Alessio Aloisi

FOREX TRADING ONLINE

For Beginners

From Zero to trader

Copyright © 2019 Alessio Aloisi

www.alessioaloisi.com

All material is for educational purposes only. It should not be construed in any way as an operational
investment advice.

The studies presented do not constitute any guarantee concerning hypothetical future
performance.

The speculative activity in Forex involves economic liability, and whoever carries it out does so at
their own risk. Therefore, the authors does not assume any responsibility for any direct or indirect
investment decisions taken by the reader.

The reader, therefore, exonerates Alessio Aloisi and his collaborators, within the limits of the law,
from any responsibility in any way connected with or deriving from this material.
© Copyright - Alessio Aloisi - All rights reserved, including translation, rights.

It is forbidden to duplicate or adapt, even partially, the texts and images of this product.
Summary
Introduction
Chapter 1: What is Online Trading?
Discretionary Trader
Semi-discretionary Trader
Algorithmic Trader
Intraday and Multiday Operations
Chapter 2: What is the Forex?
What is the Forex
Major Pairs
Minor Pairs
History of the Forex
The Players in the Forex
Forex Brokers
Chapter 3: The Forex: Operational Terms
Long/Buy:
Short/Sell:
Ask:
Bid:
Spread:
Stop Loss:
Take Profit:
CFD:
Financial Leverage:
 Money Management:
Margins:
Margin Call:
Pip:
Time Frame:
Types of Orders
Indicators:
Correlations:
Gap:
Backtest:
Equity:
Drawdown:
HFT:
Macroeconomic News:
Chapter 4: Basics of Technical Analysis
Origins of Technical Analysis
Reversal Figures
Head and shoulder
Triple Maximum/Minimum
Double Top and Double Bottom
False Breakout
Continuation Figures
Triangles
Rectangle formation
Candlestick Charts
The Wave Theory of Elliot
Fibonacci
 Cyclical Analysis
Technical Indicators
Mobile Averages
Bollinger Bands
Relative Strength Index (RSI)
Chapter 5: Operational Strategies for the Forex
REVERSAL STRATEGY
Strategy Using Bollinger Bands
TREND FOLLOWING STRATEGY
Strategy Using Moving Averages
BREAKOUT STRATEGY
VOLATILITY BREAKOUT STRATEGY
BIAS-Based Strategy/Seasonality
Money Management
Chapter 6: Being a Trader
To Be or not To Be (a Trader): that is the Question
Conclusion
Introduction

Do you often hear about "trading", "automatic investments", "money",

"spreads", "Forex" and similar topics?
Are you new to the game and would like to pursue it following a
smoother and more linear path, with the right tools for this journey as
a trader and learning to manage your savings independently?
Then you're in the right place!

There is a plethora of information, mostly contradictory, in the

thousands of books, courses, and videos talking about trading.
Unfortunately, because the web gives “everyone” a voice, it also
allows the dissemination of invalid or misleading information, which
literally sends people off the beaten path, resulting in loss of time,
money and health.

" To me, an educated man is one who knows where to go looking for
information the one time in his life when he needs it."
-Umberto Eco-

Every day I hear from disappointed people, who have lost part, if not
all, of their savings following the advice of alleged trainers, blog
articles, and courses that promised monthly earnings, or of videos
describing "miraculous" strategies ...

With this book, I want to say AWAY with all this and make things
clear once and for all!
There is no need for words or arguments: what you will find here is a
practical book with fundamental notions. I will try to work with only
the best of the materials found in the trading universe. How am I
going to do this? I will be using the best traders in the world as
inspiration and I will provide the bit of experience I have accumulated
over the years as an algorithmic trader, spending days and nights
pouring over charts to predict the markets as they were happening,
and during ten-years of quantitative analysis.
I warn you that mine is a very "earthy" language: you won't find big
words, you won't find complicated concepts or university-level
language. I would like you to get useful information in the most direct
and straightforward way possible.

My goal is to provide you with information that can provide clarity

and start you on a successful path in the world of online trading,
mainly through the Forex market.

However, watch out: this is not a book to read at night, before you fall
asleep. It is a study manual made to be underlined, read and reread
until you have understood all the necessary information.

Potentially, trading is within reach of all those who want to improve

themselves and manage their finances better.

"There's no need to be a scientist. Trading is not a game where the

guy with an IQ of 160 beats the guy with an IQ of 130".

-Warren Buffet.

Are you ready? Let's get started!

Chapter 1: What is Online Trading?

It doesn't matter if the stock goes up or down; as long as it moves,

there is the possibility to trade.

-Gregory J. Millman-
Online trading, also known as TOL (Trading OnLine), is nothing more
than buying and selling financial instruments through the Internet.

This concept has revolutionized the world of investments, thanks to

its many advantages: above all the comfort of doing investments
directly from home and, consequently, incurring in lower commission
costs.

In this book, we will deal mainly with the Contract for Difference
(CFD): with CFDs you can invest in the Forex market even if you are
starting with a low capital, and this instrument not only enables
anyone to trade, but allows for greater diversification of investments.

Let's see who the leading players in the markets are.

A generic first distinction can be made between:

institutional entities, which usually have large amounts of capital not
owned by them (e.g., banks, investment funds, hedge funds, etc..).

Retail entities (like us), a category that includes private equity traders.

Retail traders can, in turn, be divided mainly into:

Discretionary Traders: traders who open and close trades manually

without using any automatic system. They have full decisional power
over each transaction (i.e. a transaction is defined as a trade).
Semi-discretionary (or semi-automatic) Traders: those traders who
combine a personal discretionary analysis with quantitative analysis.
To make a comparison, it is like when we have to make a choice and
listen to both the heart and the mind!

Algorithmic Traders (quantitative, systematic, or automatic):

those traders, like me, who use trading systems to study the market
and to analyze the best investment opportunities. Then, once they
have identified patterns, and conditions to be able to automate, they
insert them in software called the trading system, which opens and
closes operations independently, without having to stand above the
charts hour after hour to identify the best opportunities to open/close
the trades. All three types of traders (discretionary, semi-discretionary
and algorithmic) can be divided into three subcategories at a later
stage, mainly based on the duration of their trades.

All three types of traders (discretionary, semi-discretionary and

algorithmic) can be divided into three subcategories, mainly based on
the duration of their trades.

They are:

The Scalpers, which can be discretionary, semi-discretionary or

algorithmic traders whom, with their strategies, open and close many
operations in a few seconds (at most a few minutes).
To be a scalper, you have to be very prepared, because you risk
burning a lot of money in a few seconds if something accidentally
goes wrong.
Day Traders: I belong to this category. Day trader means that trades
are opened and closed within the day: for example, a Buy trade is
opened at 10:00 in the morning and settled at 20:00.

Multiday Traders: are those traders who open their trades on day X
and close them on day Y; however, the period is always longer than 24
hours from the opening of the transaction itself.

Position Traders: These are long-term traders. Some people keep an

operation open for at least 30 days; others keep it open for months or
even years. For example: you could buy Amazon shares, knowing that
this is a growing company, and keep the shares you purchased with an
eye to the long-term performance.

On what basis do traders open and close trades?

The three macro-categories of analysis that are always the subject of

much discussion are the following:

Fundamental Analyses are those analyses that are based on

macroeconomic news: for example, stock performance, an in-depth
study of a company, its profits, trends, and forecasts.

Technical Analyses which are performed using chart, price candles,

and various technological tools such as trendlines, market indicators,
patterns, etc...
Quantitative Analyses done mainly using software that analyses the
histories of a given market in the last 5, 10, or 20 years.
The good news is that no analysis excludes the others: these can then
be used in synergy, the way they are used by semi-discretionary
traders.

Therefore, what is the best kind of trader? What's the best timeframe
to operate in? And what are the best tests?

There is simply no best type of trader, no best timeframe, no best

analysis. These are purely subjective aspects! Some people prefer to
spend hours on charts and open operations manually, after conducting
a thorough technical analysis. At the same time, there are traders,
such as me who prefer to study valid upstream strategies using
quantitative analysis, to have a statistical advantage on the market and
then let the trading system work independently for 24h.

What do I say to those who think that discretionary trading is more

efficient than automatic trading? I say this is a vast generalization,
based on unrealistic data.

The person who inspired me the most in this world is undoubtedly

Andrea Unger, the only person to win the world trading championship
four times using his trading system with "terrific" performance and
beating discretionary traders around the world.
But I still know discretionary traders who are making dizzying
numbers, spending countless hours on charts, some having studied the
markets for more than 20 years.
"All traders have weaknesses and strengths. Some can win, some can
lose. As long as you stick to your style, you can benefit from both
good and evil.”
-Michael Marcus-

Let's go see, in more detail, the pros and cons of the types of traders
we talked about.

Discretionary Trader

Surely the discretionary trader knows the markets like his Ave Marias,
understands what the forces that move them are, has great discipline
and is able to manage his emotions.

Discretionary traders use technical analysis: they open charts, find

patterns in price candles, read the signals from various indicators, find
price levels that match their vision and use other specialized
analytical tools.

To experiment with the markets, brokers, or other financial

intermediaries, provide demo accounts, i.e., accounts with fake money
to allow customers to practice and try their hand at it.

This is undoubtedly positive but not very productive for discretionary

traders: because one thing is to start and close an operation when you
know you won’t be losing any money, since it is virtual money;
another thing is to look at the graph on the computer screen and
handle a loss of 100 € / 1,000 € / 10,000 €. You know what I mean.

Emotions, adrenaline, and anger come into play when you lose; greed
and all the other related emotions come into play when you win.

Those who engage in discretionary trading must have "balls": they

must know how to manage, first of all, themselves and be aware of
their capabilities; and they must also have a trading plan and risk
control strategies!

People become good traders after some years: years of study, years of
practice, and, in the worst cases, years of loss.

Another note, which may be subjectively positive or negative for the

discretionary trader is related to the lack of diversification. What do I
mean?

Discretionary traders manually analyse charts and always manually

manage trades until they close. This is possible to do when few assets
are involved: for successful discretionary trading, it is necessary,
therefore, to focus on few assets, and to carefully manage them,
always keeping a watchful eye on each trade. One must understand
that it is one thing to monitor 4 or 5 charts, another is monitoring 30
or 40 charts, as you can do with automatic trading.

In summary: being a discretionary trader involves monitoring charts

for several hours a day, except for discretionary traders who engage in
multiday and position trading who usually view their charts for only
several minutes a day.
Another factor that affects the discretionary trader may be the trading
time: discretionary traders can trade mainly during the daytime unless
they set an alarm clock for the middle of the night when there are
active markets that offer excellent trading opportunities.
Being a discretionary trader is not for me, but if you like to analyze
the charts for hours, every day, and are able to manage all the mix of
emotions involved, which are amplified by the stakes, you can follow
the best discretionary traders such as Marco Ciucci, Stefano Fanton
and many others!

Semi-discretionary Trader

The semi-discretionary trader, in my opinion, represents the right

compromise between heart and brain.

Semi-discretionary traders usually use quantitative analysis to find

statistical inefficiencies and seasonal recurrence in the market, such
as in commodity strategies. Once they have these data in hand, they
are ready to open live market operations, using input setups chosen
through a quick technical analysis.

