TRADING STRATEGIES

4 BOOKS IN 1: DAY TRADING + FOREX

TRADING + SWING TRADING +FUTURES
TRADING .
HOW TO TRADE AND MAKE MONEY TROUGH A
BEGINNERS GUIDE

by Andrew Rich

TRADING STRATEGIES

DAY TRADING
 FOREX TRADING
SWING TRADING
FUTURES TRADING

DAY TRADING:
A BEGINNERS GUIDE TO TRADING STOCK
OPTIONS AND ONLINE FOREX INVESTING
FOR A LIVING. THE BOOK BASES ITSELF ON
THE PSYCHOLOGY USED BY TRADERS WHO
MAKE MONEY AND GAIN PROFITS FROM
DIVIDENDS.
Chapter 1 Table of Contents
Introduction

Chapter 1 How Day Trading Works

Chapter 2 Finding the Right Stocks to Trade

Chapter 3 Day Trading Tools

Chapter 4 Opening up a Brokerage Account

Chapter 5 Strategic Planning for Options Trading

Chapter 6 Market Analysis

Chapter 7 The 4 Most Common Day Trading Strategies

Chapter 8 Candlestick Patterns

Chapter 9 Average Income of a Day Trader

Chapter 10 Trading and Time

Chapter 11 Trading Cryptocurrencies

Chapter 12 Risk and Account Management

Chapter 13 Beginner’s Mistakes to Avoid

Conclusion
Introduction

What is Day Trading?

Day trading is basically the purchasing and selling of securities within a single trading day in
any marketplace at commonly stock markets and foreign exchange (FOREX) for the purpose
of obtaining a compound of short-term loans. Day traders involved in this are fully investing in
this trading activity with multiple learning sources, learning time and good kind of capital
often end up being so successful. Being successful in day trading literally means acquiring
large chunks of profits amounts.
Characteristics of a Day Trader
Being a day trader does come out naturally, a specific personality and traits are duly required.
Below are some of the characteristics of a day trader.

üDisciplined.

This is a major trait that day traders really need to input. Day traders should always be
disciplined to remain input when no opportunities emerge and really act so fast when
opportunities avail. Acting fast also includes strictly considering the step by step rules and
obligations initially formed in their big plans.

üOpen-minded.

Day trading is a learning kind of income-generating engagement, implying that there are going
to be happy times and the downfalls. Save yourself and learn from all that. Improve the happy
times and completely discard the downfall wrong moves. Being exposed to the winnings and
the failures makes you open-minded, master of all possible win moves.

üA fan of technology.
Day trading is carried out in various trading platforms and systems that a trader should be
familiarized with. This should not scare you. Getting to know how they work does not, in any
case, require you to be a computer whiz. Get to learn the basic moves and grow technologically
with time.

üMentally tough.
Losing market trades are constant; most successful traders will have losing trades every single
day. They typically win slightly more times than they lose. It is so important to stay focused
and rational during a losing period and do not let in the basic fact that money has been lost too.
Focus on the future day trading activities by implementing some of the strategies outlined in a
big plan.

üIndependence.

Independence is striving to build your own toolbox that is, and willy forever lead you. Reading
trading books to trading books, watching each and every video, interacting with one mentor
after the other can be a total miss. What if different books have one confusing point on a
particular field? What is your YouTube subscriber who decides to quit vlogging? Always grasp
the basics after in-depth research and day stay put. Dare to yourself that you got you and get
the large chunks of benefits. However, when you feel you are so lost, do not hesitate to get
assistance. Most importantly, master and analyze successful moves and let them be part of your
big plan.

üPatience.

Good things do take quite some time. In every strategical move, you try to make, think about it
carefully but this should not make you paranoid. Act accordingly with many disciplines to
reduce the number of losses likely to be incurred during various day trading activities.

Also, a patient day trader is a learning day trader. Day trading is not going to be easy at first
but with time, where you will be equipped with lots of skills and experience, things are
expected to flow very smoothly. Hey, be patient.

üFuture-oriented.

Getting stuck in the past makes you much of a prisoner. Forward-thinking lets you see the
possible moves and gives you the decisive air when the next trading activity will occur
considering the set protocols set in the day trader’s plan. Being future-oriented incites forward
thinking which is basically clearly involves mental thinking and knowing your next possible
moves after a considerate examination. Being future-oriented hastens and simplifies the day
trading operation moves and chances are that they are going to be successful.

üFinancial freedom.
Day trading does not require you to be a tycoon necessarily, but you are required to have a
specific amount of money that has been precisely selected to begin day trading with.
Remember the first times are always a win or lose situation as you continue to learn and grow.
This particular set of money can be lost too. Be careful about how you handle your finances in
day trading. Not every story is a good story.

üEnthusiasm.

A great interest in something is a pending successful goal. A great enthusiastic inclination to

stocks, securities, commodities, markets, the business gives you the thirst to learn and master
what day trading is all about. These are signs of a future successful day trader.

üExperience and familiarity.

Experience comes with pretty much of downfall lessons and learning. Expose yourself to
different learning sources and master every profitable move during day trading so as to squeeze
out the best out of that. Getting the actual experience and familiarity of the trading platforms
and various strategies needed to be successful at day trading is worthwhile.
Difference between Long and Short Trade
In stock markets, the terms long and short basically imply whether a trade was initiated by first
selling or first purchasing. A long trade is initiated when the day trader purchases at a
particular price and with the intention of selling at a higher price in future in a bid to get profits
whereas short trades are initiated with selling, before even purchasing with the intention of
repurchasing at a lower price from the market and eventually acquire profits.

Short selling is simply:

Borrow the stock.

Sell the stock.
Buyback the stock?
Profit or loss?
Risks are also involved during short selling; stock prices may end up being so high and
normally, there is no limit to how a particular price can actually go.

During long trading, your profit potential is unlimited since the price of the asset can rise
indefinitely.
Chapter 1 How Day Trading Works
We have earlier mentioned that day trading isn't something that you should take for granted. You
have to ask yourself if you really want to get involved or not. There are some things that you
should consider having before you become a day trader, and that's why we are here for you.
Before you jump into the world of day trading, it is essential that you amass some knowledge
concerning the world of trading. You have to find out your level of risk tolerance, goals, as well
as capital.
Day trading is a career that you have to invest time into. If you have decided to try it out, you
have to spend time in practicing it before you start live trading. As you practice, you improve
your strategies. Only then, do you use live money to try it out? All these need you to invest your
time. Day trading isn't something that can be done successfully only when you have the urge for
it. You must spend your time and energy into it if you want to succeed.
If you have decided that trading is something that you want to consider, you should think of
starting up as little as possible. Go for few stocks or currencies initially, instead of trying to enter
the market with a boom, and at the end of the day, you thin yourself out. If you go all out
initially, you will end up confusing yourself, and this could lead to a large number of losses.
It is advisable that you are calm while you trade. Shut off your emotions while you trade. Use
only facts and don't try to make use of emotions because they could mislead you.
The more you are able to take out the emotional aspect, the more you can be true to the plan that
you have laid out. When you are calm, it permits you to be focused.
Day Trading vs. Swing Trading
When it comes to the world of trading, people have different thoughts, meaning that different
schools of thought exist on what should be done. A highly debated topic is if short-term trading
such as in the form of day trading or trading long term such as in the case of position trading
should be opted for.
The traders in both schools feel that their styles are better than the other. They go ahead to think
that theirs make more money compared to the rest. We will analyze the facts and come bearing
the truth. If you try out day trading, will you become more precious than a position trader or vice
versa?
Should you dash in and out of different markets, imitating a sprinter? Should you stay in a
market longer than the sprinter in the case of a marathon runner?
We will look at what is available before we conclude.

Day Trading
Before we state which, one is better, let's talk about their differences. What day trading means is
the opening, as well as the closing of positions on a particular day.
One perk of day trading is that you aren't allowed to hold a position past a day. This means you
don't have to disturb your head about how a trade is faring while you slumber.
You easily know where you fall into once the day ends. You can easily tell if you have lost or
earned a profit.
One disadvantage of day trading is the fact that daily you have to seek for a new trade. This
could be stressful for some, but easy for others.

Swing Trading
This is another type of trading, where a trader tries to catch the swings in changes of price in a
bid to capture a significant amount of the brand-new movement.
To execute this, you need more experience and strategies. These will allow you to know the way
a perspective movement would occur.
Swing traders are known to analyze their charts daily in a bid to find that opportunity which
could lead to a significant movement in a few days to come.
Immediately such an opportunity is spotted, they have it traded in and try to manage it for a few
days.
A perk of swing trading is the fact that there is no need to be in a position daily before money
can be made. The right trade could earn you a great reward to risk ratio. This means that if
everything goes as planned, you can make a pile of money from that single trading decision. The
issue is whether this would everything go as planned. Novices should avoid this in the game of
trading.
It involves experience to predict what would happen after a thorough analysis has been made.
A significant disadvantage is a fact that it involves a large amount of predicting the price. This
means that it resembles art and not science. Apart from that, you have no choice but to watch as
your profits and loss on that trade you made a move down and up within a period. This isn't
meant for the weak-hearted or those scared of losing.
Buying Long, Selling Short
Now that we have had a chance to review a bit about day trading and why it is such a great
investment opportunity, it is time to look at some of the different strategies that you can use to
make day trading successful for you. By this time, you may have already used a few different
strategies and tried out day trading a little bit. But in this chapter, we are going to start out with
one of the intermediate strategies that you can use to see some great results. And we are going to
start with the selling short strategy.
Selling short is going to be the sale of some kind of security or another financial instrument a
seller has borrowed in order to make a short sale. The seller thinks that the security they
borrowed is going to decline in price, which means that it will be easier to purchase that security
at a lower price later. The difference between what the security was sold short at, and the price
that it was purchased at, is going to be either the loss or profit for the seller, depending on the
numbers you have.
Anyone is able to short any instrument or any asset, including stocks, bonds, currencies,
commodities, and hybrid securities. Any company that has some shares that they will trade on
the market will usually have millions of shares that their stockholders will hold onto. These
stockholders may include individual and institutional investors, employees, managers, and
executives. However, all these people are going to have a common interest, and that is how they
want the company to continue to succeed in the future. This is the way that they earn money on
the stocks. The result of this is going to be that the shares appreciate over time and provides
wealth to the shareholders.
Anyone is able to purchase the shares of a company as long as they have money to invest in it.
Investing in stocks has long been a popular means of accumulating wealth. Many times, an
investor is going to purchase shares of different companies and they will either trade them off
quickly or hold onto them for a longer period of time. Buying shares are known as going long,
and long is only going to refer to investors that buy stocks and don’t short them. For example,
mutual funds would be going long without any short stocks.
These kinds of stocks are easily bought with cash or through another account known as a margin
account. If the investor is able to pay cash, they will pay off the complete amount that the stock
is worth. If they are working with the margin account, they will pay part of the amount before
borrowing the rest from their broker, using the stock as their collateral. You would do short
selling with a margin account if needed.

Investors are often going to go long when they have the hopes of seeing an increase in the price
of the stocks. Traders will then go short when they hope the price of the stock will tumble. When
they sell short, this allows them to sell a stock that they don’t technically own. The reason that
they can do this is that they borrow the stock from the brokers and then they will sell that stock at
the current price of the market. The profits will then be credited to the margin account of the
seller. And if they earn enough in profit, then they get to keep the rest. Then, in the future, the
seller will be able to cover their short position by purchasing it and repaying the stock that was
loaned back to the broker.

The difference that comes up between the sale and the purchase price will end up being the loss
or the profit for the seller based on how much they were able to benefit from the sale.
This idea of short selling is often a topic that is greatly misunderstood in investing. Short sellers
are often seen as callous individuals who will try to get a gain no matter what it costs. They are
seen as people who don’t care that much about the companies or individuals who may be
destroyed in this process. However, the truth about these kinds of traders is quite a bit different.
You will find that short sellers, when they are successful, will allow the market to function better
because they will add more liquidity to the mix, and they will restrain any over-exuberance that
occurs with the investors in the market.
Too much of this optimism can drive the stock market to really lofty levels when it is a peak
time. The process of short selling is going to be a reality check that will keep the stocks from
being raised to extraordinary heights during these times. Shorting is risky because it is geared to
go against the trends in the market. And you will find that it can get riskier as the market starts to
surge. This is why it is often reserved for traders who have some experience with the market and
know more about what they are doing.
The idea and the process of short selling is something that most traders are not familiar with.
Many people are used to doing the normal buy low, sell high when they invest. There are very
few who know about the sell high and buy low. When you do short selling, it will allow you to
profit from stocks that tend to drop in price. Basically, you are going to borrow shares from your
broker to sell, and then you return those later on. If you are lucky and can read the market well
and your trade works well, you can then purchase those shares at a lower price than what you
sold them at.
Retail vs. Institutional Traders
In the world of trading, there are basically two forms of traders: institutional and retail. The
difference between them dictates the way they approach their trades. For example, institutional
traders usually make large trades as compared to retail traders. But what are they exactly?
Their names might just give you a clue as to what you can understand about them.
Retail traders refers to individual traders. These traders can be anyone in the world who has the
ability to get in on a trade. On the other hand, institutional traders are those who represent large
financial institutions, hedge funds, banks, or other big firms that manage money. You could say
that institutional traders are “corporate” traders whereas retail traders are “home” traders.

So, does the amount invested in the trade dictate the type of trader one becomes? Is that the only
point of distinction?
Not quite.
Analysis
A retail trader usually prefers to use some sort of technical analysis system for their trades. They
utilize price patterns and behaviors in the past or indicators in the present that dictate future price
scenarios. On the other hand, institutional traders do not usually refer to only technical patterns
or systems to show them opportunities in their trade.
Focus
As institutional traders have been dealing with the system for a long time, their experience has
led them to hone their skills well. They make use of market sentiments and fundamentals. They
make use of trading psychology (which is a firm grasp on their emotions and keeping an
analytical mind despite the situation) and understanding of overall responses towards a currency.
They are keeping a close eye on the news to see if there are certain trends or reactions that they
can pick up on.
Retail traders are not experienced in managing risks or having a proper psychological mind for
trading. However, this is a situation that happens to everyone who gets started in Forex trading.
No one can be prepared for what they will experience. They have to experience it first before
they can decide how to keep their minds sharp.
Leverage
Institutional traders do not usually use leverage. Their main attention is spent on risk
management. Even if a situation were to occur where they had to make use of leverages, they
would be careful about how much leverage they are going to use.
On the other hand, retail traders make the mistake of looking for brokers that provide them with
high leverages. While that act in itself is not wrong, it does pose a problem to those retailers who
choose their brokers solely on the criteria of how much leverage those brokers provide them.
Now that we have understood more about the Forex market and its players, it is time we look at
the most essential component of the market, currencies. More importantly, we are going to look
at some of the major players in the Forex market.
High Frequency Trading (HFT)
This trading technique entails high-frequency trades. It is perhaps the riskiest, most complex, and
involved style of trading, which demands speed and attention on a 24-hour basis. Traders using
this technique rely on analyzing multiple markets concurrently for profits. Successful traders in
this segment are able to evaluate their composite and trademarked systems of trading. Usually, a
beginner, perhaps working from home, is usually not competitive in this market. This trading
approach differs from day trading since day trading follows a one market approach.
Essentially, day trading differs from all these trading mechanisms because of the holding period
of the stocks bought. Remember that trading mainly entails buying low and selling high. Also,
remember that day trading entails entering and exiting the market within the same day. Day
trading is often like a full-time job, where you have to identify and ensure that all requisites are
in order. Any disruptions of the working space can make traders miss the intraday price
fluctuations, and hence miss their best trading opportunities. However, it is not as complex,
intensive, or risky as scalp trading, which takes less trading spans and stricter conditions.
Chapter 2 Finding the Right Stocks to Trade
While we are going to explore some of the best strategies to use when you work in day trading,
first, we need to have an idea of how to pick out the right stock to make day trading easier.
You can have the best strategy in the world but if you pick the wrong stock, then you are
wasting your time. Before you go any further, you will need to take some time here to study
your stocks. The following factors below will help you pick out the perfect stocks to trade.
The Revenue of the Company
The growth of a stock is going to begin when the company starts to make money. If the company
isn’t making any money, then they may be brand new and it’s too early to figure out how
profitable they will be, or they are about to fail. Either way, you won’t really make money in day
trading with them. The revenue is going to provide you with an idea of how much money a
company is making. If you look at the revenue and see that it is consistently going up, this is a
good sign that the company is growing.
Fail.
If you see that the revenue of the company is decreasing, then the stock fails, and you
shouldn’t use it for trading.
Pass.
If you see that the revenue is going up, then the stock passes and may be right for trading.
Earnings per Share
The Earnings per share, or EPS, is going to show how much of the company’s revenue is flowing
out and into the pocket of its stockholders. The EPS is going to be the amount of money the
company makes in profits per share of stock that it has.
Fail.
If you see the EPS score is going down, then the stock fails.
Pass.
If you see that the EPS score is going up, then the stock passes.
The Return on Equity
The return on equity is very important when it comes to picking out the stock that you will invest
your money in. The ROE can be a good indicator of how efficiently the management of a
company is able to produce returns.
Fail.
If you see that the ROE is going down, especially if it has gone down over the past two years,
then the stock fails.
Pass.
If you notice that the ROE has been going up for at least the past two years in a row, then the
stock passes.
Analyst Recommendations
You should take some time to hear what the analysts in the market say about a certain stock.
While there are times when these analysts will miss out on important information or may miss
out on a great opportunity, they do spend a lot of time researching the stock market. And when
they are done, they will provide their recommendations. This can be useful information for a
beginner in day trading:
Fail.
The recommendation fails if the consensus recommendation doesn’t reach the buy level.
Pass.
The recommendation is going to pass if the consensus recommendation is to purchase.
Positive Earnings Surprise
Each quarter the company needs to release a statement about their finances. This is a legal
requirement for them to be on the stock exchange and it provides investors and lenders will some
important information about the finances of the company. Before a company releases these
statements, many analysts will make some predictions about the ESP for the company:
Fail.
If the earnings during the previous quarters for the company have been negative, then the
stock fails.
Pass.
If the earnings do come in and they are higher than what was predicted, then they pass.
Earnings Forecast
As a day trader, it is important to have a good idea of what the company could potentially earn in
the future. This will help you determine if anyone is likely to want to purchase the stocks later
on.
Fail.
The stock will fail if the forecasted EPS is going to decrease.
Pass.
The stock will pass if the forecasted EPS increases.
Earnings Growth
This is the number that a trader can use because it tells you how the analysts believe the earnings
of a company will grow each year.
Fail.
If the long-term five-year number is under eight percent, then the stock fails.
Pass.
If the forecast for the long-term five-year number ends up being over eight percent, then the
stock passes.
PEG Ratio
Another number that you can look at is the PEG ratio. This is a ratio that will include the P/E
along with other factors that were important in the growth for a company. As a trader, you want
to make sure that you are working with stocks that are predicted to grow in the future, so this
ratio can be really important in determining this information:
Fail.
If the ratio value is more than 1.0, then the stock fails your analysis.
Pass.
If the ratio value is less than 1.0, then the stock passes.
Industry Price Earnings
The industry price earnings will show you the average of how much the company earns as
compared to other companies in the same industry. This can help you to find out if the company
is doing as good as, worse than, or better than other companies at that time:
Fail.
The stock fails if the P/E ends up lower than the industry’s earnings for that time period.
Pass.
The stock passes if their P/E ends up higher than the industry’s earnings.
Days to Cover
The short interest is going to help you know the number of shares that investors are short on. The
days of cover will refer to how many days it will take the short sellers to cover the position that
they are in. This information can help you get a good idea on whether the company is profitable,
how long it would take them to become profitable, and if this is really a good investment
opportunity for you to work with.
Fail.
If the days to cover ends up higher than two, then it is going to fail your analysis.
Pass.
If the days to cover ends up lower than two, then it is going to pass your analysis.
The more items that a particular stock is able to pass, the better option it is for day trading and
making you a profit. With that being said, there are times when it is very hard for you to find a
stock that is going to work with all of these different aspects, and you may have to decide which
ones are the most important for your trading strategies. Try to hit as many, if not all, of these as
possible to get the best stock for your trading needs.
Each trader is going to have their own strategy when it comes to picking out the right stocks to
go with. We will talk about a few strategies to use in a few chapters, and sometimes these
strategies will lead you to the right stock for your needs. But looking at the ten factors above
can really make a difference in answering the question “What stock should I invest in?”
Chapter 3 Day Trading Tools
For you to carry out day trading successfully there are several tools that you need. Some of these
tools are freely available, while others must be purchased. Modern trading is not like the
traditional version. This means that you need to get online to access day trading opportunities.
Therefore, the number one tool you need is a laptop or computer with an internet connection.
The computer you use must have enough memory for it to process your requests fast enough. If
your computer keeps crashing or stalling all the time, you will miss out on some lucrative
opportunities. There are trading platforms that need a lot of memory to work, and you must
always put this into consideration.

Your internet connection must also be fast enough. This will ensure that your trading platform
loads in real-time. Ensure that you get an internet speed that processes data instantaneously to
avoid experiencing any data lag. Due to some outages that occur with most internet providers,
you may also need to invest in a backup internet device such as a smartphone hotspot or modem.
Other essential tools and services that you need include:
Brokerage
To succeed in day trading, you need the services of a brokerage firm. The work of the firm is to
conduct your trades. Some brokers are experienced in day trading than others. You must ensure
that you get the right day trading broker who can help you make more profit from your
transactions. Since day trading entails several trades per day, you need a broker that offers lower
commission rates. You also need one that provides the best software for your transactions. If you
prefer using specific trading software for your deals, then look for a broker that allows you to use
this software.
Real-time Market Information
Market news and data are essential when it comes to day trading. They provide you with the
latest updates on current and anticipated price changes on the market. This information allows
you to customize your strategies accordingly. Professional day traders always spend a lot of
money seeking this kind of information on news platforms, in online forums or through any other
reliable channels.
Financial data is often generated from price movements of specific stocks and commodities.
Most brokers have this information. However, you will need to specify the kind of data you need
for your trades. The type of data to get depends on the type of stocks you wish to trade.
Monitors
Most computers have a capability that enables them to connect to more than one monitor. Due to
the nature of the day trading business, you need to track market trends, study indicators, follow
financial news items, and monitor price performance at the same time. For this to be possible,
you need to have more than one processor so that the above tasks can run concurrently.
Classes
Although you can engage in day trading without attending any school, you must get trained on
some of the strategies you need to succeed in the business. For instance, you may decide to
enroll for an online course to acquire the necessary knowledge in the business. You may have all
the essential tools in your possession, but if you do not have the right experience, all your efforts
may go to waste.
Day Trading Pricing Charts
Charts are used by traders to monitor price changes. These changes determine when to enter or
exit a trading position. There are several charts used in day trading. Although these charts differ
in terms of functionality and layout, they typically offer the same information to day traders.
Some of the most common day trading charts includes:
1. Line charts
2. Bar charts
3. Candlestick charts
For each of the above charts, you must understand how they work as well as the advantages/
disadvantages involved.
Line Charts
These are very popular in all kinds of stock trading. They do not give the opening price, just the
closing price. You are expected to specify the trading period for the chart to display the closing
price for that period. The chart creates a line that connects closing prices for different periods
using a line.
Most day traders use this chart to establish how the price of a security has performed over
different periods. However, you cannot rely on this chart as the only information provider when
it comes to making some critical trading decisions. This is because the chart only gives you the
closing price. This means that you may not be able to establish other vital factors that have
contributed to the current changes in the price.
Bar Charts
These are lines used to indicate price ranges for a particular stock over time. Bar charts comprise
vertical and horizontal lines. The horizontal lines often represent the opening and closing costs.
When the closing price is higher than the opening price, the horizontal line is always black.
When the opening price is higher, the line becomes red.
Bar charts offer more information than line charts. They indicate opening prices, highest and
lowest prices as well as the closing prices. They are always easy to read and interpret. Each bar
represents rice information. The vertical lines indicate the highest and lowest prices attained by a
particular stock. The opening price of a stock is always shown using a small horizontal line on
the left of each vertical line. The closing price is a small horizontal line on the right.
Interpreting bar charts is not as easy as interpreting line charts. When the vertical lines are long,
it shows that there is a significant difference between the highest price attained by a security and
the lowest price. Large vertical lines, therefore, indicate that the commodity is highly volatile
while small lines indicate slight price changes. When the closing price is far much higher than
the opening price, it means that the buyers were more during the stated period. This indicates
likelihood for more purchases in the future. If the closing price is slightly higher than the
purchase price, then very little purchasing took place during the period. Bar chart information is
always differentiated using color codes. You must, therefore, understand what each color means
as this will help you to know whether the price is going up or down.

Advantages of bar charts

They display a lot of data in a visual format
They summarize large amounts of data
They help you to estimate important price information in advance
They indicate each data category as a different color
Exhibit high accuracy
Easy to understand
Disadvantages
They need adequate interpretation
Wrong interpretation can lead to false information
Do not explain changes in the price patterns
Tick charts
Tick charts are not common in day trading. However, some traders use these charts for various
purposes. Each bar on the chart represents numerous transactions. For instance, a 415 chart
generates a bar for a group of 415 trade positions. One great advantage of tick charts is that they
enable traders to enter and exit multiple positions quickly. This is what makes the charts ideal for
day traders who transact volumes of stock each day.
These charts work by completing several trades before displaying a new bar. Unlike other charts,
these charts work depending on the activity of each transaction, not on time. You can use them if
you need to make faster decisions in your trade. Another advantage of tick chart is that you can
customize each chart to suit your trading needs. You can apply the chart on diverse transaction
sizes. The larger the size, the higher the potential of making a profit from the trade.
When used in day trading, tick hart works alongside the following three indicators:
RSI indicators – these are used when trading highly volatile securities. They help you
establish when a particular security is oversold or overbought since these are the
 periods when stock prices change significantly.
Momentum – day traders use this together with tick charts to show how active the
stock price is and whether the activity is genuine or fake. If the price rises
significantly, yet the momentum is the same, this indicates a warning sign. Stocks
with positive momentum are ideal for long trades. You should avoid these if you
wish to close your positions within a day.
Volume indicators – these are used to confirm the correct entry and exit points for
each trade. Large trading positions are often indicated using larger volume bars while
low positions with little volatility are displayed using small volume bars.
Candlestick Charts
Candlestick charts are used on almost every trading platform. These charts carry a lot of
information about the stock market and stock prices. They help you to get information about the
opening, closing, highest, and lowest stock prices on the market. The opening price is always
indicated as the first bar on the left of the chart, and the closing price is on the far right of the
chart. Besides these prices, the candlestick chart also contains the body and wick. These are the
features that differentiate the candlestick for other day trading charts.
One great advantage of candlestick charts entails the use of different visual aspects when
indicating the closing, opening, highest, and lowest stock prices. These charts compute stock
prices across different time frames. Each chart consists of three segments:
The upper shadow
The body
The lower shadow
The body of the chart is often red or green in color. Each candlestick is an illustration of time.
The data in the candlestick represents the number of trades completed within the specified time.
For instance, a 10-minute candlestick indicates 10 minutes of trading. Each candlestick has four
points, and each point represents a price. The high point represents the highest stock price while
low stands for the lowest price of a stock. When the closing price is lower than the opening price,
the body of the candlestick will be red in color. When the closing price is higher, the body will
be colored green.
There are several types of candlesticks that you can use in day trading. One is the Heikin-Ashi
chart that helps you to filter any unwanted information from the chart data, ending up with a
more accurate indication of the market trend. Novice day traders commonly use this chart
because of how clear it displays information.
The Renko chart only displays the changes in time. It does not give you any volume or time
information. When the price exceeds the highest or lowest points reached before, the chart
displays it as a new brick. The brick is white when the price is going up and black when the price
is declining.
Lastly, the Kagi chart is used when you want to follow the direction of the market quickly. When
the price goes higher than previous prices, the chart displays a thick line. When the price starts to
decline, the line reduces in thickness.
Each of the above charts works using a time frame which is represented using the X-axis. This
time frame always indicates the volume of information represented by the chart. Time frames can
be in the form of standard time or in the form of the number of trades completed within a
specified period as well as the price range.
Charting Software
Each of the above charts is created and viewed using specific software. This can be found in a
brokerage firm, although you may also purchase this online depending on the type you want to
use.
The software helps you identify the right opportunities by indicating when and how you should
start and close positions. They always display the necessary patterns required to estimate future
changes in stock prices. Using stock patterns, you can also establish continuations as well as
reversals in the stock prices.
Chart software is available in many forms. You may find those that are in the form of mobile
apps or others that are web-based. Getting the right software enables you to generate correct
charts. This explains why you also need to incorporate technical analysis in your trades.
Most day trading chart tools are available free of charge. Some have a forum where you can
learn from experienced traders as you use them. They also come with demo accounts that enable
you to master day trading techniques before investing your capital in the business.
How to Choose Day Trading Charts
Before selecting any charts for your day trading engagements, you must consider a number of
factors. These include:
1. Responsiveness - This refers to how quickly the chart can display information about
the changing market features. This is the first and most important factor you should
always check out for. Any delay in the way a chart displays data means that you will
not receive vital information in real-time. You may end up acting on old information
to make your decisions, and this can lead to significant losses on your part. Most
charts may freeze or crash when your computer runs out of memory. This explains
why you need a fast processing machine for your day trading business. You want to
ensure that the whole process remains as efficient as possible. When testing a chart
for responsiveness, wait for a time when the stock market is busy. For instance, you
may try using the chart during a critical financial announcement or news session. If
the chart freezes at this point, then you will understand that it is not the best for your
needs.
2. Cost – every trader wants to invest in tools that cost less to acquire and maintain.
Years back, trading charts used to cost a fortune. This limited the number of traders
that could engage in day trading. For instance, traders could buy market data from
stock exchanges, and this would also cost a lot of money. Nowadays, all information
required for any kind of trading is cheaply available. This means that charts should
also not cost as much. There are several alternatives available on the market today
for you to select from. As you do this, always have the price in mind.
3. Stability – a good chart is one that remains online and up to date all the time. For you
to succeed as a day trader, you must remain on the market most of the time. If your
chart keeps disconnecting from the stock market or fails to display market
information on time, then it will make you incur more losses. You must, therefore,
ensure that you remain connected to the market continuously. If you experience
instability as a result of the chart software you are using, feel free to change it. If the
instability is resulting from a poor internet connection, you may need to replace it
too.
4. Type of Indicators – if you have ever engaged in day trading before then you
understand the importance of technical indicators. Having the right indicators plays a
vital role in ensuring you predict the right price movements in the future. Indicators
help you to save a lot of capital. They prevent you from making important
 investment and financial mistakes that may lead to losing your capital. You may
create your own indicators, or you may get charting software that has in-built
indicators. If you decide to use your own indicators, you must ensure that the
charting tools you purchase can be used together with these indicators. If not, you
might need to stick to those indicators supplied together with your charting software.
5. Compatibility with your computer – before settling for any charts, check whether it
will work well with your current computer resources. This is an important factor as it
will determine whether you will continue to use your old machine, or if you will
have to purchase a new one. Some charts require a lot of RAM space. If your
computer does not have this capability, you will end up adding more RAM. This
translates to more yet unnecessary costs. When you are looking around for a chart,
ensure that you check how much resources the charts will need. Most chart packages
have an indication of the minimum requirements you need for the charts to work
well. If this is not clearly stated, make sure you ask your provider about it so that you
do not make a blind purchase.
6. User-friendly - a good chart should be easy to use, read, and interpret. A complicated
chart will only make your trading days difficult. Get a chart that simplifies the work
of interpreting data. Take your time and research on the available options then
choose the best in terms of simplicity and layout. You may consider getting
recommendations from other traders, although this does not necessarily mean that the
said chart will work for you. Having a complicated chart can make you lose your
confidence. You must, therefore, avoid it if you want to have a smooth trading
experience
7. End-user support – once in a while, your chart software may experience a problem
that needs technical assistance. As you continue using the software, questions may
arise that need the attention of an expert. If the provider is not available to assist or
respond to your questions, you may get stuck using the package. Before making a
purchase, ensure that you find out the kind of technical support you will receive and
how this will be done. Is it via live chat, email, or telephone contact? You can also
go through some customer reviews just to understand if the service provider has a
history of supporting its clients on technical matters. In case you need a highly
responsive system, you may need to avoid those platforms that use the support ticket
criteria. Companies that use this criterion to solve customer problems always take a
long time to respond to even the most critical issues.
Charts play an essential role, and you can use timed as well as ticked charts for successful day
trading. Always remember that different tools are designed for different kinds of trades. You
must understand the kind of tools you need as a day trader so that you do not struggle on the
market.
Chapter 4 Opening up a Brokerage Account
In order to execute the trades that you want, you will need to open up a brokerage account. There
are varieties of factors that are going to come into play when you pick out a brokerage account
including the margin rates, the commissions you will owe, and any other fees the company tacks
on. If you pick a bad broker or one who takes too many fees from you, it doesn’t matter how
successful you are with your trades; they will end up taking most, if not all, of the profits that
you make.
If you plan to be a high-volume trader, you could end up paying a ton of commission fees each
day to the broker. For those who plan to trade in high volume which is more common with day
trading compared to other forms of trading, you will need to contact your broker and see what
the rates are. Make sure to ask about all their fees and if they have any incentives or specials that
could end up saving you money.
After you have a good idea about the costs and fees you will have with a broker, you will need to
take a look at the platforms they have to offer. These platforms are very important because they
could affect things like price quotes and execution speed for your trades. As a day trader, even a
few seconds of delay in the processing can cost you a lot of money. Many brokers will have
executions that happen in real time but there are times when slippage can happen. You should
test out the brokerage’s platform to see if it is comfortable and if you like how it works.
Take some time to look at the financial stability and customer service of the brokers you are
considering. You want to pick out a brokerage that has great customer service because if a crisis
happens, you want help quickly. Financial strength can be important because there are brokers
who have gone out of business, and if yours does, it may cost you the entire amount that is in
your account.
There are many different brokers you can consider using for your trading needs. Some of the best
ones that you may want to work with include:
MB Trading
SpeedTrader
Generic Trade
OptionsXpress
E-Trade
Fidelity
TD Ameritrade
Lightspeed
 TradeStation
Interactive Brokers
After you choose the broker you want to work with, you can set up your account, and add
money. Most brokerages will require you to have money in your account before you even start
with any trades. Take some time here to explore all the features that come with your new trading
account, checking out the different graphs, the interactive tools and more. Then, when you are
ready (and after you have taken a look through the rest of this book), you can start using your
strategy to make money with day trading.
When you are setting up your brokerage account, you need to make sure that you watch out for
some of the fees that you incur. Each brokerage account, even if you do most of the work by
yourself, is going to charge some fees for doing the trades. You need to know what all of these
are before you even think about trading, or you could lose all your profits just to pay for the
brokerage account.
Some brokerage accounts will charge a base fee for each trade that you do. This can often get
expensive especially since day trading relies on you being able to do a ton of little trades
throughout the day. This is often not the best option in fees to go with unless you are a long-
term trader who doesn’t plan to get out of the market for some time. Most day traders will go
on a commission basis, so they only have to pay when they make a profit. When doing your
strategies, make sure to factor in the fees or the commissions that you have to pay, and take
those out of your profits when determining how profitable a trade is.
Chapter 5 Strategic Planning for Options Trading
Strategic planning is an integral part of sustainable success, be it in business or in options
trading. Let’s talk about how to make a game plan for your trades in this chapter.
What is Strategic Planning
The basic ingredients of all these strategies are the two primary options namely the call and put
options. The multitude of strategies that are so formulated are the different permutations and
combinations of these two and other things.
Benefits it Offers
To prevent your emotions from affecting the trade, a plan needs to be created. Experiencing the
otherworldly happiness of making a huge gain or a heartbreaking amount of loss can make your
mind spin, and you might deviate from the original strategy you had in mind if you had one,
which you need to. Strategic planning helps you with that. It gives you detailed yet simplified
instructions on specifically how to tackle every trading situation, should they arise. If you are
following a well-formed strategy efficiently, you can even handle multiple trades. Thus, you
don’t need to skip a good opportunity if presented with it. However, taking up too many trades
may expose you to too much risk. A well-structured trading strategy tells you both how you are
making trades and the reason for which you’re doing it.
Not only that, but good strategic planning also guides you on how to monitor the results. One
should know whether the strategy they’re applying is working in the desired manner. Random
trades where one just sells and buys for any reason which seems good, does not give any useful
feedback, because the gains and losses will be as random as the impulses which made the trade.
But by using strategic planning, the right amount calibrated adjustments can be made to the
trading process to improve it overall.
It allows you to be proactive
When you have a plan, you can predict the future better and prepare accordingly. It helps you
anticipate unfavorable scenarios and take the necessary actions to avoid negative impacts. This
way, you are not just reacting to negative situations but are rather proactively avoiding them.
Market trends are ever-changing, and if you want to stay on top of your game, you need always
to be proactive to stay ahead of the competition.

It gives you a sense of direction

With a strategic plan, you get a bearing of where you currently stand and in what direction you
need to go in order to achieve your goals and objectives. When your plan is in sync with your
vision and goals, you go forward with that much energy. It also helps you make more efficient
decisions and evaluate your success better.
Tips to Develop a Strategic Plan
Now that we’ve established the need for a strategic plan, we need to know about certain things to
develop a strategic plan. Developing a strategic plan takes into consideration a lot of factors.
The amount of capital you have
The type of capital you have
Your inclination towards being a bull or a bear
The existing conditions in the market
Market volatility
Technical environment
Your affinity with risk
Are you a long term or short-term investor?
Your technical knowledge and expertise
Now, this list is not exhaustive but covers a major chunk of all the things you need to take into
consideration while developing a strategic plan. Coming to the tips to develop a strategic plan,
just know that options are not like any other investments. They require deep analysis and
detailed, methodical approaches. So, the first tip would be to see how much capital you have and
then choose a strategic plan, which will work efficiently with the amount of capital you have. If
you do not have a lot of capital, start with a short-term strategy, which generates profits early so
you can gather some more capital and prepare yourself for a more intensive investment.
However, with more profit potential comes more risk, and that’s where your risk preference
comes in. If you’re a safe player who wants a stable income even though the rate is lower, then
plan a strategy that gives you low but regular returns. If you’re a risk taker, then you can aim for
greater profits, but take note that you should ideally not invest in higher risk strategies with
borrowed capital because the overall liability might increase. Invest in such strategies with your
own money and profits, which do not have any inherent liabilities. Another tip would be to
determine the direction you want to go with, whether it’s going to be a bearish approach or
bullish approach. But at the same time, another auxiliary tip would be, to be flexible with your
approach. If your general trading style is inclined to the bearish side, but it’s reasonably apparent
that being a bull about now would be better, and vice versa, then being rigid is not good.
Step-by-step Entry Guide
Before you start making any trades, there are certain things you should check. This is a strategic
step-by-step guide that will help you pick great trades and filter out bad trades consistently. The
order facilitates quickly figuring out whether a trade is worth your time.
Portfolio Balance
Portfolio balance is everything. So even before you begin looking for a new trade, you need to
ask yourself how it will fit in your portfolio. You need to question whether you need the trade. If,
for example, you already have a lot of bullish trades in your portfolio, you probably don’t need
another one.
Balancing out trades is the key to developing a good portfolio as it reduces risk. So, when you
already have a handful of bullish trades, you should be looking for some bearish trades that will
offset your risk. When you know what kind of trade you need to look for from the get-go, it
helps you filter better and focus only on what your portfolio needs.

Liquidity
Liquidity is one of the most important factors when it comes to picking great, tradable stocks. An
illiquid option is not worth your time. So, when looking for a new trade, you should follow this
general rule of thumb: if the underlying stock trades approximately 100k shares daily, then it’s
good to go. Since it’s a big and efficient market, we can be confident in the fact that the
calculations will only become more accurate as time passes. For underlying options, if the strikes
you are trading have at least 1000 open interest contracts, this is preferable. This makes sure you
can get in and out of the market fast as it is liquid enough.
Implied Volatility Percentile
This is measured using IV percentiles. So, for example, if GOOG has IV of 40% but an IV
percentile of 80%, this means that over the last year, more than 80% of the time the volatility
would be lower than it currently is (40%). This implies that the implied volatility for GOOG is
relatively high, meaning you should consider premium-selling strategies.
Similarly, if FB has an IV of 35% but an IV percentile of 30%, it means that over the last year,
only 30% of the time the IV was lower than what it is currently (35%). This also implies that
there is a 70% chance the IV will increase, so the IV is relatively low for FB and you should
prefer to be a net buyer.
Picking a Strategy
When we talk about picking the best strategy, it is more about eliminating than selecting. Once
you have a good grasp of how the underlying stock’s IV and IV percentile affect the options, you
can start eliminating strategies that wouldn’t make sense here. For example, in case the option
pricing is rich, and IV is high, we can eliminate strategies like calendars, long single options,
debit spreads, etc. Then we can go ahead and select the best strategy from the ones left (credit
spreads, strangles, iron condors, etc.) depending on our account size and risk tolerance.
Strikes & Month
Once you have selected the right strategy, the next step is to place trades at a probability level
you’re comfortable with. Say, you’re going to be selling credit spreads below the market. You
could sell your credit spreads at a strike price that gives you a 70% chance of success or a strike
price that gives you a 90% chance of success. Both are high probability trades, but one is clearly
more aggressive. You can pick either one if you’re sure it fits your goals and your style. You also
need to give yourself enough time to make sure the trade can work for you. For high IV
strategies, you’d want to place them at 30-60 days out, and for low IV strategies, you’d want to
go with 60-90 days. Why? Because the longer timeline boosts your theta value and counters the
low volatility.
Position Size
One of the most crucial areas where many traders - even the experienced ones - fail is position
sizing. There have been numerous studies that have shown that your risk increases exponentially
when trading big positions, and you could easily end up blowing up your whole account. This is
why for beginners and intermediates I advise going with a small position at all times. Place all
your trades on a sliding scale of 1-5% of your total balance. This is your risk scale.
How do you define risk? Simple, it’s the cash or margin you put up to cover a trade. If you were
to sell a $1 wide credit put spread for 25 cents, you would need to put up $75 margin to cover it.
Now, if your account is worth $10,000, and for each trade, you wish to allocate 2% of your
account, the $75 margin is what would be used to base the trade-off. So, you can take $200 of
risk (2% of $10,000) divided by $75 per contract. This comes out at 2.66, which means you
could sell 2.66 spreads at most.
To be safe, you should always round it down, never up.
Future Moves
Just like chess players need to be thinking a few moves ahead (at least the good ones do), a good
trader also needs to be thinking ahead. You should always have a Plan B for when things go
wrong, and this should mean more than just being able to shield yourself from a losing trade.
Although that is important, you should also be thinking about scenarios where the stock doesn’t
move, and you might have to roll it over to the next month. You need to know whether the
options even exist for the next contract month. The stock might have earnings coming up soon,
or a dividend might be paid out soon.
You need to remember that some trades will go wrong, as is the way of the market. If you’re
constantly asking yourself important questions, your brain stays alert and formulates new plans
to adjust if the need arises.
Fundamentals of Options Strategies
Long calls
It is the simplest option strategy to learn about. That does not mean the profit-making is easy. It
is a bullish strategy, but one must be right about many things to make it profitable. For that, a
trader needs to be right about the direction of the stock price movement and the quantum of it.
The time it takes to move must also be correct. Right on all these three elements make the long
call strategy profitable. The upside profit potential is unlimited but things like volatility and time
erosion work against a long option.

Short Calls
These are not good for newbies in options trading. It is also called a naked call, as it is
uncovered. It is quite a risky position because the upside risk here is unlimited and the profit is
limited (happens when the stock price drops). Short Call Write is a credit strategy where you get
money for putting on the position, which puts the broker at risk if you are not able to cover the
position when required.
Long puts
Like a long call trade, a long-put trade is simple to understand. Put strategies are generally harder
to make a profit in, but the strategy is a basic component of many complex options strategies. A
long-put option is bearish in terms of inclination. With long calls, an investor needs to be right
about the direction of stock price movement and the amount of it with the time frame to make a
profit. The maximum potential loss on a long-put trade equals the price paid for the option. The
profit potential, however, is quite substantial if the stock price drops.
Short puts
The short puts are not as risky as the short calls. But that in no way means that newbies in option
trading can easily make profits using this strategy. When a put is sold, a profit/loss situation
opposite to that of a long put is created. The profit, when the stock price rises, is limited to the
premium received on selling the option. The downside risk keeps rising until the stock’s value is
zero. The margin requirements of this strategy are high, and thus, significant funds are required.
Selecting your strike price
Options traders often have a hard time determining the strike prices they are going to use. The
type of strike price (ATM, OTM, ITM) affects the quantum of the movement of the underlying
asset price required to make a profit. Even if the underlying stock remains stagnant, profit can be
made by using an appropriate strike price. The bearishness or the bullishness of the investor
needs to be matched accordingly.
 Bullish options strategies
If an investor is extremely bearish, out of the money long puts or in-the-money short calls should
be considered. These require a highly bearish move of an equally high quantum in the underlying
stock to become profitable. But if you’re not that bearish, ITM long puts or OOTM short calls
should be considered. OOTM can result in a profit sometimes, even when there’s no price
change in the underlying stock.
Bearish options strategies
Most option strategies have a higher profit potential when they need a substantial price movement
in the underlying stock, but it’s also less likely to make a profit. OOTM short puts and
OOTM short calls can make a profit possible even with zero movement in the underlying
stock. But they are extremely risky. Using credit spreads is a safer alternative but has less
profit potential.
 Chapter 6 Market Analysis
After all the theories and information that you have been reading, market analysis is where your
actual trading journey starts. Analysis is the process by which traders study the charts and use the
knowledge in making decisions about their trades. We say that market analysis is not part of
trading; it is the whole essence of trading.
This is another controversial context in the trading industry because traders never seem to agree
on which, between the two major types of market analysis, is best. There are actually three types
of market analyses. However, only two of them are popular since the third is usually a personal
method. So, what are these three types of chart analysis?

They are:
1. Fundamental analysis
2. Technical analysis, and
3. Sentimental analysis
Let us look at what each one of them entails.
Fundamental Analysis
Fundamental analysis is a type of market analysis that tries to derive the underlying value of a
financial instrument or asset by studying and assessing economic data. In this approach, the
traders do not need to look at the charts to determine the future of the market. Rather, they seek
all the relevant data about the instruments they are trading and then use the information to make
their trades. Some of the economic data that traders look at closely include inflation,
employment, GDP, exports, imports, interest rates, central banks’ activities, and so on.
The objective of fundamentalists is to use economic reports as indicators to predict the overall
conditions of the market. Out of this analysis, they hope to spot trading opportunities that
promise high returns and minimum risk. In a nutshell, fundamentalist traders interpret present
economic data and then use the information to decide whether an instrument is likely to gain or
lose value in the future. For instance, they know that if a report comes out about Facebook
launching a new product and the public being highly anticipative of it, the value of the Facebook
share (stock) is likely to appreciate in the future. As such, they will buy stocks in anticipation of
the growth in value.
Here are some of the economic data that fundamentalists focus on.
The economy
The status of an economy directly affects the value of a country’s currency, imports, exports, and
other factors. If a country’s economy is doing well, then its currency will grow stronger. Its
exports will cost more, and the imports will be cheaper. For instance, when the price of oil
increases, the value of all the currencies that produce and export the commodity will grow.
Similarly, if the growth of an economy is reported to have dropped, the value of its currency and
export commodities will decrease.
Political stability
Political stability leads to increased confidence in the commodities or currencies of independent
countries. On the other hand, political instability erodes investor confidence, leading to less
investment and deterioration of economic performance. A good example was in 2018 when
Facebook was entangled in the Cambridge Analytica scandal, where it was accused of interfering
with the electoral process in Kenya, an East African country. On the first day of the report,
Facebook shares lost close to $18 billion. By the time the scandal had stabilized, the company
had lost over $134 billion. In this case, any trader that had sold the stock made a lot of money.
Government policies
Government policies, such as interest rates, have significant effects on the general performance
of currencies and commodities. When interest rates are increased, this curbs inflation and slows
economic growth. Similarly, reducing interest rates stimulates economies by promoting
investment. Other aspects, like fiscal policies, also affect the movement of the market. For
example, high taxation slows economic performance and discourages business.
Observing market makers
There are traders who wait for the big players in the market to make their moves; then they will
jump in and flow with the tide. They base their decisions on the assumption that since the big
players have the ability to move the markets. If they can spot the big moves as they start, then
they can reap big profits. Such traders will, therefore, place their focus on hedge funds,
governments, central banks, and other huge financial institutions.
Reports and news events
Do you remember 9/11? If so, then this point will be easy to understand. When the tragic news
went live, the dollar plunged immediately. In about 5 days, the US economy had lost over $1.4
billion. In this case, anyone who had bought the EURUSD would have made a lot of money.
Similarly, any trader who had sold the USDJPY would have made handsome profits as well.
Another event is when, in 2019, a Boeing 737 MAX crashed in Ethiopia a few months after a
similar plane had crashed in Indonesia. Both flights killed all the passengers and crew.
Controversy emerged that the plane model was unsafe. In just a few days, the shares of Boeing
sunk by 12%, which is close to $27 billion from the market. A trader who had analyzed this
event and sold the Boeing stocks would have made a lot of money from the decline in price.
Do you now understand how fundamental analysis works?
Advantages of Fundamental Analysis
First, since fundamentalists seek to predict the movement of the markets before, they
happen, they can easily explain why a movement occurred. This fact alone is enough
to increase one’s predictive ability and profits.
Second, studying economic data can help a trader to know the long-term position of
price. In short, they can place trades and know where to anticipate the market to
reach in the future. This improves their confidence when they have active trades.
Third, due to the amount of data that is collected and analyzed, a trader gains a better
understanding of the markets. As such, they can predict the markets more accurately
and reduce guesswork.
Disadvantages of Fundamental Analysis
The biggest downside of fundamental analysis is that it lacks definite timing. A trader
might know that the price of a stock will decline in the future, but they have no
specific time when the fall will start. This is very risky when trading.
Second, due to the lack of proper timing, this approach is not suitable for short-term
trading, such as day trading or scalping. However, there are some types of
fundamentals that can be used for day trading.
The third disadvantage is that collecting too much economic data can lead to
information overload. When this happens, the trader is unable to process the
information. In the long run, they might make wrong decisions that can lead to
losses.
The final disadvantage is that interpreting economic information might vary. One
trader might believe that a market will ascend while another interprets the same data
in the opposite direction. A wrong interpretation can lead to inaccurate analysis and
losses.
Technical Analysis
Technical analysis is the approach of analyzing the market using the movements of prices in the
past. This approach is usually said to be more of an art than it is a science since it mostly uses
observation, as opposed to complex formulas and derivations. This time, unlike in fundamental
analysis, the trader relies on the charts found in the trading platforms to make their decisions.
They do not need to try and interpret economic data but read what the charts are saying.
The most important tool in technical analysis is price data. Different timeframes will display
different information, but, all the same, price data must be used to make the trading decisions.
Basically, technical analysis studies past and present action of price and helps the trader to
predict the future behavior of the market. The behavior of price is studied using tools like the
candlestick, lines, and bar charts that we saw earlier. This approach will work best where the
instrument being traded, be it a stock, index, commodity, currency, futures, or option, has
enough liquidity and is not susceptible to external influences.
Technical analysis is based on three major assumptions:
First, that price behavior supersedes all other information, such as economic data.
Technical traders firmly believe that the present behavior of price contains all the
information about the market. Also, any new information is captured and shown
immediately. Concisely, they do not believe so much in the fundamental approach.
Second, that markets move in observable patterns. Technical traders assert that the
market moves in patterns that can be observed and used to predict the future
movement of prices. However, one has to be trained to observe the patterns when
they form. The most-used observable pattern in trading is known as a ‘trend.’ A trend
is a definite direction (up or down) that price seems to be following.
Third, in the market, history will always be repeated. This assumption is closely
related to the above point in that once a pattern has been observed, it can be expected
to continue in a certain direction until the pattern has been completed. Repetition in
price patterns can be seen in candlestick patterns, volume, chart formations, and
momentum, to mention but a few.
Advantages of Technical Analysis
By using charts, it is possible to choose any timeframe and focus on analyzing the
market for a specific time. This is very important in day trading because we need
timeframes that are less than one day to conduct our studies of price.
Charts are visual tools; therefore, they enable us to see trends. Trends show the
overall direction that the price is moving. In short, from a chart, we can see whether a
market is bullish or bearish before deciding to buy or sell an instrument.
The timing feature in the charts helps day traders to plan their working hours. They
can decide when to work, when to break, or when to close their trades since they do
not have to be carried over past midnight. In fundamental analysis, a trader’s trading
time is determined by external factors, such as the time when important data will be
released.
Technical analysis is preferred by many traders because it allows for the automation
of concepts. Programmers can create automatic tools known as indicators and expert
advisors (robots) to help with analyzing the market as well as entering or exiting
trades.
The other advantage of technical analysis is that it easily highlights important zones
in the market. For example, you can tell where the market is likely to make a U-turn
by looking at the charts. You will read more about this under Support and Resistance.
Finally, compared to fundamental analysis, technical analysis is less consuming as
the trader does not have to pursue different channels of information so they can make
their trades. In the latter, we only need to look at the charts.
Disadvantages of Technical Analysis
Charting is not as easy as it might sound. One reason is that different timeframes can
give different signals. A 1-hour timeframe might predict a rising price, while the 15-
minute chart shows a falling price. Such occurrences can be confusing.
There is another issue that is closely related to the above point, known as analysis
paralysis. This is where a trader overanalyzes their charts until they get too confused
to make a confident decision.
Third, due to the presence of thousands of automated indicators and robots, different
traders might interpret the market differently. Automated systems may not
necessarily work the same, thus the varying signals. This can also lead to confusion
or wrong analysis.
Finally, while technical analysts might ignore fundamental, this approach might have
significant influences in their analysis. During major news or events, the market
might ignore any formations and patterns that have formed, leading to wrong analysis
or losses.
Sentimental Analysis
Sentimental analysis is not as popular as the two other approaches, but still, it is used by some
day traders. Unlike the other two, sentimental analysis is based on the trader’s opinion and not on
any external factors. In short, the trader will look at the market and provide personal opinions on
whether the market is going up or down.
One of the methods used in the sentimental analysis is measuring the ratios between the buyers
and the sellers. If the buyers (called ‘bulls’) are more, the trader is likely to place “buy” trades.
On the other hand, if the sellers (called ‘bears’) appear to be in charge, then the trader is more
likely to place “sell” trades.
The sentimental approach is the riskiest of the three. As such, traders usually use it together with
any of the two major approaches.
Fundamental or Technical Analysis?
You are now part of this huge battle since you chose to become a trader!

Well, any seasoned trader will tell you that all three forms of analysis are very important in day
trading. The three approaches should complement each other if a trader needs to increase their
winning ratio. When one of them is ignored, the risks of making the wrong predictions increase.
Due to the above revelation, we are going to use all three methods. However, technical analysis
will be the dominant one. I have chosen the technical approach because day trading needs
sharper accuracy compared to position and swing trading. In addition, I find observation to be
more revealing than just basing my decisions on verbal information. In my many years of
trading, I have come to prove that, indeed, history repeats itself in the markets. You will also
realize the same.
The tools found in charts, together with the historical behavior of price, will help us to
understand and foretell the potential direction of the markets with significant accuracy. All the
same, even as we focus on technical analysis, we shall also include a few important
fundamentals and how to utilize them for better gains in day trading.
Next, we look at candlestick patterns.
Chapter 7 The 4 Most Common Day Trading Strategies
Now that you have a clear understanding of how day trading works, keep in mind that expert
day traders tend to focus on four common day trading strategies. Please understand that there
are more than four strategies. The more you do day trading, the more you will be able to
connect the dots and come up with your own personal strategy. The bottom line is that if a
particular method works for you, then stick to it. Accordingly, the only limit to the day trading
strategies you can use is your imagination; you still need a starting point.

Being a beginner, it makes a lot of sense for you to explore the four common day trading
strategies I am going to describe below, and experiment with them. After some time spent fine
tuning these strategies, you can come up with a combination, variation, or just your own
personal version of one or more of the strategies described below. Again, these are not the only
day trading strategies available out there; however, they are the most common. Use these as
starting points in coming up with your own personal day trading strategy.

Scalping
Scalping involves selling a stock as soon as it appreciates to the point where you have covered
all commission costs, interests, taxes, trading costs, overhead and a small profit margin you've
established for yourself on a certain day. Please understand that all these costs, including
commissions, interests, trading costs, taxes and overhead are calculated on a day to day basis.
Once you have identified the breakeven point, the small profit margin, and the point where
your position has covered your small profit margin, you discipline yourself to sell off your
position at that point.

It's easy to visualize this technique on the upside; however, take note that it must be paired
with an equally quick tendency to sell if your trade loss parameters are triggered. It's easy to
look at the price at which you will sell when you take a profit. It takes discipline to also stick to
the maximum price decline or slippage that you would tolerate before you sell off your stock.

Now, please understand that this is easier said than done. While you can easily intellectually
accept this, when it comes to actual practice, it's very easy to hang on to a stock that looks like
its red hot. It's not uncommon even for veteran day traders to hang on for far too long to a
stock that seems like it’s on fire.

For example, if your target point is to sell Netflix at 107 after you've bought it at 105, it's really
tempting to hang on to your Netflix position if the stock broke through the 107-price point and
is headed to 112. It's very easy to think that it can continue to rise. You need to be disciplined
when scalping. Once you hit the target point, sell. You should not care what happens after the
target point has been reached. It shouldn't matter one bit to you whether the stock continues to
rise, or not. Your main focus should be whether it hit your target selling point so you can then
plot your next move.

