Forex-Trading-Guide by Zeeshan

8/14/2019 Forex-Trading-Guide by Zeeshan

1/17

AboutthisguideIfthisisyourfirsttimecomingacrosstheonlineForexmarket,thenyouvecometotheright

place.

Thisguidewillprovideyouwiththebasicknowledge,toolsandtechniquesanoviceForex

tradershouldhaveasyoutakeyourfirststepsinthefascinatingworldofForex.

Manyofthetradingconceptsintroducedhereareexplainedingreaterdetailinlater

chaptersoftheguide.

IfyouareunclearaboutanyForextermyoucomeacrosshere,besuretorefertothe

glossaryofterms

BasicForexTradingGuide

P u b l i s h e d b y

w w w . e T o r o . c o m T r a d i n g P l a t f o r m

FinancialTradingMadeSimple
http://www.etoro.com/what-is-forex/forex-lingo.aspxhttp://www.etoro.com/


2/17

BASICFOREXTRADINGGUIDE 2

IndexUsethefollowingindextonavigateyourwayaroundtheguide.

Intro:WhyForex? ............................................................................................. 3

Profitability........................................................................................................ 4

CashinginonPriceMovements ......................................................................... 5

TheTrendisYourFriend .................................................................................... 7

TacticalusageofLeverage................................................................................ 10

ASimpleTradeExample................................................................................... 12

HedgingRisksandRewards.............................................................................. 14

TheQuestforVolatility ................................................................................... 15

MoneyManagement........................................................................................ 16

OpenfreePracticeeToroaccount!
http://www.etoro.com/


3/17


Intro:WhyForex?

Ifyouarereadingthisguide,youhavemostlikelytakensomesortofinterestin

theForexmarket.ButwhatdoestheForexmarkethavetoofferyou?

AccessibilityItsnowonderthattheForexmarkethasthetradingvolumeof3trillionadayallanyoneneedstotakepartintheactionisa

computerwithaninternetconnection.

24HourMarketTheForexmarketisopen24hoursaday,sothatyoucanberighttheretradingwheneveryouhearafinancialscoop.Noneedto

biteyourfingernailswaitingfortheopeningbell.

NarrowFocusUnlikethestockmarket,asmallermarketwithtensofthousandsofstockstochoosefrom,theForexmarketrevolvesaroundmoreorlesseightmajorcurrencies.Anarrowchoicemeansnoroomsfor

confusion,soeventhoughthemarketishuge,itsquiteeasytogetaclear

pictureofwhatshappening.

LiquidityTheforeignexchangemarketisthelargestfinancialmarketintheworldwithadailyturnoverofjustover$3trillion!Nowapartfrom

beingareallycoolstatistic,thesheermassivescopeoftheForexmarketis

alsooneofitsbiggestadvantages.Theenormousvolumeofdailytrades

makesitthemostliquidmarketintheworld,whichbasicallymeansthat

undernormalmarketconditionsyoucanbuyandsellcurrencyasyouplease.Youcanneverbeinajamforcurrencytobuyorstuckwith

currencythatyoucantunload.

TheMarketCantBeCorneredThecolossalsizeoftheForexmarketalsomakessurethatnoonecancornerthemarket.Evenbanksdonthave

enoughpulltoreallycontrolthemarketforalongperiodoftime,which

makesitagreatplaceforthelittleguytomakeamove.

ClickheretoopenafreeeToroPracticeaccountandjointheForex

markettoday!


4/17


Profitability

Itdoesnttakeafinancialgeniustofigureoutthatthebiggestattractionofany

market,oranyfinancialventureforthatmatter,istheopportunityofprofit.Inthe

Forexmarket,profitabilityisexpressedinanumberofways.

Firstofall,justtosettherecordstraight,youdonthavetobeamillionaireto

tradeForex.Unlikemostfinancialmarkets,theForexmarketallowsyoutostart

tradingwithrelativelylowinitialcapital.AteToro,youcanstarttradingForexwith

aslittleas$25!