They then go on to close the operation based on the quantitative study

or their chosen setup which they derived from the technical analysis.

Even if I don't use it, I recommend this kind of approach to people

who are a little more analytical but want to have 100% control of the
situation. The semi-discretionary trader is a link between "machine
and man."

Some data are analysed using quantitative tools, but the last word is
up to the trader after a discretionary technical analysis. Let's say,
therefore, that all emotions are always present, but in this case, they
are slightly softened thanks to the support of the previous quantitative
analyses that certainly give a sense of security.

As for the diversification and analysis of the various charts, semi-

discretionary traders usually have greater diversification because they
use custom software or technical indicators created by programmers.

These indicators or software send an alert (which can be an email,

phone notification or anything else) when certain conditions set by the
trader occur.

For example, if the trader wants to be notified when the current price
exceeds yesterday's maximum amount, he can set the indicator to
receive an alert whenever this occurs. It's all effortless.

Algorithmic Trader

The algorithmic trader, also called systematic trader, quantitative or

automatic trader, is my favorite. I am part of this sect.

It is usual to say that "automatic trading cancels emotions” precisely

because it uses automatic trading systems. That is not entirely true,
though.

Surely there is less emotional pressure because the systems work on

their own based on pre-set conditions: they know when to open, when
to close and how to manage the trades in progress. However, the
emotional component is not eliminated: there will always be
situations that give rise to different emotions, such as a significant
loss, a prolonged drawdown or, on the contrary, a great win that leads
to excitement and greed.
However, the algorithmic trader already knows how to manage the
situation with more control thanks to the analyses of the past ten-
years of available data.

The Backtest. The algorithmic traders know that individual systems

can reach an inevitable loss and then resume their course; they know
what the statistical maximum and average winnings can be; they know
how to adjust their aim with proper money management.

Emotions are not eliminated, but this is undoubtedly a much colder

approach, in which choices are made mainly a-priori, in the study and
analysis of historical data and the inclusion of the conditions for
opening, managing and closing the trade.
This means less emotion: it is, therefore, a less personal trading style,
and therefore more easily duplicable and scalable.

Another advantage of automatic trading is undoubtedly

diversification, i.e., the ability to use simultaneously 20, 30, or 50
automated systems on different assets that work 24 hours a day in
total and complete synergy.
To give you my example, I have, in my test account, about fifty
systems and dozens of other strategies to study.
The combinations of strategies are many, not to say almost endless:
consider that for the Forex, there are 15 good assets to study. If you
add a minimum of 3 possible strategies for each asset, we already
have 45 strategies that can work together. And with these examples, I
kept myself profile low, considering only the Forex, that is, the
currency market.

Usually, to be an algorithmic trader, you have to know how to

program, or you have to pay hundreds or even thousands of euros to
be able to have a trading system tailored to your needs.
Of course, being a programmer is a considerable advantage: this is
because, before deciding which strategy to code definitively, you can
do general tests to assess what may be the best strategy. Paying
programmers may result in strategies that only use a rough analysis of
the past year’s graphs, pen and paper, or an approach read in some
blog or seen on some video.

To solve this situation, I have created a training path in which you can
become an algorithmic trader even without being able to program.
This is because I make available a trading base system which is
already pre-set, where you can make hundreds of analyses and create
an automatic portfolio of investment. But I'll talk about that later!

"The secret to success in Forex Trading is to be hungry for

information and knowledge.”
-Paul Tudor Jones.
If you want to immerse yourself in the actual programming part, I
recommend you follow the programming courses of Sergey Magala,
which are specific to the Forex.
As for other financial instruments such as Futures, if you have
substantial capital above € 50,000, I would recommend Andrea Unger,
the number one in terms of systematic trading.
I strongly advise you to watch his free webinar 
http://bit.ly/2mR9HpR
Some of the people I mention are my mentors, most of them I don't
know personally, and I've never talked to them. Unlike others,
however, I have no problem praising the best professionals around: I
try to improve myself every day by following their advice, their texts,
their videos, and other training materials.

As I have no problem praising those who deserve it, I have no

problem saying that the rest of the trainers and sellers of false hopes
play on people's desires, promising mathematical gains, unlimited
money and wealth. All this is not my style, and the only sincere
advice I feel I can give is to stay away from it. In the following
chapters, we will also see how we can recognize people who are
prepared, and who offer value to their customers, and people who
only want to get rich.

I want to say this based on my experiences over the years: for me,
being able to show how to avoid losing money, time and health to my
readers would already be a great satisfaction. That's all I need, and I
need to know that I've been useful to someone and have sent them in
the right direction and avoided them unpleasant situations.
Intraday and Multiday Operations

As mentioned above, traders - whether discretionary or systematic -

can choose to trade with different time zones. We have seen before
that the principal trades are: scalper, day trading (or intraday),
multiday, and position.

We are mainly interested in intraday and multiday trading: this is

because, usually, we retailers do not have tools advanced enough that
we can operate in the scalping world with a certain speed of
execution, and we cannot open a trade and wait for months before
closing it. If you want to try these two transactions on your own, of
course, I have nothing to object to.

So, we're going to analyze the intraday and multiday trades. We

choose above all these two because, given my quantitative analyses,
there are a higher number of cases to be investigated and therefore
data closer to expectations.

Let's use an example: if I analyze the past ten years of the Euro Dollar
(EurUsd), studying an intraday strategy, I can have thousands of
executed trades to explain the trends; unlike a "position" strategy in
which there would be much fewer trades, consequently, this means
less statistical predictability.

Intraday
As we have said, intraday or day trading include all those transactions
that are opened, managed, and closed in a day.
This means that if I open a Long operation (i.e., assuming a rise in
prices) at 10:00 in the morning, then I will manage it and usually
close it within 24 hours.
My automatic systems are mainly intraday or at the closest after
24/48h: this is because I like seeing activities open, managed, and
closed within the day.
I prefer this type of operation also because I can use quantitative
analyses; there is a need to study past years’ strategies with a good
number of trades.
Let's take, for example, the time frame of the last ten years: in the
case of position strategies, we could hypothetically have 20 to 50
trades to analyze. How do I know, then, whether this is a real
statistical advantage or whether it is mere luck?
It is a different ballgame to have 1,000/2,000/3,000 trades to analyze:
with a larger pool of data you can better evaluate the strategy and type
of operation. You will never be sure that past studies will be reflected
identically in the future, but yes, you can rely on a more accurate
analysis.

But it is not enough to have a large number of trades to analyze: an ad

hoc procedure is also needed to avoid significant assessment errors.
All of which I will explain in more detail in the training courses I
have created and which I will tell you about later.

Another advantage of closing trades within the day is to avoid sudden

increases in spreads in the transition from the current stock exchange
day to the next day, when there is a transfer of liquidity that involves
an increase in ranges and that risks going to hit a Stop Loss set, thus
creating the potential of finding unpleasant losses on your account.
We will see in more detail what is meant by Stop Loss and Take
Profit.

A small disadvantage of the intraday operation is having daily "costs

of management." For daily costs, we mean the spread and the
commissions managed from the broker that we use: but we will see
this in detail in the next chapters.

In addition to this, it must be said that, obviously, in intraday

transactions, the gain is "limited." Limited in the sense that,
objectively, we cannot make significant gains from a single intraday
trade, as it could happen for a long-term trade kept open for months.
This is because price movements are usually never so large as to
allow for high pay-outs, except for the case of macroeconomic news
that have a significant impact on the market and make prices jump
enormously. But these events are now quite rare.

Multiday

Multiday trading is a fair trade-off between intraday and long-term

trading.
The main advantage of this operation is, above all, being able to ride
the trend for several days when we are in position, and the market is
giving us reason to: this, therefore, turns into a higher gain, a cold
pressing of the asset of reference.
All this with the help of techniques such as breakeven or trailing
profit (trade management tools in progress), which allow you to make
the operation safe by setting a minimum level of profit.
However, I would advise you to close your operations on Friday
evening, before the market closes. This is because on Monday, at the
reopening of the trading sessions, you can find yourself in front of
significant gaps in the market and very high spreads, which can also
result in premature closures of operations caused by the activation of
the stop loss. I mean, you could end up with unpleasant surprises.

At the end of this paragraph, dedicated to the various operations, I can

undoubtedly say that none excludes the other and that on an excellent
diversification, any type of trading can be used, except scalping.

With a long-term analysis, you can include position strategies in your

portfolio: for example, if you believe that Amazon will grow in the
next few years, devote a portion of your capital to this, wait for a
retracement of prices and purchases assuming a rise.

For intraday and multiday trading, you can use trading systems, both
for analysis and for live trading after adequate studies, and with the
right methodology and useful tools.

They told me to buy those shares for my old age. It worked beautifully.
Within a week, I got old.
-Gerald Cantor-
Summary of Chapter 1:

What is Online Trading?

Discretionary Traders
Semi-discretionary Traders
Algorithmic Traders
Scalpers
Day Trading
Multiday Trading
Position Trading
Fundamental Analysis
Technical Analysis
Quantitative Analysis
Notes:
Chapter 2: What is the Forex?

The secret to success in Forex Trading is to be hungry for information

and knowledge.

-Paul Tudor Jones-

What is the Forex

The Forex, which stands for Foreign Exchange Market, is also called
currency market or FX.
It is the largest financial market in the world: The Forex includes all
exchanges that take place between all leading players such as central
banks, large banking institutions, multinational companies, retail
speculators like us, various financial institutions and governments.

The Forex market does not have a physical location, unlike the stock
market, commodities, and futures, which instead have a specific
location within a particular stock exchange. This labels Forex as an
over-the-counter (OTC) market: this means that transactions take
place only electronically through authorized international
intermediaries.

The Forex is the most liquid of all the markets. Daily transactions are
in the order of $5 trillion.
The great advantage of this liquidity is that we can almost always
have a counterparty willing to buy/sell, with a speed of execution
without equal.
It is a global market open 24 hours a day, five days a week, thanks to
the various time zones that allow the world to have high volatility and
liquidity.

Is possible to trade in the currency market from 00:01 (GMT+2) on

Monday until 23:59 (GMT+2) on Friday: be careful, however, for a
multi-day operation, do not keep activities open between the closing
and opening of the market, i.e. from Friday until the following
Monday. This is because there are significant gaps, combined with an
increase in the spread (the difference between ask and bid) that could
lead to unpleasant and "painful" losses.

The most liquid and trading hours are those where two sessions
overlap: from 14:00 to 18:00 with the overlap of the London and New
York markets, and from 1:00 to 8:00 with the overlap of the Sydney
and Tokyo markets.
Most Traded Coins

Therefore, let's go and see the ranking (not of the A series of football,
but of the most exchanged coins).

We have, in first place, the Dollar, which represents about 86% of all
trades, in second place, the Euro, with an outstanding 37%, followed,
in third place, by the Japanese Yen with a timid 17%, then there is the
British Pound with a 15% followed by the Swiss Franc with about 7%.
Then there are all the other currencies with lower percentages, such as
the Australian dollar, Canadian dollar, Swedish krona, Hong Kong
dollar, Norwegian Krone, New Zealand dollar and to conclude, in
12th place, the Mexican peso.

