TRADING GUIDE

By Cyril Smaira

MACROFOREX HUB Beirut, Lebanon

P a g e | 1 Contents 1.1. : ...... 5 1.2. Support & Resistance: ...... 5 1.2.1. Definition: ...... 5 1.2.2. Truth and Rules:...... 6 1.2.3. Dynamic SR: ...... 6 1.2.4. Identifying Rejections: ...... 6 1.2.5. How to tell when Support or Resistance will break: ...... 7 1.2.6. Trading SR: Support becoming resistance: ...... 7 1.2.7. Open-drive: ...... 9 1.3. The Information behind candlesticks: ...... 10 1.3.1. Candlesticks patterns: ...... 11 1.4. Wyckoff’s Rules: ...... 13 1.4.1. Supply vs Demand: ...... 13 1.4.2. Effort vs Result:...... 13 1.4.3. Cause vs Effect: ...... 13 1.5. Supply and Demand: ...... 14 1.5.1. Definition: ...... 14 1.5.2. Supply and Demand Trading: ...... 14 1.5.3. Understanding Supply and Demand Zones: ...... 14 1.5.4. Difference between Supply & Demand and Support & Resistance: ...... 15 1.5.5. Tips for using Supply and Demand: ...... 15 1.6. Trendlines and Channels: ...... 15 1.6.1. Trendlines: ...... 15 1.6.2. Channels: ...... 16 1.7. Chart Patterns: ...... 17 1.7.1. Definition: ...... 17 1.7.2. Double or Triple Bottom/Top: ...... 17 1.7.3. Head and Shoulders: ...... 18 1.7.4. Inverse Head and Shoulder: ...... 18 1.7.5. Triangles: ...... 19 1.7.6. Wedges: ...... 20 1.7.7. Further Readings on Patterns: ...... 20

P a g e | 2 1.8. Stop Loss: ...... 21 1.8.1. Definition: ...... 21 1.8.2. Stop Loss Placement Tips: ...... 21 1.8.3. Stop Loss Mistakes:...... 21 1.9. Divergence/MACD: ...... 22 1.9.1. MACD Strategy: ...... 22 1.9.1.1. Identify direction of the trend:...... 22 1.9.1.2. Use MACD crossover for opportunities in the direction of the trend: ...... 23 1.9.1.3. Use MACD zero line to manage risk: ...... 23 1.9.2. MACD Strategy to Identify Tired Trends: ...... 24 1.10. The Confluence Concept: ...... 25 1.10.1. Definition: ...... 25 1.10.2. List of Valid Confluences: ...... 25 2.1. The Economic Calendar: ...... 26 2.1.1. Introduction: ...... 26 2.1.2. Top Benefits of Using Economic Calendar: ...... 26 2.2. GDP and Forex Trading: ...... 27 2.2.1. Understanding GDP: ...... 27 2.2.2. Trading Currency Pairs using GDP: ...... 27 2.3. Interest Rate: ...... 28 2.3.1. Definition: ...... 28 2.3.2. Interest Rates Impact on Currencies: ...... 28 2.4. Non-Farm Payroll: ...... 29 2.4.1. Definition: ...... 29 2.4.2. NFP Impact on Forex Market: ...... 29 2.4.3. Most Affected Currency Pairs by NFP: ...... 29 2.5. Which News Affects Which Currency Pair: ...... 30 2.5.1. Oil News: ...... 30 2.5.2. Industrial Metal News: ...... 30 2.5.3. Trade Partners Countries: ...... 30 3.1. Introduction: ...... 31 3.2. Rules: ...... 31 3.3. Position sizing:...... 32

P a g e | 3 3.4. Correlated Pairs: ...... 33 3.5. Trading Journal: ...... 34 3.6. Trading Psychology:...... 34 4.1. My Promise: ...... 35 4.2. References: ...... 36

P a g e | 4 1. and Price Actions:

1.1. Dow Theory: Technical analysis was formed out of basic concepts gleaned from Dow Theory about trading market movements that came from the early writings of . (1900-1902) Two basic assumptions of Dow Theory that underlie all of technical analysis are: • Market price discounts every factor that may influence a security's price and • Market price movements are not purely random but move in identifiable patterns and trends that repeat over time. The assumption that price discounts everything essentially means the market price of a security at any given point in time accurately reflects all available information, and therefore represents the true fair value of the security. uses tools like charts patterns, candlestick patterns, Trend lines, market swing structure, levels, consolidations etc…

1.2. Support & Resistance: 1.2.1. Definition: Nothing is more noticeable on any chart than support and resistance levels. These levels stand out and are so easy for everyone to see! Why? Because they are so obvious.

