Origins & Balances

Trading Strategies.
All rights reserved® 2023: Ahabyoona Stanley.
No part of this publication or strategies may be used or reproduced, distributed,
or transmitted in any form or by any means including; photocopying, recording,
or by any method; electronic or mechanical, without hand-written consent by
Ahabyoona Stanley.
Glossary (Goes at the end)
 Financial Markets
Market: A market is a place where buyers and sellers meet to buy and sell goods.
Financial market: In a financial market, the goods that are bought and sold are
financial instruments.
Financial Instruments include: Currencies, Stocks, Bonds, Metals, Commodities,
Indexes and Derivatives.
Currencies: A currency is money. Money is a symbol of value used to store and
exchange valuable goods or services.
If I give you something of value like a good or a service, you should also give me
money which has an equal value.
Currencies exist in 2 types;
i. Traditional or Fiat Currencies: This is money which is made and controlled
by a country e.g., Uganda Shillings (UGX), United States Dollar (USD),
Great Britain Pound (GBP), Canadian Dollar (CAD), Australian Dollar (AUD),
New Zealand Dollar (NZD), Japanese Yen (JPY), Swiss Franc (CHF).
Or, the money used in a group of countries like the European Union (EU).
These countries in the E.U use the EURO.
ii. Crypto-Currencies: Is money that is made and controlled by anyone on the
internet e.g., Bitcoin (BTC), Ethereum (XRP), Ripple (XRP), Dogecoin
(DOGE), etc.
Shares or Stocks: Are pieces of ownership in a company.
E.g., If you want to own a piece of the company, Apple. You buy shares in Apple.
You therefore become a shareholder in Apple.
Some companies allow anyone to buy their shares. Those companies are called
public companies.
You can buy their shares through a stock exchange.
Other companies do not allow anyone to buy their shares, they are called private
companies. To buy their shares, you enter a private arrangement with the owner.
An example is like when you buy shares in your friend’s business that’s not yet big
enough to be public company.
You and your friend agree on the number of shares and the value of those shares,
and you give them money in exchange of those shares. You are now an
owner/shareholder of their business.
When the business makes profits, you earn part of that profit depending on the
number of shares that you own.
The more shares that you own, the more of the company you own so the more
profits/dividends you earn.