Most Traded Coins

Rank Coin Symbol Daily share

1 United States dollar USD $ 86.3 %

2 Euro EUR € 37.0 %

3 Yen Japanese JPY ¥ 17.0 %

4 British Pound GBP £ 15.0 %

5 Swiss Franc CHF Fr 6.8 %

6 Australian dollar AUD $ 6.7 %

7 Canadian dollar CAD $ 4.2 %

8 Swedish korona SEK Kr 2.8 %

 9 Hong Kong dollar HKD $ 2.8 %

10 Norwegian krone NOK Kr 2.2 %

11 New Zealand dollar NZD $ 1.9 %

12 Mexican peso MXN $ 1.3 %

Currency Pairs

In the Forex, the value of one currency is only relevant when

compared to another, which is why we talk about currency pairs.
A currency pair is the quotation of the relative value of one currency
against another in the Forex market.
The currency that is used as the reference is called the base currency;
the money that is quoted, concerning the base currency, is instead
called "quoted" or "secondary."
In the case of the Euro/Dollar pair, written Eur/Usd, the currency on
the left is the Base currency, so in this case, the Euro, and the quoted
currency is on the right, in this example the Dollar.
Therefore, the price of the Eur/Usd quotation tells us how many units
of the quoted currency are needed to buy one unit of the base
currency.

Let's see a quick example:

very simply, if the current price of Eur/Usd is 1.10897, it means that
1€ corresponds to 1.10897$.
The term Long or Buy indicates the purchase of a pair of currencies
in which we assume a rise in prices, thus focusing on the increase in
the value of the base currency and therefore on a weakening of the
currency quoted.
With the term Short or Sell, we mean instead the sale of a currency
pair, in which we assume a fall in prices, so we expect a decline from
the base currency.

Let us take a case where the Euro/Dollar pair’s current quotation price
is 1.10. This means that 1€ equals 1.10$.

If at this point we open a Buy operation, and the price subsequently

rises from 1.10 to 1.20, it means that at this point 1€ is equivalent to
1.20$, so the value of the Euro against the dollar has increased: you
need more dollars to have 1€ and, consequently, we are in profit
because we have opened a bullish operation, called Buy or Long.

On the contrary, always assuming the quotation 1.10 as the current

starting price, we decide to open a transaction Sell: then, betting on a
fall in prices, i.e. a devaluation of the base currency, we will gain if
the price goes down from 1.10.
If then the price goes down to 1.05, we will be in profit. Conversely,
if the price should rise above the threshold of 1.10 (for example to
1.15), we would better be selling or we will be losing money.
Further, we will see how profit is calculated based on price
movements.

In the meantime, I hope we have understood that the relationship

between two currencies is called currency pair. These pairs can be
divided into three macro-categories:
 Major Pairs.
Minor Pairs (or Cross).
Exotic Pairs.

Major Pairs

Major or significant pairs are all major currency pairs that contain the
US dollar, either as a base currency or as a quoted currency.
These pairs generate the most trading activity on the currency market.
The main features of these significant pairs are higher liquidity and
lower spreads.
The most frequent pair traded in absolute is the Euro/Dollar with 28%
of total transactions, followed immediately by the pair Dollar/Yen
with 14% of the transactions.
There are seven major pairs:

EUR/USD → euro/dollar
USD/JPY → dollar/yen
GBP/USD → pound/dollar
USD/CAD → dollar/Canadian dollar
USD/CHF → Dollar/Swiss franc
AUD/USD → Australian dollar/dollar
NZD/USD → New Zealand dollar/dollar
Minor Pairs

Minor pairs, also called cross currency pairs, are all those currency
pairs that do not contain the U.S. dollar.

Below is a list of the main minor pairs:

EUR/GBP → (euro/ pound)
EUR/CAD → (euro/ Canadian dollar)
EUR/JPY → (euro/yen)
EUR/AUD → (euro/ Australian dollar)
EUR/CHF → (euro/swiss franc)
GBP/CHF → (pound /swiss franc)
GBP/JPY → (pound /yen)
NZD/JPY → (New Zealand dollar/yen)
AUD/JPY → (Australian dollar /yen)
CAD/JPY → (Canadian dollar /yen)
AUD/CAD → (Australian dollar/Canadian dollar)

Exotic Pairs

Exotic currency pairs are all those in which there is the dollar
combined with other international currencies that are not among the
top 7. These pairs are much less traded: they have low liquidity and
therefore involve a high spread.

USD/HKD → (dollar/Hong Kong dollar)

USD/SGD → (dollar/Singapore dollar)
USD/THB → (dollar/Thai bath dollar).
USD/MXN → (dollar/Mexican peso).
USD/ZAR → (dollar/south African rand).
USD/DKK → (dollar/Danish krone).
USD/NOK → (dollar/Norwegian krone)
USD/SEK → (dollar/Swedish krona)
History of the Forex

If we studied history, we would know that, in ancient times, the

economy was governed by barter: an operation of exchange of a good
or service in exchange for something else.
For several centuries, this form of commercial exchange was the only
one available. This, however, made savings very difficult, since there
were only direct exchanges of goods or services.
That's when the coin came in.

The first form of coin was forged by early Mesopotamian kings, who
had to place their seal on metal bars to ensure weight and quality.
The coin, as we consider it today, can instead be dated around the
seventh century BC.
To mint these coins, precious metals were used, often mixed with
other inferior metals.
International trade was conducted based on the type of currency, i.e.,
the quantity of gold present and its weight.

Turning to ancient Rome, the coins used were sestertius and solidus.
In the Middle Ages that what we now call the Forex began to take
shape: at that time, in fact, currencies began to be traded via
international banks. This system helped European powers spread their
currency trade in the Middle East and throughout the old continent.

It is, however in 1875 that the most significant event in the history of
currency trading happened: in fact, the monetary system called audio
system was born. Before then, countries used gold and silver as a
means of exchange for international payments.

The gold system, on the other hand, represented a monetary system in

which each government of each country allowed its currency to be
freely converted into a certain quantity of gold and vice versa. This
system was used until about 1915.
In 1944, with the Bretton Woods agreements, the world's significant
currencies agreed to create a stable monetary system based on the
dollar. This system foresaw that the dollar would be the main currency
for world financial exchanges, while the other currencies would have
the possibility to fluctuate in a controlled way around the value of the
dollar.
In this way, trade was rather guaranteed against exchange rate risk,
even though currency market investors had little chance of making a
profit, as exchange rates could fluctuate very little around the initially
set value.

Subsequently, however, the situation worsened when the United States

began to print dollars in large quantities to finance the Vietnam War.

The Forex we know today can be dated to 1971 when the Bretton
Woods agreement collapsed, and floating exchange rates began to
appear.

From 1973, the currencies of the more industrialized nations became

more freely floating, being driven mainly by the forces of supply and
demand.
Prices were made up of increasing volumes, speed, and volatility
during the 1970s. This led to the emergence of new financial
instruments, market deregulation, and free trade. It also led to an
increase in the power of speculators.

In the 1980s, the advent of computers accelerated the international

movement of capital, and the market became more continuous, with
exchanges taking place between the Asian continent, Europe and
America. The large banking institutions created operating rooms
where hundreds of millions of dollars, pounds, and yen were
exchanged in a matter of minutes. Today's brokers operate daily in the
Forex using electronic means: in London, individual trades for tens of
millions of dollars are currently concluded in a few seconds. The
market has changed significantly today, as most financial transactions
are aimed not at the purchase or sale of goods but at market
speculation.

London has established itself as the leading global financial centre:

this is not only because of its positioning, which allows it to operate
during the opening of the Asian and American markets, but also
because of the creation of the Eurodollar market.

The Eurodollar market was created during the 1950s, when the
proceeds of the USSR from the sale of oil, all in dollars, were
deposited outside the U.S. for fear that the U.S. authorities might
block them. This practice resulted in a large amount of US dollars
being outside the control of the United States. These vast cash
reserves were beautiful to investors around the world, as they were
subject to much less regulation and offered higher returns.

Nowadays, the London trade market continues to grow: the volumes

traded on these markets are enormous and smaller banks, commercial
hedgers, and small investors rarely have direct access to this liquidity
and competitive market. Both because they do not meet the necessary
credit requirements and because the size of their transactions is too
small. However, in today's market, makers can break down their large
inter-bank units and offer small traders the opportunity to buy and sell
any number of such smaller units, i.e., lots, which we will discuss
later.

The Players in the Forex

The leading players in the currency market and those who affect its
performance are mainly large investment banks, central banks,
investment funds, large multinationals, hedge funds, and private retail
traders.

Investment Banks: they are connected through telematic services and

buy mainly for hedging needs and actual speculation. These banks
account for more than 50% of the volume of all world’s trade and
operate with very advantageous spreads. It is estimated that about
70% of their total trading profits come from the Forex.
Central Banks: they intervene in the foreign exchange market mainly
for monetary policy reasons.

Investment Funds: They trade on the Forex to diversify their

investments or hedge against their own foreign exchange risk.

Large Multinationals: those that are operating outside their own

country and buy products in one currency for resale in another. They
invest in the Forex market to limit or cancel the exchange risk.
Hedge Funds: they operate in this market for purely speculative
reasons, carrying out very short-term operations with enormous
capital and exploiting high financial levers.

Private Traders: Us, we are about 10% of the market, we are the retail
traders who operate for purely speculative purposes, obviously with
"disadvantageous" treatments in terms of spreads and commissions,
compared to all other institutional players.

Forex Brokers

Now let's see what it takes for us simple retail traders to operate in
this vast market.

First, we need a Broker.

What is a Broker?
A broker is nothing more than an intermediary that allows us to access
the financial markets. It is a link between us private traders and the
large real currency market.
The task of the broker is, in general, to allow us to execute orders at
high speed and with minimal capital, thanks to the leverage that we
will see later.
There are mainly two types of brokers:
Dealing Desk Forex Brokers, like Market Maker (MM)
Brokers.
Non-Dealing Desk Forex, such as STP and ECN.
Market Maker Brokers

Market Maker Brokers generally offer slightly higher spreads but

lower commissions. They are always a direct counterpart for traders,
who do not deal directly with liquidity providers: let's say that they
allow you to trade in a submarket that follows the trend of the real
market.

Market Makers earn from the spread on each transaction and a lot
from our losses: obviously, there is a conflict of interest, even if in
percentage there are more people who win a than people who lose.

STP or ECN Brokers

They are non-dealing desk brokers and their main feature is that they
do not act as the direct counterpart of the trader as in the case of
market makers but allow access to the global interbank market by
simply forwarding our orders. They maintain anonymity for our
transactions, and as they allow access to the interbank market, they
have lower spreads. The broker, however, takes a commission for each
sale.
There is no definitive answer as to which the best type of broker is:
the important thing is that you choose a serious and reliable broker,
who offers the best possible trading conditions.
Therefore, let's see how to recognize a good broker while we take the
first steps in the world of the Forex trading.

First of all, when we look for a broker, we avoid those that came to
the market recently and those who operate under the regulations of
remote islands that we do not even know the location of.

For this reason, and to be able to understand which regulations they

operate under, I would suggest you opt for those brokers regulated by
at least one of these central bodies: Consob, ASIC, or FCA.

