EBOOK

Basic
 Contents

Forex..................................................................................................3
Benefits of Forex trading............................................................4
Pip......................................................................................................6
Lot in Forex......................................................................................7
Spread..............................................................................................8
Trading sessions............................................................................9
Leverage.........................................................................................10
Broker...............................................................................................11
Types of analysis..........................................................................12
Structure of Candles...................................................................14
Candlesticks Pattern Cheat Sheet..........................................15
Support and Resistance.............................................................19
Trend Lines...................................................................................2 1
Trend Channels........................................................................... 22
Forex Indicators...........................................................................23
Price Action Patterns.................................................................26
Reversal..........................................................................................33
Continuation.................................................................................34
Divergence....................................................................................35
Divergence Cheat Sheet...........................................................35
Breakout and Fake Breakout...................................................3 7
Multi Timeframe..........................................................................38
DXY - Dollar Currency Index...................................................3 9
Trade plan.....................................................................................40
Backtest.........................................................................................4 1
Trade Jurnal.................................................................................42
Checklist........................................................................................43
Risk and Money Management................................................44

2
 Forex

Forex is a suitcase of foreign currency and exchange.

Foreign exchange is the process of changing one currency
into another for a variety of reasons, like for the tourism,
trading, commerce etc...

The foreign exchange market (Forex) is where currencies

are being actively traded. Currencies are important because
they enable the purchase of goods and services locally or
across the borders. International currencies need to be
exchanged to conduct the foreign trade and business.

For example, if you are living in the United States and you
want to buy some product from the Germany, then either
you or the company from which you are buying that product
has to pay the Germany for it in the euros (EUR). This means
that the U.S. importer would have to exchange the equivalent
value of U.S. dollars (USD) into euros (EUR).

The same goes for traveling. A German tourist in Japan cannot

pay anything in euros because it is not the locally accepted
currency, in that case he would have to exchange the euros
for yens at the current exchange rate.

Forex market is available for trading 24/5.

3
 Benefits of Forex trading
1. It's a Large and Global Market

As the world’s largest financial market, in excess of $6,6 trillion USD

is exchanged on average per day. Traders in all corners of the world
are buying and selling currency pairs at all hours, making Forex a
truly global marketplace with plenty of scope for profitability.

2. It's Good for Beginners

Accessibility is one of the biggest advantages of Forex trading.

Compared to other markets, it is relatively easy to enter and does
not require a large initial investment, explaining its popularity with
hobbyist traders.

Free demo accounts allow you to practice trading Forex without risk,
essentially providing a ‘try before you buy’ test run.

3. You Can Trade 24 Hours a Day

The rolling hours of the market are another of the main advantages
of Forex trading. Foreign exchange takes place over-the-counter
(OTC), meaning transactions are made directly between trading
parties, facilitated by a Forex broker.

4. There Are Low Transaction Costs

Not only does the Forex market require little capital for entry, but
there are also low transaction costs once you’re in. Typically,
brokers make money from spreads, which are measured in pips
and factored into the price of a currency pair.

5. You Can Benefit From Leverage

Of all the reasons to trade Forex, the availability of leverage is

perhaps the most appealing as it allows you to open a high
position with a relatively small amount of capital.

4
 Benefits of Forex trading
6. It's a Market With High Liquidity

In trading terms, liquidity refers to the ease with which an asset

can be bought or sold with limited effect on its value. In a nutshell,
this depends on how active a particular market is. The global scale
of foreign exchange combined with the high volume and 24-hour
activity, make the forex market the most liquid market in the
trading world.

7. Volatility of the Forex Market

The forex market is influenced by a number of external factors,

including but not limited to:

-The economic stability of a given country

-The global economy as a whole
-Political news, events and policies
-Trade deals
-Natural disasters

This can make it highly volatile at times, meaning there can be

significant movements in currency values and subsequently,
the opportunity to make a substantial profit.

8. You Can Buy or Sell Currency Pairs Depending on the Market

The ultimate goal of any form of trading is to buy low and sell high,
turning a profit on your initial investment. One of the benefits of
Forex trading is that you have the option to either buy or sell
currency pairs depending on the state of the market.

9. There's Good Technology for Trading

Compared to other markets, such as those dealing in stocks and

shares, Forex trading is a relatively new practice. As such, it has
been quicker to adapt to the technological advancements of the
trading world.