The same applies when the stock is going in the opposite direction. Once it sinks past your loss
threshold, sell the stock. Don't hang on to it hoping against hope that it'll bounce back up.
Maybe it will, maybe it won't; it doesn't really matter. What you should focus on is that you
stick to your target price point. Otherwise, it's going to be very, very hard for you to make
money with day trading. It really will be quite an ordeal for you because you'll be struggling
with second guessing yourself. Scalping is not easy. It seems pretty straightforward, but it
requires quite a bit of discipline.

Fading
The next common day trading strategy you should know is fading. Keep in mind that stocks
tend to appreciate very fast, then they hit a wall. They hit an upward price resistance, and
usually the stock doesn't stay there; it starts drifting downwards. In many cases, it drops like a
rock.

Day traders know this; that's why they pay attention to two key factors when they're trying to
fade a stock. They look at how fast the stock price appreciated, and they pay attention to the
volume. What they would do is they would log in a short sale order once the stock has reached
the point where its price appreciation has outpaced the volume of trade. This means that the
amount of buyers has been pretty much used up, and its only a matter of time until the stock
experiences a pullback.

When you sell a stock short, you make money when the stock drops. You borrow shares from
your broker platform, and you sell it at a high price. You wait for the stock to drop, and you
cover your position by buying back the stock. The difference between the stock price when you
sold it, and its price when you bought it or covered it is your profit. This is a very common
phenomenon.

Fading is actually more common than most people think. As more shorts appear on the stock,
and people who bought that stock long start to adopt the stock, there's tremendous pressure for
the stock price to drop. Now, fading can get quite tricky. You have to time it right. You have to
understand that once the stock starts dropping, there's going to be an upward price momentum
as short sellers start covering their trades. When they cover their trades, they buy their stock
back. So, this artificial demand created by short sellers covering their short trades puts an
upward momentum on the stock price.

You don't want to be the day trader that gets caught in the upswing of a sinking stock. Not
surprisingly, a lot of day traders who fade stocks choose target prices that are a percentage
point or two below the top price they bought the stock at.

Daily Pivots
After studying the stock's performance from the previous day, day traders would try to lock in
on a low entry price. They try to make an educated guess as to where the stock would settle for
the day. This is supposed to be the low point of the stock for the day.

They would use data points like the previous day's support level, as well as resistance levels;
they would lock in on a low entry price which is usually the projected support level for the
stock. They would then wait to ride the stock up until it hits their target resistance level. They
would then exit their position and then try to short the stock at the resistance level and ride it
down and buy back the stock at the support level.

Beginning day traders probably would have a tough time doing daily pivots. It's probably a
good idea if you're just a beginner to ride stocks up instead of trying to ride them down. Do
understand that it's actually riskier to short stocks, because if you're buying a stock long, and it
crashes, the stock only has so far to drop until it hits zero.

Theoretically speaking, the opposite isn't true. If you're shorting a stock, the sky's the limit as
to how far the stock can appreciate in value. I hope you can see the difference, and I hope you
can see the risk in short selling stock. Still, in the hands of capable and experienced day
traders, daily pivots can become quite lucrative.

Momentum Trading
Momentum trading is especially dependent on the quality of your charting and real time
tracking tools. You buy a stock when it's increasing in price. Matched with increasing stock
trade volumes, you then sell the stock when it starts reversing momentum. In other words, you
are buying the stock not because of its intrinsic value, or its industry position; you're buying it
because a lot of people are buying. You're buying it because there's a lot of market interest in
that stock. You then dump the stock once it reaches its peak market interest.

This sounds pretty basic on paper, but it's actually very tricky. Traders must be disciplined
enough to close at the start of the trend reversal. Understand that all stocks go through trends
within the day and oftentimes, they go through several trends in one day.
You have to be disciplined enough to close your position out at the start of the trend reversal.
The moment the momentum stops, or experiences a resistance, you exit. You can then choose
to ride the stock back down, or you can wait until the momentum picks up again. Regardless,
you need to exit. What makes this tricky is you need to leave the stock, regardless whether you
earned a profit or not.
Getting Started With Day Trading

To get started on your day trading career, you need to do the following:

Get your research together

Read this book and get familiar with the concepts explored in this book. I need you to drill
down further, and research topics that you learn about in this book. The more you drill down,
the better.

However, keep in mind that you don't want to get stuck in analysis paralysis. People who are
suffering from analysis paralysis think that they need to read book after book and do extensive
research until they get all the information, they need to make the right move. I'm sorry to be
the one to tell this to you, but you'll never get to that point.

There has to be a point where you have to stop researching and start doing. While it's obvious
that there's a lot of risk involved in day trading, you can minimize that risk only up to a certain
extent with research. Eventually, you have to make that leap of faith where you're actually
doing day trading and learning from experience.

Once you actually do day trading, you would then be able to connect the dots and come up
with your own personal strategies for minimizing losses and maximizing your gains. Research
can only take you so far. While it's important to get your research together and drill down, you
need to know when to draw the line and make that leap from research to actual action.

Start paper trading

The good news about taking action is that you don't have to take action that would necessarily
subject you to the risk of financial loss. Once you've gotten your research together, start paper
trading.

Find platforms that allow you to make simulated trades. These are imaginary trades using real
market information. What you're doing is that you're familiarizing yourself with how the
trading platform works and, most importantly, getting over the emotional intimidation of
actually doing day trading. What makes paper trading tricky is that you have to fight the
natural tendency to want to jump in with both feet.

I know that you would want to start making real money. I know that you want to tap the full
potential of day trading. However, you need to pay your dues first. You need to invest as much
time as you can into paper trading to give yourself enough time to know the ins and outs of day
trading. This increases your level of confidence. It also enables you to become aware of certain
decision process patterns that you tend to follow. By knowing this information, you can
position yourself to become a better day trader. You can build on your strengths and work on
your weaknesses.

Unfortunately, it's very easy to lose money when you go straight from doing research to
actually doing day trading. You have to follow a sequence of steps. Start paper trading, start it
early, and put in the time.

Put in the time

I don't mean to be a spoiler here, but let me tell you: in the beginning, you're going to be losing
more than you would win. That's okay, because you're not losing real money. You have to put
in the time and practice day trading day in day out until your win/loss ratio improves. Once it
becomes solid, you know you are getting close to getting ready to doing actual cash trades.

Get your cash together

This might seem like step 4, but this step should actually be done at the same time as step 1. At
the same time, you're doing research, as well as going through the subsequent steps like paper
trading and putting in the time for paper trading.

You should start gathering cash. Make sure you have enough cash to trade at a scale that would
at least give you a good chance of making a nice daily income. If your target is to earn $1,000
after taxes, then you need to have a nice starting base. We're talking at least $25,000 to
$50,000. A lot of expert day traders recommend that newbies start with $50,000 to $100,000.
This capital level ensures that you would be able to trade more expensive stocks that have the
volatility and market volume that you need for profitable day trading.

Sign up for a level 2 account

Look for a level 2 trading account offered by online brokerages or platforms that specialize in
day trading. It's very important to make sure that you use an integrated trading platform. By
integrated, I mean you use a platform that not only enables you to trade in real time so you can
lock in on fast developing opportunities, but it should also have sophisticated charting software
bundled in.

Thankfully, there's no shortage of such level 2 accounts. Of course, you need to experiment
with the different charting programs so you can see which one you can understand most easily
and use most frequently. You have to insist on multiple functionalities from the same platform.
The platform must be able to execute trades quickly. It should also give you access to real-time
quotes and help you chart the stock that you're trading.

Sign up for stock news services

As I have mentioned previously, day trading is really all about psychology; you're trading on
market psychology. You're not trading on fundamental value of the stock; you're not focused
on the intrinsic worth of the stock both now as well as in the future. Your focus is whether
there is enough market attention in the stock that would produce volatility.

Unlike value investing, or swing trading, your primary focus is not on the stability of the stock
over time, but on its volatility. The more volatile the stock, the better. However, you have to
pair it with a tremendous amount of volume, as well as, market attention. Accordingly, you
need to sign up for a stock news service that would give you late breaking news regarding that
stock.

Once you are aware of the news that's being circulated about that stock, you can then make
educated guesses as to the psychological effect of that news. Now that news doesn't actually
have to be factual, it can involve rumors. The focus is not on facts, the focus should be on the
effect of rumors or market impressions and moods on the stock that you're trading. This is
where real time stock news services come in really handy. Now, you can buy this as a separate
service, or you can sign up for it as part of an integrated trading platform.

Start trading small

Once you're ready to go from paper trading to actual cash trades, don't jump in with both feet.
Seriously, you're going to get burned if you do that. Try to stick your toe first in the water. Do
this for a few weeks. If you're able to handle it, do it for a few months.

The key here is to get acclimated real-life trading. As you will soon see, it's going to be very
different from paper trading. When you're doing paper trades at the back of your head, you
know that you're not going to lose money, you know that if you make a wrong call on the
stock, and it goes south instead of going north, you're not out of any of your hard-earned cash.

When you do live trades, on the other hand, the risk of loss may seem subtle at first, but it may
start distorting the quality of your decisions. This is why you need to acclimate yourself slowly
and surely through live trading. Start trading small, start with very conservative profit margins.
In fact, I would strongly suggest that you calculate your exit prices based on your breakeven
point. In other words, you're not even looking to earn money; you're just looking to cover your
taxes, and your costs. Keep it at that level until you become confident with your ability to
establish a solid win/loss ratio.
Chapter 8 Candlestick Patterns
The candlesticks that we are talking about are actually known in full as “Japanese Candlesticks.”
They were invented by a Japanese trader and later grew in popularity in the 90s. Since their
importance was discovered, Japanese candlestick charts have become the most popular type of
trading chart used today.
Anatomy of Candlesticks
Japanese candlesticks contain very important information about the market. A trader can read the
market like an open book once they understand the anatomy of a candlestick. This is usually the
first and very important step toward successful trading. You need to understand what the market
or price is doing so you can make appropriate decisions. In this chapter, we are going to break
down the candlesticks and understand what each shape and pattern tells us about the market.
Before we start, let me clarify that our bullish candles will have white bodies and black tips,
while the bearish ones will have black bodies and black wicks. You can use any color of your
preference by changing it in your MT5. To do so, right-click inside your chart window, click on
“properties” then adjust the colors as you wish.

Black candlesticks are bearish, and white candlesticks are bullish

Candlestick Bodies
When you look at your charts, you will realize that the candlesticks come in different sizes.
Some of them are very tiny, while some are huge. These sizes actually mean something!
The short bodies mean there was little buying or selling activity. The short white candlesticks
mean that there was little buying activity. The short black candles mean there was little selling
activity
On the other hand, long bodies mean there was a lot of buying or selling. Long white
candlesticks mean there was a lot of buying activity, and the bulls were in control of the market.
Similarly, the long black candlesticks mean there was a lot of selling activity, and the bears were
in control. The longer the candlesticks are, the more buying or selling activity was happening in
the market.
Candlestick Wicks
The wicks on the candles also have very important information.

The wicks on the upper side of the candlesticks show that the bulls pushed prices high before
sellers came in and pushed the price lower. Those on the lower side show that the sellers tried to
take price lower, but the bulls came in and pushed it higher. As a trader, you should always
perceive the market as a battle where the bulls are always fighting against the sellers, as they
seek to control the direction of the markets.
Long shadows on the upper side of a candle show that there was a lot of buying pressure, and the
buyers were in control of the market for some time before the bears came in with more power
and lowered the prices. Short shadows on the upper side show that there was no buying pressure,
or the bulls were not interested in driving prices past that level.
In the same way, long shadows on the lower side of a candle show that there was a lot of selling
pressure from the bears, but the bulls came in with more power, and they raised the prices. Short
wicks on the lower side of a candle indicate low-selling pressure or lack of interest in further
selling by the bears.
The Most Powerful Candlestick Patterns
Candlesticks are formed by price behavior, which is known as Price Action in trading. These
charts can be used as standalone analysis tools or as confirmations for trading signals. Traders
also add robots and indicators to candlestick charts to improve their accuracy.
At times, the markets will form interesting candlestick formations that have very important
information. Price action traders are always on the lookout for these formations that we shall call
“patterns.” When these patterns occur, they tell us that the market is about to do something. An
existing trend (price direction) can continue or reverse after a special candlestick pattern has
formed.
Candlestick patterns can be formed by one or more candles in a sequence. At this level, we are
going to look at patterns formed by single, double, and triple candlesticks.
Single Candlestick Patterns
These patterns are made up of a single candlestick that has special anatomy. Here are some of the
most important single-candlestick patterns.
Doji
A doji is the simplest pattern to spot in your charts. It is formed when the price opens and closes
at the same level as where it opened. Due to this, a doji pattern will always look like a simple
dash (-). When a doji has wicks, it will look like a cross, although the horizontal line will vary in
position. The fact that the price opened and closed at the same price means that the bulls are
bears were equal in strength. In addition, a doji is neither a bullish nor bearish candlestick. As
such, it is seen as a sign of indecision. When it happens, the trader has to wait for other signs to
know where the market will move. You will find that the market might reverse or continue
strongly in the same direction after a doji has formed.

Common doji formations

Go back to your MT5, and try to find some dojis in the charts. What happened after the doji?
Spinning Top
A spinning top is a candlestick with a very small body and wicks that are longer than the body on
either side. Spinning tops indicate intense fighting between the bulls and bears, usually ending in
a draw. In short, a spinning top shows that neither buyers nor sellers are in control of the market.
Unlike the doji, a spinning top can be bearish or bullish.
All the same, if a spinning top occurs when the price is moving up (uptrend), it might indicate
that the buyers are becoming weaker, and the market might reverse and start moving down
(downtrend). Similarly, if it occurs when the price is in a downtrend, it could mean that the
sellers are getting exhausted, and that price might reverse into an uptrend.

Spinning tops

Open your charts and try to find some spinning tops. See what happened in the market after they
were formed.
Marubozu
Do not mind some of these new candlestick names that you might have never heard before, like
doji and marubozu. They are Japanese names, having been coined by the inventor of
candlesticks. So, in addition to day trading, you are also learning a little bit of Japanese :)
Well, marubozu is another type of candlesticks that is very easy to spot. They appear as candles
with bodies and no wicks at all. They can be bullish or bearish.
When a marubozu appears, it shows that either the buying or selling activity was very strong. A
bullish marubozu shows that the price opened low and went high without being pushed down at
all. As such, there were very few sellers, or they were overpowered. In the same way, a bearish
marubozu tells us that the sellers were very powerful that the buyers were not able to push the
price any higher.
A marubozu is considered to be a continuation pattern because, when it happens, the dominant
trend at that time continues.

Marubozu candlesticks

Hanging Man
A hanging man candlestick formation is a bearish candlestick that has a small body, little or no
small wick at the top, and a very long wick on the bottom.
When it forms during an uptrend, it might predict a reversal of the trend. In short, the market
might start falling. Try to verify this information by looking at where a hanging man was formed
during a rising market.

Hanging man candlestick pattern

Hammer
A hammer candlestick looks like the hanging man, only that it is a bullish candle and is only
relevant when it forms during a downtrend. It has a small body with a little or no wick at the top
and a very long wick at the bottom.
If it forms during a downtrend, it might be an indication that the trend might reverse, and an
uptrend will start.

Hammer candlestick pattern

Shooting Star
The shooting star and inverted hammer look like the hanging man and hammer placed upside-
down.
The shooting star is a bearish candlestick with a small body, long wick at the top, and a tiny or
no wick on the lower side. This formation is only relevant during a bullish trend, and, when it
happens, it is an indication that the trend might reverse.

Shooting star candlestick formation

Inverted Hammer
An inverted hammer is only relevant if it forms during a downtrend. It is a bullish candlestick
that shows a potential reversal of a downtrend to an uptrend. It has a small body, long upper
wick, and a tiny or no wick on the lower side.

Inverted hammer candlestick

Double Candlestick Patterns
Have you seen the magic that happens after the above single-candle patterns are formed? Yes,
they work!
If you have been impressed by the magic of the single-candle patterns, then prepare to be blown
away by the power of double-candle patterns. You will realize that the patterns with more
candles are more powerful. Let us see if this fact is true.
Bullish Engulfing Pattern
A bullish engulfing pattern is made up of two candlesticks. The bearish candlestick must be on
the left side and the bullish one on the right. The distinguishing feature of a bullish engulfing
pattern is that the bullish candle should have a bigger body than the bearish one and completely
engulf (cover it).
This pattern is only relevant during a downtrend market and will usually imply that the trend
might reverse into an uptrend.
Bearish engulfing pattern
Tweezer Tops
A tweezer top pattern is formed when a bullish candle with a small body, small upper wick, and
no lower wick appears, followed by a bearish candle with a small body, small upper wick, and no
wick on the lower end. In short, the two candles must be similar, only differing in the sense that
one is bullish, and the other is bearish.
The pattern is only valid when it occurs during an uptrend and usually signals that the trend is
becoming weak and might reverse into a downtrend.

Tweezer tops formation

Tweezer Bottoms
A tweezer bottom formation is the opposite of the tweezer top pattern. It consists of a bearish
candle on the left with a small body, no wick at the top, and a long wick on the bottom, followed
by a bullish candle with a small body, no wick at the top, and a long wick at the bottom.
A tweezer bottom is only relevant when it forms during a downtrend. It signals a possible end of
the downtrend and the beginning of an uptrend.

Tweezer bottoms pattern

Triple Candlestick Patterns
As you keep trying to find these interesting candlestick patterns in your charts, you might have
noticed that double-candle formations are harder to find. That is true. However, it is more of a
good thing because it means that when one of them shows up, something is going to happen in
the near future. You should, therefore, be very keen when watching your charts because the
patterns are very rare to find and missing out on one means losing a good trading opportunity.
In this part, we are going to look at the most powerful three-candle patterns that we can use in
day trading.
Evening Star
The evening star pattern is formed by three candles. There should be a good-sized bullish candle
(not a doji) on the left, followed by a much smaller bullish candle in the middle and on the left, a
good-sized bearish candle that is bigger than half of the candle on the left.
This pattern is valid when it forms during an uptrend. It signifies a possible end to the trend and a
reversal into a downtrend.

Evening star pattern

Morning Star
A morning star formation is the opposite of the evening star pattern. It consists of a good-sized
bearish candle on the left, a much smaller bearish candle in the middle, and a good-sized bullish
candlestick on the right. The bullish candle must be more than half the size of the candle on the
left.
The pattern is valid when it forms during a downtrend. It notifies a trader of a potential end of
the downward movement and the possible start of an uptrend.

Morning star pattern

Three Bullish Soldiers

The three bullish soldiers candlestick pattern consists of three bullish candles. The first candle
should be small, followed by a bigger bullish candle that has a tiny wick at the top, and, finally, a
much bigger bullish candle that has tiny or no wicks at all.
This is a reversal pattern that should only be used during a downtrend. When it appears, it
signifies that the falling trend is becoming weak, and the bulls are becoming stronger.

Three bullish soldiers

Three Bearish Soldiers
The three bearish soldiers pattern formation is the direct opposite of the three bullish soldiers
pattern. It consists of three bearish candlesticks where the one on the left is small, followed by a
bigger candle with small wicks then finally a bigger candle with little or no wicks.
This pattern is only relevant during an uptrend. When it is formed, it is an indication that the
trend is becoming weak and that a downtrend might begin soon. The growing bear candles show
that the sellers are becoming stronger.

Three bearish soldiers

Rising Three
The rising three candlestick formation is made up of five candles, although only three are the
most important. It consists of three small bearish candles sandwiched between two huge bullish
candlesticks. The candlestick on the right must close higher than the huge candle on the left.
This pattern is only valid during rising markets (uptrend), and when it occurs, it signifies a
continuation of the existing trend.

Rising three pattern

Falling Three
Just like the rising three candlesticks pattern, the falling three formation is also made up of five
candles. However, this time, there are three small bullish candles enclosed within two huge
bearish candles. The bearish candle to the right of the pattern should close lower than the first
huge bearish candle.
The falling three method is used during downtrends only. When it occurs, it means that the
downtrend is likely to continue.

Falling three pattern

Summary
Voila! You have just completed your first charting lesson! How was it? Did you try to find these
amazing patterns in your MT5 charts?
Well, candlesticks are the first step toward understanding and analyzing the markets; however,
you can use the information that you have already learned to try and trade. I mean, you can now
wait for the patterns for form and see how the prices move afterward. We cannot use past
formations since the preceding market movements already left us. However, from now on, use
the demo Metaquotes MT5 and capital to sell or buy when you see any of these patterns forming.
To place a trade, click on the button at the top-left side of the window where you will see the
pattern(s) forming. Click the “Sell” button if you see that a downtrend has formed or the “Buy”
button if an uptrend has formed. Keep it in mind that you are just getting started, so if you make
losses, it does not mean that you are already losing. You still have a long way to go, and the
process will only get more interesting.
In conclusion, I hope you enjoyed this lesson and that you were able to find all of the patterns
inside your charts. I understand that the three-candle patterns are harder to occur, and that is
pretty normal. Feel free to use any tradable instrument in your platform. Like we said in the
beginning, the lessons that you will be getting can be applied in any market.
Chapter 9 Average Income of a Day Trader
Imagine a scenario where I revealed to you that while exchanging salary has numerous factors,
by applying some essential research strategies. You can go to a reliable gauge of what an
informal investor can make dependent on their area, beginning capital, and business status.
In this section, I am going to share various sources that can give you clear gauges that you would
then be able to use to decide your potential benefit potential.
Let's face it, a significant number of are thinking about going out without anyone else and are not
hoping to find a new line of work.
Anybody that discloses to you a conclusive range for a day exchanging pay is likely pulling your
leg.
I may as was well be conversing with one of my children about Yo Gabba (it was one of their
preferred shows on Nickelodeon).
Presently, for all you corporate individuals that can go to destinations like vault.com or converse
with your insider companions to check the amount you can make in an exchanging work, kindly
don't anticipate hard numbers from any of these sources.
The reason being, there is a large group of outside variables that play into how a lot of cash you
can make. In this article, we will tear through all the lighten on the web and get down to cold
hard certainties. Sit back, unwind, and get some espresso.
A Decision You Should Not Take Lightly
You ought not to trifle with this choice, and you should gauge the upsides and downsides. First
of all, exchanging for another person will permit you the chance to use the devices and systems
of an outfit that is ideally beneficial.
A portion of the positives of exchanging for another person is evacuating the weights of
distinguishing both a triumphant framework and a tutor that can help you en route.
It is On the off chance that you are not beneficial "enough," be set up to have a more significant
number of rules tossed at you than when you were in sixth grade.
This degree of administration over your exchanging action is because of the reality you are
utilizing another person's cash, so profit or become acclimated to somebody revealing to you
how to relax.
The one significant upside for day exchanging for another person is you will get pay. This pay is
likely insufficient to live on; however, you do get a check.
At the point when you go out alone, there is no pay. You are a financial specialist wanting to
make payments. We will go into this theme a lot further. Later on, however, I needed to ensure I
express this forthright.
Licenses
On the slim chance that you choose to work for the firm and are exchanging customer's cash or
conceivably interfacing with clients, you will require your Series 7 and perhaps your Series 63
permit.
Arrangement 7
The Series 7 will give you the permit to exchange. Last I checked, the test cost $305 and relying
upon the outfit will be secured by the firm.
Arrangement 63
The Series 63 is the following test you should take after the Series 7. This test licenses you to
request orders for stock inside a point of view state.
A straightforward perspective about this is the 7 gives you the privilege to exchange on a
government level, and the 63 enables you to work inside the limits of state laws.
I don't anticipate covering the theme of day exchanging for somebody finally because I haven't
lived it.
From what I do know, you are required to finish some in-house preparing programs for the firm
you speak to. For venture houses, you will get a not too bad base pay, enough to keep you at the
lower white-collar class extend for New York.
Need to know the best part?
Your base stock merchant pay could go from 50,000 - 70,000 dollars US, which is only enough
for you to take care of your link tab, feed yourself and perhaps take a taxi or two. In any case,
this not the slightest bit covers meals, vehicles, excursions, tuition-based schools, and so on.
In this way, I surmise you can rapidly observe that for you to be fruitful, you're going to need to
make your reward. There is only one catch; you need to profit day exchanging. Superficially, this
sounds sensible because you bring down your hazard profile by having another pay stream of a
base compensation; in any case, you need to perform to remain utilized, and will just get around
10-30%% of the benefits you get from your exchanging movement.
In light of these numbers, you would need to make about 300k in exchanging benefits to break a
100k in compensation.
Most likely about it, the advantage of exchanging with an organization is, after some time, your
purchasing influence will increment, and you have none of the drawbacks dangers since it's the
organization's cash. The key is ensuring you have a lot of money under administration.
As should be evident in the infographic over, the way to making genuine cash is to begin dealing
with different assets. You, in one way or another, draw that off, and you will make by and large
576k per year.
Indeed you read that right.
I realize the 576k looks engaging; however, recall it is out and out hard labor to get to the highest
point of the mountain.
The other brings up to get out from the infographic is that the usual reward is beginning to drift
higher and if things go as conjecture will surpass the downturn top not long from now.
Along these lines, on the off possibility that one of your objectives is to profit, you are looking in
the right business.

Regular Income Trading for a Company

The widely appealing individual can hope to make somewhere in the range of 100k and 175k. In
conclusion, it is on the off chance that you are beneath normal, hope to get a pink slip.
In any case, pause - there's additional.
Certainty, if we broaden our exploration past New York, you will see the regular pay for a
"Merchant" is $89,496.
Try not to trust me?

Open Trading Firms

Be that as it may, I can consider many employments where you can make near $89k, and it
doesn't require the degree of responsibility and hazard taking required for exchanging.
You might be thinking, "this person just revealed to me it could go as high as $250k to $500k in
case I'm better than expected, where does $89k become an integral factor."
What I have talked about so far are the pay rates for traded on an open market organization.
Good karma attempting to get precise information for the first-class universe of private value
brokers. What you will discover is regularly the top brokers from the Chase and Bank of
America's endeavor out to flexible investments, as a result of the opportunity in their exchanging
choices and the more significant compensation potential.
Here's the most significant part, with the general population firms, corporate objectives will
frequently drive a segment of your other targets.
The magnificence of the multifaceted investment world is while there are still organization
objectives, you have the chance to eat a more significant amount of what you slaughter.
It's nothing for a top broker to out-acquire their chief on the off chance that they carry enough an
incentive to the firm.
What amount do you figure you could make?
Advantages of day exchanging for an organization
1. PAY
2. Medical advantages
3. The renown of working for a venture bank or fence investments
4. No danger of individual capital
5. Climb the corporate positions to deal with various assets
6. A drawback of day exchanging for an organization
7. Must connect with customers
8. Office legislative issues
9. By and large, you get 20% of benefits (Public Firm)
Day Trading for a Prop Firm
Day exchanging for prop firms can feel similar to living on the edge.
Like exchanging for an organization, you will get some preparation before the prop firm enables
you to trade with their cash and approach their frameworks. From that point forward, all
likenesses between exchanging for a prop firm and an organization contrast.
Try not to expect any human services of paid downtime. You won't have a base compensation or
yearly audits. The prop firms will expect you to store cash to begin utilizing their foundation.
The advantages are the prop firm will part benefits with you anyplace from a third and up to half.
The drawbacks are again no compensation, and you bear a portion of the torment with regards to
misfortunes.
However, here's the rub, the explanation prop firm merchants make not precisely those for the
speculation houses is access to capital. Since you are likely exchanging the exclusive firm
proprietor's cash, the pool of assets you approach is constrained.
I would state a better than an expected broker for a prop firm can make about 150k to 250k every
year. The typical broker will do somewhere in the range of 60k and 100k, and underperformers
will have such huge numbers of position limits set for them, they are fundamentally rehearsing
and not profiting. These underperformers will probably expel themselves from the game because
rehearsing doesn't take care of the tabs.
Advantages
Split benefits with Prop Firm
Low commission rates
No Boss
Increment Margin
Negatives
Utilize your cash-flow to begin
Loss of individual riches
Constrained preparing
No medical advantages or paid downtime
No vocation movement
Just cause cash off what you to acquire
Day Trading Salaries State by State in US
Notwithstanding the information showed in the infographic from the Office of the New York
State Comptroller, I needed to make it a stride further to distinguish the beginning pay for a
passage level exchanging work the country over.
I arrived on a passage level to give a counter to the middle national normal of $89k for an
exchanging work. Keep in mind that $89k is a normal of junior exchanging employments - right
to the most senior.
Along these lines, in the situation that you are genuinely beginning and are offered $50k, you
don't get disheartened. We, as a whole, need to start someplace!
True to form, the New England and Pacific districts of the nation have the most significant pay.
Presently, these can be just ascribed to the standard average cost for essential items. However,
you can discover your state to perceive what you can hope to make as a lesser dealer.
The Myth
A large number of the online articles are explicit about the benefit proportion you can expect
when you become an informal investor. For instance, an article by Cory Mitchell that shows up
on the Vantage Point Trading site spreads it out in detail and expect to start exchanging capital of
$30,000:
"Accept your normal five exchanges for every day, so if you have 20 exchanging days a month,
you make 100 exchanges for every month. You make $3,750, however despite everything you
have commissions and perhaps some different charges. Your expense per exchange is
$5/contract (full circle). Your bonus costs are: 100 exchanges x $5 x 2 agreements = $1000."
In Mitchell's model, your net after bonuses is $2,750. Since you began with $30,000, that is a
month to month return of a little more than 9 percent. If you reinvest those benefits on a month to
month premise, toward the finish of one year, you'll have an interest of $55,944 and change. Not
awful, and the best news is, you don't have to get dressed for work.
The Reality
Here's a sure sign that the truth might be very not quite the same as the legend.
As indicated by a 2013 investigation of the Taiwanese securities exchange drove by business
analyst Brad Barber of the University of California, Davis, Graduate School of Management, and
including the ordinary trade that market over 14 years, under 1 percent of all member dealers
made a benefit. Putting it another way, 99 percent of throughout the informal investors lost cash.
Another concentrate by Barber and individual UC financial analyst Terrance Odean dissected the
market returns of more than 66,000 U.S. families exchanging the U.S. securities exchange over a
five-year time frame from 1991 to 1996. They reasoned that continuous dealers (not informal
investors, mainly, however, including casual investors and the individuals who exchange stocks
as often as possible) failed to meet expectations financial specialists who utilized a purchase and
hold methodology by about a third. The more as often as possible a given member exchanged,
the more they failed to meet expectations the average return.
Genuine later consider, similar to the 2013 research learn at the Cass Business School at the City
University of London, reasoned that monkeys tossing darts at the stock pages could accomplish
preferable outcomes over stock merchants. Alright, they were carefully reenacted monkeys, yet
at the same time.

To give you a superior thought of your odds as a "proficient" informal investor, think about that
the administrative North American Securities Administrators Association records exchanging
courses – the web-based "exchanging schools" that idea to show you how to prevail as an
informal investor – as a best 10 risk to financial specialists, alongside Ponzi plans and obscure
exchanging calculations dependent on Fibonacci numbers.
A Day Trading Strategy in real life
Accept a day exchanging system where the stop misfortune is $0.04, and your objective is
$0.06.
Your record balance is $30,000, so the most hazard per exchange is $300. With a $0.04 stop
misfortune, you can take 7,500 ($300/$0.04) shares on each trade and remain inside your $300
chance top (excluding commissions).
If it's not too much issue, take note that to receive 7,500 offers, the offer cost should be
underneath $16 (achieved by $120,000 in purchasing power isolated by 7,500 proposals) if the
per-share price is more than $16 you'll have to take fewer offers. The stock additionally needs to
have enough volume for you to make such a position (see Look for These Qualities in a Day
Trading Stock).
Working with this procedure, here's a case of the amount you might make day exchanging
stocks:
55 exchanges were victors/gainful: 55 x $0.06 x 7,500 shares = $24,750
45 exchanges were failures: 45 x - $0.04 x 7500 shares = ($13,500)
Your gross benefit would be $24,750 - $13,500 = $11,250.
Your net benefit, which incorporates the expense of commissions, is $11,250 - commissions ($30
x 100 = $3,000) = $8,250 for the month.
This is the hypothetical benefit, and a few elements can and will lessen your interests; see
Refinements beneath to perceive how this number gets balanced for this present reality.
The reward to chance proportion of 1.5 is utilized because it is genuinely traditionalist and
intelligent of the open doors that happen throughout the day, consistently in the financial
exchange.
The beginning capital of $30,000 is additionally a surmised equalization to begin day exchanging
stocks; more is prescribed on the off chance that you wish to trade more costly stocks.
The $0.04 stop and $0.06 are utilized similarly, for instance. Contingent upon the
unpredictability of the stock, this may be diminished, yet more than likely extended if the stock
moves a ton. As the stop continues, you'll have to lessen the number of offers taken to keep up a
similar degree of hazard insurance.
Refinements to Your Strategy
Frequently on winning exchanges, it won't be conceivable to get every one of the offers you
need; the value moves too rapidly. In this way, accept on winning exchanges you end up with, by
and large, 6,000 offers. This diminishes the net benefit to $3,300, rather than $8,250.
Little modifications can affect gainfulness.
Some different presumptions were likewise made in the model above. Chiefly that the dealer can
locate a stock that enables them to ultimately use their capital (counting influence) while
utilizing a 1.5 reward-to-hazard proportion, discovering five exchanges a day will be more
troublesome on certain days than others (perceive How to Find Volatile Stocks for Day
Trading).
Value slippage is additionally a particular piece of exchanging. That is the point at which a more
significant misfortune happens than anticipated, in any event, when utilizing a stop misfortune.
Slippage will, to a great extent, rely upon the volume of the stock comparative with your position
size.
To represent slippage, decrease your net gainfulness figures by at any rate 10 percent. Given this
situation and refinements, it is conceivable to make about $2,970, exchanging a $30,000 account
(the $3,300 referenced above, diminished by 10 percent).
Modify this situation in a like manner dependent on your stop and target (standard reward to
chance), capital, slippage, win rate, standard win/misfortune position sizes, and commissions.
Given your proposed methodology, it is conceivable to inquire about quite a bit of this before
you start exchanging to get a thought of the amount you can make.
The amount Money Stock Day Traders Make - Final Word
The above situation demonstrates it is conceivable to make more than 20 percent for every
month with day exchanging, hypothetically. This is high by regular measures, and most brokers
ought not to hope to make this when representing exact issues, for example, slippage and not
continually have the option to get the full position they want on winning exchanges.
With a 55-percent win rate and with a procedure that produces more significant victors than
failures, making 5 percent to 15 percent+ every month is conceivable. However, it isn't simple,
even though the numbers make it look that way. These figures speak to what is feasible for those
that become fruitful day exchanging stocks; recall, however, day exchanging has a low
achievement rate, particularly among guys.
Chapter 10 Trading and Time
When one thinks of the different investment tools, if not the practice, of the investment in
general, one cannot but considers the temporal factor. This is one of the factors that other miller
discourages the trader. But why?
In these times, we are so used to the concept of everything and immediately we cannot wait any
longer. We demand everything immediately, also losing track of time and the precious value of
time.
Unfortunately, in online trading, you cannot expect to have everything and immediately, but
above all, we cannot expect to become experienced traders and professionals in just under a
month or worse than a week.
You cannot think of becoming an expert trader if you do not want to study and practice! In
online trading, but also in investment, in general, it takes time to learn how to trade. Another
advice that is not feasible at the moment is to think about spending some time to find a
deserving, professional, and worthy investment and investment technique.
When trading, it must be done seriously and professionally. If, for example, we trade in a trading
strategy based on currency trading, with a maximum payout of 65% for a positively closed trade,
then we must enter the perspective that we must give money to work with a specific strategy.
If you are following the market trend, it will be counterproductive to exit the market because, in
addition to losing its capital, you may not even get the desired return. That’s why time is money,
and it should not be wasted unnecessarily. Above all, hurry is a bad companion.
The time factor is also one of the main factors for which it is decided better to entrust its capital
to a financial expert so that this is to make the choices for them. Very often, however, this trust is
not always repaid by an increase in one's capital. Most often this capital is completely lost.
The Importance of the Right Time and Timing
Understanding when the right time to trade is very important. Giving money to mature is
certainly one of the most determining factors for the success of your investment. The
fundamental concept remains the same: within what you want to earn money and how to earn
them.
To make sure that you know, in advance, how much you can earn and how to make money for
us, you cannot rely on chance, and above all, we cannot expect to waste time but not even to
demand everything immediately.
Everything has its time; also in investment, they have their right times and their importance. As
you can see, even the right timing serves to give way to the investment, to make your own cycle,
and to express that reasonable expectation. The right setup also serves your capital to survive in
any situation, resist negative moments, and always have the strength to start again.
Avoiding Risks
To better understand the risks involved in trading in risky strategies, it seems right to remember
those that are the right principles. Suppose you can trade $10,000 in a strategy that is 50% risk.
This strategy was put in place to double the capital within a maximum of 3. Highly risky strategy
from our point of view as it could result in the total loss of the entire capital. This operation is
recommended only to experienced traders.
With this example, we have made you understand how these operations allow you to double or
triple the capital within a few months but also how you can lose all your capital in a matter of
months. In fact, by implementing these dangerous strategies, you will also see the account
halved, or entirely burned, within a few weeks.
To understand everything better, let's take another example. According to your trading strategies,
you have traded on a particular asset with a strategy and think that this can give you a return of
50% within a month.
To not fall into error, we advise you to set the opposite goal or try to ask the question: how
would it be if in half a month you lost half of the bill? Here is therefore explained and
understood in a simple and fast way on what is the right time, but especially those that are the
wrong strategies not to be adopted.
Limiting Damages of Social Trading
Many wonder if social trading is the right strategy to avoid wasting time and earning, thanks to
social trading. Before proceeding, we remind you that social trading is not a risk-free form of
trading, even if the risk, in this case, is reduced. To trade in social trading, we believe it is
essential to operate for a period of time between 9 and 12 months minimum. This is for one
simple reason. Before choosing an investment system, you must see the performance for at least
a year. In this sense, there is no need to follow a trader, 24 hours a day, 365 days a year, but only
that you have to consult all the data of all the operations performed during the year, perhaps with
the help with special tools that simplify reading.
Once you understand how to trade, but above all, you understand how much trading and who you
want to trade in, you have to consider the risk that you are willing to run. Beyond this limit, it is
advisable to leave it alone.
In most cases, the conditions that have led you to make a certain investment choice must have
solid foundations so that the investment can yield. That's why a period of 12 months is a period
enough to make you understand if your investment is right or wrong.
Chapter 11 Trading Cryptocurrencies
Cryptocurrency is quickly growing in popularity. It is estimated that there are more than 1000
different versions out there, and they all work in different manners. For example, Bitcoin, one of
the most popular cryptocurrencies and the very first one, is used just like the regular currencies
you use on a day to day basis. Ethereum is more for startups who are trying to enhance the
blockchain technology. And there are many other options that are out there, and they are used in
different ways.
One neat thing that you can do with these cryptocurrencies though is to use them in day trading
to help you to make some money in the process. Since there is a lot of volatility that comes with
these markets, which means that once you learn how to work with the charts that each has, you
will be able to benefit from the many highs and lows and ups and downs that come with these
cryptocurrency markets out there.
In this chapter, we are going to take some time to look at a few of the day trading strategies that
you can use for day trading to get the best results possible. Some of the different strategies that
you can work with to use day trading on cryptocurrency includes:
Breakout
The breakout procedure is going to revolve around the idea that the cost is going to clear a
predetermined dimension in your outline with some expanded volume. This strategy is going to
have the trader go into a long position after the currency breaks above the opposition. Then you
will again enter into a short position once you see that the currency breaks underneath it.
Scalping
You will find that scalping is going to work really well with this kind of security. There are a lot
of trades that occur in this market on a regular basis. People all around the world are always
looking to find ways to make more money from these markets, and there is a constant exchange
between various other currencies and the cryptocurrency that you want to work with. Scalping
will help you to make profits in the process.
For this, you will just watch for all the downturns that come with the market and then you will
purchase the currency. Then you will move on to selling it as soon as the price or the value goes
up. The most important thing to remember here is that there are going to be some fees for
exchanging the currencies back and forth, so factor this in when you are looking to do this
method to make sure that you will actually earn some profits in the process.
Steady incremental profit accumulation strategy or SIPAS
Assuming that the exchange you are using for cryptocurrency is going to work with USDT, and
all of the major and reputable ones do, the goal for the day is for you to produce at least one to
two percent from a few altcoins. You want to make sure that the altcoins have a history of
stability over the past two or more days. This is going to help you to produce a profit that is at
least 7 percent in a 12-hour period of time. If you do this over a week, you can earn more than 50
percent in profits.
In addition, if you are able to find an altcoin that has been doing some consolidation over the
past few days, then this is a good option to go with as well. What we want to make sure we are
avoiding here is big fluctuations to the price. Using this simple strategy can make sure that you
stay on track and that you will profit from that initial investment in two weeks or less.
It is also possible for you to go for a higher profit than what we are talking about here. This isn’t
a problem and can be pretty easy but remember that the bigger the profit you want to earn, the
more risk you add to it all. And greed is always going to result in a drain to your profits,
regardless of how much knowledge you have about the market and everything else.

For the most part, the one to two percent increments is the best. If you are able to stick with these
numbers, you will be able to avoid all of the big losses that can occur once the emotions, and a
large amount of money, are on the line in that particular trade.
There is a lot of volatility that can show up in the market for cryptocurrencies, and it is important
to really understand the market, to pick out one that has been relatively stable over the recent
time, and then work with that one to do the right day trades that will bring in profit. If you can
bring it all together, you will be able to make some good profits in the process.
Forex Trading

The foreign exchange currency market, more commonly written as the forex market, is the
largest of all the investment markets, currently boasting more than $4 trillion dollars’ worth of
transactions per day, or roughly 10 times more than what the New York Stock Exchange can
manage. Despite the lucrative potential available in this market, it was long outside the realm of
the amateur trader as technological limitations made it difficult to amass the information required
for such an undertaking. Luckily, the rise of the internet, along with countless online forex
trading platforms, means that anyone who is interested can take advantage of the extreme
leverage rates available in the market to turn a small initial investment into a serious payday.
Before jumping in with both feet, you are going to want to keep in mind the fact that the forex
market is completely speculative which means that unlike in most markets when you buy and
sell in the forex market you aren’t actually gaining anything physical in the process. Unlike the
stock market where you acquire shares in a specific company, for example, in the forex market,
all you are doing is moving numbers around in various computer databases with relevant
information relating to the countries in question causing them to either move in one direction or
another. Your gains and losses are then expressed in the currency of your choosing.
If this seems like a bit of an odd system, that’s because the forex market only exists because
international organizations and countries needed an easy way to move currency around in
massive quantities without going through the steps the average person would be required to do
such a thing. These entities tend to trade in units of currency that are so extreme they can actually
affect the overall value of the currencies being traded, which is where the speculative side of the
market comes into play.
Generally speaking, only about 20 percent of the movement in the forex market is from these
major entities, with the rest coming from investors that are trying to make a buck from the
movement that spreads out through the market as a result. While a majority of these investors are
professionals working for financial institutions or hedge funds, more and more
private traders are jumping on the bandwagon each year, drawn to the promise of potentially
huge wins thanks to the available leverage.
Forex facts
The most important thing to keep in mind when trading in the forex market is that each forex
trade is actually a pair of disparate trades because you are always selling one currency in order to
pay for another. Forex trades are made in three separate sizes, known as lots. A micro lot is 1,000
units of a given currency while a mini lot is 10,000 units of a currency and a standard lot is
100,000 units of a specific currency.
When the market moves, the smallest amount that is tracked is known as a pip which is one
percent of the total price of the currency in question. When you are first starting out in the forex
market you are going to want to avoid taking on trades that are larger than a micro lot as in this
case the pip is worth 10 cents of the currency you are working with. This means you won’t
quickly lose your shirt when a trade turns against you in the last moment. If you stray to mini lots
or standard lots you run the risk of losing $1 or $10 respectively, per pip. For reference, you can
expect a trending currency to move around 100 pips per trading session.

While the forex market differs from other markets in key ways, it is important to always keep in
mind that it is the same in the ways that matter the most as it is driven by supply and demand as
much as any other market. This means that when a certain currency is in high demand then the
value of that currency will naturally continue to increase until the point where the market has
more sellers than it does buyers, at which point the price will start to drop until the buyers start to
bite once more.
When trading in the forex market it is extremely important to be aware of instances where a
specific currency is about to increase in demand so that you can jump on it as quickly as
possible. This means you will want to keep abreast of things like economic predictions related to
world powers, current geopolitical strife and key interest rate movements. It is important to keep
in mind there is no such thing as insider trading when it comes to the forex market, as such
anything you learn about is fair game.
Another important fact to keep in mind is that the forex market never closes from Monday to
Friday, it just shifts its focus. While closed on the weekends, during the week the market
naturally shifts its focus between various currency pairs based on the portion of the world that is
currently the most active. For example, the currency pair USD/JPY would be active during the
portion of the day when the US is active and again when Japan is active. The forex market is
divided into three segments based on the time of day in the US, Asia and Europe. This isn’t
anything that is strictly regulated, as the forex market isn’t regulated in any traditional sense,
rather it is simply more profitable to trade a specific currency when it is the most active.
Lack of traditional regulation
As already noted, the forex market is not regulated in nearly the same way as other markets and
is, in fact, considered an unregulated exchange. This essentially means that when someone
chooses to make a trade dishonestly they are not going to be at the mercy of any regulatory body
which means it is up to the community to dish out justice. As such, every trade in the forex
market is based on what is known as a credit agreement which essentially means everyone
operates in good faith. As anyone who breaks the agreement will never be able to trade in the
forex market again, it tends to work fairly well in most instances.

In addition to this system, the US also has what’s known as the National Futures Association
which is a voluntary organization that forex dealers can join which holds its members to a higher
standard than the market as a whole. It also offers arbitration options if a disagreement does
occur. This means that when you are dealing with a Forex broker or dealer in the US then you
are certainly going to want to ensure they are an NFA member.
As there is no one to enforce such things, the rules are more relaxed in the forex market as well.
This means you are free to short sell as much currency as you have access to as long as you think
you can make a profit off of it. On the other hand, there is also no limit to how many lots you can
buy in a single trade which means you could make a billion-dollar trade if you had the cash.
Finally, the number of traditional forex brokers are few and far between which means that a
majority of forex transactions don’t require a commission fee. Rather, forex dealers make their
money off of the spread which means it is likely going to be a bit larger than what you may be
used to. This means the forex market is principal only which means the dealers are taking on just
as much risk as the traders. As such, it is impossible to buy on the bid or sell at the offer when
trading in forex; however, this limitation is mitigated thanks to the fact that it can be much easier
to make a profit when trading in the forex market as commission and fees don’t come into
account.
Currency trading facts
When trading in the currency market, the currency you are selling is a short position and the
currency you are buying is a long position. As an example, if you make a trade of EUR/USD
then you are going long on dollars while going short on euros which means you are selling euros
and buying dollars.

As noted above, you really only need to focus on a handful of currencies in order to get a full
understanding of the basics of forex trading. As such, when you are taking your very first steps
into the market then you will want to focus on USD/CHF, GDP/USD, USD/JPY and EUR/USD.
In addition to these pair, you will want to keep an eye out for the commodity pairs, so named
because the related countries tend to move commodities around in large amounts. These include
NZD/USD, USD/CAD and AUD/USD. Finally, with the addition of EUR/GBP, GBP/JPY, and
EUR/JPY, you have more than 90 percent of the trades made on the average day covered.
Reading a currency quote
Regardless of the currencies, you are working with, they will all be quoted in a specific way. The
first half of the currency pair is referred to as the base currency while the second is referred to as
either the counter currency or the base currency. As a general rule USD is the default base
currency and gains tend to be written in dollars per the other currency and when they are quoted
will include both an ask price and a bid price.
The bid price is the amount the forex dealer will ultimately be willing to purchase the base
currency for, and it will be written in an amount of the secondary currency. Alternately, the ask
price is the amount that a dealer can expect to sell any base currency for and is typically written
in the counter currency. The difference between the bid price and the ask price is where the
spread comes from and is typically written out to the fourth decimal place.
Don’t forget margin and rollover
In order to trade in the forex market successfully in the long-term, you will need to take margin
into account in a different way than you would with other markets. Specifically, in the forex
market, your margin ceases to be a down payment on potential future equity and is instead best
thought of as an account deposit that can be accurately used to help mitigate losses related to
forex trades that may go south down the line. Generally speaking, the greater the leverage a
dealer allows, the greater the margin on the trade is likely to be.

When it comes to completing a required forex trade, the general rule is you must complete your
side of the trade within 48 hours. This period of time can be extended, however, through the use
of a rollover which pushes the due date back a full 48 hours in addition for a percentage of
interest paid on the transaction. A rollover can be used multiple times, though the fees are
cumulative, so it is important to track them closely for the best results. Rollovers are also trade in
the forex market just like currencies.
When taking advantage of a rollover transaction, it is important to keep in mind that the
difference between the interest rate of the base currency and the counter currency can be properly
visualized via an overnight loan. When utilizing this type of loan, a trader will hold onto the long
position of a currency based on the assumption that it has a greater interest rate to gain an
advantage from. The amount gained from the rollover will then vary day to day depending on the
interest rate’s variance. If this all sounds too complicated, avoiding a rollover is easy, all you
have to do is avoid holding any positions overnight.

Leverage

When trading in the forex market you can think of leverage as money that is being borrowed
expressly for the purpose of potential increasing returns should a given trade go according to
plan. While not advisable for those who are first getting into the forex market, you can easily
find rates of greater than 100 to 1 which means it is possible to gain the benefits of trading a lot
while only having the cash on hand to pay for a micro lot. It is important to remember, however,
that if things don’t go according to plan then you are going to be on the hook for a lot’s worth of
loss so trade carefully.

As such, it can be effective to think of leverage as magnifying the movement of the market as a
whole. Some of the losses that you could potentially experience when using leverage can be
mitigated through a fastidious use of stop losses or through the use of a margin watcher. A
margin watcher is a type of software program that comes with a variety of online trading
platforms and allows users to set parameters to ensure that their losses are never going to be any
greater than they absolutely have to be.
Chapter 12 Risk and Account Management
It is important that you have the right mindset when you go into day trading. It is all about your
attitude. This can affect every aspect of your trades from day to day. This chapter is all about
how to have the right attitude, and how to change your mindset around completely.
Trading Psychology
1. Be flexible and do not hold onto the attachment to a trade. If the trade is not right, cut it loose
and move on to another one.
2. Changing how you view the market day to day is the key. What you think of the market today
may be a completely different story tomorrow.
3. By focusing on what you are doing now you can make quick decisive decisions. Stop thinking
you can will your goals to happen just to prove you are correct about something. Listen to the
market and forget everything you thought was being told to you by the market.
4. Gain experience and you gain intuition. By observing and experiencing the market, you will be
able to gain intuition that can help you make the right choices in the market. Check the chars,
the live trading streams, and maintain a log of the behavior within the market.
5. Use the strategy that is right for the idea. Start with a hypothesis and then build your strategy
around that idea. Sometimes choosing the best trade is based on the underlying buy. You may
find though that a currency or derivative is a better tactic to play. Seeking out the least risky
trade is going to have the greatest potential for reward.
6. Draw a line that you will not cross. Before you purchase a trade find the point at which you
can be proven inaccurate. Decide where your market needs to go and then examine what level
you will base the idea on to invalidate the claim. This is the location to place the stop.
7. Consistency needs to be executed. Be mechanical as you can be, even if you are doing manual
trades. What this means is when I see something that meets my criteria then I will jump on it and
purchase. When trading, you should not leave it up to the discrepancy of the investor's judgment.
In order to win you have to tow the line and be confident in pulling triggers when necessary.
8. Embracing the risk and uncertainty of the stock market. You need to be able to see that a trade
will be a loss prior to jumping into the trade position. Expect and accept the worse possible
outcome. This will help with the focus along with the trade process.
9. Believing can be seen in the numbers. By following a direct and clear strategy you will see
that the numbers will show proof of the effectiveness of the strategy.
10. Individual outcomes from trades should be ignored. Look at the collective of all the trades
that you placed, not the 1 or 2 that just took place. Examine those last 20 trades and see where
they won and were, they lost. The outcome of an individual trade can be masked and will dilute
the bias that was encountered by the investor. It can block you from repeating trades from the
past that were not beneficial. This will help with future decisions that will be influenced by the
bias.
The Mindset of the Day Trader

How to Start a Good Trade

You want to start a good trade off with a little bit of humility. Not counting your chickens before
they hatch is a good mindset to have. However, you cannot be too negative about a trade, or else,
you may jump at the first sign of increase, rather the perfect moment. It is a good idea to be
confident in your trading abilities, rather than being confident in the market itself. You are the
one who makes the decisions, and you control the amount of time that trade stays out there. It is
good to be confident in yourself so that you are not second guessing and missing good deals.

Mantras to Get You in the Zone

It is no secret that it is a good idea to get in the “zone” before you begin a trade. What is the
zone? Well, the truth is that it differs from person to person, but the base of it is a mindset that
has you focused primarily on the task at hand. You want to be able to psych yourself up for this
amount of focus. The best way to do this is to look up some daily affirmations online about day
trading. Affirmations are little phrases you say to yourself every day to help you lift your spirits.
Choose one and make that your mantra.

How to Avoid Getting Too Cocky

Cockiness is your worst enemy. You will pump up your self-esteem too much and start to make
mistakes because you feel infallible. You are not infallible. You are human, and humans make
mistakes. If you go into a trade thinking that you can’t make a mistake, then you are wrong. To
avoid being too cocky, you should always remember that the market is volatile and that you are
not magical. While you may be capable of making good decisions, you are not perfect, and the
market can fluctuate beyond your control.

How to Gain Confidence

If you are not confident in yourself, you will probably second guess yourself when it comes to a
good deal. You have to be confident, but not cocky. You want to be able to find that balance.
The easiest way to gain confidence is to stick by every choice you make. Don’t second guess
yourself. You have to believe in yourself. You want to make sure that you are being confident in
yourself, so you can really stick by the good decisions.

Mindsets to Avoid
Just like there are some mindsets that you should have, there are also mindsets that you should
avoid. You want to avoid being too cocky. Having too much confidence can cause you to stick
by predominately bad decisions. You also do not want to be too humble, because if you don’t
have any confidence in yourself you will probably pass up on a good deal in hopes for a better
one.

How to Use a Mindset to Your Advantage

It is a good idea to have a strong mindset and to not veer from that mindset. You should go into
each trade thinking that you will not settle for a bad trade. You should have the mindset that you
are going to focus and watch each trade like a hawk. You want to be focused and sure of
yourself, with just a hint of a realistic approach to your trades.

Why Thoughts Are Important for Success

Thoughts are essential to having a successful trade. You cannot go into a trade with a sour
attitude and expect to give your trades your all. You have to leave your problems outside of the
market and really focus on the trades each day. You need to make sure that you are clearing your
mind every day.

How to Change Your Current State of Mind

If you wish to change your state of mind, you have to really want to have the right mindset.
Affirmations as mentioned above are a great way to do so.
Chapter 13 Beginner’s Mistakes to Avoid
Playing out of your depth: Scared money never wins. Fear freezing thinking: Analysis Paralysis
While doing your practice trading, pay close attention to how much your trades vary in
profit/loss during each 5-minute segment, how much it varies in 15 minutes, half hour, hour
and so on. Don’t do this just one day or one hour but over several days or even a couple of
weeks. The reason to do this is quite simple: You are, so-to-speak, “testing your risk
tolerance.” Admittedly, there is a difference between paper trading and using real money. Still
it is better that you get this experience than not. If you feel these variations are not acceptable
for any reason, this type of trading may not be for you.

It is quite natural for you to have some ‘analysis paralysis’, especially the moment as you
switch to trading real money instead of practice trading. If your brain is overwhelmed so
completely with all you are trying to learn, be patient with yourself. Give yourself enough
time for your brain to assimilate the process. With practice your thinking and reactions
become faster. You will also notice the points at which you start stressing during losing trades;
take some notes on this because you need to know how this amount to determine your risk
tolerance and experience the point where your decisions are triggered by emotions. By the
time you can practice trade and accomplish 25 consecutive “successful” (error free whether
winner or loser) trades, you will be able to get some idea of what risk level you can handle.

Using a Blind System and Using Technicals Blindly

By “blind system,” I mean those get-rich-quick scams that promise lots of money with very
little work, risk, or thought. Buyers beware. No one who would ever sell you such a system
will ever agree to pay your losses. Trading blind on promises from unproven sources - is risky
territory.

Remember that technical indicators are tools, not foolproof trading systems and must be used
in the context of market concepts, trends, and patterns.

Impatience and Not Preparing Well Enough

Think of trading as owning your own business. You invest a few bucks for information and
supplies, then a research period to test feasibility as best you can, and then risk your hard-
earned money. In an earlier chapter, I strongly suggested you practice trade with a ledger,
keeping notes, until you can string together 25 consecutive trades with no errors. It can take a
while to do this successfully. Be patient and take time to learn by doing, not just reading about
it. Remember no two traders are identical; find what works for you.
Ignore Brain Pattern Dominance
When you trade using technical charting and indicators, you will notice that you start to “see” a
lot of potential patterns that can be forming. This is apophenia; your brain working hard to
find patterns and project outcomes. This is normal. Wait and let the “market tell you” what is
going on, and don’t allow your attention to stray when your brain sends you all the possible
outcomes of things that are not yet in your charts and indicators. Until you gain some
experience, this is one of the most difficult things to learn. Trading with technical indicators
and charts is not a perfect science by any means. The indicators will sometimes lead you
astray no matter how long you study them. It is quite common for inexperienced traders to

think that if
only they find the right technical indicators, they will win the vast majority of trades. This is a
very popular myth. It is something almost everyone wants to believe.

