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2 Disclaimer All rights reserved to MTE-Media. The distribution, duplication or screening of this lesson and/or any part of it in any form is prohibited. Any duplication or copying shall be considered a violation of the copyrights law. Violator shall be liable to prosecution under the law. The user of this information does so at his/her own discretion and the user is fully responsible for consequences thereof. Any information contained within the Courses is not intended as an offer, solicitation for the purchase or sale of any financial instrument, nor to provide any investment advice or service, or to perform any act of any kind. General risk warning: trading in binary options / Forex carries a high level of risk and can result in the loss of all of your investment. As such, binary options / Forex may not be appropriate for all investors. You should not invest money that you cannot afford to lose. Before deciding to trade, you should become aware of all the risks associated with binary options / Forex trading, and seek advice from an independent and suitably licensed financial advisor. Past performance may not be indicative of future results.

3 "Only those who will risk going too far can possibly find out how far one can go." Albert Einstein

4 Chapter 1 The Forex Market What is the Forex Market? The Forex market is the trade arena which allows investors to trade foreign currencies throughout the trading day. This market is the largest in the world and has a daily turnover of 3 trillion USD. The market is active 24 hours a day, 5 days a week. The value of the currencies changes every moment throughout the day according to supply and demand levels. Just as in a regular market we buy and sell vegetables and in the stock market we buy and sell stocks. In the Forex market we buy and sell currencies, this is our product. There are more than 100 currency pairs in the world which can be traded. Chapter 1: The Forex Market

5 Currency exchange rates are uniform throughout the whole world. If the exchange rate of the Euro in relation to the USD is in London, it will be in Congo, New York, Australia and Hong Kong. The Forex market is largely composed of speculators. Speculators are people like me, or perhaps like you, who buy and sell currencies to profit from the change in the exchange rate of a currency. Only five percent of the transactions are for real purposes of commerce such as: industry, tourism, etc. The remaining 95 percent are for speculation purposes. This is the zero-sum game: the total gains are equal to the total losses. What affects the Forex market? The Forex market is affected solely by macroeconomic data, not by microeconomic data. What is macroeconomic data? Raising of the interest rate in a country, the unemployment rate of a country and political conflicts within the country. On the other hand, microeconomic data are the balance reports of a very large company in the country, a large business deal which a large company is about to execute and/or has executed, and more. The microeconomic data does not interest the Forex market and does not affect it. In other words, the Forex market is affected by large-scale and international events. The Forex market is comprises of: currencies and commodities. Today, some brokers also allow trading of indices, futures contracts and certain stocks. All the strategies and technical analyses that you will learn here are relevant for currencies as well as for commodities. Chapter 1: The Forex Market

6 The Forex market has 2 principle characteristics: The first is: liquidity. Have you ever bought a stock and couldn't sell it a specific moment? Example: You have bought a particular stock. The stock had risen greatly in only a few months and all of a sudden the CEO resigned, at that moment there was a pause in the trade which lasted a few hours, and the next day the stock decreased by 10%. You are stuck with the stock! In the Forex market such a thing would never occur. If you have Euros, Pounds, Swiss Francs or any other tradable currency, you can sell it at any point in time. You will never get stuck with a currency. As traders, it doesn't matter what you buy, what important is that at any moment you can cash in your goods there will always be a buyer. There is one very important rule to remember: Until you cash in your goods, there is no knowing whether you have gained or lost. The second characteristic is: In the Forex market there is no control by external financial bodies. A speculator, as great as he/she is, cannot influence the exchange rate. Central banks intervene in the trading once every decade and are successful in effecting the value of the currency by a total of two percent, a movement of this kind lasts for only a few hours and then the exchange rate returns to its natural price. On the other hand, in the case of stock and options, a large broker has the ability to inject tens of millions of USD and by doing so they can change the price of the stock by tens of percentage points and unfortunately they do so from time to time. Chapter 1: The Forex Market

7 What do we have in a market which is influenced by macroeconomic data and not microeconomic data? For stocks, for example, there are many factors which must be followed. Imagine that you own 4-5 stocks in the NYSE. Let's assume that you are serious investors, not gamblers. You have to know who the shareholders are in every company you invest in, what the multiplier is, what the balance sheets look like, the gains and losses report, internal information, such as, for example, resignation of an executive, a large future contract, and so on and so forth. One must know so much information that following them on a daily basis would require many hours each day. In the Forex market there are five to six significant data in a month. The firm through which you trade will provide you with these data in real time, and you, with the knowledge that you will gain, will trade accordingly. Do you understand the significance? 5-6 pieces of significant information in a month, that's all. You won't have to live in constant chase after changes in companies in which you invest. Chapter 1: The Forex Market