10. It's Well Regulated

As it takes place in a global and digital landscape, the regulation

of foreign exchange is no easy task. Thankfully, though, this works
in a trader’s favor and can actually be considered one of the
advantages of Forex trading. Since there’s no centralized exchange
system, independent bodies are responsible for regulation in
respective countries. In the UK, this role falls primarily to
the Financial Conduct Authority.

5
 PIP
(price interest point)

Unit of measure for expressing the change of a

value between two currencies is called "pip"
In most of the cases pip is on the last decimal.

For example, if AUD/USD moves from 0.70893 to

0.70894 that 0.00001 USD more is one pippete.
As the exchange rate changes the value of every
pip changes as well. The most of the pairs have
only 4 decimals.

4
1.7289
10,000 7,000 200 80 9 0,4
PIPS PIPS PIPS PIPS PIPS PIPS

On this example you will understand

how much is the worth of the pip.

AUD/USD=0.7089 4
pipette

6
 Lot in Forex

In the usual sense, a lot is a standard unit for measuring the

volume of a currency position opened by a trader. That is
the amount of money invested in the purchase of a currency
in order to sell at a higher price later.

Lot calculation is an element of the risk management system.

It is essential to know what is lot size to build a balanced
trading system.

The type of lots that exists in every currency:

Lot size Units Volume $/Pips

Standard Lot 100.000 1.00 $10.00/pip

Mini Lot 10.000 0.10 $1/pip

Micro Lot 1.000 0.01 $0.10/pip

Nano Lot 100 0.001 $0.01/pip

7
 Spread

Spread is the difference between a purchase (bid)

and sell (ask) price. Spread charges you when you
open and close the position.

What is bid price?

That's the price by which forex trader can buy a

pair (EUR/USD for example). While the ask price
is the price by which trader will sell that forex pair.
When we are talking about spread, there are two
types of spread.

Base currency Counter currency

Bid EUR / USD Ask

price 1.13315 / 1.13335 price

Spread = 1.13315 - 1.13335 = 2 pips

8
 Trading sessions
One of the advantages of the Forex market is that it’s open
24 hours over the 5 day working week. This gives traders the
freedom to place trades whenever they like and have a break
over the weekend. However, liquidity and market movement
is not consistent through the whole 24 hour period. Some
time brackets are quieter than others, while other trading
hours are extremely active.

Although traders can place their trades at any time, one

simply can’t sit in front of the market for the whole 24 hour
period. Some traders may be sleeping during active periods
and completely missing all the good moves, while only actively
trading when the market is quiet. The 24 hour trading “day”
is broken down into 3 main sessions. The Asian, London &
New York sessions.

The Asian Session, The London Session, The New York Session
the most profitable period for currency transactions are the
ones with most traffic, like conferences in London and New York.

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

Asking why?
Generally accepted principle is that the Tuesday, Wendesday
and Thursday attract the highest amount of activity. In the case
you wanna limit your work days in a week, those three days
will be your best choice. However, there are serious reasons
for safe treatment.

For example, you can work with currency pair EUR/USD. Under
the influence of traffic tensions, overlapping conferences in
The New York and London, can bring you the biggest profits.
Similar to that, depending on which currency pair you are going
to trade, you should search up when the peak of activity is.
Usually it revolves around local time zone for national currency.

9
 Leverage

Leverage is a system that gives traders the opportunity to

manage much higher positions with a less money then they
would usually need. Leverage is two sided blade. From one
side it can bring you a lot of profits but at the other side you
can lose everything with a couple of bad calculations.

For example if you have 1000€ and leverage 1:200 that

means that you can open a position with those 1000€
wich you would usually need a 200.000€ to open.

Broker is ready to borrow you up to 100 times more

money compared to your initial investment. You just
need to pay a minimal deposit.

National Margin:
$3.000

Required Margin:
$100

30:1
Leverage

Did you know?

Leverage makes forex market a very active place and

because of that it is traded around 6.6 trilion dollars on a
daily basis on the market.

10
 Broker

A broker is an independent person or a company that organises

and executes financial transactions on behalf of another party.
They can do this across a number of different asset classes,
including stocks, Forex, real estate and insurance. A broker will
normally charge a commission for the order to be executed.

Forex's Broker

A forex broker, also known as a retail forex broker, buys

and sells currencies on your behalf. The benefit of having
a forex broker includes 24-hour market access and the
ability to speculate on currency pairs all over the world.

