Forex Trading - How to Create a Trading Strategy
- 1. How to Create a Trading Strategy ? Be Discipline, Be Rich
- 2. Synopsis Forex Fundamental Analysis Forex Technical Analysis Risk Management Rules of Successful Forex Traders Why do Traders Fail?
- 3. The Country's Economy Unemployment Rate Political Events GDP Interest Rate Inflation Consumer Price Index Balance of Trade Purchase Price Index Natural Disasters The Major Economic Indicators Include: An Introduction to Fundamental Analysis Fundamental Analysis refers to a method of analyzing the Forex Market based on the economic, social and political factors. It mainly focuses on the overall state of the economy and includes other factors like the Interest Rate, Employment, GDP, International Trade, etc and the impact it has on the value of a particular nation's currency. The key aspect of Fundamental Analysis is to discover the real value of a currency and to compare it with the current price and to discover a trading opportunity.
- 4. Economic Calendar The economic calendar shows the upcoming events across the world. Provides useful information on upcoming macroeconomic events by means of pre-scheduled news announcements and government reports on economic indicators that influence the financial markets. It helps a trader find out which event could shift or shake the value of a particular country's currency. The events are ranked in order of importance in terms of low;medium and high or in terms of bulls or colours. By following indicators like GDP, Inflation and Employment Strength, a trader can anticipate market volatility and gain potential trading opportunities in good time. investing.com fxstreet.com
- 5. Interest Rates The biggest factor that drives the foreign-exchange market is the interest rate changes made by any of the global central banks. The changes are an indirect response to other economic indicators and they possess the power to move the market immediately and with full force. As the interest rate changes often, it makes the biggest impact on the market. Inflation is one of the major aspect that influences the Central Bank's interest rate decision. Understanding how to predict and react to these volatile moves can lead to quicker responses and higher profit levels. Higher interest rate increases the value of a country's currency and attracts foreign investment, increasing the demand and value of the home country's currency and in case of lower interest rates it is vice versa. INTEREST RATES %
- 6. Monetary Policy It refers to the macroeconomic policy laid down by the Central Banks. It involves management of money supply and interest rate and is used by the government of a country to achieve its macroeconomic objectives like Inflation, Consumption, Growth and Liquidity. The goal of monetary policy is to stabilize GDP in order to achieve and maintain low unemployment rate and maintain predictable exchange rates with other currencies. Central Banks use monetary policy to control: - Inflation - Money Supply - Lending's to Commercial Banks - Interest Rates - The portion of Depositors Balance Commercial Banks should have on hand as Cash. Objectives Price Stability Economic Growth Full Employment and Maximum Output Exchange Stability Interest Rates
- 7. Political Events Political events affect the market more than the economic data. When an investor puts his money in a stable country with a strong economy and a stable political system. Any political uncertainty might pull down the domestic currency. As a result, the investor withdraws his assets and invests them in stronger currencies. Hence, all these lead to the suffering of the economy and a greater depreciation of the currency. ELECTIONS SOCIAL INSTABLITY CROSS COUNTRY DISPUTES INTERNATIONAL SUMMITS AND MEETINGS SPEECHES AND COMMENTS OF POLITICAL OFFICIALS The Value of Currency
- 8. To Know More : To know more on Forex News, Courses and Forum Discussions visit: Babypips.com Investing.com Fx Street Fx Factory
- 9. Forex Technical Analysis Synopsis: An Introduction Forex Charts Technical Indicators Technical Strategies
- 10. Technical Analysis Predicting the Future Price action based on the Historical performance Evaluating assets based on the Analysis and Statistics of Past Market Action, such as past prices and past volume Analyzing the market using Technical Charts, Indicators and Tools.
- 11. Forex Charts Used by traders to Analyze the Movement of Currency Prices and determine the moment to Buy and Sell Three primary chart types which include Line chart, Bar chart and Candlestick chart
- 12. Line Chart Bar Chart Draws a line from one Closing Price to the Next Closing Price. When strung together with a line, we can see the general price movement of a currency pair over a period of time. It shows the Opening and Closing prices, as well as the Highs and Lows. The Bottom of the vertical bar indicates the Lowest traded price for that time period, while the Top of the bar indicates the Highest price paid.
- 13. Candlestick Chart Candlestick charts show the same price information as a bar chart, but in a Graphic Format. In candlestick charting, the larger block (or body) in the middle indicates the range between the opening and closing prices. If the block in the middle is filled or colored in, then the currency pair closed lower than it opened.
- 14. Types of Candlesticks A bullish candle is formed when there is a significant increase in price with a longer body. The body of the candle can stretch as much as it can, which says that there is a growth in the market. A bullish candle means there is currently more buying pressure in the market. As long as buyers maintain enough buying pressure the candles will be bullish. If buying pressure eases and selling pressure increases bullish candles will become smaller, representing decreased bull strength. Bullish Candle:
- 15. Bearish Candle A bearish candle is formed when there is a decrease in the market. Longer the body the more chances of a price decrease. A Bearish Candle means there is currently more selling pressure in the market. As long as sellers maintain enough selling pressure the candles will be bearish. If selling pressure eases and buying pressure increases, bearish candles will become smaller, representing decreased bear strength.