8 The important information reaches everyone at the same time. Let's assume that I am the marketing manager of a large pharmaceutical company, and I am on a flight returning from China, and in my hands is a closed contract with the government of China, a contract which is expected to increase the profitability of the company by 100 billion USD a year. Who knows about the deal? myself, the CEO, his wife and her brother. And they don't do anything with that knowledge, right? You made me laugh!!! Until it is reported in the news that a huge deal took place with China, there are people who already know, who have made use of it, and the price of the stock already reflects the news. You will be in the second level of decision makers. Haven't you ever met someone who told you that he/she bought a specific stock based on insider information and the next day it rose by 20%? Yes, yes it happens... In the global foreign exchange market, when the American federal reserve Governor publish a decision to increase the interest rate, the whole world knows it in the same exact second and can respond immediately to buy or sell the USD. There is nobody who has insider information beforehand and who make use of it in an unfair manner. Chapter 1: The Forex Market

9 Market research and analysis The two main approaches for analyzing the movements in the Forex market are the fundamental analysis approach and the technical analysis approach. The fundamental analysis focuses on financial and economical theories, as well as political developments, to determine the forces of supply and demand. The technical analysis focuses on price levels and trade volumes, and from these data expectations are formed for future levels of the market. The main difference between technical analysts and fundamental analysts is that the fundamental analysts concentrate on causes of movements in the market, whereas technical analysts concentrate on the effects of movements in the market. Chapter 1: The Forex Market

10 Exercises Question 1: What is the turnover of the Foreign Exchange Market? A. $100,000USD per day B. $500,000,000USD per week C. $3,000,000USD per day D. Over $3,000,000,000,000USD per day Question 2: The Foreign Exchange Market is mainly influenced by: A. Large, international events B. Micro data C. Macro data D. Answers A and C are correct Question 3: What is the percentage of speculators on the Foreign Exchange Market? A. 10% B. 30% C. 75% D. 95% Question 4: When the Euro's rate in London is , what is the Euro's rate in Australia? A B C D. All of the above answers are correct Chapter 1: Exercises

11 Question 5: How much significant data is there on the Foreign Exchange Market during the course of a month? A. 3 B. 5-6 C. 20 D. 50 Answers: D,D,D,C,B Chapter 1: Exercises

12 "The essence of knowledge is, having it, to apply it: not having it, to confess your ignorance." Confucius

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14 Chapter 2 Elementary concepts of the Forex Market Currency pairs, buying and selling rates In foreign currency trading there are always currency pairs the base currency and the counter currency. The base currency it is in essence our product, it is denoted on the left side of the pair. We always buy or sell the base currency. The counter currency it is the means of payment and is denoted on the right side of the pair. In a transaction involving the EUR/USD I buy or sell the Euro against the USD wherein the means of my payment is the USD. Chapter 2: Elementary concepts of the Forex Market

15 The exchange rate is the price of one unit of the base currency in terms of the counter currency. Let's take a look at the Euro against the USD: One Euro is equal to USD. Spread Spread is the difference between the buying price and selling price and is the commission which you pay, as currency traders. For example: If, for instance, you want to convert USD to Euros at the bank. They will tell you that the buying price is 1.56 and that the selling price is In other words, in order to buy one Euro you would have to pay a little more than one and a half USD. If in that very moment you would want to sell your one Euro to the bank, the bank will buy one Euro at a price slightly lower than one and a half USD, so if you sold 1000 USD to the bank you received 641 Euros. By selling the Euros back you will get only 955 USD. You paid 1000 USD and received 955 USD, so where are the other 45 USD? This is the profit of the CHANGE store this is the commission they charge from their customers. This is the only commission that you will pay; in the Forex market there are no additional commissions. Chapter 2: Elementary concepts of the Forex Market

16 Pips Another important concept in the Forex market is pips pip (singular), pips (plural) In the Forex market the exchange rate rises by pips and falls by pips. For most of the currencies, the pips are denoted 4 places after the decimal point. In other words, if the EUR/USD rate is then the number of the pip is 0. If the exchange rate was previously and now it rose by one pip, the exchange rate will be If the exchange rate fell by 10 pips, it would be and so on. The Japanese Yen is different: For the Japanese Yen the pip is denoted at two places after the decimal point, meaning that, if the USD/JPY is at 88.57, then the pip is equal to 7. if the exchange rate rises by 3 pips it would be equal to and if it decreases by 27 pips the exchange rate would be Chapter 2: Elementary concepts of the Forex Market