It is a rookie mistake to think that just because you got a good night’s sleep, got up early, read
the day’s financial news or financial channel, and have spent hours of practice - that the market
will send you a perfect technical indicator trade in the first ten minutes of your trading. You
must have patience. Sometimes, you see a trade instantly. Other times you can go more than
an hour and see no chances at all. Other days, you’ll have almost too many good signals.
These things do not happen on a schedule. You will see some days that are volatile and fast,
maybe too fast for your risk tolerance. Other days will be so slow, you might feel bored and
that you’ve wasted time. Over time, you learn to recognize those time periods - when trying to
trade at all is impossible; so don’t. Some days as the saying goes, “You get all dressed up and
there is just no place to go.” Hope is not a strategy. Let the market tell YOU what’s
happening, not the other way around.

Over-using Genius of Hindsight

This is another of the “most common” mistakes new and veteran traders make. I’ve already
written extensively about this. You can learn from genius of hindsight, but you should never
judge your ability to trade with information you did not have during the trade. This may seem
counter-intuitive so I want to be perfectly clear about this: You can LEARN from hindsight; it
can be a debriefing. Recognize that judging your decisions with hindsight is always a
hypothetical matter, never based on the same facts you had before or during a trade.

Trying to Guess Reversals

There are times when you may have a strong bias about what the market “should” do. For
example: The market may have extended time periods of remarkable gains or losses. You
come to feel the market should be ready for some reaction, retracement, or some adjustment.
Times like this will give you a strong bias and it is too easy to forget that you could be
considering trading on that bias, even though the technical indicators or other market action is
telling you otherwise. Over time, you will learn to use your technical charts and indicators
much like a night aircraft pilot uses instruments to navigate. It is quite common to ‘over read’
your indicators like the MACD. By that, I mean you will naturally start to anticipate what
might happen next and trade on this speculation, rather than waiting for a more reliable signal.
As discussed often in this book, humans have a very strong predilection to find patterns where
they do not really exist. To allow yourself to follow this inclination is to run the extra risk of
ignoring your charting and indicators. Avoiding this mistake, takes an enormous amount of
patience and a bit of experience.

Letting recent experience skew your thinking

So what does “your recent experience” really mean? To a stock trader, it could mean last year
or last month. To a day-trader, it could mean 15 minutes ago, yesterday, or two hours ago or
even five-minutes ago. When a day trader has a string of consecutive losses, it can result in the
trader being less aggressive and overly cautious. This can materialize into a reaction of: a)
taking profits too quickly to “make up” for the losing trades, b) perhaps letting the losses
accumulate due to being hopeful, or c) exiting a trade in a small drawdown too quickly to
avoid more losses. Any of these three reactions as a result of recent losing trades can be
directly categorized as letting your emotions influence your trading decisions.

The solution to this problem is learn to rely on the experience you gain using the candlesticks
and MACD. Over time, you will gain more confidence in your ability to read market news, to
be aware of scheduled reports and major events that occur during a trading day and will better
understand how to interpret the various intensities of trading signals. As you gain experience
with reading candlesticks and using the MACD indicator – you will learn to rely more on these
things – than to listen to that voice in your head that brings emotional reactions as well as its
ability to find patterns that are really not there, those optical illusions due to apophenia and
pareidolia. Each trade you make is no more related the last trade than is one coin toss that
follows another. They are mutually exclusive even though your brain is hard-wired to relate
them. This first step in avoiding this is to be aware of it.

Not Evaluating Your Trading as a Business Plan

You must keep a clear and accurate trading log. You’ll be using it to evaluate your methods and
results. It will be the equivalent of a business ledger that records expenses (losses) and profits
and it will detail your methods. It is easily possible to over-think everything. The ledger you
keep will show you truthful results and it can be used to identify both mistakes and to help find
improvements you can make. At the end of the day, you will be your own business manager and
can inspect your books to see how your business is doing. Your account balance won’t lie, it will
tell you if you are doing things right.
There is No Such Thing as a Winning Streak
There is a certain amount of euphoria when you make money trading. There is always a
temptation to think you are on a roll, but this is only an illusion. Each of your trades must
justify its own risk-reward.
Conclusion
Thanks for downloading this book. I know I have said this before but I have to emphasize this
point again. Eventually when you have navigated yourself a little in the stock market, you will
have to settle down on something that suits your personality. Some people have more appetite for
risk and may have better results with swing trading while some people do much better with
momentum day trading. Your goal is to find your niche as soon as possible and stick with it. You
either find your niche by paper trading and testing your results or testing the stock market with a
small amount of real money. For many new traders, it is often very tempting to just dive straight
into the market with all your money. My advice is to take everything slowly and focus on
learning and absorbing quality information at first. You have to remember that even the most
successful traders are still students of the market.
There is a fine line between passion and obsession. If you find yourself throwing more and more
savings into your brokerage account without knowing WHY, you are hooked to this game and
you better GET OUT. If you are a great trader, you will never be obsessed with trading because
you control your own emotions. Never EVER let your guard down to the emotional side of you
during trading, because a gentle misstep can and will cause an avalanche.
Many great traders I know are truly passionate about trading, they are very focused on their
charts and rarely make mistakes in their trades. But they also rarely step away from the trading
desk and all they see are charts and numbers. They eat and sleep thinking about stock charts. Life
is not all about trading, whenever I made a good profit for the day, I will step away from the
trading desk and hang out with some friends or family. You don’t have to be greedy because
trading opportunities will come every single day. Place your loved ones on the top of your
priority list because they will be the ones to support you when you fall.
 FOREX TRADING:
SIMPLE ONLINE INVESTMENT GUIDE FOR
BEGINNERS. STRATEGIES , SECRETS AND
THE FUNDAMENTALS OF TRADE
PSYCHOLOGY WILL HELP YOU EARN
MONEY WITH YOUR TRADING
INVESTMENTS.
Table of Contents
Introduction

Chapter 1 Where Do We Trade Forex?

Chapter 2 Choosing A Broker

Chapter 3 The Forex Trading Strategy of Scalping

Chapter 4 Strategies for Beginners

Chapter 5 Fundamental and Technical Analysis

Chapter 6 Operational Strategies for the Forex

Chapter 7 Trading the Breakout

Chapter 8 Risk management and self discipline

Chapter 9 Top Tips For Forex Traders

Conclusion
 Introduction
Forex exchange, commonly referred to as FX, is the biggest financial market that exists across
the planet. It is a market that circulates more than five trillion dollars every day. It involves
governments, central banks, regular banks, hedge funds, major financial analytic farms as well as
the common person known as the retailer. It has engagements from the biggest cats and still has
space for the regular person who wants to get into the business and make money for themselves.
One on one trader exchanges are welcome, only that it’s a bit complex. For this reason, people
end up using brokers.
What is Forex?
The word Forex itself is a combination of the first few letters of two English words, foreign and
exchange. This is because Forex is the exchange of one currency for another. There are different
names for Forex such as Forex trading, spot trading, Foreign exchange trading, and it is
abbreviated as FX trading. It is unrivaled in terms of its’ liquidity among other financial markets
in the world averaging 5 trillion US dollars daily trading volume according to the International
Monetary Fund. It also has no central or physical location as it is located online as an electronic
platform.
The Forex financial market combines banks, financial institutions, business moguls, private
investors, brokers an individual Forex trader involved in the buying and selling of currencies.
The trading is done worldwide by anyone who has access to the internet corresponding with the
different opening and closing of financial centers around the world. These financial centers
include but are not limited to; the London Financial Center, Frankfurt trading center, New York
Financial Center, Tokyo Financial trading center, Sydney Financial trading center etcetera.
Because of the different time zones across the world, Forex trading is done 24 hours every
working day effectively ensuring it is the most active market across the planet.

History of Forex
Foreign exchange controls were introduced towards the end of World War 2 by the Allied
Countries (U.S, Great Britain, and France) who converged at the United Nations Monetary and
Financial Conference that was held in Bretton Woods, New Hampshire during the year 1944.
This post-war foreign exchange System created the International Monetary Fund (IMF) and fixed
the US Dollar at 35 dollars per ounce of Gold and fixed the exchange rate of the currencies to the
dollar. Prior to this agreement, central banks of different countries defended and supported their
currencies by basing it on the currency’s convertibility to Gold. Customers would convert paper
money into Gold by putting in a request into their banks since the probability of all the
consumers requesting to exchange their paper money for Gold at the same time was highly
unlikely, banks kept a determined amount of Gold popularly referred to as gold reserves to
handle the expected daily transactions. However, after World War 1, consumers rushed to
convert their paper money into Gold, leaving the banks in a precarious position. The introduction
of the International Monetary Fund was in a bid to control these supply and demand forces that
banks were grappling with during the crisis or whenever the confidence in currencies and
financial markets was shaky.

However, in 1971, the Bretton Woods Control system was suspended by President Nixon who
shut down the gold convertibility standard which had been plagued with extreme volatilities
between different country economies making the dollar lose its position as the sole international
currency because of the differences in government budgets and trade deficits. The European
community that is West Germany, France, Italy, Netherlands, Belgium, and Luxembourg
introduced the European Joint Float, which was officially mandated in 1979.
The floating Exchange system valued one currency in terms of another currency. This was
enforced by the Jamaican agreement which was signed in 1976 at Kingston, Jamaica by a
committee of the International Monetary Fund’s board of governors and committee. This accord
allowed the price of Gold to float against the US dollar and other currencies but within a set of
agreed constraints. This gave back the power to central banks by allowing them to choose an
exchange rate that they preferred exchanging their currencies against other currency and
constantly adjusting these rates once their currencies went too far wide (that is high or low in
value) or out of the set constraints. Ultimately this was the birth of foreign exchange as we know
it today. We still use these agreements and constraints with a few modifications, such as the
removal of Gold to trade currencies across the world in this century.
The most commonly traded legal tender pairs are:
European Euro and the US dollar (EUR\USD)
US dollar and the Japanese Yen (USD/JPY)
US Dollar and the Swiss Franc (USD/CHF)
British Pound and the US dollar (GBP/USD)
The most common and actively traded currencies are called the Majors. The Majors make the
majority of the trades as they are part of the commonly traded currency pairs. The major in the
markets currently are:
The US Dollars (USD)
The European Euro (EUR)
The Great British Pound (GBP)
 The Japanese Yen (JPY)
The Canadian Dollar (CAD)
The Australian Dollar (AUD)
The Swiss Franc (CHF)
When a currency pair is quoted, the first in the pair is known as the base currency. The second in
the pair is known as the counter or quote currency. The currency pair indicates how much a
quote is needed for the exchange of the base currency. In a direct quote, the quote currency is the
foreign exchange. For example, USD/JPY 1.6300 means that one Use dollar is traded for 1.75
Japanese Yen.
From the above example, we can tell that the base currency in any pair will always be equated to
a monetary unit of exchange (1). My analysis of the FX Spot market shows that the dominant
base currencies are the EUR, GBP, and USD. Whenever a currency is a counter currency against
the US Dollar, it is called a direct rate. For example, USD/JPY 106.33. Any currency pair that is
not traded as a counter of the US dollars in a pair is known to as a cross quote, for example,
CAD/CHF.
Vital Forex Definitions.
1. Base Currency
In a currency pair USD/CAD, the first three letters denote what is known as the base currency.
Therefore, USD is the base currency in this pair
2. Quote Currency/Counter Currency
This is the second three letters which denote another currency in the pair. In this case, the CAD
(Canadian Dollars) is the quote currency which represents how much of it is needed in order to
exchange for one monetary unit of the base currency.
3. Major and Minor currencies.
Major currencies refer to the seven most popular and frequently exchanged currencies in the
Forex market. They are the most liquid, and therefore they generate a major volume of the global
currency trade. According to the International Monetary Fund, the seven majors are:
USD
EUR
GBP
JPY
CAD
AUD
CHF
When either of these majors combines in a pair that is known as a major pair. For example,
USD/AUD, EUR/GBP etcetera.
Any other currency that is not in this list is referred to as a minor currency.
4. Exotic Currency
These are currencies mostly originating from developing countries in the Pacific, Asia, the
Middle East, and Africa. They are rarely traded in the FX market because they are not common;
thus, their liquidity is not as high as that of the major and minor currencies. Trading in these
form of currencies is hard examples of such currencies include but are not limited to, the Thai
Baht, Iraqi Dinar, Uruguay Peso The pairing of a major currency and an exotic currency is
known as an exotic pair, for example, the pairing of a major currency alongside the currency of
an emerging economy such as Mexican Peso, Hong Kong Dollar, Tanzanian Shilling etcetera.
5. Pip
In the Forex spot market, currencies are traded in fractions of a cent. Therefore, a pip is the
smallest movement that can be made by a currency change. Normally currency pairs are made of
5 significant figures with a decimal point placed immediately after the first significant number
followed by four decimal points. E.g., EUR/USD is 1.3377. Therefore, a single pip here is equal
to the smallest change in the fourth decimal point, which in this case s 0.0001. Consequently, any
currency pair that has the USD as the quote currency has a pip that is equal to 1\100 of a cent
that is four decimal points with the exception of the JPY/USD pair where one pip is equal to 0.01
that is two decimal points.
The pip determines the calculation of profit or loss in the trade, as shown in the examples below.
If you buy the EUR/USD pair at 1.2345 and later resell it at 1.2360, your profit will be the
difference between these prices, which is +15 pips or 0.0015.
If you bought the same pair at the same price but sold it for 1.2325, then the difference which is
-20 pips or -0.0020 is what you will record as the loss.
In the case of the USD/JPY which is quoted to two decimal points, the same calculations are
done, but in the case of a profit, it is quoted as +0.10 or -0.15 loss.
The going up of the price of a quote shows that the base currency is getting stronger, and
therefore, it needs more of the quote currency in order to equal the value of one. Consequently, if
the price falls, it means the base currency is getting weaker.
6. Bid Price
This is the amount that the buyer (market maker) is willing to buy a given currency pair, and
consequently, the seller (trader) should be willing to sell the base currency to the buyer at the
same price. It is usually represented on the left side of the quote. For example, in a currency
EUR/USD, which is quoted as 1.3924/27, the Bid price is 1.3924; this translates into: the trader
can sell one European Euro for 1.3924 US Dollars.
7. Ask Price.
This is the amount that the seller (market maker) is willing to vend a given pair consequently it’s
also the price that a trader (who is the buyer in this case) can pay in exchange for the base
currency from the seller. This price is usually represented on the opposite of the bid price, which
is the right-hand side of the quote. In the previous example shown at the bid price that is;
EUR/USD 1.3924/27, the ask, therefore, is 1.3927, meaning that the trader can buy a Euro for
1.3927 US dollars. The ask is also at times, known as the offer price.
8. Spread
The dealing spread is a difference between the current ask and bid prices of any given currency
pair that is available in the market. In other words, this is defined as the transaction cost of a
currency pair. The market maker makes money off a spread instead of charging commissions;
this is how most foreign exchange brokers make money. The smaller the dealing spread, the
more lucrative it is for the traders, in a normal market condition, the dealing spread over the
majority currency pairs should not be more than 3 pips. Using the quote in our example above;
EUR/USD 1.3924/27 the transaction cost is 3 pips. That is 1.3937-1.3925= 0.0003, which is 3
pips.
9. Cross currency
This is a currency pair that does not involve the USD. For example, the GBP/AUD, the
EUR/CHF. This type of currency was introduced to facilitate traders who wanted to directly
trade in their own currencies without following the mandated law of changing the currency into
the USD before trading it at all. This move helped different traders avoid the tedious process and
loss of money in changing from their currencies into the US Dollar before any trading took
place.
10. Cross quote and Cross rates.
This is the currency exchange rate between two currencies which are not necessarily considered
the official currencies of the country in which the exchange rate quote is given in. For example,
an American Television Station quotes the exchange rate between the Japanese Yen and the
European Euro. This qualifies as a cross quotes since neither the Japanese Yen nor the European
Euro is considered the official currencies for the Americas. However, if the Great Britain/US
dollar pair is mentioned in the same broadcast, then this doesn’t qualify as a cross quote even
though the Great Britain pound is not an official currency of America. This exception is because
the US Dollar is mentioned in the trading instrument, and this is the official national currency of
the country.
Assuming the GBP/USD is equal to 1.5464, and the USD/JPY is equal to 163.45, then the cross
quotes are USD/JPY is equal to 1.5464*163.45= 252.75. In this case, 252.75 is considered the
cross rate since one British pound is equal to 252.75 Japanese Yen. Generally, cross rates are not
very common as they carry a large spread with low liquidity which in turn leads to a very high
transaction cost making them unattractive.
11. Margin
This amount of money is needed to open and/ or maintain a position. Brokers will require some
collateral to ensure that the traders can still pay and cover their end of the bargain in case of a
loss.
Advantages of Forex Trading
As we progress further into this book, in chapter five, we shall discuss these advantages in detail,
but right now we are going to go through the basics in order to provide a good basic foundation
to set you up for trading.
a) Liquidity
Forex Markets are the most liquid markets the world has ever seen, making it a safe haven for
speculators to trade in. The liquidity of the market means that the different orders are quickly
filled, making it very easy for these orders to be executed on time. Orders will be explained in
the next chapters of this book. The narrowing of spreads confirms the liquidity of the spot
markets with the majority of the traders now focusing their attention on major currencies which
are sold in larger volumes on a daily basis.
b) 24 Hours round the clock trading
The location of the trade centers in different time zones of the world opens a window of
opportunity for a trader to trade any hour of the day as the markets are open for 24 hours. The
opening and closing times of London, New York, Sydney, Frankfurt, and Tokyo finance centers
offer five different time zones that overlap giving one the opportunity to act immediately on the
news of any political, social, economic breaking news throughout the world. Although between 5
pm EST- east-ern Standard Time Sunday and 4.30 p.m. (EST) Friday there is a window of
opportunity and Gap since the weekend has begun and these centers are shut down.
c) Trading on Margin\Leverage
Trading on margin is when one trades on an amount of money that is not in their account. It is
getting a loan from the broker platform that they are using for trading in the hopes of repaying
back at a later date either when the sale is successful or not. While the stock markets too provide
this facility to their clients, the Forex market has a higher hand since their dollar is higher than
that of the stock market and it can buy more than what the same dollar in the stock market can
buy. However, while this is an advantage, it also a very risky venture as the slightest fall can
make one lose both their investments and the current stock in their accounts.
d) Low Minimums
The requirements for trading in the spot market are opening an account with a broker and
depositing a minimum amount with some brokers offering as low as 10 dollars to open an
account. This makes it easy for anyone with interest in Forex trading and access to the internet
eligible for trading unlike the long and tedious process required by the stockbrokers to trade in a
stock exchange or other financial markets.
e) NO one can Influence the markets
The vastness of the spot market makes it very hard for any particular trader to make an impact on
trading. This includes the central banks who try to increase the value of their currencies through
the trading of their own currencies in order to make them more relevant. The market forces
eventually take over, unlike in the stock markets where speculators can depress shares of a
company by short selling.
f) No restrictions on short selling/ long selling.
Short selling occurs when a trader borrows the currency and immediately sells them with the
hope of purchasing them back later at a price that is less than they sold so that they can scoop a
hefty profit and returning it to the lender. While long selling is when a trader hoards a certain
currency riding it out waiting to sell it at a later date in order to get a good payday out of it.
These two techniques are not encouraged in stock exchange market as they traders can influence
the market by doing this; however, in Forex this is not restricted since there can’t be any
influence on the market and the liquidity of the market can very easily turn a short-selling
strategy into a long selling strategy overnight.
g) The lack of commissions/low commissions
Brokers in the spot markets will be discussed in detail in the next chapter in this book. However,
it is important to note that they are not paid by commission like their counterparts in the stock
market; they are instead paid by in terms of the dealing spread. With the rapid increase in
technology, Forex brokers now offer Electronic Communication Networks (ECNs) systems
which offer a much-improved spread instead of the 3 offered under normal market conditions.
Most of these brokers charge a commission for the use of these ECN systems. Thus, they offer
the new spread plus the commission as the payments. Therefore, making these markets more
efficient than the stock markets.
h) Constant Trading opportunities and activities.
The liquidity, the accessibility, the window of overlapping time schedules coupled with the
constant change in political, economic setups of different countries provides the constant array of
activities leading to fluctuations in the different charts involving different currencies and the
chance to respond very fast to any changes.
Disadvantages of Forex trading
I. Two different economies to consider
By virtue, the trading of foreign currency only occurs against two different currencies of
different countries. When a trader is conducting their analysis, the issues affecting one country
may vary in an extreme manner in relation to the other currency it is trading against. One of the
countries may have dominant issues standing out and overshadowing the other economies' issues
making it very hard to make an informed decision on the best trade to make especially when
there is a change in either the social, political or economic dynamics.
II. The lack of a central exchange
Each market maker in the foreign exchange market has the chance to either use the electronic
communication network systems and or using brokers as their regulated mechanism backing
their participation in the markets. This, therefore, makes the trading in this market more of a
private exchange than a standardized exchange like the stock markets. This lack of a centralized
data point means the market lacks the special add on such as the trading volume information that
is found readily in the stock and futures markets.
More of these advantages and disadvantages will be further explained in the final chapter of this
book.
 Chapter 1 Where Do We Trade Forex?

History Of Forex Trading Platforms

Forex trade started for in the ancient times of the Babylonians. During this time, the system was
made up of only goods with the exchange happening between tangible goods. There was then the
introduction of metal and gold and silver became popular. Therefore, it became the tool for
transaction; this idea was loved by many, and therefore it became popular. After some time,
political regimes started forming, and the creation of coins for trade became necessary. Gold
surpassed all the coins, and it became an important trading tool, and as a result, it became
restricted. The restriction created panic, as more people wanted to exchange their value for
money with gold.
In 1931, the gold which was considered as a standard tool for exchange trade was removed,
leading to the emergence of the Forex trade market. The market was introduced so as to have a
more reliable and stable currency of exchange. However, the Forex market was not more active
because only a small number of people knew how it operated. The USA introduced a new
world’s currency in 1944: it was the US Dollar. The use of this currency was agreed by the
World Bank, GAAT and IMF at Bretton woods. There was still an issue on the use of the
standard Gold, but it was solved as all the currencies for use in the Forex market were fixed at
the gold standard. Bretton Woods became the most popular system of exchanging currencies,
and it operated with fixed exchange rates. This system of exchange lasted for barely ten years. In
the 1960s, the dollar started to devalue, and this became worse during the Vietnam War. The
President of the USA then suspended the conversion of dollar to gold, which created a crisis in
the Bretton Woods system, and it collapsed. The collapse of Bretton woods opened the way for a
free market, where currencies were not fixed; they were allowed to fluctuate, and their behavior
was determined by foreign direct investment and trade flows. Later there emerged a Smithsonian
agreement that proposed the fluctuation of currencies to be confined within a given range of
2.25%. This agreement was later disputed as nations such as the USA required to value of the
currency beyond the fixed point. This led to the closure of the Forex market in 1971 when it was
reopened a year later, the fixed level of fluctuation was no longer functional and free market
controlled by demand and supply prevailed.
The big banks now controlled the trade by trading currencies amongst themselves, and at this
time the platform was known as the inter-bank. The other banks that joined the system used the
retail platform that only allowed access to currencies through the big banks. The currencies were
obtained at the rates determined by the big bank trader involved; these rates were less favorable.
There was a relief when the electronic platform came about in 1994. The retail traders and
individuals now had access to more information about Forex trade and direct access to currency
trading rates were possible. The advancement in technology made things easier as electronic now
became an online trading platform, where different brokers and institution gets direct clients to
buy and sell their currencies from different markets around the world. The platforms that are now
in existence are the interbank, the retail, and the online trading platforms.
 Market Share Of Platforms
The Interbank
The interbank market is the one that has the second volume of currencies traded in a day. In the
interbank, the largest bank trade with each other directly using interbank brokers. They also use
electronic brokering systems such as Reuters or Electronic Brokering Services (EBS). This
platform is an approved system, where banks trade with each other because of their credit
relationship established over time. Apart from trades between banks, others that use interbank
are institutions such as corporations, online Forex markets, and hedge funds. Small banks in
emerging markets, institutional investors, and corporations do not have access to rates of the
interbank platform because they do not have well-established credit lines connecting them to the
big banks. Therefore, for foreign exchange needs, they deal with one bank, but at less
competitive rates. The rates become even less competitive for participants that use small banks
and exchange agencies to trade; remember that the banks also need to make a profit. The largest
market share among the banks is JPMorgan, followed by UBS, Deutsche Bank, Bank of America
Merril Lynch, Citi, Goldman Sachs, Standard Chartered, HSBC, XTX Markets, and Barclays.
Retail Traders
Retail traders include the small bank community, institutional investors, banks found in
emerging markets, and corporations. As explained earlier, these platforms usual have no direct
control of the rates because they are attached to big banks. The big backs, therefore, offer a rate
that is lowering slightly different from what they offer when buying or selling to the other big
banks. The volume of currencies traded across this platform is therefore slightly lower than that
traded through the interbank platform.
 The Online Trading Platform
The introduction of the electronic trading system was introduced in 1992. It then developed to
online trading gave a chance for retail traders to connect with market makers and increased the
participants because of its low costs and high efficiency. This platform offers a chance for
individuals to access the rates that are the same as those used by big banks. This trading platform
has steadily grown due to the accessibility and continued development of technology that
supports it. It has the largest market share of more than 50% with the traders, including big
banks, small bank community, corporations, and individuals.
 The Platform With Majority Traders
The most important part of Forex is access to the buyer or seller. Online trading has broken the
barrier that used to limit how currencies were exchanged. Anyone wishing to join Forex trade
can quickly get online and choose a trader. This platform is also not only used by individuals but
also the big banks. Everyone in this industry constantly looks for clients and has made has easier
to access them in all parts of the world. This has led to all traders to converge online to look for
the best-trading partners and offers; this makes the online platform the most popular and with
most traders.
 The Most Popular Trading Platforms
The most popular platforms are online trading platforms with Ninja trader being the most
popular in the world. The platform offers the environment for testing many trading strategies and
gives historical data on the performance of currencies. It also gives daily and hourly analysis
charts. It is very stable and offers high performance. In addition, it has high custom indicators
and order modification. This trading platform is customized such that it allows the trader to
arrange data provided and charts on the screen in a self-fitting manner to allow for analysis. The
analysis is also easier because it has an inbuilt strategy analyzer that allows analysis in terms of
profit factor, Sharpe Ratio, and other crucial measurable parameters. Although it is the most
popular trading platform, it is not the best for use by inexperienced traders, and not supported by
devices that run on IOS and Android.
 How People Respond To New Platforms
People are excited about the new platforms of trading and want to maximize their trades using
the new technology. There has been an increase in participation of non-financial institutions,
non-dealer financial institutions, and individuals. The market trading now dominates the market
today, with a share of more than 50% of customers from all segment of the market. There are no
worries for individuals with little knowledge about the trade because there is available
knowledge online on how to trade; some traders offer to give demos to clients using virtual
money, which they later allow them to trade using real currency. Some amateur individual
traders are paying for training sessions on online trading, while some learn through
apprenticeship. Many people want to part of the trading system that was dominated by big banks
in the world.
People are also taking advantage of the advancement in technology to access the trade all the
time. The use of smartphones and tablets, among other electronic devices, has enabled many to
monitor the market and place their order at their own convenient time and place. Some have
resigned from their full-time job just to do Forex trading, as others do it as a part-time job. In
some instances, some people have employed others to do for them online Forex trading, while
others seek consulting services.
Competition among Platforms
Today, the competition among platform is very high because of the ease of access to information
about currencies online and the reduction in the cost of maintenance and transactions. This is
thanks to the advancement in technology. Those using different platforms always operate within
a given range in terms of costs and rates because they know that any big difference would lead to
a shift of clients to other platforms. The competition has made it easier for clients to get better
rates at a lower cost of operation. There is competition in the improvement in the user interphase,
which gives clients a better experience and flexibility in the use
 What Makes A Platform Better?
Simplicity
Nowadays, most people are going for online Forex trading platforms, and these people are either
experienced or not. The platform should be simple for new users to adapt and use them correctly.
There must be tools that are easy to interpret to navigate and execute important actions easily.
The tools should be also visible and correctly positioned for a timely reaction. It should also be
user-friendly and convenient; it should be easily accessed from many devices.
Flexibility
The level of flexibility of the trading system should also be high for maximum efficiency. The
order of management of the execution of action should be clearly stated, tools for charting or
engagement with the client should be provided on the same screen or page to provide timely
reaction, thus avoiding time-costly procedures. Time is money, and when it comes to Forex
trading, a delay can mean a loss of money.

Real-Time Information
The currency market is extremely volatile and unpredictable; this means that sometimes, it can
experience shifts within a very short time. A good trading platform must, therefore, have a
feature that enables the trader to view accurate real-time information and changes in the prices of
the currency. In order to make wise and immediate decisions, traders need this information. The
information should be provided as daily, weekly, monthly, and annual reports. New updates on
the current market news updates and headlines that affect currency should also be included in the
platform.
Easily Customized
Each customer has personal requirements and specific needs, and therefore, a trading platform
should have options that allow for customization. For instance, a trader that wants his or her
order to be made automatically should be able to do that and other important aspects of traders.
Secure
Transacting online should be secure because most of the time, it involves the supply of personal
information such as names, passwords, and IDs. The logins should be safe when using the
platform or switching to other platforms. This means that technology use should be high tech and
up to date.
 The Platforms Which Were There And Reasons For Closure
Bretton woods Forex trading system was there earlier in the history of Forex trade, but it
collapsed because it was not favorable for clients who traded on it. At the time of its existence,
all the currencies were given a fixed value based on the standard value of the gold. This lead to
the devaluing of some currencies to an unsustainable level, such currencies include the US
Dollar. The closure of this platform led to the revolution of the Forex trade in a way that the
value of the currency was now controlled by the supply and demand. It has remained so until
today.
 Chapter 2 Choosing A Broker
A broker refers to a firm or somewhat an individual who charges a certain fee or rather a
commission for executing the buying and the selling process. In other words, they play the role
of connecting the customer and the seller of the product. Thus, they are generally paid for acting
as a link between the two parties. For instance, a client might be willing to buy shares from a
particular organization. However, he might be lacking enough information about the places that
he can purchase these shares. Thus, he will be forced to seek a person who understands well the
stock exchange markets. The broker will, therefore, educate the client as well as link them with
the right sellers. The broker will thus earn by offering such a connection. Other brokers sell
insurance policies to individuals. In most cases, the individuals earn a commission once the
clients they brought in the organization buy or renews the system. Any insurance companies
have utilized the aspect as a way of increasing their sales.
 List Of Common Brokers
IG
It is rated as one of the best forex brokers in the world. It was one of the pioneers in offering
contracts for difference as well as spread beating. The organization was founded in the year 1974
and had been growing as a leader in online trading as well as the marketing industry. One of the
aspects that have boosted its growth is the fact that it has linked a lot of customers, hence gaining
more trust. In other words, a duet to its large customer base, a lot of clients prefers selling and
buying their services. The other aspect worth noting is that this organization is London based,
and it is among one of the companies that are listed on the London Stock Exchange market for
more than 250 times. The aspect is due to the fact that it offers more than 15,000 products across
several asset classes. Such classes include CFDs on shares, forex, commodities, bonds, crypto
currencies as well as indices. Another aspect worth noting is that the 2019 May report, the firm is
serving more than 120,000 active clients around the globe. Also, there are more than 350,000
clients that are served on a daily basis. The aspect has been critical in boosting its expansion as
this group of individuals does more advertisements.
Some of the benefits that one gains by working in this industry are the fact that it allows
comprehensive trading and the utilization of tools that enhance the real exchange of data. The
other aspect worth noting is that it has a public traded license that allows a regular jurisdiction
across the entire globe. In other words, one can acquire the services of this organization across
the whole world with ease without the fear of acting against the laws of the nation. Also, the
premises offer some of the competitive based commission that enhances pricing as spreading of
forex. There is also a broad range of markets that are associated with the premises too, there
several currencies and multi assets CFDs that are offered by the organization. The aspect has
been critical in the sense that it allows the perfect utilization of all the services as well as the
resources available across the globe. Some of the services that are offered by the organization are
permitted globally, such that even after traveling from one nation to the other, one can still
access their services. Since the year 1974, the organization has joined more than 195,000 traders
across the entire globe. The aspect has allowed the selling its shares as well as services hence its
fame.
Saxo Bank
The forex broker was established in 1992and has then been among the leading organization in
offering forex services as well as the multi-asset brokerages across more than 15 nations. Some
of these nations include the UK, Denmark, and Singapore, among others. One of the aspects of
the organization is that it offers services to both retailers as well as institutional clients in the
globe. The character has allowed the premises to provide more than one million transactions each
day. Thus, it holds over $ 16 billion in asset management. The Saxo bank also offers more
services to all of her clients. Such services include Spot FX, Non-deliverable Forwards (NDFs),
contract difference as well as all the stock exchange options. The aspect has been critical in
increasing its customer base across the globe. Some of the services such as crypto and bond
services that are offered in the premises has allowed its expansion in the sense that they are
sensitive and essentials.

Some of the benefits that one gain by assessing the services of the premises are that it enhances
diverse selection of quality, it increases competitive commissions and forex spread as well as an
improved multiple financial jurisdiction function that is allowed across the entire globe. In other
words, the premises offer services that are allowed in the whole world, and that considers the
rules and policies provided in each nation. The aspect has enhanced its continued growth despite
the increased competition. One is required to pay a minimum deposit of about $2000 and an
automated trading solution for all the traders. There are times when the premises offer bonuses of
182 trade forex pairs to all its clients. The aspect has also been the key reason behind its
increased expansion. In other words, there are various services offered at a relatively low price
hence the widening of its customer base.
CMC Markets
The premises were founded in 1989 and since then, it has grown to be one of the leading retail
forex as well as a CFD brokerage. The premises thus serve more than 10,000 CFD instruments
that cut across all the classes such as forex, commodities as well as security markets. The aspect
has allowed the premises to spread its services to more than 60,000 clients across the entire
globe. The premises have more than 15 offices that are well distributed in the nation; it offers the
services. Most of its actions are thus related in UK, Australia as well as Canada. The aspect is
due to the fact that the premises have it is customer bases in some of these nations. In other
words, its serves are well are accepted in Canada and the UK.
There are various benefits that one gains by joining the premises. One, the premise offers some
of the best competitive spread to all her customers. In other words, there are a variety of services
that one can choose from. Also, the premises offer some of the largest selection of currency pairs
in the entire industry. There are more than one hundred and eighty currencies that one can access
by joining the premises. The other aspect worth noting is that the premises offer some of the best
regulated financial agents in the entire globe. In other words, there are policies as well as rules
that govern the provision of services in the world. Also, it is easy to identify the premises as
there are potent charts as well as patterns that are used as recognition tools.
City Index
The forex broker was founded in 1983 in the UK. Since then, the premises have gained
popularity and has turned out to be one of the leading brokers in London. It is worth noting that
in 2015, the premises acquired GAIN Capital Holding Company that enhanced its increased
customer base. Since 2015, the premises have been providing traders with services such as CFDs
and spreading-betting derivatives. The premises have been further expanding the forex services
with the acquisition of markets as well as FX solutions before gaining the capital market.
Nowadays, the City Index has been operating as an independent brand under GAIN Capital in
Asia as well as the UK. The aspect has allowed a multi-asset solution hence offering traders
access to over 12,000 products across the global markets.
Some of the benefits that one gains part of the capital holding, a large selection of CFDs as well
as regulated in several jurisdictions. The organization has tight spreads as well as low margins
and fast execution. In others, the premises have been time from time, offering average ranges to
all the clients; hence its increased customer base.
XTB Review
The organization was founded in Poland in the year 2002. Since then the organization has been
well known for its forex and CFDs brokerage. Since then, the organization has maintained its
offices in several nations; it offers its services. The premise has been working as a multi-asset
broker that is regulated in several centers, hence increasing their competitive advantage. The
premises have been trading as multiple financial centers offering a lot of services to all her
traders. With a wide range of more than 2000 functions, the premises have been trading in almost
all nations hence an increase in its customer base. The premises also offer excellent services that
have been the reason behind its expansion. One of the aspects that have made the forex broker be
thriving in such a competitive environment.
 Signs Of Illegitimate Brokers
Although numerous brokers have been working in the forex industry, the aspect of legitimacy
has been an issue affecting the progress of some these premises. One of the elements that are
considered is the vulnerability of the clients. In most cases premises illegitimate brokers tend to
rob of their customers. Most of them are self-reliant and optimistic. Most of them operate above
their financial knowledge, hence making numerous mistakes. Most of these organization record
big loses as they are relatively weak in term of management. The organization offers a lot of
transactions that tend to be cumbersome in terms of management. It is worth noting that most of
their operations aren’t legitimate and never approved by the necessary authorities. Thus, when
deciding on the kind of forex premises to seek services from, it is essential to consider some
factors. Avoid assumptions that are exaggerative in terms of offering services that are above their
knowledge. The aspect is harmful in the sense that they provide services that are not well
planned hence recording a number of loses that befalls many clients in the long run. In other
words, the drops recorded in the organization
 Signs Of Legitimate Brokers
Although there are numerous illegitimate brokers in the market, there are legitimate brokers who
offer excellent services. Most of them provide a few unique functions. In other words, they don’t
give a lot of transactions. Thus, they are able to manage their operations and command profits on
their premises. The other aspect worth noting is that most of the services are approved by both
the clients as well as the governing bodies in the organization. The other issue worth noting is
that most of these premises have employed excellent knowledge in a range the progress of the
customers. In other words, all their services are focused on advancing the clients.
In a nutshell, when selecting a forex broker, it is good to consider several factors. It is critical to
find whether the premises are approved by both the governments as well as the clients. It is good
to view the number of services as well as the transactions that are offered by the premise. The
aspect is due to the fact that most of the wrong assumptions tend to provide numerous services
that are poorly managed. The reviews offered by the clients of each of these premises need to be
considered as they reflect whether the brokers are legitimate or not. Clients of consistent clients
tend to offer reviews that are good as the services they receive manage to be excellent. The
financial reports of these organization tend to be considered. The aspect is linked to the fact that
they tend to reflect whether the brokers are making loses or profits. It is critical to find premises
that record gains since the benefits tend to be high.
 Chapter 3 The Forex Trading Strategy of Scalping
Now that you have two distinct types of trading strategies under your belt that have actual
economic theories behind them, we will now turn our attention away from economic theory and
focus only on what strategies can offer to you. It is hopefully obvious that economic theory is
important, especially when you are trading on the foreign exchange market because economic
theories are the way in which advanced foreign exchange investors see the market operating at a
macro-level. These investors fit their personal trading strategies into the market based on these
theoretical backings. Of course, there are also investors who are making transactions with
currency who are successful but who do not really spend their time thinking about economic
theory. This book hopes to present a wide variety of information to you so that you can choose
for yourself which strategy is best for your own personal investment style. The first of these is
scalping.
What is Scalping on the Stock Market?

On the foreign exchange market, scalping can be best defined as a particular type of short-term
trader. Typically, this type of trader will buy and sell shares dozens and in some cases hundreds
of times throughout the day. The overall goal of a stock market scalper is to make small profits
throughout the day during each trade, so that there is a big lump sum of money for the invest to
reap the benefits of when the day is done. This differs largely from an investor who has long-
term aspirations with their money, because these types of investors are hoping to be profitable
over a longer period of time. Investing over the long-term is generally considered to be safer
than investing over the short-term.
How Much Does It Cost to Become a Scalper?

Similar to any type of investment strategy, it’s going to cost you some money up front if you
want to trade in the Big Leagues. The first aspect that is related to cost is the concept of time. It
costs a lot of time when you are scalping, because if you want to be good at it you have to be
willing to spend time watching many stocks simultaneously. For example, it’s not uncommon
for an investor to hardly move away from his or her monitor throughout the day if he or she is
scalping, because if he or she is to miss one transaction it could be highly detrimental to the
investor’s trading strategy throughout the day. This hardly gives an investor time to use the
restroom! Moving away from the idea of time costs, another cost that is associated with scalping
are high transaction costs. This makes sense. If an investor needs to buy and sell stocks at a
moment’s notice, then he or she is going to need to make sure that there are adequate funds
available and at hand for any trades that are going to occur. Lastly, one of the biggest costs that
can burden the scalper is not that or transaction costs, but that of commission fees. A scalper on
the forex exchange market has to deal with the average brokerage fees that are associated with
any type of trading on the stock market; however, he or she also has to deal with the exchange
rate. This makes this type of trading extremely costly, and if you don’t have the funds to cover
these types of transaction fees, you might want to stay away from scalping altogether and focus
your attention instead on long-term strategies.

Tools and Techniques That Are Used in Scalping

Now that you what you are getting into when you decide to invest in scalping and you are aware
of the costs that are associated with this type of trading, we are going to now look at the tools,
terms and techniques that you will need to know as you begin to deepen your knowledge of
scalping on a more intimate scale. Let’s take a look at some of these terms now.
Scalping Term 1: Level II Quotes

Most succinctly, a level II quote attempts to organize the different quotes into a logical order. A
level II quote will provide an investor with a list of the stock transactions that have been
completed for a particular day. In addition to providing the investor with a comprehensive list, a
level II quote will also order these transactions in a way that goes from the best ask and bid
prices to the worst ask and bid prices. It should be obvious as to why a level II quote would be
useful for a scalper who is trading larger amounts of shares throughout the day. When there is a
list available that chronicles the transactions throughout the day, it is faster for the scalper to
access information that is useful.

If you are at all interested in using a level II quote for your investment strategies,
understanding the photo above will be helpful to you. In the example above starting from the
left-hand side, you can see that the first indicator is the name of the stock that is in question.
UBS stands for the Union Bank of Switzerland. It’s important to note that this is a rather
outdate photograph, because the Union Bank of Switzerland ceased to be known as the UBSW
after the bank’s merger with the Swiss Bank Corporation in 1998. Anyway, after the name of
the stock share, the next indicator that exists on a level II quote is the price of one share of the
stock. In this case, one share of UBS will cost $102.50. Instead of showing the cents of a
stock price in terms of currency as we know it today, the cents of a stock will be shown in
fractional form. The last section of the level II quote that we’ll look at is the number of shares
that were purchased by the highest bidder and is located all the way to the right. In this
example, the number fifty does not mean that merely fifty shares of stock; rather it means that
the highest bidder purchased five hundred shares of the stock. This would mean that if an
individual purchased only fifty shares of the stock, then the level II quote would read instead
point five shares of the stock.

Scalping Term 2: Trading Session

A trading session is generally known as simply being the beginning and ending of the stock
market day. From the scalping perspective, it is important that you know when the market is
closing and opening, so that you can maximize the amount of time that you’re going to be
trading within a given period of time. It’s important to understand that while in the past the
trading session has been generally known as only the period of time between the daily trading
hours, the hours that investors are used to today are quite longer than that due to the notion of
after-hours trading. It’s important that you understand as a scalper that you need to figure out
what hours you are going to be focusing on as a trader. It is largely a losing strategy to think that
you can be watching and trading on the market during all hours of the day. The best advice for a
scalper who is just starting out is to rotate the hours that you’re looking at and watching the
market, so that you can pick out the times during the day that work best for you. For example,
maybe you decide that you’re going to trade for eight hours out of the day, but you are going to
break up your day so that you’re trading between the hours of nine A.M and noon every day, and
then you go back and finish your trading day between the hours of four P.M and eight P.M. The
best advice to give when you’re figuring out how many hours a day that you’re going to be
trading as a scalper is to not burn yourself out. Of course, everyone wishes as an investor that he
or she could neglect sleep and still trade well, but this is one the biggest mistakes that a
beginning scalper can make.
Scalping Term 3: Decimalization
While we have already looked at level II quotes, another way that you can look at stock market
bidding and prices is through decimalization. In decimalization, the stocks are portrayed in
decimal rather than fraction form. As a trader, it is beneficial to think about all stocks in the
form of decimals due to the fact that the United States Securities and Exchange Commission
mandated that all American stock markets to only use the decimal system starting in 2001. Of
course, on the forex market there are also going to be systems that are still using a fraction-based
system because of the foreign-quality of this type of trading. This is why, as a forex trader, you
really should know how to trade using both the decimal and the fraction-based system. Lastly,
another huge reason why the United States decided that the fraction-based system should be
replaced by the decimal-based system is because decimals can be broken down into much
smaller increments than can fractions. For example, prior to the use of the decimal-based
system, the smallest amount that could be expressed by a fraction was one-sixteenth. This means
that a dollar could not be broken down lower than six cents. With decimalization, of course, it’s
possible to get all the way down to $0.01 cents. This provides all investors within the United
States market more accuracy and a better sense of detail with all of their transactions. Again, it’s
important to reiterate that as a forex trader you should ideally know how to trade using both the
fraction-based and decimal-based system. If you only know one but not the other, you’re going
to be at a disadvantage from a global investment perspective.

Scalping Term 4: Market Making

Market making is a specific type of scalping strategy that focuses on buying and selling stock in
large volumes. An investor will make an offer and post a bid on the same stock, in an attempt to
capitalize on the spread that is seen between the bid and asking price for a specific stock. It’s
important to understand that this type of strategy takes a lot of practice, and it is more than likely
that you are going to lose money on this type of transaction. The reason behind this is that when
you trade on the foreign exchange market in this manner, you are competing with the “market
makers”. Market makers are typically lucrative companies (or in some cases they’re
individuals), who buy and sell a financial stock in the hope that they will see profit in one way or
another. These market makers are often highly influential on the overall trading market. They
are not simply individuals who buy and sell, they are much larger entities.

Scalping Term 5: Umbrella Trading

The final way in which we are going to look at how the scalping strategy can be beneficial to the
entirety of your foreign exchange trading portfolio is through the concept of the umbrella. We
have mostly talked about scalping from the short-term perspective, but the notion of the umbrella
allows an investor to diversify his or her portfolio from a long-term perspective. The process of
the umbrella is pretty straightforward. What happens is that you as the investor will begin the
process of starting a long-term trade on the market, with the intention of trading within this broad
“umbrella” within the long-term spectrum. For example, this would mean that once you have the
long-term ball rolling for this particular stock, you would then engage in smaller trader within it.
These smaller trades would happen more quickly than the big long-term trade in which you’re
interested. The biggest advantage to using the umbrella-focused strategy for trading is that you
have the potential to find bigger profits than you would if you were simply sticking to the
strategy of long-term currency trading.

A Final Thought on Scalping

Broadly speaking, many investors see the biggest advantage of scalping to be that it can provide
a way to manage risk in a way that’s comprehensive and easy-to-follow. The use of level II
quotes, for example, is a great way to keep track which stocks you should be spending your time
and money on, without the added hassle of sifting through the successful stocks on your own.
The short-term nature of scalping is one of the reasons why it is seen as a way to manage risk
and combining short-term investing with your long-term engagements is a great way to keep
your portfolio honest and exciting. This is important to keep in mind as you grow your portfolio
and try to make it as diverse as possible without exposing yourself to too much risk.
Some Various Types of Forex Trading

While the previous chapter talked about the short-term options that scalping can provide for you,
this chapter is going to focus on different types of forex trading that vary in length. These
different types of forex trading include day trading, swing trading, and positional trading. It’s
important to understand that all three types of forex trading differ and should be considered
based on your own personality type. For example, maybe you’re a person who lives more on the
conservative side of life instead of an unapologetic risk-taker. The different types of forex
trading complement both the conservative investor and the investor who likes to spend at the seat
of her pants. This is why knowing these types of trading parameters are important for you to
know. Let’s take a look at what some of these types can offer you.

Trading Type 1: The Day Trader

The first type of forex trader about whom we’re going to discuss is the day trading type. These
investors try as hard as they can to avoid holding onto any shares for more than one day. In
addition to holding onto their shares for only one day, a day trader also typically chooses to trade
stocks in a high volume so as to hopefully make the most amount of money when the day is
completed. The primary goal of a day trader is to find the largest amount of profit from the
smaller swings that prices see throughout the day. In fact, the most frequent time intervals that
day traders will use when they’re trading shares is to only keep them for between five, ten, or
fifteen-minute intervals. Another tactic that day traders will often use is to trade shares
immediately after they see even a small window of profit. This helps to keep day trading
typically a fast-paced endeavor. If there is anything that you should take away from the strategy
of day trading from the forex perspective, it is that these types of investors are strongly looking
to make a profit in the short rather than the long-term.
From an emotional perspective, the type of investor who is going to excel at day trading is not
one who is interested in being all that conservative. Instead, he or she is the type who feels as
though their money is going to be both won and lost within the stock market, and they’re not
afraid to make a few mistakes along the way. Additionally, when you’re participating in day
trading, it is useful to make sure that you are not emotionally invested in the stocks that you’re
trading. If you know that you are someone who typically feels invested in the stocks that you
purchase and sell, then it’s likely that you are not going to do a good job at being a day trader.
Think about it. Let’s say that you acquire certain shares throughout the day, and you are rather
weary in selling them because you really like the company that you now own shares of. When
the time comes and you see a small profit, your emotions of greed and likability for the company
that is being traded might come into play. You end up getting cold feet at the moment when
you’re supposed to trade the stock, and at the end of the day you lose money instead of win
money. Lastly, you need to make sure that you have the time to invest in day trading as well.
It’s not always about only having the adequate funds available. If you are a busy person who
can’t sit at a computer for a majority of the day, then this day trading thing is probably not
something from which you will benefit. On the other hand, if you find that you have a bunch of
time on your hands, or you can access the stocks while you’re at another office job throughout
the day, then this is probably a business venture that will become quite lucrative for you if you
learn how to trade currency on a daily basis.
A quick note on day trading for forex traders in particular

As has already been stated, day traders are interested in short-term investments. One type of
currency pair that is often used by many day traders in the forex market in particular is the
Japanese Yen and the British Pound. The biggest reason why day traders are typically using this
currency pair on the foreign exchange market is because of the fact that this currency pair is
extremely volatile in quality. For example, on average this type of pair is often traded at a
whopping one-hundred pip per day. To put this in perspective for you, the currency pair of the
United States dollars and the European Euro typically trade at a rate of between ten to twenty
pips per day. As should be obvious, one-hundred pips per day is a relatively high amount, and if
you are interested in day trading on the forex market, then the currency pair of the Japanese Yen
and the British Pound should probably be your starting point.

Trading Type 2: Swing Trading

The next type of trading type at which we’ll look is known as swing trading. Swing trading is
trading that occurs over a longer period of time than day trading; however, this does not mean
that the investor will hold onto a share for longer than a day. This means a swing trader might
trade a share within an hour or at the end of the trading day. As the name might suggest, a swing
trader is looking to profit from a situation where the market is going to change directions over a
given period of time. This being the case, timing is perhaps more important for a swing trader
than it is for a day trader. A day trader has to worry about time less than a swing trader does
because of the fact that they are often trading in a much higher volume and at a much faster pace
than is a swing trader. A swing trader is looking for more patterns in the forex market than is a
day trader, especially if the strategy of a day trader is to sell a share as soon as the price of the
share rises even a tiny bit.
Fundamental Analysis and Swing Trading

Fundamental analysis is type of research tool that many investors use. Its application goes
beyond the forex market; however, for swing traders in particular fundamental analysis is
considered to be of great importance. Fundamental analysis is a type of research methodology
that goes beyond the numbers that exist on charts, tables, and the like. Instead, fundamental
analysis seeks to answer some of the following questions about the company whose shares are
being sold:
Question 1: Has the company historically been able to pay back its debts?
Question 2: Is the company currently enjoying profit? Or is it struggling to break more than
even?
Question 3: Does it look like the company’s revenue is growing? Or has it reached its plateau
already?
Question 4: Looking into the future, does it look like there is a large amount of competition that
is going to potentially strain the company? Or is the professional entity going to be potentially
threatened by a different company at some point in the future?
Question 5: Does it seem apparent that the managerial staff of the company is trying to hide a
degree of fraudulent activity? This may seem farfetched, but it’s actually somewhat common for
companies who participate on the stock market to publish illegitimate numbers on their
accounting publications.
For example, this is only an extremely short list of questions that an investor will ask when he or
she is using fundamental analysis. There are other hundreds of questions that an investor can ask
when he or she is trying to figure out whether or not a company is reputable; however, the
questions that were presented above are a great starting point. While it was a rather short list, the
questions themselves are still quite complex in nature.
Qualitative Versus Quantitative Fundamental Analysis
It’s important to understand that fundamental analysis is more qualitative than quantitative in
nature. What this basically means is that qualitative analysis focuses on the characteristics of a
business rather than logistical factors surrounding it, such as size or its profitability for a
particular period of time. One of the most accessible and easy to understand forms of
quantitative fundamental analysis are financial statements. Within these financial statements are
numbers that you can measure, and profits that make sense. On the other hand, qualitative
fundamental analysis includes technology that is unique to the company itself because it is the
one who originally discovered it, the patents that a company has, and the marketing recognition
that the company has because of “who it is” to the public.
It’s also important to understand that neither quantitative nor qualitative analysis is better than
the other one. Both have their own advantages that can provide you with unique and of course
useful information. For example, if you were to do a fundamental analysis on a company such as
McDonald’s, you might at one point decide to compare how many cheeseburgers that it’s sold to
other fast-food companies around the globe. To do this comparison properly, you would
obviously compare the profits from the cheeseburgers that exist between each company;
however, your fundamental analysis would simply not be comprehensive enough if it did not
weigh McDonald’s brand recognition with it. McDonald’s world-renowned history is a factor
that tells an investor that this company is likely to stay in business and outperform its
competition for years to come. You don’t need numbers to prove that because the proof itself is
in the popularity of the brand as a whole.
The Two Assumptions that Fundamental Analysis Makes
There are two broad assumptions that fundamental analysis makes about the stock market. The
first assumption is that the prices that value each share of a company within the stock market is
not an entirely sound reflection of how much the company is worth. This assumption is known
as the principle of intrinsic value. Let’s look at an example to make this point clearer. Let’s say
that you are looking to find out the true price of a share of McDonald’s. The stock market is
pricing this share at $123.14. After doing some research of your own (research that includes
conducting some fundamental analysis), you come to find that the true value of the company
known as McDonald’s is actually worth about $150 per share. This is important information,
because it can be argued that any investor is looking to purchase shares of a stock at a lower
price than the true value of the company. In this way, when you find out the intrinsic value for
the price of one share of a company, you are able to find out whether or not you are making a
deal or if you’re investing in something that isn’t worth it for you.
The second assumption that fundamental analysis believes is that the fundamentals are
always going to play out in the long run via the stock market. This means that even if the share
of McDonald’s in our previous example is price lower than what the company is truly worth,
the price of the share on the stock market is going to reflect the intrinsic value of the company
at some later point in the future. What’s interesting about this assumption regarding
fundamental analysis is that no one truly knows when the “future” is. This imaginary future
could be months, or it could be one day. This assumption contains two of the biggest
unknowns about fundamental analysis. There’s no true way that you can tell whether or not
your estimated intrinsic value is correct, and you can never be sure as to how long it’s going to
take for the intrinsic value of the company to actualize itself. Lastly, it’s important to note that
there are plenty of critics out there who are skeptical of the validity of fundamental analysis.
Technical analysis is a type of research where only the movement of the shares and the price of
the shares are considered when an investor is making decisions. He or she believes that there
is enough information to be had in the numbers surrounding a company, and this will tell
enough of a story as to whether or not a particular type of share should be bought or avoided.
 Chapter 4 Strategies for Beginners
There are many different ways that people run their businesses ranging from the traditional
means to more sophisticated means.
The most important aspect in every successful business however, and more especially in Forex
trading, is the selection of the most assorted strategies to be applied in different conditions.
Those who have followed entirely one system of trade have found out that it won’t offer
solutions to the ever-changing technology and complexity of the market demands for Forex
trade.
It is important for every single trader to have the knowledge and skills of challenging the market
circumstances of which is not very easy. It demands for a deep knowledge and revelation of the
economics.
In this topic we are going to provide you with the necessary but simple strategies that if applied
can lead to a successful Forex business. Recall: these strategies are friendly for the novice traders
who would wish to step up their knowledge and skills.
There are various ways in which these trading strategies can be classified. We will consider the
basic classifications.

Analysis-Based Trading Strategies

i. Technical Analysis
As the names suggests, ‘analysis’, this method focuses primarily on the evaluation of the market
trends through charts as a means of predicting the to-be price trends of the market.
In this method, an evaluation of assets is done basing on statistics and past analysis of market
actions like the then volumes and the past prices.
Technical analysis is not done with a primary objective of weighing the underlying value of
assets; instead, charts with other measuring tools are used to define the patterns that are helpful
in future forecast in market actions.
It is believed that the market’s future performance is easily determined by the past trends in its
performance.
ii. Trend Trading
In technical analysis, a trend is a very critical aspect. The tools used in this type of analysis, have
a common motive which is simply to determine trends of the market. Therefore, to trend is to
move; in this context it means the way the market is moving.
As we know, fore market is a wavy and zigzag motion that represents the successive trails that
define clearly troughs and peaks which are sometimes called lows and highs’?
Depending on the available trends of the lows and highs, it is possible for a trader to define the
nature of the market type.
Other than the popular notion of the highs and lows, there is yet another format of the trends in
Forex trading called: uptrend/downtrend and sideways trend.
iii. Support and Resistance
It is quite imperative to know the meaning of the horizontal level before defining the support and
resistance strategy. This is the level in the price signifying market support of resistance. In
technical analysis, resistance and support as used refer to the lows or highs in prices in that
order.
Support in this case refers to an area on a chart which shows that the interest in buying is
stronger than the selling force.
This is revealed though successive troughs. On the other hand, resistance level, as represented on
the chart refers to an area where the buying force is outweighed by the selling concern.
iv. Range Trading
It is also referred to as channel trading. This signifies the absence market direction that may be
associated with lack of trends. It is used to identify the movement in the prices of currencies
within the channels of which it is tasked to establish the range in the movements.
It can be achieved by linking sets of lows and highs to the horizontal-trend line. This is to say
that the trader is tasked to establish the resistance and support levels with the area in the midst
which we refer to as trading-range.
v. Technical Indicators
When we talk of the technical indicators in reference to Forex trade, we simply refer to the
calculations that are inclined to the volume and the price of a given security.
When used, they are meant to corroborate quality and trend in the chart patterns as well enable
traders to identify sell and buy signals altogether. These indicators in technical analysis can
create sell and buy signals via divergence as well as crossovers.
Whenever the prices go across the moving-average, crossovers are seen however, divergence
occurs only if the indicator and the price trends both move in different and opposite directions
implying that there is a weakening in the price-trend.
vi. Forex Charts
In Technical analysis, we refer to a chart as a representation of the shifts in prices within a given
time frame graphically. It reveals the movement in the security price over a period of time.
Different charts can be applied in search of diversified information and the skills and knowledge
of the researcher. There are several types of charts available for your review such as: point and
figure, candlestick, line-chart as well as bar charts.
vii. Forex volume
Forex volume indicates the total securities by number, traded in a certain time interval. The
higher the volume, the higher the level of pressure; this is as indicated by chart specialists.
They can easily define the downward or the upward shifts in volume by observing the volume
bars on the lower side of the charts. When a price movement is accompanied with a high volume,
it becomes more valuable than if it is accompanied by low volumes.
viii. Multiple Time-Frame Analysis
Security price must be tracked over a period and in a unique time frame. This is so because a
security price will tend to go through a series or time frames and therefore analysts need to
review several time frames so that they establish the security’s trade cycle.