Examples of stocks include Apple (AAPL), Tesla (TSLA), Amazon (AMZN), MTN
Uganda Limited (MTNU) etc.
Bonds: Are made by a government or a company when they want to borrow
money from investors. The government or company looking for a loan will give a
bond in exchange for the loan.
The borrowed money shall be paid back later with interest.
The bond says when the government or company will pay back the loan’s
principal amount and the interest.
The investor who lends to the government or company, can sell the bond to
someone else in what’s called a secondary market.
Examples of bonds include; Uganda Government, United States government 30-
year, 10-year and 2-year bonds.
Metals include Gold (XAU), Silver (XAG), Platinum (XPT), Palladium (XPD) and
many others. Metals are bought and sold by miners, dealers, and manufactures.
Commodities include energy commodities like Crude oil: BRENT (UKOIL) and
WTI (USOIL), Natural Gas (NatGas), Gasoline (Gasoline); Agricultural
commodities like Cattle, Timber/Lumber, Orange Juice, Hogs, Coffee, Cocoa,
Sugar, Wheat, etc.
Indexes are a collection of shares/stocks of many companies. Some investors do
not like to invest in only one company. They don't like to put all their eggs in one
basket. It's called diversification. They want to invest in many different
companies to reduce risks of making bad investments.
An index allows them to achieve this. The most popular index is called the
Standard and Poor’s 500 index (S&P 500). Standard and Poor is a company that
made up this index.
This index is a collection of the top 500 companies in the world. It contains
companies like Apple, Tesla, Amazon, Microsoft, and many others.
So, instead of spending $1,000 to buy shares in only Apple, an investor can spend
the same $1,000, to buy shares in the S&P index which contains 500 different
companies.
Examples; S&P 500, Nasdaq 100, South Africa 40, Volatility Index (VIX), China 40
etc.
Derivatives include futures, options, forwards, and swaps. They are different
from other financial instruments named above.
They are agreements used by more experienced investors to buy or sell the
above-mentioned instruments like currencies, cryptos, shares/stocks, bonds,
commodities, metals, and indexes.
A future is an arrangement/contract/agreement to buy or sell a certain financial
instrument on a certain date in the future, at a specific price which is agreed upon
today.
E.g., A company like Coca Cola may use a future to buy sugar from a Brazilian
Sugar manufacturer. The future arrangement says that Coca Cola will buy a
million tons of sugar in the future, at a certain price which is agreed upon today.
CocaCola benefits from this arrangement because it sets the price of the sugar
today, meaning that if any situation happens in the future which causes the price
of sugar to go up, Coca Cola will still be able to buy sugar at a lower price that was
agreed upon today.
An option is an agreement which gives an investor the powers, but not the
obligation, to buy or sell a financial instrument, on or before a certain date in the
future, at a specific price which is agreed upon today.
A forward is an agreement which allows both a buyer and a seller to set a price of
a financial instrument’s transaction today, which they will carry out together
sometime in the future.
A swap is an agreement between two people to exchange their financial
instruments with each other for a given period.
Swaps are different from all the mentioned instruments because they are traded
in a market called an “Over the Counter (OTC) market”. This is a market where
you go to an investment bank and have a custom-made financial instrument.
Financial Markets Participants
The financial market is located online, and anyone above 18 years old is allowed
to buy or sell financial instruments.
There are many market participants who buy and sell financial instruments.
Every day, they transact trillions of dollars’ worth of financial instruments.
The major participants are;
● Central banks ● Investment Management
● Investment banks Institutions
● Companies ● Individuals
Central Banks
Central Banks store the funds that run the government.
They participate in the bond market to borrow money on behalf of the
government when the government is broke. They issue bonds in return for the
loans.
Central banks control the economy of a country. They control the economy by
making sure that the country’s currency remains stable i.e., the value of the
currency should not get too high or too low.
E.g.,
When a currency’s value becomes too low, they increase interest rates. This
removes more money from the economy. This causes less supply of currency and
more demand, therefore making the currency gain value.
But, when the value of the currency becomes too high, the central bank will print
more money, or reduce interest rates. This to cause high supply and low demand
which makes the value of the currency go down.
They do so many other things to make a currency’s value stable.
They also participate in financial markets. They mostly participate in the forex
market.
Central banks also buy and sell currencies for their own use, e.g., when the
Ugandan government receives a loan from China to build a road, that money is
given to Uganda in Chinese Yuan.
The Ugandan government needs to convert that money into the Uganda shillings
so that it can be used. So, they sell the Yuan on the Forex market, and buy
Uganda shillings.
Investment banks
These are banks that provide banking services especially for investors like
individuals and companies. They do more than just taking deposits, savings, and
loans.
Their services include: raising capital for investors, advising investors, making
research for investors, helping investors to acquire investments, investing on
behalf of the investors, helping companies to facilitate more complex
transactions e.g., a company like CocaCola which makes profits from selling
beverages in Uganda.
Their profits are in Uganda shillings but they need to be sent to USA to its
shareholders in the form of U.S Dollars.
So CocaCola will go with the Uganda Shillings to an investment bank like
Citibank and ask the bank to convert the currency of the profits from Uganda
shillings to U.S Dollars and send it to U.S.A.
Companies
A company like CocaCola participates in the financial markets in several ways.
The first way is conversion of currencies as explained above.
The second way is to reduce the risks of doing business. For example: CocaCola in
Uganda makes imports of ingredients like sugar from Brazil and makes exports of
beverages to Sudan.
All sugar imports are paid in the Brazilian Real (currency of Brazil) and all exports
are earned in Sudanese Pound (currency of Sudan).
This always means that, CocaCola is exchanging one currency for another.
However, the exchange rate moves up and down so much and it could be
expensive now when they are making the exchange and cheap later when they
are not making an exchange.
An expensive conversion rate means that Coca Cola will spend more money in
making the exchange which reduces the profits.
In order to reduce this cost, Coca-Cola uses derivatives like options and futures
we mentioned earlier to get a good exchange rate.
In the third way, CocaCola may need more capital to expand the business, it will
borrow money and give a bond to the lenders.
Investment Management Institutions
Many governments have an institution which is responsible for helping
employees to save and invest for retirement.
These institutions are called Pension Funds.
In Uganda, it’s called the National Social Security Fund (NSSF). The fund collects
savings from people’s salaries and it invests the money in financial markets.
Other public institutions like Workers’ Unions, Hospitals, Universities and Schools
receive money from well-wishers and invest the money in financial markets.
Insurance companies also invest the insurance savings in financial markets.
Some people make investments in financial markets on the behalf of other
people, they are called Hedge Funds.
Individuals
When you want to travel to London, you exchange Ugandan Shillings into British
Pounds at the airport.
You are basically selling Ugandan Shillings and buying British Pounds.