Forex brokers try to minimise their costs to stay competitive

in the market, but you still pay certain fees when trading
with them, including a spread. Transactions in the forex
market are done in pairs, so you’d either buy or sell the
pair you’d want to trade – for example AUD/USD.

11
 Types of analysis

Technical analysis

Technical analysis is the type of analysis that

examines and predict moving of the market
using the history of price moving.

It is based on the idea that if the trader can

indetify certain patterns of moving, he then
also can pretty much correct price moving
in the future.

Technical analysis

Price Indicators

Oscillators

12
 Types of analysis

Fundamental analysis

Fundamental analysis is a way of looking at the Forex market

by analysing economic, social and political forces that may
effect the prices of the currencies.

The better country economy shape is the more foreign

businesses and investors will invest their money into that
country. This results in need to purchase that countries
currency in order to obtain those assets.

13
 Structure of Candles

Higher price Higher price

Upper Shadow
Close price Open price

body

Open price Close price

Lower Shadow
Lower price Lower price

Type of Candles
Single examples

Hanging Man Hammer Inverted Hammer Shooting Star

Dual examples

Twezzer Top Bullish Engulfing Bearish Engulfing

Twezzer Bottom
Pattern Pattern

Tripple examples

Three Black Crows Evening Star Three White Solders Morning Star

14
 Candlesticks Pattern
Cheat Sheet
Bullish
Three Three Bullish
Inside Up Outside Up Engulfinf

Piercing Bullish Inverted

Pattern Kicker Hammer

Three Morning Bullish

White Soldiers Star Tri Star

Three Stars Bullish Stick Bullish

In the South Sandwich Belthold

15
 Candlesticks Pattern
Cheat Sheet
Bullish
Tweezer Upside Bullish
Bottom Tasuki Gap Abandoned Baby

Rising Bullish Bullish Side By

Three Method Breakaway Side White Lines

Bullish Matching Bullish

Separating Lines Low Meeting Line

Bullish Hammer
Harami

16
 Candlesticks Pattern
Cheat Sheet
Bearish
Dark Cloud Bearish Evening
Cover Engulfinf Star

Bearish Shooting Bearish

Abandoned Baby Star Harmai

Three Three Bearish

Inside Down Outside Down Tri Star

Bearish Bearish Bearish Stick

Meeting Line Belthold Sandwich

17
 Candlesticks Pattern
Cheat Sheet
Bearish
Bearish Bearish Matching
Breakaway Separating Lines High

Tweezer Falling Downside

Top Three Method Tasuki Gap

Bearish Hanging Three

Kicker Man Black Crows

Advance Bearish Side By

Block Side White Lines

18
 Support and Resistance

Support and resistance is the concept of specific levels in

price, where demand and supply meet, creating a barrier
to the up or downside that price struggles to get past.

Support and resistance levels are determined by the

surrounding price action or indicator levels, which are
carefully guarded by market participants.

Thus, a breach of a support or resistance level would

suggest that the market is strong enough to break free
from and begin a rally in the direction of the breakout.

Conversely, a failure to breach a support or resistance

level suggests that the market will revert, lacking the
strength for a breakout.

The difference between a support and a resistance,

is that a support zone is a level where the market is
expected to pause during a short term downtrend,
while a resistance level is a level where it’s expected
to pause during a short term uptrend. In other words,
a support line is a level where price is more likely to
bounce, and a resistance a level where price typically
finds resistance when rising.
A support zone is level in price that acts as a barrier to
the downside. When the market approaches the support,
traders anticipate that the odds of a market reversal are
large. Therefore, you could say that price tends to bounce
on or around support levels which are determined by past
market action. Previous lows, highs and indicator readings
are some of the most common determinants of support levels.

19
 Support and Resistance
In the image below we see an example of a support
level that's made up of a recent low. As price approached
the support level, it gapped down and gapped up again,
and then began a bullish trend. This is typical behaviour
in support and resistance zones. Investors don't know if
the level is going to hold or not and until there has been
a significant move to guide the market up from the
support line, it could also be breached, which would
indicate a short-term bearish trend.

support

The logic of a resistance level is the same as the one of the

support level. However, exactly as the name implies, it’s a
resistance rather than a support. Below we see a resistance
level that hinders price from moving further upwards.

resistance
20
 Trend Lines
Trend lines are the one of the most popular tools in Forex
trading, being a base of almost every pattern. In Forex
trading, trend lines are probably the most common form of
technical analysis.

