The Complete FOREX

Foundation Course
 Your Instructor: Mohsen Hassan

Current Position:
CEO of MTG (Montreal Trading Group)

Previous Experience:
• Discretionary Trader
MTG – Montreal Trading Group

• Semi-Automated Trader
• Brokerage Firm
• Quant (Back-Testing and Developing Strategies)
• Programmer (Developing Trading Software)
 What we will learn
Currencies: Live Trading:
• History of money • Live Trades
• Forex market • Trade Analysis
• Quotation system
• Recording & Analyzing Historical trades

Forex Trading:
• Lots/Pips Trading Psychology
• Leverage and Shorting
• Brokers/Orders
MTG – Montreal Trading Group

• Platforms and Charting software's

• Technical Analysis:
Charts/Candlesticks/Trends/Patterns/Indicators
• Fundamental Analysis

Risk Management/Money Management:

• Protecting your account
• Calculating position size
• Entries and Exits
 What’s expected of you

• Try to understand all concepts

• Ask yourself why? And then try to answer that question

• DO THE WORK
MTG – Montreal Trading Group

• Ask questions

• Practice Practice Practice

 The History of Money

Barter
Paper Bretton
6000 BC Bills Woods
618-907 1944
MTG – Montreal Trading Group

700 BC 1879 1971

Gold Gold End Of
Standard Gold
Standard
MTG – Montreal Trading Group

Barter
MTG – Montreal Trading Group

Barter
 Need for a common unit of exchange

This unit needs to:

• Be used as a medium of exchange

MTG – Montreal Trading Group

• Store value

• Be a unit of value
 Need for a common unit of exchange

Unit has to be:

• Scarce
MTG – Montreal Trading Group

• Hard to Harvest

• Durable
 Problems with Gold

• Can be Debased.

• Fluctuates based on supply. (example: California Gold Rush – 1849)

MTG – Montreal Trading Group

• Hard to transport.

• Issues with having multiple denominations.

• Limited supply.
 Paper Money
• First used by the Chinese (619-907)

• Europeans started adopting the practice only in 17th century

• Paper money was just an I.O.U.

MTG – Montreal Trading Group

• I.O.Us are exchanged at local banks

 Paper Money

• I.O.Us evolved to be redeemed by anyone who held them

• People then started using the I.O.Us and never really exchanging them for
gold
MTG – Montreal Trading Group

• More denominations of I.O.Us started being created.

• Since no one really redeemed their I.O.Us,

banks started printed more of them then they
actually had in gold reserve (fractional
reserve banking)
 Problem: Fractional Reserve
Definition: “Fractional reserve banking is a banking system in which only a
fraction of bank deposits are backed … and are available for withdrawal.
This is done to expand the economy by freeing up capital that can be
loaned out to other parties.” – Investopedia

This caused many bank runs, but with a

MTG – Montreal Trading Group

Central Banks backing it’s branches in

case on of them needed extra capital, that
issue was mostly resolved.
 Central Banks
• First one : Banks of England – 1694

• Central Bank Notes valued better then other

bank notes

• Regulation for no new banks to print bank

MTG – Montreal Trading Group

notes and closed banks to remove their notes

from circulation

• This leaves the central bank’s notes as the

only ones in the country
 Gold Standard
• The Gold standard is a system that backs it’s currency with gold.

• The US adopted the system and one ounce of gold could be traded for
$20.67

• This limits governments and banks to

MTG – Montreal Trading Group

excessively issue paper currency (and

cause huge inflation), since the currency
has to be backed by gold.
MTG – Montreal Trading Group

Backed Dollar Bill

 Change in the Gold Standard

• After world war 1 (1914) and the great depression (1929).

• In 1930s the UK and the US stopped redeeming Cash(done under Roosevelt) for
Gold Coins

• Main reason: Not Enough gold to back the amount of currency they wanted
MTG – Montreal Trading Group

(wanting to increase the money supply)

• What took place? FIAT currency: “a term to

describe currency that is used because of a
government's order” – Investopedia

• At this point the dollar was “floating”

MTG – Montreal Trading Group

1933 Executive Order

MTG – Montreal Trading Group

FIAT Dollar Bill

 Bretton Woods

• Cause: fear of countries devaluating their currencies (to boost exports)

• In 1944, 44 Countries meet in Bretton Woods, New Hampshire

MTG – Montreal Trading Group

• Decision: All currencies linked to the US

Dollar and the dollar linked to Gold
 Bretton Woods

• Creation of IMF (International Monetary Fund). The IMF will lend money to
countries in need.

