forex armageddon

49 Pages·2008·0.85 MB·English

[Pick the date]

C
URRENCY
F A
OREX RMAGEDDON
T
RADING

Steven Lee Jones | Forex Trading Manuals
FOREX ARMAGEDDON

DISCLAIMER

While all attempts have been made to verify information provided in this publication, neither the
author nor the Publisher assumes any responsibility for errors, omissions or contrary interpretations
of the subject matter herein. This publication is not intended for use as a source of legal or financial
advice. The Publisher wants to stress that the information contained herein may be subject to
varying state and/or local laws or regulations. All users are advised to retain competent counsel to
determine what state and/or local laws or regulations may apply to the user’s particular business or
personal circumstances.

The purchaser or reader of this publication assumes responsibility for the use of these materials and
information. Adherence to all applicable laws and regulations, both federal, state and local,
governing investing in financial markets, professional licensing, business practices, advertising and all
other aspects of doing business in any jurisdiction is the sole responsibility of the purchaser or
reader. The author and Publisher assume no responsibility or liability whatsoever on behalf of any
purchaser or reader of these materials. We expressly do not guarantee any result you may or may
not get as a result of following our recommendations. You must test everything for yourself. Any
perceived slight of specific people or organizations is unintentional.

Before making an investment or trading decision based on the advice or material hereon, the
recipient should consider carefully the appropriateness of the advice in light of his or her financial
circumstances. This material is for informational & educational purposes only. It is not intended as
an offer or solicitation for the purchase or sale of any financial instrument or as an official
confirmation of any transaction. All market prices, data and other information are not warranted as
to completeness or accuracy and are subject to change without notice.

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Table of Contents

The Foreign Exchange Giant ................................................................................................................... 5
Forex Jargon ............................................................................................................................................ 5
Currency Codes: ...................................................................................................................................... 6
Pairs:........................................................................................................................................................ 6
Majors: .................................................................................................................................................... 6
Crosses: ................................................................................................................................................... 6
Time Zones (Eastern Standard Times): ................................................................................................... 7
Calculating Profit and Loss: ..................................................................................................................... 7
Position Sizes:.......................................................................................................................................... 7
Demo Accounts: ...................................................................................................................................... 8
Investor Psychology: ............................................................................................................................... 8
Forex Trading Tools ................................................................................................................................. 9
The Forex Armageddon Trading Plan.................................................................................................... 15
Trading Plan Overview .......................................................................................................................... 16
Trading Tool Settings ............................................................................................................................ 18
Entries (Long) ........................................................................................................................................ 19
Entries (Short) ....................................................................................................................................... 23
Entry Stop Loss ...................................................................................................................................... 24
Trailing Stop Loss .................................................................................................................................. 28
Re-Entering the Market ........................................................................................................................ 30
Reversing a Trade .................................................................................................................................. 32
Risk Management & Position Sizing ...................................................................................................... 33
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Back Testing Exercises ........................................................................................................................... 35
Back Testing Exercise #2 ....................................................................................................................... 39
DAIILY LONG: Trading Plan Check List ................................................................................................... 45
DAIILY SHORT: Trading Plan Check List ................................................................................................. 46
Software ................................................................................................................................................ 47
Online Trading Platforms / Brokers / Demo Accounts .......................................................................... 47
Forex & Other Info Websites ................................................................................................................ 47
NOTES.................................................................................................................................................... 48

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The Foreign Exchange Giant

The foreign exchange is the fastest growing and largest market of all the financial markets – it
transacts over $2.5 trillion dollars every single day – giving amazing liquidity and honesty to the
market as it is virtually impossible for the market to be manipulated for any significant period of
time.
Over 95% of the foreign exchange market is made up of speculators which is why the market is so
liquid, and is a 24 hour market open 6 days a week. Most positions are only held for a short period of
time – a massive 80% are held for less than 7 days.
The leverage is also phenomenal with many variations such as 50:1, 100:1, 200:1, 400:1 etc, just
another one of the reasons traders worldwide are flocking to this market and fast becoming their
market of choice. With a small deposit such as $10,000 you could be controlling as much as
$2,000,000 ($2 million dollars) or even more.
Also known as Forex, FX, 4X or Currencies, the foreign exchange is traded via an electronic platform
that can be accessed by anyone anywhere worldwide via the internet or broker over the phone. It
used to be a market place only accessible to the governments, banks and large institutions, but now
due to the advancement of technology and the lending available through brokers, ‘mum and dad’
investors have the ability to be a competitor too.