Because you have bought one currency and sold another. This means that you
have participated in the forex market.
Any adult (over 18 years) can invest in financial markets. All you need is
knowledge, a computer, internet, and some capital.
How you can Invest in Financial Markets
There are 2 ways you can invest in financial markets.
• The proper way: You know that you are investing properly when your
investments are making consistent profits.
• The wrong way: You know that you are investing wrongly when your
investments are not making consistent profits.
It seems that most investors are investing wrongly.
To invest properly, you should understand how financial markets work. You
should also understand what makes an investment good. If you have this
knowledge, you become a consistently profitable investor
The components that make you a consistently profitable investor are the 3 M’s:
1. Method.
2. Money Management.
3. Mindset.
All these components can be learned.
Method
Investing requires you to make a decision to buy and a decision to sell.
1. Buying: When you see that a financial instrument has a low price today, but
the price may go up in the future, you buy it.
When the price goes up in the future, the financial instrument is worth more.
You have made profit.
2. Selling: When you see that a financial instrument has a high price today, but
the price may go down in the future, you borrow it from someone who owns it
and you immediately sell it, expensively.
When the price goes down in the future, the financial instrument is worth less.
You buy it cheaply from the market and return it to the lender, therefore you
have made profit.
A good method helps you to predict whether the price of the financial instrument
is going up or going down.
You can predict where the price is going using the law of Supply and Demand.
The Law of Supply and Demand is explained in the next chapters.
Money Management
Money management is how you prevent yourself from losing all your capital
when investing in financial markets.
It’s very simple to not lose all your capital when investing in financial markets.
For example, if you decide to not put more than 0.3% of your capital in any one
investment, the worst-case scenario where you lose all your capital is if you have
333 consecutive bad investments.
Even if you were to buy and sell randomly, it’s nearly impossible to lose all your
capital.
Mindset
Investing requires you to make sound decisions. Your mind is what you use for
making those sound decisions. A proper frame of the mind allows you to make
good decisions consistently.
A mind that is in a proper frame is disciplined, creative and confident. All these
qualities are learned.
A disciplined mind controls you to do what you have to do in order to achieve the
results that you desire to achieve. Discipline comes through planning things and
working out those plans.
A creative mind allows you to process and use new information as a guide to
achieve the results that you desire to achieve. You become more creative
through using your intuition.
A confident mind allows you feel, think and act in a way which gives you the
results that you desire to achieve. Confidence comes through practice.
Your mindset also gives you a personality that determines the type of trader that
you are:
There are 3 main personality- types of traders.
1. Day traders: They enter and exit trades within a day. A typical trade lasts
anywhere from a few minutes to a few hours.
2. Swing traders: They enter and exit trades less often than a day trader. A
typical trade lasts anywhere from a few hours to a few days.
3. Position traders: They enter and exit trades less often than swing traders. A
typical trade lasts anywhere from a few days to months or years.
Day trading: If you are the type that’s impatient and you are in constant desire
for action, you might have a temperament for day trading.
Some traders over-trade and confuse it for day trading. The difference between
over-trading and day-trading is that a day-trader has a systematic and consistent
approach to trading which results in consistent profits.
A trader who is over-trading has no plan or the plan they have is not systematic
and it does not give them consistent profits.
You can know whether you are overtrading or day-trading by looking at your
trading statement. If you have consistent profits, you are doing it well. If
otherwise, you are overtrading.
Swing trading: If you are the personality type that’s patient and you sometimes
get overwhelmed by rapid action, swing trading may be your style.
Some traders do swing trading badly by holding onto their losses, but they
quickly close out their profits. They also have no systematic approach to trading
that can give them consistent profits.
They are doing it in the opposite way. The right way is to quickly cut losses, and
hold winning trades.
Position trading: If you are the type that’s cautious, patient and you usually
make thorough research before you make a move, you might be a position
trader.
This type of personality likes to see the whole field before they make their
moves. If you are this type, then you need to pay more attention to the chapter
of fundamental analysis and you should have trading capital not less than
$1,000,000. Less could work, depending on your expertise.
If you want to know more about your personality and which style suits you best,
then click here for a free consultation.
After you have mastered the 3 M’s and your trading style, you need tools that
give you access to financial markets in order to invest.
 Tools to invest in financial Markets
These tools are software. They include:
1. Trading View (TradingView):
2. MetaTrader 4 or MetaTrader 5(MetaTrader 5):
3. Atas (ATAS):
Check out our video tutorials here on how to use each of these tools.
These tools allow you to have access to the financial markets through what is
called a broker.
A broker is a company through which your investment orders (buy and sell
orders) reach the financial markets.
A good broker is one who has:
1. Regulation in a first world jurisdiction e.g.; Dubai, Hong
Kong, UK, Australia, Canada, and USA.
2. Been in existence longer than 5 years.
3. Received good reviews.
4. Low fees.
5. Flexibility in making deposits and withdrawals.
6. Good support system.
Sign up here to our recommended broker.
Orders, and how they reach the Market.
When you wish to buy a financial instrument, you make what’s known as a buy
order.
When you wish to sell a financial instrument, you make what’s known as a sell
order.
The broker sends your buy orders and sell orders to a liquidity provider.
A liquidity provider is a company that ensures that when you buy, there is
someone to sell to you and when you sell, there is someone to buy from you.
For you to buy, someone must sell to you and for you to sell, someone must buy
from you. In short, a buy order is matched with a sell order.
Sometimes, there is no one to buy from you when you want to sell, or there’s no
one to sell to you when you want to buy. This is where a market maker comes in.
A market maker will sometimes buy from you or sell to you if there is no one to
do so.
However, as an investor, all you interact with is your broker.
Every day, millions of buy orders and sell orders come from investors all around
the World and they are sent to one place called a Securities Exchange. The
busiest securities exchange is in New York, USA, on Wall Street.
It is called the New York Securities Exchange, also called the New York Stock
Exchange.
This securities exchange uses a computer program to match buy orders with sell
orders. The computer program is called the Order Matching System.
How Orders are matched.
Remember; there are 2 kinds of orders; buy orders and sell orders.
Buy orders are in 3 types.
● Buy at the current price: for when you decide that right now is a good time to
buy.
● Buy Limit Order: For when you want to buy at a lower price than the price
now. It says, buy when the price goes down to “x” (you specify the lower
price which you want to buy at).
● Buy Stop Order: For when you want to buy at a higher price than the price
now. It says buy when the price goes up to “y” (you specify the higher price
which you want to buy at).