Regulatory bodies are investor protection bodies with powers to

regulate, monitor , supervise, and sanction. I mean, they're on our
side.

There are several valid ones, but to speed up the search, I am

recommending a broker to which you can subscribe by accessing this
link →
https:/www.icmarkets.com/?%20camp=19600
You can also sign up for markets: this is a historic Australian broker,
regulated by the ASIC, which provides very advantageous trading
conditions.

It's effortless to sign up and access a demo test account: I recommend

a "standard" account.
Summary of Chapter 2:

What is the Forex?

Most Traded Coins
Currency Pairs
History of the Forex
The Players in the Forex
The Forex Brokers
Notes:
Chapter 3: The Forex: Operational Terms

If your self-esteem goes up or down depending on the trading results,

you and your trading are both in trouble.

-Ruth Barrons Roosevelt-

Important Terms
Before going into the practical part of the book, let's go and see those
basic and indispensable terminologies: I have already mentioned some
of them before, now I will explain them in detail.

Long/Buy:
It means buying: we open a Buy transaction when we expect the price
to go up.

Short/Sell:
It means we're going to run a sales operation. We open a trade sell
when we expect the price to fall.
Ask:
This refers to the price at which you can buy: when we open a Long
trade, we open it at the available Ask price.

Bid:
It's the opposite of Ask. Refers to the price at which you can sell:
when we open a short trade, we do it at the available price Bid.

Let's see an example. If the current price of an asset is 1.10, the

broker makes the asset available for those who want to buy it at the
asking price, hypothetically equal to 1.11, while for those who want to
sell, he makes it available at the bid price of 1.09.
This difference between Ask and Bid is the Spread: in this case, the
spread is 0.02, because of 1.11-1.09=0.02.
Note: the bars that we see in the graphs are usually the result of the
Bid price.

Spread:
As already shown in the example, the spread or range is the difference
between Ask and Bid. It is vital to know the Spread because it can
make the difference between a successful and a losing trade.

Stop Loss:
It's the maximum price level at which we decide to close an operation.
When we open a market order, we can enter the Stop Loss at a
specific price, so that if the price touches that price level, the trade
will close immediately.
The Stop Loss is modifiable: we can move the operation in progress
as many times as we want.
This is mainly to give a limit to the loss for each transaction, but also
to safeguard profits in case the price is going in the expected
direction.
Stop Loss can, therefore, safeguard losses and limit profits. It can
close both negative and positive operations.

Example: Transaction closed on Stop Loss

Take Profit:
It is a maximum price level at which we decide to close a trade if it is
successful. Unlike Stop Loss, Take Profit closes only profitable
trades: it is a sort of maximum pay-out.
The Take Profit can be modified: we can move it as many times as we
want while the operation is in progress.
The Take Profit, therefore, closes the current transaction once it
reaches a pre-established price level.
In the case of a Buy transaction, the Take Profit must always be
higher than the current price; in the case of a Sell transaction, the
Take Profit must always be lower than the current price.
Example: Sell operation closed on Take Profit

CFD:
Acronym for Contract for Difference.
They are a financial instrument that allows you to trade indices,
currencies, and commodities without actually owning the asset itself.
In summary, your win or your loss is determined by the difference
between the opening price and the closing price of the trade.
We will use this tool because it is practical and accessible to
everyone.

Futures:
This is a tool that we will not use. To explain briefly, they are
standardized contracts that can easily be traded on a stock exchange
and stipulate a commitment to a deferred purchase at a fixed price.

Financial Leverage:
With the CFD contracts, you can use leverage, which is a double-
edged sword.
Leverage, in a few simple words, allows you to literally "leverage"
your capital and move more volume than the necessary amount that
you can use.
To better understand this step, we need to go into more detail on how
to measure transactions.

The market uses the concept of Lots, i.e., the minimum negotiable
size of the financial markets. A Lot refers to a class of assets or
financial instruments, but its specific uses vary from market to
market. In our case, for the Forex, we have three main types of Lots:
Standard Lots
Mini-Lots
Micro-Lots

Micro Lot:
The nominal value of 1 micro-lot (0.01) is $1,000, which means that
without any leverage, we can only open a trade if we have $1,000 in
our account.

Mini Lot:
The nominal value of 1 mini lot (0.10) is $10,000, which means that
without leverage, we can only open a trade if we have $10,000
available.
Standard Lot:
The nominal value of 1 lot (1.0) is $100,000: this means that, without
any leverage, we can only open a trade if we have $100,000 available
in our account, in the case of 2 lots we must have $200,000, and so
on.
This is where leverage comes in: there are different types of
leverages, which can vary depending on the broker. Usually, however,
you switch from advantage 1:10, 1:25, 1:50, 1:100, 1:500.
The leverage allows you to increase the volume of a potential
exchange.

Let's see an example: if you had $500 and a leverage of 1:50, you
could move a volume of $500 (capital) x 50 (leverage) = $25,000. In
this case, you could open a maximum trade of 0.25 lots or 2.5 mini
lots.

Let's see another example: with $1,000 cash and 1:30 leverage, you
could move a maximum of $30,000 and be able to open up to a
maximum of 0.3 lots, that is 3 mini lots.
So why is leverage a double-edged sword? Because if it is true that it
allows you to move more money, but it does so both in the case of a
positive outcome and in the case of a negative one: therefore, you
need iron clad money management.

Those operating in Europe are currently subject to the MIFID: it is a

European financial services directive in which binary options have
been banned and in which leverage has been restricted concerning
CFDs. And this is because of all the misleading advertising and the
many people who have invested losing their savings.

Therefore, it is important to maintain good risk management controls.

The allowed leverage is currently this:

The Forex: Leverage <= 30:1
Commodities and Indices: Leverage <= 20:1
Stocks: Leverage <= 5:1
Cryptocurrency: Leverage <= 2:1

Money Management:
In essence this amounts to risk management; how we decide to invest
and safeguard our capital.
We will discuss this better later because it is a vital subject.

Margins:
A margin is a kind of guaranteed deposit to the broker, which is the
amount of money needed to continue trading.
Margin Call:
Avoids unpleasant surprises in the event of extraordinary events or
risk overexposure.
It involves the automatic closing of one or more transactions on the
account to prevent our balance from being below zero.

Pip:
This is the minimum price variation in the Forex market.
We find this number in 4th decimal place for currency pairs, except
for the pairs that include the yen where it is found in 2nd decimal
place.
For example, when you say that "the Eurodollar, has risen by 20 pips
from 1.1020 ", it means that it has reached 1.1040.
The Pip is used to calculate the profits and losses of transactions, of
course, also based on your open lots.
It does not have an absolute value, but it varies according to the
currency pairs of reference and the lottery that we are going to use.
The Pip can, therefore, be calculated with this formula.
Pip = Decimal value (0.0001 for currency pairs, 0.01 for pairs with
the Yen) multiplied by the nominal value of the lots used, all divided
by the current price.
Let's see an example for our beloved Eurodollar.
The current price is 1,19924 and we want to open one lot. How much
is one pip worth at this point?
0.0001 x 100.000$ (nominal value of the lot)
1 Pip = ___________________________ 8.33$
1.19924
In this example, if we opened a Buy trade and the price went up by 20
pips from 1,9924 to 1,9944, our profit would be 20 pips x $8.33
(value of the pips) = 166.6$ profit.

To simplify, we can then say that:

- When opening one lot (1.00) transaction the value of 1 pip is
approximately 10$.

- If you open one mini lot (0.10) transaction, the value of 1 pip is
approximately 1$.

- If you open one micro lot (0.01) transaction, the value of 1 pip is
about 0.10$.

Metatrader:
The MetaTrader is the free platform that we download from the
broker, and that allows us to trade, analyze charts, perform backtests
and open and close trades.
Currently, we use MetaTrader 4 (MT4).
On Ic Markets and with other brokers, you can usually download it in
the "download" section.

Time Frame:
The Time Frame is the time setting that we choose to display for a
particular graph.
The time frames available in MT4 are 1 min, 5 min, 15 min, 30 min, 1
hour, 4 hours, one day (D1), one week (W1), one month (MN).
There are different types of charts that can be used to analyze the
markets, but the most used are the “candlestick charts”, where each
bar is called a “candlestick”). Candlestick charts are divided
according to the selected time frame: for example, by choosing the
time frame 15m, a new chart is generated every 15 minutes;
otherwise, if we accept a time frame 4h, a new chart is generated
every 4 hours.

Each bar in the candlestick chart represents the critical pieces of

information needed by the trader: the opening price, the closing price,
the highest price for that trading session and the lowest.
Example of a candlestick chart for a 15-minute Timeframe.

Candlestick charts are proportionally scalable for all time frames. To

interpret the chart:
Opening price: top of bottom line of the bar (we will see what this
means in the next page)
Closing price: top of bottom line of the bar (we will see what this
means in the next page)
If the chart represents 15m increments, it means that the closing price
will be shown on the 14th minute and 59th second.
Maximum price: represented by the vertical line on top of the bar (the
wick of the candlestick). The maximum price level reached in the 15
minutes.
Minimum price: represented by the vertical line on the bottom of the
bar. The minimum price level reached within 15 minutes.
Example of candlestick bars:

If the closing price is above the opening price of the candle, we will
usually see a green candle: a bullish candle.
Conversely, if the closing price of the candle is below the opening
price, we will usually see a red candle: a bearish candle.
Swap/Rollover:
Rollover is the interest to be paid or collected for the maintenance of
overnight operations during a multiday service.

If the interest rate of the currency you buy is higher than the interest
rate of the money you sell, then you will have a credit (positive roll),
while if the interest rate of the currency you buy is lower than the
interest rate of the money you sell, then you will have a debit
(negative roll).

Types of Orders :
To open market operations, we can use mainly two types of orders.

Market orders: are those orders that are instantaneously executed at

the current available price. The Ask price for Buy and the Bid price
for Sell.

Pending orders: these are pre-set orders, which are activated only if
certain conditions, set by the trader, are met. Pending orders can be
divided into Limit and Stop Orders.
Limit Orders: You can opt for a pending Limit order if you assume a
price reversal. For example: if the current price is 1.10 and rising, you
can set a pending order at the level 1.20 and "tell" the broker to open
a Sell trade when and if the price touches that level. Conversely, if
the current price is 1.10 and is falling, you can set a pending order at
a level of 1.05 and "tell" the broker to open a Buy trade when and if
the price touches that level.
You can set Sell Limit or Buy Limit orders: Sell Limit orders are
always placed above the current price level, while Buy Limit orders
are always set below the current price level.

Stop Orders: You can opt for a pending Stop order if you assume that
the price will continue to move in that direction. For example: if the
current price is 1.10 and rising, you can set a pending order at a level
of 1.20 and "tell" the broker to open a Buy trade when and if the price
touches that level. Conversely, if the current price is 1.10 and is
falling, you can set a pending order at a level of 1.05 and "tell" the
broker to open a Sell trade when and if the price touches that level.

You can set Sell Stop or Buy Stop orders: Sell Stop orders are always
placed below the current price level, while Buy Stop orders are
always set above the current price level.
Technical Terms
Now let's see in detail some more technical terms used to
study/analyze charts and operational strategies.