These are fairly easy to spot on your charts. They look like peaks and valleys. If price has been going down for some time and hits a price level and bounces up from there, that’s called a support level. Price goes up, hits a price level or zone where it cannot continue upward any further and then reverses, that’s a resistance level. So when price heads back to that support or resistance level, you should expect that it will get rejected from that level again.

P a g e | 5 1.2.2. Truth and Rules: a. The more times Support or Resistance (SR) is tested, the weaker it becomes. (not stronger) b. Support and Resistance are areas on your chart. (not lines) c. Support and Resistance can be dynamic. d. Support and Resistance are the worst places to put your stop loss. e. Trading at Support or Resistance gives you favorable risk to reward. f. You should look back for levels on your chart depending on the timeframe you choose. g. Don’t cloud up your charts with levels.

1.2.3. Dynamic SR: There are two ways to identify Dynamic SR. You can use: • • Trend line

1.2.4. Identifying Rejections: Identify a proper rejection: Before drawing S/R levels identify proper rejection in your chart. Remember not all rejections can be qualified to mark as valid S/R levels. There are certain rejections more powerful than others.

More rejections: stronger level

More rejections you get the stronger the level will be and once price retrace to your level you can get a high probability trade signal there.

Draw your level at the candle and include every wick. Try to include as many rejections as you can.

You can trade it as long as price continue to respect it.

Once you identified two Proper Rejections in your level you can take a trade on third touch!

No matter how many rejections you have in your level, you should have at least two Proper Rejections in your level before you start taking trades.

P a g e | 6 1.2.5. How to tell when Support or Resistance will break: Support and Resistance tend to break when there’s buildup.

Resistance tends to break in uptrend. Here’s a fact: For an uptrend to continue, it has to consistently break new highs. Thus, shorting at resistance is a low probability trade. Instead, going long at Support is a better trade.

Support tends to break in downtrend. Consider this: Support is an area with potential buying pressure. So, the price should move up quickly, right? What if price didn’t move up and instead, consolidates at Support? What does it mean? A sign of weakness as the bulls couldn’t push the price higher. Perhaps there’s no buying pressure or, there’s strong selling pressure. Either way, it doesn’t look good for the bulls and Support is likely to break.

1.2.6. Trading SR: Support becoming resistance: The setup works both ways – support becoming a resistance and also resistance becoming support.

Here is how to spot it and how to trade it:

1. To identify this setup, you first need to see the price strongly reacting or jumping away from some area in the chart. This strong reaction indicates that there was strong support or resistance in the area.

2. One big reaction is enough but two or more strong reactions are even better. This way you can be sure there was a really strong support or resistance area.

3. After spotting such a strong area, you need to wait for the price to go past it. You want to see this strong support or resistance breached.

4. Even though the support/resistance was breached, it is still significant and strong. The reason is that breaching such a level requires a lot of effort and volumes of strong buyers or sellers. This area will be "defended" again. This is how support becomes resistance and how resistance becomes support.

5. When you identify support becoming resistance (or resistance becoming support) level, you wait for the price to come back to this area and enter your trade from there.

P a g e | 7 Let’s have a look at some examples.

The first one is an EUR/USD 30-minute timeframe. The price made two strong rejections of a level which indicates that it was a strong support zone. Then the price went through it which made it a new resistance zone. Entry for a short trade would be after a pullback to this price level – the newly formed resistance level.