Rightaboutnowyoureprobablyaskingyourself:WhatchancedoIhaveof

profitingwithsuchalowinitialinvestment?TheForexmarketdoesntrequire

largeinitialinvestmentsbecauseitallowsyoutouseleveragedtrading.Leveraged

tradingletsyouopenpositionsfortensofthousandsofdollarswhileinvestingsumsassmallas$25.ThismeansthatForextradinghastheprofit(andloss)

potentialoftensandevenhundredsofpercentaday!

WhatisalsouniqueabouttheForexmarketisthatanysortofmovementisan

opportunitytotrade.Whetheracurrencyiscrashingorsoaring,thereisalways

roomforspeculation,sinceyoualwayshavetheoptionofbuyingorsellingthe

currencyofyourchoice.Unlikethestockmarket,youarenotlimitedto

speculatingonrisingstocks,andafallingmarketisjustasgoodforbusinessasa

risingmarket.

Havingsaidallthat,itisimportanttorememberthatasprofitableastheForex

marketis,itstillcarriesalltherisksinvolvedwithfinancialtrading.Youshould

alwaysbeawareoftherisk,andneverriskmoneythatyoucantaffordtolose.

Havingsaidallthat,itisimportanttorememberthatasprofitableastheForex

marketis,itstillcarriesalltherisksinvolvedwithfinancialtrading.Youshould

alwaysbeawareoftherisk,andneverriskmoneythatyoucantaffordtolose.


markettoday!


5/17


CashinginonPriceMovements

TradingForexisexcitingbusiness.Themarketisalwaysonthemove,andevery

tinyshiftincurrencyratescanmeanprofitsandlossesofhundredsandeven

thousandsofdollars!

Letsdemonstratehowthatcanhappen:

Ingeneral,theeightmosttradedcurrenciesontheForexmarketare:

USD U.S.Dollar

EUR Euro

GBP BritishPound

JPY JapaneseYen

CAD CanadianDollar

CHF SwissFranc

NZD NewZealandDollar

AUD AustralianDollar

Forextradingisalwaysdoneinpairs,sinceanytradeinvolvesthesimultaneous

buyingofacurrencyandsellingofanothercurrency.Thetradingrevolvesaround

18maincurrencypairs.Thesepairsare:

USD/CAD EUR/JPY

EUR/USD EUR/CHF

USD/CHF EUR/GBP

GBP/USD AUD/CAD

NZD/USD GBP/CHF

AUD/USD GBP/JPY

USD/JPY CHF/JPY

EUR/CAD AUD/JPY

EUR/AUD AUD/NZD

Whenbuyingorsellingacurrencypair,eachpairhasitsownBid/Askrate,for

example:

Pair Bid Ask

EUR/USD 1.5420 1.5422


6/17


Thismeansyoucouldeither:

BuythepairattheAskrate

Whichmeans:

Buy1EUR/Sell$1.5422

or

SellthepairattheBidrate

Whichmeans:

Sell1EUR/Buy$1.5420

OK,butwherestheopportunityforprofit?

Thecurrencypairratesarevolatileandconstantlychanging.

Onewaytoprofitisbybuyingapair,thensellingitatahigherrate.

Thesecondwayisbysellingthepair,thenbuyingitatalowerrate.


markettoday!


7/17


TheTrendisYourFriendTrendanalysisisbasedontheideathatwhathashappenedinthepastgives

tradersanideaofwhatwillhappeninthefuture.

Althoughthismayseemprettybasic,beingabletoidentifywhenapairisina

trendandwhenitisn'twillhelpyoutoincreaseyourchancestoprofit

consistentlyintheForexmarket.

Whenyoucanidentifyatrend,youcanestimatewhatdirectiontherateofa

currencypairisgoingtogoin.Youshouldexploitthedirectionofthetrendyou

identifybyplacingatradeinthatdirection.

Ifitsanuptrend,meaningthattherateisincreasing,buyingthecurrencypairwill

giveyouabetterprobabilityforprofit.Ifitsadowntrend,meaningthattherateisdecreasing,sellingthecurrencypairwillgiveyouabetterchanceofmaking

money.

