A Beginner’s Guide To Forex Trading

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A Beginner’s Guide to Forex Trading:The 10 Keys to Forex TradingBY JARED MARTINEZ

RADINGCopyright 2019 by Jared F. Martinez, FXChief ALL RIGHTS RESERVED: No part of this book may be reproduced or transmitted inany form by any means, electronic or mechanical, including photocopying, recordingor by any information storage or retrieval systems, without the express writtenpermission from the author and publisher. All materials contained herein have beencopyrighted. Reproduction will be in violation of all Copyright Laws. Violators will beprosecuted.While attempts have been made to verify the accuracy of information provided in thismanual, neither the author nor the publisher assumes responsibility for errors,inaccuracies, or omissions.Information contained in this e-book is provided for the sole purpose of assistingtraders to make independent investment decisions There are no claims by theAuthor, Jared F. Martinez, or Market Traders Institute, Inc., ForexTips.com or any ofits directors, employees, and affiliated instructors that the trading strategies ormethodologies in this e-book will result in profits and will not result in losses. This ebook does not guarantee to produce profits. Currency trading on the FOREX andtrading results in general vary from individual to individual and may not be suitablefor everyone. Any opinions, strategies, techniques, methodologies, research,analysis, prices, or other information contained in this e-book are provided asgeneral market commentary, for educational purposes only, and does not constituteinvestment advice or a solicitation to buy or sell any Forex contract or securities ofany type. Jared F. Martinez, Market Traders Institute, Inc., ForexTips.com or any ofits directors, employees, and affiliated instructors will not accept liability for any lossor damage, including without limitation any loss of profit, which may arise directly orindirectly from use of or reliance on such information.You agree to use this e-book and the information contained within at your own risk.By downloading this manual, you confirm your agreement with the terms above,confirm and exempt the author, publisher, company, and instructors from anyliabilities or litigation.Market Traders Institute, Inc.3900 Millenia Blvd., Suite 200Orlando, Florida, 32839www.MarketTraders.comHave questions?USA: (407) 740-0900Toll-free: (800) 866-7431Register for a FREE Forex Webinar!Sign up for a LIVE! Webinar at www.markettraders.com/forex-book/webinar/ 2019 MARKET TRADERS INSTITUTE2

RADINGThe 10 Keys to Forex TradingKey 1: What is the Forex?Key 2: Trading Japanese CandlesticksKey 3: Entering the Forex MarketKey 4: The Trend is Your Friend Until it BendsKey 5: Trading Consolidation and FundamentalsKey 6: Equity ManagementKey 7: The Fibonacci SecretKey 8: So You Want to Be a Forex TraderKey 9: You Better Find a Forex MentorKey 10: Common Mistakes to Avoid and Persist Until You Succeed! 2019 MARKET TRADERS INSTITUTE3

RADINGKEY 1: What is the Forex?A brief history of the Forex market; how it all began:Bretton Woods AccordThe modern foreign exchange, or Forex market as we know it today, was putinto play around 1973. The establishment of the Bretton Woods Accord in1944 is generally accepted as the beginning of Forex market. It wasestablished to stabilize the global economy after World War II. It not onlycreated the concept of pegging currencies against one another, but also ledto the creation of the International Monetary Fund (IMF). Currencies fromaround the world were pegged against the U.S. dollar which were in turnpegged against the value of gold in an attempt to bring stability to globaleconomic events. In 1971, this act finally failed. However, it did manage tostabilize major economies of the world including those within the Americas,Europe and Asia.Free-Floating CurrenciesLate in 1971 and 1972, two more attempts were made to establish freefloating currencies against the U.S. dollar (namely the SmithsonianAgreement and the European Joint Float). The Smithsonian Agreement wasa modification of the Bretton Woods Accord with allowances for greatercurrency fluctuations while the European Joint Float aimed to reducedependence of European currencies upon the U.S. dollar. After the failure ofeach of these agreements, nations were allowed to peg their currencies tofreely float and were actually mandated to do so in 1978 by the IMF. Thefree-floating system managed to continue for several years after themandate, yet many countries with weaker currency values failed againstthose countries with stronger currency values.European Monetary SystemEuropean currencies were among those that were affected the most by thestrength of stronger currencies such as the U.S. dollar and the British pound.In July of 1978, the European Monetary System was created to counter thedependency on the U.S. dollar. It became increasingly clear by 1993 thatthis attempt had failed. Shortly thereafter, retail currency tradingopportunities, as we know them today, started to be enjoyed not only bythose familiar with the foreign exchange market, but also by small investorswilling to take similar risks like the banks and large financial institutions. 2019 MARKET TRADERS INSTITUTE4