P a g e | 8 1.2.7. Open-drive: The open-drive strategy is based on a sudden and strong one-sided price movement. It is very important that the move is one-sided. This means that the price was driven aggressively and steadily in one direction. Open-drive occurs most of the time after a sideways price action (tight price channel), or you can also spot it at the start of a trading session. If open-drive occurs after a sideways price action, it indicates that either strong buyers or sellers were accumulating their positions in the sideways price action and afterward they started aggressive buying or selling activity to move the price. If you spot one-sided price movement at the start of a trading session (Asian, EU or the US), it gives you an idea what the general direction in this trading session will be. The most important thing is the place where the strong buying or selling activity started. If aggressive buyers initiate the open-drive, then the price shoots upwards, and the place where the strong buying candle opened is strong support. If the open-drive is initiated by aggressive sellers, then the price shoots downwards, and the place where the strong selling candle opened is strong resistance.

The example below shows EUR/USD on a 30-minute timeframe. First, there were 4-5 hours of sideways price action. Then the price started a one-sided selling activity – that's the big red candle. The place where the big red candle started is the open-drive. You need to wait for few candles to form below the open-drive to make sure the market accepted the lower prices as a place with a temporary fair value. After that, you wait for the price to come back to the start of the open-drive and enter your trade from there.

P a g e | 9 1.3. The Information behind candlesticks: The Japanese began using technical analysis to trade rice in the 17th century. the guiding principles of candlesticks:

The “what” (price action) is more important than the “why” (news, earnings, and so on). All known information is reflected in the price. Buyers and sellers move markets based on expectations and emotions (fear and greed).

According to Steve Nison, candlestick charting first appeared sometime after 1850. Much of the credit for candlestick development and charting goes to a legendary rice trader named Homma from the town of Sakata.

On the chart, each candlestick includes an open, high, low and close price for the timeframe. The trader sets the time frame of each candle.

P a g e | 10 1.3.1. Candlesticks patterns: Bullish reversal candlestick patterns signify that buyers are momentarily in control.

However, it doesn’t mean you should go long immediately when you spot such a pattern because it doesn’t offer you an “edge” in the markets.

Instead, you want to combine candlestick patterns with other tools so you can find a

high probability trading setup.

For now, these are 4 Bullish Reversal candlestick patterns you should know:

• Hammer • Bullish Engulfing Pattern • Piercing Pattern • Morning Star

a. A Hammer is a (1- candle) bullish reversal pattern that forms after a decline in price

b. A Bullish Engulfing Pattern is a (2-candle) bullish reversal that forms after a decline in price.

c. A Morning Star is a (3-candle) bullish reversal candlestick pattern that forms after a decline in price.

d. A Piercing Pattern is a (2-candle) reversal candlestick pattern that forms after a decline in price.

P a g e | 11

Bearish reversal candlestick patterns:

Bearish reversal candlestick patterns signify that sellers are momentarily in control.

Likewise, you want to combine candlestick patterns with other tools so you can find a high probability trading setup, these are 4 Bearish Reversal candlestick patterns you should know:

• Shooting Star • Bearish Engulfing Pattern • Dark Cloud Cover • Evening Star

a. A Shooting Star is a (1- candle) bearish reversal pattern that forms after an advanced in price.

b. A Bearish Engulfing Pattern is a (2-candle) bearish reversal candlestick pattern that forms after an advanced in price.

c. A Dark Cloud Cover is a (2-candle) reversal candlestick pattern that forms after an advanced in price.

d. An Evening Star is a (3-candle) bearish reversal candlestick pattern that forms after an advanced in price.

P a g e | 12 1.4. Wyckoff’s Rules: • The first rule is that the market never behaves the same way, the market is truly unique. • The second rule Richard Wyckoff states that since every price move is unique, its analytical importance comes when compared to previous price behavior. 1.4.1. Supply vs Demand: If there is greater selling pressure, caused by excess supply, we are likely to see a decrease in price.

If there is greater buying pressure, caused by excess demand, we are likely to see an increase in price.

1.4.2. Effort vs Result: Wyckoff says that every effort should lead to a result in the financial markets. An example of the Effort vs. Result relationship is the data on trading .

If there is an unusually high trading volume, we may expect a big price move. So, the big volume bar is the effort of the market players to gain dominance. The big market move is the result of that effort.