HowdoIidentifyatrend?Whatarethecharacteristicsofatrend?

Thesimplestwaytoidentifyatrendisthroughthedistinctpatternsthattheprice

forms.Thesecantellyouifthemarketismovinginanuptrendordowntrend.

IdentifyingaForexTrend

WhenatrendistakingplaceinaForexpair,thepricemovementsstarttoform

peaksandvalleysinthechartofthatpair,whichareeasilyidentified.

Inanuptrend,thepricemovementsformaseriesofhigherpeaksandhigher

valleys.

(HigherHighsandHigherLows.)

Sinceapicturesworthathousandwords,letslookatthefollowingchart:

Thischartsuggeststhatthetradershouldbuythecurrencypair(andclosethe

tradebysellingatprofitaftertheraterises).


8/17


Inadowntrend,thepricemovementsformaseriesoflowerpeaksandlower

valleys:

(LowerHighsandLowerLows)

Thischartsuggeststhatthetradershouldsellthecurrencypair(andclosethe

tradebybuyingatprofitaftertheratedeclines)

Itsimportanttonotethatduringsometradingdaysthetrendishardto

spot,sometradingdaysshownotrend(thepricemovementsforma

Range),andofcourseyoureboundtorunintotheoccasionalreversal,so

thisisnotaperfectlyaccurateor100%reliableindicatorfortrading.

HereiswhatatradingRangelookslike:

Itiseasiertomakepredictionswithatrendthanwithatradingrange.Whileyou

canstillprofitintradingranges,youhavetobemorenimbleonyourfeet,and

readytojumpinandoutofthemarketsatalltimes.Needlesstosay,thismakes

thetraderslifealottougherandtheriskforlossgreater.

Tradingrangescanbereallymessyandunpredictable,whichiswhyyoushould

alwayslookfortradingtrends.Itsagoodideatostayoutalltogetherduringa

range,andgetbackinonlywhenthemarketsstarttotrendagain.

Asageneralstrategy,itisbesttotradewiththetrendratherthanagainstit,

meaningthatifthegeneraltrendofthemarketisheadedup,youshouldbevery

cautiousabouttakinganypositionsthatrelyonthetrendgoingintheopposite

direction.


9/17


Thetrendspottingstrategyassumesthatthepresentdirectionofthepricerate

willcontinueintothefuture.Itcanbeusedinthreemaintimeframes:short,

intermediateandlongterm,withthetrendsbeingdifferentforeach.

Forexample,heresapossiblescenariointheForexmarket:

Overthelast12monthsthetrendfortheEUR/USDisanuptrend,overthelast30

daysthetrendisadowntrend,andoverthelast24Hours(intraday)trendisan

uptrend.

Regardlessofthechosentimeframe,traderswillremainintheirpositionuntil

theybelievethetrendhasreversed.

Sothegoalistospotatrendthatyoubelieveinandtradeaccordingtoit.

Needlesstosay,youwillneedtomonitorthetrade,incaseyouweremistaken

andthetrendvanishesorreverses.Thenit'stimetocutyourlossesbyclosingthe

losingtradeorbyreversingclosingthetradeandopeningafollowing,opposite

trade.

Warning:SpeculatingonForexratesinvolvesgreatamountofrisk.Beadvisedthat

eventhemostsophisticatedtraderscan'talwayspredictmarketmovements'

directions.


markettoday!


10/17


TacticalusageofLeverage

IfyouvebeenatallexposedtotheworldofForexyouveprobablyheardthe

wordLeveragebeingtossedaround.ButwhatexactlyisLeverage?

LeverageisaveryimportantpartofForextrading,anditscriticalthatyouknow

exactlyhowitworksandhowtouseit.ItisthetermForextradersusetoreferto

theratioofinvestedamountrelatedtothetrade'sactualvalue.