In order to make a trend line just simply choose 2 or more

crucial dots and connect them. That's all. Often they will
look like dynamical S/R levels.

fx
re
s
ist
an
ce

t
or
pp
su

The more price is testing the trend line without breaking it

the stronger that trend line is.

Trend line

Breakout

Retest

21
 Trend Channels
Do
wn
Ch
an
ne
l

Do
wn
l
nne

Ch

l
ne
an
Cha

an
ne

Ch
Up

Up
Sideways Channel

Channels can be unpredictable and the price will come out

unexceptedly. We are trading in channels because they are
often consistent and because they can pay off if we catch
the price at the top or the bottom of the channel.

(Make sure you are trading along with the trend)

But in the continuation you can see how insecure behaviour
looks like in the channel.

Sideways Channel

The price is stuck between support and resistance zone.

The price creates The price creates

HHs (Higher Highs) LLs (Lower Lows)
and and
HLs (Higher Lows) LHs (Lower Highs)

Up Channel Down Channel

22
 Forex Indicators
Forex indicators are simply tools used in the technical analysis
process to forecast future price movement. A technical indicator
uses a rigorous mathematical formula based on historical prices
and/or volume and displays the results in the form of visual
representation, either overlaid on top of the price or at the
bottom of your window. If properly used, technical indicators
can add a new dimension to understanding how the price moves.
The best trading strategies will often rely on multiple technical
indicators. It’s well known that many traders, especially novice
traders use technical indicators as their primary tool in analyzing
the price movement.

Basically, these technical indicators are used to support your

price chart analysis. Most Forex trading platforms should come
with a default set of the most popular technical indicators.

There is also a hidden danger that you need to be aware of,

which we call ’Analysis Paralysis’. In other words, you need
to be careful not to fall into the trap of using too many
technical indicators that ultimately can affect your ability
to properly analyze the market price.
There are countless technical indicators available to choose from.
In technical analysis, most Forex indicators fall into one of
the three categories, as follows:
1. Leading Forex indicators (Parabolic SAR, RSI, Stochastic)
2. Lagging Forex indicators (Moving Averages)
3. Confirming Forex indicators (On-Balance Volume)

Additionally, the FX technical indicators can be arranged

according to the type of data we extract from them.
We can identify four types of indicators to understand the market:
1. Forex momentum indicators (RSI, Stochastic, CCI, Williams %R)
2. Forex trend indicators (Moving Averages, MACD, Parabolic SAR)
3. Forex volatility indicators (Bollinger Bands, Envelopes, ATR)
4. Forex sentiment indicators or FX volume indicators (OBV,
Chaikin Money Flow)

23
 Forex indicators

Leading Indicators

Uptrend

RSI Indicator

Overbought

Lagging Indicators

Sell-off Started from Here

MA crossover

20 MA
20 MA

MA crossover

The Lag

50 MA

50 MA

24
 Forex indicators
Confirming Indicators

p
sU
ove
eM
Pric

OBV Indicator

OB
VM
ove
sD
ow
n

A leading technical indicator gives early warnings and trade signals of where
the price is going to move. These indicators can determine the direction to
trade before the new trend has even started.

A lagging technical indicator, as its name suggests, is delayed from the current
market price. Usually, the lag is caused by using bigger price data inputs in their
calculation. But, a lagging indicator can be extremely helpful in gauging
the market trend.

A confirming technical indicator can be extremely useful to validate your price

analysis. As its name suggests, confirming indicators are only used to confirm
that the reading of price action is correct. One of the most popular confirming
indicators is the On Balance Volume – OBV. Volume indicators are incredibly
useful.

*Technical indicators are not perfect, but if they are correctly used for their
strength and in the context of a trend framework great things
can be accomplished.

* We have to keep in mind that most technical indicators are lagging in nature.

25
 Price Action
Patterns
Bearish Flag

The bearish flag is a candlestick

chart pattern that signals the
extension of the downtrend once
the temporary pause is finished.
-example-

As a continuation pattern, the bear flag helps sellers

to push the price action further lower.

Bullish Flag

A bull flag pattern is a chart

pattern that occurs when a
price is in uptrend.

It is called a flag pattern

-example-
because when you see it on
a chart it looks like a flag on a pole and since we
are in an uptrend it is considered a bullish flag.