• Creation of the World Bank (To help underdeveloped countries to grow).

MTG – Montreal Trading Group
 End of The Gold Standard
August 15th 1971
MTG – Montreal Trading Group
MTG – Montreal Trading Group

How to make money

 Currency Pairs
• Currency Pair: quoting one currency against another.

• Base Currency: the first currency listed

• Quote Currency: the second currency listed

MTG – Montreal Trading Group

• Each currency is identified by its ISO

Currency code

• ISO stands for International Organization

for Standardization. The code is three letter
alphabetic code.
 Currency Pairs
• Example: Currency Pair USD/CAD = 1.35

• Base Currency: USD

• Quote Currency: CAD

MTG – Montreal Trading Group

• This is the Quote for the USD against

CAD dollar. The quotation of 1.35 means
that one US dollar can be changed for
1.35 Canadian dollars.
 Major Currencies
• USD (US dollar)
• EUR (euro)
• JPY (Japanese yen)
• GBP (British pound)
• AUD (Australian dollar)
MTG – Montreal Trading Group

• CAD (Canadian dollar)

• CHF (Swiss franc)
 Major Currency pairs
• GBP/USD (the cable)
• USD/CAD (Loonie)
• AUD/USD (Aussie)
• USD/CHF (Swissy)
• USD/JPY
MTG – Montreal Trading Group

• EUR/USD
• NZD/USD
 Cross Pairs

Pairs that do not include USD.

Example: CAD/JPY
MTG – Montreal Trading Group
 Market Structure
• Transactions are done OTC (over the counter). There is no central
exchange to trade on.

• Because it is OTC, execution prices will vary.

MTG – Montreal Trading Group
 Interbank market
The interbank market is where banks exchange currencies with one another.

They can do this by transacting directly through EBS (Electronic Broking

Services) or Thompson Reuters who are the two electronic brokering
platforms at this level.
MTG – Montreal Trading Group

This is only available to very large banks.

 The players

FX Dealers

Other Large Participants

MTG – Montreal Trading Group

forex brokers and retail ECNs

 Price Terminology
Spot Price: The current price of a currency pair

Order Book: All the buy orders and sell orders that are open

Bid Price: The price you can sell at right now

MTG – Montreal Trading Group

Ask Price: The price you can buy at right now

Spread: Difference between the bid and ask

 Pips
Point = min change

Pip = 0.0001

Pipette = 0.00001
MTG – Montreal Trading Group
 Lots
Standard lot = 100,000 units (of base currency)

Mini lot = 10,000 units

Micro lot = 1,000 units

MTG – Montreal Trading Group
 Pip Value Calculation
Example: USD/CAD = 1.35251

Contract value for one Lot: 100,000 USD * 1.35251 = 135,251$ CAD

Pip value is the profit/loss for 1 Pip movement.

MTG – Montreal Trading Group

• If price goes up to 1.35261

• Then Contract value = 100,000 USD * 1.35261 = 135,261$ CAD
• Pip value = 135,261 - 135,251 = $10 CAD
• In base currency this is equal to 10/1.35251 = 7.39

*Pip value is always in quote currency

*Value of pip is based on how many lots are taken
 Leverage

Funds loaned to you by your broker

Brokers can loan to you up to 1000 times your money

MTG – Montreal Trading Group
 Leverage
Leverage Margin Req % 1 Lot Req $
1:1 100% $100,000
2:1 50% $50,000
10:1 10% $10,000
50:1 2% $2,000
100:1 1% $1,000
MTG – Montreal Trading Group

200:1 0.5% $500

400:1 0.25% $250
800:1 0.125% $125
1000:1 0.1% $100
 Short Selling

Short Selling: “the sale of an asset that the seller does not own. The seller
effects such a sale by borrowing the asset.”-Wikipedia
MTG – Montreal Trading Group
MTG – Montreal Trading Group
 Brokers and Orders

A broker is an entity that facilitates the execution of your order.

Order: instructions to buy/sell a quantity of a product.