Forexbrokersusuallyprovidetheircustomerswiththeoptiontotradeon

borrowedcapital,sothattradersdonthavetoinvesttensofthousandsofdollars

forthechancetomakeanyrealprofit.Whenyoutradeataleverageof1:100,or

X100,itmeansthatforevery$1thatyouinvestinthemarket,thebrokerinvests

$100.Asaresult,youcancontrolanamountof$10,000byinvesting$100.eToro

providestraderswiththeopportunityoftradingatupto1:400leverage.

Itprobablywontsurpriseyouwhenwesaythatwithgreateropportunityfor

profitcomesgreaterrisk.Justlikeslightfluctuationsincurrencyratescanmake

yousignificantamountsofmoney,itcanalsocauseyoutoloseyourmoneyvery

quickly.Thehighertheleverage,thelargertheprofitthatyoustandtomakeand

thequickeryoumightloseyourinvestment.Aleverageof1:400canmakeyou

moremoneythanaleverageof1:100,butitalsoputsyourinitialinvestmentat

morerisk.

Ifyoutradewithaleverageof1:100themarketwouldhavetomove100pipsagainstyouforyourpositiontobewipedout.Ontheotherhand,ifyoutradewith

aleverageof1:400themarketwouldonlyhavetomove25pointsagainstyoufor

yourpositiontobewipedout.

Werecommendfirstopeningapositionwithalow1:100Leverage,andonlyonce

youseethatyouvehitastrongtrend,consideropeningonewitha1:400

leverage.

TheRatiobetweenMinimalLotSize,TradeSizeandLeverage

Fundamentally,theminimallotsizeforatradeis$10,000,thustheleverage

limitationsaresetaccordingtotheamountyouchoosetotrade:

Trade

Size

Minimal

Leverage Lot

25 400 10,000

50 200 10,000

100 100 10,000

TheadvantageoftradingwithLeverageisthatwhileyourprofitspotentialis

virtuallyinfinite,ateToroyourlossislimitedtotheamountofyourinitial


11/17


investment.Oncetheratedropsbelowtheratecoveredbyyourinvestment,the

tradeisautomaticallyclosed.ThatisdonethroughanautomaticStopLoss

explainedinthenextchapter.

Remember,Leveragecanbeatradersbestfriendwhenusedcarefully,

andhisworstenemywhenusedrecklessly.Itisagreattoolforincreasing

profits,infactprivatetradersrarelytradewithoutit,butyoushould

alwayskeepinmindthatthehighertheleverageisthehighertherisk

levelinvolved.

Nowthatyoureequippedwithmostofthebasictools,youcanopenyourfirst

trade!

ClickheretoopenafreeeToroPracticeaccountandenjoyleverages

rangingfromx10tox400today!
http://www.etoro.com/http://www.etoro.com/http://www.etoro.com/


12/17


ASimpleTradeExample

Areyouready?It'stimetotrade!

Hereisatodolistofactionstobetakenasyouopenatrade:

Identifythepairtobuy/sell

Decideontheinitialinvestmentamount

Choosetheappropriateleverage

Considerapplyingtradelimits(coveredinthenextchapter)

Opentrade

Letssaythatafterspendingsomequalitytimeongazingatthechartsofseveral

currencies,youveconcludedthat:

1) TheEURistrendingup2) TheUSDistrendingdown

Now,whatisthereasonabledecisionbasedonthisconclusion?

ClearlyyoucanprofitbyfirstsellingUSDandbuyingEUR,andthenbuying

cheaperUSDandsellexpensiveEUR.

WecoulddothisbybuyingandthensellingtheEUR/USDcurrencypair.

Areminderbuyingisdoneat'Ask'price,whilesellingisdoneattheBidprice.

Imaginethatyoubought$100worthofEUR/USDwithaleverageof1:100atthe

exchangerateof1.5461.Thedetailsofyourtradeare:

Investment $100

Leverage 1:100

Unitssold 10,000

EUR/USD(Ask) 1.5461

InplainEnglish,whatyouvejustdoneisbought(100X100=)10,000UnitsofEUR

/USD,whichatthatspecificraterepresents1.5461USDper1EUR.