26
 Price Action
Patterns
Bullish and Bearish Triangle

Triangles, essentially continuation patterns

like flag and pennants, are some of the
most helpful within a trending market
–rising or falling– signalling that after a
short pause the prevailing trend should
continue. Note, however, that they can
also exist as reversal signals after an
uptrend or downtrend if the rally or sell-off
has become exhausted.

Triangles exist in both Bullish and Bearish

-Bullish example- -Bearish example-

27
 Price Action
Patterns
Bullish Rectangle

During a strong uptrend period,

the price pauses and gives rise
to continuous rectangle patterns.

There is temporary bounce in

-example-
price between two parallel levels
before the trend continues. There are two types of
rectangle patterns. Bullish and bearish. In this lesson,
we will discuss the bullish rectangle.

Bearish Rectangle

During a strong downtrend period,

the price pauses and gives rise to
continuous rectangle patterns.

There is temporary bounce in price

-example-
between two parallel levels before
the trend continues. Selling opportunity: The bearish
rectangle pattern can be used for possible selling
opportunities.

28
 Price Action
Patterns
Bullish and Bearish Pennants

Bearish pennant is a small symmetrical triangle or

flag shaped short term continuous patterns that
expand wide and mingle like a cone as the pattern
matures. It is formed when the price movement
is large.
This pattern is bearish in nature and indicates that
the current downtrend in price may continue.

Bulish pennant is bullish in nature and indicates

that the current uptrend in price may continue.
It is a continuous pattern where a pause is created
in the price movement in the mid way through
a steady uptrend.

It creates an opportunity for long trading, looking

to make profit from a second big price rise.

-example- -example-

29
 Price Action
Patterns
Head and Shoulders

The head and shoulders pattern

is a technical formation that
indicates a trend reversal is
underway.
-example-
For traders, it is an extremely
useful pattern, whether they are trend trading and want
to be alerted of potential danger or they want to catch
a trend reversal near the turning point.

Inverted Head and Shoulders

An inverse head and shoulders,

also called a "head and shoulders
bottom", is similar to the standard
head and shoulders pattern,
but inverted: -example-

With the head and shoulders top used to predict

reversals in downtrends.

30
 Price Action
Patterns
Bullish Channel

A bullish channel is a continuation

chart pattern (of a trend). A bullish
channel is made up of two parallel
bullish lines.
-example-

The price progresses between these two parallel lines;

the upper line is called the "resistance line"; the lower
line is called the "support line".

Bearish Channel

A bearish channel is a continuation

chart pattern (of a trend). A bearish
channel is formed by two parallel
bearish lines.
-example-

The price progresses between these two parallel lines;

the upper line is called the "resistance line"; the lower
line is called the "support line".

31
 Price Action
Patterns
Double Bottom

Double top and bottom patterns

are chart patterns that occur
when the underlying investment
moves in a similar pattern to the
letter "W" (double bottom) or
-example-
"M" (double top).

Double top and bottom analysis is used in technical

analysis to explain movements in a security or other
investment, and can be used as part of a trading
strategy to exploit recurring patterns.
Double Top
A double top is an extremely
bearish technical reversal
pattern that forms after an
asset reaches a high price two
consecutive times with a
moderate decline between -example-

the two highs.

It is confirmed once the asset's price falls below a support

level equal to the low between the two prior highs.

32
 Reversal

Double Bottom Tripple Bottom

Inverted
Falling Wedge Head and Shoulders

Tripple Top Head and Shoulders

Double Top Rising Wedge

33
 Continuation
Bullish

Bullish Triangle Bullish Wedge

Bullish Channel Bullish Pennant

Bearish

Bearish Wedge Bearish Channel

Bearish Pennant Bearish Triangle

34
 Divergence
What is a divergence in trading?

In most cases, divergence appears on oscillating indicators (those that

“revolve” around the mid-line). These are indicators such as MACD, RSI,
Stochastic, CCI, etc.

However, divergence also appears on volume indicators. It carries more

weight than technical indicators. But the very principles of divergence
trading are the same for every indicator. The appearance of divergence
tells us that the price is preparing for a reversal or that the current
impulse has worked out.

The first thing to remember is that divergence itself should not be a signal
to enter the market. You must have the main signal, and the divergence will
act as a confirmation of this signal.
How to avoid early entering when trading divergences. Make sure you
follow these steps:

Define the trend direction currently ongoing in the price chart. Draw the
trendline. Find out two consecutive highs/lows to spot the divergence.
Attach the MACD histogram to the price chart and define the highs/lows
on the indicator corresponding to the price extremes on the chart.