● Aggressive buy orders (buy order type 1): They are “buy at the current
market price”.
This buy order is called an aggressive buy order because the buyer is willing to
buy now, regardless of whether the price is high or low.
Buyers who use this buy order are in a hurry to buy.
● Passive buy orders (buy order type 2 and buy order type 3): They are buy
limit orders and buy stop orders.
 These buy orders are called passive buy orders because the buyers are willing
to wait until they get their desired price to buy at (a higher price or a lower
price).
Buyers who use these orders are not in a hurry to buy.

Sell orders are also in 3 types.

● Sell order type 1: If you decide that right now is a good time to sell, you
use a sell order that says, “sell at the current price”.
● Sell order type 2: If you want to sell at a higher price than the price now,
you use a sell order that says, sell when the price goes up to “x” (you
specify the price which you want to sell at).
This sell order is called a “sell limit order”.
● Sell order type 3: If you want to sell at a price lower than the price now,
you use a sell order that says sell when the price goes down to “y” (you
specify the price you want to sell at).
This sell order is normally called a “sell stop order”.

These 3 types of sell orders can be further classified into 2 types. These are the
important classifications.

● Aggressive buy/sell orders They are “Buy at the current price” and “Sell at
the current price” orders.
These orders are aggressive because the buyers/sellers are willing to buy/sell
now, regardless of whether the price is high or low. Buyer/Sellers who use this
sell order are in a hurry to sell.
● Passive sell orders (sell order type 2 and sell order type 3): They are sell
limit orders and sell stop orders.
These sell orders are called passive sell orders because the sellers are willing to
wait until they get their desired price to sell at (a higher price or a lower price).
Sellers who use these orders are not in a hurry to sell.

The order matching system matches buy orders with sell orders using what is
called an order book.
The Order Book.
An order book is a record of all buy orders and all sell orders that have been sent
by investors from all around the world. Every financial instrument like gold,
bitcoin, etc. has its own order book.
The order book contains only passive orders. (Buy limit & Buy stop, Sell Limit &
Sell Stop)
Aggressive orders (Buy at current market price & sell at current market price) are
matched with the passive orders which are in the order book like this:
• A buy at market price order (aggressive buy order) is matched with either sell
limit and sell stop orders (passive sell orders).
• A sell at market price order (aggressive sell order) is matched with either buy
limit and buy stop orders (passive buy orders).
When an order is matched, it is removed from the order book.
The order book has 2 sides, the right side, and the left side. The left side of the
order book is for passive buy orders. The right side is for passive sell orders.
Each side has 5 columns which show;
1. Level: Shows the order of priority orders.
For buy orders, the buy order that is willing to buy at the highest price is
put on level 1.
For sell orders, the sell order that is willing to sell at the lowest price is put
on level 1.
Level 1 orders are the highest priority orders. Think of it like a queue. Level
1 orders are the first in the queue, then followed by Level 2 then Level 3
and so on.
Note:
● If 2 or more orders have similar prices, the order that came first is given
priority. Like a first come, first served basis.
2. Order number: Shows a unique identification number assigned to every
buy order or sell order.
3. Time: Shows the time at which the buy order or sell order came to the
market.
4. Size: It shows the number of financial instruments that an order wants to
buy or sell. Size is measured in Lots. One lot in currencies is typically
100,000 units of that currency i.e., 1 Lot of USD is USD 100,000.
 5. Price: It is the price at which the buy order wants to buy at, or the sell order
wants to sell at.

An order book looks like this.

When a passive order is matched with an aggressive order, it is removed from the
order book.
Every day at midnight (UTC+3), the Order Matching Program pauses for a few 1-5
minutes in order to reset it. You will notice this pause.
It is not a good time to trade within this period because the spread is abnormally
huge.
Price Generation.
Consider these passive orders; buy limit orders and sell limit orders on the market
of Gold or XAUUSD.

#Order Number_Time_Buy/Sell_ Size_Price.

#1001_10:02_ buy_ 1_lot_ @ 1800.

#1002_10:02_sell_ 5_lots_ @ 1900.
#1003_10:03_buy_ 1_lot_ @ 1750.
#1004_10:06_buy_ 3_lots_ @ 1781.
#1005_10:07_sell_ 1.2_lots_ @ 1893.
#1006_10:07_sell_ 2_lots_ @ 1845.
#1007_10:07_buy_ 8_lots_ @ 1788.
#1008_10:13_sell_ 5_lots_ @ 1893.
#1009_10:14_buy_ 1_lot_ @ 1760.
#1010_10:16_sell_ 4_lots_ @ 1805.
#1011_10:19_buy_ 2_lots_ @ 1788.
#1012_10:21_sell_ 8_lots_ @ 1820.