17 Average daily fluctuation To become acquainted with the concept, the average daily fluctuation of the EUR/USD is about 100 pips a day. On more turbulent days the fluctuation reaches pips, on calmer days the fluctuation reaches pips. And in terms of percentage? If the exchange rate is currently and I want to announce tomorrow that it rose by one percent, it would be represented by a rise of 152 pips. So if we said that the daily fluctuation of the EUR/USD is about 100 pips a day, by what percent does the EUR/USD fluctuate on average? About 0.7%-0.8%. and in more turbulent periods 2% at most. From this we can learn of a new and important advantage that exists in the Forex market this market is stable, and I'm referring mainly to the major currencies: Euro, USD, Pound, Yen and Swiss Franc. Value of pips Let's now learn the value of every pip within the confines of a particular transaction. If the exchange rate of the EUR/USD is and you want to buy 100,000 Euros, how many USD do you have to pay? 152,200 USD, of course. A second passes and the exchange rate rises to By how many pips did the exchange rate rise? By one pip. And what is the current value of the 100,000 Euros? 152,210 USD. Which is 10 USD more. The value of one pip in a transaction of 10,000 Euros is one USD. In other words: In a transaction of 100,000 Euros, each pip has a value of 10 USD. And in a transaction of one million Euros 100 USD. Chapter 2: Elementary concepts of the Forex Market

18 How are pips calculated? We take the amount of the transaction that we have performed in terms of the base currency and divide by 10,000 this is the value of one pip in terms of the counter currency. For example: For a transaction of 100,000 Euros we divide by 10,000, and we get 10. This means that the value of every pip is $10. If we execute a transaction of 30,000 Euros, every pip worth is 3 USD. For the Japanese Yen the calculation is slightly different. We divide the amount of the transaction in terms of the base currency by 100 and that is the value of the pip. For example: A transaction of 100,000 USD in the currency pair USD/JPY, we divide by 100 and the result is 1,000 Yen. Assuming that the exchange rate is 88.00, we divide the 1,000 by 88, meaning, USD per pip. Example: We will take the currency pair of EUR/GBP and a transaction of 100,000 Euros, each pip is worth 100,000 divided by 10,000 and is therefore worth 10 USD. And in what currency are we paying in? In Pounds. Meaning that every pip is equal to 10 Pounds. Size of the spreads Do you know what the accepted ask/bid spread is for the EUR/USD exchange rate? 3 pips. So in order to perform a transaction of 100,000 Euros, which is equal to 152,000 USD how much commission must one pay? If every pip is equal to 10 USD in a transaction of 100,000 Euros, and the spread is 3 pips, we will pay 30 USD in commission a onetime payment which includes the purchase and the sale. Chapter 2: Elementary concepts of the Forex Market

19 Commissions If to compare the commissions rate paid in the stocks market we will notice that in the Forex market the commissions rate are very low. For example, in a 10,000 Euro trade the stock's commission is half a percent hence 50 Euro. In Forex however you will pay only 3 USD commission for a 10,000 Euro trade, for a 100,000 Euro trade you will pay only 30 USD commission and so on and so forth. Chapter 2: Elementary concepts of the Forex Market

20 Trading rules If you trade a certain product, and you think that its price will rise, you will buy it and if its price indeed rises, you will profit when you sell it, and if you are wrong and its price goes down, you will lose. The rules are: A trader who thinks the value of his product is going to rise, buys more goods and waits for the price to rise in order to sell. A trader who thinks that the value of a product is going to fall, rushes to sell the goods and make the most of his money. Traders do not always have to lose everything or gain everything, the trade can be stopped in the middle, and such a situation will be expanded upon further later. Let's translate this into terms of Forex market: If you expect the exchange rate of a currency to rise, you will buy it. If you expect the exchange rate of a currency to drop you will sell it. The sum which you profit or lose depends on the volume of the transaction which you perform. The greater the transaction is, the more you can profit, but you will take on a greater risk and the smaller the transaction is, the smaller the profit will be but you will have taken on a smaller risk. Trading currencies is exactly like buying and selling wood, tomatoes or cucumbers. We buy the goods when we think the price will rise, and we sell the goods when we think the price will fall. Chapter 2: Elementary concepts of the Forex Market

21 Transaction / Position In order to complete a transaction we need to perform a purchase and a sale. If a purchase and a sale were not performed, then the transaction was not completed, and it doesn't matter if you are going to gain or lose in the course of the transaction. Remember, this is an important rule: realization of the gain or loss occurs only when the transaction is complete. Position is in essence a transaction. Opening of the position - opening of a transaction for a currency pair. Open position a position which hasn't yet been closed, in other words, the transaction has not yet been completed. Closed position a transaction which has been completed, the actions of purchase and sale have been performed. Leverage So what is leverage? Brokers allow you to perform transactions in sums of money which are much larger than the amounts that you have in your account. Sometimes even up to 400 times more than what you have invested. For example: You have deposited 1000 USD, the exchange rate of the Euro against the USD is And you believe that the price of the Euro is about to rise by 100 pips. That is your opinion. You can pick up the phone and call the broker or give an order via the computer, 24 hours a day please buy me 100,000 Euros Despite the fact that you have deposited 1000 USD and 100,000 Euros cost 152,000 USD, in this case you have taken advantage of a leverage of 152 times the money which you have in your account. In a transaction of 100,000 Euros, how much is each pip worth. We learned it already, remember? 10 USD. Let's assume that the exchange rate indeed rose to How many pips have you earned? 100. And how much money have you earned? 100*10 = 1000 USD. Let's deduct the commission, and the net profit from the transaction will be 970 USD. Nearly a 100% return in one day. How great! Chapter 2: Elementary concepts of the Forex Market