If you find out the divergence between the indicator and the asset price,
define the signal direction. Next, determine the entry point.

The basic divergence strategy suggests setting a stop loss at a distance

from the highest high/lowest low. The basic scenario implies setting a take
profit at a distance twice as long as that of the stop loss.

35
 Divergence
Cheat Sheet

Reversal
Bearish Bearish Bearish
Class A

Class C
Class B

Bullish Bullish Bullish

Continuation

Bearish Bearish Bearish

Class A

Class C
Class B

Bullish Bullish Bullish

36
 Breakout and Fake Breakout

Put simply, a breakout is a sudden sharp movement in the price

of an asset, which moves away from the established support
and resistance areas. A rise in price indicates a bullish breakout
trend, whereas a decrease in price indicates a bearish market.

Support
Resistance

Breakout Fake Breakout

One of the most frustrating things to deal with in Forex trading

is the “fakeout” – a common name for a breakout which does
not only fail but produces a significant move in the other
direction. In this article, I’ll explain with examples what to do
when a breakout fails.

False-break of key level

Key resistance

Example on chart

37
 Multi Timeframe
Every analysis of yours should be starting on higher
time-frames whether it is 1H, 15Min or 1Min.

What you are doing on the time frame that your entry is
based on remains the same.

But it is good and desirable to look higher time-frames

because by doing that we can see where market will go
and his long and short term directions.

Top down analysis should be starting from 1 month

TF (time frame) to yours TF that you are trading at
the exact moment.

If the both of analysis match then your trade has even

higher probability for success. Some of the HP setups
are always based on confirmations from the higher
time-frames such as CONFIRMATION ENTRY and
many more.

The more confirmations you have the higher probability

for success for that trade is.

We can see analysis on the 4H time frame that is telling us that the price is in
descending channel and we can expect a pullback. Now when we know that
we are going back on the TF that our entry is based on(in our case 1H) and we
are interested in buy positions.

38
 DXY - Dollar Currency Index

You can use it as additional confirmation in your trading.

Dollar Currency Index has correlation with a lot of pairs,
by looking and understanding it's structure, how it is
behaving and why, doing multi timeframe analysis on
Dollar Currency Index, we can make our setup even
more profitable.

For example if we have short setup like inverted H&S on

Dollar Currency Index of the longer descending channel
that is retesting the neckline, we can look up for short
chances on EUR/USD, AUD/USD or GBP/USD.

Mainly DXY (Dollar Currency Index) is USD against other pairs.

Keep in mind to add DXY into your future analysis.

39
 Trade plan
What is trade plan?

Trade plan is your signpost how you are going to trade

on the Forex market. You should not be opening any
trades without well checked and backtested trading
plan for the last 2 years. It would be ideally for it to
repeats 3 times every year for a currency pair you
are trading. You will not be changing your trading plan
unless:
It is no longer profitable (you will see that trough the
daily, weekly, monthly and quarterly advanced self
review [ASR] .

You find a way to improve your plan, your trade plan,

execution or management which you previously
backtested and checked trough the ASR.

Trade plan will contain clear entry criterion (and a

checklist particular for certain currency pair).

Risk management (1% risk per trade, and to identify

the maximal risk tolerance for a specific time.
Couples
Trade Check
Managment List
Trade plan

Market
Risk Entry Conditions

40
 Backtest

One of the most important things that every trader

should have in their routine is backtest.
Backtest is the process of testing the strategy using
the historical data and writing them down (currency
pairs, entry, exit, stop loss, profit, trades won, etc...)
You are wondering if the strategy is profitable?

Backtest is the best solution for that. You cannot

belive to everyone. Trough the backtest you will
assure yourselves whether the strategy is profitable
or not.

You'll know if that strategy suits you.

You'll know which strategy suits certain currency pair.
Trough the backtest you will collect important data
that will help you to see how the currency pair is
reacting in certain session, in which session it performs
the best, which pattern is repeating, which SL is the
best, and many other things.

Trough the backtest you are gaining both

self-confidence and confidence in your strategy.

41
 Trade Journal

Keeping a journal, notation of trades and

reconsideration your trades are main things of your
trading process on the way to become consistently
profitable trader.