Trading-Style Based Strategies

This is yet another technique which offers a different way of classifying the trading styles.
Through trading styles, trading strategies can be created which could include but not limited to
buy-and-hold strategy, portfolio trading, trading algorithm, order and carry trades,
It is entirely dependent on your level of understanding, power and your weaknesses that
determines the strategies that you will apply. Everyone needs a trading strategy which best suits
his desires according to his ability to apply it.
There is no single ever trading style that one must apply whenever he wants to trade because,
what suits one person may not suit you and your needs.

i. Day Trading
This is the act holding a position as well as disposing it off the very same day. This implies that,
this type of person does not hold as security for more than a day. There are several strategies that
are applied in day trading: fading, momentum, scalping as well as pivot trading.
You have the right if only you have the ability of conducting more than one type of trade in a
single day as long as you do not hold a position for more than one day. This means than before
the closure of the market, you must have liquidated all your open positions.
There is a challenge in this day trading in that, if you cling on a position for so long, the chances
of losing it go high. Based on whatever style you are using, the targets in the price may vary.
a. Scalping Strategy
This is characterized by short and quick operations and is applied mainly to achieve vast returns
on small price variations. Scalpers are able to initiate over 200 trades per day with an intention of
making good profits on small shifts in price levels.
b. Fading strategy
Fading in this case refers to a trade that is initiated against trends. When the trend shifts upwards,
faders do sell hoping that there will be a price drop-down; similarly, they may buy as the prices
go up.

They buy when the price is escalating and sell when the prices are coming down a notion called
fading. It is very contrary to other trends and also to nature of business.
The trade is usually against the usual trends with reasons such as: the buyers at hand may be
risking, the securities are usually over purchased as well as the earlier may be set for profits.
c. Daily-Pivot Trading
Currencies are very volatile and as such, traders may wish to capitalize on that to make profits.
This is exactly the case with pivot strategy.
A turning point same as the pivot point is a very critical yet unique pointer obtained through the
computation of the statistical average of the low, high as well as closing-prices of currency-pairs.
The secret to this strategy lies in the aspect of purchasing securities at their lowest prices and
selling them of at their best prices in the course of the day.
Mathematically it could be represented as follows: [pivot point= (previous close + previous low
+ previous high)/3]
d. Momentum Strategy
This is characterized by defining the strongest position that will end up trading highest. In this
case, the trader may drop the currency with signs of dropping in price and go for that currency
that has positive signs of going up through the day.
A momentum trader has got several indicators which help him detect the trends in the securities
before he makes his decisions called momentum-oscillators. Such a trader will tend to invest
deeply to news feeds which he entirely depends on for price predetermination and decision
making.
e. Buy & Hold Strategy
In this case, a position is bought and held for quite long before being sold so that the prices
escalate even if it takes long. Whoever does this has no business with the short-term price
changes as well as indications. However, this type of strategy best suits the stock traders.
In this case, technical analysis becomes invalid because trader here is a passive investor who has
no rush in determining the market trends of the stocks and securities.

Order-Types Trading Strategies

Trading on order will help the trader to join or move out of a position at the very right time by
use of various orders which include but not limited to market, pending limit, stop-loss, and stop
as well as other orders
At this particular moment, most advanced platforms are fitted with different kinds of orders for
trading that are not the common buy/sell buttons. Every order type signifies a certain strategy.
You must have the knowledge of how and perhaps when to handle orders before you can use
them effectively.
The following are trader orders that can be applied by traders.
Market order- is put to enable the trader to buy/sell at the ripe price.
Pending order-enable traders to buy/sell at previously set prices.
Limit order-guides the trader to buy/sell assets at specific price
levels.
Stop-loss order-is placed to lower a trade risk.
Algorithmic Based Strategy
This is as well referred to as ‘automated’ Forex trade. There is software designed to help in
predetermination of times for purchasing and selling of the securities. This software operates on
signals from draw from the technical analysis.
To trade in this strategy, you need to issue instructions over the kind of signals that you would
wish to search for and its subsequent interpretation. This is an example of a high trading platform
which comes with other supportive platforms for trading.
Examples of this kind of trading platforms include: meta-Trade 4 and Net-TradeX which we will
discuss in details in the chapters to come. However, Net-TradeX is a platform for trading
whereby other than its normal functionalities, presents automated-trading through its advisors.
This is referred to as secondary-platform that yields automatic trading and further sophisticates
its processes through a language called: “Net-TradeX language.”
It goes ahead to provide room for some trading operations traditionally for example; to open and
to close a position to place orders as well as use of the technical tools for analysis purposes.
Meta-Trader 4 similarly is a trading platform which makes it possible for execution of
algorithmic trade via an incorporated program-language “MQL4”. It is in this type of platform
where traders can come up with called-Advisors, trading–robots with indicators of their own. All
acts of making advisors which include: to debug, to test, to optimize and to compile the program
are all done and made active through the meta-Trader 4 editor.
Robots are made in this case to take away the emotional concept of the traders which in most
cases hinders the free and competent engagement in the trade across the platforms. Emotions
have and supply negative attitude to the traders especially when there is a hope for a loss.
 Chapter 5 Fundamental and Technical Analysis

Fundamental Analysis
Fundamental analysis is a financial market analysis method to know the price movements and
predict the future outcome of the prices of the asset in the market. Fundamental analysis in forex
trading has its focus centered overly on the economy.
The analysis also researches on a variety of factors that affect the forex trade as well as how the
elements affect the national currency value. Various factors influence the economy, and these
include interest rates, employment, unemployment, GDP, international trade, and manufacturing
industries.
In fundamental forex analysis, the price of the may differ from the value of the same asset in the
market. Prices may vary because of various factors, and because of the difference in the price
and the value of the asset, different markets underprice or overprice the demands for a short
period.
However, the fundamental analysists believe that despite the value of the assets being
underpriced, mispriced, or overpriced in the short period, and it always goes back to its original
correct price after some time. The main objective of any fundamental forex analyst is to get the
right price and value of the asset, compare the two, and finally come up with an opportunity to
trade.
Fundamental analysis is very different from technical analysis. Fundamental analysis does not
pay a lot of attention to the current price like the technical analysis. The fact is that fundamental
analysis is not an excellent analysis tool for intraday traders in forex trading. Forex fundamental
analysis has many different theories that try to explain it and make it a suitable analysis tool for
forex trading. The most common approach is economic theory. This theory attempts to explain
that the price conditions should be exchanged when they are adjusted. It summarizes that this
exchange should be done according to the local economic factors.
Major Economic Indicators
The economic data in the market shows the movement of the economy of different countries. A
trader who wants to invest should be very keen on commercial change. The major economic
indicators show the price movements, comparing it to their values giving the traders
opportunities of finding new trading chances to invest and profit.

Inflation
Inflation is the balance between the circulation of money in economic growth and distribution.
Each country or market has a set level of which the rise can reach. There is a healthy inflation
level and unhealthy inflation level. If the economic growth and money circulation in the market
are not maintained, the country or any market is likely to suffer from crippling inflation. The
balance between the two brings about a healthy inflation. Every economy works very hard on
their economies so that the sound economic level can be maintained.
When inflation is high in any economy, supply and demand are disturbed. Supply gets an
advantage because there is more than what is demanded. This high inflation affects the currency
negatively. The currency drops. Oppositely, when inflation is low- deflation, there is more
demand than supply. During this deflation period, money value rises, and the cost of goods go
down in the market. It is a strategy that most economies employ but on a short-term basis. If
deflation strategy is used long term, it will have adverse effects on the economy. The responsible
party will get a hard time stabilizing their economy again.

Gross Domestic Product (GDP)

Gross Domestic Product of a country is the sum of all the monetary value of all goods and
services of a given country within a specific time frame. This monetary value of the goods and
services must be produced within the borders of that same country. A country’s Gross Domestic
Product is calculated annually, although there is a possibility of calculating it quarterly
depending on the countries policy concerning the GDP calculation.
Gross Domestic Product is the best economic indicator among other economic indicators. Most
people think GDP can never be an indicator because it only measures the market value of the
goods and services, but they are wrong. From forex fundamental analysis view, when there is
an increase in a gross domestic product without an increase in the demand of the products, this
constitutes to a weak economy.

Interest Rates

There are different types of interest rates, but the main focus of fundamental forex analysis falls
on the nominal and the base interest rates. The central banks of different states set these interest
rates. The central bank has to lend money to private banks after creating money. Therefore, the
interest amount paid by the private banks on the loans they have acquired from the central bank
is called the nominal interest. The nominal interest rate is also known as the base interest rate.
Interest rates balance any economy in the world. It is probably the most reliable economic factor
indicator for any forex trader to look at before going into the trade. The interest rates- nominal
have a significant influence on the values of the assets, in this case, on the currencies. They also
influence other factors like unemployment, manufacturing, investment, and inflation.
Since it is the duty of the central bank control and boost the economy of the country, it makes
sure that inflation reaches the country's set level and does not go past that. If it wants to boost the
economy of a respective country, it brings down the interest rates. When the nominal interest is
down, more private banks will go to the central bank to borrow money while individuals will go
to the private banks to borrow money. There will be high production and high consumption
correspondently. This act of the central bank will improve the economy of a country but in a
short time not a long time.
In as much as interest rates are good at improving the country's economy, it is a poor strategy.
The low-interest rates in the markets after a long time will cause over-inflation of cash in the
economy and cause an imbalance in this economy. The imbalance caused by this low-interest
rates is likely to affect the country for a long time before the economy goes back to normal.
Sometimes it paralyzes the country's economy entirely.

However, most of the central banks have a remedy for this inflation. When the economy starts
swaying, or after a short period of reducing the interest rates, the central banks increase the
scales again. When the interest rates are raised, the money circulating in the market decreases.
The private banks will not take loans, and the individuals will not go to the private banks borrow.
So, when the interest rates start changing, a forex trader should find his opportunity and make an
entry or exit in the trade.
A trader should put in mind that the information released on the economic data is critical. He
should carefully consider it, with the forex fundamental analysis if he wants to succeed in the
forex trade.

Advantages of Fundamental Analysis

Show the trend of the market price.
Can be an excellent and reliable indicator, especially when it is combined with the technical
analysis. It can work out for long term trades.

Technical Analysis of Forex Trading

When price patterns change from one to another, causing a change of prices in the market, these
patterns have a specific way of doing so. When changes in price patterns in markets are studied
and mastered to help in the prediction of future price patterns, this is now called the technical
analysis. Most traders prefer using technical analysis over fundamental analysis. However, some
traders use both the analysis techniques. Technical analysts use a different method to analyze the
price patterns in markets. The techniques used include:

Chart Patterns
These are patterns where the prices are drawn on charts inform of graphs. When data is drawn on
the graph, there is always a repetitive pattern. This pattern shows the movement of the prices in
the forex markets. It shows the strength and the weakness of the trade. Some forex traders use
the chart patterns as continuation signals or the reversal signals.
The continuous signals contain, triangle, flag and pennant, channel and cup with the handle
while the reversal includes, double top reversal, double bottom reversal, triple top reversal, head
and shoulders and so many other. There are three groups of chart patterns that traders use —
these chart patterns area the candlestick patterns, the harmonic patterns, and the traditional
patterns.
The technical analysts using this chart patterns use horizontal lines, trend lines, and the Fibonacci
retracement level to find the signals of the chart patterns. The chart patterns show the strength
and weakness of the forex market.
Horizontal Lines
These lines are also called sideways trends. These lines connect the lows and the highs in the
variables. In this case the prices on the charts. These lines show the price that is below the
support level and above the resistance level.
Trend lines
Trend lines are lines drawn on the chart or the graph to show support or resistance. These trend
lines are dependent on the direction in which the prices are going in the forex trade. They are
also known as horizontal support and resistance. When analysts are using trend lines in the chart
patterns, they can see the increase or decrease in supply and demand.
The traders make up their mind whether to invest or not when this increase or decrease occur.
When the prices are going up, it is called an upward trend, and the forex traders can sell. When
the prices are going down, it is called a downward trend, and buyers can make their entry in the
trade.
Fibonacci Levels
This levels in chart patterns exhume the hidden support and resistance. The support and
resistance can be hidden due to the golden ratios. The origin pf Fibonacci is from the
mathematical proportion, but it acts like the old support and resistance in the chart patterns when
the price levels are laid out. The mathematical proportions used in this method is very different
from the highs and the lows on the price charts.
Candlestick Patterns
Forex technical analysts use to find the open, high, and low-price levels in the markets (OHL).
The prices sought must be of a specific period in the trading session so that a comparison of the
trader's behavior during the trade is made against the prices at that particular time. This analysis
will help in predicting the future price movement in the forex trade market.
Technical Analysis Indicators
The technical forex analysts use the price action indicator. These indicators include;

The moving average

The moving average indicator shows the averages of prices in a given period. The moving
averages display the direction of the market. The moving average helps balance the prices in the
market by removing the unwanted prices. This removal helps the trader focus on the trend of the
prices in the market. There are four types of the moving averages, namely the exponential
moving averages (EMA), simple moving averages (SMA), linear weighted average (LWA), and
the smoothed averages.

Bollinger Bands

This indicator is a tool used in technical analysis that comprises of three lines. These lines are
plotted positively and negatively but away from the simple moving average of the currency
price. These lines are adjustable to the trader's preference. The Bollinger bands help measure the
variation degree of prices during the trade. In simpler terms, it measures the volatility of the
market in a given period.
Amongst the three lines in the Bollinger, the middle line shows the trend direction of the prices
while the upper and lower lines are the volatility lines, also called the volatility bands. The upper
and the lower bands are moved above and below the middle band by two standard deviations.
This movement of the upper and the lower bands put the price between the two outside lines.
This price does not stay here for a long time because it is always moving around the middle line.

The Moving Average Convergence Divergence (MACD)

This price indicator shows the momentum of the market. It shows when the market is doing well
or not and the force behind this action. While using this indicator, a signal will always be evident
is a market is moving in one direction. The Moving Average Convergence Divergence indicator
belongs to a class of oscillators. Oscillators are technical indicators too and shown separately,
below the prices in the charts.
Technical analysis has principles that should be followed during the review.
Principle of Technical analysis
Price Moves according to trends
Technical analyses assume that the prices in the trend move according to the trend patterns. The
prices move in a bullish trend, bearish trend, and the sideways trend.
All price movements repeat themselves
The theory in this principle called the Dow Theory assumes that the price of a commodity
represents its actual value, and it does not have to look at other factors. The principle claim that
the prices in the patterns are repetitive and any future price is likely to be the same as the current
price.
Advantages of Technical Analysis
Shows the Trend of the Market
Technical analysis shows the traders direction of the market. They can know the time the
downward movement of prices and the upward movement, hence enabling them to make to sell
or buy at the appropriate time.
Shows the trader Both Entry and Exit points
Timing is essential to a person trading in the forex. Poor timing will cause significant losses, and
which will cause the trade to fail. The technical analysis predicts the time for investment for
traders. It gives traders the upper hand to know when entering the trade or exit that trade.

Different indicators in technical analysis aids traders get the advantage of knowing investment
time early. The candlesticks, moving averages, chart patterns, trend lines, and others indicators
help in the calculation of the entry and the exit time in the trade.
Technical Analysis is fast
Technical analysis is fast in giving information about a specific trade. This action makes it quick
and reliable to short term traders like the intraday traders who trade in one minute to thirty
minutes. In this trade, candlestick patterns are used.
Technical Analysis Gives Adequate Information
Short term traders use technical analysis, swing traders, and long-term traders. Enough
information is found in the chart patterns, and forex traders can use this information to their
advantage. The traders can pursue their trades utilizing this information and get satisfying
returns. More details like the trading psychology, market momentum, volatility, support, and
resistance are a portion of the vital information that the technical analysis provides.
Technical Analysis is Cheap
Technical analysis of soft wares is cheap. Some soft wares are free offers from different charting
software companies, and they can even be downloaded on mobile apps.
Gives an Early signal
The technical signal traders and investor early on when the time is right to invest. It is like a
wake-up call to go in or come in or out of the trade. The correct entry or exit time for traders will
help them good gains on their trades.
 Chapter 6 Operational Strategies for the Forex
Okay, theoretically, I'd say we've had enough. Now it's time to get into the practical part, finally!
To operate in the markets, you need operational strategies: you cannot open a chart, throw a coin
in the air, or remove the petals of daisies and decide whether to Buy or Sell.
We must have clear and precise strategies, studied in detail. We need to know mainly when and
how to enter the market, manage the open position, and close the deal.
There are different types of operational strategies. Here are the main ones:
Strategy Reversal (countertrend or Mean reverting)
Trend Following Strategy
Breakout Strategy
Volatility Breakout Strategy
BIAS Strategy
There would be many more, but the main and most used are these five.
Preamble: before going on with the explanation of each strategy, I want to underscore the fact
that the analysis and the procedures themselves are advisable from the time frame 15 min
upwards.
Analyzing charts and applying strategies on lower time frames is much more difficult and
dangerous: there is a lot of market "noise," tables are not clean, there are news, HFT and other
external factors that strongly affect this aspect.
I will illustrate it all with an example, distinguishing between a 1-minute chart and a daily chart.
Time Frame 1M:
Time Frame 1Day:

As you can see, the 1-minute time frame is much dirtier and with a lot of background noise,
unlike the daily graph which is much cleaner and more linear: this aspect allows more explicit
and more precise analysis.
To conclude, therefore, to implement any strategy within our reach is better to use longer time
frames for general background analysis, then, if you want to have more precision in the
inputs/outputs, you can use shorter time frames. I repeat, however, that it is good to carry out the
background analysis on longer time frames.
The choice of the time frame also depends on the type of operation you want to implement.
Those who prefer a position trading, as we have seen at the beginning, will examine the time
frames ranging from daily to monthly. Those who prefer a multiday operation analyze from the
time the chart is up to the weekly chart. Finally, those who use an intraday strategy can base their
analyses on time frames starting from 15 minutes up to the daily chart. This is not a definitive
rule, but these averages of the time frames to be analyzed according to the different operations.
Personally, with my automated systems, I use analysis in M15: this because I have a
predominantly intraday operation.
Another essential aspect to highlight is that: there is no strategy that is good for all markets and
will last forever. Successful strategies are those devised specifically for each asset of reference.
To give an example: a reversal strategy could be better for Eur/Usd, while it would not work for
Aud/Jpy; conversely, a breakout strategy would be applicable to Aud/Jpy.
All strategies "die": there will be a breaking point where it will be necessary to make changes
and improvements. Why is that? Naturally, because the market changes and is continuously
evolving.
 Reversal Strategy
A reversal strategy, which can also be called countertrend or mean-reverting (there are
variations, but it changes little), is a strategy that seeks the market entry setup in price reversals,
whether they are short or broad. Usually, you look for moments of overbought or oversold in
which the price is far above or below its average value.
Reversal strategies, therefore, seek price reversals and rebound points.
Usually, reversal strategies look for these reversals and close the operations after few pips
(always around the timeframe used) when the price approaches its average value. It is
challenging to capture the reversal of megatrends, in which the price reverses and makes, for
example, 1,000 pips one time and not the other. Often these strategies have quite significant Stop
Losses, and closer Take Profits.
A reversal strategy is often characterized by small constant winnings and rare but significant
losses: this is due to the risk of return.
In technical analysis, supports and resistances are mainly used to understand when and where to
enter. You expect the price to come close to the line you've drawn. Then, when touched, a Buy
order is opened if the price reaches support from top to bottom; a Sell is opened or if the price
touches a resistance from bottom to top.
Example: Sell entry at the touch of a resistance trendline.

Example: long entry, at the touch of a support trendline.

As you can see from the graphs, there is a trendline traced on the maximum points, which forms
the resistance trendline, while the support trendline is obtained, instead, by joining the most
important minimum points. A basic strategy, therefore, is to enter at these levels and open
reversal operations that seek precisely these points of rebound.

The management and closing can be adjusted by setting a Profit level, with the Take Profit, and a
maximum loss level, by setting the Stop Loss.
I will not talk specifically about these strategies, because I am not a technical analyst, and I often
use much more essential indicators or price levels.
In reversal strategies, besides the analysis of trendlines and patterns, oscillators (type RSI,
Stocastico, etc.) may be used or bands of price, like, for instance, Bollinger Bands or the
envelopes.
Let’s analyze a strategy more in-depth with our tools for quantitative analysis.
Strategy Using Bollinger Bands
The bands are an instrument that I particularly like, both for its adaptability and for the many
situations in which it can be used.
In this example, we will use bands to search for reversal inputs on Eur/Usd, so that you can very
start to practice and open and close trades according to some pre-established conditions.

I have carried out a quantitative analysis to find the best conditions for opening and closing
trades. We are using Bollinger Bands, which from now on we will call BB.

Equity Strategy:

This is the equity of this strategy from 2013 until August 2019. It has been studied according to
precise logic, tests, and counter tests.

Strategy report:

This is the complete report of the strategy from 2013 until 2019, using a mini lot for each
transaction (0.1). We can see consecutive months of loss and months of gain: the average
increase is about 22$.
In total, there are about 190 trades, so about two operations per month: this strategy will have to
be integrated with others.
We'll examine it in greater details later on, in the meantime, let's go and see what the input and
output logics that you can try right away are.
Indicator settings:
First, we must set the indicator with these parameters; then we open the MT4 of Ic Markets (or
another broker if you already have it, if you have not yet done so, I invite you to go to this link.
→
https://www.icmarkets.com/?camp=19600
proceed with the free registration and download the Mt4).

Once the Mt4 is opened, we open the Eur/Usd chart in Time Frame H4.
Now, among the available indicators, we select the BBs and set them in this way:
Period: 5
Deviations: 1.5
Deviation: 0

Apply to: Close.

At this point you should see the prices surrounded by bands, more or less as in this picture:
Now that we have prepared the indicator with the right parameters and the Eur/Usd graph in the
time frame H4, let's see which the input and output conditions are.
Input Setup
Currency pair: EURUSD
Time frame: H4
Hours of operation:
The operating hours shall indicate the hours at which this strategy may be implemented. In this
case, we can only open the trade from 4:00 until 12:00 (broker's time, which in the case of IC
markets is GMT+3). From now on, I will refer to the time of the broker, so be careful not to be
confused!)
Operation Sell/Short:
How do I open a Short operation?
We're going to open an operation Sell when the price of closure of the 0:00 candlestick (which
closes towards 3:59 GMT+3) or 4:00 a.m. (closing at 7:59 p.m. GMT+3) is located above the top
BB. The closing of ONE of these two candlesticks gives us the "green light." Then we have time
until 12:00 p.m. to open a trade. That's because the 00:00 candlestick in the time frame H4 ends
at 3:39:59, while the 4:00 a.m. candlestick ends at 7:59:59.
In the above graph, the 00:00 bar does not close above the top band, so there are no conditions to
open the trade. On the contrary, the next candlestick (the one at 4:00) closes just above the upper
band: in this case, the conditions to open the trade exist. The trade can be opened from this point
on until 12:00 (broker's time).
The price level with which to enter must be equal to or greater than the closing level of the
"signal" candlestick, in this case, the 4:00 a.m. candlestick.
If you miss the entry and later realize that there are opening conditions, avoid opening a trade if
the trade has already fallen below the closing price of the "signal" bar.
Operation Buy/Long:
Here is the opposite situation. We go to open a Buy trade when the closing price of the 0:00
candlestick (which closes around 3:59 GMT+3, broker time) or the 4:00 candlestick (which
closes around 7:59 GMT+3, broker time) closes below the lower BB. Closing one of these two
candlesticks gives us the "green light."
Then we have until noon to open a trade.
In the above graph, the 00:00 bar closes below the bottom band: the conditions are right, so we
open a trade. The trade can be opened from this point until 12:00.
The price level at which to enter the trade must be equal to or less than the closing level of the
"signal" candlestick, in this case, the 00:00 hour candlestick.
If you miss the entry and only notice it later, avoid opening a trade if the trade has already risen
above the closing price of the signal bar.
The size that we will use for each transaction will be 0.01 (one micro lot) in case you are trading
with a real account. In the case of a demo account, as a piece of initial advice, we can open at 0.1
(one mini-lot). Keep in mind that, especially at the beginning, it is essential to become familiar
with these concepts and activities.
Stop Loss:
To limit any loss during our trade, we will place a Stop Loss at a distance of 100 pips from the
opening price. For the Buy trade, the Stop Loss should be placed below the opening price, i.e.
100 pips below the opening price of the trade. For the Sell trade instead, the Stop Loss should be
placed above the opening price, i.e. 100 pips above the opening price.
(Please note that, in meta trader: 1000 mt4 points are equal to 100 pips).
Take Profit:
To set a maximum pay-out, we will set a Take Profit at a distance of 125 pips from the opening
price. For the Buy trade, the Take Profit will be placed above the opening price, i.e. 100 pips
above the opening price of the trade. For the Sell trade, however, the Take Profit will be set
below the opening price, i.e. 125 pips below the opening price.
If the trade is profitable, but has not yet affected the Take Profit, you can decide to move the
Stop Loss to Break Even manually, that is with a slight advantage: this way, if the trade goes
back, the trade will close at break-even or with a small profit.

Example of a trade buy:

To summarize, we open the mt4 and the Eur/Usd graph by selecting the Time Frame at 4 hours
(H4).
Let's insert the BBs set as explained earlier in the chart.
We must then look at the closure of the 00:00 candlestick (which closes around 3:59 gmt+3, we
will place ourselves in front of the charts at this time) or the closure of the 4:00 candlestick
(around 7:59 gmt+3, we will put ourselves in front of the chart, at this time if there are no entry
conditions in the first case).
If there are conditions in the first candlestick, we open the trade immediately; otherwise, we wait
for the closing of the 4:00 candlestick. If there are conditions in this the second case, we open the
trade. If there are no conditions on either the first or the 4:00 candlestick, we do not open any
trades.
In case of opening conditions, observing the closing of the 4:00 candlestick, we have until 12:00
to open the trade and we will enter only if the price is above the indicator candlestick, for Sell
inputs, or below the indicator candlestick, for Buy inputs.
Last fundamental note: we can only open one trade per day, whether it's a Sell or Buy. We will
NOT begin more than one operation per day with this strategy.
I understand that this is difficult at first, especially if you have never done it, but I assure you that
with a little 'practice’ and carefully and repeatedly reading the directions provided to, you will,
eventually, be able to open your first reversal operation!
This strategy is super-simple in terms of logic, entry, and position management, but you too
understand that not everyone can stand in front of the chart from 3 am or 7 am to closing time.
For this reason, another great advantage of automatic systems is their autonomy: they can open,
manage and close the trades in complete independence 24 hours a day, even while you're
sleeping comfortably in your bed or you're out having fun.
This is one of the most important advantages of automatic trading. If you decide to join our
training courses or use our automated systems, you can see for yourself how they work, their
effectiveness and all the advantages that follow — both in terms of time and money.
We have a Facebook and Telegram group where we are in contact with hundreds of people,
whether they are passionate about trading, investors, or active students.
If you want, you can take a look at www.alessioaloisi.com to start receiving your first steps and
get the information.
 Trend Following Strategy
A Trend Following Strategy is a strategy that tries to ride the underlying trend. In this case, we
don't try to anticipate an inversion, as in the case of the reversal, but we take note that there is a
trend in progress and we follow it, entering at the best possible price: this is the basic principle of
this strategy.
Usually, the trend following strategies look for these broad trends and close the operations after
many pips (always in the time frame used). Commonly these strategies do not have colossal Stop
Losses, and long-distance Take Profits.
A trend-following strategy is often characterized by small constant losses, followed by rare but
very substantial winnings, due to the risk of return.
Trend following strategies are very much used for those who trade positions over a long period
or multiday: logically because it is challenging to ride huge trends with an intraday trade.
The indicator of excellence for these strategies is undoubtedly the moving average.
You can enter Long if the price crosses the moving average upwards; on the contrary, you can
enter Short if the price crosses the moving average downwards.
The closing can be dictated by taking profit and stopping loss or by the inverse crossing of prices
with the average.
Another strategy can be to insert different moving averages with different values: if the averages
cross each other upwards, a Buy operation can be opened. Conversely, if the averages cross
downwards, a Sell can be opened.
Strategy Using Moving Averages
Moving averages are also a tool that I appreciate very much for its simplicity and efficiency and
for the many situations in which it can be used.
In this example, we will use it to search for Usd/Jpy inputs, so that you too can start to practice
on the chart above and open and close trades according to pre-established conditions.
I have carried out a quantitative analysis to find the best conditions for opening and closing the
trades by merely using two moving averages: a faster one calculated on fewer periods, and a
slower one calculated on more candlesticks.
 Equity Strategy:

This is the equity of this strategy from 2013 until August 2019. It has been studied according to
precise logic, tests, and counter tests.

Let's go see what the entry and exit logic is. You can try it right away.

Indicator setting:
First, we must set the indicator with these parameters; then we open the MT4 of Ic Markets (or
another broker if you already have it, if you have not yet done so I invite you to go to this link:
https://www.icmarkets.com/?camp=19600
proceed with the free registration and download the mt4).
Once the Mt4 is opened, we open the USD/JPY chart in Time Frame H1 (time chart).
Now, among the available indicators, we select two moving averages, one at a time, and set them
in this way:

Fast Media
Period: 50
MA method: simple
Shift: 0
 Apply to: Close

Slow Media
Period: 90
MA method: simple
Shift: 0
Apply to: Close
I suggest that you choose two different colors to distinguish the fast average from the slow one.

At this point you should

see the price chart with the two moving averages, more or less as in this:

Now that we have prepared the indicator with the right parameters and the Usd/Jpy graph in the
time frame H1, let's see what the input and output conditions are.
Input Setup
Currency pair: USDJPY
Time frame: H1
Hours of operation:
The operating time indicates the hours in which it is possible to implement this strategy: in this
case we can open the trade from 1:00 until 22:00 (which in the case of IC markets goes one hour
ahead, GMT +3, broker time).
Note: from now on, I will refer to the broker’s time, so be careful not to be confused.
Operation Sell/Short:
How do I open a Short operation?

Open a Sell
operation only when the fast average closes below the slow average.

As in this graph above, the fast average has just closed below the slow average: at this point, a
trade Sell has been opened.
Operation Buy/Long:

This is the opposite situation. We open a Buy operation only when the fast average closes above
the slow average.
As in the graph above, the fast average has just closed above the slow average: at this
intersection, a Buy trade has been opened.
Stop Loss:
To limit any loss of our trade, we will place a Stop Loss at a distance of 45 pips from the opening
price. For the Buy trade, the stop loss will be placed below the opening price, i.e. 45 pips below
the opening price. For the Sell trade instead, the stop loss should be placed above the opening
price, i.e. 45 pips above the opening price.
(In the meta trader: 450 mt4 points are equal to 45 pips).
Take Profit:

To set a maximum pay-out, we will set a Take Profit at a distance of 150 pips from the opening
price. For the Buy trade, the take profit will be placed above opening price, i.e. 150 pips above
the opening price. For the Sell trade, however, the take profit will be set below opening price, i.e.
150 pips below the opening price.
If the trade is profitable but has not yet affected the take profit, you can decide to manually move
the Stop Loss to Break Even, or with a slight advantage. This way, if the trade goes back, the
trade will close at break-even or with a small profit.

Example: trade buy

Summarizing, we open the Mt4 and the Usd/Jpy graph by selecting the Time Frame time (H1).
Let's insert in the chart the moving averages set as explained earlier.
Then we wait for the closing of the cross between the fast-moving average and the slow-moving
average: if the fast cross the slow from the bottom to the top, we open a trade buy; on the
contrary, if the fast pass the slow from top to bottom, we open a sell trade.
I remember that the hourly range to implement this strategy goes from 1:00 to 22:00 broker time.
This strategy is much simpler than reversal with Bollinger bands, so you'll get used to it in no
time.
Even this strategy is super-simple in terms of logic, entry, and position management. But you
understand that it is not very pleasant to be in front of the graph for hours, waiting for the two
averages to cross. Also, because, with this strategy, there are few operations per month.
Also, in this case, automatic trading is the best solution because it can open, manage, and close
operations in complete autonomy 24 hours a day.
If you haven't done so yet, join our Facebook and Telegram groups, contact me:
www.alessioaloisi.com or my Facebook page and start taking your first steps.
 Breakout Strategy
A Breakout Strategy is the strategy that tries to ride not so much the underlying trend, but the
explosive directional force of the price.
In this case, the strategy does not try to anticipate an inversion, as in the case of the reversal,
neither it tries to identify a bottom trend and follow it. Quite simply, you enter the market when
there is a breakage of an essential level with a decisive action of the price: upward for the Buy,
downward for the Sell.
Usually, the Breakout strategies look for these substantial breaks and close the operations once
the explosive force is exhausted (always within the timeframe used). Commonly, these strategies
have tight stop losses and quite large take profits, also based on volatility.
A breakout strategy is often characterized by small constant losses, followed by rare but very
substantial winnings, this due to the risk of return.
Breakout strategies are widely used, especially by those who trade intraday or multiday.
This type of strategies is usually used in trendline support or resistance, which account for
essential levels of the price, especially on long timeframes of more than 4 hours.
Commonly, essential levels are drawn on the chart; whether they are supports, resistances,
horizontal or trendline (as we know, combining maximums and minimums is necessary) and
breaking these levels you enter in favor of the break: if the price breaks down, you enter Short. If
the price breaks up, Long comes in.
Example: short input at breakage of the trendline
As you can see from the graph above, there is this downward break in the previously plotted
trendline that signals a possible short input. To ride this force, the operation must be opened
immediately.
Closing can be dictated by take profit and stop loss or by reaching another essential price level.
I will not dwell here in the analysis of these strategies in detail using quantitative tools, but in
case you are interested in deepening this topic, I have prepared a valuable training course where
you can study all types of strategies explained in this book. And it is possible to do it without
knowing how to program because I have built a trading system that is adaptable and usable by
those who have never done trading or for those who do not know how to program.
 Volatility Breakout Strategy
The Volatility Breakout strategy is a subset of the Breakout Strategy: in this case, however, in
addition to seeking the explosive directional force of the price, it also finds the speed of this
force and goes to exploit the decision and speed of the price.
Usually, Volatility Breakout strategies look for these active breaks with speed and close
operations once the explosive force is exhausted (always within the timeframe used). Commonly,
these strategies have fairly tight stop losses and take profits that can be adjusted to suit volatility.
A Volatility Breakout strategy is often characterized by small constant losses, followed by
winnings that may vary according to volatility.

Volatility Breakout strategies are widely used primarily by those who use an intraday or
multiday trade.
Strategies that are advertised as "news strategies", i.e. those strategies that are only used in the
presence of macroeconomic news, are nothing more than Volatility Breakout strategies. This is
because, in the presence of macroeconomic news, strongly directional candlesticks are generated
over a short time.
While you can make a lot of profit and also quickly, you can lose a lot and always very fast. Be
careful, therefore, because it is a double-edged sword when they aren’t analyzed based on
hundreds (if not thousands) of trades.
These types of strategies are usually used with trendlines of support or resistance, which account
for essential price levels, especially for long time frames from the hourly chart (H1).
As we have seen before, significant levels are drawn on the graph, whether they are supports or
resistances, horizontal or trendline, combining great highs and lows. When these levels break,
you enter in favor of breakage: if the price breaks down, you enter Short. If the price breaks up,
you enter Long.
 Example: Long
input to break the trendline in the presence of macroeconomic news

As you can see from the above graph, there is an upward breakage of the previously traced
resistance. To ride this force, the operation must be opened immediately.

Closing can be dictated by take profit and stop loss, or by reaching another critical level.
In this case, the bullish candlestick that breaks is the candlestick created during the airing of
essential economic news, the "NFP" (nonfarm payrolls) that takes place every first Friday of the
month at our 14:30 hour.
 Chapter 7 Trading the Breakout

Downside breakouts

The downside breakout, also known as the drop and stop, is a means of channel breakout trading
that is particularly useful when used at the start of a specific session. It is a particularly useful
strategy if you are set on trading the breakout and can’t get anything else going at the moment.
This means that the first thing you are going to want to watch out for is an evening star
candlestick pattern which shows where the weekly pivot occurs.

An evening star candlestick pattern is a type of bearish pattern comprised of three distinct
candles. The first is a large white candlestick that is found within the uptrend. The second will be
red or white with a small body that closes above the first candle. Finally, the third candle will be
large, red, and open underneath the second candle. It will also close near the center of the body
of the first candle. If you see this pattern, then you can be confident the current uptrend is going
to come to an end sooner than later.

After the price has made it through the upside breakout and then dropped into the downside
breakout you were waiting for, it will then drop to a point that is lower than the weekly pivot
point. This often leads to a number of price rejections before performing in such a way that it
generates a rejection bar candle that is bearish which is a confirmation that the stop and drop is
off to the races which means you can count on the price spiking downward to a significant
degree.

While getting in once the confirmation has already happened will still generate a profit, it is
going to be a situation that is far from ideal as the price is already headed towards the point
where it will be exhausted. This means it will have a strong early upward movement, followed
by a decline that is just as sharp. A majority of the average daily ranges will then have been used
up at this point, something that the traders using this technique will be aware of. This means that
if you want to use this strategy effectively you can’t be afraid of a little micromanaging and also
need to keep your expectations in check.

Furthermore, it is possible that there will not always be a visible rejection bar to make it easy to
determine if the time is right. In these cases, you are going to want to use a polarity indicator to
provide you with a better indication of when the market is moving in this direction. In a pinch, a
number of bearish candles in a row that is growing increasingly severe as they move downward
from the existing range. When any of these indicators occur, you should quickly determine the
best entry point and do so using the next bearish candle by jumping in a few pips beneath the
monthly pivot point.

Upside breakouts

If you find yourself in a situation where you are watching the price of one of your chosen
currencies move into a tight range while at the same time waiting for what you believe to be a
serious trend to start then the odds are high that by the time the price begins truly moving in
earnest you will have already begun to miss out on profits that should be yours by right. Waiting
to trade a breakout without preparing properly beforehand will often only lead to a scenario
where rather than being ready for the breakout ahead of time you end up chasing the price which
is a guaranteed means of minimizing profits at best or watching a winning trade turn into a losing
one at worst.

Rejection bar candlestick: Many professional traders are extremely fond of the rejection bar
candlestick, and with good reason, as it is one of the most useful technical analysis formations
you can find. It is a one bar formation that is known as the hammer or sometimes the inverted
hammer forms when the currency has already rejected either the higher or the lower prices. This
is visualized when a price opens before moving in a given direction and then reversing in the
same session to close around or possibly just past the initial open. The best-case scenario then is
one where both the close and the open of the rejection bar occur near one another, the closer the
better.

Meanwhile, the tail of the bar needs to be a minimum of the same length as the body, with the
longer tail typically indicating a stronger bar as it signifies that a low or high was previously
rejected. The head of the bar is going to be the highest point of the price that was reached if the
bar is bullish or the lowest if it is bearish. No matter how strong the bar appears to be, it should
never be used as the sole justification for a given trade. As always, the more supplementary
signals you have the better.

Specifically, if the price rejections can be tracked from a significant level, say the mid-level
Bollinger band, then significant levels of resistance or support, or even a weekly pivot can tell
you when you are onto a strong and reliable signal. Generally speaking, if you see a candlestick
formation that starts to form by itself then the best course of action is going to be to look for
additional reasons to enter the trade as they are going to be readily visible if the trade is worth
pursuing.

Pop and stop: A pop and stop trade occurs when the price of the currency you are following
suddenly pops out of the range it has been previously traveling in, stops temporarily and then
resumes its previous movement. From this point on you will notice multiple rejection bars
forming above and then rejecting nearby. If this then results in a larger than average candle you
can realistically expect some retracement possibly enough for it to return to the previous range.
This is due to the fact that the fast movement covered a sparse order area which can be seen via
the gaps in the market. These gaps are naturally filled in by the market which means if you are
going to get in then it needs to happen as quickly as possible.

Viable reasons for entering this type of trade include things like the time of day the pop occurred
to begin with, especially if the price has been relatively quiet leading up to the beginning of the
session when both volatility and liquidity are more likely to increase. This then often goes hand
in hand with the price trading in a tight range. On the other hand, the price could previously
move in a pop and stop motion, only to have formed rejection bars at previously relevant levels.
If this occurs, then you will need to place a limit order that is a few pips lower or higher than the
rejection bars. The stop loss will need to be placed just above or below the tail of the bars if you
are an aggressive trader or below or above the highs or lows of the range if you are more
conservative.

When you are looking for a pop and stop you are going to want to be aware of the fact that it is a
relatively risky strategy. This is due to the fact that you are forced to rely on the gap created by
the move to not be filled as quickly as what frequently occurs. The presence of rejection bars will
also confirm the move to some extent but does not completely mitigate the potential for risk at
the same time. The least risky time to use this strategy is when some time of news has just
rocked the market. Once this happens you will have better luck trading in the direction the
market sentiment is moving.

This will prove particularly useful if, prior to the news, the price was already trading at a
particularly close range. It is important to keep an eye out for these types of announcements as
they have the potential to reverse the sentiment and fill in the gap. You will need to be aware that
this strategy requires a trend that is well supported in order to reach its full potential. This means
that it is extremely important that you do your research beforehand in order to accurately
determine if the session is likely to contain the level of liquidity that you are looking for in order
to make this strategy into a profitable proposition. You will most frequently find the type of
breakouts that you are looking for in open sessions of the forex market with London and New
York being the prime candidates in most cases.

Additionally, it is important to maintain a level head when using this strategy and to never get
greedy as the price movement after things take off can be substantial but is rarely prolonged.
This is a strategy that relies on scalping, after all, which means that profits in the 1: 5: 1 or 2: 1
range are enough to bow out for.

NYSE Breakout Strategy

While this strategy only has a very specific use, it is worth keeping in mind as it can be quite
profitable when executed on correctly. Using this strategy, you will want to be on the lookout for
a breakout with a targeted resistance level to buy before waiting for a targeted support level to
ultimately sell. This strategy works best with the EUR/USD, USD/CHF, USD/JPY and
GDP/USD currency pairs working from a 15 minute timeframe.

To best use this strategy, you will need to create a vertical line on the 15-minute chart for the
currency pair you have chosen starting at 7 am EST and a second line at 9 am EST. From there
you will need to create two horizontal lines at the highs of the various candles that appeared
between the pair of vertical lines. From there, you will need to set a pending buy stop order that
is between two and five pips above the current high point and a pending order to sell stop order
that is a few points underneath the low. Finally, you will need to place a stop loss on the opposite
end of each order as well.

With this done you will then be free to sit back and wait for the breakout to occur, which your
research should have already indicated will not be that long. Once the breakout does occur you
can then cancel the pending order you placed that is now useless as you will clearly not have to
worry about it being activated. When everything is said and done you can often expect between
50 and 60 pips of profit from this strategy before most trends fizzle out.

Don’t forget, when setting up this strategy you only have nine candlesticks to work with between
7 am and 9 am EST. As such, if the price doesn’t appear to be trending either low or high then
this is because the market is likely ranging. As such, you will most likely be better off canceling
your orders as this strategy is only going to be effective if the right movement presents itself
during this precise time period.

This is also known as a common time for various types of press releases to be released which
means you are going to want to remain vigilant as your trade is in play to prevent anything
unexpected happening without your knowledge. It is also important to keep in mind that if you
start a trade based on GBP in the UK session then it can likely continue on into the US session in
most cases.

The biggest advantage of this strategy is based on the fact that the way it is constructed virtually
ensures that you can’t overtrade, simply because you are only ever watching a single trade. As
such, it is great for those without a lot of time or for those who aren’t especially committed to
trading and are just looking to try something out. Generally speaking, if you find a scenario
where the difference between the highs and lows are less than 60 pips then be prepared to double
your daily trade amount as this is a strong indicator that the forthcoming movement will be
extremely profitable.

However, the downside of this strategy is that if the difference between the highs and lows is far
greater than 60 pips then it is difficult for it to result in a profitable trade. This is due to the fact
that price is unlikely to receive the required momentum to get it to where it would need to be in
order to generate a profit for you. If things are setting up to fall this way, then you will want to
aim for profit between 20 and 30 pips each day instead.
 Chapter 8 Risk management and self-discipline
In this chapter, talks about how to save money when Forex Trading, more accurately help you
understand how to manage your money when Forex Trading. Many people don't realize that but
understanding how to budget your money is very important, especially when you’re Forex
Trading. Which is what we're going to talk about in this chapter and give you a great idea on a
couple of things that will help you to be more successful in this field in terms of saving money
and keeping it.
 When To Say No?
One of the main questions people have is when to say no, and the truth is you need to say no
when you feel like you have been losing money for a couple of days. Now we won't get very
technical on the exact number and the exact date when you need to cut the trade. However, it is
more about the mindset that will help you to save money when Forex Trading and have the right
mindset went to say no when not to say no. The first thing you need to understand one Forex
Trading would be that you need to say no whenever you start to lose money. If you want to
practice forex trading safely, then you need to make sure that you will be saying no as soon as
you see the money drop. Another time you need to say no would be when you feel like your
trend is falling. For example, if you are gradually losing your trade then don't wait on it and in
fact get out of the trade as soon as possible.
 Save Your Money.
Before we start saving any money, we need to realize saving money requires you to set goals.
Which is exactly what we're going to be talking about in this chapter today, we will show you
how to set goals accordingly and in a fashionable manner which will help you save the most
amount of money in the long run. The truth is that your same goals can help you achieve your
financial dreams, whether it be buying a new house or paying off your debt we have been
chatting about this the whole time in this book. The sooner you start to build better wealth, more
likely chances you will have to live a better financially free life. There is no way oh, you will
achieve your goals without a set goal in your mind, so it is essential that you set financial goals
in order to achieve them sooner than later. The first step with setting goals would be to set them
as attainable as possible.
If we told you, that you have one year to become an Olympic athlete and you have never worked
out in your life before would you be able to do it? Probably not. It is important that you set the
tangible goals, this will help you stay on track and keep you motivated when the tough gets
going. If you set a goal which is not attainable realistically, then the chances of you giving up
will be very high. Which is why you need to set goals with your attainable for you, And to do
that you need to analyze your financial reporting income. Sit down and figure out how much you
make monthly yearly. And then based on your income, you need to realize how much you need
to save in order to achieve a certain goal in a certain time frame. Having a time frame is pretty
important, as it will help you push further to achieve that goal of Financial Freedom.
For instance, if you tell yourself that you need to save $30,000 as compared to saving $30,000
and 24 months, this will give you more of an advantage to achieve that goal sooner than later,
and if you keep it reasonable, you should have no problem achieving these goals. Once you sit
down and figure out what your income is and what your goal is financially speaking, then you
can slowly start setting time frames to achieving a certain goal. If your goal is to pay off $1,000
credit card, then you can set a goal I'll be saving 250 every month until you have reached your
thousand-dollar mark within 4 months, you will be able to pay off your credit card.
Now you see how the time frame can help you save more money before you start any saving
goals sit down and figure out what you need to save on and how much time you will be giving
yourself to save that certain amount of money. Once you have a solid budget, and where you
want to save your money to achieve certain financial goals It would be now time to set specific
categories for your saving goals. You need to prioritize your savings and figure out where you
need to put money and where you shouldn't so much. Simply prioritize the amount you need to
save and how long you need to achieve certain saving goals for, and where you can cut back on
saving and not affect your life so drastically.
For example, if you really need to buy that house in 24 months and you need $30,000 down, but
you already have $4,000 saved for emergency funds then you need not put extra money towards
your emergency funds and put more money towards your house. Simply categorize your savings
and prioritize them accordingly. Once you start prioritizing your savings, you will be in a much
better hand to save more money and to achieve your financial goals. Once that is done, it would
be now time to cut down on certain spendings which are not important to you. if you decide to
live a minimalist lifestyle as we talked about before, this step won't be as important to you since
he will be doing that already.
But if you aren't following a minimalistic lifestyle, then pay attention to this chapter as it can
help you save a lot more money. If you feel like, you're spending way too much money on your
groceries and you can slowly cut back on it then do so. Wherever you feel like you can cut
money back on and put it towards your savings then do that. You don't need a lot of money to be
spent, so figure out where you're spending way too much money on and then slowly start to cut
back on it until you are the reach your certain number of dollars every month. Once you have
your emergency funds at a decent level, you can now decide to hire a financial advisor. As we
mentioned to you previously, a financial advisor can be of great use as they will help you save
more money overall.
Not only the financial advisor will help you save more money, but it will show you where I can
invest your savings to make even more wealth. Which is a good thing, if you want to be a
financially free person. Don’t be scared to ask financial advisors question, if you fear but your
financial advisor is in the best then get a new one, many financial advisors are really good at
their job. One of the best things financial advisors do is that they help
you set goals and hold you accountable to them. As we previously mentioned to you before, it is
imperative to have a support system which will help you save more money in the long run.
Financial advisors will help you save money while being your backbone and help you stay on top
of your saving game.
Now that you have a certain idea of how to save money and two side goes towards any money.
Let's get a little more specific on how you should do it. As you know, something specific saving
goals will help you save money a lot quicker and a lot more efficiently. Which is why you need
to be setting goals towards saving money, when you're just putting money regulate on your
savings account, without knowing what you're saving for you will actually be disappointed at the
end you will start to feel like you haven't saved enough money, or the money that you've saved
has no point at all.
Since you now know, how to set specific goals and targets toward saving money that shouldn't
be a problem. But with that in mind let specifically talk about how to set specific goals, to save
more money. The first and obvious would be to set specific reasons as to why you're saving
money, need to come to an agreement with yourself for the reasons why you're saving money.
Realize that you have a certain goal of what you need to achieve financially, once you have
realized that goal you need to act on it. As we said before, if your goal is to save up for a house
then you need to set a specific amount of money you will be putting towards your savings.
However, you need to dig deep inside your soul and realize why you want to save that money
.
Is the house really important to you? Can you wait it out a little bit longer? Figure out why you
need the house and is it really important to you once you figure that out you can start to save
money accordingly. Be very clear in your mind, why you're saving money and for what reasons
and prioritize it accordingly. As we talked about before, create a time frame for your goal. Set a
time frame by one you want that money to be in your bank account, once you figured out a time
frame which is realistic with your income and your daily lifestyle you can then start to save more
money and put it towards your saving.
But not forgetting your emergency funds, make sure that your accommodating emergency funds
with sufficient amount of money in your emergency funds are very important. Once you figure it
out, your time frame on what you want to save your money on and how much money you need to
put down every month to achieve that certain goal of saving money it would be now time to find
extra money in your monthly budget. Figure out the things which you don't need, and we can cut
back on, for instance of groceries something can cut back on then start cutting back on it till you
save that money and put it back in your bank account. This is one of the most powerful tools you
can use, to have more money at the end of the month.
Don't spend money on things, which you know you don't need. Finally, you need to find out the
right saving tools. These days banks have one of the best saving accounts which you can use
towards saving money, one of the bank advisors and figure out which account will be best for
both your emergency funds and your financial goals. Get those two savings accounts and start
saving, trust me the worst thing which could happen to use to save your money on a checking's
account you don't want to do that as the bank will start taking money out of your account and
therefore causing you to slow down on your saving goals which is something that we don't want.
Once you have everything in place, and you have started to save more money.
You will have to start following up every day, and every month to see how if you're on track or
not. If keep reminding yourself, That you are saving money and that you're on track you will be
more inclined to save even more money in the future. Following up is one of the most important
things you can do if your goal is long-term saving. When you're following up if you feel like you
are falling back on your finances and your financial goals then don't worry. Pick yourself up and
start back on again. Which is why following up makes it one of the most important things to do
when it comes to budgeting and saving money.
Always remember, that you need to pay off your debts if you have any. One of the main reasons
why many people live up financially free life is because they know that they need to pay off their
debt or they have already paid off their debt. Before you set any goals financial achievement, you
need to figure out your bets and to clear them off as soon as possible. As always you can save
money on the side for your debts, and you can say more money on the side for purchasing a new
home or anything you want to save money for. Just remember that you need to pay off your
debts as soon as possible if you want to live a financially free life, and also to build credit.
Building credit is one of the most important things you can do with your financially free life, as
building a credit will help you get that house loan and help you smart loans which you might
need in the future.
Think about your debts before you start saving any money, you don't want to be in debt for a
long period. If it is possible for you, start saving as much as you can and then paying off your
debt as soon as possible for everything you have debts on. We can understand if you have
$100,000 student loan debt that is something you can eventually pay off, but if you're small,
that's like a credit card or anything else, try and pay it off as soon as possible.
Since you now know how to save money, let's talk about saving mindsets and how it can hold
you back. Chances are your goals for the new year is to save a little bit more money, and that's a
lot easier said than done because we often become our own worst enemy and end up totally
derailing our savings. That gets in the way in particular so let's get right to those, so the number
one mindset that that gets in the way of saving money is the "I deserve this month that you have
busted your home all week long", you are tired you are exhausted you are a hard worker, and you
deserve a treat you then go splurge on a new gadget or new shoes whatever it is you spend
money on.
It just fine you know like that's what money is for kids to spend right except that maybe you
blow your budget, you don't meet your savings goal is worse maybe you get into debt because
you couldn't afford those treats in the first place so my tips for avoiding this mindset this is what
works for me. Maybe it'll work for you too, remind yourself that yes you do deserve this but also
think about what you are giving up to buy this treat because as much as you do deserve that treat
because you do work hard, you also deserve. All the benefits that come with having money in
your bank account not being in debt not having to worry about money being financial, secure
those are things you deserve to racecourse your favorite store is having a sale, or you really want
that gadget that might not really be that helpful, right you're going to be like yeah I know I
deserve, so that helps for me is to find a cheap or even free ways to sort of treat myself. When
I'm in the, I deserve this mode one of my favorite things to do is just like take a relaxing bubble
bath I know it's cliché, but I love it it's the most relaxing thing, I treat myself when I've had a
particularly stressful week.
If you make a list of what these rewards are beforehand in advance, you're feeling particularly
stressed out, or you had a really tough week you can go to that list and a pick something from it
without totally derailing your savings goals. The second mindset that gets in the way of saving
money is the "YOLO" mindset, it's just money, so I'm just going to spend it because who cares
about money and money is just a tool it's meant to be spent for. This is why I think it helps to
understand why you want to save more money in the first place, why is it your goal to save more,
to begin with, are you just trying to be a responsible adult because that's just about the most
boring goal I could ever dream up of.
Nobody wants to be responsible for adult boring, so why do you want to save money. It could be
for a vacation it could be if you want to save up for that concert you know a couple months from
now, or maybe it's something simpler than that maybe you just want to get out of debt because
you don't want that collectors for they are asking you all the time. You want to feel like you have
that monkey off your back, whatever the goal is it helps to remember to get clear on it when you
are saving your money in the first place, so you know why you're saving. Having a big goal for
your saving, that's just never going to work because you're always going to find something that's
more exciting.
I also know a lot of people who will write down that go on their credit cards when they pull out
their credit card to go spend at the store. They are confronted with their goal and reminded of it
and stick to their savings goal. The third belief that gets in the way of saving money, "screw it
I've already blown my budget I might as well go big." You know this feeling right as you've
already screwed up your budget for the month, so you figure I'm not even going to keep track of
anything anymore I'm going to spend my money because I already screwed it up. It's easy to see
how this is problematic, you can get into massive amounts of debts and end up spending your
money and have nothing left over to pay your bills.
It's very problematic if it keeps happening, there's probably it's a surefire sign that something is
wrong with your budget in the first place. We need to go back recalibrate it Dr. Brad Clontz was
a financial psychologist, actually hates the idea of budgeting because he thinks it's problematic in
this way when you budget. You are a sort of like a budget, it becomes like this list of things you
can't have and who wants to follow that list it's very restrictive. He recommends thinking of it as
a spending plan, instead of this is where it helps again to go back to your goal.
Why do you want to save your money? Make it meaningful to you get clear on what that goal is
and then your budget becomes a spending plan to reach that goal. The straightforward mindset
shift, but when it comes to personal finance like feeling in control of your situation it helps more
than anything. Spending plan sort of helps you make helps make you feel more in control
because it's supporting you instead of you just following this meal budget of telling you what you
can't have.
Practically speaking you probably need to go into your budget and figure out what's going wrong
are you overspending. If you can't stop splurging, you might want to focus on one thing a month
to cut back on one area of your budget every month to cut back on, or you are just not giving
yourself enough room in your budget to spend. Sometimes that happens if you’re bored but it is
too restrictive it ends up backfiring on you, and you blow it, and then you say "screw it I'm just
going to go big and just blow it completely." It gets in the way of saving most if you guys have
experienced these then make sure you fix them as soon as possible.
As you can see, we heavily talked about personal finance and rightfully so, it is very important
for you to understand how to manage your finances the proper way before you get into forex
trading. I know this chapter might have been boring to some, but it is important for you to
understand this basic concept.
 Chapter 9 Top Tips For Forex Traders
Figuring out how to exchange Forex effectively can be entangled for learners. A great many
people need to get rich medium-term, regardless of how unreasonable it might sound. The
universe of Forex trading can be a touch of overpowering, particularly in the event that you are
new to the game, and don't have a clue about the standards yet. You have to plunge your toes in
before you go any more profound. Fortunately, we have your back! We've aggregated a rundown
of 20 Forex tips for apprentices to help you along your trading venture 2019. In the event that
you as of now have involvement with Forex trading, it's in every case great to recall the nuts and
bolts.
1. Pick Your Broker Wisely
Picking the correct agent is a large portion of the fight. Take as much time as is needed to check
surveys and suggestions. Ensure the agent you pick is dependable and suits your trading
character. Keep in mind, there are heaps of phony dealers out there who will just hold you up.
Go for an approved intermediary with a permit.
2. Make Your Own Strategy
No rundown of cash trading tips is finished in the event that it doesn't make reference to systems.
One of the most widely recognized errors novice dealers make isn't making an activity plan.
Make sense of what you need to escape trading. Having an unmistakable ultimate objective as a
top priority will help with your trading discipline.
3. Learn Step-by-Step

Similarly, as with each new useful learning action, trading expects you to begin with the nuts and
bolts and move gradually until you comprehend the playing field. Start by contributing little
totals of cash and remember the familiar proverb 'moderate however consistent successes the
race'.
4. Assume Responsibility for Your Emotions
Try not to give your feelings a chance to divert you. It tends to be troublesome now and again,
particularly after you've encountered a losing streak. Be that as it may, keeping a level head will
enable you to remain reasonable, so you can settle on equipped decisions. At whatever point you
let your feelings improve of you, you open yourself to superfluous dangers. Practicing risks the
executives inside your trading will assist you with minimizing the dangers.