22 But what will happen if the exchange rate falls to ? You have lost 100 pips, you have lost all of your 1000 USD. Should you leverage? Later on you will learn whether it is worthwhile to leverage your transactions and by how much. But one must always remember, for whoever wants to leverage the option is always available, but it's risky. When there is a leverage of 300 times you can perform a transaction of 300,000 Euros as well, and if the price rose by 100 pips, you can even earn a 300% return in one day. But if the exchange rate decreases by 33 pips, you have lost your whole investment. Why do the firms allow us to leverage? The answer is simple: It is preferable for them that we perform a transaction of one million Euros rather than a transaction of 10,000 Euros, in this way the broker earns a commission of 300 USD and not 3 USD. Later on you will learn what your interest is as traders, and why you shouldn't be tempted to leverage transactions. Chapter 2: Elementary concepts of the Forex Market

23 Exercises Question 1: What is the meaning of the word SPREAD? A. The base exchange rate B. The currency exchange rate C. The secondary currency exchange rate D. The difference between the selling price and the purchase price Question 2: What is the average daily fluctuation of the main currencies on the Foreign Exchange Market? A. 10% B. 1% C. 15% D. 100% Question 3: In a EUR/USD currency pair, you purchased Euro. The deal is for 150,000. What is the value of each pip? A. 1.5$ B. 10$ C. 15$ D. 20$ Question 4: What is the secondary currency (or variable currency) and where is it to be found? A. The secondary currency is our product and it is always found on the right hand side of the currency pair B. The secondary currency is the method of payment and is always found on the left hand side of the currency pair C. The secondary currency is our product and is always found on the left hand side of the currency pair D. The secondary currency is the method of payment and is always found on the right hand side of the currency pair Chapter 2: Exercises

24 Question 5: At the time of the deal opening, the account will be in a state of: A. A positive balance of 10 pips B. A negative balance of 10 pips C. A positive balance of the spread D. A negative balance of the spread Question 6: In a EUR/USD currency pair, the currency rate is / You purchased 200,000. The currency rate reached / and you closed the position. How many pips did you make? A. 57. B. 47. C. 50. D. 53. Answers: D,B,C,D,D,B Chapter 2: Exercises

25 "The four most dangerous words in investing are: this time it's different." John Templeton

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27 Chapter 3 Beginners trader strategies A. Trend signal Strategy General Description In the trend signal strategy, we look for a candlestick that indicates a return to a previous trend following a correction. This strategy is appropriate for timeframes of 15 minutes and higher, where the bigger the timeframe, the higher the level of precision. This strategy is suitable for all currency pairs, commodities, indices, stocks and futures contracts. Position Management A signal for entering a buy trade is triggered when an upwards trend, followed by a correction (downtrend), has been identified, and a long bullish candlestick appears whose length includes the three preceding bearish candlesticks. A signal for entering a sell trade is triggered when an downwards trend, followed by a correction Chapter 3: Beginners trader strategies

28 (uptrend), has been identified, and a long bearish candlestick appears whose length includes the three preceding bullish candlesticks. The trade should be entered at the start of the first candlestick that opens after the signal. The stop loss should be set at a distance equal to 20% the length of the correcting candlestick, and moved at the start of each new wave in order to lock in profits. Example Long Trade: In this example, we review the strategy in the AUD/USD currency pair, in a one hour timeframe, where an uptrend and subsequent correction have been identified. The signal is received by a long, corrective bullish candlestick, whose length includes the three preceding bearish candlesticks. After identifying this signal, we will enter a long position at the start of the next candlestick. The correcting candlestick is 72 pips long, with 20% of 72 being 14 pips, meaning that the stop loss will be placed at the opening value of the new candlestick minus 24 pips. In this case, the value is Chapter 3: Beginners trader strategies

29 The stop loss will be adjusted for each uptrend wave, in order to lock in profits. Example Short Trade: In this example, we review the strategy in the GBP/JPY currency pair, in a one hour timeframe, where a downtrend and subsequent correction have been identified. The signal is received by a long, corrective bearish candlestick, whose length includes the three preceding bullish candlesticks. After identifying this signal, we will enter a short position at the start of the next candlestick. The correcting candlestick is 1792 pips long, with 20% of 1792 being 358 pips, meaning that the stop loss will be set for the opening value of the new candlestick minus 358 pips. In this case, the value is The stop loss will be adjusted for each downtrend wave, in order to lock in profits. Chapter 3: Beginners trader strategies