Indicators:
Technical indicators are statistical tools that are used for analysis to
interpret market movements more easily. These tools, the result of
mathematical calculations, are plotted on graphs to have a much more
unobstructed view of what is happening in the market. They can be
indicators that overlap prices, or they can have a separate window:
there are thousands of them, and traders can also commission
programmers to create custom indicators.
The indicators can be divided into general macro-categories. These
are the main ones:
Trends Indicator:
All those instruments that facilitate the identification of the general
trend of the market. If we are in a lateral direction, bullish or bearish,
the simplest and most used indicator is the Moving Average, which
performs a simple average of the closing prices of the last X
candlestick bars and draws above the graph a line that helps to
visually identify what stage we are at.

Example of a moving average calculated over 30 periods (candlestick

bars):
Oscillators:
Oscillators are widely used primarily to try to anticipate market
reversals.
A very used oscillator is the RSI (Relative Strength Index), an
indicator of relative strength: the task of this indicator is to represent
the strength or the weakness of an asset.
The line of this indicator is the result of a calculation based on X
candlestick bars, which can be set at will.
Oscillator because it "oscillates" within a range from 0 to 100. When
the indicator is closer to 100 it is said that it is in a hyper bought
zone: it means that there has been a steady upward progressive trend;
conversely, if it is closer to 0, it means that it is in a hyper sold zone:
it means that there has been a steady downward progressive trend.
Volume indicators:
Attention! We simple retail traders are not able to know the real
volumes of the Forex!
The instruments that are often passed off as "volume indicators" are
nothing more than "tick" counters for each candlestick, which is of no
interest to us. Therefore, don't listen to those who talk about Forex
volumes for CFD. There's a lot of them talking without even knowing
what they're saying!

Volatility indicators:
When we talk about volatility, we mean the rapid movement of the
price in any direction, both upwards and downwards: and in a short
period. Conversely, price moves slowly in a limited range of space.

For example, we can find high volatility corresponding to important

macroeconomic news. Conversely, low volatility can be, at times,
found when there are few trades.

A typical indicator to track volatility is the ATR (Average True

Range): an increase in the ATR means an increase in volatility, while
a decrease in the ATR implies a reduction in volatility.
Price level:
As we mentioned before, in a candlestick bar, we can detect
maximum, minimum, opening and closing price levels. When we
speak of maximums and minimums, we can also refer to a set of
candlestick bars or time range. Therefore, it is always good to specify
which maximum and minimum we are talking about.
For example: if we want to know the maximum level of the last 20
candlestick bars, we open the chart, visually look for the highest
ceiling and, with the cursor, we can pinpoint what price it indicates.
The same can be said about the minimum of X candlesticks, which
can be 10, 20, 50 or 100.

These relative maximum and minimum levels are particularly useful

for those who use technical analysis, with supports, resistances,
bullish, and bearish trendlines.

Supports: A support is nothing more than a straight horizontal line

drawn on the chart that combines several relative price minima.

Resistances: A resistance is a straight horizontal line drawn on the

graph that combines several relative price maxima.
Supports and resistances together form a sort of horizontal channel
that contains prices. They are useful for technical analysis and to have
an overview of the range in which the price moved in the last X
candlesticks. They are mainly used to evaluate lateral trends in the
market.

Bullish Trendline: Again, we speak of a straight line, which goes to

join the relative price lows. Usually, this is used when there is an
upward trend; in this case, therefore, it will not be horizontal but have
an upward incline.
Bearish Trendline: It is also a straight line, which joins the relative
price highs. It is usually used when there is a downward trend: in this
case, therefore, it will be a downward incline.
Pivot and full price levels:
Different levels of support and resistance can be tracked not on highs
or lows, but on levels calculated through a formula that includes
highs, lows and day ends, called Pivot points, or on full price levels,
for example, 1.20000 or 1.30000.
Correlations:
In the currency trading market, you will often hear about currency
correlation.
Correlation is a statistical measure of how two assets move relative to
each other.
In general, therefore, it is the measure of the relationship between two
variables: Asset X and Asset Y.
The correlation can be:
Positive: in case two assets move in a very similar way.
Negative: when two assets move as a "mirror” image.
Gap:
The gap occurs when the opening of the current candlestick bar is
greater than the maximum of the previous candlestick bar, or when it
is smaller than the minimum of the last candlestick. The gap is often
found at the opening of the market.
Backtest:
The Backtest is used mainly for quantitative analysis: it is nothing
more than a complete report of how our automatic strategy would
have behaved in a given time range in the past.

Equity:
When we talk about Equity, we mean the graphical representation of
the trend of our capital, whether it is back tested or it is our demo/real
account.
Drawdown:
This is also a widely used term: in a nutshell, there is drawdown in
the presence of losses and the equity starts to tilt down.
We are particularly interested in the "maximum drawdown": the
distance between the last maximum of equity and the lowest minimum
of investment.

HFT:
Acronym for High-Frequency-Trading: it is a way of intervening in
the financial markets using sophisticated software and hardware tools,
with which operations are opened and closed at very high speed and
with substantial volumes.

The duration of these transactions can even be a few fractions of a

second. The purpose of this approach is to make money on
microscopic margins, even a few cents, but continuously with high
profits and with large amounts of daily transactions.
These technologies are only accessible to major market players, such
as significant funds, or the world's largest investment banks such as
Goldman Sachs and Morgan Stanley.
HFT strategies have now reached considerable volumes of
commercial traffic: it is estimated that they are responsible for the
majority of the transaction traffic of some stock exchanges, with
percentages that, in some cases, exceed 70% of the total volume.
The use of HFT consequently leads to greater market efficiency and,
in the short term, to extremely volatile conditions, which give the
market excessive complexity. And of this, most retail traders are not
fully aware of.
It is estimated that these high-frequency transactions amount to
around 50% on the traffic at the Milan Stock Exchange, while they
account for approximately 70% of the volume of equity trading on the
US markets.

Macroeconomic News:
Macroeconomic news are news that can affect markets.

Such news come on several occasions: they may be due to the

disclosure, by various bodies, of statistical data on the performance of
a country (GDP, average wage indices, CPIs) or from speeches such
as those of the president of the BC.
This is the site to view the economic calendar:
https://www.investing.com/economic-calendar/

There are news that affect markets to a minimal extent and

communication that can instead have a significant impact.
The impact of a news item can be classified as low (one bull),
medium (two bulls) or high (three bulls).

The release of news often leads to increased volatility and

unpredictability in the markets: it is a real double-edged sword.
Therefore, let's stay away from macroeconomic news with three bulls
unless we have a volatility breakout strategy that takes advantage of
these sudden increases in volatility.
For my trading system I have developed a "salvage" system: this,
when news are released, manages the operation differently, adapting
to the volatility and avoiding, therefore, substantial losses;
conversely, my system is good at making the best of those moments in
which the price becomes advantageous.
Conclusion
In this chapter, I have tried to collect, summarize, and simplify, as
much as possible, the most important and, above all, the most useful
terms for what we are going to deal with later. Surely there are many
other terms, but these are not fundamental. I don't particularly like
theory, and I prefer to go straight to practice focusing on what can
work and what can't work. The professional terms and language we
can leave to others: we must trade. And we have to do it right!
You need to know these basic terms. Don't be afraid: I'm sure that by
reading and rereading them, and, above all, by applying them, you'll
memorize them in no time.
When you don't remember something, you can always come back to
this chapter.
Summary of Chapter 3:

Long/Buy and Short/Sell

Bid/Ask and Spreads
Stop Loss and Take Profit
CFDs and Futures
Financial Leverage, Lots and Pips
Margin, Margin Call
Metatrader
Time Frame
Swap/Rollover
Order Types
Technical Indicators
Pivot Point and Full Prices
Correlations
Gap
Backtest
Equity
Drawdown
HFT
Macroeconomic News
Notes:
Chapter 4: Basics of Technical Analysis

The only goal of trading is not to prove that you were right but to
hear the bell of the receipts ringing
-Marty Schwartz-
Let me start by saying that, as I said in the first chapter, I do not use
technical analysis myself. But that's not why I avoided including it in
this book, because a trader must always at least know the basics of
technical analysis.

In economics, technical analysis, also known as AT, is the study of the

apparent trend of the prices of the financial markets, intending to
predict future movements by studying reference graphs.
In a broad sense, it is that theory of analysis according to which it is
possible to predict the trend of future prices by studying their history.
This sentence is also valid for those who use quantitative analysis: the
difference lies in the tools that are used.

Technical analysis aims at understanding the deeper meaning of the

graph; it is also based on a fundamental assumption: since the
behavior of investors is repeated over time, the occurrence of certain
graphical conditions and prices will move accordingly.
This consideration was especially true several years ago, when there
were still no advanced trading instruments (such as the HFTs,
explained above). Today, however, we know that these instruments
affect volatility, making markets unstable and less and less
predictable: this causes these analyses to have limited efficiency,
especially during short time frames.

There are mainly three assumptions which the technical analysis is

based on: the price discounts everything, history repeats itself, and
the validity of trends.
The price discounts everything:
It is a basic premise for the correct understanding of technical
analysis. It comes from the conviction that stock market prices
already incorporate all the fundamental, political, psychological,
monetary, and economic factors that have determined their
development.
The charts do not, in themselves, rise or fall, but are simply a
reflection of everything that affects the price.
By studying charts, and supported by other technical indicators,
analysts can understand which direction the market intends to take.

History repeats itself:

This mantra is based on the principle that, in the presence of some
points, price levels, realistic figures or patterns, it is possible to
predict the future movement of the price because, in the past, it has
already behaved similarly.

Validity of the trends:

It is easier for a pattern to have a continuous tendency than a sharp
reversal. It can, therefore, be said that it is likely to continue until it
shows clear signs of reversal.

-The trend is your friend-

One of the main objectives of technical analysts is to identify price

levels to enter the market using operational techniques, accurately
identifying the best time to open and close transactions.
The technical analysis, therefore, represents, in essence, the study of
the movement of market prices. This includes three primary pieces of
information available to the analyst:

Price
Volume
Open interest

Conversely, the fundamental analysis examines all the relevant factors

to determine the right price of an asset, stock, currency; therefore, the
intrinsic value is based only on the law of supply and demand. To sum
it up, fundamental analysts study the causes of market movements,
while technical analysts study their effects.

Origins of Technical Analysis

The origins of TA date back to the early 1900s and can be traced back
to Dow's theory.

Charles Dow was one of the most influential figures in the modern
history of financial markets. In 1882 Charles and his partner Edward
Jones founded Dow Jones & Company. Most market scholars agree
that what is now called technical analysis stems from the theories
proposed for the first time by Dow: the Dow theory is still a
fundamental tool for the study of TA.

Unfortunately, Dow never gave a systematic form to his thought, but

in numerous articles in the Wall Street Journal, you can find many of
the ideas expressed on the stock market. After his death, these articles
were collected and republished: only then did one realize the
existence of a real economic theory.
Dow's theory had such significant value that it was compared to
Freudian theory in psychiatry.

