures in small time-frames, as well as in global views.
"Wedge” Figures. Let's start with the most simple and easy to recognize figures that can be seen in the charts quite often. It’s called the "Wedge".
The "wedge" shape is reminiscent of a canal that aspires to be a triangle. And it actually does sometimes It is important to remember that these figures are more suitable for longer time intervals than for smaller time-frames, but can appear anywhere. The reason for its appearance can be a slowdown in growth or falling prices. In this scenario, movement seems to be continuous, but the force and volume is not enough to prevail in the market and new players enter the game: sellers or bears (rising "Wedge"), or the buyers – the bulls (descending "Wedge").
How do you trade on a "Rising Wedge?"
When the price breaks downwards, against the trend – we sell - and the trend is now finished. Here is how such scenario might look like:
Let's open the EURUSD chart in our Terminal using the H1 view and look for a "rising wedge." If you can’t find one, scroll backwards in time. One such figure starts forming on January 17, 2013 at 12:00. To find this point you can use the handy crosshair tool. You'll find it on the top panel above the chart window. So, this figure finished forming on January 18th at 9:00 - exactly one day later. Outline this "Wedge" with two trend lines - then you will see how the price sharply broke through the lower bound of our figure and plummeted downwards.
First, you need to find a "Rising Wedge." Look for a candlestick whose upper shadow rises only slightly above above or is at practically the same level as the body of the candlestick, while the lower shadow is rising higher and higher – outline this movement with two trend lines and see whether or not they seem to form a "wedge." Now the situation can go one of two ways: either the "wedge" might grow into an "ascending triangle" (see) and the price will break through the upper bound
or it may stay a "Rising Wedge" and the price will break downwards, as in our case. Accordingly, in the first scenario you could place a buy order, and in the second, a sell order. Additionally, while one of the sides of a triangle is always horizontal, this is not always the case for wedges. Even a wedge like this is possible:
How do you trade on a "Falling Wedge?"
When the price breaks upwards, against the trend - we buy - and the trend is finished. Let's find a descending wedge in the Terminal. If you still aren’t able to spot one on your own, look at the EURUSD chart again in H1 view. Point your crosshair at 26.10.2012, 12:00. That was the beginning of a descending wedge that lasted until 30.10.2012, 07:00, when the price broke through the upper bound.
Now you need to assess the situation. If you see that the price has been increasing and the lower shadow of the candlestick falls only slightly or stays steady for some time, while the upper shadow continues to go lower and lower, either this figure will become a "upside-down triangle" (see) and the price will break through the lower bound or your original assessment was correct and the chart is about to break upwards. The first scenario would be a signal to you to sell and the second would be a signal to buy.
The "Triangle" figure. We already mentioned the "triangle." You are already familiar with using two trend lines to outline a possible "wedge" and a triangle differs in that when you draw the two lines, they clearly intersect, forming a triangle. This figure can be reversing or trending, depending on which way the price is about to break.
How to trade on a descending triangle?
When the price breaks upwards, against the trend - we buy - and the trend is finished. When the price breaks downwards, with the trend - we sell - and the trend continues. Look at the shape of the descending triangle:
The lower bound (always horizontal) of the triangle can be traced using at least two points. We suggest you to look up another triangle in the Terminal on H1. Click your crosshair at 9.10.2012, 14:00. This is when the downward movement begins, which eventually hits the horizontal support below, can’t cope with it and, after a moment of thought, breaks through the top of the triangle.
At this point, you would open an order to buy. Actually, triangles can also be seen by the naked eye. Take a look at the global time-frame, W1. You will be able to see a big triangle that starts at 11.10.1998 and ends on 05.08.2001 with an upwards break.
In this example, the price in the triangle may just go down, as if rolling down a hill to the bottom bound, bounce off and make an upwards break. By the way, take a look at the global triangle: it can also be outlined a little differently so that it ends on 03.12.2000.
Take a look: inside and nearby you can see three additional, smaller triangles in a row. From 18.06.2000 to 26.11.2000, from 31.12.2000 to 01.07.2001 and from 16.09.2001 to 03.03.2002.
We hope it’s clear that, if drawn correctly, this type of triangle begins with upward movement and ends with downward movement.
Now let’s take a look at another triangle, which ended with an upwards break instead of down, continuing a trend. In the hourly chart for EURUSD, click your crosshair tool on 01.02.2013, 17:00. This triangle, which began as a powerful candlestick moving upwards, slowly began a downward fall, breaking through the bottom bound and continuing downwards with the same initial determination.
How do you trade on an "ascending triangle?"
When the price breaks upwards, with the trend – we buy – and the trend continues. When the price breaks downwards, against the trend – we sell – and the trend is over. In this case, it's the opposite: the bottom line, supporting the price, moves toward the top line, horizontally, so that, in the end, they will connect and form the ascending triangle. And it looks like this:
If you switch to time-frame D1 you'll see that another triangle started at 26.07.2011 at 00:00 and concluded with a downwards break out at 31.08.2011 at 00: 00.
In cases like this, the price has to break through the bounds of the triangle to signal you to sell. Here’s another possibility: you get a buy signal and the continuation of the trend if you discover a triangle like the one in the M30 time-frame between 29.01.2013, 16:30 and 30.01.2013 at 09:00.
As soon as you see that an "ascending triangle" is forming, try to determine where it will break out – through the upper or lower bound. In the case of the former, you buy, and in latter, you sell.
How do you trade on a "symmetrical triangle?”
When the price breaks downwards – we sell. When the price breaks upwards – we buy. In contrast to the upwards and downwards triangles, in a symmetrical triangle, both of the lines are angled – the upper and the lower. Here's an example: M30 view, click your crosshair on 01.02.2013, 16: 30. It continues until 04.02.2013, 10: 00, when the lower limit was broken and the trend reversed.
This is a pretty clear signal to sell.
Another example is the M15 view of crosshair 06.02.2013, from 09: 30 to 14:15, when, after the appearance of a "symmetrical triangle" the price continued to decline, breaking through the bottom bound.
How do you trade on an "expanding triangle?"
When the price breaks downwards – we sell. When the price breaks upwards – we buy. In both cases, the trend is over. An “Expanding Triangle" is a mirror image of the upwards and downwards triangles and it always causes the market to reverse itself. Look at the graph in H1 view of crosshair 04.12.2012, 19:00, when the triangle begins that culminates in the downward breakout of trading and a reversal at 06.12.2012 at 15:00.
If such a triangle forms on top that means that the trend will change to descending. If it forms on the bottom, then it will change to ascending.
The "Flag" and "Pennant" figures. Generally speaking, these two figures are very similar, and even produce the same signals. Basically, they represent a small pause in the active movement of prices - a flat, after which the trend continues. It’s as if the traders need to take a moment to rest before rushing into battle again. More often closes, during these times one half of traders close their positions and the other half opens new positions from this price level. Let’s take a look at these two figures: here is the "flag"
and here is the "flag pole" (a strong price move that is almost vertical) and a "flag" (a small price channel), and finally, "Pennant"
It also has a "shaft" and a small symmetrical triangle.
How do you trade using "flags" and "Pennants?"
If you see an upwards panel – that’s a signal to sell, if the panel is downwards – that’s a signal to Buy. In both cases, the trend will continue for at least the width of the figure. As a rule, the best way to find both "flags" and "pennants" is on the intraday charts (up to H4). Usually, after these figures form, the price will move the same distance as it did before the figure formed, or, at a minimum the distance will be equal to its width. Let's open the H1 view and look at crosshair 10.01.2013, 18:00. This is when the panel of our flag begins to form. As you can see, the shaft is quite long, but the flag itself is indicating an absolutely flat, lateral movement, which shows no intention of going up or down – that’s your signal to place a buy order as soon as the price breaks through the upper bound. Then the upward trend continued for two more flag lengths.
A little later at 11.01.2013, 18.00, we can see a pennant that is pointing downwards, that gives us yet another signal to buy.
But be careful: if the price breaks through the bottom bound instead of the upper bound, this can signal a reversal, albeit a small one. Like in this example – 07.01.2013, 23:00.