5. Stress Less
This is one evident Forex tip – in light of the fact that it is. Be that as it may, prepare to have
your mind blown. Trading under pressure for the most part prompts unreasonable choices, and in
live trading, that will cost you cash. In this manner, recognize the wellspring of your pressure
and attempt to dispense with it, or possibly limit its effect on you. Take a full breath and
spotlight on something different. Each individual has their method for conquering pressure –
some tune in to old style music, while others work out. Tune in to your emotional wellness and
realize what works best for you.

6. Careful discipline brings about promising results

Of all the Forex deceives and tips for novices, this is the most significant. You are probably not
going to prevail at anything on your first attempt. Just steady trading practice can yield reliably
top outcomes. Be that as it may, you most likely would prefer not to lose cash while learning the
rudiments. Fortunately for you, trading on a demo account costs nothing to liberate up and is to
utilize!
7. Brain research is Key

Each merchant is a therapist on the most fundamental level. At the point when you're arranging
your best course of action, you need to dissect showcase developments and audit your own brain
science. You have to ask yourself inquiries, for example,
Did I give indications of affirmation inclination?
Did I make an exchange out of dissatisfaction?
What caused me to pick that specific money pair?
Acing your brain science will shield you from numerous misfortunes along the trading
advancement way.
8. No Risk, No Success
Not even Forex trading tips and deceives can promise you achievement. At the point when you
choose to turn into a broker, you ought to have just acknowledged the plausibility of
disappointment. In the event that you didn't – here's a rude awakening. You won't make
productive exchanges 100% of the time. Try not to give false commercials a chance to get in
your mind, either. Rather, be practical about your Forex trading techniques and objectives.
9. Tolerance is a Virtue

With regards to trading, this familiar adage isn't only a prosaism. Genuine progress is rarely
prompt. It's the aftereffect of steady work and arranging. Numerous learner brokers search for a
simple, quick way to benefit. Try not to – it doesn't exist!
Every day you exchange, there's another exercise to be scholarly. Take a gander at the Forex
market and remember every one of the tips you have learned. Start investigating news, patterns,
and monetary procedures, and don't disregard the Forex nuts and bolts. In particular, study, at
that point practice and afterward study some more. Rehash this procedure frequently, and you
will be well on your approach to completely understanding the business sectors.
Examining will require a great deal of time and exertion, yet it will satisfy over the long haul.
First of all, Admiral Markets offers the open door for dealers to profit by free instruction focus
that offers Forex tips, just as, a scope of articles and instructional exercises offering tips, stunts,
systems, and the sky is the limit from there, for a wide range of trading.
12. Patterns are Good for You

One especially significant Forex market tip to pursue is to find out about patterns. The capacity
to spot patterns is a significant one. While we don't suggest getting on board with the pattern
temporary fad without fail, however by and large disregarding the pattern is a catastrophe
waiting to happen. Patterns can demonstrate to you what is coming, so you can professional
effectively modify your trading, as opposed to responding when it's past the point of no return.
13. Look for Competitive Conditions
It's critical to pick choice help conditions and get great spreads. In case you're thinking about
trading with Admiral Markets, there are a scope of various alternatives accessible. Why not read
progressively about them in our account types area?
14. Plan in Advance
Forex trading isn't a bet – it's a vital game. Cautiously ascertain your best course of action before
you act. You can start defining an arrangement by posing yourself some difficult inquiries, for
example,
Have I represented the likelihood that I may lose?
What's my arrangement B for the various sorts of situations that may emerge?
To be fruitful at Forex trading, you need to expect the unforeseen.

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of Forex trading, our Forex 101 Online Trading Course is the ideal spot for you! Figure out how
to exchange only 9 exercises, guided by an expert trading master. Snap the standard underneath
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15. Know the Charts
You will exchange on a wide range of business sectors and should rapidly comprehend the data
you dissect for each exchange. There are various instruments accessible to merchants that make
trading simpler, however nothing is additional time-productive than outlines. Graphs furnish you
with quick access to numerically-overwhelming information as a straightforward visual, so you
don't need to look through it. We urge you to become familiar with Forex outlines and how to
utilize them, by perusing our related articles:

16. Try not to Run out of Chances

Enthusiasm is great, however there is an utmost to everything. In the event that you exchange
excessively, you are most likely hurting your odds of making progress. Why? Since overtrading
for the most part prompts debilitated concentration and imprudent exchanges. As you build up
your trading plan, demonstrate the most extreme measure of exchanges you will make every day
or week.

17. Eagerness Leads to Risks

Eagerness can make you accept superfluous dangers also. Set the most extreme misfortune and
wanted benefit inside your trading plan. At the point when you hit this level, stop and don't go
for another exchange. With regards to subsidize the board, this is one of the most significant
Forex tips and deceives to pursue.
18. Use Stop-Losses
Our Forex day by day tips don't simply concentrate on general proposals. We additionally need
to specify significant apparatuses, for example, the exceptionally appraised stop-misfortune. Not
setting a stop-misfortune is essentially giving you a reason to keep a terrible position open (since
you're trusting that the circumstance improves). Be that as it may, awful circumstances once in a
while improve, and neither will your capital in the event that you don't astute up quick.
An accurately put stop-misfortune takes out the danger of losing the majority of your cash on a
solitary awful exchange. The stop-misfortune is particularly helpful when you don't be able to
close positions physically. To discover progressively about stop-misfortunes, try to look at the
accompanying instructive articles:
19. Investigate Your Trades
Another day by day Forex tip to pursue is to keep a diary of your trading movement. This will
enable you to screen your exhibition and discover designs inside your trading. Essentially, it's
simpler to gain from past missteps when they are written down. Keeping a diary likewise
improves your order. Make certain to record everything and speak the truth about it, as you must
be your own greatest pundit.
20. Trial
One of the fundamental tips for Forex trading is to deftly alter your procedure. Be eager to
evaluate new things and consistently expect to improve your trading. The FX market is
continually advancing thus should you. For example, the MetaTrader 4 Supreme Edition
(MT4SE) module is free for all live and demo accounts, presenting to you the most exceptional
apparatuses to improve your trading background. With MT4SE, trading is made simpler with the
utilization of highlights, for example, the smaller than expected terminal, the exchange terminal,
the tick outline dealer, the marker bundle, the trading test system, and the little graph.
 Conclusion

As you can see in this book, we covered many things, we talked about what Forex Trading is
and how to get started with Forex Trading. Most importantly we gave the information that you
can't find online.

As we told you previously, finding information online in regards to Forex Trading is not the
best idea since the information provided online for Forex Trading is not up to date. What this
book did for you is give you all the information that you need to be successful in order for you
to be successful with Forex Trading, which is one of the most crucial things to understand
before you get into Forex Trading is you need to have the right information and now you do.

Make sure you go ahead and use the information for your own benefit and to see success with
Forex Trading, make sure that you read this book very carefully and if you didn't understand
anything in this book make sure you revisit it. All you have to do is understand the information
provided to you in this book, and you will be in a much better position to seeing success with
your Forex Trading. The last thing you need to do, is to go out there and make some money,
which will not be that hard anymore since you know how to do it the right way.

SWING TRADING:
STRATEGIES AND GUIDE FOR BEGINNERS.
DIFFERENT OPTIONS FOR RISK
MANAGEMENT AND ANALYSIS. EASY RULES
AND ROUTINES USED WHEN INVESTING IN
STOCKS OR FOREX WHICH LEAD TO
DIVIDEND PROFITS.
Chapter 14 Table of Contents
Introduction

Chapter 1 Why Swing Trading Is Favorable For Beginner Traders

Chapter 2 Swing Trading Guiding Principles

Chapter 3 Platforms And Tools For Trading

Chapter 4 The Channel Swing Trading Strategy

Chapter 5 The Breakout Swing Trading Strategy

Chapter 6 Fundamental Analysis

Chapter 7 Money Management

Chapter 8 Winning Entry And Exit Strategies

Chapter 9 Maintaining Swing Trading Momentum

Chapter 10 Improving Swing-Trading Methods And Reducing Risks Involved

Conclusion
Introduction
Swing trading is a strategy used by traders to generate profit from the stock market over days or
weeks. The strategy makes use of technical trading to identify the right opportunities for traders.
It also uses fundamental analysis to determine patterns and trends in stock prices.
Traders use this technique to purchase and sell stocks whose prices have a high change potential
in future. They make profit from the upward or downward trend of the market. Trades must be
completed as fast as possible in order to realize the best profits from swing trading.
Swing trading entails holding trading positions over several trading sessions. However, this only
goes on for a number of days, weeks or months. The strategy utilizes short term methods of
trading and cannot be applied to long-term trades spanning more than a year. Some of the
financial instruments traded using this strategy include commodities, indexes, cryptocurrencies,
bonds and stocks.
Technical analysis helps swing traders to identify the kinds of stocks whose price might either
increase or decrease in the near future. Traders always analyze the technical indicators available
on the market to identify such price movements. This enables them to estimate the right time to
purchase or sell positions. As a trader, you main focus should be capitalizing on the price
changes, in this case known as swings. Small profits made over time often grow into significant
results. For instance, a long-term trader can wait for 6 months to make a profit of %20 from one
trade while a swing trader can earn a profit of 5% every week from several trades. In the long
run, the swing trader makes a lot more than other traders.
When swing trading, you can make use of daily, weekly or monthly charts to identify the right
entry and exit positions for each trade. You can use the strategy on volatile stocks as well as on
average ones. Either way, you can still make profit from any slight changes in stock prices. The
aim is always to capture some returns from anticipated price movement then moving on to
another opportunity.
Swing trading is considered an active form of trading just like day trading. Opportunities are
selected based on reward/ risk percentages. These percentages are derived from trading charts.
Each chart provides information on two forms of swings – the swing low and the swing high.
The swing low occurs when the price of a certain financial instruments assumes a downward
trend. The swing high occurs when the price of the instrument assumes an upward trend.
The work of the swing trader is to monitor how the price changes from low to high. When the
cost of an instrument starts to increase, the trader makes a purchase from the low price and waits
for the price to hit a maximum high to open a sell position. The standard procedure used in swing
trading is as follows:
1. You purchase or sell a financial instrument that is trending on the market
2. The cost of the instrument indicates a potential rise or decline based on the necessary technical analysis carried
out
3. You sell or purchase the instrument after a few to several days depending on the direction assumed by the market
prices
4. You the close the position and repeat the same process using different positions and financial instruments.

The outcome of each swing trade is determined by how the market changes. Some predictions
may not be as accurate as indicated by technical analysis tools. That is why you must be flexible
when it comes to the outcome of each trade since you can make more or less than what you have
anticipated.
There are several similarities between swing trading and day trading. The only difference is
about the trading period. Day trading does not involve overnight holds, while swing trading does.
A day trader must ensure closure of all positions before the trading day ends. A swing trading
position can remain open for days, weeks and even months. The risk involved in swing trading is
however larger than day trading because drastic changes to a stock price may occur during the
night. Gaps may also occur due to some changes in financial news and this can result in
tremendous gains, or losses.
Swing trading is often considered to be a combination of short and long-term trading strategies.
 Chapter 15 Why Swing Trading Is Favorable For Beginner
Traders
Swing trading is favorable for beginner traders for several reasons. Beginners are advised to start
with swing trading when they join the markets because it does not need skills. Unlike other types
of trading where you stand to lose a lot by trading without proper skills, swing trading is
relatively easy. Swing traders only need to have the capital and you are ready to go. Some people
shy away from swing trader because of the risks involved. If you do not have tolerance when you
lose, you will not succeed at anything in life. Fearlessness enables people to accomplish their
dreams as timid people watch. If you have been, dreaming of entering the trade market, use
swing trading and you will not be disappointed. It saves you money you could have used to learn
how to trade.
Swing trading is favorable for beginners because it is not time-consuming, like other types of
trade. Once you hold a position, you can focus on other things. On the contrary, other types of
trade such require you to monitor the stock regularly. As a beginner, you will have a lot of time
in your hands if you choose swing trading. Who would not want extra time to do other things in
life? We all wish we could have more time to sleep, spend time with families or focus on
personal growth. Swing trading gives you just that by eliminating the hassle of trading.
Another reason why swing trading is suitable for beginners is that it is stress-free. You can rest
knowing that everything is in order. Many traders are restless because they are constantly
worried about missing out on trading opportunities. What is worse is that when they make
profits, they still need to monitor the market in search of stocks to invest in. It is a never-ending
struggling that affects other areas of life. The stress you get from trading can harm your family
in many ways than you think. Rather than spending time with your children, you spend the whole
day trading. Things are worse when you lose because you are in a terrible mood and does not
talk to people nicely. Different trading methods have drawbacks that should be considered before
opting for them. A sure way to avoid stress as a beginner is to choose swing trading. Your mind
is in a good place and relates nicely with people around you. Moreover, swing trading is
favorable because it enables you to learn market trends, something you may not be able to do
quickly with other types of trade. You are not in a rush when swing trading and this increase
chances of making smart decisions. Adrenaline junkies love trading because it gets them high but
this is not good if you want to win big in the markets. You need to be sober to evaluate stocks
with clarity. Swing trading is suitable because it takes less time, thereby eliminates the rush that
comes with trading. You are able to think clearly and minimize trading risks.
Swing trading is favorable for beginners because it allows them to hold separate jobs. Any type
of trading can drain your account seriously. If you do not have enough money or a separate
account, you may just become the next beggar. Many traders have suffered heavy blows from the
markets after investing all their resources on stocks. It is not bad to take a risk if you feel it worth
a try. However, it is wrong to use all your savings when you have a family to support. While you
gain more than you invest, there is also a possibility you could lose. What would happen if you
traded with everything you have and end up empty-handed? Successful traders have mastered the
art of trading and how to survive in the long run. They set up a separate savings account to help
them during rough times. The savings also helps to recover from trading loss. Swing trading
increases chances of saving by giving you time to focus on other ventures. It is not a whole day
affair and many swing traders have day jobs. They are less likely to be affected when they lose in
the stock market because they have a steady income. Moreover, their children will continue with
school because they have a savings account. Thus, swing trading is suitable for beginners
because of the perks it offers. It eliminates the worry of where to get money or tools to use. Give
it a try today and save yourself from the trouble of dealing with uncertain market movements.
Most people prefer swing trade because chances of getting strong reward ratio are higher than
loss ratio. The best advice you can take as a beginner is to pay attention to the reward/loss ratio.
There is no point in buying stocks at a high and selling low. This is a waste of time and
resources. Take time to study different stocks to gauge profitability. Another reason why people
incur losses day and night is because of putting high leverages they cannot afford. Be careful
with the decisions you make because they not only affect your trades but also your life. If it
crumbles, other aspects of you are affected. When you fail, everyone who depends on you fails.
Therefore, swing trading is favorable for beginners because you stand to gain more than lose.
You also learn a lot of information from the stock market, which is useful in future, trades. It is
not a must to choose other trading strategies once you stay long in the market. You can improve
your skills and continue as a swing trader. It is better to continue with a strategy you know and
have used before. In the end, you want to exit the market wiser than you entered, even if you
incur losses. There is no better way to learn the stock market apart from swing trading.
Chapter 16 Swing Trading Guiding
Principles
The routine of a Swing Trader
In order for a trader to be successful in their trade swinging, they need to spend a good amount of
time on the markets analyzing and finding the loopholes. The first thing they need to do is begin
their day slightly Earlier than the opening time of the markets, that is before the opening bell,
which is rung at 6 am EST. This will help them get a general overview of what is expected and
the things that should go into their watch list of the day, the potential trades they can cash in and
the existing positions of the different trading instruments.
1) Market Overview

The second step is to look at the latest news across the world, that is both economically and
politically to see what role these fundamental factors are likely to play on during the days trading
time. This is because according to the fundamental analysts, if there is a negative change in the
political or economic structure of a certain nation or region, the odds of the currency of the
affected areas going low are very high and the traders would like to have a step ahead in this so
they can sell off and cut down on their losses. The trader can catch up on this news using either
reliable websites such as a Market watch or watching television cable networks such as CNBC.
While doing this, the trader should pay attention to three things; in particular, they include:
1. The market sentiment- this is the general feel of the market pattern that could either
be bearish or bullish, it also involves looking out for the inflation fluctuations in the
national currency and reading the economic reports that may have been released.
2. Sector sentiment- this is the general feel of the different economic sectors that make
up an economy, such as the manufacturing sector, the agricultural sector etcetera.
The general sectoral composition of an economy will tell the trader what the best
move to make on a currency is. For instance, if the manufacturing sector of an
economy is growing, the likelihood of the currency being strong is greater than the
economy which is majorly focused on the agricultural sector
3. Current portfolio contents- the trading instruments in the current portfolio of a
market are vital to any swing trader since they get to know what is hot on the market
and vice versa. The news that is put forth on either futures or options, earnings, and
regulations will come in handy when the trader has to make a decision.
Potential Trades
After a swing trader has conducted their market overview research and armed with the findings
from this analysis, they are now set to scan for the potential trades they can engage in during the
day. Normally, a swing trader will use the fundamental analysis to scan for the right entry
positions before they apply their own technical analysis to get the perfect exit points. The three
main methods swing traders utilize in getting the right fundamental catalysts for their entry
points to include:
Special Opportunities
These are moments such as initial public offerings, mergers, acquisitions, and suspensions,
takeovers and buyouts, bankruptcy announcements, insider buying, and restructuring, among
other things. In such moments the swing trader will most likely do the opposite of what the trend
is, they will buy when the trend is selling and sell when the trend is buying.
Sector Plays
This is similar to what the trade did in the market overview; they pay attention to certain sectors
and hop on to the train as it embarks on its journey. Whenever a sign of a retracement appears
the swing traders will alight the train since all they needed to do was ride the trend when it was
perfect for them.
Chart Breaks
By analyzing the charts, swing traders will always note the different trading instruments that will
be close to a resistance or support level. They will utilize patterns such as;
· Symmetrical Triangle patterns
This is a continuation pattern that has at least two higher highs and lows and two lower lows.
The logic behind the symmetrical triangle pattern

Buyers will push the price in different directions as the sellers. The buyers will keep pushing the
price up, making higher, and the sellers will equally push the price low making lower highs. This
kind of narrowing of the trading range usually means that the buyers and sellers are both losing
interests in that price level, and they may feel as though the security or pair is overrated. This
explains why the pattern starts wide and begins to narrow towards the end of the pattern. When
the trading range begins to narrow when either the buyers or sellers were having a kind of war, it
signals the possibility of a big sharp move in either direction depending on who caves first
among the buyers and sellers breaking the pattern. The narrowing also means there re low
volumes of orders in the market at that specific level, since, the buyer considers the price level
unattractive for them to purchase and the seller feels the price is not that attractive for him to sell
either. However, when the price breaks out of this small range, it will move fast in one direction ,
all we can do as traders is wait prepared for the pattern to break in our predetermined direction of
trade and with a stop order in the other direction because we must prepare for the worst even as
we hope for the best.
· Ascending Triangle Pattern
This is a bullish continuation pattern that must have at least two highs and two lows that can be
connected with more than one trend lines. The atop most trend line will have to be horizontal
while the lower trend line has to be diagonal.
The logic behind ascending triangle patterns

The logic behind this continuation pattern is pretty obvious, and I am sure you can already tell
what it is. If you thought that the sellers are not going down without a fight and the buyers are
still breathing down their necks persistently, then you are right. The buyers will push the price
higher making higher lows while the sellers insist on keeping the prices low at the level where
the horizontal trend line is. Unfortunately, or fortunately, depending on what your predetermined
direction is, the sellers will cave in and admit defeat and stop entering sell orders at the
horizontal line since the buyers will counteract that move and push the price back up to the levels
where they sold and triggered their stop losses. With this outnumbering of the sellers, the buyers
will be in control of the market. After this spiff, the pattern will break, and the trend will resume
the trend that had been established by the previous impulsive move.
· Descending triangle pattern
This is a continuation pattern that is literally the opposite of the ascending triangle pattern. It is a
bearish continuation pattern which means that the trend is down and the price will have to stop
for a short period of time in order to consolidate, and this type of move forms a descending
triangle pattern before the trend resumes going further down.
The logic behind Descending Triangle Patterns

This logic behind this particular pattern mirrors the one that is behind ascending triangle
patterns. In this case, though the sellers are in large numbers and the trend is moving down. The
buyers will hold their forte and keep it down at the horizontal trend line. Although this will only
last a short period of time before the sellers, who are in the majority, win and break the pattern
leading to a resumption of the trend downwards.
· Price Channel
This is a continuation pattern that is made up of two parallel trend lines, that is one above and the
other below the price that takes the shape of a channel. This is a continuation pattern that is
applicable in both the bullish and bearish markets. The distinction between these two markets is
the direction the sloping will occur in. If the channel slopes upwards then his is considered a
bullish continuation pattern and vice versa if the channel is sloping downward then we can
consider this the bearish continuation pattern. Like the rest of the patterns, the trend lines have to
be drawn while connecting at least two highs and two lows.

The logic behind Price channel continuation pattern

When the trend is up:

This means the buyers are in control in this case and the price will stop in order for it to
consolidate when they eventually decide to take some of the profits out of the market, but in that
specific moment, the sellers will be out of sight. The sellers are weak in this case and lack the
strength to correct the trend or even make a minute move against the trend direction. Therefore,
the price will just trickle on upwards, slowly forming a channel before the buyers eventually
resume the strong trend by breaking the already slow-moving pattern and taking the movement
further higher. This is the bullish price channel continuation pattern.
When the trend is down:
The vice versa of what happens in the bullish price channel continuation pattern will occur here
since it is a bearish type of continuation pattern when the trend is moving down. In this case, it
means the sellers are in control and the price will stop in order for it to consolidate when they
eventually decide to take some of the profits out of the market but in that specific moment, the
buyers will be out of sight. The buyers who are weak in this case will equally lack the strength to
correct the trend or even make a minute move against the trend direction, therefore, the price will
just trickle on downwards slowly forming a channel before the sellers eventually resume the
strong trend by breaking the already slow-moving pattern and taking the movement further
lower.
Creating a Watch List
Swing traders should now create a watch list after the analysis, on the different currencies they
would like to keep an eye on. It is advisable for the list to have columns that show the target
prices, the entry prices, and the stop-loss prices of each trading instrument.
Look at the Existing Positions
The traders must look at the positions that they are in at this pre-market hour before the opening
bell sounds. With the fundamental analysis report at the back of their minds, they need to pay
attention to the changes that are likely to be influenced, and if they stand to gain or lose their
current positions. This is important because it always guides the trader on whether they should
adjust either their stop-loss signals or their take-profit positions in order to adjust to the recent
changes.
1) Market Hours

Once the opening bell sounds, the swing traders will look at who is buying and who is selling.
They focus on the trend and plan their entry and exit using different analysis as discussed below.
2) Flag pattern trade example.

Let us assume the last impulsive move on the four-hour chart was down, when we check the
thirty-minute chart we will have to wait for a continuation pattern to form. After it forms, we will
wait for the price to break in the direction of the impulsive move on the four-hour chart. In this
case, when the move was down, we are going to be seeking to sell, so we need the flag to break
on the downside. Break-in this case means zooming out of the 30 minute chart and waiting for a
thirty-minute candle to form and close outside below the flag pattern after this candle has closed
out, zoom out of the thirty minutes chart and wait of the price to go back up to the red lower
trend line and retest it (get close to it.) this will now be a Resistance line. When a pattern breaks
and price comes back shortly to retest the line, this is what forms a resistance line. We should
enter the sell stop order at the level where the price started to rise back up and retest the lower
trend line of the flag. The Stop loss is placed where the retest of the trend line took place.
How to Manage the Stop Loss level
In the example above, when the price begins to move away from the flag pattern, it will form
small lower highs! We should trail our stop loss levels manually to just above these lower highs.
There are two ways to enter the trade; the first one is the method discussed above where we wait
for the retest of the pattern and the second one is to enter when a thirty-minute candle body is
completely outside the pattern if the retest did not happen right after the first candle that closed
outside it. The reason is that at times the trend will be too strong and the retest may never happen
as speculated before.
3) Descending triangle trade example
Let us assume there is a clear downtrend with the most recent impulsive move on the four-hour
chart moving down. The pattern then breaks to the downside as we would like it to break but
after the first thirty minutes candle that closes tight outside our pattern and there is no retest on
the lower trend line. If there is no retest after the first candle that breaks the pattern, then we
should enter at the close of the second candle that is considerably outside the pattern. We should
not wait for the retest as it did not happen after the first candle chances are it will not happen
now either, we should place the stop loss above the last minor lower high that is inside the
pattern. After that, we shall manually trail the stop-loss order as we did in the previous example
where we entered the order after the patterns reset
4) Ascending triangle trade example

Let us assume there is a clear uptrend with the most recent impulsive move on the four-hour
chart moving up, but there is no retest after the first candle that closes above the pattern. We will
have to enter the trade at the close of the second candle, which should be completely out of the
pattern. It is imperative to do this and make some pips instead of sitting around waiting on a
retest that may very much not appear.
5) Rectangle pattern trade example

After the broken candle which closes outside the pattern, the retest of the resistance lines is put
into play. We should enter the market when the price comes back down at the close of the
breakout candle and set the stop loss in the places where the retest finished, and the prices started
going down and away from the pattern and trend.

Exits
One of the exit strategies we have touched on is the stop-loss method where you can trail it
manually to points just above the lower highs on the thirty-minute chart when selling or just
below the higher knows if you are the buyer. These are considered the logical turning points in
the market. They are the least likely levels that the price will touch whenever there is a strong
direction, and this makes them a perfect spot to hang the stop loss.
The second way to exit the trade earlier than this moment which involves the wedge continuation
pattern. We agreed that the wedge pattern could be either a continuation or a reversal pattern, and
this depends on the location that the wedge is in. Just a reminder, if the wedge pattern forms at
the correction phase of a huge trend on the four-hour chart and it slopes against the trend, then
this is a continuation pattern, and we can use it to enter trades. The wedge pattern can also
emerge in the impulsive moves of the trend, indicating that the trend is about to come to a stop.
The slope of the pattern, in this case, should be in line with the trend. The moment you spot this
pattern emerging, you should keep an eye out for the breaking of the trend, which is the
confirmation of the end of the said trend.
The main approach for trade exists still remains the manual trailing of stop-loss either below or
above the logical points. However, if you see a wedge that will break to the downside if the last
impulsive move is an uptrend or breaks to the upside if the last impulsive move on the four hour
chart is a downside then you as the trader should exit when the pattern breaks and a 30 minute
candle forms outside to signify the end of the trend. This is actually a better exit level since you
do not need to wait for the price rise till it gets to the last high or go down to the last low so that
your stop loss level is hit and the order materializes eating away at a small part of your profits.
· Head and Shoulders pattern
This is a trend formation that shows a reversal and formed by a certain peak which is considered
a shoulder and then followed by a taller peak which is ahead, and a shorter peak (shoulder)
follows suit and so on so forth. When the lowest points of two troughs are connected by a line,
this line is called the neckline. The neckline can either slope down or upwards. When the line
slopes down, it indicates a more reliable signal. A target can be calculated by measuring the
distance from the neckline to the topmost point of the head in the chart. This difference is a
representation of how far the price will move up after it goes past the neckline. It is also the same
distance that the price will make once it falls below the neckline.
At the end of the day, traders should always remember that they should not adjust their positions
to take on more risk. They should instead make adjustments to either lock in profits o to take in
more profit taking levels.
6) After Hours Market

After trading doing the day, traders are required to do a performance evaluation after the closing
time of the markets. The report should have a good and clear recording of the trades that have
either won or lost during the day. These reports will be used for both monitoring the performance
and evaluating it as well as in the case of tax compliance. After the evaluations, traders are
required to record their closing positions of all the open trades while paying close attention to the
announcements that have been made after hours in order to help them in their pre-market
analysis the following day.
The routine of a swing trader shows that one needs to plan diligently and prepare properly since
the pre-market hours help them identify the potential trades and market opportunities of the day,
the market hours are then spent enacting the conclusions that were drawn in the morning on the
different positions and the after-hours are for evaluating the day’s work and ensuring that the
same thing that was written down in theory still happened practically.
How to Scan for Swinging Trade
This involves the use of a market radar which literally shows the trader where their counterparts
are and what their moves are. The market radars can be easily incorporated in the different
market scanners that are available all over the internet. We will discuss five different market
radars that the trader can incorporate into their market scanners so that they do not miss out on
any trading opportunity.
1. ADX Trend Scan
This is a swinging trading strategy that is also known as finding the Holy Grail. It involves
looking for retracements within any trend that is considered perfect and healthy. For the long
traders, they are required to use a 30 period ADX which should be indicating that it is above 30
and still going higher, their retracement levels should be a 20 simple moving average that the
price should hit, once the price hits here, the traders should now order at the topmost point of the
bar that is in contact with the 20 periods simple moving average. The short-term traders should
use a 14-period ADX that is also above thirty and keeps on climbing higher; their retracement
level should also be at the 20-period simple moving average, however, when the bar touches the
simple moving average, the trader should sell at the lowest point that is in contact.
2. ADX Range Trades Galore
This is the indicator that looks around at the sideways moving markets for different trade setups
such as the Gimmee Bar which is a market entry trading strategy that has the trader looking for a
reversal pattern that is moving from the highest point of a trading range or the vice versa. In the
long trader's point of view, the Gimmee bar trading strategy has prices which are considered to
be going down and losing in a trading range. These prices should further touch the lower
Bollinger band and form another bar that will always end at a higher position than the initial
start-up position. This bar is known as the Gimmee bar that the trader should then consider
buying just slightly above. The short-term traders, on the other hand, will deal with prices that
will be seen as rising and going up in a trading range and touching the higher Bollinger band.
They should then form another bar that will always end at a point that is considerably lower than
the position where it opened, this bar known as the Gimmee bar is the spot that indicates where
traders should sell at. The spot should be just slightly below this bar. However, should this bar
cross and overlap the Moving average, or record a much wider range than the other Bollinger
bands and bars, or alternatively open and go further than the range of the bars, the trader is
advised to let go and not trade with the Gimmee bars. Whenever the ADX increases, it shows
that the trend is supposedly getting stronger while the slight motion of the ADX in a downward
trend will indicate the trading ranges required for analysis.
3. Hull Moving Average
While most of the traders are only aware of two moving averages, the Hull moving average is
considered an exotic MA that helps the traders scan the waves in the markets and charts. Once
the Hull Moving Average has been drawn on a chart, it is most likely to be way smoother than
the actual market price while still flowing with the different ups and downs in the markets that
form waves. The trader is advised to track down these turning points and use them to analyze the
market waves and see the reversals and continuations likely to come up. If the slope of the Hull
Moving Average is positive, then the trend that is being implied is the bull swing which is just
stating and the vice versa, if the slope is negative then the trend that has begun is known as the
bear swing.
4. Extreme Volume
If the volume is high, the odds of the trends ending or new trending breaking out are very high.
Large trading volumes always lead to the appearance of exhaustion gaps, which usually appear
immediately after the trend has come to a stop. It is caused by an increase of the last-minute
buyers who get into a bullish market at the end of the trend right before the reversal commences.
The gap will always close after about five different bars. Therefore, this is the windfall that the
swing traders should look for if they want to make the move that they need to cash in their
profits.
5. Impulse system scan
The first rule of trading usually does not trade against the trend; the other rule of swing trading
does not trade against the impulse system momentum. That is considered a suicidal move that
will most likely land you in a series of bad trades that will make you lose a lot. The impulse
system scan uses a combination of two indicators that is the Moving Average Convergence
Divergence and the Exponential Moving Average to scan the market and figure out its
momentum. According to researchers, when these two indicators cross, that is the implication of
an impulsive move that is often found in the trading psychology of human beings. The higher the
time frame that the trader employs in this specific moment, the better and improve their trading
set up will be. A long-term trader who is using a 13 period should have the exponential moving
average in a rising pattern and the (12,26,9) Moving Average Convergence Divergence indicator
forming a histogram that seems to be going higher too. These positions should encourage the
trader should get into the market. The short-term trader should use the same indicators as well,
but the difference is the indicators should show a position that is going lower. This is a colored
indicator which has the blue color scheme code that indicates the disagreeing session of both
indicators, the green color scheme should show a positive impulse which is ideal for long term
traders and the red color scheme indicates the negative impulse systems which means the prices
are falling which is perfect for short term traders.
How to buy low and sell high
When it comes to trading, you will realize that it does not just understand that basics like you
would go to the market get your apple. The first thing that you will need is a frame of reference.
You should have a technique on a chart where help you understand that this is relatively a low
priced hence the possible time to enter the trade. You will need two methods if you want to make
it trade entry.
You will need support and a resistant chart to help you know when it is time to enter the market.
With this, you will look back historically to know where there is a low price. You, therefore,
work on the probability of knowing where the resistance and supports are. You also need a
confirmation of the market before you buy. You should not just buy because the prices are low.
Look for a sign of strength where the candle has a bullish close. You will find that the buyers are
stepping in here and there is a good chance that the market could hit higher.
When you want to sell, you should be looking for high prices; thus, you need to know the high
price area from your chart. You also need to note the high cost that you are targeting. You will
note that sometimes the swing partner will get shorter and shorter. You will, therefore, use the
partner. You will ask yourself on what level of the chart is there an opposing pressure that is
coming in right that will go against my trade. You know that sellers come in at swing highs,
resistance or coming in at a previous support time resistance. If you want to make it, then you
need to sell on a low swing level as you will be able to make more at that point. It is a minor
support period, and support may become resistant. That is the best place to exit the trade on one
swing of the market. Pay attention to the first level that swings high and take your partial profits.
Sellers may be looking for areas of reasonable prices since there is a good chance that the market
could reverse from there.
 Chapter 17 Platforms And Tools For
Trading
To be a successful trader, you will need access to reliable resources. The good news is that there
are plenty of excellent resources all across the web. These resources include educational
materials, online brokers, real-time securities markets data, and super-fast computer networks.
Sometimes you may not have access to all the resources necessary and you may have to choose
between what is essential and what you can afford. A little research goes a long way in helping
you make crucial decisions about your trades. It is advisable to know more about the kind of
resources available to you. These resources are ideal for swing traders.
Swing Trading Tools

Traders are always searching for the best trading systems and ways they can develop these
systems to suit their trading styles. Fortunately, there is a process that any trader can use in order
to discover their preferred trading mode and system.
Identifying Best Strategies for Profitability

There are plenty of small but crucial things you can do as a swing trader to improve your
success. For instance, you could begin by identifying the location of the swing low and swing
high positions on a particular chart. If you are able to note the swings accurately, then you will
be able to place accurate trades which will increase your profitability greatly.
Swing Highs and Swing Lows

Swing highs and swing lows are also referred to as SHSL. This refers to the price action where
multiple bars and candlesticks are joined together so that they are viewed as a single move in a
given direction. The movement is generally known as a leg. Sometimes it is also known as swing
or a move. This is where the term swing originates from.
The swing represents a single part of the price action in a particular direction. This swing is
always closely countered by a swing in the opposite direction. Sometimes this movement is
sideways rather than back and forth. As it is, price moves back and forth in the market. In other
words, it swings back and forth and hence the term swing. The highest point of a swing is the
swing high while the lowest point is known as the swing low.
How to Identify Swings

The market is constantly in motion. A swing occurs when there are two consecutive lower highs
and lower lows or when there are two consecutive higher lows and higher highs. Remember that
swings appear in all manner of shapes and sizes. However, the rule on how to identify them is
very simple. Simply look for consecutive higher highs and higher lows or consecutive lower
highs and lower lows.
Swings are bullish if the general movement is upwards and bearish if the general movement is
downwards. Sometimes a new low will appear when the trend is upwards. At other times a new
high will appear when the general trend is headed downwards. When this happens, you should
not be worried or concerned as these are considered false swings. Unless there are consecutive
highs or lows, then ignore everything else.
Use Swings to Increase Profitability

We have learned how to identify swings in the market. Now we need to apply this knowledge in
order to be profitable. The first step is to place your stop-loss points. This should be slightly
above the higher high for a bearish situation and below the lowest low in a bullish situation.
Also, the correct and accurate swing highs and swing lows provide an opportunity to draw
Fibonacci extensions. These lines will enable you to identify target areas of high probability. As
such, it becomes possible to place our take profit and stop-loss points on our charts. Remember
Livermore? The gentleman said to be one of the most successful traders ever? Back in 19 29, he
managed to make about $100 million. In today’s terms, this is equivalent to almost $1.4 billion.
That is a lot of money even for an experienced trader.
If you learn about the best trading systems, then you too can make plenty of money in today’s
prevailing marketing rates. You could always trade with the market trend or against it.
Remember that it is always advisable to follow the trend rather than the opposite. Only oppose
the trend if you are an experienced swing trader and know exactly what you are doing. Key will
be identifying the best entry points into a trade and the best places to collect profits as well as
exit trades.
Before you begin your swing, trading ventures, ensure that you come up with a tested plan that
you can implement. Therefore, test your preferred systems and strategies and ensure that they are
working as desired. This way, you will be able to prepare appropriately and trade successfully
and profitably over time.
Swing traders are always searching for conditions in the markets where stock prices are looking
to swing either downwards or possibly upwards. There are numerous technical indicators that are
available to enhance your trades. Indicators used in swing trading are basically essential in
identifying trends in the market between certain trading periods.
These trading periods that range anywhere from 3 to 15 are then analyzed using our technical
indicators in order to determine the presence or otherwise of resistance and support levels. If
these have actually materialized and are clearly visible, then we can proceed to make other
determinations.
At this stage, you will also need to determine whether any trend is bullish or bearish. You will
also need to be on the lookout for a reversal because without one you will not be able to enter a
trade. Reversals are also referred to as countertrends or pullbacks. As soon as we can clearly
point out the reversal, then we can easily identify the appropriate entry point.
The entry point should be the point where the pullback is just about to come to an end and the
trend is about to pick up again. Being able to determine these points is really crucial. This same
approach is the very same one used by Jesse Livermore to earn his wealth.
Benefits

Swing trading offers some of the best risks to reward opportunities compared to other trading
strategies. This means that for a smaller amount, you will stand to win a much larger profit.
Trading is a risky venture but swing trading has a better payoff compared to others. As such, you
stand to make more money at reduced risks compared to traders using different trading styles
like day traders or position traders.
Another benefit is that a lot of intraday noise will be eliminated using this approach. Smart
money traders are always on the lookout for big swings and this is what you will also be doing.
This approach is less stressful and potentially more profitable compared to other strategies.
You will also have a lot of time in your hands compared to other traders. Day traders and others
often spend hours each day glued to their screens. Their days are not just spent staring at the
screen but their stress levels are extremely high. Constant stress will result in fast burn-out and
emotional trading which are not good for long-term successful trading.
Best Indicators for Swing Traders

There are plenty of indicators that traders and investors use to enhance their trades. We shall
review just a few of these and discover the best way of applying them to our trades in order to
maximize profitability. It is crucial to understand that none of these indicators will make you
profitable from the onset. Therefore, do not break your back trying to find the best or most
profitable trade indicators. Instead, focus more on learning about a couple of extremely effective
indicators as well as the strategies and methods used alongside them. Experts believe that trading
strategies are more profitable when you apply the few indicators that you have mastered.
1. Moving Averages
Moving averages are among the most important trade indicators used by swing traders. They are
defined as lines drawn across a chart and are determined based on previous prices. Moving
averages are really simple to understand yet they are absolutely useful when it comes to trading
the markets. They are extremely useful to all kinds of traders include swing traders, day, intra,
and long-term investors.
You need to ensure that you have a number of moving averages plotted across your trading
charts all with different time periods. For instance, you can have the 100-day moving average,
the 50-day, and the 9-day MA. This way, you will obtain a much broader overview of the market
and be able to identify much stronger reversals and trends.
How to use Moving Averages

Once you have plotted and drawn the moving averages on your charts, you can then use them for
a number of purposes. The first is to identify the strength of a trend. Basically, what you need to
do is to observe the lines and gauge their distance from the current stock price.
A trend is considered weak if the trend and the current price are far from the relative MA. The
farther they are then the weaker the trend is. This makes it easier for traders to note any possible
reversals and also identify exit and entry points. You should move averages together with
additional indicators, for instance, the volume.
Moving averages can also be used to identify trend reversals. When you plot multiple moving
averages, they are bound to cross. If they do, then this implies a couple of things. For instance,
crossing MA lines indicate a trend reversal. If these cross after an uptrend, then it means that the
trend is about to change direction and a bearish one is about to appear.
However, some trend reversals are never real so you have to be careful before calling out one.
Many traders are often caught off guard by these false reversals. Therefore, confirm them before
trading using other tools and methods. Even then, the moving average is a very vital indicator.
They enable traders to get a true feel and understanding of the markets.
2. RSI – Relative Strength Index

Another crucial indicator that is commonly used by swing traders and other traders are the RSI or
relative strength index. This index is also an indicator that evaluates the strength of the price of a
security that you may be interested in. The figure indicated is relative and provides traders with a
picture of how the stock is performing relative to the markets. You will need information
regarding volatility and past performance. All traders, regardless of their trading styles, need this
useful indicator. Using this relative evaluation tool gives you a figure that lies between 1 and
100.
Tips on RSI Use

The relative strength index is ideally used for identifying divergence. Divergence is used by
traders to note trend reversals. We can say that divergence is a disagreement or difference
between two points. There are bearish and bullish divergent signals. Very large and fast
movements in the markets sometimes produce false signals. This is why it advisable to always
use indicators together with other tools.
You can also use the RSI to identify oversold and overbought conditions. It is crucial that you
are able to identify these conditions as you trade because you will easily identify corrections and
reversals. Sometimes securities are overbought at the markets when this situation occurs, it
means that there is a possible trend reversal and usually the emerging trend is bearish. This is
often a market correction. Basically, when a security is oversold, it signals a correction or bullish
trend reversal but when it’s overbought, it introduces a bearish trend reversal.
The theory aspect of this condition requires a ratio of 70:30. This translates to 70% overvalued or
over purchased and 30% undervalued or oversold. However, in some cases, you might be safer
going with an 80/20 ratio just to prevent false breakouts.
3. Volume

When trading, the volume is a crucial indicator and constitutes a major part of any trading
strategy. As a trader, you want to always target stocks with high volumes as these are considered
liquid. How many traders, especially new ones, often disregard volume and look at other
indicators instead.
While volume is great for liquidity purposes, it is also desirable for trend. A good trend should
be supported by volume. A large part of any stock’s volume should constitute part of any trend
for it to be a true and reliable trend.
Most of the time traders will observe a trend based on price action. You need to also be on the
lookout for new money which means additional players and volume. If you note significant
volumes contributing to a trend, then you can be confident about your analysis. Even when it
comes to a downtrend, there should be sufficient volumes visible for it to be considered
trustworthy. A lack of volume simply means the stock has either been undervalued or
overvalued.
4. Bollinger Bands Indicator

One of the most important indicators that you will need is the Bollinger band indicator. It is a
technical indicator that performs two crucial purposes. The first is to identify sections of the
market that are overbought and oversold. The other purpose is to check the market’s volatility.
This indicator consists of 3 distinct moving averages. There is a central one which is an SMA or
simple moving average and then there two on each side of the SMA. These are also moving
averages but are plotted on either side of the central SMA about 2 standard deviations away.
Accumulation and Distribution Line

Another indicator that is widely used by swing traders is the accumulation/distribution line. This
indicator is generally used to track the money flow within security. The money that flows into
and out of stock provides useful information for your analysis.
The accumulation/distribution indicator compares very well with another indicator, the OBV, or
the on-balance volume indicator. The difference, in this case, is that it considers the trading range
as well as the closing price of a stock. The OBV only considers the trading range for a given
period.
When the security closes out close to its high, then the accumulation/distribution indicator will
add weight to the stock value compared to closing out close to the mid-point. Depending on your
needs and sometimes the calculations, you may want to also use the OBV indicator.
You can use this indicator to confirm an upward trend. For instance, when it is trending upwards,
you will observe buying interest because the security will close at a point that is higher than the
mid-range. However, when it closes at a point that is lower than the mid-range, then the volume
is indicated as negative and this indicates a declining trend.
While using this indicator, you will also want to be on the lookout for divergence. When the
accumulation/distribution begins to decline while the price is going up, then you should be
careful because this signals a possible reversal. On the other hand, if the trend starts to ascend
while the price is falling, then this probably indicates a possible price rise in the near future. It is
advisable to ensure that your internet and other connections are extremely fast especially when
using these indicators as time is of the essence.
The Average Directional Index, ADX

Another tool or indicator that is widely used by swing traders is the average directional index,
the ADX. This indicator is basically a trend indicator and its purpose is largely to check the
momentum and strength of a trend. A trend is believed to have directional strength if the ADX
value is equal to or higher than 40. The directional could be upward or downward based on the
general price direction. However, when the ADX value is below 20, then we can say that there is
no trend or there is one but it is weak and unreliable.
You will notice the ADX line on your charts as it is mainline and is often black in color. There
are other lines that can be shown additionally. These lines are DI- and DI+ and in most cases are
green and red in color respectively. You can use all the three lines to track both the momentum
and the trend direction.
Aroon Technical Indicator

Another useful indicator that you can use is the Aroon indicator. This is a technical indicator
designed to check if financial security is trending. It also checks to find out whether the
security’s price is achieving new lows or new highs over a given period of time.
You can also use this technical indicator to discover the onset of a new trend. It features two
distinct lines which are the Aroon down line and the Aroon up line. A trend is noted when the
Aaron up line traverses across the Aaron down line. To confirm the trend, then the Aaron up line
will get to the 100-point mark and stay there.
The reverse holds water as well. When the Aroon down line cuts below the Aaron up line, then
we can presume a downward trend. To confirm this, we should note the line getting close to the
100-point mark and staying there.
This popular trading tool comes with a calculator which you can use to determine the number of
things. If the trend is bullish or bearish, then the calculator will let you know. The formulas used
to determine this refer to the most recent highs and lows. When the Aroon values are high, then
recent values were used and when they are low, the values used were less recent. Typical Aroon
values vary between o and 100. Figures that are close to 0 indicate a weak trend while those
closer to 100 indicate a strong trend.
The bullish and bearish Aroon indicators can be converted into one oscillator. This is done by
making the bearish one range from 0 to -100 while the bullish one ranges from 100 to 0. The
combined indicator will then oscillate between 100 and -100. 100 will indicate a strong trend, 0
means there is no trend while -100 implies a negative or downward trend.
This trading tool is pretty easy to use. What you need to is first obtain the necessary figures then
plot these on the relevant chart. When you then plot these figures on the chart, watch out for the
two key levels. These are 30 and 70. Anything above the 70-point mark means the trend is solid
while anything below 30 implies a weak trend.
Trading Platforms

Trading platforms are the actual platforms or software programs that enable traders to place their
trades and monitor their accounts. An electronic trading platform is a computer program of a
website with a user interface where traders place financial trades.
As a swing trader, you will use this platform to enter, close, exit, and manage positions. This is
often done via an intermediary such as your broker. Most traders use online platforms which are
overseen and offered by brokerage firms. Brokers charge a fee when you use their platforms but
sometimes, they offer discounts to traders who make a certain number of trades each month or
those with funded accounts.
Basic Swing Trading Platforms

Trading platforms provide traders with the opportunity to place trades and monitor their
accounts. There is a variety of platforms available to swing traders. They come with a number of
different features. These include premium research functions, a news feed, charting tools, and
even real-time price quotes. These additional features and tools enhance a trader’s performance
and make it easier to execute trades faster and accurately. Most platforms available today are
designed for different financial instruments like Forex, stocks, futures, and options.
We basically have two different types of platforms. These are commercial platforms and prop
platforms. Commercial platforms are mostly used by traders such as swing traders, retail
investors, and day traders. They are largely easy to use and come with a myriad of features such
as charts and a news feed.
We also have prop platforms. These are platforms that are customized for specific users such as
institutional investors and large brokerage firms. Apparently, their needs are much different
compared to those of small traders and retail investors. The prop platforms are designed to take
into consideration the different needs of these special clients.
As a swing trader, you will most likely be using commercial platforms provided by different
brokerage firms. Even then, there are some things that you need to be on the lookout before
choosing one. For instance, what are the included features? How about costs and fees charged?
Also, different traders will require different tools on their platforms. There are certain tools that
are suitable for day and swing traders while others are more suitable for options and futures
traders.
When selecting a platform, always watch out for the fees charged. As a small-scale, retail swing
trader, you want to trade on one that charges low and affordable fees. However, sometimes there
are certain trade-offs. For instance, some platforms charge low fees but they lack certain crucial
features or provide poor services. Others may seem expensive but provide crucial features
including research tools and excellent services. So, you will need to consider all these factors
before eventually selecting a suitable trading platform.
There is yet another crucial point to keep in mind when selecting a trading platform. Some
platforms are available only through specific brokers or intermediaries. Other platforms are
universal and work with different brokerage platforms and intermediaries across the board.
Traders also select trading platforms based on their own personal styles and preferences.
You should find out if there are any particular requirements or conditions that require to be
fulfilled. For instance, some platforms require traders to maintain at least $25, oo0 in their
trading accounts in the form of equity and possibly cash as well. In this instance, a trader may
then receive approval for credit which is also known as margin.
Examples of Swing Trading Platforms

1. The Home Trading System

The home trading system is an algorithm and trading software designed to improve performance.
Using this system, you can expect to make smarter, faster and better trading decisions. This
particular platform comes with innovative features and a custom algorithm that combines
seamlessly to provide a real-time fully integrated trading platform. You are bound to benefit
from this platform and experience the benefits of seamless trading complete with all the features
that you need.
The platform is completely compatible with some of the most dynamic and highly reliable
charting tool. It is able to work with all kinds of markets from stocks to Forex and indices. The
platform is compatible with a variety of bars such as range and momentum bars as well as tick
charts.
The designers of this platform took great care to consider all the different kinds of traders. This is
why this specific platform is suitable for day traders, swing traders, Forex traders, retail
investors, and long-term traders. The Home Trading System constitutes a modular platform that
consists of different core features. A lot of these features can easily be switched off and on
depending on the situation or to suit a particular requirement.
One of the advantages of this platform is that it endeavors to make trading extremely simple. For
instance, the algorithm automatically colors the candlesticks or bars a red or blue color in order
to provide a clear view of the market conditions and trends. The system will continue following
the trends and mark any major changes in a contrasting color. For instance, whenever there is a
trigger bar, these will appear in a different color so that it is clear to you the trader that there is
definite variation in the trend.
This color feature not only makes trading easy but also improves your trading psychology so that
you can trade with very little worry. Other desirable parameters that are essential to your trades
are also provided on the platform. For instance, you need accurate and reliable trading signals
delivered at the right time. Fortunately, the Home Trading System is designed to provide these
signals in a timely and accurate manner.
When there is a turning point in the momentum of stock in the markets, then this will be detected
and a change of color will clearly indicate the turning point. You will be able to see a blue color
with contrasting orange color pointing out areas of interest. The dots will indicate the entry
points, exit points, collect profit points and so on. A stop point is also indicated just in case the
trade does not work out as planned and you need to exit.
2. The Entry Zone Platform

We also have a swing trading platform known as the Entry Zone. This platform has been around
for a while but has recently undergone a complete overhaul. It has received a new design to
specifically address the needs of swing traders. There is no trader in the entire world who wants
to join an over-extended market even when it features a large stop-loss point.
One of the main benefits of this specific platform is that it helps eliminate the challenge of
entering an overly extended market. It starts by first checking for a pullback. It does this by
accessing the 60-minute timeframe. This way, you will be protected from accessing the markets
at the worst moment. The algorithm is able to proceed and track the markets so that you
eventually get to find out the best market entry points.
3. Able Trend Trading Platform

This is another platform designed with swing traders in mind. One of its most outstanding
features is its ability to instantly identify changes in the trend. Trend direction is first indicated
by a distinct color. When the signal is headed upwards then the color is blue and when it heads
downwards it changes color to red. If there is any sideways movement then the color changes
once more to green.
This platform, therefore, makes it pretty easy to observe the market trend and keep abreast with
it. Additional information will then enable you to make the necessary trade moves that you need
to as a swing trader. For instance, you will notice red and blue dots on your screen. These
indicate the various stop points. When there is a downward trend, then the red dots will indicate
your sell points while blue dots will indicate your buy points on the upward trend. These stop
points ensure that you partake of the large market movements but with very little risk or
exposure.
The reasons why this system is so successful is that it comes with state of the art features. It
generates dot and bar colors that you can choose for the different bar charts. These include the 5-
minute, 1-minute, daily, tick, and weekly charts. Many traders have termed this platform as both
robust and functional. It is a universal platform that can work with different trading systems.
You are able to make large profits if you are able to enter the markets and join the trend at an
early stage. Identifying the trend is easy when you have this software. Remember that the trend is
a friend of any swing trader. Therefore, spend some time at the beginning of your trades to
identify the trend and then move on from here. Identifying the trend at an early stage is what you
wish to do. The risks to you are minimal at this stage. This platform helps you identify the trend
and provide you with additional crucial information that even large investors do not have.
You are able to operate on any market so that you are not limited to trading stocks only. If you
wish to swing trade options, currencies, and other instruments, then you are free to do so. The
platform is suitable for all trading styles including day trading, swing trading, and position
trading, and so on.
4. Interactive Brokers

This is a popular platform that has been recently revamped. It is highly rated software because of
the useful tools available to traders. Some of these tools are extremely useful to sophisticated or
seasoned traders who need more than just the basics.
This platform is able to connect you to any and all exchanges across the world. For instance, you
may want to trade markets in Hong Kong, Australia, and so on. The software is able to
seamlessly connect you so that you have great trading experience.
This platform has seen the addition of new features which make trading even easier. These are,
however, more suitable to seasoned traders who are more sophisticated than the average retail
investor or small trader.
One of the attractive features of Interactive Brokers is that it is a very affordable platform to use.
It is especially cost-friendly to small scale traders, retail investors, and the ordinary swing trader
as the margin rates are low and affordable.
The platform supports trading across 120 markets located in at least 31 countries and deals in
more than 23 different currencies. It also supports traders who execute trades pretty fast.
Trading and Data

As a trader, you will be making most of your decisions based on data. You, therefore, need to
have access to reliable data such as stock prices and so on. Long term investors do not
necessarily worry about accurate stock prices in the short term. However, for swing traders, it is
essential to have access to the latest trading data.
The good news is that most online brokers provide traders with some form of data. All this data
is mostly free. The platforms consistently receive data streams throughout. This data is crucial
for most traders. Sometimes real-time data is not free and as a trader, you will need to determine
which data you need and which type you will pay for. Always ensure that you have access to all
the data you require during trading.
 Chapter 18 The Channel Swing Trading
Strategy
This swing trading strategy’s one of the best ways to swing your way to profits. It’s because
apart from its cunning accuracy, it’s also one of the easiest and most intuitive swing trading
strategies you can use.
The really good news about most financial securities and markets is that they usually trade
within a price band between 20% and 25%. This makes swing trading with this strategy easy to
use with high potential for good profits.
The Price Channel Pattern

This particular pattern is created by two trend lines that are nearly parallel. The line above is the
resistance line, while the one below is the support line. In a price channel pattern, price action's
constrained within the two trend lines.
To take advantage of price channel patterns for swing trading, they need to be wide enough to
provide potentially good swing trading profits. There are two ways you can use the price channel
pattern for swing trading.
The first way is to buy at or near the channel’s support line and sell at or near the resistance line.
Pretty simple, huh?
The second way you can use the price channel pattern for swing trading profits is through price
breakouts. These can create substantial price swings opposite the existing trend, which can
provide excellent swing trading profit opportunities.
There are three general types of price channels: upward, downward, and sideways channels. An
upward channel is one where succeeding highs and lows are higher. And consistent with channel
patterns, prices move between the upward-sloping support and resistance lines connecting those
increasing high and low prices. And when the price breaks out of these support or resistance
lines, it’s a trigger for taking or closing positions.
The Underlying Principle behind the Price Channel Swing Trading Strategy

You can minimize your swing trading losses if you clearly understand the market psychology
underlying the Price Channel strategy. The primary reason why price channel breakouts can lead
to significant price swings is due to the fact that a lot of traders trade within the channel. Most of
them execute stop-loss orders above and below a price channel's resistance and support levels,
respectively.
As the stop-loss orders accumulate outside a price channel pattern, smart money traders will
eventually try and take advantage of these stop-loss orders. The reason for this is such massive
stop-loss orders provide liquidity, which many smart money traders also need.
One thing you'll need to understand about price channel swing trading: all price channels are
temporary, and price channel breakouts will eventually happen. The only question is: When will
the breakouts happen?
Since most swing traders, especially beginners, aren’t qualified to take short-selling positions,
the assumption is that swing trading involves buying and selling of financial securities only. As
such, we’ll talk about the channels as follows:
The Price Channel Swing Trading Strategy –Selling

Step #1: Draw the Price Channel

First, draw a price channel when there’s a minimum of two higher highs (HH) and higher lows
(HL). Draw the resistance and support lines by simply connecting the higher highs and higher
lows, respectively.
At this point, the goal is to identify distinct price actions that move within the channel, which are
formed by the support and resistance lines you’ll draw.
Step #2: Wait Until the Last Price Swing Fails to Hit the Upper Limit of the Price Channel
Particularly for an upward or bullish trending price channel pattern, a very telling sign that a
price breakout from the channel’s support line is imminent is when a security’s most recent price
swing fails to reach the upper limit of the channel, i.e., the resistance line. This indicates that the
upward price momentum’s beginning to lose steam and a trend reversal may be confirmed by an
eventual falling through of prices below the channel’s support line.
Keep in mind that the higher the number of times that an upward price swing fails to reach the
channel’s resistance or upper band, the higher the likelihood of a downward price breakout.
Step #3: Wait for the Downward Price Breakout to Happen and for a Confirmation
To minimize your risks for a false breakout signal or "whiplash," you'll need to do something
else aside from wait for an actual price breakout to happen; wait for a confirmation signal for the
said breakout. But what is a confirmation signal?
In particular, we’re talking about Japanese candlesticks, particularly a Japanese candlestick
breakout whose closing price is below the channel’s support line. In short, don’t just sell
immediately as soon as a security’s price falls below the channel’s support line. Ideally, the
Japanese breakout candlestick should look decisively big, though it isn’t compulsory.
Step #4: Sell
Once you’ve confirmed the price channel breakout, it’s time to sell your security at the Japanese
candle’s closing price.
It’s that easy.
Setting Profit Targets with Fibonacci Retracement

This swing trading strategy can be used in conjunction with other swing trading strategies,
including the Fibonacci retracement strategy.
For example, you can set your first profit-taking point at the 23.6% retracement level of the
previous trend, the second profit-taking point at the 38.2%, and the third (should you choose to
have one) at the 61.8% retracement level.
You may be wondering what the “previous” trend is. Well, it’s the trend contained within the
price channel pattern from which the price has broken out of.
Setting Stop Loss Orders

It’s better to err on the side of caution, as the saying goes. While losses are inevitable at some
point during your swing trading activities, you can minimize their amounts through automatic
stop-loss orders.
As mentioned earlier, many swing traders set their stop-loss limits or orders outside of price
channels, i.e., above the resistance lines or below the support lines. You can do this, too. But if
you want to err on the side of caution, you might want to try and set your limits to above the last
significant upward price swing.
Final Words

The Price Channel Swing Trading strategy can be used in any financial market trading activity,
e.g., stocks, bonds, currencies, etc.
Keep in mind that one of the most telling signs of a potential price breakout or reversal is
multiple failures to reach one of the channel’s limits, i.e., upper or lower. When you see such
failures, get ready to execute your swing trade.
 Chapter 19 The Breakout Swing Trading
Strategy
Breakout trading is a swing trading strategy that times trades when a security's price moves
beyond an established price range for that security. Price ranges have upper and lower limits
represented by resistance and support lines/levels, respectively.
Before discussing this swing trading strategy in greater details, it’s important to know the two
main kinds of breakouts: support and resistance breakouts and swing high and low breakouts.
Let’s talk about support and resistance breakouts first.