Basic Principles of Dow

In the fundamental principles of Dow, we find many of the things I

said previously about modern technical analysis.
Indexes are off the charts:
The sum and trend of stock exchange transactions represent the sum
of the knowledge of the past, near and far, applied to the discount of
the future. In practice, everything that cannot be anticipated by the
market is discounted and almost immediately absorbed in the prices.
The market has two trends:
Uptrend: upward trend, with rising highs and lows.
Downtrend: a bearish trend, with decreasing highs and lows.

Each trend is divided into three categories: primary trend, secondary

trend, and minor trend. Like the tide, the waves, and the breakers of
the waves.

The primary trend has three important phases:

• accumulation phase
• phase of participation
• distribution phase
The indices have to be mutually confirmed.
The volume must confirm the trend.
A trend is underway until there is a definitive trend reversal signal.
The most important aspects of this theory have been presented
synthetically. We can say that most of the technical analysis strategies
are variants: some with innovative changes of the Dow theory, and in
step with the times.
Graphs for analysis:
The charts available for analysis vary: however, we will deal mainly
with candlestick charts and bar charts.

Both charts have a temporal X-axis, where we can see the date and
time of the price, and a Y-axis where we can see the prices.
As previously said, each candlestick/bar records the price variations
according to the selected time frame: if we choose a time frame of
30min, every 30 minutes a new candlestick/bar will be formed and
each one will record the opening, closing, maximum and minimum
price for that period.

The bar graph is so defined because it is represented by vertical bars:

each bar has a hyphen on the left at the level of the opening price and
a hyphen on the right at the closing price of the bar. The highest point
of the bar is at the maximum amount, the lowest end of the bar is at
the minimum price.
This type of chart is my favorite because it is slim and convenient.
Those who use graphical analysis with technical tools instead, usually
use the candlestick graph.

Candlestick charts are the Japanese version of bar charts. The bars
record, like the bar graph, the opening, closing, maximum and
minimum prices: the difference, however, is that visually they have
precisely a candlestick shape, in which the full-bodied part of the
candle is called Body and highlights the difference between opening
and closing price. The distance between Maximum and Minimum is
usually called the Candlestick Range.
 I never buy a title I'm not sure I understand.
-Warren Buffett-

Trends
As mentioned above, the pattern represents the direction of the market
but needs a more precise definition with which to work.
A bullish trend will be defined by a series of rising highs and rising
lows, while a bearish trend will be the exact opposite and will present
a series of falling highs and lows.
In the presence of a lateral market, on the other hand, we will find
horizontal maximums and minimums.
As already mentioned in the previous chapter, technical analysts use a
lot of supports, resistances, and trendlines: this is because thanks to
them, they can quickly identify both the direction and the strength.
Prices, as we have said, move with a series of highs and lows: these
determine the direction of the market.
The minimums are also called bounce points: we have minimums
when the interest of the buyers becomes strong enough to overcome
the pressure of the sellers and bring the price upwards. The bullish
trendlines and supports are drawn by joining these bounce points with
a straight line.
On the contrary, we have highs when the interest of the sellers is keen
enough to overcome the pressure of the buyers and bring down the
price. The bearish and resistance trends are traced by joining these
points.

So how on earth are these lines used to open up market operations?

Usually, these lines are projected forward and are used to look for
trend reversals: Buy trades are often opened when the price touches a
support or a bullish trendline, while a Sell trade is opened when the
price reaches a resistance or a bearish trendline.
In essence, we try to anticipate a rebound by prices on those levels
marked by the trendline traced.
Please note, however, that supports, resistors, and trendlines can be
interchanged. When the price goes below a traced support and
continues its path without reversing, it is said that "there has been a
breakout," or even "the price has broken the support down": at which
point that line is no more extended support but becomes a resistance.
Reverse situation: if the price breaks up a resistance, that one will be
a support. But you do understand that these are very subjective
analyses.

I could go on and on about such topics for many more pages using
theories and examples. Sincerely, however, I do not find this very
useful, especially since I do not consider myself a technical analyst.

Below I will show you only some of the most critical technical
figures, to get a clearer general idea.
Reversal Figures

Head and shoulder

It's a vital reversal figure. This figure contains a head, right shoulder,
and left shoulder.
The head is the absolute maximum/minimum of X candlesticks: these
X candlesticks are at the discretion of the trader.
The two shoulders are the two relative maximum/minutes, one on his
left and one on his right.

Triple Maximum/Minimum
In addition to the head and shoulder, we have the triple maximum or
triple minimum: they are nothing more than three maximums or
minimums at the same level, often joined by a support or resistance.
They also indicate a level of reversal...

Double Top and Double Bottom

The double top indicates a bearish reversal: it is nothing more than the
formation of two maxima at the same level. Usually, this figure has an
M-shape.
On the contrary, the double bottom heralds a bullish reversal. There
are two minimums at the same level: usually, this figure has a W
shape.

False Breakout
This term is commonly used by those who misjudge the market
forecast.

A False Breakout happens when the price breaks the respective

support or resistance upwards or downwards. Then, however, instead
of continuing in the direction of the break, it reverses: there is,
therefore, a reversal, but late and at a different price from the line
drawn.
Example of a false breakout. The price broke down support, then
returned over pushing it upward:

Continuation Figures

Triangles
There are three types of triangles: symmetrical, ascending and
descending.
Triangles occur when the trendlines drawn on the lows and the
trendlines drawn on the highs cross and converge.
Each trendline must have at least 4 points of contact: 4 minimums for
the support trendline and 4 maximums for the resistance trendline.

The presence of a triangle means that there has been a significant

market movement that slowly tightened: this phase is usually called
"accumulation phase" or "consolidation phase."
If the trend has been bullish and there has, subsequently, been a
breakout of the upward triangle, it means that the trend may continue
to rise; conversely, if the trend has been bearish and, after this phase
of stalemate or accumulation, there is a breakout that breaks the
Bearish trendline, it means that the trend may continue to fall.

The symmetrical triangle has converging trendlines: the upper part is

descending, while the lower part is ascending.
The ascending triangle has a lower ascending line, while the upper
one is horizontal.
The descending triangle has an upper descending line and a lower
horizontal line.
There are other variants, but the main ones are those I just mentioned.

Rectangle formation
Rectangle formation is straightforward to detect and can also be
called trading range, or air congestion. Unlike the converging
triangles, in the rectangle formation, we find two horizontal lines, one
for the essential maxima and one for the crucial minima, which do not
converge and which, therefore, create this sort of parallel channel.

Also, here, the breakup or downward trend of this channel may

signify the resumption of the trend.
Candlestick Charts

Although this technique of analysis has been used in Japan for

centuries, it has only been spreading to the West for a few years. The
term candlestick, or Japanese candle, refers mainly to the classifying
of certain combinations of candlesticks in specific graphic formations,
defined and repetitive.

There are dozens and dozens of these candlestick patterns, but here
I'll mention just a few. From my humble point of view, I would say
these types of graphs are “garbage” and should be used only as an
entry point to trading. Should someone come up with a certified report
of their financial account, where they could demonstrate that they
have used these graphs with success, I will be pleased to change my
mind. I do use them myself, but only as a secondary filter and not as
the primary analytical metric.

As we have said, the "chubby" body of the candlestick is formed by

the difference between the opening price and the closing price, while
the lines of the fuse (commonly called shadow) of the upper and
lower candlestick are respectively the minimums and the maximums.

Let's try to understand some candlestick charts.

Candlestick Showing a Strong Uptrend:

There is a strong push from the market when the opening price is
close to the minimum, and the candlestick bar ends close to the
closing price.

Candlestick with a Strong Downtrend:

There is a strong push from the sellers when the opening price is close
to the maximum, and the candlestick bar ends close to the closing
price.
Doji:
We are in the presence of a candlestick called "Doji" when the closing
price is very close to the opening price. As a result, the body of the
candlestick is skinny. When the opening price is equal to the closing
price, we almost do not see a body and sometimes it is so skinny that
it looks like a dash.

If this "dash" is in the middle of the range of the candlestick, about

halfway, it means that, during this period, there have been broad
upward and downward movements. However, the candlestick
indicates the price has returned to the opening price. This signifies a
moment of uncertainty.
The candlestick shown above, in particular, is called Long Legged
Doji, where we have a little skinny bar in the middle.
There is also the Tohbo Gravestone Doji, in which we have the body
of the candlestick where the opening and closing price are almost at
the same level. Conversely, in the Tonbo Dragonfly Doji the body of
the candlestick bar is close to the maximum.

Hammer:
Another prominent candlestick representation is the Hammer. It is
easy to recognize because it has a small body and a long shadow:
together with other candlesticks, it may signal a reversal or
continuation.
If the shadow is pointing towards important levels, it may signify a
significant reversal.

Engulfing:

This pattern consists of two candlesticks: in the first candlestick the

bar is shorter than the next, so that the next bar is said to be engulfing
the previous candlestick.
The second candlestick always has the opposite trend to the previous
one: if the first is a bullish candlestick, the latter must be a bearish
one and have a taller body.

Bullish Bearish
There'd be plenty more, but naming them is tiring: shooting star, belt
hold, harami, dark cloud cover, breakaway….Forget it!

The Wave Theory of Elliot

Ralph Nelson Elliot (1871-1948), the founder of the Wave Theory,

devoted much of his life to developing his views of market behavior
and was greatly influenced by the Dow Theory.
There are three essential aspects to the Wave Theory: pattern, better
understood visually; ratio, i.e. percentage; and time.

The Pattern, the most crucial element, refers to the visual arrangement
of the waves.
The Ratio or analysis of percentages is useful to determine “retracing
points” and the price goals and can be calculated by measuring the
relationship between the different waves.
The Time, the last element, can be used to confirm wave patterns and
percentages.

According to this theory, the market follows a repetitive rhythm of

five primary waves followed by three "corrective" waves: a complete
cycle, therefore, consists of eight waves.

Waves fit into one another like a matryoshka, a Russian doll: a big
cycle, will be followed by a smaller one, which will contain a smaller
one, and so on.

There is definitely another book to be written regarding Elliot's

waves, but I'll spare you theory that leads to dismal results for
practical purposes.
Fibonacci

Leonardo Pisano, called Fibonacci, is considered one of the greatest

mathematicians of all times. Together with other colleagues of his
time, he contributed to the revival of the exact sciences; with him in
Europe, there was a merging of Greek Euclidean geometry and the
mathematical instruments of calculation developed by Arab scientists.

In trading, some of these principles are used to determine essential

price levels: we are talking about the famous Fibonacci retracements.

The Fibonacci retracement is a technical analysis tool that uses

percentages and horizontal lines drawn on price charts to identify
possible support and resistance areas.
Markets rarely move linearly, and there are often retracements,
maximums, and minimums for each period.

The retracements our friend "Fibo" figures out are based on the
mathematical principle of the golden ratio, with this sequence: 0, 1, 1,
2, 3, 5, 8, 13, 21, 34, 55, 89 and so on, where each number is about
1.618 times greater than the previous number.
With the advanced tools we have today this principle is quite easy to
apply. There are pre-set indicators: place level 100 of the index at a
critical maximum and level 0 at a necessary minimum. The symbol
will, thus, automatically mark the support and resistance levels.
These retracements can be used in several ways, to have a precise
level of market entry or a target level of profit or loss.