At the beginning you might have assumed that since a flag has formed all you have to do is wait for the upward movement, but instead, a pennant formed, followed by a breakout through the bottom bound. Overall, you need to remember this: you must learn to see all these figures and outline them correctly. Then all you have to do is wait and see through which bound the price breaks out. Wait a minute to confirm your decision and then place an order in that direction.
Sometimes you might see a "flag" that is moving downwards, then all of a sudden a pennant appears and there is a slight roll-back of prices after which, it continues on its course. For example, look at the multiple "flags" and "pennants" lined up in a row at 02.01.2012, 16:00.
As you can see, all of them are pointing slightly upward.
The “head and shoulders” figure. This is one of the most popular figures among traders, perhaps because it really resembles a human head and shoulders, and also because it is easier to figure everything else out. Actually, when this figure appears, there can be no doubt: the trend is going to reverse. It happens like this: first, the chart shows a small top, the "shoulder" then it falls a little and starts going up again, but much higher this time, forming the "head" and then goes down and follows a path almost equal to the first "shoulder." Accordingly, an inverted head and shoulders indicate downward movement, followed by a small "dimple" which is inverted shoulder. Then, after going slightly up again, it turns downward again (only stronger this time). And then you nearly have it: an upside-down man. We just have to wait for the second shoulder to form.
Remember this main rule: the "head" must be higher than the shoulders. Interestingly, sometimes you may see not one shoulder form on the left side, but two. The same will be true for the right side – it also will have two shoulders. Of course, the reversal rule is only true when the figure has fully formed. You can’t get far with only one shoulder!
How do you trade using the “head and shoulders” figure?
If the price falls below the right shoulder – sell. If it rises above the right shoulder – buy. The trend will reverse itself. Before a "head and shoulders" figure can appear on a chart, the market must first experience an upward trend. Prices, driven by the passionate bulls, go up, then when their momentum begins to drop, the chart begins to crawl downward, after which some traders, no longer believing in future growth, start closing their positions. Coincidentally, there are also those who use this temporary reduction as an opportunity to once again start buying and earn some money. This battle continues until the market is satisfied: it can’t go any further up, so it’s time for a stabilization of prices – time to sell. In the meantime, while the bulls and bears battle it out, the chart has time to draw this beautiful figure.
In this situation we can even benefit from a strong level of support known as the "Line of the Neck,” which can be either horizontal or sloping. As soon as you see the price break that line and continue along its path, would be a good time to place an order to sell. By the way, this figure should be at a high price level. In won’t work at mid-range prices.
Now let's find this figure on our EURUSD chart. If you open the hourly time-frame, beginning with the crosshair of 30.10.2012, 10:00, you will see that a head and two shoulders have formed, though not exactly very smoothly. We will draw our neck line at 1.29258.
As soon as the price breaks through that line, we’ll place an order to sell.
Here’s another possibility: while the trend was moving downward, it drew the head and shoulders and then reversed itself and went upwards. You can see an example of this in H1 view starting at 04.01.2013, 14:00. First an upwards head and shoulders begins to be drawn, then when the price reaches the neck line, at 1.30230, it bounces off and starts to go back up.
You can also see this quite well in H4 view.
How do you trade on an "Inverted head and shoulders?”
When the price rises above the right shoulder - buy. The trend will reverse itself. Although this figure is not very common, let's find one in the H4 time-frame. There is a gap at crosshair 20.07.2012, after which an inverted head is drawn. In this case, the neck line will be set at the bound of the gap at a level of 1.21478. Notice how rapidly the price penetrated it continued upwards.
The "double top" figure. Of course, everyone knows what a top is in a domestic sense. There are, for example, mountain tops, and this shape is very similar to what you will find in your Terminal. The top is the highest point to which the chart climbs before meeting resistance and turning back. But sometimes, the price tries to break through twice (traders call this testing the line of resistance or testing the maximum), but it can’t break through and returns to falling. And that’s the "double top"
which reverses the trend.
How do you trade on the "double top" figure?
If the price breaks downwards through the support – we sell. If the prices breaks. As soon as you see a double top forming, draw a support line along the two minimum points and wait for the price to cross it. You may ask: why must we wait. We already know that after the formation of the second top the price will fall. In fact, it’s not that obvious at all. You should always allow the possibility of mistake. Now the chart is drawing a something that isn’t a graphical analysis figure at all: the second top is being followed by a third, which your deposit may not support. That’s why we don’t recommend taking that kind of risk. It’s better to wait for the break out and calmly place your order to sell.
We suggest you find a "double top" in the Terminal. In the H4 time-frame at crosshair 24.02.2012, 8:00, you will find this figure begin to form and reach a maximum of 1.34289, but it was not able to break through and rolled back down, breaking through the level of support at 1.33651.
The figure inside the trend is also similar to a "double top." It began at 18.05.2012, 20:00, became full formed, but could not go any higher, so it broke through the lower support at 1.27111.p>However, this figure, like the head and shoulders, usually appears in the upper levels of quotes, in the "highs" because it’s actually a top.
The "double bottom" figure. It is logical to assume that the inverted double top becomes a double bottom - like craters in the ocean. Its principle of operation is the same: it reverses a trend that it is rapidly declining.
How do you trade on a "double bottom?"
When the price breaks through the resistance at the top – we sell and the trend ends. First of all, we need to place the level of support for the "double bottom." Do it at the lowest points of the shape and draw the horizontal resistance through the point where the "double bottom" began and through which it must break. Imagine that you are going to use this line to measure the level of water in your pool with a double bottom. Once again, let’s search for one of this figures by opening time-frame D1, crosshair 06.05.2011, 00:00. Here the figure begins to form and pierces through the resistance at 1.44190 on 02.06.2011, also at 00:00. Accordingly, our support passes through the 1.40426 mark.
The "triple top "figure. Note that the "triple top" and "triple bottom" figures are much stronger and much more clearly indicate that the trend will reverse than their double counterparts. However, these figures are much longer. This suggests that the market has definitely decided to break the existing trend. After all, the price has to approach the line of resistance, bounce off of it, while never breaking through, three times before turning sharply downwards. This figure usually appears after an upwards trend, i.e., at the top, and it is quite unlikely that you will find one in the middle of the chart.
How do you trade on a "triple top" figure?
If the price breaks downwards through the support – sell. The trend has ended. You will find this figure infrequently. You can see it primarily on the daily time-frame and above. For example, you can open the weekly time-frame and on 24.02.2008, at 00:00 you will see a triple top begin to form that will end, breaking through the powerful support level of a candlestick at 1.53111 on 03.08.2008, signaling to traders to open long-term selling deals (by the way, the fall didn’t occur until 16.11.2008). The resistance in this case would be at 1.60332.
Also pay attention to the flag with the rising "panel" that appears on September 7th and confirms that the price will continue its decline.
The "triple bottom" figure. This is a strong, confident figure that, after trying to break through the support line three times, pushes the price higher, thus changing the direction of the trend.
How do you trade on a "triple bottom?"
If the price breaks up through the resistance – sell. The trend has ended. Don’t rush to place orders based on this figure until it has fully emerged. Otherwise, you risk to incorrectly predict which way the market will go. So, let's find a "triple bottom" in our EURUSD chart. You can clearly see one in the same weekly time frame from crosshair 28.09.2008 through 23.08.2009. The "triple bottom" eventually breaks through the resistance at 1.43445.
The "diamond" figure. Here's how it looks:
As you can see, the diamond looks like two triangles that are looking at each other. This figure is considered the rarest and you can only see it in time-frames of H1 and above. The formation of the diamond can occur at the top of a chart, where there will be a reversal of the current trend, or at the base, where it signals an upward trend.
How do you trade on a "diamond" figure?
If the figure appears at the top of a chart and the price has broken downwards – we sell. If you find this figure at the bottom and the price breaks upwards – then we buy. In both cases, the trend will reverse itself. "Diamonds" occur infrequently and they are difficult to identify immediately. This figure is considered the rarest and you can only see it in time-frames of H1 and above.
As you can see, after the formation of this figure, the market trend reversed itself and prices fell downwards. If you decide to invest your money long-term, for example, you can use the D1 view to find a diamond and open a long-term sell order.