As you can probably glean from its name, these types of breakouts refer to incidents when a
security’s price moves significantly beyond a price range’s established support and resistance
levels. That’s why it’s important that you become very familiar with objectively drawing support
and resistance lines, which was discussed in the support-resistance swing trading strategy.
When prices go out of an established price range or channel, is it already a breakout? When
employing this swing trading strategy, you'll need to identify legitimate breakouts from fake
ones. A legitimate breakout is one that's immediately followed by a large, bold Japanese
candlestick, which closes significantly above or below a price range's resistance or support level,
respectively. When it comes to breakout trading, the larger the Japanese breakout candlestick is,
the better.
When prices break out of the upper limit, it's a good time to take long positions or close short
ones. When the breakout of the lower limit, it's a good time to take short positions or close long
ones.
Now, what about swing high and low breakouts? It works similar to the support and resistance
breakout strategy, save for an extra filter. And that filter is set up to provide the highest chances
for a profitable trade. You see, not all swing highs and swing lows are the same, i.e., some are
better than others while some are worse than others.
For purposes of swing high and low breakout trading, we'll focus on one set up that works very
well for many swing traders: the V-shape swing. A V-shape swing high is characterized by a
very strong price climb that's immediately succeeded by a very strong sell-off, i.e., a substantial
price drop. For price swing lows, a V-shape swing is characterized by a substantial price drop
immediately followed by a strong price climb or rally.
It’s tempting to want to believe that you can use breakout trading as your only swing trading
strategy and profit happily ever after. Sorry to burst your bubble but that’s a bad idea because
breakout trading can produce a lot of whiplashes or false breakout signals. That’s why you’ll
need to pair it with another technical indicator, one that you can use as a confirmation tool.
What’s this technical indicator?
It’s the volume-weighted moving average or VWMA. As the last three words indicate, it’s an
exponential or weighted moving average, where each price entry has a different weight in the
computation of the moving average. Unlike the EMA, however, the VWMA considers trading
volume – not recency – as the basis for assigning weights to the price data components used in
computing the average. While the EMA puts the heaviest weight on the most recent price and the
least weight on the oldest one, the VWMA puts the heaviest weight on the price with the most
trading volume and puts the least weight on the one with the lowest trading volume.
Now that you’re aware of the need to use the VWMA for the breakout swing trading strategy,
it’s time to get right into the strategy.
Breakout Strategy for Taking Long Positions or Closing Short Ones

The first step is to identify either a V-shaped swing high. Once you do, mark that specific high
price level as a resistance level, from which you’ll draw a horizontal line. The point of doing this
is to identify and recognize only those price levels that are both clear and significant.
The next step is to patiently wait until the security’s price eventually breaks through that
resistance level and its Japanese candlestick closes above that resistance level. That’s the
significant breakout you should wait for, which is a signal that the bullish traders have seized
control from the bearish ones.
But wait...there’s more! We need a final confirmation to really trust that the breakout is legit: the
VWMA! When the VWMA confirms the breakout, that’s your “buy” go signal! In particular, the
breakout should happen with the security’s VWMA stretching upward and leaning more towards
a continued upside movement.
Once you’ve taken your position, place your stop-loss order for this trade at a price that’s slightly
below the breakout Japanese candlestick. Then, place your profit-taking order immediately or if
you want to feel the market, when the security’s price breaks below its VWMA.
A VWMA-oriented profit-taking strategy is based on the idea that when a price goes below the
VWMA, it’s highly likely that the rally-sustaining buyers may have already run out. The logic
here is to lock in on profits before the security’s price completely starts to rollover.
Breakout Strategy for Taking Long Positions or Closing Short Ones

The strategy here is the complete inverse of the one for taking long positions or closing short
ones.
The first step is to identify either a V-shaped swing slow. Once you do, mark that specific low
price level as a support level, from which you’ll draw a horizontal line.
The next step is to patiently wait until the security’s price eventually breaks below that resistance
level and its Japanese candlestick closes below that support level. That’s the significant breakout
you should wait for, which is a signal that the bearish traders have seized control from the bulls.
When the VWMA confirms the breakout, that’s your “sell” go signal! In particular, the breakout
should happen with the security’s VWMA plunging downward and leaning more towards a
continued drop.
Final Words on the Breakout Swing Trading Strategy

One of the best things about using this strategy is that your trades are backed up by price
momentum. This gives you a very good chance of executing more profitable trades than losing
ones.
Another benefit to using this strategy is immediate feedback. You’ll quickly learn if your
breakout trading strategy will or will not work.
And lastly, consider the possibility of breakouts being driven by institutional investors’ money.
That may give a price breakout even more confirmation and support.
 Chapter 20 Fundamental
Analysis
Fundamental analysis is concerned with the well-being of the economy. The current progress of
inflation, the interest rates, and balances of deficits among others is very important to
fundamentalist analyst. They analyze the different political and economic situations of the
countries to see the type of possible movements either short or long term the market is likely to
make. Some of the factors fundamentalists consider are,

Interest rates
The Federal Reserve’s and the central banks look at the different economic indicators before they
make the decisions on raising or lowering the interest rates in their respective countries. The rate
of interest greatly influences the movements in the Forex markets. The higher the rate the lower
the volume of trade and the vice versa is also true.
Averaging down incorrectly
Most people say that you shouldn't average down. The reality is that beginner trader should not
average down. However, as you become more proficient or a lot better in trading, you become
more successful in trading, there are certain situations that you may want to average down. This
is because you put on a small tiny position and you prepared for a little bit of a pullback. When
you have this experience, and you see a potential for the stock to continue to sell up a little bit,
further that you don't mind buying it a little bit at a lower price because you're positioning for
that situation and you are preparing for that situation in those cases and situations averaging
down is perfectly fine. However, if you know you have the world in your hands and you are
ready to go, and the stock is against you, and you start averaging down, and you start using the
leverage, and you start putting more and more money to a losing trade that is automatically a
wrong approach. This is not a healthy way that you want to average down into position. This is
meant for gurus and money managers. Remembers nobody knows when the stock is going to go
bankrupt. Be prepared that if you are averaging down, you can do it at most twice if you are new.
But if you have experienced, you can work it out based on your strategies, maybe when the
conditions are right, and you are prepared for them. You, therefore, need to catch yourself and
save a position instead of losing it.
Using excessive leverage
You will always have this urge of trading more, especially if you are experiencing losing
positions an. You were maybe trying to trade options, or you are using the margins because you
don't have enough money. Most people do worse when they are using leverages. They don't
understand how these things work. Therefore, they don't understand options, as options are more
complicated, and you need to use more capital instances to make up those differences. You have
to have the sock moving, especially if you are just buying puts or calls. Thus, at the beginning
using leverage like options and margins, they become worse off than just buying three or five
shares of a specific stock. Remember, if you don't have enough money, you are trying to use
leverage or margin to make that difference. You need to start slow get better and build some
consistency before you use the leverage. Use the too available to make more money instead.
Getting Emotionally tied to a stock
Often some traders get attached to a specific stock, and this is due to the emotional ties to a
particular product or company. Maybe this is based on what you saw on twitter or social media
platforms. You get emotionally tied perhaps because you use the product; thus, you are involved
with the company. You have a relationship, and you, therefore, make investment decisions with
no clear mind. If this is what you are also using when it comes to stock, ask yourself how it
would be if the stocks turn around or selling off and you have no other plan in mind. You need to
know that there have men many hundred successful companies that have failed over time. And
you will realize that this is happening to many people. A lot of people put their money into
specific equities, certain trading vehicles or believing in individual companies, and eventually,
those stocks go lower and lower and lower and never come back up. You should, therefore, not
get so emotionally tied to a particular stock. Don't be bothered by what the stock sells; however,
all you need to care for is if the stock is moving. Is it continuing to make a certain consistent
return time and time again? How is it behaving, how is the price action? Is it stable? To answer
this, you need to look at your trading plan. Do not get attached if it is not; it is not talking or
walking the right way to your plans. Be out of the trade if it is not doing something sensible to
you.
Not taking profits into strengths
Most traders go into stock entirely and making the full profit once it reaches a specific number.
You need to take profits slightly into depths as that stock continues running in your favor. This is
because you never know when that blacks one day or date will come. You never really know
when that stock will pullback. If an inventory is moving up, let us say two months you continue
making higher highs, it is fantastic and enjoyable to you. Take a little money off the table. Take
maybe a quarter, half, a fifth, or a third off into strength. Take that profit and put it back into
your account and go ahead and do something elsewhere with it. Don't just allow the stock to
continue to run higher and higher without taking any profit because the more the stretch, the
longer that they keep stretching, the more likely it is going to have a pullback. Pullbacks are very
healthy for stocks as they create new stock patterns, creates new opportunities and allows you to
buy more shares from those profits that you took. The problem is that many traders when they
have their issues, they get into a stock fully committed, and you don't make profits and allover
sudden in one day the stock starts to go down even below your entry price. You need to note that
the down days are much more violent, and one or two big down days can take one or two
months’ worth of gains. This is why it is crucial to take up money into strengths. You need not
be scared of making up your profit. Yes, you do want your winners to run as long as possible, but
you also need to know that not taking profits is just as bad as keeping it there.
Holding on to losers
The market will please some people and also annoy some people. I believe that you don't want to
hold losers. Thus, you need not be tied emotionally to a particular stock. When you bought a
stock at $50, it goes to $75, it now starts to sell up, and it then goes to $70 the $65 and then to
$55 and gets back to 50 dollars that you bought it and you still hope that it goes up? If you
continue holding just a little bit longer it will continue to go lower to $40 a share or $30 a share,
you are now going to a fastener, and you are starting to lose money in a big big way. And now
what people do is that they are at a loss and say that well am just so deep into it I might as well
keep holding on to it. This is a big problem as you are holding on to losers longer than you
should, especially if you had a profitable stock or a profitable trade. You should NEVER let a
winning business turn into a losing trade that's why you take profits into strengths as mentioned
earlier. Holding on to losers away too long is another huge mistake that you should avoid.
 Chapter 21 Money
Management
What Is Money Management?
This term is used to refer to the process of investing, spending, saving, and budgeting; it is also
used to refer to the way capital is used for personal or group usage. The other words used for
money management includes portfolio and investment management. When you are good with
money, it involves a lot apart from just meeting your needs. When it comes to money
management, having math skills is not mandatory, there are different skills needed that will be
discussed later.

Money management is simply how you handle all the finances and how you handle all your
long-term goals. It also involves how an individual manages their investment in order to make
great profits. Most people think that great money management skills are all about saying no
when you are tempted to make a purchase. What it really implies is when you are able to say
yes to what is important to purchase. When you do not practice good money management
skills, whatever money you have might look little for your lifestyle.

To have a good start when it comes to money management, you need to know where you are.
This is in terms of your financial capability and power; like assets and liabilities. Assets
include your investment and bank accounts, any properties and retirement accounts. Liabilities
are the things that you need to pay like credit card balances, any loans like student loans and
car loans and any mortgages and outstanding debts. Your net worth is when the value of your
assets is more than your liabilities. And when your liabilities are more than your asset that is
considered a net loss or negative net worth. When you have great money management skills
and approaches, getting a net worth will be easy.

Ensure that you set your goals in order to achieve great money management. Your goals will
create a plan on how you will manage your money. When you have your goals set, it will give
clarity on which are priority expenses and which you can let go. You will need discipline and
effort in order to achieve all your efforts. For instance, when you plan to buy a car worth $20k,
you will need to work harder and smarter and reduce your expenses. You will need to do all
that as compared to someone whose budget car is $10k.

When you have your budget drafted and set, remember to have adjustments. When you prepare
a budget, you have the chance to know all the expenses that you have. For instance, you can set
aside $150 that can be for entertainment and any miscellaneous expenses after payment of all
expenses and managing your debts. Good advice is when you get a pay increment, do not use
the additional income for your entertainment but add it into your savings.

When you have a target to meet different goals, you are likely to have the money in different
multiple accounts. A good example will be to ensure that you have a separate emergency fund
so as not to get tempted for any impulse buying in the future. You will also have different
strategies and that will be for different goals. You will be aggressive when you start investing
in different stocks that you will not need to invest money in like 20 years. You need to also
have an account that has no risks like a savings account that that can be used as emergency
funds when the need arises. When you have such multiple accounts, you can use a software
program to help in tracking the several accounts. A good one can be Quicken; it will track all
your expenses and the savings goals.

The Basics of Money Management

Money management is a term that deals with solutions and services that are in the investment
field. The good thing is, in the financial market there are different resources available that can
help in personal financial management. For any investor, their intention is to have a good net
worth, so it will come a time when they will need the services of professionals like financial
advisors. The advisors are known to offer brokerage services, money management plans, and
private banking. The advice is best for retirement, estate planning and other benefits.

When you are in business, it seems complicated when there is a need to manage cash flow and
different accounts. When you are able to strike a balance, you are guaranteed to be successful.
If you are not able to manage all that, you will need to get the services of an accountant or
bookkeeper to do all that for you. Even if you will outsource, you need to know the basics of
money management and bookkeeping. You will need to know simple tasks like interpreting
bank statements, understanding accounts payable and receivable, credit, and tax forms.

Money management will also involve knowing more about debit cards, checks, online
payments, cash, and credit cards when it comes to payment options in your business. You will
also need to have a planned and established payment plan and a debt collection system just in
case of non-payment.

Opening a bank account is another way to help in money management, you need to choose a
name and have an operating and registered business. Make sure you get more information on
credit card facilities, a debit account, and any other additional services. Another important
concept is to ensure that you have extended credit facilities in case of late payments. This can
be planned for 30-6-90-120 days after a product is delivered or a service is rendered. You can
motivate your customers to pay on time by extending discounts. Before the credit extension,
ensure that you have done proper background check especially with large amounts. Even when
there is credit extension, there are times where you will end up not being paid or not aid in
time. To be able to recover your money, you need to ensure there is open and clear
communication.

What Are Money Management Skills?

Before you can know of the best skills for money management, you will need to ask yourself
some questions. What is your weekly or monthly income? Do you have a list of expenses that
you need to pay? What you need to know is that money management is a skill used in life and
cannot be taught in school. These skills cannot be learned in school but mostly from life
experience.

✔ Have the ability to set a budget. This will help in tracking your expenses and the way you
spend money. What do you spend a lot on, is it entertainment, clothes, or food? What is the
tendency of overdrawing money from your bank account? If all that is yes, then you will need
to set a budget. Look at your monthly statement and write down all the expenses in categories.
You will be surprised by how much you are wasting.
✔ Spend what you have wisely. Always have a shopping list when you go shopping. Do you
have a habit of looking at the product prices before putting it in the shopping basket? If you
have coupons, ensure you use them. There are mobile apps and online resources that can help
in focusing on your expenses. Do you know how to monitor your expenses? When you are not
attentive to this advice, you will end up losing your hard-earned money.
✔ Always balance your books, do not always have a tendency of getting your bank balance
online. When you depend on online information, there will be an issue when you want to
know the balance on what you are spending at that particular moment. Be accountable and
ensure you record all your expenses and this will help in avoiding any over-spending.
✔ Set a plan that will help in accomplishing anything that you put your mind. When you
have a financial plan, you will be able to track how you are spending your money.
✔ Always think like an investor. When in school, you will not be taught how to handle
money but largely on how to invest your money and have wealth growth. Learn to grow your
savings and to invest at an early age. Turn that $100 to $200, $400, $800, and more. Having a
stable financial future means that you have invested and grown in your money. When you
start thinking like an investor, your money will grow. If you have a spouse or partner ensure
that, they also know about your financial goals. If you possess a joint account with your
 partner or spouse, always work together and agree on the financial goals. When you are stuck
or in doubt, consult a financial adviser and learn a lot of how to invest.
✔ Save your money, always be focused, and committed when it comes to saving money and
this will guarantee a better future. This will help in improving your financial positi0n and even
make it better. The first step is to have the decision to do that and this will help improve your
management skills.
Importance of Money Management
Money management will help any individual in living on a budget and within their means. You
will be able to look for great bargains and avoid any deals you believe that is not good when
making a purchase. When you start getting a stable income, you will need to know how to
invest because that will help in attaining your goals. And when you practice proper money
management, you will meet all your goals and plans. There is the importance of money
management:

✔ You will have better financial security: When you are careful with your expenses and
savings, you will end up having enough for your future. Your savings will help in giving the
proper financial security and you will be able to take care of yourself in case of emergencies.
With your savings, you will not need to use your credit card in case of any issues.
✔ When you have proper money management and manage to save, you will be able to get
opportunities and invest in the business. It will be frustrating to know of a great opportunity
and not having enough funds to invest.
✔ Your credit scores will be determined by the way you manage your money. When you
have high credit, score means you have managed to pay your bills on time and you have low-
level debt. A high credit score means you will have more savings and you will be charged low
interest when making purchases like cars or mortgages.
✔ Money management helps in reducing stress, this will happen when you start paying your
bills on time. When you are late in paying your bills, you will encounter stress. Stress will
bring about health problems like insomnia, migraines, and hypertension. You need to be
aware of how you will handle money management, this will help in having extra cash and
manage to save and manage a stress-free life.
✔ Money management helps in earning more money and when your income increases, you
need to develop proper budgeting. And know of the right places to invest the extra money you
have made. You need to know of additional venues to save money like in stocks and mutual
funds; this will help in earning more money unlike money laying in your savings account.
 Ensure you learn about the investments, not all investments are profitable. The better thing
about investments is that you can be on a monthly salary and still earning from your
investment.
✔ When you adapt great money management skills, you will not waste money on
unnecessary things. When you do not know how you are spending your income, it will be
easy to be in debt. When you use your spare time effectively, it will help in managing your
money. For instance, when you spend time with your friends and family members, ensure that
you are aware of your budget.
✔ Peace of mind is guaranteed when you have better money management skills. When you
a stable income and better savings, you will be able to handle any financial issues with
confidence that all your needs can be handled perfectly.
World Top Money Managers
These managers are known to offer management and investment advice. They manage both
active and passive funds.

✔ The Vanguard Group: It is a well-known management and investment firm, they have
more than 20 million clients and in more than 100 countries. They started in Pennsylvania in
the ’70s and they have grown their assets to more than $5 trillion by close of 2018. They hold
over 300 funds, move 150 in the US and more than 400 indexes to all of their market funds.
✔ Pacific Investment Management Company: This management firm has a worldwide
presence and founded in California in the ’70s. They have grown their asset base to more than
$1 trillion by close of 2018. They have over 700 professional managing investments and with
over 10 years as experts. They have over 100 funds and they lead in the fixed income sector.
✔ BlackRock, Inc: They started with their main company as BlackRock Group, by 1988 they
started another division and labeled it BlackRock, Inc. They grew their assets to over $15
billion in 5 years and by the end of 2018, they grew to over $6 trillion and they have become
the largest company in investment management in the world. They have over 100k in their
workforce and over 50 offices in more than 30 countries. More than 20% of their assets are
equivalent to $16 trillion.
✔ Fidelity Investments: This firm was founded in the ’40s and by end of 2019 their
customers have grown to over 20 million and more than $5 trillion in asset base. Their mutual
fund is more than 300, this includes domestic and foreign equity, money market, fixed
income, money markets and allocation of funds.
✔ Invesco Ltd: This firm has been in business since 1940 in offering investment advice.
They announced in 2018, that they have made over $800 billion way above their products. They
have over 100 EFTs that are made from their share capital. In 2017, they had a decline and it
affected their stock price. They have managed to be among the best in the world despite all the
challenges and setbacks. They have become among the top and best companies in the world, in
terms of money, assets, and investment management.
The Approaches Used in Money Management
Great financial skills make money management easier, and how our money is spent largely
affects your credit score and your debt cycle. There are tips that can help you if you are
struggling with how to manage your money.

✔ Always have a Budget: Most people do not like to have a budget because they believe it is
a boring and repetitive process. That involves listing all their expenses, summing up numbers,
getting everything up, and running. When you have a budget, there is less room to be bad with
money. You will get to know your income and expenses. The secret is focusing on the value
that the budget will bring to your life instead of the budget creation process.
✔ After making the budget, the trick is to make sure that you use your budget. It will be a
waste of time when you draft a budget and you do not stick to it. If it is a weekly or monthly
budget, ensure that you refer to it often, and it will help when making your spending
decisions. The budget should be made in a way that, at any given time you can easily track
how much you have spent and know of any penning expenses.
✔ When drafting your budget, have a limit set for any unbudgeted expenses. In any budget,
what is important to know is the funds left after paying all your expenses. When you have any
budget and everything is settled, you can have the balance for your entertainment purposes.
The amount set for fun should be a specific amount from your income. If you are planning to
have a big purchase, refer to your budget first.
✔ Start by tracking your spending habits. When you have small purchases, they will end up
piling and finally, you will notice that you have gone beyond your budget. When you track
your spending plans. you will be able to know the places that you are failing and how you can
rectify them. If you can, ensure that you save all your receipts and have a record of your
spending in a journal. Have them in categories so that you can easily track them and know of
the areas that are hard to stick on a budget.
✔ When your income is steady and qualifies you for a credit facility that does not mean that
you should get that facility. You do not need to commit yourself to any monthly recurring bill.
Most people think that the bank will not approve of the facility because they cannot afford it.
 What the bank knows is just your income exactly as you have reported. And if you have given
a credit report, they will use what is offered on that report and they will not have any
obligations not to give the credit facility. It is a personal decision to know if you qualify for
the credit facility and if you have the capability to pay regarding your monthly income and
other obligations.
✔ When making a purchase decision, ensure that you are paying the right and best prices.
The best way to do this is by making a comparison and making sure that you are paying the
lowest prices for the products and any services rendered. Look for discounts, cheaper
alternatives, and coupons.
✔ In situations whereby you are planning to make a huge purchase, ensure that you save for
that purchase. When you have the ability to delay gratification, will help in ensuring that you
manage your money in a better way. It is advisable to out of large purchases, instead of
sacrificing important things or tying a purchase to a credit card. This will help in evaluating if
you really need the purchase or more time to do a price comparison. Ensure that you develop
a habit of saving up instead of having a tendency to use credit cards; this will help in avoiding
any interest on the cost price.
✔ Always limit the purchases that you do use your credit card. In situations whereby you run
out of cash, chances are that you will end up using your credit card even if you cannot even
afford the purchase and paying the balance. Learn to resist from using your credit cards when
making any purchases that you know you cannot afford and especially on this that you do not
need.
✔ Develop a habit of saving regularly. Open a savings account and ensure that you deposit
money regularly; you can do it daily, weekly, or monthly depending on your income. This
will definitely help in developing a healthier financial habit. Another better way will be to set
up a plan that the funds are automatically credited to your account. That will help reduce the
responsibility of reminding yourself to do that all the time.
✔ If you need to be a good manager when it comes to money, ensure that you practice it all the time. Plan when you
intend to make a purchase and always buy what you can afford. When you make it a routine and a daily habit, it will
be easier to manage money and the better for your finances.

Money Market Mistakes

To be successful in your investment in the money market, you need to ask yourself several
questions/statements:

Do you have an account for emergencies?

The account that you have will be an investment
 That the funds you are setting aside will be useful soon.
When you decide to invest, you need to know that it is a risky venture and there are factors that
you will need to consider first before any investment. For instance, when you decide to invest
in a stock you need to know of factors like economic volatility. In the case of bonds, there are
challenges like interest rates and inflationary risks. For a brave investor, leaning on a money
market account will be a brave move. This is because they are known for safekeeping for the
money. There are several mistakes when it comes to money market:

✔ The mistake that most investors make is thinking that money market accounts are the
same as money market funds. They are financial instruments that have distinctive differences.
Most people know of the money market fund as a mutual fund, the main characteristics are
low returns and risks for every investment. They invest their funds in liquid assets for
example cash. When invested in debt securities they have higher returns and ratings and
mature in a shorter time. Most investors make the mistake and think that their money is safer
in the money market, but that is not the same as with money market funds.
✔ Most people who are in investment believe that the money that they have in the money
market is safe. The biggest mistake that they make is thinking that they are even safer from
investments. Another belief is that, it better to have a lower interest rate with money in the
bank than no interest at all. Most investors do not know the exposure they are in regarding
inflation. This is the main reason that funds that are in the money market will not beat
inflation. A good example is when the inflation rate is low than the interest that is claimed.
Investors would know that, even though they believe the money market is safe, they are not
safe from inflation.
✔ When in investment, you always need to know how to strike the right balance. Most of the
time, the money market is influenced by inflation changes and rates. When you have such an
investment, do not be tempted to input higher capital. They need a higher minimum balance
as compared to the normal savings accounts. The normal account needs to be in operation for
at least one year and have a higher amount of capital. When you have anything more than
that, then it will be sitting their idle and it will lose value.
✔ Most investors like using money as their safety blanket. They believe that when they hold
onto their money, it will be the best approach for any investment. This is not true especially
when it is about savings whether in their money market or standard savings. It is not right to
have your money exposed to uncertainty and any risk. This is one of the reasons why
investors are afraid to invest and they would rather stay with their cash.
✔ To be a good investor, you need to know about asset diversification. When you are
dealing with cash that is no different at all; this is because most people believe that cash is not an
asset. You need to know that from the basics of finance and accounting, cash is known as a
current asset. When you decide to hold on cash, ensure you do not hold more than $200k. It is
not a coincidence to find any ordinary investor who has several bank accounts, in order to secure
their cash. They have an approach to divide money or cash into three categories and that is a
useful thing. The first one is to ensure that you have some money set aside for at least 3 years
that is considered a shorter period. Around 4 to 10 years as the average timeframe and above 10
years as the longest timeframe. This is what will help the investors to know how long they can
time their projects, how much is needed, and what will be saved in the end. This approach is
important because it will also help in knowing about all the risks.
The best advice is to ensure that you invest in investments that are in the long-term and on
lower risks. These will include investments like bonds, treasury bonds, life insurance, and
annuity. You will need to know of the options that will help to avoid losing money value,
avoiding any risks and the different ways about cash diversification. You can make use of the
different trading and investment tools that will help in giving more returns instead of money
market accounts. You need to look for investments that will help in creating more returns in a
shorter time than the longer timeframe.

✔ Any investor needs to know that the reason for the money market is to hold money. When
you have your money in just one place, you will not have any earnings or benefits; you need
to move the money around. You will need to get more information on the different options
and invest more. You should also know that money market accounts are not to be considered
as long-term investments. The main reason is that they are subject to high interest rates than
what is charged on a normal savings account. Hence not the reason to consider it a long-term
investment.
✔ You should not be enticed to look for accounts that offer interest rates as a promotion.
The reason is the interests are bound to change after some time.
Budgeting Apps
As an investor, you need to know that, with the tough economic times you need to know the best
way to invest in the financial market. And when you become successful and start making money,
you need to look for apps that will in managing your money. Thanks to technology all, those
apps are easily available and easy to download. They can be downloaded and installed on tablets
and smartphones; hence you can use them anytime and anywhere you are due to portability. The
apps help is keeping you on track regarding the way you spend and how you spend.
✔ MINT:
Mint can be downloaded as an app or used as a website; it is in the budgeting and investment
category. It is compatible with iOS, Web, Windows 8, and Android. It is more of a budgeting
app and it will still help in managing your money. It has a feature whereby you can categorize
and customize all your expenses and transactions. It has the ability to synchronize all your
transactions from investments, bank accounts, and credit cards. They have a reminder feature for
all your pending bills and this helps to avoid any lateness in bill payment that should be very
convenient for any investor. All you need to do is set up a free account and then include all your
financial details. This will then give a breakdown anytime an activity happens and you will be
able to get a report.
✔ Good Budget:

This app uses the envelope concept, when you sign up you are given 10 free envelopes when you
are on standard subscription. When you have an upgrade to Plus, you will then be charged a
monthly charge of $6, and then you will have unlimited envelopes. The concept works in a way
that, when your envelope is empty, you are not able to shop or spend any money. The other
alternative is that you can move money among envelopes; this is because the app has the
flexibility to use a common budget. You can share the budget with other people, the app is
compatible with iPhone and all android devices.
✔ Dollar Bird:

This app also helps in money management; it manages future expenses and will remind you
when you have payment dues. To set up and activate is free and it has additional premium
features. Your budget will be broken down in a calendar form and your pending expenses will be
visible. You have the chance to have all your transactions in categories that are color-coded and
they will keep on adding up as you have repeated transactions. When you check on your utility
bill and paycheck, they will be displayed there. You will be able to see all your current balance.
What you can spend and still be on a budget. The main setback is that it does not synchronize
will your bank accounts. The problem is you will need to manually enter all the transactions.
The app is available for iOS users, Android, and the web. You will have the privilege to know
about your income, expenses, and cash flow.
✔ EXPENSIFY:
This is considered an app and tool that is used to report expenses, track all receipts, and all the
expenses that you have. The main advantage is that it helps in quick data entry and saves a lot of
time doing data entry. You will have the opportunity to make all the entries in one click. This
app is available for Android and iOS users, you will do all the capturing automatically and using
OCR; this is a smart scan. All your reports are available by taking one picture and they are all
uploaded and completed within a click. When you submit your expense, they get reimbursed
faster and approvals are done very fast. When you use the app, you will be able to track all your
expenses, categorize all of them, know the cost of all. All the expenses are consolidated and
synchronized.
 Chapter 22 Winning Entry And Exit
Strategies
Monitoring Of The Main Order Types
Market orders
One thing to note about market orders is that they buy and sell at the current price, irrespective of
what the price is. The market orders often get filled in an active market but not necessarily in the
price the trader intended.
For instance, you may place a market order when the best price is 1.1954 but then other orders
get filled first and your order might get filled at 1.1955 instead.
Note that market orders get used when you need yours to be processed but are willing to getting
a slightly different price from what you wanted. If you are making a purchase, chances are that
your market order will get filled at the asking price. This is mainly because that price is what
someone else is willing to sell for.
On the other hand, if you are selling, there is a chance that your market order might get filled at the bid price. This
is because that might just be the price someone else is willing to purchase at.
Entry And Exit Strategies For Part-Time Traders
There is a big difference between full-time and part-time trading. Part-time trading can be very
tricky because trading does not always follow the usual trajectory.
One thing that is important to note is that trading is about quality and not quantity. In other
words, if you do not get suitable trades, you can forgo trading those days even if it takes weeks at
the same time.
However, just because trades are not suitable does not necessarily mean that you should not work. It is important
that you keep educating yourself on how to interpret the watchlist and be ready for when opportunities present
themselves.
Entering the fray
When you are trading part-time, your entry weapon is a limit order. However, if you have access
to algo trading types, you can use an algo with an attached limit order. This means that, when a
buy signal presents itself on a certain day, what you need to do is review how prices are
behaving during the day so that you can determine the best point to place a reasonable buy
order.
It is good to be choosy. However, if your limit order is not filled there is no big deal. Remember
that there are plenty of fish in the sea and you only need to wait the next time to cast your net
again. When you don’t chase after the security so desperately, you can enter the trade on your
terms soon as prices are favorable to you.
The last thing you want is trading the open market. It is chaotic when the emerging news after
the market closed the day before is mirrored in the opening prices. Truth is, there can be major
swings, both negative and positive.

The other point to note is to never enter a market order when the market is closed. This is
because such a market order will be executed at the next day’s opening prices, irrespective of
what the price is. Truth is, movements are often fierce at the opening and entering market orders
the previous day will be too much uncertainty of where the prices are likely to be executed.
What if you want to buy shares at the closing price the day before? The truth is that the market
order will be executed here significantly above or below the price based on the prevailing
conditions in the market. Just bear in mind the ol’ Wall Street saying;
“Amateurs trade the open while professionals trade the close.”

Exiting to cut losses or make a profit

When you buy stocks, the first thing that you need to do is set an initial stop loss point. This is
important in ensuring that your capital is protected in case the stocks go against you. there are
two major kinds that you can use in your exit strategy to cut losses or make profits. These are;
Physical stop loss order: This refers to an order to sell or buy (only if you are short) that you
place with a broker
Mental stop: this simply refers to you clicking on the sell button or the buy button just so that
you can exit the trade.
From a technical point of view, it really does not matter what type of stop loss order you choose
to use. However, it is critical that before getting into any trade, you develop a plan that will help
you determine when to exit the trade whenever things don’t work out in your favor.
Are you a disciplined trader that always follows their plan through? If that’s the case, then you
are safe. This is because, when trading, it is always important to exit the trade based on your
already predetermined plan. But where is that stop going to be?
Well, your stop should be sensible and out of the noise of current activities in sticks happening in
the market.
But why use a stop clock? The truth is, when you buy stocks, you anticipate that they go in your
favor. However, if things go south, you don’t have to keep waiting for things to start moving in
the desired direction. What you need to do is sell you shares and proceed to something else. The
last thing you want is having all your capital tied up on a stock that is trading sideways. Treat
your stocks like employees, if they are not performing, then fire them.
The second strategy is for you to use price alerts. If the prices cross at this level, you will want to
be informed so that you can effectively manage your trades. The main aim here is to reduce the
chart time so that you don’t spend all your time doubting your original trade ideas.
With price alerts, you think way ahead on the level you would want to act. The what if scenarios
will help you determine how you intend to manage your trades beforehand so that you can see
where to exit and at what point your take profits will likely be. If you also want to scale in and
out of positions, price alerts are a great option. All you have to do is set the alerts at suitable
price levels and you are good to go!
Finally, you need to determine the right profit levels. According to statistics, it is safe to say that
profit levels give better results if they are supported by market data. This simply means that for
every trade, you need to know what the chart pattern, volatility data, and market structure looks
like. This will help you know whether they support price movements in what direction.
Avoid setting take profit levels at random prices.

When you use this approach, you are better positioned to accomplish a number of things. First,
considering that your take profits is not an arbitrary value, there is a high chance that the price
moves to this level just to test it.
Second, it is important that you determine whether your Risk: Reward ratio is worth it depending
on the levels that is directed by the data and structure of the market, which is more sensible.
So, how do I know my take profit level?

First, you need to look at the pair to trade and start looking for resistance and support on the
chart. Look for regions of the chart where prices have seen bigger activities in the past. Well,
this does not necessarily mean that prices will move to those levels. However, there is a
tendency of prices retesting existing support and resistance levels as shown in the figure below;

In the case of a buy order, it is critical that you place your take profit levels a number of pips
below the resistance. Conversely, when using a sell order, simply place the take profit level a
number above the support. This accounts for everything like spread and is much safer than
setting your stop loss on the actual level.
One thing you need to look for when determining the take profit levels is the trend lines, moving
averages, and spikes in price activity. However, in my experience, I have found that prices often
adhere to horizontal levels.
 Entry And Exit Strategies For Full-Time Traders
Benefit from intraday charting to time entry and exit
Did you know that day traders are traders that execute intraday strategies so that they can profit
off of changes in prices for a set of assets? When you select the sweetest stock in the market, the
next thing is for you to profit from them and the best thing is to rely on suitable strategies.
There are so many intraday strategies available in the market. However, sticking to the
guidelines and identifying intraday trading signals can be challenging. So, when do you know
when to benefit from intraday charting to time entry and exit?
Trade only with the current intraday trend
One thing you need to note is that the market often moves in waves. This means that it is the
responsibility of the trader to ride the waves. When there is an uptrend, your aim should be to
take long positions. On the other hand, if there is a downtrend, it is important that you aim at
taking short positions.
The thing with intraday trends is that they do not continue indefinitely. When you have a
dominant trend shift, then it is advisable to trade a new trend. But how can you isolate
trends?

Well, this is the difficult part. With trendlines, you get an idea of where a useful entry and stop-
loss strategy is. When you draw in more trendlines, you gain access to more signals that offer
greater insight into the changes in the market dynamics.
Trade strong stocks in the uptrend and weak ones in the downtrend
If you are looking for stocks for intraday trading, the most beneficial thing is to look for ETFs or
equities that possess at least a moderate to high correlation with the S&P 500 as well as the
Nasdaq indices. After which, you isolate the stocks that are strong from those that are relatively
weak based on the index.
This way, you create an opportunity for the day trader considering that strong stocks move up at
least by 2% when the indices move a percent. Truth is, fast moving stocks offer more
opportunity.
Reversion-to-the-mean trading
This is a theory that explains how extreme events are often followed by normal ones. In other
words, there is a tendency for things to even out with time. For instance, you might see a soccer
team score unusual goals in a match and in the coming matches, there is a chance that they will
score closer to their average.
How do you apply this strategy?

The best way is to seek out extreme events and then bet that things revert to anything closer to
the average. However, the only challenge is the fact that the financial market is not distributed
normally. There is a long tail and there is a chance that extreme events cluster together. In turn,
the feedback loops may escalate and create momentum which affects reversion.
When the stocks drop 10% on a certain day, chances are that they will drop even further the
following day. Despite that, traders can use mean reversion to find an edge and then build their
trading strategies around it.
When there is a simple mean reversion, you could buy stocks after a drastic drop in prices with
the hope that the stocks will rebound to a normal level. There are so many ways in which mean
reversion is applied;

• With technical indicators

• With Financial Information

• With Economic Indicators

• With Sentiment Indicators
Heikin-ashi technique
This is a technique that plays a central role in averaging price data with the aim of creating
Japanese candlesticks that aim at filtering out all market noise. This technique uses a modified
formula that is based on two-period averages based, which give the chart a smoother appearance.
This makes it seamless to spot trends and reversals while obscuring gaps and price data.
What does Heikin-Ashi say? Well, this is often used by traders to identify a trend easily. When
there is an uptrend, hollow white/green candles without lower shadows are evident on the chart.
On the other hand, a downtrend is seen when there is a filled black/red candle without upper
shadows.
Considering that the Heikin-Ashi technique smooths the price information over a span of two
periods, it renders the trends, reversal points, and price patterns quite easy to spot. The thing with
the Heikin-Ashi charts is that they typically have more consecutive colored candles that play an
important role in helping traders identify past price movements with ease.
They also help in lowering occurrence of false trading signals especially in sideways and choppy
markets, which helps one avoid placing trades at these times. For instance, instead of getting two
false reversal candles before the beginning of a trend, using Heikin-Ashi technique increases the
likelihood of getting a valid signal.
Limitations of the Heikin-Ashi technique

• Considering that this technique uses two periods, it often takes longer for it to develop
making it quite unresponsive for day traders who would like to leverage fast movements in
prices.

• The averaged data in this case also obscures important information on prices. In other
words, the actual daily closing price is not seen on the Heikin-Ashi chart.
Back-testing
This is a general method used to see how well a strategy would have performed ex-post. The
thing with back testing is that it assesses how viable a trading strategy is by simply uncovering
how it is likely to play out with the use of historical data. In the event that back-testing works,
this gives traders more confidence to apply it henceforth.

When optimizing your trading strategy, back testing would be the best way to go. When you
simulate a trading strategy on the basis of historical data, you gain access to results that help you
analyze risks and profitability before risking actual capital.

One thing you need to bear in mind is that if the back-test is conducted well and gives positive
outcomes, then this is an assurance that your trading strategy is sound and has a chance of
yielding profits when it is implemented. If the back-test is conducted well but the outcome is
suboptimal, then there is a need to either alter or reject the strategy.

Key takeaways

• The market orders often get filled in an active market but not necessarily in the price the
trader intended.
• Limit orders may or may not get filled and this depends on the manner in which the
market is moving.

• AVOID SETTING TAKE PROFIT LEVELS AT RANDOM PRICES.

• Traders use mean reversion to find an edge and then build their trading strategies around
it.
• Averaged data obscures important information on prices because the actual daily closing
price is not seen on the Heikin-Ashi chart.
• When optimizing your trading strategy, back testing would be the best way to go.
 Chapter 23 Maintaining Swing Trading
Momentum

One of the things you'll need to remember about swing trading momentum is that managing it
well is more of a fine art than an exact science. To successfully manage your swing trading
momentum, you'll need to learn how to manage your trading risks wisely, to be a very patient
person, and master your emotions. Compared to day trading where all your positions are closed
within a few trading hours, swing trading takes days, weeks, and even a couple of months to
come full circle. Its longer time frame requires a different trading viewpoint.
The following are four important things you should do to maximize your swing trading
momentum and consequently, profits.
Set and Forget
As mentioned earlier, you’ll need a lot of patience to succeed at swing trading. You shouldn’t be
monitoring every price tick that happens all throughout the trading day. Once you take a long
position, forget it. Just take a look at its price once a day or every other day. With swing trades,
you’ll need to let your chosen securities build their momentum so you can enjoy potentially high
profits.
If you micro-monitor your swing trading positions, you’ll put yourself in a position where you’ll
be strongly tempted to liquidate earlier than you need to. When you succumb to such
temptations, you’ll either minimize your trading profits or maximize your losses because you
prematurely liquidated your position.
So, just set price alerts near your primary profit-taking and stop-loss target prices and forget it.
Just take action when the alerts are triggered.
Ditch the Micro Time Frames
With swing trading, you must focus more on the longer time frames because they’re less volatile
and by doing so, you minimize your risks for “false triggers” or whiplashes that can make you
take positions on securities whose prices are still on a decline. The shortest time frame you
should consider is daily, nothing less. The longer your time frame, the lesser the false triggers
and noise you’ll encounter, and the more you can maintain your winning swing trading streak.
Moving Averages for Risk Management
The easiest and most objective way to see a security’s true trend is through moving averages. As
such, moving averages can be your best ally in managing your swing trading risks and find more
profitable swing trading entry points.
Often times, financial securities that are enjoying momentum retreat to their moving averages,
the most common of which are the 20 and 50-day moving averages, before proceeding with the
next price movement. As such, moving averages can help you time your swing trades with fairly
high accuracy and ease.
Don't Cash in on Your Profits in One Fell Swoop
Many financial securities that are on a strong price momentum can continue for weeks and
months on end. But the challenge is it’s impossible to predict exactly how long bullish
momentums run for specific securities. There’s always the risk of liquidating too early when a
security’s price continues to soar after closing a position and waiting too long that its price has
fallen deep from its peak.
By taking partial profits or liquidating part of your swing trading positions on securities that are
on a strong upward momentum, you can lock in on some of the profits once your chosen security
has reached your target profit-taking level. Because there are still some left, you can lock in on
more profits if the momentum continues. If the price happens to come down after that, your
initial profits could compensate for the smaller profit or loss on the remaining position.
Money and risk involve in swing trading
At the point when utilized accurately, swing trading is a brilliant procedure utilized by numerous
dealers crosswise over different markets. It isn't just utilized in the Forex advertise, yet it is an
indispensable apparatus in prospects and value markets. Swing dealers take the abilities that they
learn through specialized examination and can even parlay these aptitudes into different choices
methodologies. The transient idea of swing trading separates it from that of the customary
financial specialist. Financial specialists will in general have a more extended term time skyline
and are not customarily influenced by momentary value changes. As usual, one must recall that
swing trading is just a single system and ought to be used just when properly comprehended.
Like any trading procedures, swing trading can be dangerous, and moderate methodology can
transform into day trading techniques rapidly. In the event that you intend to utilize a swing
trading technique, guarantee that you completely comprehend the dangers and build up a
procedure that will probably enable you to produce greatest rate returns on your positions.
Distinguishing stocks and executing beneficial trading’s
Every year, crowds of new dealers that don't have a clue how to make benefits trading on the
financial trading come in huge numbers to take a stab at making a fast fortune yet end up
regularly being significantly more unfortunate than when they initially started. In the event that
you need to make exceptional yields and stay away from the shock of extensive misfortunes in
the securities trading, at that point you should comprehend that specific basic achievement
components are principal to elite in the trading the financial trading.
To start with, you should comprehend that value activity is the way to trading benefits. Value
activity is the development of any security's cost and is outwardly spoken to on a value outline.
The reason that it is indispensable to comprehend value activity is that cost uncovers where the
patterns are so you can abuse them for benefit.
Regardless of whether cost goes up or down, bullish or bearish, your capacity to spot inclines in
the financial trading is as to productive trading as water is to angle. Without the capacity to
comprehend value activity, you will always be unable to recognize client drifts and, are just,
dead in the water.
Next, recall the old trading saying "the pattern is your companion" and stays with great with
those patterns. Patterns can be your closest companion as long as you make sure to trading the
course of a stock or security. Else, they can be your most noticeably terrible adversary, and it is
nearly ensured that you will endure a long arrangement of awful misfortunes on the off chance
that you trading against the force of the market.
Know your exit before your entrance is the following component that you should comprehend at
a profound fundamental level in the event that you need to increase outsized benefits from the
financial trading. In the motion picture, "Ronin," with Robert Deniro, Deniro plays a covert CIA
specialist going into a bar late around evening time after it has shut to meet his contact. Prior to
entering, he goes to the back of the bar, finds the secondary passage, puts a weapon by the exit,
and after that strolls around the front and enters. Afterward, he clarifies that he never comes a
structure without know where the entryway is and how to get out. This is solid counsel for the
secret covert agent as well as for the merchant too.
In the event that you're going to put a situation in any speculation, at that point you should
realize when you will get out in case, you're regularly going to realize how to make benefits
trading on the securities trading. This applies both to benefit taking and your leave methodology;
on the off chance that a stock hits a benefit target, at that point take benefits with no of the
psychological re-thinking or enthusiastic clashes of whether to sit back and watch on the off
chance that it goes considerably further to support you or not (numerous brokers have
transformed winning positions into losing positions by only overlooking their leave targets
excessively long).
In like manner, if a position conflicts with you and you wind up assuming a misfortune, at that
point you should not be reluctant to cut free that position since you're terrified of assuming a
misfortune. Trading is based on little misfortunes while making immense benefits on out of
control moves since you had the great sense to exit losing positions rapidly and ride the grand
slam trading s to their fullest potential.
Figure out how to have an independent mind. You figure out how to think for yourself by placing
in an opportunity to find out about value activity, how to adventure patterns for securities trading
benefits, and realizing when to get out before you ever make a passage. Perhaps the main
motivation for trading disappointment, if not the most critical reason, is that starting merchants
come into the market without an arrangement or the preparation to fall back on in light of the fact
that they do not have a comprehension of these center standards.
Recognizing Stock Market Pattern
A few people view financial trading as a way to procure income sans work. This isn't valid. Just
individuals with a touch of good karma could have benefits in the event that it was that simple.
Individuals engaged with trading stock have done some examination to make a benefit.
Recognizing the patterns of the market is the way to achievement in the financial trading. In the
event that you can distinguish the patterns in financial trading, you can comprehend the conduct
of a stock dependent on its past exhibition.
One of the fundamental presumptions of stock promoting organizations is that the market has
patterns: essential, optional (present moment) and mainstream patterns (long-term). In view of
these patterns, showcase watchers foresee the estimation of offers. Merchants use examples to
recognize benefit or misfortune.
The securities trading can be a positively trending business sector or a bear showcase. A
positively trending business sector shows the nearness of a larger number of purchasers than
venders. This prompts an expansion in the estimation of offers. Despite what might be expected,
if the quantity of venders is more than the quantity of purchasers, the measure of offers falls. It is
said to be a bear showcase.
To distinguish a pattern, you need data on two basic elements of the financial trading: cost and
volume. The value informs you concerning the course of development in the market, and the sum
says whether there is development in the securities trading. There are situations when the volume
of a stock is high, as is its cost. This demonstrates an upward pattern. On account of high limit
and minimal effort, it is a descending pattern. In view of this, you may choose whether to sell or
buy stocks.
In the event that you see customary descending days, the market is showing a slow down or
upswing. It is astute to put resources into stocks as costs will undoubtedly hop back. On the other
hand, in the event that it has been a nonstop time of high rates, the market is showing lower costs
later on. It is the correct time to exit from the stock.
Frequently, it happens that the stock costs are expanding or diminishing. This may resemble a
change to you. In any case, in the event that you look at the volume and find that there is
definitely not a significant volume increment or lessening, you ought not anticipate a distinction
in the securities tradingyet. While contemplating patterns is a decent propensity in securities
trading, it is important to watch out for false flag.
Stocks, which are high in volume, for instance, common assets, will in general influence the
development of the market. You can watch out for activity in such stocks to recognize potential
changes. A few internet trading organizations give outlines and pattern pointers on their sites.
These apparatuses can be utilized to consider the patterns in financial trading.
Before we dig into distinguishing stock patterns, allows first characterize what a pattern is "a
predominant propensity or tendency" or "a line of general bearing or development." "pattern" is
likewise utilized as an action word and signifies "to grow a general way." The utilization of the
word pattern about the financial tradingwould then imply that a stock that is inclining is a stock
that is moving a general way.
Stocks just move in three distinct ways, they climb, they go down, or they move sideways. Stock
patterns are regularly discussed as far as either a bullish pattern, which means the stock cost is
expanding or a bearish pattern, which means the stock cost is diminishing. On the off chance that
a stock's cost is essentially going neither up nor down, yet moving sideways, it may not be seen
by some to be in a pattern. In fact, for example, stock is a sideways way. The sideways example
is additionally generally alluded to as a "time of combination."
There is any number of approaches to distinguish stock patterns. Probably the most
straightforward approaches to do this is to take a gander at a stock graph. Stock diagrams are
pervasive and can be discovered everywhere throughout the Internet at such puts as Yahoo
Finance or Google money. In case you're taking a gander at a stock outline and the latest cost is
higher than the past rates the stock can be said to be in an upswing. On the other hand, in case
you're taking a gander at a stock graph and the latest costs are lower than the past costs on the
table then the stock is said to be in a downtrend.
We have quite recently perceived that it is so natural to distinguish stock patterns. There is a
significant inquiry that is on the psyche of everybody hoping to recognize a pattern. That
question is, "does this pattern have the solidarity to proceed?" You see, when you distinguish an
example, it simply isn't sufficient to know which course the market has been going, however
which heading the market is well on the way to go from here. This is the reason it is basic to
decide the quality of any pattern. The explanation behind this is. In a perfect world, we would get
in on a pattern that has great force, the kind of vitality that could convey the stock cost toward a
path that will make us a brilliant benefit.
There a few different ways to quantify a pattern's quality or shortcoming. Numerous
investigators depend on the trading volume as a pointer that the intensity of the example is either
expanding, diminishing, or staying generally the equivalent.
So, when you are thinking about your next stock trading doesn't just mull over what the pattern
has been, however more significantly, if that pattern is probably going to proceed.
Distinguishing the Right Stock Market Trading System
Fruitful trading relies upon three factors: the dealer's brain science, the capacity to oversee cash,
and a financial trading framework that is exceptionally viable. This article talks about the
securities trading framework and how brokers, particularly the apprentices, can decide on a
framework that is appropriate for his trading style.
Simply ask the expert brokers who have turned out to be fruitful in this field throughout the
years. They have a trading framework that produces winning stocks. They won't be the place
they are currently if their financial trading framework does not work for them.
No two dealers are similar. In this manner a trading arrangement of one doesn't really imply that
it will work a similar route for another. A few brokers put resources into their qualities while
others deal with their shortcomings. A few frameworks plan to buy the estimation of the stock in
the long haul. Others focus on the transient expense. The trading framework relies upon the brain
research of the merchant too.
There are approaches to benefit from the financial trading framework, however there is one
component that a dealer must need to succeed. They must be methodical. This implies the
trading framework that works for them ought to be something they stay with all through their
trading vocation, regardless of what occurs. The financial trading framework develops however
the methodologies that they detailed dependent on the experience and the exercises that they
gained from the mix-ups they unintentionally made can be their mystery to pick up the
speculations they have as a primary concern. To put it plainly, merchants choose dependent on
their methodologies and not their feelings.
Another mystery is to thought of a framework that fits the dealer's character. It resembles a
couple of pants. It's difficult to look for the correct pair of pants on the grounds that the fit is
fundamental. It resembles the securities trading framework for dealers. They should create one
that they are alright with and can give them the outcomes that they need, in light of how they see
themselves in their trading vocation.
Along these lines, the securities trading framework must be from a system which expands the
qualities and limits the shortcomings of brokers. The present circumstance of the market should
likewise be considered. Once in a while, dealers need capital development or income with the
goal that their salary from trading can be made into benefits they can live on. On the off chance
that dealers are certain about their aptitudes and have enough money to contribute, at that point
they can continue with ongoing trading.
 Chapter 24 Improving Swing-Trading Methods And Reducing
Risks Involved
There are several swing trading methods used by traders. Despite their effectiveness, something
can be done to improve them. Traders face a myriad of risks because of swing trading strategies
that do not work as expected. The best way to help traders avoid making losses every day is to
find problem areas and deal with them. The first way to improve swing-trading methods and
reduce risks involved to ask swing traders what they want to be done. It is not right to assume
that we know challenges faced by swing traders. They are the ones who trade using the strategy
and their input is vital. There is a saying that goes “only the wearer of the shoes knows where it
hurts or fits” and that applies in this case. You do not have to ask every swing trade to comment
on the strategy as that will be cumbersome. You only need to involve a few beginners and long-
term ones. Once you hear their suggestions, seek ways to implement them. For example, if swing
traders say that a certain aspect makes trading difficult, list it and determine how to improve it.
One of the reasons why traders end up leaving companies they started with is because of neglect.
Some firms do not care whether swing traders are having a rough time using their systems. They
are only concerned about increasing the number of traders. This is an attitude that companies
need to change if they want to last long in the business. There are many trading companies that
have emerged which means that traders have options. You cannot provide shoddy services and
expect customers’ loyalty. Instead, create an open communication platform where traders can
talk freely and discuss issues they are facing. Doing this will not only improve trading but also
increase the number of traders.
Another way to improve swing-trading methods and minimize risks is to use a strategy that
works for you. If you are kind of person who does not like to be glued on the screens, do not opt
for a strategy that requires you to do that. Trading experts advise you to take time before you
choose a strategy. There is no point of rushing things and end up with regrets. Moreover, do not
pick a strategy because it worked for someone else. This is a big mistake that many make in the
trading markets. Your friend could have chosen a certain strategy because he has someone
helping him or is just good at trading. When you get into trading because of someone else, your
chances of lasting long in the markets is limited. You lack the drive to continue in the midst of
challenges. Soon you realize that you made a mistake and want a way out. Choosing a strategy
that fits your lifestyle increase chances of success. It also makes swing trading easy and
worthwhile.
Another way to improve swing-trading methods and reduce risks is to have a mentor. No one
was born knowing everything and we need each other. While it is true that not everyone means
well, you cannot miss finding even one who is willing to help. This is extremely important for
beginners who are green in the markets. You can monitor the stocks and charts but that does not
compare to one on one you receive from an experienced person. If you are having trouble finding
someone to mentor and help you pick the right strategy, consult a professional. You will spend
extra but it will help you avoid making mistakes. As a beginner, you must be willing to try
different strategies to seek which one works. Do not make a huge investment at first because you
are still surveying the markets. You cannot put all your hope in a single strategy. Some traders
stick to one swing trading strategy despite suffering losses. They do not see the need of trying
other options because they do not want to risk. One thing you need to know is that making a loss
in the markets is unavoidable. Even the best swing trading strategy fails sometimes. You just
need to make wise investment decisions and be willing to accept the outcome.
Another way to improve swing-trading methods and reduce risks involved is to study courses
offered on chosen strategies. There are several training courses online you can take to sharpen
your skills in a given strategy. Do not make the mistake of assuming that you know everything.
This will be your downfall, as you will not see when you go wrong. There is a reason why those
training courses are offered in the first place. Some are free and others you pay a small fee. Do
not be rigid and afraid to spend more. If you do not spend money to get ready before you start
trading, you will lose it all in the markets. Trading strategies have flaws that can be improved
just like your mindset and attitude towards swing trading. If you only work to improve the
strategies and forget your personal input then you are cheating yourself. A swing trading strategy
is effective when a trader knows what he is doing and is not afraid to take risks. At the end of the
day, you are the one who determines whether the chosen swing trading strategy works or not.
Pick what works for you and survey the rest. Just because you have chosen, one strategy does not
mean that you cannot consider or use others. A swing trader must be flexible to tap into the
markets. This also applies to the trading strategy you choose. Be someone who moves on
quickly when one strategy fails.
You can also improve swing-trading strategies and reduce risks involved through careful
planning. A plan is essential even in the corporate world. You cannot start a business or build a
house without a plan. Similarly, a swing trading strategy needs careful planning. In some cases,
traders are responsible for the failure of a trading strategy. They do not plan how to use different
methods and whether they have the necessary skills. Before you jump at something, drawback
and understand how it works. Having a plan minimizes risks because you know how to mitigate
them. Moreover, you can foresee risks and act before they become worse. As a swing trade,
know different trading strategies in the market and organize yourself.
Improve swing-trading strategies by learning from experienced companies. New firms should
take time to understand how the industry works before starting operations. It is not bad to look at
how others are doing things. It is only bad when you copy everything they do. Before using a
particular swing trading strategy, find out as much as you can about it. What are the benefits of
using the strategy? What are the risks? What can I do to make it work for me? These questions
will enable you to find areas you need to work on and make the right decisions. At the end of the
day, do not be stuck with a swing trading strategy that is not working. If you have tried
everything but it is not working, choose another strategy. This time, take time to analyze a
strategy before using it. One of the reasons why swing-trading strategies do not work is because
we put high leverages and blame the failure of the strategy. There is no way a strategy can work
if you do not buy the right stocks and make good decisions. Everything boils down to what are
you doing to make it work.
You can make a strategy work by using tools and indicators. There is a reason why tools and
indicators are part of trading. You should analyze charts, and use various tools to trade smoothly.
People who implement several tools in a trading report a few cases of failure, compared to those
who do not use any of them. We have established that we hold the key to success or failure in
the markets. A trading strategy will not work if you are the kind of person who is controlled by
different emotions. If you cannot separate your emotions from trading, it is better to exit the
markets. There will be days when you feel like giving up because of losing everything, but if you
remain firm and use the right strategy, you may gain more than you lost.
 Conclusion

Thank you for buying this book. I hope that through it, you were able to understand what Swing
Trading is all about and more importantly, how to do it.
But knowing is only half the battle. The other half is action or application of knowledge. To
make the most of what you learned and make it impact your life, you must apply the things you
learned about swing trading in this book. Otherwise, everything you’ve read here is just for
entertainment.
You don’t have to apply everything at once. Start with one or two lessons for the next few days.
Then apply another one or two for another few days and so on until you’re able to apply what
you learned and profit from swing trading.
So, what are you waiting for? Here’s to your Swing Trading success my friend! Cheers!