They will be filled in the order book as shown below;

Note: For orders that have the same price, the one which came first is given
priority.
Your broker shall display the Current Market Price of Gold/XAUUSD as;
Bid Ask
Gold: 1800 1805
Current Market Price
What is the current market price?
Current market price is not one price. They are 2 prices.
The prices are bid price and ask price.
BID PRICE: The price of the highest bidder. When you place a “sell at market
price” order, you are selling to this person.
ASK PRICE: The price of the cheapest seller. When you place a “buy at market
price” order, you are buying from this person.
These are the 2 prices you normally see displayed on your trading software as
“Quotes”. The bid price is on the left and the ask price is on the right.
A forex bureau displays its prices like this:

The Forex Bureau has its highest bid/Bid (buy order) listed as “we buy” and its
cheapest seller/Ask (sell order) listed as “we sell”.
When you want to buy a U.S Dollar; you buy from the cheapest seller (“we sell”)
and you shall pay 3824. When you want to sell a US Dollar , you sell to the highest
buyer (“we buy”) and they pay you 3804.
The price difference between the Bid and Ask Price is called the “spread”. Spread
is a fee which the bureau/broker takes as profit.
Price Reaction When a Buy at Market Order is executed.
Imagine that someone decides to buy 15 lots of gold at the current market price
(aggressive buy order).
The order matching system/algorithm shall select the Level 1 seller who is order
number #1010 selling 4 lots at 1805.
The algorithm shall match the 15 lots buyer with this seller. All the 4 lots which
the seller is selling will be bought and the order shall be filled and removed from
the order book. The buyer remains in need of 11 lots.
Level 2 order on the ask side is now the new Level 1 order and it is order number
#1012 selling 8 lots at 1820. The algorithm shall match the buyer with this seller
and all the 8 lots will be bought. The order is filled and removed from the order
book. The buyer remains in need of 3 lots.
Level 3 order on the ask side is now the new Level 1 order and it is order number
#1006 selling 2 lots at 1845. The algorithm shall match the buyer with this seller
and all the 2 lots will be bought. The order is filled and removed from the order
book.
The buyer remains in need of 1 lot.
Level 4 order on the ask side is now the new Level 1 order and it is order number
#1005 selling 1.2 lots at 1893. The algorithm shall match the buyer with this seller
and 1 lot out of the 1.2 lots will be bought.
The buy order for 15 lots at market price has been fully matched. The Level 1
seller remains with 0.2 lots left to sell at 1893.
As you can see, the Level 1 order on the Ask Size has the price of 1893. Originally,
the price was 1805. The price has gone up. This is how it goes up.
Therefore, buy at market price orders (aggressive buy orders) make prices go
up.
Price Reaction When a Sell at Market Order is executed.
Now, imagine it’s a sale at market price order (aggressive sell order) of 15 lots;
the price will go down from 1800 to 1750.
How;
The algorithm shall select the level 1 buyer who is order number #1001 buying 1
lot at 1800. The algorithm shall match the 15 lots seller with this buyer. The 1 lot
is bought and the order is filled and removed from the order book. The seller
remains in need to sell 14 lots.
Level 2 order on the bid side is now the new Level 1 order and it is order number
#1007 buying 8 lots in 1788. The algorithm shall match the seller with this buyer.
The 8 lots are all bought and the order is filled and removed from the order book.
The seller remains in need to sell 6 lots.
Level 3 order on the bid side is now the new Level 1 order and it is order number
#1011 buying 2 lots in 1788. The algorithm shall match the seller with this buyer.
The 2 lots are all bought and the order is filled and removed from the order book.
The seller remains in need to sell 4 lots.
Level 4 order on the bid side is now the new Level 1 order and it is order number
#1004 buying 3 lots at 1781. The algorithm shall match the seller with this buyer.
The 3 lots are all bought and the order is filled and removed from the order book.
The seller remains in need to sell 1 lot.
Level 5 order on the bid side is now the new Level 1 order and it is order number
#1009 buying 1 lot at 1760. The algorithm shall match the seller with this buyer.
The 1 lot is bought and the order is filled and removed from the order book.
Level 6 order on the bid side is now the new Level 1 order and it is order number
#1003 buying 1 lot at 1750.
The seller’s entire order to sell 15 lots at the market price has been matched.
The bid price went down from 1800 to 1750.
Therefore, selling at market price orders (aggressive sell orders) make prices
go down.
Therefore, the only 2 directions that the price can go: Up or Down.
The price goes up due to aggressive buy orders, and down due to aggressive sell
orders.
In the next topic, we shall look at how you can visualize price movements.
Visualizing Price movements
The most common tool to visualize price movement is a chart.
Charts are in many types:
1. Line charts.
 2. Bar charts.
3. Candlestick charts.
4. Footprint charts.
We prefer candlestick charts and footprint charts.
Line Chart
A line chart shows the price of a financial instrument at the end of a specific
period. E.g., The daily chart of Gold below, shows the price of gold at the end of
every day.

We do not like line charts, because they show little information.

Bar chart
A bar chart shows more information than a line chart. Whereas a line chart only
shows the closing price, a bar chart shows these;
● Closing price/Close ● Lowest price reached/Low
● Opening price/Open
● Highest price reached/High
Low: The bottom of the vertical line is the lowest price that was reached within
the time period.
High: The top of the vertical line is the highest price that was reached within the
time period.
Open: The little horizontal line on the left is the price of the instrument at the
open/start of the time period.
Close: The little horizontal line on the right is the price of the instrument at the
close/end of the time period.