Part 5. Fundamental Analysis
What is fundamental analysis? This is a quite tricky type of analysis, which in addition to charts, you will need to employ news websites and financial calendars. The guiding principle of fundamental analysis is that any big news, political speeches, meetings of central bankers or various trade unions like the G-8, as well as published data on economic development and even, for example, an earthquake. All these events can affect what happens in your Terminal with various currency pairs. And they affect every other trading instrument. If you learn to identify these patterns you can likely predict the behavior of the national currencies of the countries where such events took place.
Where can I find information on economic events?
First of all, as we mentioned earlier, information on upcoming important economic events, published data on key indicators, as well as their descriptions and any market predictions made by financial analytics can be found on our calendar of financial events located on our website. Also note the calendar of holidays on the world's stock exchanges. During these holidays trading on that currency will be particularly active and occur in much smaller volumes.
What are the tools of fundamental analysis?
You really can’t get by without some tools to help you out – you can’t follow every piece of news and analyze every single world event. There are some good FOREX news services out there, like the like Dow Jones Tape, which displays a continuous stream of news reports and information direct from the various exchanges. This one-line stream of non-stop information tells you what people are saying in the market, what the major indicators are predicting, and what new data has been published (in real time). Also during speeches by political or economic leaders, you will see excerpts from them and each of these messages can have a strong impact on the currency. In General, this tape is very useful, and at times almost irreplaceable. This is an especially invaluable tool if you are thinking seriously about basing your trading on fundamental analysis. This service can be purchased on the official Dow Jones website. In addition to that, you can find daily analytics based on the principles of fundamental analysis on our website.
How do you trade on rumors, expectations and forecasts?
News can either be expected, i.e., those things we expect to hear about in the near future (summits, published data, financial reports, election results, etc) or unexpected (floods, acts of terrorism, interventions, political instability, etc). So, when certain news or events are expected, rumors and predictions will begin to surface. These may be in the form of analysts' forecasts, commentary from famous traders, large brokerages, insider information directly from the exchange or even messages that begin with words like “the rumor on the market is..." These rumors can be influential enough to cause the price on a certain instrument to go up or down.
For example, let’s say traders are waiting for news on whether the GDP of United States has gone up or down. Analysts are officially forecasting that this new economic data should be quite optimistic. Keeping it in mind traders start opening orders to buy dollars, so when the news breaks and the true movement of the GDP is known they can make money on the jump in prices. After all, the better the data which reflects the current financial situation in the country the more confident the currency becomes and the faster it grows in value.
Now let's take a look at three different scenarios. First - based upon rumors and expectations, dollar prices climb upwards, but when the actual GDP numbers are released, it’s still lower than the previous one. Expectations were not fulfilled and the dollar starts to fall sharply. If traders have time to close their orders to buy and open a selling order, that’s great, but everything happens so fast that many of them start to lose money.
Another scenario: the real value of GDP coincides with the forecasts, i.e., traders correctly predicted the direction of movement and the dollar’s price continues to slowly rise.
And the last scenario of events is most pleasant for traders that open a buy transaction based on rumors: the value of GDP turns out even better than expected and the price of the dollar increases rapidly. Traders refer to this as a “rally.”
Anyway, if the news runs against the current market trend, its effect on the behavior of the instrument’s price won’t last long. For example, if the price of dollar has been steadily growing all the week, the same negative GDP figures will only bring the price down for no more than a couple of hours, then, most likely, it will recover and continue to rise. But if the expected news not only supports the current trend, but exceeds all expectations, movement will continue in the same direction, only much faster. But, when the dust settles, a roll-back in the opposite direction is quite possible as many traders close their buy transactions, losing confidence in the further growth of the prices (they are too high). Usually, during a roll-back (also called a correction), the price falls about one-third of the distance from the start of the trend. Keep in mind that if the trend is strong and the price starts going up again, then this is called a "pivot point" and now might be a good time to open a transaction to buy (the same is true in the opposite direction – you would want to sell).
Here is an example of such a correction: look at the EURUSD pair in the H1 time-frame. At 01.02.2013, 18:00, a downward trend began that ends on 05.02.2013 at 18:00 by rolling back in the opposite direction about of third of the length of the trend, just like we explained previously.
In this case, the pivot point at which the roll-back began is 1.34651 (near the black candlestick with white) and the pivot point that marks the continuation of downward movement is at 1.35959 (near the white candlestick with black).
How does the market respond to the publication of indicators?
Look in the calendar of economic events. There you will see a large number of indicators, although working with them can be quite difficult at first. Therefore, it’s best to abide by two rules. The first is to trade with the trend, and the second is to open transactions when important new data is published. However, it is still important to understand all this in order to be successful at trading, so let's start with the basics. Once you understand the fundamental ways that currency prices react to changes in certain indicators and the release of certain news you will be able to understand and all the rest.
Of particular importance are news items relating to changes in the Base interest rate, Trade balances, Payment balances (Current Account/Balance of Payments), Gross domestic product (GDP), Gross national product (GNP), Retail sales data, Housing numbers (Housing Starts), Industrial production indices, Job creation outside of the agricultural sector (Non-farm Payrolls), Stock indices (DJI, DAX, FTSE, NIKKEY, etc), as well as the prices of government bonds (T-bills & T-bonds). If the new values of these indicators are better than in the previous period, i.e., their value grows, then the national currency of the country for which they are published will also go up.
At the same time, if the values of the following parameters from the list go up, then the price of the national currency will go down: PPI (Producer Price Index), Inflation indices like the consumer price index and the wholesale price index, Unemployment rates, Money supply data (M4, M3, M2, M1, M0 money supply), The retail price index, and Jobless claims amongst others.
But, be careful. In different economic environments with different combinations of indicators and currency news, the price may respond to these indicators in different ways. Be sure to keep this in mind - this is the complexity of fundamental analysis – you have to take everything into account.
How do you trade on the news?
Actually, it is quite difficult, because, as we have repeatedly stated, you have to take everything into account. Let's take a look at some examples that will help you understand the principles of trading using fundamental analysis.
To start, open the AUDNZD (Australian dollar to New Zealand dollar) currency pair in your Terminal. How will news affect this pair? If there are positive developments in Australia or negative ones in New Zealand, then the price for this pair goes up (AUD is strengthened), and conversely, if something negative happens in Australia and all is well and fine in New Zealand, the rate will fall (AUD is weakened and NZD gains momentum). Now that we understand that principle, let’s choose the M1 time frame and take a look at crosshair 06.02.2013, 23:45 (snapshot). Here you will see an interesting candlestick: the market falls sharply at first and then shoots upwards just as dramatically - and all occurs within one minute.
Why did this happen?
The answer can be found in the economic calendar: on February 6th at 23:45 several pieces of data regarding New Zealand were published. The first was the unemployment rate for the 4th quarter of last year. It was not as high as analysts had anticipated: they thought that would be 7.1% and, in fact it was only 6.9%. This is an important indicator: when unemployment declines it means the economy is beginning to improve. So, of one-minute period the AUDNZD currency pair went down in price as the New Zealand dollar began to strengthen. But then, after a couple of seconds, data is published on the number of jobs created per year and per quarter (Employment Change), which is also an important indicator, as well as the overall proportion of workers to the total population (Participation Rate). These new pieces of data are not only worse than previous values, but also worse than the forecasts analysts were making. That’s why, in the same minute that the price for the AUDNZD currency pair began falling, it made a dramatic reversal and shot upwards due to the fact that the New Zealand dollar started to lose its appeal. By the way, you will notice the exact same movement in the GBPNZD currency pair at the same point in time (snapshot).
By the way, if you look at another pair - the NZDUSD for February, you will see an absolutely identical candlestick, but in the opposite direction, i.e., black. This is reflection of how the NZD responded to the minute’s news and went down (snapshot). The same thing occurred with the NZDCHF and NZDCAD currency pairs (two snapshots).
Let's consider this point and the relationship between currency pairs: If a currency is in the first position, then when positive news comes out, the price for the pair will begin to grow. But for pairs where this currency appears second, the price will go down.
The situation that we described above can, in principle, be analyzed very quickly. The only tool you need for this is the economic events calendar. But if you look at the M30 time-frame for the EURUSD pair and go to February 7, 2013 at 14:30, you'll see seven candlesticks in a row at the bottom of the chart.