30 B. Tunnel Strategy General Description In this strategy, we are looking for a break in a tunnel pattern. The strategy is suitable for timeframes of 4 hours or higher. This strategy is suitable for all currency pairs, commodities, indices, stocks and futures contracts. Position Management A tunnel is identified when several peaks and troughs have formed within a uniform trend. A break in the tunnel is signaled when the rate exceeds the tunnel values by 30 pips. A long position will be entered when the tunnel is in a downtrend and the tunnel is broken in an upwards direction. A short position will be entered when the tunnel is in a uptrend and tunnel is broken in an downwards direction. The stop loss will be set 20 pips from the opposite border of the tunnel, and will be adjusted for each new wave until it is triggered. Example Long Trade: In this example, we review the strategy in the EUR/USD currency pair, in a 4 hour timeframe. The downtrend is identified by the tunnel borders being the peaks and troughs of the candlesticks, as noted. Enter a long position when a candlestick appears which breaks 30 pips over the tunnel, as can be seen here. The stop loss will be set 20 pips from the opposite border of the tunnel, and will be adjusted for each new wave until it gets triggered. Chapter 3: Beginners trader strategies

31 Example Short Trade: In this example, we test the strategy in the GBP/USD currency pair, in a weekly timeframe. The uptrend can be identified when the tunnel borders are the peaks and troughs of the candlesticks, as displayed. Enter a short position when a candlestick appears which breaks 30 pips below the tunnel, as can be seen here. The stop loss will be set 20 pips from the opposite border of the tunnel, and will be adjusted for each new wave until it gets triggered. Chapter 3: Beginners trader strategies

32 C. Fractal Strategy General Description In the fractal strategy, we are looking for: A combination of averages and fractals which indicate the possibility of a future trend. This strategy is suited for timeframes of 15 minutes and up, where the longer the timeframe, the higher the level of precision. This strategy is suitable for: All currency pairs, commodities, indices, stocks and futures contracts. Indicators used: Alligator, Fractals. Position Management A signal is received when the following conditions are met: deeply non-trending market, characterized by a crossing of the three average lines of the Alligator indicator, and after the values of a fractal pair converge more than the pair that preceded them. A candlestick appears which passes the fractal rate at the peak of a long trade or the trough of (for) a short position, plus a security range of 30 pips, in order to prevent a false break. The stop loss should be set 30 pips from the value of the opposite fractal. The trade should be exited when a candlestick appears whose closing value is within the range of averages. Indicators We will add the following indicators: the Alligator indicator, found in Insert->Indicators->Bill Williams->Alligator, and will leave it with the default values of 13,8,5 and a shift value of 8,5,3. We will also add the Fractals indicator, found in Insert->Indicators->Bill Williams->Fractals. Example Long Trade: In this example, we test the strategy in the GBP/USD currency pair, in a 4 hour timeframe. A preliminary signal is received when the indicator s moving averages cross over, and a fractal pair appears which is more converged than the pairs that preceded it. Chapter 3: Beginners trader strategies

33 The buy position should be entered when the value exceeds the upper fractal by 30 pips. An example of this can be seen here. The stop loss should be set 30 pips from the value of the lower fractal. The trade should be exited when a candlestick appears whose closing value is within the range of averages. Example Short Trade: In this example, we test the strategy in the EUR/GBP currency pair, in a 4 hour timeframe. A preliminary signal is received when the indicator s moving averages cross over, and a fractal pair appears which is more converged than the pairs that preceded it. Chapter 3: Beginners trader strategies

34 The sell position should be entered when the rate passes the lower fractal by 30 pips. An example of this can be seen here. The stop loss should be set 30 pips from the value of the upper fractal. The trade should be exited when a candlestick appears whose closing rate is within the range of averages. Chapter 3: Beginners trader strategies

35 D. Fishing Strip Strategy General Description The fishing line strategy involves looking for turning points. These points indicate the possibility of a change in trend direction, and enable us to act accordingly. This strategy is suited for timeframes of 15 minutes and up, where the bigger the timeframe, the higher the level of precision. This strategy is suitable for all currency pairs, commodities, indices, stocks and futures contracts. Indicators used: Bollinger Bands. long Trade A preliminary signal is received when the first candlestick closes below the fishing strip, and the following candlestick closes within the strip. The trade should be entered at the start of the third candlestick. The stop loss should be set 5 pips below the lowest value reached by the first candlestick. The trade should be exited once 100 pips have been earned, or when the other end of the line has been reached - whichever happens first. Short Trade A preliminary signal is received when the first candlestick closes below the fishing strip, and the following candlestick closes within the line. The trade should be entered at the start of the third candlestick. The stop loss should be set 5 pips above the highest rate reached by the first candlestick. Profits should be taken once 100 pips have been earned, or the other end of the line has been reached - whichever happens first. Indicators Add the relevant indicator by selecting Insert->Indicators->Trend->Bollinger Bands. Use the default settings of 20,0,2, and configure it with the color black. Example Long Trade: In this example, we review the strategy in the USD/JPY currency pair, in a 4 hour timeframe. As can be seen, the first candlestick closed below the strip, and the second candlestick closed within the strip. Chapter 3: Beginners trader strategies