Forex Jargon

Once a trader gets their head around the different terminology and a few of its unique
characteristics they will realize that trading the Forex is very similar to trading any other market.
The most unique characteristic of currencies is that they trade in ‘pairs’, you are trading one
currency against the other. For example; the Euro against the US Dollar, or the Japanese Yen against
the British Pound.
Let’s assume that you believe the Euro will rise against the US Dollar – you would then take a ‘long’
position in the Euro to profit from any rising price movement. If you believed that the Euro was
going to fall against the US Dollar – you would then take a ‘short’ position in the Euro.
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Currency Codes:

AUD Australian Dollar
CHF Swiss Franc
EUR Eurozone
GBP Great British Pound
JPY Japanese Yen
NZD New Zealand Dollar
USD US Dollar

Pairs:
Pairs are quoted in their currency codes like this EUR/USD (Euro against the US Dollar).

Majors:
The ‘majors’ are the currency pairs traded with the highest volume and therefore offer the highest
liquidity. It is suggested that traders keep most of their trading within these pairs:

EUR/USD, GBP/USD, AUD/USD, NZD/USD, USD/JPY, USD/CHF

Crosses:
These are the less popular pairs and therefore less liquidity:

NZD/JPY, AUD/JPY, GBP/JPY, EUR/JPY, EUR/GBP, EUR/CHF

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Time Zones (Eastern Standard Times):
The best times to trade is when the major trading zones around the world overlap – between
8:00pm to 9:00am (EST). To find out what time this corresponds to within your own time zone visit:
http://forex.timezoneconverter.com

Calculating Profit and Loss:
The movement in price for currencies is quoted in “PIPs” (price in points). When looking at the
standard quotation in price of a currency you will see it displayed like either of these two;
1.2020 (All Currencies)
Or
102.50 (Japanese Yen)

The PIP movement is the last two digits on the right that are underlined in the price examples above.
So if the price movement rose by 20 pips for the above two examples the new prices would be as
follows;
1.2040 and 102.70
The tiny movements in price is the very reason leverage is required to profit so well from the price
fluctuations.

Position Sizes:
Currencies are bought and sold in ‘currency lots’, the size of these lots depend on the type of
account that the trader has;
• Mini Account – the minimum lot size for a Mini Account is 10,000 currency units.
• Standard Account – the minimum lot size for a Standard Account is 100,000
currency units.

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Demo Accounts:
Forex Brokers offer demo or practice trading accounts, where traders have the opportunity over a
short period of time (approx 30 days) to use a fictitious account of around US$50,000 to
US$100,000. Take advantage of these accounts before putting real money on the line, no matter
how small the amount may be that you start with, as they give you a great insight into live trading of
the Forex market and the platform which you will use – much better to learn some lessons on
pretend money.

Investor Psychology:
The statistics showing how unbalanced the proportion of successful to unsuccessful traders is totally
astonishing and needs to be taken into high regard. Do you know why the figures between the two
groups are so unbalanced, and continue to remain that way?
A tiny 10% of traders are consistently successful
10% break even
80% lose money
These figures are astounding, and any trader wanting to get into the minority group of traders who
are consistently successful needs to understand that there are two common factors that all the
successful people share, and then takes the steps to ensure they acquire these same characteristics.
These two characteristics are;
Self Control
A Trading Plan that suits your individual style

Self control is on the top of the two as it takes great control to do everything that you need to do to
become a successful trader, (most people are too impatient and have to get into the market);
• Research a trading plan to suit your style;
• study your trading plan so you know it intimately;
• follow each step of your trading plan regardless of what your emotions are enticing you to
do;
• not listen to and react to other traders opinions, news reports and other information that
sway you to make decisions outside of the scope of you trading plan.

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Forex Trading Tools

Bar Charts
Bar Charts are probably the most common method of viewing financial market data. Data used to
be simply a line chart, that was drawn from ‘close’ to ‘close’ of each trading session, and was the
most popular method of analysis, however, it is very limited with the information displayed.
Bar Charts are drawn using the Open, Close, High and Low data for the trading session – this
expansion of information enabled the trader to view so much more of the markets sentiment. These
four important pieces of data create the bar formation when connected together to create a visual
representation of the trading session.

A line is drawn from the High to the Low prices of the trading session. This distance can also be
referred to as the ‘range’.
The Open and the Close prices are indicated by a simple tick to the left for the Opening Price and a
tick to the right for the Closing Price.

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Market Sentiment

Visual charts such as – bar charts, candlestick charts, swing charts, even line charts give the trader
great insight into the market sentiment allowing traders to gain a feel for what may lie ahead.
The bars within the bar charts can be read individually or as a group, each telling their part of an
overall story. Looking at the individual bars initially we can see;

Bar-1 has its open and close very close together, this shows there is indecision of direction in the
market (normally either the bulls or bears have dominance), or could also be expressed as
agreement of prices between the bulls and the bears. These types of candles are found at either the
tops or bottoms of markets or when there is a temporary pause in the market.

Bar-1

Bar-2 is a very strong bullish bar – as you can see the Open and Closing Prices are at opposite ends of
a long range (distance between the high and the low). This bar shows that bulls are totally dominant
for this session and they are pushing the prices higher and higher.

Bar-2

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