There are several reasons for this occurrence. First of all, at 14:45 GMT+2, it was announced that the Eurozone interest rate would remain unchanged, just as it did six months ago. Stability is not a bad thing. In fact, the base rate is one of the most important mechanisms with which economic conditions are governed. Commercial banks look to the Central Bank's target rate to set their interest rates on loans and deposits.
But because the interest rate remained unchanged, it was not the cause of this scenario. The cause actually lies in a speech made by Mario Draghi, the head of the Eurozone Central Bank, and the response to the speech from members present at that EU Summit. Draghi said that the euro’s growth wasn’t too bad and that it's a sign of returning confidence in the currency. But at the same time, some European politicians, led by the President of France, Francois Hollande, demanded the central bank's intervention to decrease the value of the national currency, because a "strong euro reduces the competitiveness of European products on the world market.” It was these words that provoked a flurry of orders to sell EURUSD. Then, a little later, at 15:30, positive data came out regarding the United States, which only added fuel to the fire and strengthened the confidence of traders that the black candlesticks would continue.
What aspects of economic policies affect the Forex?
The key issues of any economic policy can be described as inflation, unemployment, the base interest rate, the exchange rate, as well as the deficit or surplus in the state budget. In order to better understand the processes that take place in the market, it might be helpful to understand what happens to the economy of a given country when you change each of these aspects.
The interest rate and the inflation rate. The interest rate is undoubtedly a very important indicator of the state of an economy. When the central bank adjusts its size by increasing or decreasing the rate it stimulates private banks seeking to borrow, or vice versa, it can also limit their opportunities to borrow.
When the interest rate goes down money becomes more available, or cheaper, and currency’s value goes down. Now you can borrow from the government at that reduced percentage, which is what commercial banks and other businesses do. The result is increased business activity. However, if the interest rate is reduced, the total money supply starts to grow, and with it growing inflation and inflation indicators (different price indices). Because there is more money in circulation, demand starts to outpace supply and that is not correct. There must be balance. Consequently, to bring everything back to normal, you have to raise the prices of goods and services. And the rate at which prices grow is called the inflation rate.
At times when traders expect inflation figures to go pretty high, they start to sell the currency as soon as possible, so as to not get caught when the price begins to drop sharply. To prevent strong acceleration in inflation and balance the country's economy, the central bank will again raise the base rate, causing the value of the currency to start going up and as the currency rate goes up, inflation will begin to slow. Of course, the higher the interest rate, the less beneficial it is to the population as a whole. Higher interest rates cause credit to become more expensive, increase demand for goods, and decrease the amount of money in the hands of the people. Obviously, this is not the most desirable situation.
At the same time, an unchanged interest rate indicates a stable situation in the country, not good or bad, just stable. This means that the central bank does not currently consider it necessary to regulate economic processes globally. Every time the base rate remains unchanged, it’s important to pay attention to what is said during the meeting of the central bank. What arguments are put forward for keeping the rate unchanged and what are their plans for the future. It is statements like these that usually have a strong impact on the behavior of the national currency’s price. There is a direct correlation: optimistic forecasts and confirmations increase the rate and negative discussions are capable of greatly reducing the price.
Unemployment. This is perhaps the most burning question. Each of us, in one way or another, does not want to be left without work and without means of subsistence. At the governmental level, if the unemployment rate is soaring, then that means there are a lot more people that want to work than there are jobs. When people are out of work (usually it is a question of layoffs) they generally apply for government aid. Consequently, they do not bring any benefit to the state, produce nothing, do not provide any services and do not pay taxes. Social tensions begin to rise as people who have no income cannot fully consume the goods and services provided by other workers, because they don't have enough money for that. Hence the conclusion that the country’s economy is unstable and businesses, unable to pay their workers, reduced their staffing, start "tightening their belts.” This state of affairs certainly weakens the position of the national currency and it loses ground in relation to the other pairs. The main task of the central bank under these conditions is to prevent higher inflation, rising prices and interest rates. This is to ensure that the situation for companies improves and stabilizes so they can once again create jobs. Thus, there is a direct link: while unemployment is rising the Central Bank will not raise interest rates.
At the same time, the complete absence of unemployment is also a violation of the balance and leads to failure by employees to adequately perform their duties. They realize that nobody is trying to take their job and if they get fired they quickly find another one. Therefore an unemployment rate of 4-5% is optimum for developed countries.
Budget deficits. Here too we find an ambiguous situation. In fact, the short-term effect of the size of the deficit or surplus in the state budget for the national currency is minimal, but in the long term, the impact of this aspect can become rather noticeable. If you look at currency pairs where the dollar is in the first position (USDCHF, USDJPY, USDCAD) you will see in the monthly time-frame that the American currency has been essentially losing value since about 2001 and the main reason for this is the large budget deficit that is keeps on growing with every passing day.
A deficit basically means that state expenditures exceed its income, which increases the national debt, lowers the value of the national currency and causes inflation to rise. However, the government may choose not to raise interest rates, even in this situation. When a country has a high level of debt and a weakened financial sector, low rates can help prevent a chain reaction of bankruptcies. In order to keep these numbers in check, the United States Federal Reserve bank has held interest rates at close to zero levels since 2008, and sometimes even at zero, like in November of 2011. Thanks to these low levels, corporations and banks are able to service their debts, gradually returning the entire system back to normal. If rates do rise, then money will become more expensive and it will immediately increase pressure in the market, business and real estate sectors. Growing unemployment and an increasing number of defaults on loans, in the end, will lead to a general banking crisis.
This begs the question, how do you solve this problem at the state level?
The answer is that you solve it by reducing domestic spending (healthcare, education, government aid) – basically by reducing the amount of services that the government provides free of charge. Of course, the middle class can afford paid education or medical care, but the poor really suffer in these situations. Another solution is a tax increase, i.e., deduct money from the salaries of workers who are already suffering. If you implement both of these together, you will manage to offend the vast majority of the population.
Budget surplus. At the same time, a budget surplus is not always a good thing, because it often speaks to high taxes or small expenditures on the health, education and defense of the country. So again, there should be a balance in everything and even a budget deficit (not huge, but moderate – one that uplifts the country) is perfectly normal.
The exchange rate. With regard to the exchange rate, the cause lies in one of two things: either the national currency is too cheap or too expensive. If the exchange rate is extremely high (i.e., the currency is worth too much), it becomes unattractive for exporters from other countries that have trade and industrial relations with the given country to trade at such high rates. After all, the higher the rate, the more expensive the goods of that country. Of course, when this happens, other countries stop buying your country’s goods since it is no longer profitable and the government loses a substantial part of it’s income. If the currency is too cheap and the market share is not very high, then isn’t profitable for importers to bring goods into the country and sell them here for a small price.
That’s why the exchange rate is one of the key indicators that the central bank is required to monitor. Incidentally, the central bank can intervene in the Forex market. That is, it can make a major purchase or a sale of its national currency and thereby stabilize the situation.
How does a currency intervention work?
The amount of the transactions is usually in the millions or even billions of dollars. Sometimes interventions are called "infusions" of money into the market or in the opposite case - "withdrawals." These transactions are always unexpected and on the chart they look like sudden, huge vertical spikes going either up or down.
It all depends on intent of the central bank – whether it wants to raise the country's exchange rate or lower it. If there is currently too much currency on the market, it will be too cheap and the central bank will buy up the surplus. In this scenario, you’ll see the rate suddenly jump upwards.
The reverse situation occurs often enough as well. This is where the central bank sells currency to reduce its rates. In this situation traders will see a sharp vertical line going down. Typically, this is done in order to create more attractive conditions for export activities. In addition, these same actions are taken by banks in other countries. They often buy large amounts of euros and dollars in exchange for their currency to keep up their country's gold and currency reserves. One example of a currency intervention by the Bank of Japan can be seen on the daily chart for CHFJPY. On 15.09.2010 you can see a long white candlestick between 83.239 and 85.494.
How do you distinguish fake intervention from real ones? You must understand that interventions can be both real and fictitious. The difference between them is that in real interventions, the bank does actually enter the market and conduct, say, the purchase of currency and then publishes a report of its actions. A fake intervention is just a rumor that the bank may conduct a similar intervention. All the traders then jump into the market quickly open orders to buy, for example, to make dramatic profits from the jump in prices. However, the bank doesn’t actually do anything in these situations. The resulting price movement occurs due to the fact that a huge number of traders placed orders in one direction.
