What You Will Learn At TST
What You Will Learn At TST
It wasn’t that long ago that traders used to think that technical analysis was just some form of magical hocus pocus. Now all experienced traders will be using some form of technical analysis to predict and enter trades. The market has changed and technical analysis has become the go to for most forex traders due to its reliability and predictability in the long run.
All traders will have what is known as an edge. A trading edge is a technique or approach in the market that creates a cash advantage over other traders. Our edge is our strategy. Our strategy will tip the odds in our favour so that every trade we place we have a higher chance of playing out then if we didn’t have a strategy at all. By the time you have finished and perfected this course you will be able to enter the market with an edge over the other traders – which in turn will make you more profitable in the long run.
- We will be looking at the overall market structure to get a clear and simple understanding of where the market is heading next.
- In this strategy we will be providing a mix of patterns, structure and more technical fibonacci levels to create a clean, easy to use and understand edge.
We have found there is real reliability with this type of trading. Having worked with both technical and fundamental traders, we have found that our simplified swing strategy will align with the analysis both have provided whilst being easier to understand and execute. Having said that, we will be using a few other technical analysis techniques to improve our edge, first up we have..
- Support and Resistance – now this is definitely good to understand, we will touch upon this how and where I use it on the charts later in the strategy. Support and resistance will not be heavily relied upon. We have found through my time in forex that support and resistance can actually hold you back in the markets if you’re marrying it too much but still a great tool to have in the toolbox.
Next up we have the Fibonacci retracement tool.
- Within this strategy you will be able to understand and use Fibonacci retracement levels to identify clear areas of price action reversals. Now a Fibonacci retracement tool is one of our favourite technical analysis tools to use on the live markets, we won’t go into too much detail as we’ll cover it later on in the strategy but it is an excellent way of gauging when the markets will reverse in an up or downtrend.
Overall, It is an excellent Swing Based strategy that allows you to leave the charts behind to get on with other tasks – this is brilliant as it means you will not force trades by staring at the charts all day. When we first started trading I would wake up in the morning desperately looking for positions on the live markets just so we had the thrill of being in a trade (I’m sure the majority of the traders reading this would have done the same). With experience we have found that the more time away from the charts combined with more time backtesting, forecasting and planning will lead to considerably better trading results. So with this strategy it means we can take up hobbies like running, swimming and cycling that will be so beneficial for our trading. A clear mind in front of the charts will be vital.
And finally what separates us from the rest is how simple and clean we will be keeping our chart work, it makes it so much easier to understand and more importantly makes it easier for others to understand. WE KEEP OUR CHARTS CLEAN. Having come from multiple different backgrounds and communities we have seen so many communities where the analysis in the chat rooms is just way too complex to understand. Not being able to understand someone’s analysis because they combine too many indicators or strategies into one, putting every single indicator onto your charts will not make you a better trader. Master your trading ‘edge’. Learning and communicating with other people will improve you as a trader in the long run, so in our community let’s make it easy for others to understand your charts! Remember feedback is key for personal growth.
Before everything begins we need to cover some theory that will really improve your Foreign Exchange understanding. We highly recommend you take the time out to make notes on this section as it will truly be an added string to your bow.
What is the foreign exchange? Who trades it? When can it be traded?
Forex or FX stands for ‘Foreign Exchange Market’ and it is the largest financial market in the world. It is a global market that allows the exchange of one currency to another.
When travelling abroad, you’re essentially using the FOREX Market; you are selling one currency for the chosen alternative. For example, if we wanted to travel to the USA from the UK, we would need to buy United States Dollars (USD) and sell our Great British Pounds (GBP) as we are based in the UK – just like you would do so on the FOREX Market.
To understand the size of the Forex Market – The New York Stock Exchange trades around $22.4 billion a day, whereas the Forex Market trades $5 trillion a day, therefore proving huge volatility and liquidity. This is great for us as it creates amazing liquid trading conditions and opportunities for us to capitalize on.
So what are we actually trading?
We’re essentially just trading MONEY!