Putting down on paper all your trades, emotions,

technical analysis, and reconsideration with yourself
trough journal we can spot our mistakes and
learn from them. That will help you improve your
trading to a higher level.

It will also help you to realize where and why you

are making mistakes and how to fix them. You'll
notice the things that you could not and would
not if you had no trading journal.

Journal should be as simple as possible, the place

where you will write down every trade.
It is recommendable to check your journal once
on weekly basis in order to see how you could
improve. You have many different apps and
sites where you can create and keep your journal.

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 Checklist

Checklist should contain all the elements that we are

looking before entering the trade

Checklist should be different for every currency pair

that we are trading (and properly backtested)

You should run trough your checklist before entering

any trade

When you see potential trade =look up your checklist,

if it fulfills your requirements then enter that trade

How structure is created

How the price broke high/low
What happened when price broke high/low
Does day or time affects on that pair
Is this trade in my trade plan
Have i forecasted this trade
Have i accepted the fact that this trade can
end in 1% loss

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 Risk and Money Managment
What beginners do?

Beginers think about profits and amount of money that they can
earn, which is a mistake.Just because of that they use higher risk,
thinking that if they are right, they will earn more, but if they are
wrong, they will lose a lot.

They do not let probabilities to play out. Forex is a probability, we do

not know if trade is valid or not before we enter, we cannot predict
the future, even HP trades sometimes can hit our SL.
So trough the large amount of trades and bad RR management you
won't get anywhere in long run.

Good traders think how to protect their capital and how much they
can allow themselves to lose. So trough the large amount of trades,
good strategy and with correct RR management you will be
profitable in long run.
So what in fact RR is. RR or the Risk Reward Ratio is the ratio of the
expected profit in regard to what we are ready to risk for it. You
cannot open high positions and expect profit always. In fact, in order
to undesrtand the risk you need to know RR PRETTY WELL.

Here are some of the examples of trades and Risk Reward Ratio so
you can understand it better:

1. You are setting SL (stop loss) in your trade on 500€ and TP

(take profit) on 2500€ .
-Trade is going against you and it's closing on 500 in minus.

2. You are setting SL (stop loss) in your trade on 500€ and TP

(take profit) on 500€
-Trade goes well and you end up in profit 500€

3. You sre setting SL(stop loss) in your trade on 1500€ and TP

(take profit) on 1000€
-Trade goes against you and it closes on your SL. Leaving you
a loss of 1500€

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 Risk and Money Managment

In this example let's say that 500€ is 1% of

our account. We can see that even the tho
price hit the SL this RR can be profitable for
us in long-term trading.

Even though we lose 4 trades in a row if we

1:5 win the 5th one we are going to be in profit.

1:1 that means that you need to have more

than 50% winning trades in order to be
profitable, while with higher RR you can
be profitable even with small percentage
of won trades.

In previous example we can see that exact

example, that even if we have low win rate 1:1
at the end of the day we still can be profitable.

In this example we can see the another trade

with bad RR ratio. In this case the Risk Reward
Ratio is 3:2 which means that we are risking
more than we could eventually earn, which is
extremely bad.Choose quality over quantity.
3:2

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 Risk and Money Managment

With good RR (risk:reward) you can be profitable with

much lower passing percentage!

The only way to earn on Forex is to learn how to control

your money and to trade with discipline.

Risk Reward helps you to determine how much risk you

are willing to take in order to get desired profit.

Many other things like return of potential loss helps with

that as well. Be relaxed and stay focused. Stress is your
biggest enemy, being relaxed is very important in
becoming successful.

20% 30% 40% 50% 60%

1:1 LOSS LOSS LOSS BE PROFIT

1:2 LOSS LOSS PROFIT PROFIT PROFIT

1:3 LOSS PROFIT PROFIT PROFIT PROFIT

1:4 BE PROFIT PROFIT PROFIT PROFIT

1:5 PROFIT PROFIT PROFIT PROFIT PROFIT

In the table above you can see the R: R ratio.

46
 With the help of this e book you mastered
the basics of forex and you have a great
basis for the future progress and improvements.

After this e book you won't become professional traders,

because this is the process and nothing happens overnight.
But you will have a good prior knowledge for further
progress in forex. Invest in knowledge, find a mentor
who will help you in further improving.

THANK YOU FOR YOUR TRUST

If you have any kind od questions DM me and
join the free telegram group.

@trade_smart.fx

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