1.4.3. Cause vs Effect: Wyckoff states that every cause in the market leads to a proportional effect. Take for example the Accumulation and Distribution stages.

Accumulation leads to Markup and the price increases, and the Distribution leads to Markdown and the price decreases. The Accumulation is the cause, and the Markup is the effect.

P a g e | 13 1.5. Supply and Demand: 1.5.1. Definition: Supply and demand are the very determinants of price - any price. This applies to everything from your local farmers market, to a rare, one-of-a-kind jewel, to the foreign exchange market. Traders that understand the dynamics of demand and supply are better equipped to understand current and future price movements in the forex market. 1.5.2. Supply and Demand Trading: Often, a currency pair will climb to an area of resistance called a ‘selling zone’, where sellers perceive there to be great selling potential at a relatively overbought price. The reverse is also true for currency pairs that drop to relatively low levels, ‘demand zone’ where buyers perceive there to be great value to buy.

If you haven’t learned the basics of the supply and demand, or would like a refresher, read our guide on the forces of supply and demand.

1.5.3. Understanding Supply and Demand Zones: Supply and demand zones are observable areas on a forex chart where price has approached many times in the past. Unlike lines of support and resistance, these resemble zones more closely than precise lines.

Traders can customize charts to identify the demand and supply zones as shown on the USD/JPY below.

P a g e | 14 1.5.4. Difference between Supply & Demand and Support & Resistance: Support and resistance is where one is able to see a number of failed attempts to move beyond a line/area that stretches back in history.

However, in regards to supply and demand, we would essentially be looking for a strong move that has a fresh untouched base, rather than an area which has held firm on a number of tests. 1.5.5. Tips for using Supply and Demand: • Use longer time frames to identify supply and demand zones • Identify strong moves off the potential demand/supply zone

1.6. Trendlines and Channels: 1.6.1. Trendlines: Trendlines are the simplest and single most important (and largely underutilized) tool in your trading arsenal. Extending a line off key highs & lows in price is an objective way of assessing the gradient or slope of a trending market. This key step can help identify where the price is likely to find support (floor) or resistance (ceiling).

Here are the main characteristics of a trend line:

• A trendline can never be a horizontal line, it must be always be diagonal line. • There are only two types of trendlines, a falling trendline and a rising trendline. • The more times a trendline has been hit and respected with a bounce, the more important the market believes that it is. • Broken lines cannot be considered as Trendlines. • The longer a trendline is respected, the stronger the movement when it gets broken. • The slope of trendlines immediately tells you how strong a trend is.

P a g e | 15 1.6.2. Channels: When Price Channels are placed on a chart, they identify the high and the low price at which the pair traded over a specified period of time.

Channels are another form of “support and resistance” and can be used in much the same manner. The main difference is the unlike a trendline, it is actually a pair of them running parallel. Because of this, you will have both support and resistance going forward, as the bottom will be supportive, and the top be resistive.

There are three types of channels:

• Horizontal channel (ranging, rectangle pattern) • Ascending channel (higher highs and higher lows) • Descending channel (lower highs and lower lows)

A breakout strategy consists of buying a pair that breaks above resistance in an uptrend or selling a pair that breaks below support in a downtrend. Since the price traded above the previous high or below the previous low, the pair is said to have “broken out” beyond its previous levels. When the breakout occurs, this can be taken as an entry signal as the potential exists for price to continue to move in that direction for a period of time.

P a g e | 16 1.7. Chart Patterns: 1.7.1. Definition: Chart patterns are simply price formations represented in a graphical way.

A pattern is identified by a line that connects common price points, such as closing prices or highs or lows, during a specific period of time.

Chartists seek to identify patterns as a way to anticipate the future direction of a security’s price. 1.7.2. Double or Triple Bottom/Top: The double bottom pattern entails two low points forming near a similar horizontal price level and signifies a potential bullish reversal signal. A measured strengthening in price will occur between the two low points showing some support at the price lows.

The double bottom is found at the end of a downtrend and resembles the letter "W"(see chart below). Price falls to a new low and then rallies slightly higher before returning to the new low. Unable to push price to a new lower low to continue the downtrend, sellers give up and price bounces sharply from this area. The bullish confirmation is specified by a break in the key price level situated at the high point between the ‘bottoms’ resistance level (neckline).