The chart below is a daily bar chart of Gold. Each bar represents one day.
When the close is at a higher price than the open, the bar is colored brown. It
means that the price went up during that period.
When the close is at a lower price than the open, the bar is colored black. It
means that the price went down during that period.
We do not like bar charts, they seem ugly.

Candlestick Charts
Candlestick charts show the same information as bar charts, but they seem
prettier.

You can use any color of preference to show whether the price went up within
the period or if it went down. The illustration uses black for a candlestick where
the price went down, and white for the candlestick where price went up.
The chart below is a daily candlestick chart of Gold. Each bar represents one day.
We like candlestick charts.
Timeframes
Candlestick charts are made of individual candles. Each candlestick represents a
time-frame. Timeframes start from 1 second all the way up to one month, or
years.
A 1-month chart means that each candlestick took 1 month to form. The open of
the candlestick is the price at the start of the month, the close of the candlestick
is the price at the end of the month.
The low of the candlestick is the lowest price reached within the month. The high
of the candlestick is the highest price reached within the month.
Likewise, a 1-hour chart means that each bar took 1 hour to form. The open of
the candlestick is the price at the start of the hour, the close of the candlestick is
the price at the end of the hour.
The low of the candlestick is the lowest price reached within the hour. The high of
the candlestick is the highest price reached within the hour.
On a 1-month candlestick chart, each candlestick represents 1 month. When you
switch to a 1-week chart, each candlestick represents a week. There are 4 weeks
in a month. Therefore 4 weekly candlesticks make up a 1-month candlestick.
Each week has 5 trading days (Monday to Friday) for most financial instruments
(for crypto, it's 7 trading days). Therefore 5 daily candlesticks (7 daily candlesticks
for crypto) make up a 1-week candlestick.
Each day has 24 hours. Therefore 24, 1-hour candlesticks make up a 1-day
candlestick.
And so on.
Footprint charts
All the 3 types of charts mentioned above (line charts, bars charts, candlestick
charts) show only price.
Footprint charts show price, supply (number of sellers at each price) and demand
(number of buyers at each price).
Footprints look like candlesticks, but they have numbers in them. The numbers
are in 2 columns which show the buyers and sellers at each price level.
Comparison between a Candlestick and a Footprint.
A Candlestick
A Footprint
CANDLESTICK CHART
 FOOTPRINT CHART

Reading a Footprint
The footprint has 2 columns of numbers. One column on the left and the other
column on the right.
The column on the left shows the number of lots exchanged between passive
buyers and aggressive sellers (Buy limit & Sell at market) at each price level. It
shows what happened in the left column of the order book.
The column on the right shows the number of lots exchanged between
aggressive buyers and passive sellers (Buy at market & Sell Limit) at each price
level.

How to read a footprint;

You start with the price on the bottom left, followed by the price on the top right.
At the bottom left of this footprint; you see 10 lots 3681.75 and 66 lots at the top
right at 3682.00.
The 10 lots on the bottom left are exchanged between buy limit orders and sell at

market orders.
The 66 lots at the top right are exchanged between buy at market orders and sell
limit orders.
Next; you see 7 lots exchanged on the left column at 3682.00 and 1 lot exchanged
on the top right at 3682.25.
The 7 lots are exchanged between buy limit order and sell at market orders. The 1
lot is exchanged between buy at market orders and sell limit orders.
Next; you see 4 lots exchanged on the left column at 3682.25 and 6 lots
exchanged on the top right at 3682.50.
The 4 lots are exchanged between buy limit orders and sell at market orders. The 6
lots are exchanged between buy at market orders and sell limit orders.