Part 6. The Psychology of a Trader
Statement: I recently downloaded the Terminal, opened a demo account and have already made several profitable trades! Playing the market is easy!
Reality: this is what just about every new client of a brokerage firm thinks. Demo account trading is especially popular. As a rule, the majority of transactions conducted in demo accounts are profitable, especially if the virtual sum of money in your account is far greater than that which you are really willing to put in the account. It turns out that, to some extent, you are your own worst enemy here. And if we’re talking about a real account, then the problem is compounded by the fact that your psychology can play a cruel joke on you, especially if you underestimate its importance and relate to it as just chatter. This is the difference between a successful trader and one that is always facing losses – the successful trader takes everything into account and knows that he, above all, is the source of all his victories, as well as defeats. All your flaws, weaknesses, fears, complexes, your worst and best qualities will all surface here. In other words, the basic laws of life are applicable here too. The worn-out phrase "beginners luck" takes on special importance here - we already mentioned that most of them do quite well with their demo accounts, opening 10-15 small transactions. We will reveal to you the secret of what happens next. It’s like they just got their driver’s licenses last month and think they’re invincible - ready to put the kiddie games aside and get serious. They start a transaction using their real account, even if only for a small amount, but the price doesn’t move in the direction they planned. "Nothing to worry about” thinks the trader. I only traded 0.1 of a lot, my deposit can survive that, and the price will surely go back to where I thought it would be.” We forgot to mention that these traders typically don’t set a stop loss, only a take profit, in hopes that their streak of profitable trades will continue. So, they close their Terminals and the next time they open them they see that the deal actually closed! Only, why is there only 10 cents in their account? This is called a "drained deposit." So it's best not to succumb to the euphoria of trading, and while waiting for that "fateful deal" read a book by a trading guru try to see things through their eyes, because looking at the stock market from their point of view is very useful and can eliminate many errors. Moreover, popular books on trading are popular because the ideas and methods they put forth have helped a large number of traders.
Statement: The market turned against me! Should I close the deal? Set a stop loss?
Reality: wait, don’t panic. If you still believe that the market will turn around, make sure you understand what is happening and why, analyze the factors that confirm your reasoning. At this point, you have three options. Your choice depends on whether you are a novice or a professional, if your strategy is already proven or new, if you trust yourself or not, and whether or not you are prepared to wait. All of these options are viable and nobody can say if they are right or not. However, for novices that only recently began trading and rushed into a “quick deal,” it’s probably best to close the deal if they suffer losses of more than 10 points. They are better off sitting this one out, do some more analyzing and try to enter the market again with a fresh perspective. The second option is most often chosen by those traders who have been trading for a long time, have a proven strategy, a plan, wait for right time to enter the market and are confident in their actions, even if the price is moving (not very hard, of course) against them. They call it "giving the market time to breathe." But in such circumstances it’s very dangerous to leave the Terminal unattended. You might be left without a deposit. We don’t recommend that you trade like that quite yet. The third option is that you simply place your stop loss at the level to which you are prepared to suffer losses and make a promise to yourself not to move it. Then you can close the Terminal and not have to sit and monitor the bidding process. It’s best not to set your stop loss on a "psychological level" like 1.2500 or 1.2555, for example. The price will more often than not reach this level, hit the stop, then turn around and go in the opposite direction. So, set it just a little further.
Statement: I do not want to open a real account! I'm afraid of losing all my money!
Reality: Then it’s definitely not worth opening a real account! You're not ready for it. And for those who are ready, we say the following: First, a real account is not something terrible that will swallow up your money and never return it. It's just a place where you can put money when you see a confident, beautiful price movement. Then you can join in and make some good money. No one said that you need to trade continuously, every day and every hour. Only beginning traders try to stay in the market all the time. If you are not a day-trader with a stable trading system, a clear plan and clear signals that indicate the opening, it is better to wait and do nothing.
Fear is a natural state – don’t be afraid of it (forgive the pun). Try at first to operate according to the following rules. Perhaps someday they will really come in handy:
1. Select several technical indicators that you understand the best and for which you have the clearest understanding of the right time to open a deal to buy or sell. Write down the points at which you would have opened and then watch to see whether or not you would have made money in that case.
2. Keep tracking the calendar events and try to enter the market only after you clearly see what the market’s reaction is to the published data. If you open a transaction based upon expectations, you may miss the time of publication of the actual data and get hit with a huge loss.
3. Open transactions only with the trend. If the price goes up – buy, when it goes down - sell. But don't forget about the support and resistance lines one way or the other. They do actually work and if the chart breaks through one of them the movement will continue with very high probability. As a rule, the daily trend is best seen in the H1 and M30 views. It’s quite dangerous to open trades against the trend that develops over the course of the day. Smaller intervals, like the M1 and M15 views are designed for micro-transactions lasting just five minutes. Be sure to keep this in mind. What you think is a trend on the 15-minute chart, may be only a slight correction in the basic movement shown in the H1 view.
4. Don’t open transactions for more than one lot.
5. Open the transaction only if you are confident that the price will go in the direction you want. Initially, it’s best to set a take profit of approximately 15-20 points and a stop loss of 10 points. If you open a deal and the price suddenly goes against "your" direction - don't wait! Close the deal immediately, albeit with a slight loss. This just means that you were wrong. It’s better to watch the market closely and enter it again when the movement becomes more pronounced.
6. Don't be afraid of small losses! Feel free to close the deal if things don’t move in the chosen direction. Don't expect that the price will bounce right back. It may not return for another year.
7. Don't worry about lost opportunities to earn. The market is not going anywhere until there is no more money in the world. So you will still have around several hundred billion of these "opportunities" to open a trade.
8. The market will not “drain" your account - only you can do that. To be more precise, it can turn fear, greed and excitement into your worst enemies. Afraid of losing? Close the deal. Want to earn more? Better to make a few small profitable trades today, tomorrow and the day after tomorrow, than one large unprofitable one today. The temptation is to do everything right now. That just isn’t possible. But losing everything in an instant is sometimes. So be greedy – don’t give away your money to the market and don’t allow yourself to go to deep into the red.
9. Use your head and your deposit will multiply. Leave emotions for the big party you are going to throw in honor of your first million earned in the Forex market. For now, just keep working on it.
10. Treat trading with your real account like a business and the opening of each transaction, like a math problem. Solve it correctly and you receive a monetary award, incorrectly and you pay a fine, the size of which depends only on your decisiveness in closing an unprofitable position.
11. Make a plan for yourself – a trading system. Here's a simple example: you decide that you are going to open a buy trade when the price reaches the support line. Or, say, only if it succeeds in surpassing the resistance by 5 points. Have you defined your plan? Now watch and wait for that signal. When the signal come - open it. Another option: you have set a goal for yourself this week to earn, say, $200 (keep your head out of the clouds!). So, if you earn $100 Monday, $50 Tuesday and $60 Wednesday, then you’ve done well this week. You have exceeded your goal and no longer need to trade for the rest of the week. Another example: you have set a goal for yourself to earn $300 in one day and you will only allow yourself to open three transactions. So, if on Monday, you have already entered the market three times, but have only managed to earn $150 – then stop. No more trading today. Stick to your plan. The number of deals takes priority. Actually, without this a pivot point, it is very easy to get lost and enter into transactions that you will later regret.
12. Try, especially at first, not to leave transactions open without supervision. And certainly never do this if you didn't set a stop loss.
Statement: I cannot figure out how to analyze the behavior of prices!
Reality: don't worry, you're not alone! In fact, the market doesn’t lend to analysis and lives its own life. It doesn’t care one bit that we struggle to understand it by breaking it down into lines, waves and other things. The market is like a child whose parents think they thought of everything, raised their child well, and then one day he runs away from home to become a rock musician. Because that’s what the child wants and that is what his current life (read - market) situation demands. And the parents (traders) can’t do anything about it, except say: "but, we did everything scientifically.” But, don't worry. Like everything in our lives, the market is subject to certain laws and things don’t happen for no reason that often. Just as a child may be influenced by friends or their favorite band, the market may behave the way it does due to politics or the changing needs of the traders in "the pit." Thus, your task is to open a deal only when first, the movement of the market is clear to you, second, your analysis is reinforced by the technical indicators, and third, your strategy has little chance of being overshadowed by some fundamental event over the course of the next hour. And finally, your task is not to panic. Be cool and remember that there will still be many more opportunities to earn.