P a g e | 17 1.7.3. Head and Shoulders: The Head and Shoulders chart pattern is a price reversal pattern that helps traders identify when a reversal may be underway after a trend has exhausted itself. This reversal signals the end of an uptrend. The Head and Shoulders pattern has a distinctive appearance resembling its namesake which includes a distinct ‘left shoulder’, ‘head’, ‘right shoulder’ and ‘neckline’ formation.

1.7.4. Inverse Head and Shoulder: The Inverse Head and Shoulders (informally known as the 'Reverse Head and Shoulders pattern) resembles the same structure as the standard formation but reversed. The Inverse Head and Shoulders is observable in a downtrend (see image below) and indicates a reversal of a downtrend as higher lows are created.

P a g e | 18 1.7.5. Triangles: Triangles are among the most famous chart patterns. There are some professional traders who only trade the triangles, because they believe triangles are much easier to locate, and much easier to take a position, set the stop loss and target.

Symmetrical Triangles:

Identifying symmetrical patterns can become an asset to a trader in any market. To take advantage of the pattern, first we must be able to identify it. A symmetrical triangle is simply defined as a technical pattern forming a triangle from a descending resistance line and an ascending line of support.

Ascending Triangles:

This type of triangle chart pattern occurs when there is a resistance level and a slope of higher lows. What happens during this time is that there is a certain level that the buyers cannot seem to exceed. However, they are gradually starting to push the price up as evident by the higher lows.

Descending Triangles:

As you probably guessed, descending triangles are the exact opposite of ascending triangles. In descending triangle chart patterns, there is a string of lower highs which forms the upper line. The lower line is a support level in which the price cannot seem to break.

P a g e | 19 1.7.6. Wedges: Wedges signal a pause in the current trend. When you encounter this formation, it signals that forex traders are still deciding where to take the pair next.

Wedges could serve as either continuation or reversal patterns.

There are many types of Wedges, like Falling, Rising, Symmetrical, Ascending, Descending and Right-Angled Broadening Wedges.

1.7.7. Further Readings on Patterns: https://www.dailyfx.com/education/technical-analysis-chart-patterns#common- chart-patterns-traders-look-for

P a g e | 20 1.8. Stop Loss: 1.8.1. Definition: A forex stop loss is a function offered by brokers to limit losses in volatile markets moving in a contrary direction to the initial trade. This function is implemented by setting a stop loss level, a specified number of pips away from the entry price. A stop loss can be attached to long or short trades making it a useful tool for any forex trading strategy.

Trading is a game of probability. This means every trader will be wrong sometimes. When a trade does go wrong, there are only two options: to accept the loss and liquidate your position, or go down with the ship.

This is why using stop orders is so important. Many traders take profits quickly, but hold on to losing trades – it's simply human nature. We take profits because it feels good and we try to hide from the discomfort of defeat.

1.8.2. Stop Loss Placement Tips: Stop loss should be above the previous swing high (red dot) in case of a sell and below the previous swing low (blue dot) in case of a buy.

1.8.3. Stop Loss Mistakes: • Move Stop Loss to Breakeven ASAP • Not using a stop gives you flexibility and avoids stop hunting • Use a Fixed and Constant Stop Loss • Setting the Stop Loss Later • Placing your Stop Based on Arbitrary Numbers • Placing Stop loss on the Support/Resistance

P a g e | 21 1.9. Divergence/MACD: One way to simplify trading is through a trading plan that includes a reliable indicator such as the MACD. 1.9.1. MACD Strategy: Finding the trend is arguably one of the most important steps every technical trader must tackle in their trading and while this may appear to be a difficult task, the MACD can be extremely useful in this regard.

Three steps to find and enter a trend using MACD:

1. Identify direction of the trend 2. Use MACD crossover for opportunities in the direction of the trend 3. Use MACD zero line to manage risk

1.9.1.1. Identify direction of the trend: One way for traders to identify a trend is by using the 200-day moving average. If a trader is looking to buy into a position, they can apply the 200-day moving average to the price chart to determine whether prices are consistently trading above the average range.