Now,letsassumethatattheendoftheday,orpossiblyevenafewminuteslater,

theEUR/USDratehasrisento1.5538.Yousellthose10,000Euro/USDUnitsat

thenewrateof1.5538andget$177back.


13/17


Thismeansthatthisseeminglyinsignificantfluctuationintherateallowsyouto

cashin$77fromaninitialinvestmentof$100.

Inotherwordsyoujustmade77%profitonyourinvestment,thankstothe

movementinthepair'squote.

Ontheexampletradethatwevejustseen,yourriskandrewardwasunlimited,

andtheriskwaslimitedwhichisgoodifyouareverycertainregardingyour

decisions.

However,asabeginneryoushouldn'ttrustyourselftoomuch,asyouarebound

tomakemistakes.Bylearningaboutspecialtradeorderfeatures,youwillbeable

tohedgeyourrisks.rephrase

ClickheretogetafreeeToroaccountandopenyourfirsttrade

today!


14/17


HedgingRisksandRewards

Forextradingisariskybusiness.ThischapterwillexplaintheusageofStopLoss

(SL)andTakeProfit(TP)orders.Theseareusedforhedgingyourrisksand

rewards,realizingyourprofitsandminimizingyourlosses.

eToroplacesanautomaticStopLossorderonallyourtradestopreventyoufrom

losingmorethanyouveinvested.Iftherateofyouropentradedropsbelow

whatscoveredbyyourinvestment,thetradeisclosedbytheautomaticStop

Loss.Thismeansthemaximumamountyoucanloseonatradeisalmostalways

limitedtotheinitialinvestmentofthetrade.

Still,thereisnoreasonwhyyoushouldwaituntilyouloseyourentireinvestment

toclosethetrade.BysettingaStopLossorderyoumakesurethatthevalueof

yourtradedoesntdropbelowacertainlevel.Thiswayyoucontrolthemaximumamountthatyouarewillingtoloseonatrade,withouthavingtomonitoreach

tradearoundtheclock.

TakeProfitordersaresimilartostoplossorders,onlyreferringtoprofits.Take

Profitordersmakesurethatonceyourtradereachesacertainlevelofprofititwill

beclosed.

Forinstance,imaginethatyouveopenedaLongEUR/USDtradeforattherateof

1.5400.Afterafewhourstheraterisesto1.5500,butanhourlaterdropsto

1.5300.WithoutaTakeProfitorder,youmightmisstheriseintherate,andendupwithalossonyourhands.

IfyouhadsetaTakeProfitorder,thepotentialprofitofthetradewouldhave

beenrealized,withoutyouhavingtomonitorthetradearoundtheclock.

Remember,StopLossandTakeProfitordersareverysimpletoolsthatcan

makethedifferencebetweenasuccessfultradingcareerandabigholein

yourpocket.Considerusingtheseorderswitheverytradethatyoumake.

ClickheretoopenafreeeToroaccountandpracticehedgingyour

riskstoday!


15/17


TheQuestforVolatility

TheForexmarketisopen24hoursaday,butwhatarethebesttimestomakea

profit?

EventhoughtheForexmarketisopen24hoursadaywiththeexceptionof

weekends,notallhoursareasequallygoodfortrading.ThereasonthattheForex

marketisopen24hoursadayisthatitismadeupofdifferentsessionsaround

theglobethatbetweenthemcover24hours.

Themoremarketsareactiveatthesametime,themoretradesarebeing

executed,andthemoreactionforyoutocashinon.

TradingSessions(GMT):

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

London

NewYork

Sydney

Tokyo

SincetheLondonsessionisthebusiestoutofthefour,thebesttimesfortrading

are8am9am(GMT)and13pm17pm(GMT),becausethatswhentheLondon

sessionoverlapswithothersessions.

Abusethenews.