Another important point: do not forget that people work on the market. Among them are those who trade on it and those who actually create the market (market-makers, brokers, dealers, etc). You see, the market is not candlesticks and levels of support – its people screaming "buy" and "sell" in an exchange pit and those who execute their orders. Internet trading is secondary. It provides a graphical representation of what is actually happening at the exchanges and how prices can be influenced by those sitting at the terminals. In comparison, it’s like a map of the sky and a real galaxy. Based on this understanding of the market, you will be able to achieve more than if all you do is look at lines and charts in your Terminal.
Statement: everybody loses money on the market! It’s a scam!
Reality: this is a very common allegation which has nothing to do with reality. To begin with, this is how the market works: say you pour $1000 into the ocean – somewhere on the other side of the ocean somebody is $1000 richer. So the assertion that "everybody loses money" is fundamentally wrong and those who believe it have most likely not read this course. And to the point that it’s a scam, we can only say that this type of statement is akin to saying that only thieves make millions in this world, only crooks rise to power, only crazy people make scientific discoveries, A’s are only given in school to the teachers' pets, and that all secretaries sleep with their bosses. Don’t try to blame others for your own failures. You would be much better served to learn the rules people follow to make money on the market.
Statement: I closed a deal on my take profit! I earned money!
Reality: Congratulations! If you are a newbie, not a seasoned day-trader or scalper, who makes a lot of small transactions for one or two points at a time, don’t trade anymore today. For example, you can make a rule: one profitable deal per day. As you start to feel more comfortable and gain additional experience, you will start to be able to “feel” the market, develop your own trading system, and read books written by experienced traders. Once you feel more confident, then you can act according to your plan. But for now, your emotions may play cruel games with you.
Statement: I can't do it! I always end up with losses!
Reality: now we’re really getting into psychology. Relax and don't panic. Instead, the best thing to do is practice – that’s why you have a demo account. Monitor the market carefully and don’t rush yourself. Understand first what you are doing, why you are opening a transaction, what signals led you to this decision. Be sure to evaluate the situation in various time-frames. Oh, and do some reading, preferably with books, not the internet.
Statement: I have been chatting in the forums and they say…
Reality: whatever you read in forums is based on someone else's experience - this is definitely a good thing. It is also helpful to ask others for an explanation if something is unclear. But to completely rely on other people's opinions, tips and even trading advice is not always beneficial. The people who write things in the forums are just people, they lose sometimes and earn sometimes, just like you. The only thing that helps them sell more profitably than you is an experience. It’s not so much that their trading system works perfectly, but what matters is that they know how to use it. But alas, they can’t really explain it to you. Just like you can’t describe to someone how to speak Chinese. You can only learn a new language through diligent personal study and lots of practice. That is exactly what we hope you will do! Believe me, people make money on the Forex market, otherwise it would have quickly ceased to be of interest to anyone.
Statement: You can’t teach someone how to trade on the market! I don't need any training materials or books!
Reality: you're right. It’s pretty hard to teach someone to trade on the market. It’s just like many other things in life that you can only learn by doing them yourself. Nevertheless, knowing the rules and laws of the stock market is very important, otherwise you run the risk of making a lot of errors which could have been easily avoided if you had read the training materials. We encourage you to read books also. These traders do not give advice, they share their experiences, show specific examples and give you kind of knowledge that will be useful to you in your successful trading!
Part 7. Trading advisors
What is an advisor?
As soon as you realize that you are psychologically ready to trade and are already trading not bad by yourself, try making your work more effective with the help of expert advisors. These are special programs that are installed directly onto your chart and cause the Terminal to open transactions upon certain signals. Advisors are also called "experts" but they are technically an MTS (mechanical trading system). There are a huge number of them - both pay and free varieties, which you can easily find on the Internet.
What is the point of an expert advisor?
You probably have the trading system that you follow when opening transactions, i.e., you enter the market only when you see a signal (like a break out through two or three candles in one direction in a row, etc). So, to save you from sitting at your Terminal all day waiting for another suitable entry point, your signals can be expressed using the MQL code. Each trader creates the algorithm by which the MetaTrader will open trades whenever it recognizes the required conditions. In other words, now you have a trading robot that conducts the technical analysis of the market for you, enters the market at precisely the right moment, sets your stop loss and take profit and then closes the deal. Is this the holy grail of trading? Not quite.
Do all advisers help you to make money?
Regardless of what people write in the forums, the biggest misconception is that every automated trading program creates only profitable trades and only earn money. As we have already said, these programs are based on the tactics and strategies followed by the trader in his normal, manual trading. It has simply automated the taskk. Upon in installing such a program in your Terminal, you are adopting the trading style of its author. It's the same as if you gave him access to funds on your account to open orders at his discretion. So, the first point that must be considered when choosing an expert is your level of confidence in the system it uses for trading. The second point is, of course, a full understanding of how the transactions will be performed and why the strategy is the way it is. Unlike a real trader, who looks at the entire market situation, robots are machines that simply executes their commands. He knows nothing about the sudden speech from Bernanke, which reversed the market immediately after the opening of a transaction. The robot does not understand, for example, that in this case the three consecutive upwards candlesticks are just a correction, not the start of a new movement, etc. In the end, the robot, like any machine, can easily break down. Expert Advisors offer only two advantages. First, they trade precisely according to the plan, without any psychological factors like fear or excitement. And second, it saves (protects) (gives an ability not to sit in front of a PC monitor 24 hours a day) you from having to sit in front of a computer monitor 24 hours a day.
To be fair, there are a lot of very decent trading strategies that help professional traders earn good money. These are the strategies that form the basis of some automated advisors, but you have to find them out. MTS programs are created wisely, taking into account the many uncertainties, fluctuations in prices and other important market nuances. As a rule, they are expensive, but they pay for themselves quickly enough. Please note that not all expert advisors sold online deliver the results promised by their creators, who may be more interested in making money of you than in the market.
We must also understand that each trading strategy (and, respectively, each expert) has its drawbacks. That is, an acceptable level of losing trades. There is no way to close every transaction in the market with a plus, although they should with a doubt be in the majority. We tell you this so you will understand that it’s not worth yelling about how your Adviser isn’t working properly, if after a series of successful deals it made a couple with losses. We want to make sure that there will be no surprises and that you will have a clear understanding of how your expert will work and, of course, it's always a good idea to test it out first! We'll show you how to do that next. Remember, before you run this program on a real account, you need to know almost more about it than its creator. Otherwise it will only cause you harm, believe me.
What are the conditions necessary for the correct operation of the advisor?
In addition to downloading an expert, you need to install it on your chart. It also must be well-configured - we’ll explain how to do in a moment. Secondly, it requires providing of uninterrupted Internet access - without which it just won't work. If it gets disconnected, it will turn off and no longer be able to control your open deal. That could be very dangerous. In addition, the Terminal must be open. If this is too difficult, our company offers a totally free dedicated personal server (VPS) where you can easily place your adviser and not have to worry about any disruptions. You can find out more about that here. In addition to the installation, you need to constantly monitor how your EA trades, check to make sure it's not broken, and decide whether or not you need to tweak the code and so on. Even the most wonderful advisor can break down at the worst possible time. Another possibility is that market conditions will change so markedly that the advisor will cease to be relevant and bring in the money. So, from time to time the robot will have to be replaced.
It’s important to understand that the program can perform transactions by itself in automatic mode, and only after your confirmation in manual mode. The advisor selects an auspicious market moment and asks your permission to open a deal right then. This option is probably the best, because it combines the technical accuracy of the robot with a global understanding of the current situation, which only you have. That is exactly why it’s called an advisor. Ideally, you should sit in front of the Terminal, analyze the market and benefit from its trading signal to sell or buy. However, this presupposes, of course, your physical presence and responsibility for each transaction. If you aren’t there to confirm the trade the expert advisor will not enter the market. So, don’t forget to choose the automatic mode if it is required so (so required).
What trading system might an expert advisor be based on?