Think of Forex as buying a share in a particular country, like buying a stock in a company.
If you’re buying Dollars, you’re buying a share in the US Economy. You are in effect making a bet that the US Economy is doing well, and hopefully will continue to do well, so therefore you will return a profit in the future. Vice versa, if you are selling the dollar, you are betting against the US Economy.
The Exchange Rate of one currency versus another currency is a reflection of that country’s economy, in comparison to other countries economies. Consequently, the stronger the economy of a country, the stronger the currency.
You may have noticed that currency pairs are broken into abbreviations. All currencies have 3 letters to aid us in distinguishing one from another. The way in which this is done is simple: The name of a country, paired with the name of their currency! The first two letters of the abbreviation identifies the name of the country and the last letter identifies the name of the currency.
For example USD stands for the United States Dollar, United States being the country and the Dollar being the currency.
The Japanese Yen is a slight exception as it is broken down into its syllables. It’s broken down to JPY.
And there are of course many more. By this point you should have developed a small trading watchlist and so should be able to identify a few of the top traded currency pairs.
A currency pair is the value of a currency unit against the unit of another currency in the foreign exchange market. The currency that is used as the reference is called the Quote currency and the other currency that is quoted in relation is called the Base currency.
Let’s use EURUSD as an example:
The Base currency is the Euro
The Quote Currency Is the United States Dollar
In forex trading you do not need to take possession of the currency to trade. When trading on the Foreign Exchange Market, you are trading a CFD. This stands for ‘Contract For Difference’. This is essentially a contract between an investor like you and me and a broker or bank. At the end of the contract, the two parties exchange the difference between opening and closing prices of a specified financial instrument, including shares, commodities and currencies.
When you are exchanging your currency to go abroad, you OWN the exchanged currency. When you are trading a CFD, you DO NOT OWN the exchanged or traded currency; you are simply trading the contract to make money on the difference when closed.
So who actually moves the Market?
Supply and demand of a currency is the main driver of the Forex Exchange movement. If the demand for a currency – for example, the US Dollar – increases, so will the rise in people looking to convert their currency into Dollars. This will lead to its price to go up, unless supply also rises to match the increased demand.
This is the same with supply: If the supply of a currency goes up without a parallel rise in demand, then its currency will drop in value.
With $5 trillion dollars being traded daily your input into the market won’t make the market move noticeably. This is where the central banks come in.
We are what is known as ‘retail traders’. We will be entering the market in the area of high probability to capitalise on the movement created by the larger banks and institutions.
Central banks have a massive role to play in currency movement – they can control the supply and demand of a currency by controlling economic factors such as Base Interest Rate. Without going into too much economic detail – interest rates increase/decrease the foreign direct investment into a country. Typically, higher rates reduce investment, because higher rates increase the cost of borrowing. It also requires investment to have a higher rate of return to prove profitable and vice versa. Investment creates a demand for a currency causing the currency to rise in value.
When we put a buy position on USDCAD for example we are buying the United States dollar, we have created a demand for the dollar therefore increasing the price of the dollar against the Canadian Dollar.
Other than retail traders like you and me, who Trades Forex and When Can It Be Traded?
Forex traders and investors are a diverse group, coming from a broad spectrum of backgrounds, ages and disciplines. From the individual who is brand-new to the market, to the most seasoned currency trader, engaging in forex trading is one of the most common methods of participating in the world’s financial markets.
The great thing about forex is low entry barriers to the market. To trade forex all you need is a computer, an internet connection and brokerage account. While each person who enters the marketplace has a unique set of goals and objectives, forex traders are typically divided into two major categories. These are Institutional and Retail Traders.
So who are the institutional players?
First up we have:
The Government or Central Banks – examples include the European Central Bank, the Bank of England, and the Federal Reserve or the FED as you may hear it called.
These are regularly involved in the Forex Market. Just like companies; national governments participate in the Forex Market for their operations, international trade payments, and handling their foreign exchange reserves.
Another big player are The Investment Banks
For example JP Morgan, Citibank, UBS, Deutsche Bank.