Asfornewsreports,thesearetimestobecareful.Manyprofitabletradesare

mademomentspriortoorshortlyaftermajoreconomicalannouncements.You

cangainafortuneaswellasloseoneifyourenotsureofwhatyouredoing.This

iswhyitsimportanttostayontopofwhatshappeningintheinternational

financearena.Marketsentimentbecomescrucialatthesetimes,sincetraders

basicallystampedetothemarketaroundthetimeofthereport.eToromakessure

togiveyouaheadsupwheneveranythingmajorisgoingdown.

Remember,eventhoughyoureabletotrade24hoursaday,itsbettertoplanyourtradingactivityinordertocatchthebestactionforachancetomaximize

yourprofitsandminimizeyourlosses

ClickheretoopenafreeeToroPracticeaccountandjoin

theForexmarkettoday!


16/17


MoneyManagement

Isthereasecrettobecomingasuccessfultrader?

Thereisamethodthatallsuccessfultradersuse,anditsnosecret.Itscalled

moneymanagement.

Moneymanagementisnotsomevagueindustrylingoitsimplymeansthe

knowledgeandskillofmanagingyourForextradingaccount.Assimpleasthat

mayseem,itsthekeytoalongandsuccessfultradingcareer.Andyetitisoften

forgottenorneglectedinthethrillofthetrade.Wedliketotakethisopportunity

tolayoutsomegroundrulesbywhichyoucaneffectivelymanageyouraccount.

DontgolookingfortheBigWin;itwillmostlikelyresultinabigloss.Successfultradingmeansconsistenttrading,wheresmallwinsamounttolargelongterm

profits.Neverassumethatallyourtradeswillbeprofitable,andplanonlosses.

Youshouldonlyriskasmallpercentageofyourtotalaccountbalanceoneach

trade.Thissimplyminimizesyourrisk,sothatevenifyouenduplosingyour

entireinvestmentonatrade,itdoesnthaveacriticaleffectonyouraccount

balance.Therecommendedamountis2%ofyouraccountbalancepertrade.

Moreaggressivetradersgoashighas5%,butneverhigherthanthat.Itisavery

importantruletokeep,sincetheloweryouraccountbalancedrops,theharderit

istorebuildit.

UsingLimitOrders

LearntousetheStopLossandTakeProfitorderseffectively.Theseordersprotect

yourinvestmentandrealizeyourprofits.Theyareverysimpletoolsthatcanmake

allthedifferencetoyouraccountbalance.

SizeofTrades

Youaresuggestedtoopensmalltrades,becauseinthecaseofalosingtrade,you

canthenopentheoppositetradewithabiggerinvestmentorhigherleverage,

thuscompensatingforlosses.

PracticewithVirtualMoney

Usevirtualmoneymodeforpractice.OneoftheuniquefeaturesofeToroisthat

ourplatformprovidesyouwithapracticeenvironment.Virtualmoneymode

worksexactlythesameasrealtradingmodeandusesthesamerealtimerates,

withthesmalldifferenceofnoriskinvolved.Werecommendusingthepractice

modetogettoknowtheplatformandgainForextradingexperience.

Andevenafteryouvebeguntradingwithrealmoney,itistheperfectplacetotry

outyourtradingstrategies.Thereisnopointinriskingyourmoneytotestouta

possibletheory,whenyoucandosowiththesamesuccessminustherisk.After


17/17


seeingthatyourstrategyisconsistentlysuccessfulwithvirtualmoney,youcantry

itoutforreal.

Remember,moneymanagementisverysimpletomaster,butnotassimpleto

keepup.Onceyouvedevelopedthemoneymanagementsystemthatworksforyou,makesuretostickwithitanddontletyouremotionsgetinthewayoflong

termprofit,evenifitmeansabsorbingshorttermlosses.

Nowthatyoureequippedfortrading,takeyourtimeandstartpracticingyour

tradingskills.

ClickheretoopenafreeeToroPracticeaccountandjointheForexmarkettoday!

Forex-Trading-Guide by Zeeshan

Documents

Transcript of Forex-Trading-Guide by Zeeshan