Naturally, there are hundreds of thousands of trading systems. However, experiments have already confirmed that it’s much better not to use use any robot based on any variation of the Martingale principle, the principle of randomness or 50:50, one that create locked orders and those that use support and resistance levels for trading (since you can't be sure how the adviser will draw them). In addition, it is not necessary to automate simple scalping. Be that as it may, these types are the ones found on the internet most often and they are always described as amazing. Remember that an MTS, programmed according to these systems, will mostly often only lead to lost deposits and perhaps a small profit here and there.
The best programs to choose are ones based on the principle of price action (trade without indicators, based on the behavior of prices): trading on a pin bar, internal bar, etc. Programs that use the “Puria Method” or trade using sliding price channels are also very effective. And these types of advisers are not always costly - you can easily find free versions.
Which adviser is best: paid or free?
Of course, the question of paying for an advisor is a legitimate one. It makes sense that such a valuable tool, which can help you earn a lot of money, can’t possibly be free – people should be compensated for their hard work. But we want to warn you: don’t trust the shiny advertising slogans that insist you buy them. In most cases, these are a waste of money. Wouldn’t you agree that if the program really did deliver excellent results, the creator himself would be using it to earn money on the market and experienced traders would be telling each other about it in the forums? Yes, the seller of this product will offer it to you, but this will his approach: if you want to buy, buy it; if you don’t want to I will still make the same amount of money on the market today. Of course, this is not a guarantee of quality, but this approach does inspire more confidence. Similarly, some advisors may be very cheap: the developers just don't expect them to sell at a higher price. If you do buy an advisor, make sure that it comes with, shall we say, technical support – the ability to ask any questions directly to the creators at any time. And, at the very least, make sure that you will be able to contact the creators at all later on!
In addition, don’t pay attention to advisers that, though free to download, require several tens of thousands of dollars in your account. It’s very simple: those who sell advisors earn a tiny percentage on every transaction you conduct, regardless of whether or not they are profitable. The more money you have in your account, the more chances they have to make money of you. This kind of hidden marketing should not be permitted.
Opinions may differ on this, however, many advisors are free and will allow you to test them on a demo account. Try some of them out and then choose the one that works best for you. You might even try to customize one yourself!
How do you choose a good quality advisor?
There are several prerequisites that you must consider when choosing and testing an advisor. First of all, your advisor should be able to work steadily on its own (unless you configure it to require confirmation of its actions) and do not freeze. It should be easy to set up and have a manual written in your language, as well as offer a way to contact the creators or at least the ability to ask questions in a forum. With regard to the principles of its operation, it shouldn’t trade based on primitive signals: it must have multiple levels of if-then scenarios in order to maneuver through dynamic market conditions. And, of course, it should offer a way to quickly close all orders in cases of unforeseen market fluctuations, as well as the ability to allow the stop loss to follow the price (trailing stop). It is very important that the robot is "familiar" with the money management system and won’t open a deal that is too large. It should allow you to configure these settings beforehand. It should operate like a casino and take huge risks in the pursuit of unrealistic profit, because nothing good will come of this.
Before you start using an adviser, even on a demo account, ask the developer to show you the program’s trading history on a real account. This should be in the form of screen-shots of data and charts from the Terminal, not a table prepared by hand. And it would be great if the advisor worked with the all the major currency pairs, including the EUR/USD, and that it is available to customers of any brokerage company. Otherwise, it’s probably just a ploy to attract referrals.
Finally, another important detail to note: when selecting a robot, just like when you purchase any other product, reviews by real traders that have used the advisor play an important role. It’s best to look for them on proven forums. Make sure to consider the negative reviews as seriously as you do the positive ones. Of course, there should be far fewer unsatisfactory comments, but they are important because they will help you better understand the key nuances of the program, which you will have to either accept or reject.
Is it possible to "help" the Advisor?
Of course, if you want, you can trade alongside the robot. It won’t touch your manual transactions – it won’t close them or modify them in any way. But you can easily control what deals the advisor creates.
How do you install the MetaTrader expert advisor?
It's easy, especially since each Adviser comes with instructions in English. And if you don’t have instructions, don’t worry, we’ll help you. So:
1. You’ve downloaded your trading robot - or, more precisely, the archive file containing the robot. Now, extract it and see what files are in the folder. The program usually has an mql or ex4 file extension. The other files are usually indicators (they also have mql or ex4 extensions, but you can distinguish them from the advisor based on the filename), libraries (.dll), etc.
2. Next choose select a folder where your Terminal is installed. Usually, it is stored in this path: (C:)/Program Files/TradeFort MT4 Terminal. Find the experts folder within (usually the third from the top), open it and copy the main advisor file (mql or ex4) to this location. If you look closely, you'll see that there are already two robots in this folder: MACD and Moving Average Sample.
3. In addition to the main file, there are also other files in the archive folder that also need to be copied into their appropriate folders. Files with a.dll extension, or library files, should be placed in the experts/libraries folder. Files with.set extensions are template files containing settings and need to be placed in the experts/presets folder. There may also be some additional indicators that should be copied into the experts/indicators folder.
4. Then, in the Terminal window, in the upper menu, select Tools – Settings - Expert Advisors. Place checkmarks in the following fields: “enable expert advisors" "allow live trading" "allow DLL imports" and "allow import of external experts.”
5. Next, find the tab in the Navigator window and choose only the advisers that you installed. Make sure that you have opened the currency pair that you plan to trade, as well as the time-frame that is most suitable for the proper operation of the expert (these settings are discussed in the program description). Once everything is correct, drag the robot on the chart.
6. After you do that, you will see a window showing the parameters of the expert advisor. Open the "Input parameters" tab. The first field is Lots – the lot size that your adviser will open. The Moving Average, for example, is 0.1. Double-click on this line enter the amount you want. The standard pre-installed advisors in MetaTrader don’t offer features, such as the setting the stop loss and take profit. However, these values can and must be set in advisors that you install. In addition, if you click on the download button, you will be taken to the experts/presets folder where you saved your template files. You can move them here, make changes if necessary, and save them again by clicking on "Save." This will be your personal template that you can then apply to most any advisor. In the "General" tab you can choose the types of positions the advisor can open:
Long & Short – buy and sell, Long only – buy transactions only, and Short only – only sell transactions. Also, it’s good to put check the box for "enable alerts”. An alert is a warning – a "panic button." The adviser will inform you, for example, that the price has reached a certain level, or that an order will soon close on the stop loss. A little later, after complete installation of the program, we will explain how to set up alerts. Until then, press "OK."
7. And finally: in the upper-right corner of the Terminal, you should see the name of the advisor and a little smiley face – that means that the advisor is working.
If you see an X instead, make sure that "play" is pressed on the on the "expert advisors" button on the top panel of the Terminal.
Once you have checked this and everything seems to be in order, but the program still does not work, click on the X and make sure that all the check boxes have been set correctly.
Now everything should work!
8. Take your time and don't be surprised that your adviser has not yet started to open up any deals, it is waiting for the right time in accordance with its programmed strategy.
How do you set up alerts?
If want the adviser to warn you when the price reaches a certain level, adjust the alert. You can do this at the bottom of the "Terminal" window, where your balance and account history are displayed. There is a third tab called "Alerts." Click there and select "create."
This window will appear:
The "action" is what the program needs to do: beep or send you an email notice.
“Symbol” – the currency pair this warning will alert you about.
"Condition" and "Value"- you choose. The bid and ask prices will be either greater than or less than the rate you enter.
"Source"- this is the sound you want to hear. You can choose from the drop-down list and listen to each one by clicking on the "test" button, or click "..." and a folder will appear with all the sounds.
"Timeout"- the amount of time to pause before repeating a signal; and also set the maximum number of repetitions.
How do you test an expert advisor?