Cyclical Analysis

Another branch of technical analysis is cyclical analysis. I believe in

this analysis because I know several professional traders who use it
successfully.
Cyclical analysis is the discipline that seeks to predict the
performance of a financial instrument by studying the time factor.
This analysis outlines a new dimension of the market so that the
market itself can be monitored from a different perspective.

A bag cycle is a periodic function, a pattern that repeats itself over

time at regular intervals.

The philosophy of cyclical analysis derives from relationships with

the natural world, such as the recurrent cycles of the seasons and
planets and all the other repetitive events, such as social and
economic cycles.
In practice, the length of the cycle - called the period - is measured
from minimum to minimum. Here, too, the "Russian doll" effect is
valid, where there are primary cycles and various sub-cycles which
are proportionally scaled.

Characteristics of a cycle:
Magnitude: is the height of a wave, the distance in terms of price
between a minimum and a maximum for a cycle.
Period: is its length, calculated as the minimum at the beginning of a
cycle and the minimum of the following cycle.
Phase: is the measure of time calculated as the distance of the central
minimum and the minimum of its sub-cycle.

One of the main historical supporters of cyclical analysis is James M.

Hurst, an American aerospace engineer who created the famous
"Hurst model."

The Hurst cycle is a combination of science and art, a competence

that must be learned.
Hurst's idea was that the market is composed of several cycles of
different sizes that interact with each other: from the smallest to the
largest, each period is separate and combines with the others forming
the movement of prices.
The cycles connect simply by adding up: by adding the values of two
or more periods we can create a composite cycle, which is nothing
more than the price value at that time.

Hurst’s cyclic model, in its classic version, includes four sinusoidal

cycles that have a harmonic ratio between them equal to 2 and a
growing magnitude.

Gann, one of the greatest traders in history, personally used price -

time correlation analysis, combining graphical analysis of prices with
cyclical analysis.

Technical Indicators

Technical analysis also includes the use of technical indicators: we

have already mentioned some of them previously, and we are now
going to do a quick review.

Mobile Averages
Moving averages are by far the most widely used technical indicators
for both manual and automatic trading.
The simple moving average is nothing more than the average of a
homogeneous data set: it is calculated simply by adding the values of
the series and dividing everything by the number of observations.

There are different types of moving averages:

Simple moving average: adds up the closing prices of X candlesticks

and divides the result by the number of X candlesticks.

Weighted Average: gives more weight to the most recent data and less
weight to the most distant ones. This average is more responsive to
current events and dampens past fluctuations.

Exponential Average: requires a much more complex calculation than

the previous ones.

Moving averages have many uses, such as identifying an ongoing

trend; they can be used as supports or curved resistances, they can be
used as signals to open orders or, conversely, as signals to close an
operation.

They are an excellent and straightforward tool available in all trading

platforms, used on a large scale by all types of traders.

Bollinger Bands

These are indicators developed by John Bollinger. These are two lines
(or bands) placed around a moving average: the positions of the bands
are calculated as two standard deviations above and below the
average. The standard deviation is a statistical concept that describes
the mode of dispersion of prices around an average value.
Using two standard deviations there is the certainty that 95% of the
price data will be included in the two trading bands.

When the price reaches the upper band, we are in an overbought

situation where buyers are pushing; conversely, when the price
touches the lower band, we are in an oversold situation where sellers
are getting the better of us.
The bands are one of my favorite tools: in addition to indicating
overbought or oversold levels, they also indicate situations of high or
low volatility. When the distance between the upper and lower bands
increases, it means that there is an increase in volatility; when the
difference between the bands decreases, it means that we are in the
presence of a phase of compression and little volatility.

There are a variety of reasons to use these bands such as (1) having a
precise input set-up; (2) as supports and mobile resistances; (3) to
have a clear idea of the volatility of the market; and (4) to have a
structure for closing an operation.

Relative Strength Index (RSI)

The RSI, or relative force, is one of the most essential and commonly
used oscillators.
RSI mainly measures the momentum, i.e. the speed and intensity at
which price changes occur.

It is an oscillator that moves in a range that goes from 0 to 100:

usually, if the indicator is above the threshold of 70, it indicates an
overbought situation; if the indicator is below 30, it suggests an
oversold situation.
A classic strategy for entering the market using RSI is to Buy if the
indicator is oversold and to Sell when it is overbought.
Another situation to consider is observing the divergences between
the RSI and the prices: if the price presents two or more decreasing
minimums, while the RSI shows two or more rising minimums, this
may indicate an inversion of the trend; the diametrically opposite
situation may also arise.

This indicator can be used for several purposes: (1) to search for input
setups; (2) to evaluate the strength and direction of the trend; and (3)
to search for output setups from the trade.
There are many other indicators, but I wanted to summarize the three
that are used the most.
Chapter Conclusion

Technical analysis is a fertile ground for fraudsters: trading, in

general, is also fertile ground for them, but technical analysis is in
particular.
This is because technical analysis is subjective: as the most excellent
analysts claim, it is, therefore, an art.
It is a skill that is learnt over the years, after hours spent on the
charts; after opening may hundreds of trades. It's something very
personal and subjective.

Let's see an example: on the same graph, I could see a head and
shoulders, while another person could see a continuation triangle.
Another individual may notice a false breakout, while another person
may see a retracement of Fibonacci. There are too many variations.
It's too subjective.
As a result, it is easy to lure gullible people. These so-called "gurus"
begin by drawing attention to themselves with their analyses. At that
point, they offer their booklets or mini-courses (which can cost up to
thousands of euros). And many don't even show their photos, using
pseudonyms instead.

Usually, in their analyses, they open a chart and start to draw

everything I have explained in the chapter: trendline, Fibonacci,
cycles, etc... Then the real analysis begins: "Here as you can see,
there was a rise"; "You can observe the market fell after this reversal";
"Here there is a candlestick pattern, and in fact, the market has
continued the rise". All analysis done during a standstill market.
They are all good at this kind of analysis: even a child could do this,
but these people are so persuasive they can leave you speechless and
make you think "yeah, I do understand this".

However, when they try to make predictions, most of the time they
come out with a: "here is this current figure. If the price breaks this
level it could go up, or with a false breakout it could go down." And
thanks to the [Bleep].

In their training, if you cannot be profitable, the fault is only yours.

You have not understood how the strategy works. And you can't
argue, because there are no guidelines to follow step by step. Because
analysis, as we have seen, is very subjective.

Why do I say that? To make you be careful.

However - and fortunately, I add – not all trainers all like that!

How do you recognize good trainers?

They put their faces on their sites with their first and last names.
They have historical data of their operations or those of their students,
at minimum for at least six months. That is, they certify that they can
be profitable, or the students who follow their strategies can do so.
And most of the pseudo trainers skip this step. Because out of 100
traders/trainers, there are only 2 or 3 who show certified results.
If these historical data are present, ask with what risk, what
operations are used, and what money management is adopted.
This is because some earn, but for a few months, thanks to hazardous
money management. Especially when automatic systems are proposed
in which they show their earnings, but do not say that the risk of
burning 50% or even the entire cash availability is very high.
They don't have stratospheric gains! All you need to know is that the
best traders in the world make an average of 20 to 30% ROI per year,
with controlled risk. You understand well that if any “so and so”
comes in and promises you a 20 to 30% per month, something strange
is happening. Often there is a disproportionate risk, which leads very
quickly to burning all your savings. Or he's more like a charlatan.

Okay, you're right. I was very direct. But I feel the need to write these
words because I have seen so many fake discretionary traders. Traders
who offered their automatic systems with promises of stratospheric
gains and then all arrived at the same result. That is? Their customers’
capital completely or almost completely "burned".

Fortunately, I was able to help a lot of people, and I avoided throwing

away their savings, directing them towards really prepared traders.
Those who have followed me to this day thank me for this impartial
advice. And that's what makes me happy and proud.

In conclusion, as J.J. Murphy says in his book about technical

analysis: "The truth is that interpretation is subjective and reading a
graph is an art, although it would be more correct to talk about it in
terms of skill."
Summary of Chapter 4:

Origins of Technical Analysis

Basic Principles of the Dow
Analysis Charts
Trends
Reversal Figures
Figures of Continuation
Elliot's Wave Theory
Fibonacci
Cyclical Analysis
Technical Indicators
Notes:
Chapter 5: Operational Strategies for the
Forex

It is not so important to buy at the lowest possible price as to buy at

the right time.

-Jesse Livermore-
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+2). 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+2) or 4:00 a.m.
(closing at 7:59 p.m. GMT+2) 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+2, broker time) or the 4:00 candlestick (which closes around
7:59 GMT+2, 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+2, we will place ourselves in front of the
charts at this time) or the closure of the 4:00 candlestick (around 7:59
gmt+2, 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 +2, 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.

BIAS-Based Strategy/Seasonality

The BIAS strategy is one of my favorites. This strategy is aimed at

hunting down inefficiencies that occur systematically in the market. It
is a type of plan that seeks a repetitive statistical advantage over time
(at a given time, day, week, month, or seasonal trend) and tries to
make the most of it.

Unlike all other strategies that mainly look at price movements, bias-
based systems are based on time ranges.

Usually, Bias-Based/Seasonal Strategies look for cyclical market

conditions and present stop losses and take profits that vary according
to the studies carried out and the operating timeframes.

These strategies must be studied and analyzed with quantitative tools:

it is challenging, and in some cases, impossible, to structure these
strategies using a visual analysis of the graphs.
I was the first, and I still believe the only one to have created a tool
for the Mt4 able to analyze cycles in the Forex market, allowing even
those who do not know how to program to study this type of strategy.

Leaving aside the Forex, an example of a strategy that exploits

seasonality is that of spread trading for commodities, which operates
on the cyclical movements of products in different seasons.

Let's look at am example of Bias strategies, by analyzing Eur/Usd

from 2000 to 2018.
Let's see what these cyclical recurrences can be, and how they can be
used to our advantage.

Hourly Analysis: Short Operations

To obtain this chart, I assumed that a short trade would open on the
beginning of the hour and close on the next hour, for a total of 24
daily trades. One operation every hour.

This analysis has been done from 2010 until today, August 2019.

On the vertical axis, there is a scale that indicates profit, while on the
horizontal axis, we have hours of trading from 0 to 23 (broker time).

As you can see, the most valuable time is 23:00. This means that short
trades opened at 23:00 and closed at 00:00 were performing the best.
You do not take this into account, however, because at midnight
GMT+2, you switch from one stock exchange day to another and, as a
result, the spread increases dramatically. The analysis does not
account for this considerable spread: this mega profit of 23 is,
therefore, an illusion. For this type of study, it is, therefore, necessary
to pay attention to details: it is easy to get lost in a glass of water!

We can rely on all other times from 1:00 to 22:00.

You can immediately see that there are several quite sufficient times,
on all those of 17:00 and 21:00. But one time zone in particular
immediately catches the eye: it is the time ranging from 11:00 to
14:00. In this timeframe, we see a constant profit that we can take
advantage of. Such information is also beneficial for discretionary
traders, who, if they use an intraday trade, may prefer short-term
revenue within this timeframe compared to other times of the day.
Thanks to this analysis, we know that Eur/Usd has a bearish trend
from 11:00 to 14:00, thanks to quantitative analysis, i.e. my nine years
of data on about 60,000 trades. Do you now understand the power and
usefulness of these tools? And here I performed an elementary
analysis, without even going into details!