In the example below, the EUR/USD chart shows a prevailing upward trend which is confirmed by prices consistently trading above the 200-day moving average. When this happens, the buyer can move onto the second step to determine possible entry points.

P a g e | 22 1.9.1.2. Use MACD crossover for opportunities in the direction of the trend: Once the trading bias has been established, traders will begin looking for buy signals in the same direction as the current trend.

In the chart above, when the price is ABOVE the 200-day moving day average, the MACD crossover can be used for a potential entry signal.

As outlined on the chart, a trader could look to enter a long position at the first highlighted MACD crossover. At this point the MACD line (the blue line) is above the signal line (the red line) and the price is still trading above the 200-day MA. 1.9.1.3. Use MACD zero line to manage risk: When trading trends, it is important to know that they will eventually come to an end. In an uptrend like the EUR/USD, when there is a bearish crossover, this can be a sign that the of the uptrend is slowing down and that it could possibly be changing direction.

A trader with a long position could look to exit the position at this point, however it could just be a temporary pullback. When the bearish crossover occurs, traders could look for the signal line to cross below the zero line, confirming the downward trend. At this point they can exit the trade.

P a g e | 23 1.9.2. MACD Strategy to Identify Tired Trends: A trend following strategy is popular amongst both new and experienced traders. Majority of traders have entered a trade at the end of a trend only to see the trend reverse. Can the MACD trading strategy help traders locate a tired trend?

A good way to identify changing trends is with MACD divergence. Divergence normally occurs when the indicator is moving in a different direction from price which suggests that the momentum of that is trend is slowing down.

Below we can see the DE30 forming a higher high on the price chart, while MACD is making a lower high, this is divergence. This is our first indication that price momentum from the current trend is slowing. At this point, traders should consider reducing and possibly closing out any existing long positions.

Price Chart MACD Result

Higher high Lower high Sell Setup

Lower Low Higher Low Buy Setup

P a g e | 24 1.10. The Confluence Concept: 1.10.1. Definition: “Confluence trading” is when you combine more than one trading technique or analysis to increase your odds of a winning trade.

You use multiple trading indicators that all give the same “reading”, as a way to confirm the validity of a potential buy or sell signal.

Confluence refers to any circumstance where you see multiple trade signals lining up on your charts and telling you to take a trade. 1.10.2. List of Valid Confluences: • Support/Resistance • Trendlines • Chart Patterns • Candlesticks Patterns • MACD • Supply/Demand zones • Round Numbers • Event Areas (i.e.: BTC)

In order to have a valid Buy/Sell setup, 3 confluences are needed. Extra confirmation will make the trade action safer, meaning a better risk management.

P a g e | 25 2. Fundamental Analysis:

2.1. The Economic Calendar: 2.1.1. Introduction: An economic calendar is a resource that allows traders to learn about important economic information scheduled to be released. Such events might include GDP, the consumer price index, and the Non-Farm Payroll report. In today’s environment of fiscal cliffs and central bank intervention, it can be very helpful to know the date of the next central bank meeting or major news announcement.

The events on the calendar are graded low, medium and high, depending on their likely degree of market impact.

2.1.2. Top Benefits of Using Economic Calendar: • Being able to manage risk effectively • Being in a position to plan ahead • Having access to extra, helpful features for customization

P a g e | 26 2.2. GDP and Forex Trading: 2.2.1. Understanding GDP: Gross domestic product or GDP is a measure of the size and health of a country’s economy over a period of time (usually one quarter or one year). It is also used to compare the size of different economies at a different point in time.

Developed in 1934 by Simon Kuznets, the Gross Domestic Product (GDP) measures the output and production of finished goods in a country’s economy. Usually, GDP is measured in three different time periods: monthly, quarterly and annually. This enables economists and traders to get an accurate picture of the overall health of the economy.