MTG – Montreal Trading Group
 What do you want in a broker
• A broker that is Regulated
• Transparency
• Alignment of interests
• Low Fees
• Leverage
MTG – Montreal Trading Group

• Good Platform
• Support
 A book vs B book
The A book is the order book that has the major liquidity providers. When a
broker is using this book, he is sending your orders to be executed with one
of those liquidity providers. This is the order book used by ECN brokers.

The B book is the broker’s in-house order book. When a broker is using this
order book, he is taking the other side of your trade (can be hedged or
MTG – Montreal Trading Group

unhedged). This is the order book used by market maker brokers.

MTG – Montreal Trading Group

ECN brokers and Commissions

MTG – Montreal Trading Group

Recommended Broker
 Trading Platforms

MetaTrader4:
• Most used platform
• Programming language most widely used
• Kind of old.. (15 years old)
MTG – Montreal Trading Group
 Ways of Analysis

• The Study of
Technical
Analysis Charts (price and
volume).

Types
MTG – Montreal Trading Group

of
Analysis
• The study of the
Fundamental underlying forces
Analysis that affects a
financial product.
 What is Technical Analysis?

Technical Analysis is the trading

discipline that uses price and volume
to identify trading opportunities.
MTG – Montreal Trading Group
 How is Technical Analysis Used?
Technical Analysis is used within a strategy
to systematize the entry and exit process
and to increase our trading profits by
giving us high probability entries and exits.
MTG – Montreal Trading Group
MTG – Montreal Trading Group

Candles
MTG – Montreal Trading Group

Trendlines
MTG – Montreal Trading Group

Trendlines
 Channels, Supports & Resistances

Support/Resistance :
• Trends
• Round Numbers
Support/Resistance Property:
• Role Reversal
MTG – Montreal Trading Group
 Chart Patterns

Chart Patterns are used because they are believed to have

predictive value on future price movement. Some patterns can
help traders in choosing entry and exit points.
MTG – Montreal Trading Group
 Double/Multiple Tops and Bottoms
MTG – Montreal Trading Group
 Double/Multiple Tops and Bottoms
MTG – Montreal Trading Group
 Double/Multiple Tops and Bottoms
MTG – Montreal Trading Group
MTG – Montreal Trading Group

Ascending Triangles
MTG – Montreal Trading Group

Symmetrical Triangles
MTG – Montreal Trading Group

Wedges
MTG – Montreal Trading Group

Wedges
 Technical Indicators
“Technical indicators are a fundamental part of technical analysis
and are typically plotted as a chart pattern to try to predict
the market trend. Indicators generally overlay on price chart data
to indicate where the price is going, or whether the price is in an
"overbought" condition or an "oversold" condition.” - Wikipedia
MTG – Montreal Trading Group
 Relative Strength Index (RSI)
MTG – Montreal Trading Group
 Fibonacci Retracement

Leonardo Fibonacci is an
Italian mathematician.

“The Fibonacci Sequence is

the series of numbers: 0, 1,
MTG – Montreal Trading Group

1, 2, 3, 5, 8, 13, 21, 34, ...

The next number is found by
adding up the two numbers
before it.” – mathisfun.com
 Risk Management
What’s Risk? An action or an activity that has a potential to go wrong.

Risk Management Techniques:

1. Risk Acceptance

2. Risk Avoidance
MTG – Montreal Trading Group

3. Risk Limitation
➢ Stop Losses

4. Risk Transference
 Money Management
% Of Account Lost % Gain Required to BE

-20% +25%

-30% +43%
MTG – Montreal Trading Group

-40% +67%

-50% +100%

-60% +150%
 Position Sizing
Maximum Loss per trade: ~2%
Steps:
1. Calculate Dollar Max Loss for the Position
2. Decide on Entry Price
3. Decide on Stop Loss Price
MTG – Montreal Trading Group

4. Calculate Position Size

Function:
Pos Size = ((Max Loss $) / (Entry Price – Stop Loss Price)) / 100,000 * Entry Price
 Batting Average & Win/Loss Ratio
Batting Average: The percentage of trades that are profitable.

Win/Loss Ratio: the ratio of the average profitable trades over the
average un-profitable trades.
MTG – Montreal Trading Group
 Thank You - Follow Us

@MontrealTradingGroup

@MontrealTradingGroup
MTG – Montreal Trading Group

@Montreal Trading Group

@MTG_Traders

www.MontrealTradingGroup.com
 Thank You - Follow Me

@Mohsen Hassan

@Mohsen_Hassan
MTG – Montreal Trading Group