FUTURES TRADING:
STRATEGIES FOR BEGINNERS. HOW TO
MAKE STOCKS , CURRENCY AND
CRYPTOCURRENCIES PROFITABLE AND
HOW TO BE PROFITING IN OTHER
 MARKETS. A COMPLETE GUIDE OF
EXCHANGES AND MONEY MANAGEMENT.
Chapter 25 Table of Contents
Introduction

Chapter 1 How to Start Trading

Chapter 2 Futures Contract Codes, Sizes and Trading Months

Chapter 3 Futures Spread Trading

Chapter 4 Know Your Products

Chapter 5 Which Market to Trade and with which Broker

Chapter 6 When to Trade and When not to Trade

Chapter 7 Technical Analysis

Chapter 8 Utilizing Binary Options

Chapter 9 Comparing and Combining Models

Chapter 10 Performance Visualization and Combinations

Chapter 11 Developing Trading Models

Chapter 12 Trading Psychology

Chapter 13 Why Is Leverage Riskier?

Chapter 14 Entries and Exits

Chapter 15 Managing Risk

Conclusion
Introduction
The history of futures trading began on the Midwestern frontier of the United States of
America, in the early 1800s. Chicago’s strategic location, at the base of the Great Lakes and
close to the Midwest’s fertile farmlands, contributed to the city’s rapid growth and
development as a grain terminal. Problems of supply and demand, transportation and storage,
however, led to a chaotic marketing situation, which resulted in the logical development of
futures markets.

In 1848, 82 merchants formed a central marketplace, the Chicago Board of Trade. Their
purpose was to promote commerce in the city by providing a place where buyers and sellers
could meet to exchange commodities. Growing use of contracts which specified delivery of a
particular commodity at a predetermined price and date made the CBOT increasingly popular
as a central marketplace.

These early forward contracts in corn were first used by river merchants. They received
farmers’ corn in late autumn and early winter and needed to ship it to grain producers such as
flour mills, bread manufacturers etc. Often the corn needed to be stored all winter.

To reduce the price risk of winter storage, these river merchants travelled to Chicago, where
they entered into contracts with processors for the spring delivery of grain at an agreed-upon
price. In this way, they ensured themselves a buyer and a price for grain.

March 1851 marks the earliest recorded forward contract for 3,000 bushels of corn to be
delivered in June. In 1865 the Chicago Board of Trade developed agreements called futures
contracts.

Futures contracts standardized the traded commodity’s quality, quantity, and time and location
of delivery. The only variable was price, and this was determined by an auction-like process on
the trading floor.

Definition of a Futures Contract

A futures contract is a legally binding agreement to buy or sell a commodity or financial
instrument sometime in the future at a price agreed upon at the time of the trade. While actual
physical delivery of the underlying commodity seldom takes place, futures contracts are
nonetheless standardized according to delivery specifications, including the quality, quantity, and
time and location.
Why We Need Futures Markets
The price you pay for goods and services depends to a great extent on how well businesses
handle risk. By using futures markets effectively, businesses and farmers can minimize their
risk, which, in turn, lowers their cost of doing business. The resulting price can benefit
consumers, in the form of lower food prices or better returns on pension or investment funds.
The need for efficient forward pricing and risk management mechanisms is the reason for the
tremendous growth in futures markets.

How does it Work?

Let’s take a simple example. A farmer is planting his crop and wants to be certain he will
obtain a particular price for his crop of corn. He feels comfortable with the current corn price
and wants to protect himself from a falling price. Suppose he wants to be able to obtain $4 per
bushel for his crop, which is due for harvesting and delivery in October, regardless of what
happens to the market price. The market price can fluctuate as a result of weather conditions or
supply and demand between now and harvesting time in October. One corn contract consists of
5,000 bushels, so he sells a sufficient number of contracts to cover his entire October crop at
$4 a bushel through his broker on a commodity exchange like the Chicago Board of Trade.

After a spell of good weather, the predicted bumper crop materializes in October and because
of this the cash price for one bushel of corn drops to $3.

The farmer is not concerned because he has guaranteed himself a price of $4, so he buys
contracts at $3 which offsets against the contracts he sold for $4, giving himself a profit of $1
dollar per bushel. This profit offsets the loss on the cash price when the crop is harvested, and
he ends up with $4 per bushel. This is known as hedging.

Conversely, a bread manufacturer will use this technique to protect him from rising prices. The
manufacturer will buy enough October contracts at $4 as a hedge against rising prices. If the
price jumps to $6 per bushel because of floods or drought, he will profit from the increased
value of his contracts, offsetting the increased cash price he has to pay for wheat.

Where do we fit in?

There are many people like you and me, who trade simply to make money. Some are big
institutional investors, but the majority of the market consists of small investors or speculators.
All of the speculators, large or small, provide a vital function to the futures market by buying
or selling millions of contracts every day and by doing so, provide liquidity to the markets.
Without liquidity the markets cannot function.
Chapter 1 How to Start Trading
Now, it is time to move on and get to some of the basics about doing an actual swing trade. We
are going to take a look at some of the steps that you need to take in order to enter the market,
the types of positions that you can choose to take, and even how to take each of the positions that
you choose. This will help you to get set up when it is time to do that first trade with this kind of
trading strategy!
Choosing to Buy Long or Sell Short
The price of a stock is going to do one of three things at a given time. It will either go down, go
up, or it will move sideways. When you enter into the market as a swing trader, you are
expecting that the stock is going to either go up or it will go down. If you think that the stock will
see an increase in its price, then they will purchase the stock. This move is going to be
considered “going long” or having a “long position” in that stock. For example, if you are long
100 shares of Facebook Inc., it means that you purchased 100 shares of this company and you
are making the prediction that you will be able to sell them at a higher price later on and earn a
nice profit.
That one is pretty easy to understand, but what if you are looking at a stock and you expect that
the price is going to decrease? When this situation occurs, you can choose to borrow shares and
then later sell them with the expectation that you will purchase them back at a lower price and
make a profit later on. At this point, you may be wondering how it is possible for you to sell
shares that you don’t own or that you don’t hold in your own account?
This is pretty simple. Brokerages have a mechanism that will allow a trader to borrow the shares.
When you end up selling shares that you don’t actually own, it means that you are “going short”
or “being short’ on a stock. When a trader says that they are short on a stock, it means that they
borrowed shares from the broker and then sold them with the expectations that the price will
drop, and they will be able to replace those shares by purchasing them later at a lower price.
When you are setting up an account to trade, you will probably need to take the time to fill out
some additional forms with the broker so that you can take this short position with a stock. You
should also have an idea that this option can be riskier compared to just going long or purchasing
a stock, so you must be actively there to manage the position.
Short selling can be an important tool for you as a swing trader because the prices of the stocks
are usually going to drop much faster than they will go up. It is a good rule of thumb to say that
stocks are going to fall three times faster than they rise. This is often because of the human
psyche; the fear of loss is more powerful than the desire for a gain.
When the stock starts to move down, shareholders are going to fear that they will have to lose
their profits or gains, and they move to sell that quickly. This selling activity is going to feed into
more selling as shareholders continue to take the profits and traders start to shorten. This
additional shorting activity adds to the downward pressure that is there on the price. This sends
the price of the stock into a strong decline, which means that short sellers are able to make a
good amount of profits while long traders and other investors are going to enter panic mode and
may try to dump their shares to protect themselves.
Knowing this information can make it easier to do the trades that you want. It can help you to
figure out which position you would like to enter based on how the market or that particular
stock is doing at the time. This also shows you that it is possible to get into the market and make
profits, no matter which direction you think the market is heading.
How to Enter a Trade
If you are brand new to trading, you are probably curious about how you would sell or purchase
a security. Any time that the market is open, there are going to be two prices for any security that
can be traded. There will be the bid price and the ask price. The bid price is what buying or
purchasing traders are offering to pay for that stock right then. The ask price, on the other hand,
is the price that traders want in order to sell that security.
You will quickly notice that the bid price is always going to be a bit lower simply because the
buyers want to pay less, and the asking price is always going to be higher because sellers want
more for their holdings. The difference between these two prices is known as the spread.
The spreads that are found will vary for each stock, and they can even change throughout the
day. If a stock doesn’t have a ton of buyers and sellers, then there could be a bigger spread.
When there are more buyers and sellers, then the spread between these two prices will be much
lower.
As a swing trader, when you are ready to enter into a position, you are going to have two
choices. You can either go in or pay the price that the seller is asking for right away or you can
place a bid that is at or below the bid price. Paying the asking price immediately can be
beneficial because it ensures that the purchase transaction is completed or filled but may mean
that you will pay more for it. When a trader places a bit at or below the current bid price, they
may be able to make the purchase at a lower price. But there is the risk that no seller will want to
sell for the lower price, and the order may not get filled.
Then, you can enter into the trade and complete the rest of your strategy.
Investment and Margin Accounts
There are two types of accounts that you can choose to open in order to trade stocks. The two
main options include the margin account and the investment account. With a margin account,
you can borrow against the capital that you have placed in your account. The investment
account, on the other hand, will allow you to buy up to the dollar value you hold in that account.
You are not able to spend more than what you have put in that account at a time.
When you decide to open up a margin account, you may be able to borrow money from the
investment or brokerage firm to help pay for some of your investment. This is a process that is
known as buying on margin. This can provide you with some advantages of purchasing more
shares that you would be able to afford if you just used the capital in your account, and it can
help you leverage to get more profits with your money.
However, there is a catch with this one in the form of more risks. When you borrow the money
to do your investments, there will come a point when you must pay the loan back. If you earn the
profits that you think you will, it is easy to pay this back. But, if you lose out and make the
wrong predictions, you are going to have to find other ways to pay the money back. Making
investments with leverage can magnify the percentage losses on your money.
As a beginner, you should stick with a regular investment account. Trading on margin can
increase the amount of risk that you are taking on in your trades. This may be tempting because
it can increase your potential profits, but there is a lot more risk that comes with it as well. You
will do much better going with an investment account instead. This way, you can just pull out the
money that you are comfortable with rather than hoping that you make a good prediction in the
beginning when you are learning.
Picking out a Broker
During this process, we also need to take some time to discuss picking out a broker. If you have
already gotten into other forms of trading in the past, then you can simply work with the same
broker that you already have. But, if you are getting into trading and this is the first one you have
done before, then you will need to search to find the right broker for you.
There are many different brokers out there, and many of them can assist you with swing trading.
The biggest thing that you will want to look at is the commissions and fees that each broker
assesses against you. Since swing trading times are relatively short and you will enter into and
out of trades within a few weeks at most with each trade, you want to make sure that the profits
you make aren’t eaten up by the commissions to your broker.
There are different methods that the broker can use to come up with their fees. Some will charge
a fixed rate for the whole year. This often works well for long-term trades and probably won’t be
an option available to you since you will do more trades. The two options that you will most
likely deal with include a fee for each trade or a fee based on how much profit you earn.
If you can, find a broker who will earn a fee based on your profits. This way, you are not charged
a ton if you do a bunch of trades during that time. If you earn a good profit, you will have to pay
a bit more because of the percentage. If you earn less on one of your trades, then you won’t have
to pay the broker as much as you did before.
Before you enter into any trade, make sure that you discuss the fees with your broker. They
should be able to outline their fees and can discuss with you where your money will go when you
work with them. This can help you to get a good idea of how much you will spend based on how
much you earn, how many trades you decide to enter into, and more. Get the commissions and
fees in writing, along with any other agreements that you and the broker and their firm agree to
in order to protect you.
Picking out How Much You Want to Invest
Finally, before we move into talking about some of the different swing trading platforms that you
can work with, we need to discuss some of the basics of about how much you are going to invest
in your account. Since we have already discussed the importance of working with an investment
account rather than trying to do the trading on margin, you will need to decide how much money
you would like to put into your account.
First, talk with your brokerage firm and decide how much you need to put in to meet their
requirements. Some brokerage firms will ask you to spend a certain amount or keep a certain
amount in your accounts at all times in order to trade. If your chosen firm has that kind of
requirement, then make sure that you put in at least that much. Putting in more is up to your
discretion.
If there isn’t a requirement for a minimum, it is best to start out by putting in an amount that you
are comfortable losing. No one hopes to lose money on any of their trades. But it does happen,
especially when you are a beginner. Putting in just the amount that you would be willing to lose
if something goes wrong can help to reduce the amount of risk that you are taking on.
Getting started with swing trading can be exciting. This is a fun type of trading that moves
quickly and can help you to earn a good profit in a short amount of time but still doesn’t require
you to spend all day on the computer watching how the trade is going. By following some of the
tips above, you will be all prepared to take on some of your first trades with this strategy.
Chapter 2 Futures Contract Codes, Sizes and Trading Months
Each futures contract has a unique one- or two-letter code assigned to it that identifies the
contract type. Futures codes or ticker symbols are used by the exchanges to process all trading
transactions. For example, the symbol for corn is C, while the mini-sized corn future is YC. It is
very important to use the correct code when you trade; otherwise you can end up trading the
wrong contract. See the diagram of some of the Contract Codes and Specifications on the next
page.
In addition to the contract code you must also know the month and year code. The month code J
represents April and K represents May etc. So, if you want to trade the May corn future in 2011,
the code would be CK5. See Month Codes Chart below:
Month Codes

Month Code Month Code

January F July N
February G August Q
March H September U
April J October V
May K November X
June M December Z

It is very important to understand a contract’s value. This is how you will determine the profit
and loss as well as the entry and exit price when you trade. Futures contracts have a minimum
price increment called a tick. Traders use the word tick to express the contract movement or
amount that a market has moved up or down.
Another term you will have to understand is the term “multiplier” which determines the value of
a tick. For example, the multiplier for the Canadian dollar is $10. The market moved up by 20
ticks in one day. This means your long contract has gained $200 (20 ticks X $10.00 multiplier =
$200).
Contract Codes and Specifications Chart
 Full
Contracts
Contract Delivery Contract Minimum
Tick Value
Description Symbol Months Size (Multiplier)
Corn C H,K,N,U,Z 5,000 bu. ¼¢/bu = $12.50
Oats O H,K,N,U,Z 5,000 bu. ¼¢/bu = $12.50
Soybeans S F,H,K,N,Q,U,X 5,000 bu. ¼¢/bu = $12.50
Soybeans
Meal SM F,H,K,N,Q,U,V,Z 100 tons 10¢/ton=$10.00
Soybeans
Oil SO F,H,K,N,Q,U,V,Z 60 000 lbs .01¢/lb = $6.00
US T-
Bonds US H,M,U,Z $100,000 1/32 = $31.25
US T-Notes
10yr TY H,M,U,Z $100,000 1/32 = $31.25
US T-
Bonds 5yr FV H,M,U,Z $100,000 1/64 = $15.625
Wheat W H,K,N,U,Z 5,000 bu. ¼¢/bu = $12.50
Australian
Dollar AD H,M,U,Z AD100,000 .01¢/AD=$10.00
Canadian
Dollar H,M,U,Z CD100,000 .01¢/CD=$10.00
British
Pound BP H,M,U,Z BP62,500 .02¢/BP=$12.50
Eurodollar ED H,M,U,Z $1000,000 1pt. = $25.00
Euro EC H,M,U,Z € 125,000 .01¢/€ = $12.50
Feeder
Cattle FC F,H,J,K,Q,U,V,X 50,000lbs. 2.5¢/cw=$12.50
Japanese
 Yen JY H,M,U,Z JY12,500,000 .0001¢/JY=$12.50
Lean Hogs LH G,J,M,N,Q,V,Z 40,000 lbs. 2.5¢/cwt = $10.00
Live Cattle LC G,J,M,Q,V,Z 40,000 lbs. 2.5¢/cwt = $10.00
Live Hogs LH G,J,M,N,Q,V,Z 40,000 lbs. 2.5¢/cwt = $10.00
Mexican
Peso ME H,M,U,Z MP500,000 .0025¢/MP=$10.00
S&P 500 SP H,M,U,Z $250 x Index 0.05 = $12.50
$50 x S&P
S&P Mini ES H,M,U,Z index 0.25= $12.50
Swiss Franc SF H,M,U,Z SF125,000 .01¢/SF=$12.50
US T-Bills TB H,M,U,Z $,1000,000 .01 = $25.00
10 metric
Cocoa CC H,K,N,U,Z tons $1/ton = $10.00
Coffee KC H,K,N,U,Z 37,500 lbs. .05¢/lb =$18.75
Sugar #11 SB H,K,N,V 112,000 lbs. .01¢/lb = $12.00
Cotton CT H,K,N,U,Z 50,000 lbs. .01¢/lb =$5.00
Orange
Juice JO F,H,K,N,U,X 15,000 lbs .05¢/lb =$7.50
Copper HG All Months 25,000 lbs. .05¢/lb = $12.50
10¢/troy oz =
Gold GC G,J,M,Q,V,Z 100 troy oz. $10.00
.005¢/troy oz =
Silver SI H,K,N,U,Z 5,000 troy oz. $25.00
Mini Contracts Available
Corn XC H,K,N,U,Z 1,000 bu. ¼¢/bu = $2.50
Soybeans XS F,H,K,N,Q,U,X 1,000 bu. ¼¢/bu = $2.50
US T-
Bonds YH H,M,U,Z $50,000 1/32 = $15.625
US T-Notes
10yr XN H,M,U,Z $50,000 1/32 = $7.8125
Wheat XW H,K,N,U,Z 1,000 bu. ¼¢/bu = $2.50
Eurodollar UD H,M,U,Z $500,000 .005 = $6.25
Feeder
Cattle FM F,H,J,K,Q,U,V,X 10,000 lbs .001 = $10.00
Lean Hogs HM G,J,M,N,Q,V,Z 10,000 lbs .001 = $10.00
Chapter 3 Futures Spread Trading
Many day traders find futures preferable to options because they are sure to always move along
with the asset that they are related to. What’s more, the futures market can be analyzed directly
which means that you can profit from anticipation on the market without having to take any
derivative pricing into account. Even better, unlike some other markets, there are no artificial
restrictions limiting your ability to short trade, making your job as a day trader much easier in the
process. Finally, this makes it so that the FINRA’s definition of a pattern day trader does not
apply. A pattern day trader is required to keep $25,000 on hand at all times, among other things,
and being labeled as one will make it more difficult for you to trade as effectively as possible.

Always follow the trends: Odds are, if you are attracted to futures trading then you are less
naturally inclined to follow trends in the market, preferring instead to jump in on opportunities
when they are still forming. This is a habit that you are going to need to break if you plan on
trading in futures, however, as typically you will find that the practice is much more profitable if
you stick with the trends of the major players and deviate from them as little as possible.
Don’t prioritize trade frequency: While it is natural for day traders to make more trades than
other types of traders, that is no reason to assume that there are always future trades that can be
made at the moment. It is important to always keep in mind that it is possible to be a successful
day trader while making three trades a day just as it is to be successful while making 30 trades
per day. It is all about choosing your futures targets carefully and with a clear understanding of
where all the trades are likely headed. Don’t forget, before you finalize any trade you should
always run a full risk/reward analysis to ensure that it is going to be worth your time in the long
run.
Know what a good futures contract looks like: Prior to starting any trade, it is important that you
take the time to gather as much information as possible in order to ensure you prevent any
further surprises from sneaking up unannounced. It is important to keep in mind that futures
contracts may have a number of key differences which will need to be considered before moving
forward. First, it is important that you know the contract unit in question as each potential futures
contract will show the size as well as the units it is trading in.
Forex futures will always be specified with a given currency, while those based on stock indices
generally include a reference point on the index multiplied by a specific price per share. The
specifics of this measurement aren’t as important in most instances as they are generally only
crucial in the moment to help you understand exactly what you are getting yourself into.
Outside of these types of specifics, you will need to keep in mind the quoted price as well as how
this quote is likely to change between markets as sometimes, they will be written with dollars
and cents while other times they will be written with mathematical equations, possibility points
or percentages. The end result will always work out to be the same, but it is important to know
exactly what you are working with prior to moving forward.
Choosing the right contract: Prior to choosing the right contracts to follow, it is important to
understand the various levels of insecurity that are taking place in the market in question
compared to the potential for a serious payout should things go just right. This is vital as there is
a great deal more variance in the futures market then in the others as they encompass a far
greater variety overall. When it comes to making these types of decisions it is also important to
remember that past performance is not going to be an accurate predictor of future results in this
instance. This means that just because a price has remained stable for several days is no
indication that it will continue to do so.
Look for the right signals: When day trading futures it is important to keep in mind that the best
results will typically materialize if you use a trio of indicators that aren’t specifically corollary to
one another. You will need to keep an eye on the sine wave as a means of determining the price
when it comes to support and resistance, the momentum to determine the volume in comparison
to the supply and the pro-am as a means of determining the specific trade size to help determine
how much interest the market has in the trade at the moment.
Generally speaking, you can expect to have the ability to plot the sine wave through the lowest
chart pane which will give you a measure of the current cycle. When levels of support and
resistance are both confirmed you will see the results mapped via dotted lines on the price bars in
question. You will also find the momentum plotted underneath the bars indicating price and it
will then be represented by waves to show the volume when it comes to buying and selling.
You will also find various divergence patterns that can then be directly plotted onto various
additional price bars as well. When it comes to tracking the pro-am you will be able to easily
consider what types of active traders are sitting on various price points. If you find a lot of highs,
then you can be confident that it means there is lots of position switching taking place at the top
of the spectrum. Meanwhile, lots of lows should tell you that the breakout is on its last legs
which means it could likely reverse at any time.
Consider the direction the trend is forming: More so than in more traditional forms of trading, if
you manage to find a trend while day trading then there is a high chance that you will be able to
successfully make a profit off of it, assuming it sticks around long enough to let you. When it
comes to confirming the direction of a potential trend you will want to take note of professionals
who are trading in the space before confirming that the trend is set to continue on moving
forward as well. You will want to keep an eye out for indicators that it has reached a point where
its volume is exhausted as this means it is likely on its last legs.
Stick with a single market: While the futures market tends to have various subsections devoted to
various different markets, this doesn’t mean that you should bounce between them all as you will
have far more success if you stick to those which you see some early success. Once you have
mastered a specific subsection of the market you can then move on to the next, but until that
point, you will want to focus on the way you can increase success in the long-term.
Futures spreads trading pricing and margins
Spreads: It is vital that you keep in mind that if they are part of a spread then the individual
margins on a given contract that will be reduced. For example, if the margin on a given wheat
contract alone is $2,000 but if you make the decision to go short as well as long on wheat in the
same year then the margin between them could potentially be as little as $200. If you go short
and long on one commodity split over different years, then the margin will double to $400. The
price differential occurs as the volatility of the spread is less than that of the contract in question.
Generally speaking, the futures spread gives you the ability to look at the given market
movement in slow motion. Thus, if something major happened in the wheat market then it would
affect both contracts which would provide enough protection against the increased risk that the
singular contract doesn’t have.
Price concerns: The price of a specific futures spread can be easily determined via the perceived
difference in two contracts. To properly determine what the spread’s pricing is going to be the
easiest way to go about doing so is to simply find the pricing of the spread simply subtract the
month that is being deferred from the price of the front month. If the price of the front month is
the lower of the two the spread will end up being negative and if it is higher than the spread will
end up being positive. The values for the contracts as well as the spreads will remain the same.
For example, if the price of wheat is $500 in the front month and $510 the next, then the spread
can be said to be -$10 and if it instead dropped to $490 then it would be $10.
Market types
Contango markets: A market is thought to be contango if the front month is going to clearly have
a lower cost than the deferred month. Generally speaking, this means the deferred month is going
to cost slightly more than the front month will, thanks to the cost to carry. The cost to carry will
take into account the interest rate on the capital that comes along with the operating costs of the
location that actually sells the commodity in question as well as any related storage or insurance
costs. This is considered the default state of the market.
Backwardation markets: A market is said to be in the midst of backwardation if the near months
are valued more highly when compared to the months that are the deferred month. Sometimes
known as an inverted market, it is the opposite of the standard market condition. This most
commonly occurs if the market is in the midst of a bull phase which tends to be caused by a
supply chain issue, often in relation to a substantial increase in demand along with an overall
limited supply. This type of price differential typically occurs when the front months feel the full
brunt of the change which is then mitigated as the deferred months start arriving. This is
frequently the case if the deferred month ends up in the next crop year after the front month.
Regardless of the state of the market at the moment, it is important that you always factor
seasonal concerns into all of your choices as well. Generally speaking, you can count on gasoline
prices being higher in the summer while prices of coffee, natural gas, and heating oil will be
higher in the winter. Furthermore, it is important that you remember all markets will inevitably
experience bearish and bullish periods but those experienced by commodities tend to be far less
consistent overall.
Common spread types: commodity futures
Inter-commodity futures: These futures involve contracts that are spread across various markets.
As an example, if you believe that the wheat market is going to experience a high demand when
compared to the corn market then you would buy wheat and sell corn. The specific prices for
each don’t matter as long as wheat prices beat corn prices.
Calendar Intra-Commodity: This spread looks at a single commodity between differing months
of the year. As an example, if you believe that the wheat market is going to be stronger in
November as opposed to June then you would go long in November and short in June. The
specifics of the price don’t matter as long as prices are higher in November than they are in June.

Bull futures: This spread looks at a single commodity under the assumption that the sooner
month will boast a higher price than the later month. As an example, if you buy a bullish wheat
future in May then you will want the price to be higher then, than when you sell it in June. For
this type of future, it is important to keep in mind that near future contracts tend to move faster
the further you get from the front month which gives this future its name. A bullish trader would
then be one who buys in the front month in hope that it ends up moving at a greater rate than the
deferred month.
Bear futures: This spread occurs if you purchase the same commodity in such a way that you are
short in the front month and long on the deferred month. As an example, if you purchase wheat
in May and sell it in June then you are hoping the prices are lower in May than they will be in
June. For this type of future, it is important to keep in mind that near future contracts tend to
move faster the further you get from the front month which gives this future its name. If you are
confident that prices are at a low point, then this is the type of spread you should consider buying
into.
Chapter 4 Know Your Products
Last but not least, before starting to trade a new product you need to make sure you have read
and understood its characteristics: what is the required margin, how much each point is worth,
what its trading hours are and so on.
DAX future
The DAX future contract (code: FDAX) is a trimester contract with cash settlement at 1pm every
third Friday of March, June, September and December (or Thursday if Friday is a holyday). The
contract is quoted at €25 euros per point, with price variations of 0.5 points, i.e. €12.5.
The contract value calculation is market price x €25. So, if the future is at 12551 points, one lot
will cost you €313,775 (25 x 12551). Fortunately, you don’t need to have this amount of money
on your trading account. The initial margin to trade this contract is set by Eurex and fluctuates
depending on their market risk analysis. Your broker will add an extra margin to this. At the time
of this book going to print, the average required margin is €24,000 per contract.
Should you wish to trade DAX CFDs instead, check what your broker’s requirements are first
and what the terms of trading this product are. Some brokers may offer the DAX CFD at €1 per
point; others at €25 but with the option to buy a 1/10th or even a 1/100th of it. Furthermore, the
CFD may be linked to the DAX index and not the future, which doesn’t quote at the same levels
as I explained before due to the reinvested dividends and the financing. Some CFD brokers may
even quote prices after market hours. This can be dangerous if you have positions kept overnight
with stop losses linked to them as the prices outside the market trading hours may get your stop
loss executed. So do read about the products you are about to trade first and read again the
product’s characteristics with any broker that you use as they will be different from one CFD
broker to the other.
Mini DAX and e-mini Dow
Fortunately, you don’t have to trade contracts at €25 per point when starting trading. You can
start with the mini DAX (code: FDXM) and the e-mini DOW (YM…) at €5 per point and $5 for
the e-mini DOW. They are similarly on quarterly settlements.
The formulae to calculate the contract value is the same: quoted price x price of one point. At the
time of this book going to print, the average required margin is at €4800 for the mini DAX and
$6550 for the e-mini Dow.
Because some of the strategies I mentioned earlier require at least two contracts, it may be worth
starting with CFDs at €1 per point and get experience before moving to mini contracts and later
on to the big guns.
Chapter 5 Which Market to Trade and with which Broker
There is a huge array of products to trade with on offer but for scalping you need products with
large volumes exchanged and volatility. I find these in the mini DAX and the e-mini Dow
futures. The volatility, i.e. daily range (distance between the low of the day and the high of the
day) is wide. In addition, and this point is very important, these products are traded on regulated
and centralized markets: Eurex for the DAX futures and CME for the e-mini Dow; as opposed to
CFDs which are OTC products; i.e. your broker is the counterpart of your trade. When you buy,
your broker is your seller and when you sell, your broker is buying from you. On the other hand,
on a centralized market, your order is routed and executed when someone else’s order matches
yours (buyers’ and sellers’ prices meet). In addition, on the future markets you can see the
volume of transactions, while on the CFD, your broker may show no volume at all or only the
volumes exchanged on their platform.
And more importantly, on the future markets you see the prices offered by other market
participants while on CFDs, you only get the prices offered by your broker. To illustrate, this I
have just taken below a snapshot of prices offered by two different CFD brokers at the same
time.
Ticket order

Which broker offers the right price?

In case of high volatility, CFDs do not react the same way as futures: the prices may adjust at a
different pace and the spread offered by the broker may increase. A market order may even be
repriced if the market is moving very quickly. Stop orders may incur slippage which means you
will lose few points to your broker as the price you are paid is few points away from your stop
order.
I like to compare CFDs and futures to the current trends in grocery consumption. People like to
consume fresh products that come directly from the farm, without any middlemen and
wholesalers that make their margin in the process. Well, trading futures is similar. You get the
prices directly from the market while CFDs are products offered by your broker who gets their
revenue through the spreads. Moreover, CFD providers hedge their positions or some part of
them using futures and options.
So, I can only recommend that you trade with future or mini future contracts. However, CFDs
can be useful to trade small positions when you make your first steps in trading as you can trade
products at only one euro per point instead of 5 euros on a mini future contract or even 25 euros
per points on the DAX future. Note that CFDs are not available in all countries due to local laws
and financial regulation.
But if you can and want to trade CFDs, make sure you look at the spreads offered by different
brokers before choosing who to trade with. Half a point is not much difference, but in scalping it
means a lot. After 20 trades, paying half a point more on each trade at one euro per point will
result in an extra 10 euros wasted in commissions; and so on, after 40 trades, you will have
wasted 20 euros. Let’s say in a month if you perform 600 to 800 trades, you will then have
wasted 300 to 400 euros in extra commissions.

How to choose your broker:

In order to be able to scalp in good conditions, you need to look out for the following points
when choosing your broker:
Tight spreads if you choose to work with CFDs. One euro or dollar per point is the
maximum you should pay as you don’t want to be working just for your broker;
Real time data flux is essential. The subscription to the Eurex data flux (DAX and
mini DAX) will cost you about 20 euros per month and another 25 euros for a
subscription to CME CBOT (e-mini Dow) data. Your broker collects the fees for the
data supplier; you don’t need to pay the supplier directly. If you just want to trade
CFDs you won’t have to pay these fees, but you will have only access to the data
provided by your broker.
Most of the platforms will let you place simple orders such as buy limit or sell limit
orders, with the option to set up an automated take profit and stop loss orders. But
some go even further by letting you set up an automated order for part of the position
and another one for the second part of the position and so on if you want to set up 3
different targets. As we saw in earlier chapters, these orders are useful when trading
support, resistance and pivot point break through.
Be aware that some brokers operate with a first in first out rule which means that
they won’t let you have opposite positions on the same product run separately, a.k.a.
hedging. A new executed sell order may not open a position but offset or close an
already opened buy position. On the other hand, CFD brokers may let you trade,
hedge and operate your positions separately from one another. While short and long
positions of equivalent quantities and on the same product offset each other in theory,
your broker may still calculate a margin cover for each position separately. So, keep
an eye on your margin usage.
If you are starting with a small account, i.e. with less than € 5,000 look for brokers
that will let you trade on small quantities, as small as 1/100th of one lot. That way
 you can start trading taking minimum risk until you build confidence in your trading.
Being able to trade from a smartphone, an iPad or similar. I certainly cannot
recommend that you use these devices for your scalping, but they shall be used as
part of plan B if a problem comes up with your computer while you are trading or if
your internet broadband suddenly shuts down or resets itself. Your smartphone
connected to a mobile phone network will be your back up device to modify or close
some orders if necessary, until your computer and the internet are back up and
running. Most brokers offer mobile technology in today’s world.
This was the plan B. The plan C is that you should be able to call your broker’s
trading desk as a last resort, in case of emergency, if your computer and your mobile
application don’t let you perform an action that needs to be done.
Lastly, you absolutely need to work with a minimum of two brokers because if for
any reason there is a technical problem on one of your brokers’ platforms, you need
to able to act swiftly on your second broker’s platform. Let’s say you need to close a
position but broker A’s platform for some reason is not working. Then you can
always open an opposite order on broker’s B platform. For instance, you need to
close a long position with broker A, but a technical problem doesn’t let you do so.
Then you should open a short position with broker B, until everything is back up and
running. Then you can work on closing these positions simultaneously afterwards.
Once you are ready to trade with the mini futures, I recommend that you have at least 12,000
euros to be able to scalp with 2 lots when the occasion occurs. For the most accurate information,
choose the tick by tick data flux if you can choose a data provider. Some data providers offer
market data sent to your computer on a second by second basis while others have their data
refreshed on a tick by tick basis, which is every time a transaction occurs on the market, showing
you the latest price exchanged.
In this book I showed you how to trade the mini DAX and the e-mini Dow. You may want to
explore and trade some additional markets, but I recommend not trading more than two markets
at a time because scalping requires concentration and prompt action in your trades. You may
have noticed that on these two products, one is European and the other one is American, so you
could work the DAX during the European hours and the e-mini Dow during the US market
hours.
Chapter 6 When to Trade and When not to Trade
The markets go through different phases and there are times when you will feel like it is difficult
to read the market or other times when there are low volumes and high hesitation from market
participants making the market evolve in a flat and boring momentum.
DAX future, 5 minutes

For this example, I have used 5-minute candles in order to fit the whole day on one chart. As you
can see, the market makes roughly 60 points between its lowest of the day and its highest of the
day; which is not too bad. But how did that happen? A rapid 30 points drop in the morning,
followed by a return to opening prices by the end of the morning, and then, 6 hours of long
awaiting until a little awakening again at 5pm. Apart from doing mini range trading during these
6 hours, there is not much you can do.
It is difficult to predict how a day is going to be. I am not talking about trends here, but just
about price volatility. Is it going to be an active day or a very quiet day? You can’t really know
in advance. However, there are some hints that you can look for such as previous day’s behaviors
and chart patterns.
DAX future, one hour

When the market is testing significant levels such as supports and resistances, you can expect
some hesitation as no one is willing to buy at the highest and push the market further, until an
event or something triggers the market to make a breakthrough or consolidate sharply. When
reaching significant levels and testing them, expect the market to test that level before breaking it
or reversing.
Another hint to look for market activity can be found in the economic calendars and how the
market is reacting to the coming events or news to be announced. The market may enter into a
quiet phase, with less participants willing to trade waiting for the news to be released. Some
participants will indeed decide to stay on the side, as I will advise you to do next. During this
quiet phase, the volumes exchanged could be low, again due to the fact that many day traders
don’t want to have too many positions opened while facing the risk of high price volatility at the
time of the news being released. You should get familiar with the average volume exchanged
throughout the day for the product you are trading so that you can assess if the market is being
pushed around in low volumes by fewer participants or if indeed there is increased interest.
When scalping, you may want to close all your positions before the news is released because the
market might get very volatile on and after the news is being released. While volatility normally
serves us, at the time of a news release, the market can move erratically in any direction, come
back to where it was before the news went out or set up in a specific direction. What will happen,
is that you may have traded in the right direction, but the market went to hit your stop loss first
due to price volatility. Now, you may say, let’s not put a stop loss in this instance or place it
further away, but what happens if the market goes against you and then doesn’t reverse in your
chosen direction? Placing orders just before the news is released, from my point of view, is just
gambling. Don’t try to apply logic to the market’s reactions to the news either, thinking that if
the news is positive the market will certainly go up or the opposite, because it may not happen.
The market may already have priced the news with some market participants starting to cash in
their profits making the prices go in the opposite direction of where they should logically have
gone. When news or a figure is released, you don’t have all the information around it. For
instance, if crude oil inventories are lower than forecast, is it due to higher oil consumption or
lower oil production? What strategies do the market participants have in place? Many factors and
many questions for which we don’t have all the answers to be able to analyze the news and
predict how the market is going to digest the news. Sometimes, following a news publication, the
market reacts strongly by going one way, but recovers in the next two hours and resumes its
current activity. So, don’t try to gamble on the news. With experience, however, you will get to
know when important news are likely to have no impact on the market at particular times while
they may be strongly scrutinized at other times .
The main macro-economic news that often impacts the markets are interest rates decisions from
central banks and their press conferences, crude oil inventories, American employment, inflation
figures, GDPs and home sales. Depending on the context they may trigger volatility when
released.
You can find calendars with news release dates and times on many website. I like to use the
economic calendar published on investing.com and apply a filter to show the major news.
Economic calendar

As the week is finishing, I look at the following week’s events and report them to my computer
calendar and save reminders and alarms that go off one hour to 30 minutes before the news
release. That way it reminds me not to open any more positions just before a news release, and
close existing positions while in positive territory.
Below is a list of additional times when I recommend not trading:
The first ten minutes after stock market opening. I am talking stock market opening
and not future market. During the first ten minutes, the market can move in different
ways, not giving us useful readings. Indeed, some participants may be closing
positions they didn’t manage to close the previous day or for which they had
sufficient margin at that time but no longer. Other participants may open or close
positions due to their option hedging work and so on. Different traders with different
agendas. The first ten minutes may create volatility that again may trigger scalpers’
stop losses without giving any opportunity to the scalper.
The triple witching day: this is the name given to the day when, on a monthly basis,
index futures contracts, stock index options contracts and single stock options
contracts expire; even quadruple witching day when single stock future contracts
adds to this list on a quarterly basis. Triple witching day takes place on the third
Friday of the month and quadruple witching day on the third Friday of the month
every quarter end. Volumes become artificially higher due to positions being rolled
over to the next contract term. Volatility may also increase as market participants
have different agendas, but it may not help the scalper, so I choose to take it easy on
these days.
The last day of the quarter: Some market participants may be at work to improve
their balance sheet and quarterly reporting. However, don’t start thinking that it will
trigger an uptrend because if rising prices may improve the balance sheet of
institutional investors, it may have an adverse impact for those with short positions in
their books.
Holidays and festive seasons: during those times, volumes are lower. The market
may be in a free spinning mode or move rapidly in low volumes. If you absolutely
want to trade, do it on lower volumes because when institutional investors and big
market movers are on holiday the market may not give you the right opportunities to
realize good trades.
Trading after 10pm: Mini DAX and DAX futures are not tradable after 10pm but for
the e-mini Dow, CME lets trader carry on their trading on an OTC system via its
GLOBEX platform. So, if you really want to trade e-mini Dow non-stop, you can
start at midnight on Monday until 11 pm on Friday (these hours can change slightly
during the winter and summer time changes). However, trading after 10 pm is not
recommended because the volumes are likely to be very low. Focus your energy
instead on the US pre-market opening which is at 14:30 CET.
Trading the mini-DAX and DAX pre-market opening
Mini DAX and DAX futures markets open at 7:50 am, one hour and 10 minutes before the stock
market opening.
Most of the time pre-market opening is very quiet with low volume transactions. No need to rush
to your screen and start trading at 8 am. However, when the market made a strong move the day
before, there may be opportunities arising in the pre-market opening. We know that market
participants have different agendas, but when the market reacts strongly in one direction, it can
put speculators in difficult positions. For instance, if the market went down by 300 points in one
day, some long traders may face margin calls meaning they will have to either put more cash in
their account or close some of their positions. This will lead to more sell orders being put on the
market. At the same time, some sellers may want to cash in and close winning trades. In the first
minutes of pre-market opening you won’t know how the market will evolve, but you can
certainly use the Heikin Ashi candles to perform some trades because after a strong move the day
before there is likely to be volatility in the pre-market opening.
DAX, one minute

300 points is a strong intraday move for the DAX.

Quiet pre-market opening has prices that move within a ten to twenty-point range. But here, after
a strong move on the previous day, we can expect some volatility.
Chapter 7 Technical Analysis
When it comes to understanding technical analysis, the most important thing to always keep in
mind is that the action that a certain price has taken in the past is likely going to be a reliable way
to predict its action in the future. This fact then makes it easy to use what are known as technical
tools, things like indicators, charts, and trends to achieve a reliable rate of success that successful
traders require. While the ways it can do so can be quite complicated at times, at its heart,
technical analysis studies supply and demand in an effort to decide what trend, if any, is likely
going to continue moving forward. This is crucial for long term success as the tools that
technical analysis provides will increase the reliably of each of your trades nearly every single
time.
The goal of technical analysis is not to simply measure the given intrinsic value of a particular
asset, but rather to use the tools at your disposal to pick out beneficial patterns related to a future
activity that others may not yet have noticed. At its core, technical analysis functions by
assuming three things to be true. First, the market will always discount anything; second, prices
will always move according to trends; and finally, history will always repeat itself eventually.
What follows are a number of charts and patterns to consider when utilizing the strategies that
speak to you from
Price charts: A price chart is a core part of technical analysis; essentially, it is a chart with both
an x and a y-axis where the price can be seen along the vertical axis and the time can be seen
along the horizontal axis. While there are plenty of different charts to choose from, each with
their own unique strengths and weaknesses, those that you will want to keep in mind early on
include the line chart, the candlestick chart, the bar chart, and the point and click chart.
Line chart: The line chart is the simplest of all the charts because all it does is show the closing
price of a given stock over a set period of time. The lines, in this case, are formed once the
grouping of closing prices has been determined and then connected with the end goal of showing
a trend. You won’t be able to find details such as what the opening price for the same period of
time was or what the overall results for the day were but you will be able to determine if the day
over day is positive which is still quite important which is why this is one of the first charts that
day traders of all skill levels consult when they are looking into the details of a new stock.
Bar chart: A bar chart expounds upon the details provided by a line chart by providing a greater
degree of detail regarding the specifics of the day. The top and bottom of the bar represent the
high and the low for the day respectively while the price at closing is indicated on the ride side of
the bar with the help of a handy dash. The dash on the left side of the bar shows the starting price
while the color of the bar indicates if it experienced an overall increase or decrease by the end of
the day.
Price objective: One aspect of chart patterns that is frequently overlooked is what is known as
price objectives. The calculation of price objectives serves to measure where the price is likely to
be moving to next, based on a previously confirmed pattern. As the signal indicates the price’s
direction, what still needs to be determined is the likely amount of movement that the price is
projected to rise or drop. This, in turn, makes it easier to set targets along with protective stops to
facilitate the estimation of potential profits in order to set the whole process off, to begin with.
The price objective is not absolute and is instead used as a guideline to determine if a specific
trade is attractive or not from a practical level. The greater the difference between the price and
the objective at the point you cross the neckline, the greater the amount of worth the trade has
overall.
Cup with Handle Formation: The cup with handle formation typically tends to appear when a
security reaches a peak price and then falls sharply for an extended period of time. Eventually,
however, the security rebounds and the time is right to buy. This is an indicator of a trend on the
rise and you should be sure to take advantage of any cup with handle formations that you see
come into existence.
The handle will form on the cup when those who purchased the security at the previous high-
water mark and couldn’t wait any longer begin to sell which makes new investors interested who
then begin to buy as well. This type of formation does not typically form quickly, and indeed,
has been known to take a year or more to become visible. Ideally, you would want to take
advantage of this trend-right when the handle is beginning to form.
It is important to pay attention to the actual shape of the cup portion of the movement, as you
want it to be very smooth and rounded, the closer it is to a semi-circle the better. The reason for
this is because this type of shape indicates a consolidation within the trend, as weaker investors
leave the market, leaving more stalwart holders of the cryptocurrency left to ride out the
secondary increase. However, if the cup has a sharp point on it, then it is not going to be
considered a true consolidation phase for the upward trend, thus weakening its overall potential.
It is also important to take into account the height of the cup overall as the most effective cup
and handle patterns typically form so that it is between 30 and 60 percent the size of the previous
upward movement, based largely on overall volatility.
Head Above Shoulders Formation: If you are looking for indicators of how long any one
particular trend is likely to continue, then looking for a grouping of three peaks in a price chart,
known as the head above shoulders formation, can indicate a bearish pattern moving forward.
The peaks to the left and to the right of the primary peak, also known as the shoulders, should be
somewhat smaller than the head peak and also connect at a specific price. This price is known as
the neckline and when it reaches the right shoulder the price will likely then plunge noticeably.
Chapter 8 Utilizing Binary Options
Binary options are similar to traditional options in many ways except that they ultimately boil
down to a basic yes or no question. Instead of worrying about what exact price an underlying
stock is going to have, a binary option only cares if it is going to be above one price at the time
of its expiration. Traders then make their trades based on if they believe the answer is yes or no.
While it may seem simple on its face, it is important that you fully understand the ways in which
binary options work, as well as the time frames and markets they work with. It is also important
to understand the specific advantages and disadvantages that they have, and which companies are
legally allowed to offer binary options for trade.

If you are currently considering trading in binary options, then it is also important to be aware
that binary options trading outside of the US has a different structure. Also, when hedging or
speculating, it is important to keep in mind that doing so is considered an exotic options trade,
so the rules are different still. Regardless, the price of a binary option is always going to be
somewhere between $0 and $100, it is also going to come with a bid price as well as an ask
price, just like any other type of option.

Binary options are also a great choice for those who are interested in testing the waters of day
trading but don’t have the significant amount of capital on hand which is required to participate
in stock market day trading. This is due to the fact that traditional stock market day trading
limits don’t apply to binary options which means you can start trading with just $1,000 in your
trading account.

When considering binary options, it is also important to keep in mind that binary options are a
derivative created by its association with an underlying asset which means they don’t give you
ownership of that asset in any way. What this means is that there is no way for you to exercise
them as a means of obtaining dividends or gaining voting rights, or anything else you might
expect from a standard option.

For example, assume you are looking at a binary option for gold that states its price will be
greater than $1,450 by 2 pm today. If the market seems to be pointing in that direction, then
you will want to purchase the binary option, otherwise, you would want to sell instead.
Additionally, assuming that the bid price of the option is $54.50 and the asking price is $56.50
with 30 minutes left until its expiration time. If you decided to buy in at this point you would
pay $56.50 and if you sold you would pay $54.50.

Where to trade binary options: Binary options are now traded on the Nadex exchange, the
original exchange dedicated to legally selling binary options in the US. It offers browser based
trading via its own platform which offers real-time charts as well as market access to the latest
binary options prices.

Binary options can also be traded via the Chicago Board Options Exchange (CBOE). It can be
accessed with a brokerage account that is approved for options trading via their standard access
routes. It is important to keep in mind, however, that not all brokers are equipped to offer
options trading. As such, before you get started trading in options it is important that you make
sure your broker offers all the trading possibilities that you may one day consider as changing
horses mid-stream can be quite complicated.

Trading on the Nadex costs 90 cents when entering a trade and the same when exiting from
one. The fee is capped at $9 per trade so purchasing a lot of 15 will still only cost $9. If you
hold your trade until it expires then the fees will be taken out at that point. If the trade ends up
being out of the money when it expires you will not be charged a fee. Trading via CBOE is
handled through specific options brokers who charge a variety of different commission fees.

The benefits of picking binary options: As previously mentioned, there are lots of investment
opportunities that you can choose to go with. Binary options are certainly not the only ones
that you can chose to go with, and you may wonder why this is the option that you should pick
over all the others. Some of the benefits you will notice include:

Potential for a high return: this is a risky form of investing, but if you learn to read the market
properly, you will find that it has a lot of potential for a lot of money to come to you. If you do
well with this trading option, you could see a return on investment between 60 to 90 percent.
The risk is fixed: you will know right at the beginning how much money you stand to lose or to
win depending on which way the prediction goes. This helps make it easier to decide on your
choices. Other investments can end up being a lot of guesswork and if things go south, you can
lose a lot more than you put into the whole thing.
You can even win after losing since you will find that the risks on these options are high, there
are some brokers that offer a return on money that you invested if your predictions were wrong.
This is not going to be the full amount but getting a small percentage of your money back can be
encouraging compared to losing it all.
Easy trading: these are easier to trade on. Other options in the stock market make this hard, but
the platforms for binary options help the investor trade without all the hassle.
Fast turnovers; you will not have to wait around for years to see your money come back. You
can have a quick payout depending on the kind of option that you picked.

Free accounts: many of the brokers for binary options are going to offer free accounts that you
can work. This can help you to save money on paying the broker to just get stared and all of the
deposit that you are using will go straight to your trades.
Chapter 9 Comparing and Combining Models
On the futures side, we have now looked at a few different approaches. First, a standard trend
model with trend filter, trailing stop, and breakout logic. Second, a simple time return model that
only compares a monthly price with that of a year and half a year prior. Third, counter trend, or
mean reversion approach which aims to enter when trend followers stop out, operating on a
shorter time period. And finally, a carry based trading model, looking only at the shape of the
term structures curve.
We also started off with a systematic equity momentum model, which trades only the long side
of equities and should have quite a different return profile from absolute return futures models.

In the chapter about each of these models, you have probably noticed that I did not show the
usual return statistics. That was very much on purpose, as I have come to realize that many
readers stare too much as such figures and miss the bigger picture. It’s a bit like handing out
slide printouts before a live presentation. No one is going to listen to what you have to say after
that.
The data you are looking for is in Table 19.1, where the strategies that we looked at earlier are
listed, as well as the same statistics for the S&P 500 Total Return Index, all covering the back
testing period from the start of 2001 to the end of 2018.