In addition to the Short analysis, you can also examine the Long and
all other of the Forex assets.

Let's see how Eur/Usd behaves during the week instead.

Weekly analysis: short transactions

To obtain this chart, I have assumed the opening of a short trade at the
beginning of the day and its closing at the end of the day, for a total of
5 weekly transactions: 1 per day.
This analysis was carried out from 2010 until August 2019.

We immediately notice a particular downward trend on Wednesdays,

while on the contrary, there are substantial losses on Thursdays.
This analysis can be very useful for those who trade manually with a
multi-day trade.

In addition to hourly and daily analysis, it is also possible to analyze

the days of the month, the months themselves and even the seasons.
There's a lot of research to do!

From my humble point of view, quantitative tools are indispensable to

improve traders' performance: whether they are discretionary, semi-
discretionary, or automatic.
Money Management

Money management is an essential part of successful trading, but it is

especially useful to avoid unpleasant surprises.
In general, there are different types of money management to manage
your operations and the portion of capital to devote to each trade.

The most used money management companies are:

Fixed Lots
Compounding (o Fixed Fractional Method)
Martingale
Meditation
Pyramid

The most conservative and recommended money management are

fixed lots and compounding.
For now, I suggest you start practicing using fixed lots, always using
the same lottery for each trade (e.g., a mini lot 0.1 or micro lot 0.01).
Compounding is the technique that allows you to have a fixed risk
calculated in percentage and to reinvest your profits proportionally for
again in exponential time.

I talk about this topic much more in-depth in the book dedicated to
automatic trading.

If you are a hungry reader, I recommend Andrea Unger's book

"Trattato di Money Management," a best seller on the subject that you
can find at this link ---> https://amzn.to/2zzRYGc
Conclusion

We have seen, in general, the different operational strategies and were

given some practical examples.

Among these strategies, you're probably wondering which one is best.

Well, the ultimate answer is... NONE!

There is no better strategy than that which suits all markets;

conversely, each approach may be better suited to a currency pair than
another.

The key to structuring successful strategies is to take the best from

each of them and adapt it to the market, like a tailor who sews a
tailor-made dress.

The most effective systems are "hybrids" or strategies that combine

these operational logics to form a single excellent winning strategy.

Specifically, we start from a basic strategy, the nature of which can be

one of the five already explained, and then are added operational
filters that can be based for example on BIAS studies, using specific
times, or trend filters to prefer revenue in favor of trends, and so on.

However, I cover this topic better in the training courses that I have
specifically created for that purpose, and in which I explain how to
structure a step-by-step strategy from scratch.
I think that the development, study, and research of strategies is
something infinite. There are thousands and thousands of possible
combinations. There is always something to learn, try, and test.

ATTENTION: Whoever introduces you to the magic formula makes

fun of you!

Now you have to start practicing by opening a demo or real small

account (link to subscribe to the broker →
https://www.icmarkets.com/?camp=19600 )

Diversification is a crucial point for managing your money in the best

possible way, using different strategies on different markets. Using
the trading system, you can have from 1 up to 50/60 strategies that
work independently 24 hours a day on different currency pairs, and
you can manage your savings without much financial knowledge.

"Investing is simple but not easy."

-Warren Buffett-

I want to conclude this chapter by giving you the main rules of the
trader written by William Delbert Gann, one of the greatest traders of
all time!

1. Divide your capital into ten equal parts and risk a maximum of only
one per transaction.
2. Always use a stop loss.
3. Don't overtrade, because you'd violate Rule No. 1.
4. Never let a profit become a loss. To do this, raise your Stop Loss
(or lower it if you are down) as prices rise (or fall). In this way, any
reversal of the trend will "liquidate" you while you are still in
"profit."
5. Always follow the trend. Don't think about anticipating it. Do not
intervene in buying or selling if you are not sure of the direction of
the market or individual security.
6. If you're in any doubt, refrain from any operation.
7. Intervene only on active securities. Forget about anything that
doesn't show signs of life for a long time.
8. Spread the risk across four to five different stocks. Avoid putting
all the eggs in one basket.
9. Don't limit your orders. When you've decided, buy, or sell "the
best."
10. Don't come out of a position if you have no reason to do so.
Follow the trend and protect yourself with a Stop Loss.
11. Accumulate a surplus. After several successes, put some money
aside and use it in emergencies or during periods of panic.
12. Never buy to "cash in" a dividend.
13. Don't "rationalize" a loss. If the market is in the opposite direction
to yours, do not tell yourself that it is an excellent opportunity to
increase your purchases (or sales if you are down). You need to get
out of your position.

14. Never enter or leave a position just because you've become

impatient.
15. Avoid making small profits and making significant losses.
16. Never delete a Stop Loss.
17. Avoids continuous entry and exit from the market.
18. Play up and down.
19. Don't just buy because the prices seem low to you, nor do you
have to sell if they seem high.
20. Be careful to increase your position at the wrong time. Wait until
the stock has become very active and has "perforated" the resistance
to buy more (i.e., has "broken through" the support to sell more).
21. If you want to increase your position, remember to do so with
very thin securities (not very floating) if you are buying and with very
liquid securities (very floating) if you are selling.
22. Don't try to even it up. If you bought a title that started to go
down, don't sell another one that was discovered at the same time just
to even it out. Sell the title you bought.

23. Never change position without good reason. Only a proven trend
reversal justifies such a decision.
24. Do not increase your "play" after a long period of success. You
risk losing in a few operations what you've won in so long.
Summary of Chapter 5:

Strategy Reversal
Trend-Following
Strategy Breakout
Strategy Volatility Breakout
Strategy Bias Strategy/Seasonality
Money Management
Notes:
Chapter 6: Being a Trader

Success consists in making an exact forecast in 60% of cases, which

means that in the remaining 40%, even an excellent trader loses his
money.

-Jesse Livermore-
To Be or not To Be (a Trader): that is the
Question

Trading is an entrepreneurial activity. And as in all businesses, there

are costs and revenues.
The costs can be either related to the training (courses, books, etc.), or
other variable costs, such as the spread and the commissions paid to
the broker for each open operation. Other charges, on the other hand,
relate to the losses themselves. Revenue is obviously from winning
transactions.

It's an activity within everyone's reach, but it requires great desire,

passion, and dedication.

Being a trader means being an entrepreneur. You need to have all

those skills typical of entrepreneurs: perseverance, proactivity,
leadership, self-management, discipline, emotion management,
knowing how to decide quickly, and assuming 100% responsibility for
whatever happens.

It will be forbidden to complain, and it will be forbidden to blame the

market: we are the only ones responsible for our trading. For better or
for worse.

You have to be aware that in trading, as in life, there are positive and
negative periods: the important thing is to maintain a positive average
and not be beaten by the down periods. Likewise, you don't have to be
greedy in the Up!
Starting on this path, you will find difficulties: it will not be easy, you
will make mistakes, you will spend many hours practicing and
studying. But for prosperous trading, you will have to overcome all
this, be hungry for solutions, learn from the best and especially from
your mistakes!

If you can get through all this, you'll improve your life, too. The
personal skills that you will acquire, will lead you to be decisive even
in different areas of your life.

Learning to program from scratch and trading consciously has led me

to be more analytical in life. To ponder my choices, to set priorities,
to set objectives, and to carry them forward, improving my decision-
making and management processes. It has brought me to meet many
good and successful people who have accompanied me on this journey
and who continue to do so today.

Results

In addition to theory and practice, I want to show you the results of

my students and the reviews of my training.

Sure, you can think they're fake because they're just screenshots. But I
would like to invite you to join my group directly and to ask the
members personally for their opinion. I couldn't be more transparent
than that.

These are two equities of two clients who use the automatic portfolio
that I have made available with only five automated strategies!
The percentages are related to the capital used and the risk, based on
the money management that each decides to adopt.

(historical certificates linked to the platform myfxbook.com)

Conclusion

If you've read the book this far, I'd like to start by thanking you. Time
is the most critical resource we have, the fact that you have dedicated
yourself to read these words of mine is a great pleasure for me.
They're not sentences, I mean it. Thank you very much.

I tried to skip theory as much as possible, going straight to the point:

to the essential notions, to the practical and productive thoughts.

I hope that this book has been handy for you, and that, at this point,
you have a clear idea of what the Forex market can be like and how to
deal with CFDs.

I hope you understand that “it's not all gold that which glitters”. That
there are no guarantees and that like in all other endeavours, you
should start from the first step.

Knowing how to filter the right information, knowing how to rely on

prepared and honest people is a crucial step for success in this area.
More than a book, I'd say this is a course printed on paper. I hope you
treasure it.

In the next book, dedicated to automatic trading, we will see in more

detail how to structure automated strategies. We're going to address
the benchmarks to promote or reject an approach. We will analyze
how compound interest can lead to wealth and much more.
My training courses are structured both for those who start from
scratch and for those who already have more or less solid foundations.
You don't need to know how to program, and this is because I provide
pre-set systems with which you can study the whole market of the
Forex.

In the full course, 5 trading systems (also called expert advisors) are
available: each with a different strategy, like those seen in chapter 5.

On average, with each Trading System made available during the

course, it is possible to develop from 1 to 3 strategies per currency
pair. Considering that there are about 15 tradable currency pairs, you
understand that you could have a portfolio with about 45 automatic
plans, tested and developed by you following a step by step path!

To thank you, I've reserved a special 10% discount for you.

The Coupon Code is "dazeroatrader."
To activate the discount, enter this coupon code in the cart before
payment.

You can take a look at the site www.alessioaloisi.com, and if you want
to stay up to date with the latest news you can follow my Facebook
page
https://www.facebook.com/AloisiAlessio/
or the YouTube channel
https://www.youtube.com/channel/UCqPygxHt2xrN3C1pIxeJmog.

If you want to join our Facebook/Telegram groups, you can contact

me on Telegram @AloAle or by email: [email protected]
If you liked this book, I kindly ask you leave a review on the Amazon
page dedicated to this text. If you are not satisfied or you have some
particular suggestions to make, you can contact me directly at
[email protected] or on my personal Facebook page.
I will be happy to receive constructive criticism to improve this text
and to grow as a person.

Thank you for your time!

I wish you conscious trading with many satisfactions!

Contacts:

Email: [email protected]
Telegram: @AloAle
Site: www.alessioaloisi.com
Facebook: www.facebook.com/AloisiAlessio/
YouTube:
www.youtube.com/channel/UCqPygxHt2xrN3C1p
IxeJmog
Recommended Resources

My second book on Trading System 

https://www.amazon.com/dp/1676411712

To learn how to operate in the Futures market using the trading

system with substantial capital. I suggest you follow the 4-time world
champion Andrea Unger starting with viewing this webinar:
http://bit.ly/2mR9HpR

For manual trading on the stock market and commodities, see

Gianluca Sidoti:
[email protected]
Acknowledgements

I want to thank my friends and family.

Matteo De Angelis who corrected and revised this text.

My mentors Andrea Unger and Sergey Magala.
My students and all the people who follow me and who are a constant
source of improvement...

Ad Maiora,

Alessio