Next; you see 25 lots exchanged on the left column at 3682.50 and 28 lots
exchanged on the top right at 3682.75.
The 25 lots are exchanged between buy limit orders and sell at market orders. The
28 lots are exchanged between buy at market orders and sell limit orders.
Next; you see 50 lots exchanged on the left column at 3682.75 and 34 lots
exchanged on the top right at 3683.00.
The 50 lots are exchanged between buy limit orders and sell at market orders. The
34 lots are exchanged between buy at market orders and sell limit orders.
And so on.
We shall use Footprint charts in later topics.
The purpose of charts is to show how price has moved over time. Price moves
because of supply and demand.
The Law of supply and demand is what makes price go up or down.
The Law of Supply and Demand.
Supply means sellers, demand means buyers.
In a market, there are only buyers and sellers. They interact with each other using
buy orders and sell orders respectively.
For you to buy something, someone must sell it to you. Likewise, for you to sell
something, someone must buy it from you. Therefore, a buy order is matched
with a sell order using an orderbook as we have already discussed on page 16.
The Law of Supply and Demand is a powerful tool to predict whether the price is
likely to go up or down.
The Law of Supply and Demand is summarized in these 2 statements.
1. At a low price; there are many buyers and few sellers. At a high price; there
are many sellers and few buyers.
Scenario 1: Low Price.
When the price of a good is low, many buyers will like to buy it because it feels
like a bargain. Black Friday is an example. Goods are discounted on that day to
make them feel cheap. So many people buy them. It’s the day when retailers
typically make the most sales.
On the other hand, sellers don’t like to sell goods at low prices because they don’t
make much profit.
Therefore, at low prices; expect many buyers and few sellers.
Scenario 2: High Price.
When the price of a good is high, buyers don’t like to buy because it feels
expensive. Few buyers buy, the others look for alternatives.
E.g., high fuel prices cause people to look for alternatives means of
transportation like public transport.
Sellers like to sell goods at high prices because they make a lot of profit.
Therefore, at high prices; expect few buyers, and many sellers.
2. When buyers are more than sellers, price goes up. When sellers are more
than buyers, price goes down.
Scenario 1: More buyers than sellers.
Go back to page 21, to see what happens a buyer sends a buy order to buy 15 lots
of gold. The order book scans all the sell orders available, and selects the
cheapest seller who is put on Level One on the Ask side (right side of the order
book)
There is a sell order of 4 lots at $1805.
Look at it this way; The buy order of 15 lots represents 15 buyers, the sell order of
4 lots represents 4 sellers.
Therefore at $1805, there are 15 buyers and 4 sellers. Buyers are more than
sellers.4 of the buyers shall be matched with the 4 sellers, leaving behind 11
unfilled buyers.
The order book then scans the market to get the next cheapest seller. He is on
level 2, selling 8 lots at $1820. Therefore at $1820, there are 11 buyers and 8
sellers. Buyers are still more than sellers.
8 of the buyers are matched with 8 sellers leaving behind 3 unfilled buyers.
The order book then scans the market again to get the next cheapest seller, he is
on Level 3 selling 2 lots at $1845. Therefore at $1845, there are 3 buyers and 2
sellers. Buyers are more than sellers.
2 of the buyers are matched with the 2 sellers, leaving 1 unfilled buyer.
The order book then scans the market again to get the next cheapest seller, he is
on Level 4 selling 1.2 lots at $1893. Therefore at $1893, there is 1 buyer and 1.2
sellers.
This one buyer is matched with 1 of the sellers leaving 0.2 unfilled sellers.

Scenario 2: More sellers than buyers.

On the other hand; Imagine that you want to buy a house, you are a
buyer/demand.
Imagine that there are very many sellers who are selling their houses. They are
supply. Imagine that there are no other buyers available. You are the only buyer.
Assuming that all the houses are equally good, you will choose the seller who is
willing to sell at the lowest price and you buy the house from them.
The sale is done at a low price.
Therefore, when buyers are more than sellers, the price goes up.
The Law of Supply and Demand can be summarized by the graph shown below.
A Graph Showing the Number of Buyers and Number of Sellers when Price Is
Increasing.

The Law of Supply and Demand can be used to determine which direction the
price will go. It works in many markets of products or services.
Note: For purposes of simplicity, we use number of buyers and number of sellers.
In actual sense, we are referring to the number of financial instruments in terms
of Lots/Contracts that buyers are buying, or sellers are selling. A lot is a unit of
measurement of the quantity of financial instruments.
1 Lot is typically 100,000 units. 1 Lot of Euros is 100,000 Euros
E.g., there can be only one buyer buying 100 lots and 50 sellers each selling 1 lot.
This means that on the buy side, there are 100 lots and on the sell side, there are
50 lots.
For simplicity, we shall therefore assume that there are 100 buyers and 50 sellers.
Price Direction
Price can either go up or down.
When the price is going up; it’s called an Uptrend. When the price is going down;
it’s called a Downtrend.
Patterns
Patterns are things that repeat themselves again and again.
Price goes Up by making an Uptrend Pattern and Down by making a Downtrend
Pattern.
All financial markets form these two patterns all the time on all timeframe
charts.
1. An Uptrend Pattern.

2. A Downtrend Pattern.
In these patterns; The valleys are called lows, and the peaks are called highs.
1. The Lows and Highs of an Uptrend pattern.

There are 2 successive Lows and Highs in this pattern, and they are getting
Higher.
2. The highs and lows of a Downtrend pattern.
There are 2 successive Lows and Highs in this pattern, and they are getting
Lower.
At a High; the market is saying that it is a High Price. The Law of Supply and
Demand says that at a High Price; there are many sellers, and few buyers.
At a Low; the market is saying that it is a Low Price. The Law of Supply and
Demand says that at a Low Price; there are many buyers, and few sellers.
1. Uptrend Pattern showing buyers and sellers.
The Law of Supply and Demand says that at a Low price (Low); there are many
buyers and few sellers. And where buyers are more than sellers, price goes up.
However, for a transaction to occur, a buy order must be matched with a sell
order. If the buy orders are more than sell orders, some buy orders will not have
sell orders be matched with.
E.g. If there are 100 buy orders and only 30 sell orders, it means that only 30 of
the buy orders will be matched with the 30 sell orders, the other 70 buy orders
shall not have any sell orders to be matched with. These are called unfilled buy
orders.
As price is going up from the Low to the High, it is becoming more expensive for
buyers to continue buying. Imagine you are buying billions or millions worth of
financial instruments, as the price goes higher, you are spending more to buy.
Each price difference means a lot.
So, you do not want to keep on buying as the price is going higher. You put a
pending order; a buy limit, so that when price comes back down, it is filled. This
buy limit is an unfilled order.
This is how unfilled buy orders are formed.
When the price reaches the High (High Price); the Law of Supply and Demand
says that sellers are more than buyers here. Every seller likes selling at a high
price. No buyer likes to buy at a high price.
When sellers are more than buyers; the price goes down.
As the price is going down from the High to the Higher Low, it is becoming less
attractive for sellers to continue selling, and at the same time, it is becoming
more attractive for buyers to start buying.
When the price reaches the Higher Low, the unfilled buy orders that were left
when the market was moving from the Low to the High shall be filled.
The unfilled buy orders are many, and because it’s also a Low Price, there are
many buyers and few sellers. Consequently, the price will go up from the Higher
Low to form the Higher High.
2. Downtrend pattern showing Buyers and Sellers.