36 The buy position will be entered at the start of the third candlestick. The stop loss should be set 5 pips below the lowest value reached by the first candlestick. As can be seen, the stop loss is triggered, but immediately afterwards, a signal can be seen by the first candlestick being closed below the strip, and the second candlestick closed within the strip, meaning that we will enter another buy long position at the start of the third candlestick. The stop loss should be set 5 pips below the lowest value reached by the first candlestick. The trade should be exited once 100 pips have been earned, or the other end of the strip has been reached - whichever happens first. As can be seen, in this case the rate reaches the other end of the strip. Chapter 3: Beginners trader strategies

37 Example Short Trade: In this example, we test the strategy in the USD/JPY currency pair, in a 4 hour timeframe. As can be seen, the first candlestick closed below the strip, and the second candlestick closed within the strip. The sell position will be entered at the start of the third candlestick. The stop loss should be set 5 pips above the highest value reached by the first candlestick. The trade should be exited once 100 pips have been earned, or the other end of the line has been reached - whichever happens first. As can be seen, in this case the rate reaches the other end of the strip. Chapter 3: Beginners trader strategies

38 Good luck. Please keep in mind that using those strategies does not guarantee profits as market conditions could vary and currency trading involves substantial risk of loss and may not be suitable to all investors Chapter 3: Beginners trader strategies

39 Take into consideration: After a series of successes take a vacation. After a series of failures take a break and come learn! Be patient and work based on predetermined plans. You don t have to trade every day the market isn't going anywhere. Good luck!

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41 Chapter 4 Glossary of concepts A Account Record of all transactions. Account Balance Amount of money in an account. Appreciation A currency is said to appreciate when price rises in response to market demand; an increase in the value of an asset. Arbitrage Taking advantage of countervailing prices in different markets by the purchase or sale of an instrument and simultaneous taking of an equal and opposite position in a related market to profit from small price differentials. Ask, Offer The price, or rate, that a willing seller is prepared to sell at. Ausie The Australian Dollar B Back Office The departments and processes related to the settlement of financial transactions (i.e. written confirmation and settlement of trades, record keeping(. Balance of Payments A record of transactions with the rest of the world over a particular time period. These include merchandise, services and capital flows. Balance of Trade The value of a country's exports minus its imports. Bar Chart A type of chart which consists of four significant points: the high and the low prices, which form the vertical bar, the opening price, which is marked with a little horizontal line to the left of the bar, and the closing price, which is marked with a little horizontal line of the right of the bar. Base Currency The currency in which an investor or issuer maintains its book of accounts; the currency that other currencies are quoted against. In the forex market, the US Dollar is normally considered the `base` currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. Basis Point One hundredth of a percent. Bear An investor who believes that prices/the market will decline. Chapter 4: Glossary of concepts

42 Bear Market A market distinguished by a prolonged period of declining prices accompanied with widespread pessimism. Bid The price that a buyer is prepared to purchase at; the price offered for a currency. Bonds Bonds are tradable instruments (debt securities) which are issued by a borrower to raise capital. They pay either fixed or floating interest, known as the coupon. As interest rates fall, bond prices rise and vice versa. Broker An individual, or firm, that acts as an intermediary, putting together buyers and sellers usually for a fee or commission. In contrast, a `dealer` commits capital and takes one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. Buba Bundesbank, Central Bank of Germany Bull An investor who believes that prices/the market will rise. Bull Market A market distinguished by a prolonged period of rising prices (Opposite of bear market(. C Candlestick Chart A chart that indicates the trading range for the day as well as the opening and closing price. If the open price is higher than the close price, the rectangle between the open and close price is shaded. If the close price is higher than the open price, that area of the chart is not shaded. Central Bank A government or quasi-governmental organization that manages a country`s monetary policy a prints a nation's currency. For example, the US central bank is the Federal Reserve, others include the ECB, BOE, BOJ. Chartist An individual who uses charts and graphs and interprets historical data to find trends and predict future movements. Also referred to as Technical Trader. Clearing The process of settling a trade Closed Position Exposures in Foreign Currencies that no longer exist. The process to close a position is to sell or buy a certain amount of currency to offset an equal amount of the open position. This will square' the position. Commission A transaction fee charged by a broker. Confirmation A document exchanged by counterparts to a transaction that confirms the terms of said transaction. Contract The standard unit of trading. Chapter 4: Glossary of concepts