- 16. Spinning Tops It is a neutral pattern that occurs when the distance between the high and low, and the distance between the open and close, are relatively small. Spinning tops are the patterns where small real bodies are formed. These patterns have much longer shadows than the bodies. It points both bullish and bearish trend.
- 17. Doji is a pattern, in which the market opens and closes at the same time. There are different types of Doji patterns depending upon the opening and closing of the market. Long-Legged Doji: This long-legged Doji comprises of long upper and long down shadow, and the price in the middle. Dragonfly Doji: The dragonfly pattern signifies downtrend; it has long lower shadow and has no upper shadow. Gravestone Doji: The gravestone Doji signifies uptrend; it has long upper shadow and have no down shadow. Four Price Doji: This form of pattern indicates a very quiet market. It shows just a line which indicates indecision. In this pattern, the open, close, highs and the lows are all the same for the trader. The Doji patterns include: Doji - Trend Reversal Signal
- 18. Hammer & Hanging Man Hammer, is a bullish signal. In this candle, the down shadow must be twice the length of the real body. These hammers have little shadow up or no shadow at all. It appears after a significant downtrend. If the line occurs after a significant uptrend, it is called a Hanging Man. A small body and a long wick identify the Hammer. The body can be empty or filled in.
- 19. Inverted Hammer & Shooting Star An inverted hammer is a bullish reversal candlestick. A shooting star is a bearish reversal candlestick. Both candlesticks have little bodies (filled or hollow), long upper shadows, and small or absent lower shadows. The inverted hammer occurs when price has been falling suggesting the possibility of a reversal. Its long upper shadow shows that buyers tried to bid the price higher. The shooting star occurs when price has been rising. Its shape indicates that buyers attempted to push the price up, but sellers came in and overpowered them.
- 20. Engulfing candlestick patterns takes two candlesticks to be identified: Engulfing Candle - Similarly a bearish engulfing pattern is characterized by a bearish candle whose body engulfs the previous candle’s body. - A bullish engulfing pattern is characterized by a bullish candle whose body, the open and close engulfs the previous candle’s body. This candlestick patterns exhibits extreme market sentiment. A bullish engulfing pattern tells us that the buyers have overcome the sellers in the market, thus indicating an increase in the price and vice versa.
- 21. Three White Soldiers Uptrend Indicated It is a Bullish candlestick pattern that is used to predict the uptrend in a pricing chart. It consists of three consecutive long-bodied candlesticks that open within the previous candle's real body and a close that exceeds the previous candle's high. The size of the candles and the length of the shadow is used to judge whether there is a risk of retracement. It suggests a strong change in market sentiment. The pattern is mostly preceded by other candlestick patterns suggestive of a reversal, such as a Doji.
- 22. Three Black Crows Downtrend Indicated It is a bearish candlestick pattern that is used to predict the reversal of the current uptrend. It consists of three consecutive long-bodied candlesticks that have opened within the real body of the previous candle and closed lower than the previous candle. The pattern occurs when bears overtake the bulls during three consecutive trading sessions and shows up on the pricing charts as three bearish long-bodied candlesticks with short shadows.
- 23. The three easy indicators one has to be familiar with include: Technical Indicators Moving Average MTF Analysis Heat Map Technical indicators help to interpret price data and generate buy and sell signals. They help in identifying the trending environment and find high probability entry and exit points.
- 24. What is Moving Average? Price can be set at open, close, high, or low. Moving Average “Simple Moving Average”, or “SMA”, indicator is one of the oldest and most common indicators used. It was designed to smooth out the effects of price volatility and create a clearer picture of changing price trends. It has two variables involved in its computation “period” and “price”. The period can be chosen, but values over “20” are normal- ly better when dealing with longer trend lines.
- 25. There four basic MA types: Moving Average (MA) is a trend indicator, which is essentially a curve calculated based on the price changes. It assists traders by confirming the trend. Simple MA– Its values are simple arithmetic means of the price changes. Exponential MA– Here more weight is given to the latest data.The weight is calculated in arithmetic series. Linearly weighted MA-More weight is given to the latest data, however, the weight is calculated exponentially. Smoothed MA– More weight is given to the latest data, it takes into account the price values beyond the time period (their influence is not significant).
- 26. How to add the Moving Average Indicator? Select “Indicators”–”Trend”–”Moving Average” in the “Insert” tab of the upper menu or just by clicking on the relevant icon on the toolbar. To set the indicator right click on the indicator and select MA(32) properties. You will see a window, where you can set the following parameters: - Period - Shift - МА method ( МА type, like Simple, Smoothed, Exponential and Linear Weighted) - Apply to (calculate based on the opening/closing price, etc.) - МА style (color, thickness) You can also choose the timeframes from the visualization window.