The Law of Supply and Demand says that at a High price (High); there are many
sellers and few buyers. And where sellers are more than buyers, price goes down
upto the Low.
However, for a transaction to occur, a sell order must be matched with a buy
order. If sell orders are more than buy orders, some sell orders will not have buy
orders be matched with.
E.g. If there are 100 sell orders and only 30 buy orders, it means that only 30 of
the 100 sell orders will be matched with the 30 buy orders, the other 70 sell orders
shall not have any buy orders to be matched with. These are unfilled sell orders.
So, you do not want to keep on selling as the price is going lower. You rather wait
for the price to come back up so that you can continue selling. You can put a
pending order; sell limit, so that when price comes back up, it is filled.
This is an unfilled sell order.
When the price goes down from the High and reaches the Low (Low Price); the
Law of Supply and Demand says that buyers are more than sellers here. Every
buyer likes buying at a low price. No seller likes to sell at a high price.
When buyers are more than sellers; the price goes up.
As the price is going up from the Low to the Lower High, it is becoming less
attractive for buyers to continue buying, and at the same time, it is becoming
more attractive for sellers to start selling.
When the price reaches the Lower High, the unfilled sell orders that were left
when the market was moving from the High to the Low shall be filled.
The unfilled sell orders are many, and because it’s also a High (High Price), there
are many sellers and few buyers. Consequently, the price will go down from the
Lower High to the Lower Low.
An uptrend or a downtrend pattern has 3 moves. The three moves are:
I. 1st Pro-trend move
II. Counter-trend move
III. 2nd Pro-trend move
1st Pro-trend move
This is the first move; it goes in the same direction as the pattern.
In an uptrend pattern, the 1st pro-trend move goes up.
In a downtrend pattern, the 1st pro-trend move goes down.
Counter-trend move
This is the second move; it is going in the opposite direction of the pattern.
In an uptrend pattern, the counter-trend move goes down.
In a downtrend pattern, the counter-trend move goes up.
2st Pro-trend move
This is the third move; it also goes in the same direction as the pattern.
In an uptrend pattern, the 2st pro-trend move goes up.
In a downtrend pattern, the 2st pro-trend move goes down.
Uptrend Pattern showing the 3 moves.

Downtrend Pattern showing the 3 moves.

In an uptrend pattern, the only decision we make is a decision to buy.

We can either buy at a Low, or at a higher Low.
But we shall buy only at a Higher Low; this is the best place to buy.
Best Place to buy in an Uptrend Pattern

We buy from this point because of confirmations:

1. The first confirmation is the formation of the 1st Pro-trend. It tells us that the
2nd Pro-trend is more likely to be formed.
2. Along the 1st pro-trend, we should be able to see where the unfilled buy orders
are located. These are the orders which will stop the counter-trend.
3. When the counter -trend comes to the area that has unfilled buy orders, it
should show signs that the 2nd pro-trend is beginning to form.
That’s when you can buy.
Best Place to sell in a Downtrend Pattern

Likewise, we sell from this point because of confirmations:

1. The first confirmation is the formation of the 1st Pro-trend. It tells us that the
2nd Pro-trend is more likely to also be formed.
2. Along the 1st pro-trend, we should be able to see where the unfilled sell orders
are located. These are the orders which will stop the counter-trend.
3. When the counter -trend comes to the area that has unfilled sell orders, it
should show signs that the 2nd pro-trend is beginning to form.
Pattern Appearance on a candlestick chart
Patterns appear on all timeframes of all instruments.
The best way to see them is by observing the color of candlesticks.
A white candlestick means that the price went up so it is made by buyers, a black
candlestick means that the price went down so it is made by sellers.
The price point where buyers start buying is a Low. Its also where sellers stop
selling from. It is at a Low of the candlestick.
The price point where sellers start selling is a High. It is also where buyers stop
buying from. This price is at a High of a candlestick.
When you are connecting the candles to form the 3 moves of a pattern, connect
only the Highs and Lows of the candlesticks.
So, you ignore the candlestick’s open and close.
Up-trend Patterns on a candlestick chart
Down-trend Patterns on a candlestick chart

Successive Patterns
You will usually see several patterns forming one after another (successively).
3 Successive Up-Trend patterns
Note: The 2nd Pro-trend of the 1st Pattern is the 1st Pro-trend of the 2nd Pattern. It
is shared.
3 successive Down-Trend Patterns
Note: The 2nd Pro-trend of the 1st Pattern is the 1st Pro-trend of the 2nd Pattern. It
is shared.