43 Counter Party The participant, either a bank or customer, with whom the financial transaction is made. Cross Rate An exchange rate between two currencies. The cross rate is said to be non-standard in the country where the currency pair is quoted. For example, in the US, a GBP/CHF quote would be considered a cross rate, whereas in the UK or Switzerland it would be one of the primary currency pairs traded. Currency Any form of money issued by a government or central bank and used as legal tender and a basis for trade. Currency Pair The two currencies that make up a foreign exchange rate. For Example, EUR/USD Currency Risk The risk of incurring losses resulting from an adverse change in exchange rates. D Day Trading Opening and closing the same position or positions within the same trading session. Dealer An individual or firm that acts as a principal or counterpart to a transaction. Principals take one side of a position, hoping to earn a spread (profit) by closing out the position in a subsequent trade with another party. In contrast, a broker is an individual or firm that acts as an intermediary, putting together buyers and sellers for a fee or commission. Deficit A negative balance of trade or payments. Delivery An actual delivery where both sides transfer possession of the currencies traded. Deposit The borrowing and lending of cash. The rate that money is borrowed/lent at is known as the deposit rate (or depo rate). Certificates of Deposit (CD`S) are also tradable instruments. Depreciation A decline in the value of a currency due to market forces. Derivative A contract that changes in value in relation to the price movements of a related or underlying security, future or other physical instrument. An Option is the most common derivative instrument. Devaluation The deliberate downward adjustment of a currency's price, normally by official announcement. E ECB - European Central Bank The Central Bank for the European Monetary Union. End Of Day (Mark-to-Market( Traders account for their positions in two ways: accrual or mark-to-market. An accrual Chapter 4: Glossary of concepts

44 system accounts only for cash flows when they occur, hence, it only shows a profit or loss when realized. The mark-to-market method values the trader`s book at the end of each working day using the closing market rates or revaluation rates. Any profit or loss is booked and the trader will start the next day with a net position. Euro The currency of the European Monetary Union (EMU) which replaced the European Currency Unit (ECU( Execution Date The date on which a trade occurs. F Fed - Federal Reserve The Central Bank for the United States. Fixed Exchange Rate (Representative Rate( An official exchange rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates fluctuate between definite upper and lower bands, leading to intervention. Flat (Square, Balanced( To be neither long nor short is the same as to be flat or square. One would have a flat book if he has no positions or if all the positions cancel each other out. FOMC - Federal Open Market Committee The Federal Reserve monetary committee. Forex - Foreign Exchange The simultaneous buying of one currency and selling of another in an over-the-counter market. Most major FX is quoted against the US Dollar. Forward The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved. Forward Points The pips added to or subtracted from the current exchange rate to calculate a forward price. FRA - Forward Rate Agreements FRA`s are transactions that allow one to borrow/lend at a stated interest rate over a specific time period in the future. Front and Back Office The front office usually comprises of the trading room and other main business activities. Fundamental Analysis Analysis of economic and political information with the objective of determining future movements in a financial market. Futures Contract An obligation to exchange a good or instrument at a set price on a future date. The primary difference between a Future and a Forward is that Futures are typically traded over an exchange (Exchange- Traded Contacts - ETC), versus forwards, which are considered Over The Counter (OTC) contracts. An OTC is any contract NOT traded on an exchange. Chapter 4: Glossary of concepts

45 G G5 The five leading industrial countries, being US, Germany, Japan, France, UK. G7 The seven leading industrial countries, being US, Germany, Japan, France, UK, Canada, Italy. GDP - Gross Domestic Product Total value of a country's output, income or expenditure produced within the country's physical borders. GNP - Gross National Product GNP - Gross National Product - Gross domestic product plus income earned from investment or work abroad. GTC - Good-Till-Cancelled An order left with a Dealer to buy or sell at a fixed price. The GTC will remain in place until executed or cancelled. H Hedge A position or combination of positions that reduces the risk of your primary position. High/Low Usually the highest traded price and the lowest traded price for the underlying instrument for the current trading day. I Inflation An economic condition where there is an increase in the price of consumer goods, thereby eroding purchasing power. Initial Margin The initial deposit of collateral required to enter into a position as a guarantee on future performance. Interbank Rates The Foreign Exchange rates at which large international banks quote other large international banks. Intervention Action by a central bank to effect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates. IRS - Interest Rate Swaps An exchange of two debt obligations that have different payment streams. The transaction usually exchanges two parallel loans; one fixed the other floating. K Kiwi The New-Zealand Dollar. L Leading Indicators Economic variables that are considered to predict future economic activity (i.e. Unemployment, Consumer Price Index, Producer Price Index, Retail Sales, Personal Income, Prime Rate, Discount Rate, and Federal Funds Rate(. Chapter 4: Glossary of concepts