- 27. It is the most basic trading approach as only one indicator is needed for the analysis Trading with the Moving Average Indicator Trading with One MA Trading with Two MA The chart has two Moving Averages with different parameters and the signal is the intersecton of two Moving Averages. In this case if the fast Moving Average crosses the slow one upwards, then a long position opens. In this case the position should be open when the price crosses the Moving Average. If the price crosses the Moving Average Upwards a Long Position opens and vice versa.
- 28. MTF - Analysis Multiple Time Frame It refers to monitoring the same currency pair across various frequencies. Helps a trader zoom in to find out better entry and exit points. Offers the opportunity for traders to understand the market structure in a much deeper and profound way than any single time frame analysis
- 29. BlueMax Multiple Time Frames We offer 9 degrees of time frames.The time frames we provide are : 1 minute, 5 minutes, 15 minutes, 30 minutes, 1 hour, 4 hours, 1 day, 1 week and 1 month
- 30. The Best Time Frame Combinations Spotting Support & Resistance - Support & Resistance is key for the higher time frames. Reviewing the weekly chart, for instance, is useful if you are a swing trader. Identifying the trend and patterns - The middle time frames are the best for viewing trends, momentum, corrections, and patterns in general. For swing traders this would be a daily chart, whereas for intra-day or intra-week traders, a 1-hour or 4-hour chart would be appropriate. Searching for entries - The lowest time frames are the best trigger chart, and are useful for trading purposes. It is the best for finding the entry, and also for taking a trade setup. There is nothing wrong with single time frame analysis, but traders can see clearer benefits performing multiple time frame analysis, specifically when using three charts with three different roles.
- 31. Heat Map It also identifies the risk of entry on each and every potential trade. It is a real time visual map of the entire forex market for spotting strength and weakness in individual currencies. It also verifies and validates any trade entry. It monitors 28 currency pairs in real time. Heat Map tells when the market or individual currency groups have mixed signals and tells when NOT to enter a trade.
- 32. Forex Strategy 1.Trendline Trend Pattern Up Trend: The Buying strategy is preferable when the market goes Up Down Trend: The Selling strategy would be right when the market goes Down When the market moves Sideways the third option – to Stay Aside will be the Wisest Decision Forex Trend is the Direction in which the Market Moves. It is comprised of a series of Highs and Lows, and depending on the movement of those peaks and troughs one can understand the trend in the market.
- 33. 2. Support and Resistance Strategy The Support and Resistance are the terms for Price Lows and Highs respectively Support level indicates the area on the chart where the Buying Interest is significantly Strong and surpasses the selling pressure Resistance level represents an area on the chart where Selling vInterest overcome buying pressure For an Uptrend to go on, each Successive Support Level should be Higher than the previous one, and each Successive Resistance Level should be Higher than the one preceding it When the Price Falls to the Support Level, Traders decide to Buy creating demand and driving the price up When the Price Rises to a Resistance Level, Traders decide to Sell, creating a downward pressure and driving the price down
- 34. The key concepts to survive as a Forex Trader: Risk Management- Keeping Risk Under Control Proper use of Leverage Maintaining the Risk-Reward ratio Using Stop Loss and Take Profit Selecting the apt lot size Controlling your Emotions (Greed; Fear and Over Trading) Following the Trading Strategy Risk Management Leverage Risk-Reward Ratio Stop Loss andTakeProfit Lot Size Trading Strategy
- 35. Golden Rules Successful Traders Follow They maintain the Basic Infrastructure i.e they keep the computer in a good state with a proper and fast internet connection. They do not Gamble. They take Forex as a business and consider it as pure trading. They are 100% Disciplined. They follow their Trading Strategy. They follow all the Risk Management Rules. Trade keeping their Emotions Aside. They Maintain History for each and every Trade they place and learn from their Mistakes. They Keep Learning. Maintain Basic Infrastructure Do Not Gamble 100% Discipline Follow Trading Strategy Follow Risk Management Rules Keep Emotions Aside Maintain Trading History Keep Learning SUCCESS
- 36. Why do Traders Fail? No Trading Plan or Strategy No Risk Management i.e using High Leverage or no proper use of Lot Size, Stop Loss,etc Undermining Money Management Not Fixing the Stop Loss and Take Profit Letting Losses Compound Setting the Wrong Goals Overtrading i.e. trading too many positions at a time Being Unaware of the News and Data Events. No Trading Plan Setting the Wrong Goals Undermining Money Management Letting Losses Compound Unaware of the News and Data Events Giveup and Leave the Market
- 37. The Key to Successful Trading!! Happy Trading !!! “Follow Trading Rules Keeping Emotions Apart” “Trade with Discipline and the Market will Reward You” Thank You