You are probably quite eager at this point to test out your advisor to see just how "magical" it really is. To do this, you can test it on historical data, i.e., existing historical charts. Install the Expert Advisor on a demo account or use the strategy tester, which you can start by pressing the F6 button on your keyboard, through the "View" menu, the "magnifying glass" icon on the top menu bar, or by clicking right-clicking on “Tester” in the expert advisors chart, or by pressing Ctrl + R. As we have already mentioned, in the Terminal, many functions are duplicated multiple times so you can choose the most convenient method for you to use. Anyway, here is the window will appear under your chart:
The first graph here is the "Advisor." Basically, we choose one of those available to us on this computer. Next, select a currency pair and the period in which the robot will trade. For the "model" always choose "every tick" so your expert will focus on everything that is happening in the market and be more accurate. Then, check the box labeled "use date" and enter the date range you want to use to test your advisor. The date can be any one you want from this year or the previous one. Also place a check in the box labeled "Visualization" so the advisor will show you graphically how it enters and exits the market. You can use the slider to set the speed of the display. Don’t check the “Optimization” box.
On the right you will see "Expert Properties”
this is a required tab, because prior to the test, you need to configure the adviser. Open it and in the "testing" field enter the amount of the deposit that your robot will use to trade and its currency (we recommend you enter actual data - the same amount and currency that you are going to use to trade with your real account). Don’t change anything in the "Optimization" tab. Next, in the "input parameters" tab, adjust the settings according to your liking.
If your advisor has an option to automatically detect the time (AutoGMT), always turn it off, and false instead of true; otherwise the advisor may incorrectly detect the Terminal time and this will result in an incorrect test.
If there is an option to set the GMT offset (in Greenwich Mean Time), enter a "2" because our Terminal time is GMT +2.
Money Management (AutoMM, MM, etc.) should also be deactivated for the test. If you don’t do this, the advisor will automatically choose the size of the lot with which it will open a deal. We are only interested in how much it can earn in points. By the way, also turn off this function when you place the robot on your real account. All expert advisors are optimized for dollars, so in your case you only want to display fixed lots (Lots graph, Lotsize, etc).
Press "Ok." Leave any other parameters unchanged or find out from the developers what they do first, because sometimes the results can be unpredictable.
Next, in the "strategy tester" there is a button called “symbol properties” (currency pair). You can’t change anything here - you can only view the settings. Here you will find the amount of the spread (the difference between the bid and ask price), the precision (the number of digits after the decimal point that are visible), the stop levels (minimum number of points from the stop loss or take profit to the current price), etc.
There is one last button – “Edit Expert,” which takes you to the MetaEditor where you can make changes to the program and add additional feature (using the programming language).
After you have done all this, you need to download the historical data for your chosen currency pair, for example the beloved EURUSD, before you can start the test. If, for example, you are interested in the H1 time-frame, press F2 and the "History Center" window will appear. You can also launch it from the "Tools" menu on the top panel.
On the left side of this window, select Forex Floating, EURUSD, the time-frame "1:0" and then click "Download" twice.
That’s it! Press "Start" and watch how everything happened in real time during the period you selected.
You can click “Stop” at any time.
You’ll see the trading history in the "Results" tab,
and the profitability chart can be seen here:
In the Report, you can view the overall profit and loss in points, as well as the number of short & long positions, which is so interesting to study!
And in the journal you will be able to see absolutely every action that the program has taken.
Now you know how well or poor your expert advisor may work and are ready to put it to good use! Good luck!
Part 8. Trading with Futures
What are futures?
Futures are contracts in which the seller and buyer agree in advance what the cost of a particular commodity will be the future, at the time of its delivery. For example, right now it’s February, and there is a futures contract for Brent crude with a March delivery date.
It makes sense that this contract can be sold as its price is constantly changing, just like currency quotations on the Forex market. For example, every minute sellers offer a different price at which they will be willing to sell Brent oil in March. And buyers agree to these price. So they don’t actually sell these contracts themselves, they earn money on the difference in their prices - hence the contract for difference – CFD. And this price continues to change all the way up to the expiration date.
What is the expiration date?
This is the exact expiration date of the contract. At this point, the idea is that if we were dealing with the physical delivery of the goods, as was agreed in the contract, the seller would be obliged to deliver the goods (wheat, meat, etc). In the Terminal, of course, it's all relative, so the expiration date, which you can see by hovering your mouse over your contract, simply indicates when the contract will expire and be removed from the Terminal.
After that date, the contract will not be traded anymore, so you need to be sure you close all your open positions on the contract before it expires. Otherwise, they will be closed by the broker. You can see all the specification dates on our website in the “Contract Specification” section. In addition, you can read the rules of expiration here.
What is a CFD?
A CFD is the ability to conduct transactions for the purchase and sale of futures the same way we do with currencies in the Forex market.
What commodities offer futures contracts?
Let's open our terminal right mouse click on the Market Watch window. You will see some green folders. This is the list of instruments which have contracts in our Terminal. This list includes currencies, indices, energy resources, metals, grains, softs, meats, bonds (Financials) and funds (ETF).
If you click on the "+" you can see exactly which instruments are included in each group.
Why every contract have two ticker symbols?
Let's click "show all symbols." Now all futures contracts are displayed in our Terminal. You can see that each of them has two ticker symbols, they follow one after the other.
The first is the name of the instrument, or its designation. You can see that the ticker price is the same in both the bid and ask columns.
They represent the single, common price at which the last transaction on the market was executed for that instrument. This price is called the last.
You will also see the second ticker, which has the suffix "#I." Notice the ask and bid prices are different – these are the real market quotes.
This second ticker can be used as a reference point, while the first symbol is the one you want to drag to the Terminal.
How do you open a transaction for a futures contract?
Just as we did with transactions on the Forex market. Because you are going to create an order to buy or sell, you should first click "new order."
Why does the deal open at that price?
You will notice that we are currently using the "market execution" type.
This means that your transactions will open at the price displayed in your Terminal at the moment. If the quote changes before the opening of the transaction is confirmed, then your order to buy or sell will be executed at the new, revised price. This is based on real market conditions. This is not a trap – the quotes change constantly both in your favor and against, so it does not good to get upset because your order was fulfilled at one price, instead of the other. But, as a rule, such differences are quite small, usually one or two points.
How do you open and close a Buy order?
For this you will need to choose “buy by market.”
In this case, your transaction will be fulfilled at the market ask price and you will be able to see the details of the contract with the #I symbol. To close the order, click on it, then right-click and choose "close order."
Your order to buy will be closed at the bid price.
How do you open and close an order to sell?
If you choose to sell by market, the order to sell will open at the market bid price and close at the ask price.
Is it possible to create pending orders?
Yes, you can - just like in the Forex market. You can choose at what price you want your order to be opened in the future. Depending on your decision, choose sell limit, buy limit, sell stop or buy stop.
How do you set a buy limit?
This is an order to buy at a price lower than the current one. You can find the buy limit by choosing “Pending Orders” instead of “Market Execution” in the "Type" field.
Now, your deal will open at the exact price you set as soon as the price of the contract exceeds it by at least one point.
How do you set a sell limit?
If you want to open an order to sell at a price above the current one, then you will need to select a sell limit.
The order will also occur precisely at the price you set, as soon as the price exceeds it by at least one point.
How do you set a buy stop?
This is a pending order to buy at a price higher than the current. Upon opening it, you will receive market execution of your order at the current ask price that is displayed in the contract information with for #I. This will happen when the last price that you see near the main contract, exactly matches the price you set.
How do you set a sell stop?
This is another type of pending order, this time to sell at a price that is lower than the current one. In this case, the deal opens at the bid price when the last price exactly matches the one you set.
How do you set a stop loss?
You set this control the same way as you did for transactions on the Forex market. Without a stop loss you are nowhere. But, be sure to note these small nuances: a stop loss in an order to sell is executed at the ask price when it exactly matches this level, and the stop loss for a buy order at the bid price when it also exactly matches the price you specify.
How do you set the take-profit?
The situation is a little bit different with the take-profit. If a take-profit is attached to an order to sell, it will close at the price you set only when the last price passes the one you specified by at least one point and continues to trade below that level.
If a take-profit is attached to an order to buy, then it will close at the price you set when the last price goes above this level by at least one point and becomes higher than your take-profit level.
Those are the fundamental and more than likely, the most important things you need to know in order to start trading with CFD futures contracts. Now you are well versed and quite ready to go out and conquer new peaks.
If this information has proven difficult to read, we suggest you view the video tutorial, which aptly demonstrates how to properly open and close deals of various types with CFDs on futures.
Thank you for reading our training manual! We hope that you found it useful!
We wish you every success and look forward having you as a client of Fort Financial Services!