46 Leverage Also called margin. The ratio of the amount used in a transaction to the required security deposit. Libor - London InterBank Offered Rate The London Inter-Bank Offered Rate. Large international banks use LIBOR when borrowing from another bank. Liquidation The closing of an existing position through the execution of an offsetting transaction. Liquidity The ability of a market to accept large transaction with minimal to no impact on price stability. Long A position to purchase more of an instrument than is sold, hence, an appreciation in value if market prices increase. Long Position A position that appreciates in value if market prices increase. When the base currency in the pair is bought, the position is said to be long. Loonie The Canadian Dollar. Lot A unit to measure the amount of the deal. The value of the deal always corresponds to an integer number M Margin The required equity that an investor must deposit to collateralize a position. Market Maker A dealer who regularly quotes both bid and ask prices and is ready to make a two-sided market for any financial instrument. Market Order An order to buy/sell at the best price available when the order reaches the market. O OCO - One Cancels the Other A contingent order where the execution of one part of the order automatically cancels the other part. Open order An order that will be executed when a market moves to its designated price. Normally associated with Good til Cancelled Orders. Open Position An active trade with corresponding unrealized P&L, which has not been offset by an equal and opposite deal. Options An agreement that allows the holder to have the option to buy/sell a specific security at a certain price within a certain time. Two types of options call and put. A call is the right to buy while a put is the right to sell. One can write or buy call and put options. Chapter 4: Glossary of concepts

47 Order An order is an instruction, from a client to a broker to trade. An order can be placed at a specific price or at the market price. Also, it can be good until filled or until close of business. Overnight Position A trade that remains open until the next business day. P Points, Pips The term used in currency market to represent the smallest incremental move an exchange rate can make. Depending on context, normally one basis point ( in the case of EUR/USD, GBD/USD, USD/CHF and 01 in the case of USD/JPY/( Position A position is a trading view expressed by buying or selling. It can refer to the amount of a currency either owned or owed by an investor. Premium In the currency markets, it is the amount of points added to the spot price to determine a forward or futures price. Profit/Loss (P&L( The actual realized gain or loss resulting from trading activities on Closed Positions, plus the theoretical unrealized gain or loss on Open Positions that have been Mark-to-Market. Q Quote An indicative market price; shows the highest bid and/or lowest ask price available on a security at any given time. R Rally A recovery in price after a period of decline. Range The difference between the highest and lowest price of a future recorded during a given trading session. Rate The price of one currency in terms of another. Repo - Re-purchase This type of trade involves the sale and later re-purchase of an instrument, at a specified time and date. Occurs in the short-term money market. Resistance A term used in technical analysis indicating a specific price level at which a currency will have the inability to cross above. Recurring failure for the price to move above that point produces a pattern that can usually be shaped by a straight line. Risk Management To hedge one's risk they will employ financial analysis and trading techniques. Chapter 4: Glossary of concepts

48 Roll-Over Process whereby the settlement of a deal is rolled forward to another value date. The cost of this process is based on the interest rate differential of the two currencies. S Settlement The process by which a trade is entered into the books and records of the counterparts to a transaction. The settlement of currency trades may or may not involve the actual physical exchange of one currency for another. Short To go `short` is to have sold an instrument without actually owning it, and to hold a short position with expectations that the price will decline so it can be bought back in the future at a profit. Short Position An investment position that benefits from a decline in market price. When the base currency in the pair is sold, the position is said to be short. Spot A transaction that occurs immediately, but the funds will usually change hands within two days after deal is struck. Spot Price The current market price. Settlement of spot transactions usually occurs within two business days. Spread The difference between the bid and offer (ask) prices; used to measure market liquidity. Narrower spreads usually signify high liquidity. Stop Loss Order An order to buy/sell at an agreed price. One could also have a pre-arranged stop order, whereby an open position is automatically liquidated when a specified price is reached or passed. Support Levels A technique used in technical analysis that indicates a specific price ceiling and floor at which a given exchange rate will automatically correct itself. Opposite of resistance. Swap A currency swap is the simultaneous sale and purchase of the same amount of a given currency at a forward exchange rate. T Technical Analysis An effort to forecast prices by analyzing market data, i.e. historical price trends and averages, volumes, open interest, etc. Tick A minimum change in price, up or down. Tomorrow Next (Tom/Next( Simultaneous buying and selling of a currency for delivery the following day. Two Way Price Both the bid and ask rate is quoted for a Forex transaction. Chapter 4: Glossary of concepts

49 U US Prime Rate The interest rate at which US banks will lend to their prime corporate customers. V Value Date The date on which counterparts to a financial transaction agree to settle their respective obligations, i.e., exchanging payments. For spot currency transactions, the value date is normally two business days forward. Also known as maturity date. Volatility A statistical measure of a market or a security's price movements over time and is calculated by using standard deviation. Associated with high volatility is a high degree of risk. Volume The number, or value, of securities traded during a specific period. Chapter 4: Glossary of concepts

50 I would like to thank you for participating in the course, and wish you success in any future path you may choose.

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