These banks have huge amounts of capital and due to the banks large presence in the Forex Market, they have the ability to drive short term market trends and counteract retail traders due to the sheer size of the accounts being traded.
You may have heard of market manipulation before? It’s the big players like the one mentioned now that have the capital to break through potential support or resistance zones created in the market and change the overall trend of price action.
Now surprisingly we also have Large Companies and Businesses as a big player.
In the 21st century companies are now more global than ever. Samsung, for example, might produce its phones batteries in China, screens in Vietnam and Logic boards in the United States. But, at each stage of production Samsung would have to convert its base currency into different currencies in order to purchase the parts required. This moves the Foreign exchange market as currency is being transferred from one country to another.
And then finally we are then left with…
Speculators and Individual Investors
This is where we come in! We are simply known as ‘Retail traders’ – often referred to as ‘Individual Traders’ as we buy or sell securities for personal accounts.
The majority of market movement comes from the Large companies and Super Banks. Our aim is to get into the market at the right point in order to be taken with the market movement created by the large institutions. We don’t want to be caught on the ‘wrong side of the market’ as they say.
When Can the Forex Market Be Traded?
The Forex Market can be broken up into 4 main trading sessions:
The Sydney trading session : this trading session runs from the 9 pm GMT to 5 am GMT
The Tokyo trading session : this trading session runs from 11 GMT to 7 am GMT
The London trading session : this trading session runs from 7 am GMT to 3 pm GMT
And then lastly the New York trading session : this trading session runs from 12 am GMT to 8 pm GMT
Between 8 am GMT and 3 pm GMT is where you’ll see the most forex movement as this is when the London and New York session cross over. The London/New York crossover is when the markets become really interesting, in this period you’ll get traders from the two largest financial centres in the world begin to trade (14:00-16:30pm GMT).
This is especially volatile when political news is released surrounding the United States Dollar and Canadian Dollar. The volatility created will see the largest FX movements so we must be prepared to capitalize on these moves hours, days or weeks in advance – this is where our forecasting comes in (we’ll touch upon this later in a later video)
When entering the market there are 5 different types of entries that all traders NEED to know. All of these entry types will be covered in this video, we’ll be going over what each entry type is and then later in the strategy you understand how we use them on the live markets.
These are the 5 Entry types:
So first up is the Market execution, this one is really straight forward.
A market order is a buy or sell order to be executed immediately at the current market prices. As long as there are willing sellers and buyers, market orders are filled.
Sometimes within the Forex market there are not willing buyers or sellers to meet your order and so ‘slippage’ occurs. Slippage is more likely to occur in the forex market when volatility is high, perhaps due to news events, or during times when the currency pair is trading outside peak market hours.
A buy stop order is when you are buying a financial instrument above the market. Unlike a market execution this is an order type that will NOT automatically enter you into the trade. You will only be entered into a buy position when price action touches your entry order.
A sell stop order is essentially the opposite of a buy stop. A sell stop order is when you are selling a financial instrument below the market. You will only be entered into a sell position when price action touches your entry order.
We have found that both the Buy and Sell stop orders offer the best risk protection out of all the order types, so take note of these they’re going to be used a lot.
Within this strategy we won’t often use limit orders as we like to wait for confirmation before entering a trade. We believe if you are using ‘limit orders’ an element of gambling comes into your trading with the payoff of having a slightly better entry.
A Buy limit is an order to enter a buy position below the market. You will be buying a financial instrument when price has been sold down to your order price to then be entered into a buy position. You use this type of entry order when you believe the price will reverse upon hitting the price you specified, it’s essentially predicting when the market will reverse.
Essentially the opposite to a Buy limit. A Sell limit is an order to enter a sell position above the market. You will be selling a financial instrument when price has been brought up to your order price to then be entered into a sell position. You use this type of entry order when you believe the price will reverse upon hitting the specified price.
So now that’s all the entry types covered, let’s move onto setting up Tradingview, the charting software we use to analyse the charts.