There are many approaches to calculating GDP, however, the US Bureau of Economic Analysis uses the “Expenditure Approach” using the formula:

GDP = Consumption (C) + Investment (I) + Government Spending (G) + (Exports (X) - Imports (M))

“When GDP goes up, the economy is growing – people are spending more and businesses may be expanding “ 2.2.2. Trading Currency Pairs using GDP: Quarter-on-quarter figures tend to produce much more variable changes in the overall trend – e.g., Positive GDP figures beating estimates QoQ may be fleeting when taking into consideration year-on-year (YoY) data. YoY data allows for a broader perspective which could potentially highlight an overall trend.

P a g e | 27 2.3. Interest Rate: 2.3.1. Definition: When traders talk about ‘interest rates’ they are usually referring to central bank interest rates. Interest rates are of utmost importance to forex traders because when the expected rate of interest rates change, the currency generally follows with it. The central bank has several monetary policy tools it can use to influence the interest rate.

Central banks have two main tasks: to manage inflation and promote stability for their country’s exchange rate. They do this by changing interest rates and managing the nation’s money supply. When inflation is ticking upwards, above the central bank’s target, they will increase the central bank rate (using the policy tools) which can restrict the economy and bring inflation back in check.

Tight Monetary Policy Higher policy rates Slows down growth and inflation

Loose Monetary Policy Lower policy rates Promotes employment and growth

2.3.2. Interest Rates Impact on Currencies: The way interest rates impact the forex markets is through a change in expectations of interest rates that lead to a change in demand for the currency. The table below displays the possible scenarios that come from a change in interest rate expectations:

Market Expectation Actual Results Impact on Currency Rate Hike Rate Hold Depreciation Rate Cut Rate Hold Appreciation Rate Hold Rate Hike Appreciation Rate Hold Rate Cut Depreciation

P a g e | 28 2.4. Non-Farm Payroll: 2.4.1. Definition: The non-farm payroll (NFP) figure is a key economic indicator for the United States economy. It represents the number of jobs added, excluding farm employees, government employees, private household employees and employees of nonprofit organizations. NFP releases generally cause large movements in the forex market. The NFP data is normally released on the first Friday of every month at 8:30 AM ET.

2.4.2. NFP Impact on Forex Market: Employment is a very important indicator to the Federal Reserve Bank. When unemployment is high, policy makers tend to have an expansionary monetary policy (stimulatory, with low interest rates). The goal of an expansionary monetary policy is to increase economic output and increase employment.

So, if the unemployment rate is higher than usual, the economy is thought to be running below its potential and policy makers will try to stimulate it. A stimulatory monetary policy entails lower interest rates and reduces demand for the Dollar (money flows out of a low yielding currency). 2.4.3. Most Affected Currency Pairs by NFP: The NFP data is an indicator of American employment, so your currency pairs that include the US Dollar (EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF and others) are most affected by the data release.

P a g e | 29 2.5. Which News Affects Which Currency Pair: 2.5.1. Oil News: Those affect the CAD because the Canadian economy (and the strength of CAD) is dependent on the prices of oil which Canada produces.

2.5.2. Industrial Metal News: If there is significant and surprising news concerning industrial metals (for example steel, copper), then you can expect to see some spike moves on the CAD and the AUD because Canadian and Australian economies are depending on exporting those metals. If there is an aggressive, one-sided movement on the AUD or CAD driven by news concerning industrial metals and materials, then it is usually better to avoid trading those currency pairs, or at least be a bit more careful.

2.5.3. Trade Partners Countries: A good example would be strong news affecting China's economy. When there is such a news, you can expect the AUD to react. The reason is that China is the biggest trade partner of Australia. Australia exports to China, and if for example, China's economy slows down, then it means less export of industrial metals from Australia. This is bad news for the Australian economy, and the AUD reacts strongly to such news. So, whenever you see strong and surprising news concerning China's economy, then remember to be careful with your AUD trades.

P a g e | 30 3. Risk Management:

3.1. Introduction: Risk management is often a sadly overlooked, but by no means unimportant aspect of trading in general, and more precisely Forex. Many traders often focus on coming up with a strategy that will give them signals when to get in the market, and in the excitement of making money, will throw caution to the wind.

Knowing when not to trade is just as an important skill as knowing when to trade. Arguably, it’s even more important, because speaking practically, most of the time you are not trading. Being able to manage your exposure to the market is often the defining trait between a successful trader, and one who eventually gives up on the markets.