Table 19.1 Futures Strategies Statistics

Annualized Max Annualized Sharpe Calmar
Return Drawdown Volatility Ratio Ratio
TREND_MODEL 12.12% -25.48% 19.35% 0.69 0.48
COUNTER_TREND 11.00% -30.09% 18.55% 0.66 0.37
CURVE_TRADING 14.89% -23.89% 18.62% 0.84 0.62
TIME_RETURN 11.78% -40.31% 21.09% 0.63 0.29
SYSTEMATIC_MOMENTUM 7.84% -39.83% 16.48% 0.54 0.2
SPXTR 5.60% -55.25% 18.92% 0.38 0.1

Clearly the curve trading model is the best one, right? And the momentum isn’t worth bothering
with? Well, conclusions like that are the reason why I did not show these simple statistics earlier.
Evaluating trading models is a more complex undertaking than simply looking at a table like this.
You need to study the details and study the long term return profile. And of course, scalability.
At the sharp end of the business, you often look for a specific behavior in the return profile, often
 relative to other factors. The answer to which model is more promising depends on what you
happen to be looking for at the moment, and what would fit or complement your current
portfolio of models.
All of these models are simple demo models. They are teaching tools, not production grade
models. But they all show potential, and they can be polished up to become production grade
models.
You can also see that all of them are orders of magnitudes more attractive than a buy and hold,
stock market approach. Some readers may be surprised to see just how meager the return of the
stock markets is over time. In this period, from 2001 to 2018, the S&P 500 returned less than 6%
per year, even with dividends included and even with the last ten years of bull market included.
And that was at a peak drawdown of over half.
Another point that may surprise some is the level of the Sharpe ratios. None are over 1. There is
an unfortunate misconception that a Sharpe of less than one is poor. That’s not necessarily so. In
fact, for systematic strategies it’s unusual to see realized Sharpe ratios of over one.
Comparing Futures Models
shows the long term development of these five strategies, compared to that of the stock market.
On such a long time scale, the index comparison hardly seems fair. But the fact is that in the
shorter run, you will always be compared to it. This is the curse of the business.
Remember that the reason that these backtests start in 2001 is that a current, and hopefully soon
addressed issue in Zipline makes it tricky to use pre-2000 data. The fact that the equity index
starts off with a nosedive might make this comparison a little unfair, and for that reason, I will
also show you the same graph starting in 2003, the bottom of the bear market. I won’t do one
from the bottom of the 2008-2009 bear market. That would just be plain silly. Comparing perfect
market timing into the longest lasting bull market of a generation with alternative strategies does
not make any sense.
Comparison, starting from 2003
Even if we would have had the foresight of buying the index with impeccable timing at the
bottom of the tech crash, the index would still have shown lower return and deeper drawdowns.
Combining the Models
Everyone knows that diversification is beneficial. At least everyone should know that. But most
people think of diversification only in terms of holding multiple positions. That’s all fine and
well, but you can also find added value in diversifying trading styles. Think of a single trading
model as a portfolio component.
What you may find is that an overall portfolio of models can perform significantly better than
any of the individual strategies that goes into it. I will demonstrate this with a simple portfolio,
consisting of the five trading models we have seen so far.
As we have five models, we will allocate an equal weight of 20% of our capital to each. The
rebalance period is monthly, meaning that we would need to adjust all positions accordingly each
month, resetting the weight to the target 20%. Such a rebalance frequency on a model level can
be both difficult and time consuming for smaller accounts but is perfectly reasonable on a larger
scale. Feel free to repeat this experiment with yearly data if you like. Making portfolio
calculations like this is an area where Python shines compared to other languages.
Table 19.2 Portfolio of Futures Models
Annualized Max Annualized Sharpe Calmar
Return Drawdown Volatility Ratio Ratio
TREND_MODEL 12.12% -25.48% 19.35% 0.69 0.48
COUNTER_TREND 11.00% -30.09% 18.55% 0.66 0.37
CURVE_TRADING 14.89% -23.89% 18.62% 0.84 0.62
TIME_RETURN 11.78% -40.31% 21.09% 0.63 0.29
SYSTEMATIC_MOMENTUM 7.84% -39.83% 16.48% 0.54 0.2
COMBINED 14.92% -17.55% 11.81% 1.24 0.85

Table 19.2 shows a comparison of the performance of each individual model, as well as the
overall stock market, to that of the combined portfolio. These numbers should be abundantly
clear. The combined portfolio far outperformed each individual strategy, at lower volatility. We
got a higher annualized return, a lower maximum drawdown, lower volatility, higher Sharpe,
etc.
I hope this will help clarify my insistence on that you need to look at the detailed return profile
 when evaluating a new trading model. It’s not necessarily the return per se that you are after, but
rather the profile of it, and how well it fits your existing models.
You may find a model with a low expected return over time, but which also has a low or
negative correlation to other models, and thereby can greatly help your overall, combined
portfolio of trading models.
Portfolio of Trading Models
As the individual models often have their gains and losses as different times from each other,
they complement each other well and help smooth out long term volatility. The drawdowns
become subdued, resulting in a higher long term return.
While it was a close call some years, in the end, not a single year of this combined portfolio
ended up losing money.
Table 19.3 Holding Period Analysis for Combined Model
Years 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

2001 8 13 17 18 17 16 18 19 19 20 18 17 17 17 17 16 16 15
2002 18 22 22 20 17 19 21 20 21 20 18 18 18 17 16 16 15
2003 27 24 21 17 20 21 21 21 20 18 18 18 17 16 16 15
2004 21 18 14 18 20 20 21 19 17 17 17 17 16 15 14
2005 15 11 17 20 20 21 19 16 16 17 16 15 15 14
2006 7 18 21 21 22 19 17 16 17 16 15 15 14
2007 29 29 26 26 22 18 18 19 17 16 16 14
2008 29 24 24 20 16 16 17 16 15 14 13
2009 20 22 17 13 14 15 14 13 13 12
2010 25 16 11 12 14 13 12 12 11
2011 8 5 8 12 11 10 10 9
2012 1 8 13 12 10 11 9
2013 16 20 16 13 13 11
2014 24 16 12 12 10
2015 9 6 8 7
2016 4 8 6
2017 13 7
2018 2
Implementing a Portfolio of Models
While a demonstration like this may seem to show a simple solution to all your investment vows,
implementation may not be as easy. Each of these models require millions to trade. Clearly,
trading them all requires even more millions. I recognize that not every reader of this book has a
spare hundred million laying around to be traded. But even if you are one of those unfortunate
few non-billionaires out there, understanding the power of combining different approaches can
be greatly helpful.
Insufficient funds are not the only potential problem with building portfolios of models. It can be
highly complex in practice to implement the model combination shown in this chapter. As the
complexity rises, you lack the simple overview which is possible with a single model, and you
may need more sophisticated software to keep track of positions, signals, risk allocation etc.
A professional trading organization can build the capability of trading such complex
combinations, to monitor the risk and build proper reporting and analysis. For individual traders,
this may not be a possibility.
Of course, there is another way to look at it. An understanding of how complex portfolios of
models can be constructed and implemented can help you acquire the skillset needed to land a
good job in the industry. Working at the sharp end of the industry has the potential to earn you
far more money than you could possibly make trading your own portfolio.
Never forget that the interesting money in this business is made from trading another people’s
money. Whether or not you personally have the money to trade such models is not the important
part. Well, it would be nice to have that of course. But you can still make use of this kind of
knowledge and you can still profit from it. If you land a good job with a hedge fund or similar,
you will probably get paid far more by working for them than you could by trading your own
money anyhow.
Chapter 10 Performance Visualization and Combinations
In the previous sections you have seen various tables and graphs, showing the performance of
backtests. This being a fully transparent book and all, I will show you just how those
visualizations were made. These are really simple things to get done in Python. All we need is a
time series to work with, and we can build all kinds of graphs, analytics, tables and other outputs.
Storing Model Results
The same principles apply here, but the difference is that it would be helpful to store the
backtests for further analysis later on.
As you have seen by now, when we run a Zipline backtest we get the results returned to us. In
the sample models earlier in this book, this tends to look something like this.
perf = zipline.run_algorithm(
start=start, end=end,
initialize=initialize,
analyze=analyze,
capital_base=millions_traded * 1000000,
data_frequency = 'daily',
bundle='futures' )
In this case, after the backtest run is completed, the variable perf will hold all the
results. This is a DataFrame, consisting of quite a lot of different data which was collected or
calculated during the run. If you are looking to store just the portfolio value for each day in the
backtest, you can do that very easily. This is stored in the column portfolio_value and that
means that we can simply save it as a comma separated file in this one row of code.

perf.portfolio_value.to_csv(‘model_performance.csv’)
That’s all that it takes, and that one line will save the portfolio value, often called the equity
curve, of the backtest to a file with the specified name. If you are looking to analyze other
aspects of the backtests, you can save the trades done and any other data you will find in perf.
This trick, saving a DataFrame to a comma separated file, can be very useful in many
instances. Another somewhat related tool that may be particularly helpful at times during
debugging, is .to_clipboard(). Instead of saving to disk, this will place the DataFrame in
memory, in the clipboard. It will be in the correct format so that you can paste it straight into
Excel, if that’s your intention. Being able to quickly copy something out to Excel for visual
inspection can be quite helpful when debugging.
How the Model Performance Analysis was done
To calculate and visualize the performance analytics for each of the model chapters, I started off
with a Jupyter Notebook. As discussed earlier in the book, it makes sense to separate different
pieces of logic into different cells in the Notebook. Lower cells can access data that you fetched
or calculated in the higher-level ones.
After running the backtests, I saved the historical portfolio value to a local CSV file. The
performance analysis notebook then reads one of these CSV files, as well as the benchmark data
for the S&P 500 Total Return Index for comparison. This is what the first cell of my notebook
does.
%matplotlib inline
import matplotlib.pyplot as plt
import pandas as pd
# Where the data is
path = 'data/'
# Set benchmark to compare with
bm = 'SPXTR'
bm_name = 'S&P 500 Total Return'
# These are the saved performance csv files from our book models.
strat_names = {
"trend_model" : "Core Trend Strategy",
"time_return" : "Time Return Strategy",
"counter_trend" : "Counter Trend Strategy",
"curve_trading" : "Curve Trading Strategy",
"systematic_momentum" : "Equity Momentum Strategy",
}
# Pick one to analyze
strat = 'curve_trading'
# Look up the name
strat_name = strat_names[strat]
# Read the strategy
df = pd.read_csv(path + strat + '.csv', index_col=0, parse_dates=True, names=[strat] )
# Read the benchmark
df[bm_name] = pd.read_csv(bm + '.csv', index_col=0, parse_dates=[0] )
# Limit history to end of 2018 for the book
df = df.loc[:'2018-12-31']
# Print confirmation that all's done
print("Fetched: {}".format(strat_name))
After that is done, we have the data that we need in a neatly organized DataFrame. The
next thing I wanted to do was to make a nice looking table of monthly returns. The Python
code for aggregating performance on monthly, as well as yearly frequencies does not take
much work. As so often is the case, someone else has already written code for this, and there is
no need to reinvent the wheel.

Therefore, calculating monthly and yearly returns takes only one line of code each. The rest of
the following cell is about constructing a neat formatted table. For that, I settled on using good
old HTML, just to make sure it looks the way I want to for this book. If you simply want to
dump the monthly values in text, most of the next cell is redundant. Most of the following code
is just about formatting an HTML table for pretty display.
# Used for performance calculations
import empyrical as em
# Used for displaying HTML formatted content in notebook
from IPython.core.display import display, HTML
# Use Empyrical to aggregate on monthly and yearly periods
monthly_data = em.aggregate_returns(df[strat].pct_change(),'monthly')
yearly_data = em.aggregate_returns(df[strat].pct_change(),'yearly')
# Start off an HTML table for display
table = """
<table id='monthlyTable' class='table table-hover table-condensed table-striped'>
 <THEAD>
<TR>
<th style="text-align:right">Year</th>
<th style="text-align:right">Jan</th>
<th style="text-align:right">Feb</th>
<th style="text-align:right">Mar</th>
<th style="text-align:right">Apr</th>
<th style="text-align:right">May</th>
<th style="text-align:right">Jun</th>
<th style="text-align:right">Jul</th>
<th style="text-align:right">Aug</th>
<th style="text-align:right">Sep</th>
<th style="text-align:right">Oct</th>
<th style="text-align:right">Nov</th>
<th style="text-align:right">Dec</th>
<th style="text-align:right">Year</th>
</TR>
</THEAD>
<TBODY>
<TR>"""
first_year = True
first_month = True
yr = 0
mnth = 0
# Look month by month and add to the HTML table
for m, val in monthly_data.iteritems():
yr = m[0]
mnth = m[1]
 # If first month of year, add year label to table.
if(first_month):
table += "<td align='right'><b>{}</b></td>\n".format(yr)
first_month = False
# pad empty months for first year if sim doesn't start in January
if(first_year):
first_year = False
if(mnth > 1):
for i in range(1, mnth):
table += "<td align='right'>-</td>\n"
# Add the monthly performance
table += "<td align='right'>{:+.1f}</td>\n".format(val * 100)
# Check for December, add yearly number
if(mnth==12):
table += "<td align='right'><b>{:+.1f}</b></td>\n".format(yearly_data[yr] * 100)
table += '</tr>\n <tr> \n'
first_month = True
# add padding for empty months and last year's value

if(mnth != 12):
for i in range(mnth+1, 13):
table += "<td align='right'>-</td>\n"
if(i==12):
table += "<td align='right'><b>{:+.1f}</b></td>\n".format(
yearly_data[yr] * 100
)
table += '</tr>\n <tr> \n'
# Finalize table
table += '</tr>\n </tbody> \n </table>'
# And display it.
DISPLAY(HTML(TABLE))

Next there is the performance chart. In the earlier sections, I used a logarithmic chart to compare
each strategy to the equity index. It may not make much sense to compare your strategy to the
S&P 500, but it’s highly likely that others will compare you to it, whether it’s logical or not.
In the same chart image, I also had a drawdown plot as well as a 6 months rolling correlation.
These are very easy to calculate, and you should already know how to make the graphs. There is
also some code in there to make the next really big and to get the lines to be black and grey for
the book.
import matplotlib
# Assumed trading days in a year
yr_periods = 252
# Format for book display
font = {'family' : 'eurostile',
'weight' : 'normal',
'size' : 16}
matplotlib.rc('font', **font)
# Rebase to first row with a single line of code
df = df / df.iloc[0]
# Calculate correlation
df['Correlation'] = df[strat].pct_change().rolling(window=int(yr_periods /
2)).corr(df[bm_name].pct_change())
# Calculate cumulative drawdown
df['Drawdown'] = (df[strat] / df[strat].cummax()) - 1
# Make sure no NA values are in there
df.fillna(0, inplace=True)
# Start a plot figure
fig = plt.figure(figsize=(15, 12))
# First chart
ax = fig.add_subplot(311)
ax.set_title('Strategy Comparisons')
ax.semilogy(df[strat], '-',label=strat_name, color='black')
ax.semilogy(df[bm_name] , '--', color='grey')
AX.LEGEND()
# Second chart
ax = fig.add_subplot(312)
ax.fill_between(df.index, df['Drawdown'], label='Drawdown', color='black')
AX.LEGEND()
# Third chart
ax = fig.add_subplot(313)
ax.fill_between(df.index,df['Correlation'], label='6M Rolling Correlation', color='grey')
AX.LEGEND()
Finally, for each chapter I did a so called holding period table, that shows your percentage return
if you started it in January of a given year, and held for a certain number of full years. Again I
elected to use HTML output to ensure that it can be displayed nicely for this book. Since the
width of these pages is limited, I also rounded the numbers down to full percent.
def holding_period_map(df):
# Aggregate yearly returns
yr = em.aggregate_returns(df[strat].pct_change(), 'yearly')
yr_start = 0
#Start off table
table = "<table class='table table-hover table-condensed table-striped'>"
table += "<tr><th>Years</th>"
# Build the first row of the table

for i in range(len(yr)):
 table += "<th>{}</th>".format(i+1)
table += "</tr>"
# Iterate years
for the_year, value in yr.iteritems():
# New table row
table += "<tr><th>{}</th>".format(the_year)
# Iterate years held
for yrs_held in (range(1, len(yr)+1)): # Iterates yrs held
if yrs_held <= len(yr[yr_start:yr_start + yrs_held]):
ret = em.annual_return(yr[yr_start:yr_start + yrs_held], 'yearly' )
table += "<td>{:+.0f}</td>".format(ret * 100)
table += "</tr>"
yr_start+=1
return table
table = holding_period_map(df)
display(HTML(table))
How the Combined Portfolio Analysis was done
The method used in that chapter was to rebalance at the start of every month, resetting the weight
of each strategy at that interval. In the code shown here, I will also give you another method of
rebalancing. As you will see in the next code segment, you can also trigger the rebalance on
percentage divergence, if the market developments have pushed any strategy to be more than a
certain percent off.
This is a somewhat advanced topic, and really goes beyond what I was planning to
show in this book. I include this source code here anyhow, in the interest of being transparent.
I will however avoid the potentially lengthy discussion of how this code is constructed and the
reason for it. It uses some tricks to enhance performance, making use of Numpy to speed things
up.

Once you feel comfortable with Python and backtesting, this is a topic you may want to dig
deeper into. How to use optimize complex operations and speed code up. But it’s out of scope
for this book.
import pandas as pd
import numpy as np
base_path = '../Backtests/'
# Rebalance on percent divergence
class PercentRebalance(object):
def __init__(self, percent_target):
self.rebalance_count = 0
self.percent_target = percent_target
def rebalance(self, row, weights, date):
total = row.sum()
rebalanced = row
rebalanced = np.multiply(total, weights)
if np.any(np.abs((row-rebalanced)/rebalanced) > (self.percent_target/100.0)):
self.rebalance_count = self.rebalance_count + 1

return rebalanced
 else:
return row
# Rebalance on calendar
class MonthRebalance(object):
def __init__(self, months):
self.month_to_rebalance = months
self.rebalance_count = 0
self.last_rebalance_month = 0
def rebalance(self, row, weights, date):
current_month = date.month
if self.last_rebalance_month != current_month:
total = row.sum()
rebalanced = np.multiply(weights, total)
self.rebalance_count = self.rebalance_count + 1
self.last_rebalance_month = date.month
return rebalanced
else:
return row

# Calculate the rebalanced combination

def calc_rebalanced_returns(returns, rebalancer, weights):
returns = returns.copy() + 1
# create a numpy ndarray to hold the cumulative returns
cumulative = np.zeros(returns.shape)
cumulative[0] = np.array(weights)
# also convert returns to an ndarray for faster access
rets = returns.values
# using ndarrays all of the multiplicaion is now handled by numpy
 for i in range(1, len(cumulative) ):
np.multiply(cumulative[i-1], rets[i], out=cumulative[i])
cumulative[i] = rebalancer.rebalance(cumulative[i], weights, returns.index[i])
# convert the cumulative returns back into a dataframe
cumulativeDF = pd.DataFrame(cumulative, index=returns.index, columns=returns.columns)
# finding out how many times rebalancing happens is an interesting exercise
print ("Rebalanced {} times".format(rebalancer.rebalance_count))
# turn the cumulative values back into daily returns
rr = cumulativeDF.pct_change() + 1
rebalanced_return = rr.dot(weights) - 1
return rebalanced_return
def get_strat(strat):
df = pd.read_csv(base_path + strat + '.csv', index_col=0, parse_dates=True, names=[strat] )
return df
# Use monthly rebalancer, one month interval
rebalancer = MonthRebalance(1)
# Define strategies and weights
portfolio = {

'trend_model': 0.2,
'counter_trend': 0.2,
'curve_trading': 0.2,
'time_return': 0.2,
'systematic_momentum' : 0.2,
}
# Read all the files into one DataFrame
df = pd.concat(
[
 pd.read_csv('{}{}.csv'.format(
base_path,
strat
),
index_col=0,
parse_dates=True,
names=[strat]
).pct_change().dropna()
for strat in list(portfolio.keys())
], axis=1
)
# Calculate the combined portfolio
df['Combined'] = calc_rebalanced_returns(
df,
rebalancer,
weights=list(portfolio.values())
)
DF.DROPNA(INPLACE=TRUE)
# Make Graph
import matplotlib
import matplotlib.pyplot as plt
include_combined = True
include_benchmark = True
benchmark = 'SPXTR'
if include_benchmark:
returns[benchmark] = get_strat(benchmark).pct_change()
#returns = returns['2003-1-1':]
normalized = (returns+1).cumprod()
font = {'family' : 'eurostile',
'weight' : 'normal',
'size' : 16}
matplotlib.rc('font', **font)
fig = plt.figure(figsize=(15, 8))
# First chart
ax = fig.add_subplot(111)
ax.set_title('Strategy Comparisons')
dashstyles = ['-','--','-.','.-.', '-']
i=0
for strat in normalized:
if strat == 'Combined':
if not include_combined:
continue
clr = 'black'
dash = '-'
width = 5

elif strat == benchmark:

if not include_benchmark:
continue
clr = 'black'
dash = '-'
width = 2
#elif strat == 'equity_momentum':
# continue
else:
 clr = 'grey'
dash = dashstyles[i]
width = i + 1
i += 1
ax.semilogy(normalized[strat], dash, label=strat, color=clr, linewidth=width)
ax.legend()
Chapter 11 Developing Trading Models
Trading strategies can be broken down to a set of components. These components are always
part of a trading strategy, or at least they should be. Failure to pay attention to all of them is
likely to result in a flawed and non-performing model.
Too often, people pay far too much attention to just one of these components and glossing over
the rest. The one that seems to get the most attention is the entry method. How to decide when to
open a position.
The fact of the matter is that the importance of entry method varies greatly. For some types of
trading strategies, the entry method is critical. For other methods, it does not matter all that
much. For a long term trend following model for instance, the exact entry method and timing is
not very important. For a short term mean reversal model, the entry approach is critical.
Model Purpose
Yes, your model needs to have a purpose. And no, that purpose is not “to make money”. Any
trading model worth its salt is designed for a specific purpose, trading a specific market
phenomenon to achieve a specific goal. If you don’t know what your model purpose is, odds are
that all you have got is a bunch of indicators thrown together and varied until a simulation
showed some positive returns. A set of over optimized rules, which are very likely to fail in
reality. A solid model trades a real market phenomenon, aiming for a certain type of return
profile.
What you really want to avoid is what I would refer to as accidental models. From what I have
seen, a large part of models developed by non-professionals are in fact accidental models.
An accidental model is what happens when you set out without a plan. When your purpose is
simply to come up with something which makes money. Throw some indicator together, tweak
settings, run optimizers, switch around indicators, values and instruments until, presto, you have
got yourself a backtest that shows strong returns.
It’s not all that difficult to build a backtest that shows great returns. The trick is to find predictive
value going forward. If you just experimented with settings until the results looked good, all you
have done is fitted the algorithm to the known data. That has no predictive value and is highly
unlikely to continue to yield attractive returns on real life data, going forward.
A proper trading model needs to start off with a theory about market behavior. It needs to have a
clearly stated purpose in what market phenomenon it’s trading. A raison d’etre.
I have to confess that when I was first told about this idea, I thought it was hogwash. Whether I
read it or was told, I do remember that it was sometime in the mid 90’s. The question was put to
me on what I believe about the market. It sounded like total nonsense. After all, all I believed
about the market was that I could get rich quickly if I just figured out the right combination of
indicators and settings for a trading system. The idea that I would somehow have a theory about
exploitable market behavior seemed more than a little far-fetched at the time.
No need to worry if your initial reaction is the same. You will figure it out.
There are two common ways of looking at model purpose. One way may seem surprising for
those who have not yet worked in the financial industry.
The first way is fairly straight forward. What you might expect. You start off with a theory of
some sort. Perhaps something you have observed in the market, or something you read about.
Now you want to test if it really works, and you formulate mathematical rules to test that
hypothesis. This is how most successful trading models start out.
The second and perhaps surprising way is based on a perceived need or business opportunity.
Someone working full time with developing trading algorithms may not have the luxury of
dreaming up anything he or she wants. You may have a specific brief, based on what the firm
needs or what it thinks the market may need.
That brief may for example be to construct a long only equities model, where holding periods are
long enough to qualify for long term capital gains tax, while having reasonably low correlation to
existing equity strategies and have a downside protection mechanism. Or perhaps the brief is to
study a type of strategy where competing asset management firms seem to be expanding and see
if we can join in the competition for those allocations.
Often the return potential of a trading model may be of relatively low importance. The purpose
may simply be to achieve a near zero or negative correlation to a currently used approach, while
being able to scale to hundreds of millions, and preferably showing a modest positive expected
return of a couple of percent per year. A model like that can greatly improve diversification for a
large firm, and thereby enhance the overall long term performance of the firm’s asset.
In particular at larger quant trading firms, model briefs are likely to start out with a business
need. It’s not a matter of finding a way to generate maximum return, as that rarely makes
business sense.
The concept of starting from scratch with no specific requirements and just coming up with a
model that makes the most amount of money is something very rare. This is a business like most
others. In the auto industry, it wouldn’t make sense for everyone to attempt to make a faster car
than Bugatti. There is greater demand for Hyundai style of cars.

Either way, you need to start out with a plan, before you start thinking about trading rules or
data.
Rules and Variations
Generally speaking, you should aim for as few rules as possible and as few variations as
possible.
Once you have arrived at a model purpose, you need to figure out how to formulate this purpose
in terms of trading rules. These rules should be as simple and as few as you can muster. Robust
trading models, those that work over the long run, tend to be the ones that keep things simple.
Any complexity you add needs to pay off. You should see complexity as something inherently
bad, something which needs to justify its existence. Any complexity you want to add to your
model needs to have a clear and meaningful benefit.

Moreover, any complication or rule that you add needs to have a real life explanation. You can’t
just add a rule just because it seems to improve backtest performance. The rule needs to fit into
the logic of the model purpose and play a clear rule in achieving that purpose.
Once you have arrived at a set of rules for testing your market theory, you probably want to try
some variations. Note that there is a world apart between testing variations and optimization.
As an example, let’s assume that you want to test a mean reversion type of strategy. You believe
that when a stock has fallen four standard deviations below its 60 day linear regression line, it
tends to bounce two standard deviations up again.
Now you already have multiple parameters in play. Modeling and testing these rules is a fairly
simple task. You could try a few variations of this, perhaps to expect the bounce by three or five
standard deviations, using 30 or 90 day regression or a variation in the target bounce distance.
Making a few variations like this can be useful, both for testing parameter stability and to
actually trade some variations of the rules to mitigate over-fitting risks.

What you don’t want to do is to run an optimizer to figure out that the optimal entry is at 3.78
standard deviations, on a 73 day regression, using a target of 1.54 standard deviations. Such data
is absolute rubbish.
Optimizers will tell you what the perfect parameters was for the past. They will also con you into
a false sense of security, and make you believe that they have any sort of predictive value. Which
they don’t.
No, skip the optimization. But make a few variations of the rules, using reasonable, sensible
numbers.
Handling Data
The process for how to use data for developing trading strategies, testing strategies and
evaluating them is a controversial subject. It’s also a subject which deserves books all by itself,
and this book does not aim to go into any real depth on the subject.
A few things are important to understand in this context. Most important is to understand that the
more you test strategies on a set of time-series data, the more biased your test will be. Whether
conscious or not, you will be fitting your model to past data.
A simple example of this would be handling of 2008. If you are developing long equity models,
you will quickly realize that what seemed to work great up until 2007 will suddenly show a
massive drawdown in 2008. That was a pretty eventful year, and if there are readers here who are
too young to be aware of it, all I can say is lucky you.
So now you probably just slap a filter of some sort on there to avoid this horrible year. That filter
may have reduced profitability in earlier years, but in the long run it paid off.
This would be a great example of Brownian motion. No, not that sort. As in Doc Emmet Brown.
As in time travel. No, I’m not going to apologize for that gag, no matter how bad it may be.
Adding a specific rule to deal with 2008 makes your backtests look great, but it may constitute
over-fitting. The simulated ‘track record’, if you can call it that, will indicate that you would
have performed amazingly during this exceptionally difficult year. But would you really?
Had the model been developed before that year, you would likely not have accounted for the
possibility of a near implosion of the global financial system.
While there are various methods of alleviating risks of these sort of mistakes, the easiest is to use
part of the data series for fitting and part of it for testing. That is, you only use a part of your
time-series data for developing your rules, and when you are done you test it on the unused part.
This is a subject which I recommend that you dig into deeper, but also a subject which would
take up too much of this book if I go into too much details. Besides, Robert Carver (Carver,
Systematic Trading, 2015) has already written a great book which covers this subject better than
I could anyhow.
Asset Class
There are different perspectives you can take when classifying asset classes. It would be
perfectly valid for instance to say that the main asset classes are stocks, bonds, currencies and
commodities. For most market participants, that way of looking at asset classes makes the most
sense.
But for systematic, quantitative traders, another definition may be more practical. When looking
at the various markets we have available to us, we can group them in different ways. One way to
group asset classes would be to look at the type of instruments used to trade them. The type of
instrument is, for a systematic trader, often more important than the properties of the underlying
market.
This becomes particularly clear with futures, as we will soon see, where you can trade just about
anything in a uniform manner. Futures behave quite differently than stocks, from a mechanical
point of view, and that’s important when building trading models.
The currency space is an interesting demonstration of this concept. You can trade spot
currencies, or you can trade currency futures. It’s really the same underlying asset, but the
mechanics of the two types of instruments is very different and would need to be modeled in
different ways.
For that reason, asset classes are in the context of this book based on the mechanical properties
of the instruments.
We are mostly going to deal with equities and futures in this book. There are two reasons for
that, which happily coincide. First, the backtesting software which will be introduced in this
book supports only these two asset classes. Second, these happens to be the asset classes which I
personally prefer and have most experience with.
Investment Universe
The investment universe is the set of markets you plan to trade. It’s a very important factor to
consider for your trading strategy. The assumption through this book is that you aim to trade a
set of markets, and not just a single one. It’s usually a bad idea to trade a single market and most
professional grade strategies are designed as portfolio strategies.
If you would start off by picking a single market to trade, you have already made the most
important decision. When someone sets out to make a great model for capturing bull runs in the
Dow Jones Index, he has already limited himself. Perhaps the strategy he designed is just fine,
but this particular market may perform poorly for the next few years. No, diversification is the
way to go. Apply your trading strategy on multiple markets, and your probabilities of success are
much improved.
How you select your investment universe is of very high importance. What most people do,
conscious or not, is to select markets that did very well in the recent past.
Investment universe selection works differently for different asset classes. Every asset class has
unique issues and solutions, and we will look at specifics later on, in each asset class section of
this book. One thing to keep in mind though, is that the greatest potential for catastrophic error in
this regard lies in the equity sector.
Allocation and Risk Level
Allocation is about how much risk you want to allocate to something. To a position, to a trading
model, to a variation of a trading model, to a portfolio etc. It’s a much wider topic than simple
position sizing.
Ultimately, the question you want to answer is how much of an asset you should be holding. The
way you get to the answer can be quite complex, and there may be many moving parts in play.
When you consider what approach to allocation to take, you need to think if in terms of risk. By
risk, I mean the way the term is used in finance. This is a topic which is all too often
misunderstood by retail traders.

If you want to move from hobby trading to the world of professionals, the most important point
to understand is risk and how it relates to allocation.
The models in this book will aim for risk levels which are generally considered to be in the
acceptable range for institutional asset management. They will aim for attractive enough return
to be worth bothering with, while keeping the risk profile on a level which could be used in
professional setting.
If on the other hand, you are looking for something spicier, I would recommend that you take a
look at (Carver, Leveraged Trading, 2019). Yes, that’s the second recommendation for the same
author so either I really like his books, or I’m being coerced to writing this book while being
held in Rob’s basement for the past year and plugging his books is the only way out.
Entry and Exit Rules
This is the first thing that most people think of when designing a trading model. It’s the most
obvious part, but it’s not necessarily the most important part.
Naturally any trading model needs rules for when to initiate a position and when to close it. For
some types of strategies, the exact timing of these events can be of critical importance. But there
are also strategies, often of longer time horizon, where the exact entry and exit points are of
subordinate importance.
It wouldn’t be fair to say that entry and exit rules are not important. Just keep in mind that they
are not the only parts of a strategy that matters. Many portfolio based models rely more on what
mix of positions you have at any given time than exactly when you opened them.
Rebalancing
The rebalancing part is an often neglected part of trading models. While not necessary for many
shorter term trading models, it can have a significant impact on models with a longer holding
period.
Rebalancing is about maintaining a desired allocation. If you would get invited to look at the
trade blotter for a systematic trading shop, you will likely see that there are a lot more trades
done than you might expect. Even if the strategy is long term trend following, you may see that
the position sizes are adjusted often, perhaps even every day. Small changes, up and down, back
and forth, for no apparent reason.
You may see a long position opened in January one year and closed out in September. But in
between those points, there may be a large amount of smaller trades, changing the position size
up and down. You might wonder what caused the position to be increased or decreased. But
that’s not what happened.
These trades were rebalancing trades, aiming at maintaining the desired risk level. They were not
changing the position, merely maintaining it. Remember that most professional trading models
aim to hold a certain amount of portfolio risk on a position. The risk calculation involves things
like volatility of the instrument and the size of the portfolio. These things are not static.
As the volatility changes in a market, or your portfolio as a whole changes due to other positions,
your position risk would change, and you would need to make adjustments just to maintain the
same risk. That’s what rebalancing is about.
Not every model requires rebalancing, and even if you decide not to employ it, you should still
understand the concept and the implications of not rebalancing.
Chapter 12 Trading Psychology
The point of the book is to make you aware of everything that is involved, but we have to
remember that the mindset is going to be the thing that holds the key to our success. This isn’t
true just with stocks and options trading, but with life in general.
The Basics of Trading Psychology
Fear

Fear can be one of the most dangerous weapons that we use against ourselves. It holds us back
from things we want and makes us push away the things that we need. If you let fear control your
life, you’ll never really be in charge of any of your thoughts or emotions. Fear can make us
nervous, grumpy, and even sick. Almost as bad as this, it can make us lose a ton of money.
Those going into options trading need to make sure that they don’t allow fear to hold them back.
Though you have to be cautious, you should understand that you can’t be too afraid from making
a move you might actually trust. Know the difference between being smart and safe, and blinded
by worry.
Looking at the Analysis

It’s important to understand how to perform a proper technical analysis not just to determine the
value of a certain option, but also to make sure you don’t scare yourself away with any certain
number. You might see a dip in a chart, or a price projection lower than you hoped, immediately
becoming fearful and avoiding a certain option. Remember to not let yourself get too afraid of all
the things you might come across on any given trading chart. You might see scary projections
that show a particular stock crashing, or maybe you see that it’s projected to decrease by half.
Make sure before you trust a certain trading chart that you understand how it was developed.
Someone that wasn’t sure what they were doing might have created the display, or there’s a
chance that it was even dramatized as a method of convincing others not to invest. Always check
sources, and if something is particularly concerning or confusing, don’t be afraid to run your
own analysis as well.
Hearing Rumors

If you are someone that hangs around with other traders, maybe even going to the New York
Stock Exchange on a daily basis, there’s a good chance you are talking stocks with others. Make
sure that any “tips” or “predictions” you hear are all taken with a grain of salt. Tricking others
into believing a certain thing is true about different stocks and options can sometimes dapple into
an area of legal morality, but it’s important to still make sure you don’t get caught up with some
facts or rumors that have been twisted.
You should only base your purchases on solid facts, never just something you heard from your
friend’s boyfriend’s sister’s ex-broker. While they might have the legitimate inside scoop, they
could also be completely misunderstanding something that they heard. Before you go fearfully
selling all your investments from the whisper of a stranger, make sure you do your research and
make an educated guess.
Accepting Change

As animals, us humans are constantly looking for a constant. We appreciate the steadiness that
comes along with some aspects of life because it’s insurance that things will remain the same.
Sometimes, we might avoid doing something we know is right, just because we are too afraid to
get out of our comfort zone. Make sure that you never allow your own fear of change hold you
back.
Sometimes, you might just have to sell an old stock that has been gradually plummeting. Maybe
you have to accept that an option is no longer worth anything, even though it’s been your
constant for years. Ask yourself if you are actually afraid of losing the money, or just dealing
with the fear.
Greed

Greed can be one of the biggest issues that certain traders run into. The reason we’re doing this
in the first place is for money, and some people think that’s greedy enough. While we do need
money to feed our family, pay off debt, and just have some cash to live from day-to-day, there
are other sources of income than stocks. Still, you get the opportunity to make big money just
from money that you already have. If you are good enough at trading, you can even make it your
fulltime job.
To ensure that you are trading for the right reasons, always ask yourself questions. Why do you
need to take such a big risk? Is it worth sacrificing money that could go towards a vacation? Are
you making these decisions to feed your family, or are you doing it, so you can go on a self-
indulgent shopping spree?
It’s true that we deserve to have some “me time,” and we all should spoil ourselves every once in
a while, as we can’t depend on other people to always do that for us. However, greed can really
be a downfall if we’re not careful.
Know When to Stop

Knowing when to stop can be the most challenging part of life. It’s so hard to say no to another
episode when your streaming service starts playing the next one. How are we supposed to say no
to another chip when there are so many in the bag? Sometimes, if you see your price rising, you
might just want to stay in it as long as you can. In reality, you have to make sure that you know
when it’s time to just pull out and say no.
If you wait too long, you could end up losing twice as much money as you were expecting to
make. This is when the gambling part comes in and things can get really tricky. Make sure you
are well versed on your limits and that you are not putting yourself in a dangerous position if you
don’t trust your own self-control.
Accept Responsibility

Sometimes, we don’t want to have to admit that we’re wrong, so we’ll end up putting ourselves
in a bad position just to try to prove it to someone, even just ourselves, that we were right. For
example, maybe you told everyone about this great investment you were going to make, sharing
tips and secrets with other trader friends about a price you were expecting to rise.
Then, maybe that price never rises, and you are left with just the same amount that you originally
invested. You were wrong, but you are not ready to give up yet. Then, the price starts rapidly
dropping, but you are still not ready to admit you are wrong, so you don’t sell even though you
start losing money. You have to know when to just accept responsibility and admit that you
might have been wrong about a certain decision.
Pigs Get Slaughtered

This is a common saying in the stock market world. It means that pigs, anyone who becomes too
greedy, will get destroyed by the stock market because of their blind desire to make money.
Make sure that you are not a pig. In order to avoid always wanting more and having a mentality
that puts pressure on doubling profits, make sure you keep track of just how much you’ve been
making.
This might include just some notes in your journal about how much money you’ve made so far.
You’ll want to continually look at how much money you’ve made to make sure that you keep
perspective on how far you’ve come, rather than continually looking to the future and worrying
about how far you have to go. Remember that any sort of significant fortune takes time to build.
Though you might hear some stories about people that made thousands over night from a great
tip, remember that this isn’t common. You very well could be the next person to get a huge sum
of money from a small investment in a quick way, but you can’t allow yourself to bank on this.
Discipline

Having a good knowledge and understanding of different stocks and options is important, but
discipline might be the most crucial quality for a trader to have. Not only do you have to avoid
fear and greed, but you have to make sure to stay disciplined in every other area.
On one level, this means keeping up with stocks and staying organized. You don’t want to just
check things every few days. Even if you plan on implementing a longer strategy for your
returns, you should still keep up with what’s happening in the market daily to make sure that
nothing is overlooked.
On a different level, you have to stay disciplined with your strategy. Decide where personal rules
might bend and how willing you are to go outside your comfort zone. While you have to plan for
risk management, you should also plan that things might go well. If the price moves higher than
you expected, are you going to hold out, or are you going to stay strict with your strategy?
Stick to Your Plan

If you don’t stick to the right plan, you might end up derailing the entire thing. You can
remember this element in other areas of your life. You can be a little lose with the plan, but if
you go off track too much, what’s the point of having it in the first place? If you are too rigid,
you could potentially lose out on some great opportunities, but too lose can make everything fall
apart.
Prepare for Risk Management

Aside from just knowing when to pull out to avoid being greedy, you also need to make sure that
you are doing it, so you don’t end up losing money. Have plans in place for risk management and
make sure that you stick to these in order to ensure you won’t be losing money in the end.
Determine What Works Best

The most important aspect in a trading mindset is remembering that everyone is different. What
works best for you could be someone else’s downfall and vice versa. Practice different methods
and if something works for you, don’t be afraid to stick to that. Allow variety into your
strategies, but be knowledgeable and strict with what you cut out and what you let in. Identify
your strengths and weaknesses so that you can continually grow your strategies and always
determine how you can improve and how you can cut out unnecessary loss.
Things That Distinguish Winning and Losing Traders in Options
Trading
As an options trader, you need to know how to calculate and find the break-even point. In
options trading, there are basically 2 break-even points. With short term options, you need to
make use of the commission rates and bid spread to work out the break-even point. This is if you
intend to hold on to the options until their expiration date.
Now if you are seeking short term trade without holding on to the options, then find out the
difference between asking price and bid price. This difference is also known as the spread.
Embrace the underlying stock’s trend
As an investor and trader in options, you need to consider the trend of the underlying stock as
your friend. This means that you should not fight it. Basically, if the stock price is headed
upwards, you should find a strategy that is in tandem with this movement. If you oppose it, you
are unlikely to win.
Similarly, if the stock is on a downward trend, then do not oppose this movement but try and find
a strategy that will accommodate this trend. You need to understand however that this saying is
intended to guide you but is not necessarily a rule. This means you apply it even while you
consider all other factors. For instance, the major news may have an immediate effect on the
price trend of a stock or shares.
As a trader, you should learn to jump successfully on a trend and follow the crowds rather than
go to extremes and oppose it. Most amateurs who see an upward trend often think the stock is
about to level out. However, the reality is that the momentum is often considered a great thing by
seasoned traders. Therefore, do not try and oppose the trend because you will surely lose.
Instead, try and design a strategy that will accommodate the trend. In short, the trend is always
your friend, do not resist as momentum is great.
Watch out for earnings release dates
Call and put options are generally expensive with the price increases significantly if there is an
earnings release announcement looming. The reason is that the anticipation of very good or very
bad earnings report will likely affect the stock price. When this is an underlying stock in an
options trade, then you should adjust your trades appropriately.
Once an earnings release has been made, then options prices will fall significantly. You need to
also watch out very carefully for this. The prices will first go up just before the earnings are
released and then fall shortly thereafter. It is also possible for call options prices to dip despite
earnings announcements. This may happen if the earnings announced are not as impressive as
expected.
As an example, stocks such as Google may rise insanely during the earnings announcement week
only to dip significantly shortly thereafter. Consider Apple shares that were trading at $450 at the
markets. Call options with Apple as the underlying stock were trading at $460. However, the
market had targeted a price of $480 within 3 days, which did not happen. This costs investors’
money. Such underlying assets are considered volatile due to the high increase in price, rapid
drop shortly thereafter and a related risk of losing money.
Traps to Avoid On Expiration Day
The ease of the guidelines for participation and the aggressive marketing brings a lively interest
of people for the binary options trade. Some greedy brokers take advantage of this desire that
touches an audience of new private investors, mostly beginners. The most frequent abuses or
frauds found are:
• The impossibility of withdrawing your money: here the fraudulent binary options broker
prevents any withdrawal or does not accept withdrawals until a minimum level is reached in the
account.
• Fraud in the bank card: once the bank details are sent (by phone or after a first deposit)
withdrawals are made from the clients' account without their authorization.
• An offer of "bonus" is offered to the clients; the company commits to credit in the customer's
account the same amount as this deposit. The client then learns that the bonus is not granted until
"bet" at least x times its amount (20 to 30 times in the cases cited).
• Fraud in managed accounts: training offers are proposed, and a "coach" is assigned to the
client. Very often, the coach proposes to the debutants to be advised by telephone in their bets.
When the first losses occur, the coaches advise the client to place supplementary funds to "redo".
When losses accumulate, "the coach becomes unplayable or gives the only explanation that a bad
operation is the source of the losses."
• Conditions of trade impossible to achieve: the broker demands the investor to make positions
more than x days in the month. Maybe even more than the number of days worked in the
month.
• Withdrawal penalty: the broker applies significant "charges" from 10 to 50% to dissuade the
investor from recovering their money. Generally, the merchant has no knowledge of this
information until the day he tries to withdraw his funds and has a hard time finding this
information before.
On the other hand, if the most serious companies propose access to a market resulting from
supply and demand, the majority is happy proposing over the counter products (without going
through a stock market). The prices are then decided either by the company itself, which acts as a
counterpart for its own account and has an interest in the client losing, 5 either by an affiliated
company or friend.
Chapter 13 Why Is Leverage Riskier?
Another significant risk to be aware of is that of leverage. Because Options don’t cost much as
stock as they are simply a contract, this means that they experience disproportionately larger
percentage price gains in reaction to the far more expensive underlying stock’s very small price
movements. The huge benefit of this is that it results in large percentage gains when the
underlying stock moves in the anticipated direction by even a small amount. The downside
though is that it also results in a 100% wipe-out of the investment if the stock moves by even the
smallest amount in the wrong direction. This is not necessarily an issue with beginners or at least
it shouldn’t be as the risk manifests itself mainly through trading too large a position size.
However, you need to be aware that as beneficial as leverage clearly is, it can also be a double
edge sword, so be aware that leverage is a risk that needs to be addressed. One simple way to
nullify or minimize this level of risk is to keep your position size small.
Lastly, Options as we know possess a time value (extrinsic value) in addition to their inherent
intrinsic value (in the money value), which is also another double-edged sword. For option
buyers, time-decay acts as a headwind because it is continually decreasing the value of the
option. By doing so this increases the dependency on greater stock price movement to break even
on the trade. For option writers, it acts as a tailwind because it allows a profit to be generated
through steady premium incomes regardless of whether the stock moves or not.
The Advantages of Leverage in Options Trading
The options exchanges play a critical role in ensuring that there are enough securities to base
options contracts on. Following are some of the significant functions of an options exchange
(VAIDYA, 2017).
Liquidity
Perhaps the biggest function of options exchanges is to ensure ready markets for options
contracts. The markets ensure that holders of options can exercise their options and that there are
enough buyers to purchase the options. Traders are looking for avenues to increase their earning
potential, and liquidity helps them achieve that. Options contracts have a time limit unlike other
securities such as shares, which necessitates liquidity. The existence of market makers is
particularly responsible for liquidity.
Gauging a country’s economy
The state of an options market can reliably inform us what the country’s economic situation is
like. The most common underlying assets that traders base their options on our shares. The
prevailing economic conditions are always reflected in the share prices of various companies. If
the country is experiencing prosperity, the share prices will be up, and if the country is
experiencing market crashes, the share prices will go down. Thus, the options exchanges play a
critical role in ensuring that traders have a sense of how their country is performing economy-
wise. Stocks are the pulse of an economy, and they are accurate predictors of a country’s
economic state.
Securities pricing
Options traders have a wide pool to choose from when it comes to underlying assets. However,
the value of an underlying asset is determined by the options exchange according to the forces of
demand and supply. The financial securities of prosperous companies are worth more than the
securities of moderately successful companies. The valuation of securities is important not only
for traders but also for governments. Governments levy taxes on earnings drawn from options
trading, so they first have to get the value of the securities.
Safety of transactions
Traders want to be sure that they can trust all the parties that they are getting into business with.
Therefore, it is the work of an options exchange to ensure the players are trustworthy. For one,
most options contracts are based on financial securities of publicly listed companies, and these
companies must operate within stringent rules and regulations. Thus, the trader is assured of
security when dealing with other parties. The options markets should provide all relevant
information about options contracts and securities to discourage the trader from making a move
out of ignorance.
Providing speculation scope
Speculation of securities is critical in order to ensure a healthy balance of demand and supply of
securities. Many traders earn their profits from purely speculative risk. They have developed a
skill of determining the movement of prices. The options exchanges provide traders with the
resources and tools of speculating on the securities performance, thus allowing traders to earn
profits.
Promotes investment culture
Options exchanges are critical in promoting the culture of investing in valuable securities like
stock as opposed to unproductive assets such as precious metals. Traders have a wide selection
of underlying securities to base their options contracts on; thus, they are not limited in the range
of their strategies. A strong saving and investment culture is critical for the economic
advancement of a country.
Continuous market for securities
Options exchanges allow traders to base their options on a wide range of underlying securities,
and in case of any risks, traders are at liberty to switch from one security to the next. This is
different from purchasing stocks wherein you are stuck with the consequences of poor
decisions.
Capital formation
Options exchanges promote the pooling together and redistribution of resources. The exchanges
create a win-win situation for both sides. Companies raise capital when their stocks are publicly
listed, and their securities act as the underlying. On the other hand, traders stand to benefit from
the high earning potential and low-capital requirements for options contracts. So, options
exchanges play a critical role in ensuring that the parties are in a position to generate capital.
Control companies
The significance of transparency within the derivatives market cannot be overstated. If a trader
has the misfortune of working with shady companies, they could easily lose their earnings.
Options exchanges make it hard for shady companies to spoil the market. For instance, publicly
traded companies have to submit relevant documents and adhere to certain performance
standards as doing so will boost investor confidence. Companies that refuse to cooperate with
exchanges are blacklisted from the market.
Fiscal and monetary policies

The fiscal policy and the monetary policy of the government must not hurt the players in the
financial industry. Options exchanges facilitate the creation and execution of key policies that
will govern the financial markets.
Proper canalization of wealth

Options are a great way of putting capital into great use, as opposed to having the capital just
sitting around. Thus, the economy benefits from an injection of capital which would otherwise
have been inactive. The injection of capital into the economy promotes wealth distribution and
fights off economic disgraces like unemployment.

Education purposes

Options trading features complex processes. Even people who claim to understand options
trading might be low-key deluded. Thus, the importance of education cannot be overstated.
Many traders just get the hang of things and set about purchasing and selling options contracts,
forgetting that it is critical to first educate one’s self. Options exchanges provide a wealth of
resources and information that are meant to enlighten traders. Empowered traders improve
trading activity.
Disadvantages of Leverage in Options Trading
Again, I won’t bore you with elaborate explanations of the disadvantages of options trading.
Instead, here’s another helpful list that clearly outlines why traders might choose to shy away
from potential options trading opportunities:
• Options are time-sensitive investments. Yes, you can pick and choose options based on
expiration dates, but you’ll always be confined to a certain expiration date where you must
choose to act or choose to exit.
• Successful options trading requires your attention and time. Without it, you risk losing out on
potential profit generating opportunities that come from buying or selling your call or put option
at the right, most profitable time.
• Options are without a paper-trail. With stocks and bonds, for example, you’ll receive some sort
of paper certification regarding your investment. Options are “book-entry” investments, meaning
you receive no paper certification that shows your claim to an option or your ownership of an
option.
• You’re working in the stock market, a highly volatile place where changes occur suddenly and
dramatically. You’ll need to be on constant alert, or at least hire a broker who will.
• You’ll need to be in a somewhat stable financial situation before you can successfully trade.
Establishing and frequently adding to some sort of “trading fund” before you begin your options
trading endeavors will somewhat remedy an unstable financial situation, however.
How Much Leverage Do You Need in Options Trading
Two other option cost factors should be considered:

1. Costs associated with the trading process

2. Cost of exercising the stock
By understanding the basic cost structure for an option, you can see how options also add
through leverage an element of risk, despite the fact that options also provide leverage at a
reduced risk.
To complicate the matter a little is the fact that Option prices are partially based on probabilities.
For stock options, you want to consider the likelihood that a particular option will be in-the-
money before or at expiration given the type of price movements the underlying stock has
recently undergone. The way an Option is valued takes into consideration 6 factors; Stock price,
strike price, time to expiration, interest rates and dividends but there is a wildcard factor –
volatility.
How to Manage Risk in Options Trading
Some folks are terrified of ever getting in the derivatives trading market, lamenting whose is
often a very risky pursuit, but that's not necessarily true. Of course, you will find instances when
options can be risky, yet you can find also situations wherein options can assist you to minimize
risk. It all comes as a result of the method that you utilize them. Options take less financial
commitment than equities, and they're also resistant to the negative effects of gap openings.
A justified reason to go with buying options is always that you may be capable of limiting your
risk right down to just the quantity of greenbacks that you pay to the premium. With other
investment options, you may turn out losing a lot of cash, even money which you did not invest
to begin with, but it doesn't happen if you are working with options.
Let's state that you saw how the prices of cows were gonna rise. You could pay some cash up
front and get into a binding agreement with another person to trade your five cows for $2,000. At
this time, since you are utilizing an options contract, you did not find the cows upfront.
On the other hand, if you had risen towards the one else and purchased those cows straight up to
get a price of $10,000, you could wind up in trouble. For this example, the retail price from the
cows may end up falling by $500, instead of going up by $500, so you would wind up losing
$2,500 inside the process. Since you went to the options contract though, you'd probably stand to
lose a maximum of $250 if the prices were to fall afterward. You still are in a position to lose
some money; however, it can be a lot less than you could have lost otherwise.
How to Trade Smarter Using Leverage
While investing is a rapidly growing hobby for some traders, it’s a career for other traders.
Despite your personal trading situation, however, you’ll need to enter the options trading arena
with the understanding that you’ll be just one of thousands and thousands of traders seeking to
generate a substantial profit through options trading. But who are those thousands upon
thousands of individual or corporate traders that you’ll encounter and perhaps even battle over an
investment with? Well, simply put, those individuals and organizations are your competitors.
They are ambitious individuals just like you who wake up each and every morning with the
intent of generating meaningful profit, the expectation of making quick, educated decisions, and
the understanding that they need to take calculated risks.
It’s always an excellent idea to gather like-minded people in the trading arena, to discuss current
positions, and to bounce ideas around between each other. I’m completely for this, and you
should strongly consider doing so, too. But at the end of the day, your success depends upon
being able to make quicker, more educated decisions, and approach calculated risk-taking in a
safer, more knowledgeable way than other traders. When you do all of this better than other
traders, you discover greater financial opportunities, generate bigger profit, and achieve more
success.
I’m not saying, however, that you need to turn your back on everyone you meet, or that you
should view your time trading in the options arena as a one-man or one-woman mission.
Creating lasting connections and friendships with fellow traders is ideal, of course. But what I
am suggesting is that you keep in mind that, at the end of the day, your success rests upon your
shoulders, and your shoulders only.
Well, that’s not entirely accurate, either, because while you do have an overwhelming amount of
competition within the options trading arena, you certainly have a large band of supporters and
allies as well. But who are these allies exactly? Well, your primary trading allies are brokers. If
you’re not entirely familiar with what a broker is or does, a broker (or brokerage) is someone
who buys and/or sells an asset or assets for someone else (you, in this situation). They are an
individual or organization employed to arrange or negotiate financial matters for the employing
individual(s) or organization(s).
Chapter 14 Entries and Exits
There is an old expression, “it is very important for a plane to take off, but it is much more
important for it to land.” What does that mean? It is simple and easy. Putting on trades is the
easy part and the difficult part is deciding when to book profits, let a trade ride, add to a position,
or cut losses. This can be managed with a very easy and simple trading plan or maybe a journal.
When I was on the trading floor there was a firm that used to make all of their traders write down
every single trade that they executed that day, why they put it on, was it profitable, and why they
took it off. Trading is all about patterns and seeing if you can recognize patterns in yourself.
Some traders trade well in the morning, because they get exhausted by the afternoon, some
traders always have their initial entry as a long. So, understanding how you trade and which
stocks you trade well. It is so important if you truly want to become a professional trader
yourself. I know personally that I trade very well in the morning because that is when the most
action is and then it tapers down from there. I thrive in fast, volatile markets, when there are
huge intraday swings. I do not trade well in range bound markets and very slow bullish markets.
Another one of my friends used to tell me that in Texas hold ‘em, there is no such thing as a bad
hand, just a bad flop. That means that you could be holding a 2 and a 7 in your hand, the worse
hand in poker probability wise, but the flop could be 7, 7, 2. Wow, you just went from a very
bad hand to a full house. I always say that as long as a trader has an exit spot, there is no such
thing as a bad trade. I do think that probability and math will always triumph, but if a trader
buys a bear bar after the stock has sold off from open to close 12 straight days, there is a chance
that they could still make money on this trade. Let’s explore this a little more and help you
navigate through candlesticks and why they are so important when combined with the Ichimoku
cloud.
A candlestick shows us price action and price momentum. A simple candlestick shows us four
very important factors: the open, the high, the low, and the close. Candlesticks can be on any
time frame and it is important to line up the proper product with how fast the product moves. A
fast moving stock or commodity would be traded on a faster time frame and a stock or product
that moves much slower would have to be moved to a longer time frame. When using the
Ichimoku Cloud, these are the best settings for a trader to be trading on:
Forex: 4 hour bar
Futures: Day Trading, 12 minute bar, swing trading them: daily chart
Stocks: Daily bar unless day trading them then on a daily chart.
If a trader came up to me and said, “AK I want 95% of my trades to be winners.” I would say
that is easy, but that does not mean that the trading account would make money. I know I could
go out in the market and sell a $1.00 Call Spread for $.01 and that call spread would make
money 99% of the time, but the one time it lost would eat up all the profits. Making sure that we
have proper risk and reward set-ups is so important and when a trader is buying an option, time
is always against them.
On the trading floor there was an old guy in my trading pit and his name was Paul. A broker
would come into the trading pit and ask us for a market on an option. Let’s say that based on our
theoretical values we $5.00 bid at $5.20 100 up. This means that as a trader we would buy 100
at $5.00 and sell the same option at $5.20. This is how a market maker would make money in
their career by buying on the bid and selling on the offer. Being a market maker is much
different than trading as a retail trader because we are just trying to make money on the spread
between the bid and offer on the options and on implied volatility.
If we bought the option every single trader would then try to go sell stock against their long calls
as a “delta neutral” hedge against the position. If we got our hedge off, then we would not often
lose money on direction, but we could lose money if implied volatility dropped.
Then there was Paul. The minute he bought those calls, he would offer them for $5.10. So, in
theory if the stock moved higher Paul would lock in his $.10 profit. Most of the traders would be
fine, because if you remember we sold stock against those calls. Paul though in theory was
trying to make $1000 and willing to risk $50,000 (100 * 5.00 *100). This is obviously not a very
good risk vs. reward set-up and the reason that Paul was no longer trading in the trading pits after
a couple of months.
If anyone in the world told you that trading options is easy, they are wrong. There are so many
variables and factors that play in mind. Understanding risk is one of the most important things
when trading. Often times I compare myself to a hedge fund manager where I have to manage
my risk. Often times I will sell positions not due to the fact that I do not like that trade but do to
the fact that I like another position better.
When I am trading, I watch Unusual Options Activity and things that I look at is volume, open
interest, and the chart. I also look at the time that option has until expiration and understanding
that $500 in risk in the weekly options is much more risk than $500 of risk in option position that
is a year out.
I was recently in Nicaragua and I was told that it is a very dangerous country and they kidnap
people for no reason very easily. So, I took a cab from the airport to Puerto Cortes where my
hotel was. The whole cab ride I was thinking of an exit plan. If the cab driver all of the sudden
stopped on the side of the road, where would I run, do I have anything sharp in my pocket, what
would I do. In trading it should be the exit same thing. Every single trader should have an exit
plan of what to do in any trade. Is it a price of the option, price where the chart trade, time
period during the day or will I hold it for a swing trade? All of these are so important. We all
know that good traders think about how much money they can make but great traders know how
much money they can lose if they are wrong. Simple and easy: never ever buy call options for
$1.00 without an exit plan based on option price, stock price, or time period and that will greatly
help your trading.
Chapter 15 Managing Risk
Swing trader can have the best trading system for the forex market, but without a good risk
management plan, one could lose everything in a matter of hours. In the simplest term, risk
management involves putting together ideas that offer downside protection for traders. In the
foreign exchange market, a swing trader can opt for a number of strategies including selecting an
appropriate loss size, using stop-loss orders, diversifying the investment, and using analysis tools
to monitor the trades.
Risk management tips

Apart from stop-loss orders and diversification, there are a number of tips that one may follow to
reduce risk including:
Make the trend a companion

One may have decided to hold a position for an extended time. However, every trader should
recognize that no matter the position they take, there is no fighting against the market trends and
movements. Accommodate the changes and make sure that the trading strategies reflect the new
aspects; this will help one to reduce risk.
Keep learning

There is always new information coming up in the market every day. As the world changes, so
do the economy and the market. A trader should know how the market is function currently, how
it evolved and where it might be heading.
Use tools and software programs

Use of tools and programs can help one select a good choice and avoid risk. However, it is
important to note that these systems are man-made therefore aren’t entirely perfect. It is best to
use them as a tool of advice rather than a complete basis of trading decisions.
Use limited leverage

Leveraging is very attractive because it gives a trader the opportunity to make bigger profits.
However, leverage also increases the chances of losing capital; therefore, one should avoid
taking massive leverage. One wrong move with leverage and the entire account is wiped out.
Forex risk management involves a lot of aspects that are actually very easy to understand. Most
of them have been covered in this book. The hard part is to summon enough self-discipline to
follow the rules when the market is dictating otherwise. The bottom line is, when a trader limits
risk, he/she is able to stay in the game for longer and continue investing even under adverse
conditions.
Conclusion
As you can see, there is no set recipe for trading. And as scalpers, we just have to be flexible and
adapt our trading to the current market conditions. If the situation changes, don’t stay stubborn
with your current strategy as it may no longer be relevant to the new market situation. Instead
close your position, if your stop loss hasn’t been already executed, and move to the next strategy.
But whatever trading method you follow, you have to be rigorous in your trading and remember
that for each trade:
You need to have a trading plan with an entry price, exit target and stop loss;
You should always trade with a stop loss;
Never overtrade using too much leverage and therefore too much account margin.
Not respecting these rules may cause big losses to your account ruining your accumulated profits
and putting you in a difficult situation.
So, trade rigorously and you will be OK.
From my point of view, scalping is the best way to start trading with minimum risk taking given
the tight stop losses and closed positions before you finish your trading for the day. By working
again and again, accumulating small profits trade after trade, you can build your confidence and
enjoy trading as I do. I wish you success in this endeavor.