It’s neither an unusual nor a bad sign for a trader when starting out to get overzealous when starting out to take on too many positions, and suddenly wake up to the reality of risk in the markets when they have a substantial loss. Frequently enough, this will lead the trader to seek out information on how to manage their risk, and once they take the lessons to heart and incorporate them into their trading, they become a lot more successful in the markets.

3.2. Rules: 1. Only invest what you can afford to lose. 2. 1% risk per trade. 3. 3 confluences trade. 4. 2:1 risk-reward ratio. 5. Emotional stability.

P a g e | 31 3.3. Position sizing: It is very important that you use the same position size for all your trades. If, for example, you decide to risk 2 % of your account balance per trade, you need to stick to this rule. Your SL or TP pip value can change from trade to trade, but your risk per trade needs to remain the same.

https://www.myfxbook.com/en/forex-calculators/position-size

P a g e | 32 3.4. Correlated Pairs: Sometimes it happens that there is a very similar level at two (or more) heavily correlated forex pairs or other trading instruments. If you see that price is approaching both of the similar levels and that it will most likely hit both of them at the same time, it is better to lower volume in the positions you are going to enter in order to lower your risk exposure.

The following tables represents the correlation between the various parities of the foreign exchange market. The correlation coefficient highlights the similarity of the movements between two parities.

• If the correlation is high (above 80) and positive then the currencies move in the same way. • If the correlation is high (above 80) and negative then the currencies move in the opposite way. • If the correlation is low (below 60) then the currencies don't move in the same way.

P a g e | 33 Word of Caution: Correlations change over time and can even change from a positive to a negative correlation. That is why it’s always important to check any table update on:

https://www.mataf.net/en/forex/tools/correlation

3.5. Trading Journal: You need a trading journal in order to keep a good track of your trades, to have a solid statistic and to help you through tough times or with improving the strategy. Have a journal that suits you. If you are an analytical type and collecting and analyzing vast amounts of all kinds of data helps you improve your trading – go ahead and make it complex! If you don't like working with a lot of data and prefer keeping it simple – no problem. Just make sure that you write down all the essentials that you need to review your past trades well enough for you to learn and improve. Your journal should contain at least: date, instrument (symbol), level value, profit/loss and notes about the trade. I think it is important to write down any mistakes you did (breaking rules…) and also what you did well in the notes section. Extremely useful is also taking screenshots of your trades and reviewing them later.

3.6. Trading Psychology: Psychology is a significant part of trading. You can have a really good trading system but when you aren’t able to follow a plan and stick to your rules, then even a winning system will not work for you.

Trading Plan and Trading Journal will help you put risk management rules together, in a detailed manner so that you are able to follow your rules blindly and in an objective manner.

Since everything is included in the trading plan, you don’t need to think, feel or guess. Rules will help you be more consistent with your trading. They’ll help you avoid mental mistakes that can drain your account.

As for the trading plan, I will assist you personally to build together a healthy trading plan that suits your lifestyle.

It’s very important to avoid these mistakes:

• Using indicators excessively • Believing too much in one trade • Using too big positions • Never being able to admit you were wrong • Not using Stop-loss • Entering a position without a plan • Following other people’s ideas blindly • Jumping from strategy to strategy • Using Signals

P a g e | 34 4. A Final Word:

4.1. My Promise: You are a member of our family now; you are my responsibility and I will do everything I can to make you the best trader you can possible be. Like in the army, no man is left behind.

Do not listen to anyone. And focus on your trading, focus on how you can improve your results by using your trading plan and trading journal. Think risk, think RRR, not money.

I want you to be fully confident in yourself and your trading plan. I want you to look at the mirror, and say “I am the best trader I know”.

P a g e | 35 4.2. References: DailyFx, www.dailyfx.com

ForexPedia, www.babypips.com/forexpedia

Bank of England, www.bankofengland.co.uk

Corporate Finance Institute (CFI), www.corporatefinanceinstitute.com

FRXE, www.frxe.com

Tickmill, www.tickmill.com

CMC Markets, www.cmcmarkets.com

Mataf, www.mataf.net

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