RADINGThe Impact of DevaluationBy the late 1990s, stability issues increased in Europe as did major financialproblems in Asia. In 1997, there was a major currency crisis in SoutheastAsia. Many of the countries’ currencies were forced to float. The devaluationof currencies continued to plague the Asian currency markets. Confidence intrading the open Asian Forex markets was failing. Those currencies that hadcontinued to be valued relatively higher remained unchanged and kept theconcept of trading currencies out of those economically strong nations.The Introduction of the EuroThough Europeans were already very comfortable with the concept of Forextrading, this trading arena was still unfamiliar territory to the rest of theworld. The establishment of the European Union later gave birth to the euroin 1999. The euro was the first single currency used as legal tender for themember states in the European Union. It became the first currency able torival the historical leaders such as United States of America, Great Britain,and Japan in the foreign exchange market. It created the financial stabilitythat Europe and the Forex market had long desired.What is the Forex?“Forex” is an acronym for Foreign Exchange. It is a market where peopleexchange one country’s currency for another country’s currency. It is calledthe cash market or spot market. The spot market means trading right on thespot at whatever the price is at the moment the transaction occurs. Thismarket was established in 1971 as was previously mentioned. The Forexmarket is the arena in which the currencies of countries around the globeare exchanged for one another. Payments for import and export purchasesand the selling of goods or services between countries all flow through theforeign exchange market. This part of the Forex market is called theconsumer Forex market and this is where the majority of the daily volumetakes place.Prior to 1994, the Forex retail interbank market for small individualspeculative investors or traders was not available. A speculator investor isone who looks to make profit on price movements and is not looking to holdonto the currency for the long haul. With the previous minimum transactionsize, the smaller trader was excluded from being active within the market. Inthe late 1990s, retail market maker brokers (i.e. Forex CapitalMarkets/FXCM) were allowed to break down the large interbank units inorder to offer individual traders the opportunity to participate in the market. 2019 MARKET TRADERS INSTITUTE5

RADINGThe Forex market is the largest financial market in the world. The term“market” refers to a location where buyers and sellers are brought togetherto execute trading transactions. Nearly 4 trillion is traded on the Forexdaily. To give one a perspective of how big this market is, consider thefollowing: 300 billion each day is traded on the U.S. Treasury bond marketand 100 billion is traded on the U.S. stock market every financial day themarket is open. That is a total of 400 billion per day. The Forex tradesalmost ten times that volume. The Forex marketplace has no physicallocation. It is comprised of an electronic medium where transactions areplaced automatically through the Internet or via telephone. It is comprisedof approximately 4,500 world banks and retail brokers who all monitorcurrent prices, as they constantly change, and who execute transactions fortheir clients. Individual traders wanting to capture profit by speculating onprice changes get access to the market through a Forex broker.How Do Traders Get Paid?The word pip is an acronym for price interest point. The pip system monitorsprice movements in the market. Pips are usually measured in decimals.Depending on the pair being traded, pips are usually the last number of thedecimal in the price evaluation. A trader’s financial reward is measured inpips and those pips are converted into dollars. Most traders in the Forexmarket trade with what is called leverage. Trading with leverage means youare either borrowing or using someone else’s money to trade. You do this byposting a deposit with a broker who will let you use their money. Theminimum deposit, with some brokers, for trading with leverage is 1%, butthis number can go up as high as 4%.Trading on the Forex is done in currency lots. There are three types of lots.A micro lot is approximately 1,000 worth of a foreign currency. A mini lot isapproximately 10,000 worth of a foreign currency. A standard lot isapproximately 100,000 worth of a foreign currency. To trade on the Forexmarket, a margin account must be established with a currency broker. Thisis an account into which profits will be deposited and from which losses willbe deducted. These deposits and deductions are made instantly upon exitinga position.These three types of lots create different payouts per lot. A 100,000 unit iscalled a standard lot and pays approximately 10 per pip captured. A 10,000.00 unit is called a mini lot and pays approximately 1 per pipcaptured. A micro lot is a 1,000 unit and pays approximately 0.10 per pipcaptured. 2019 MARKET TRADERS INSTITUTE6

RADINGForex traders love the Forex market for its availability, liquidity, volatility,and diversification that leveraged trading allows.Learn How Pips Are CapturedYou can learn more about how pips are captured by attending a FREEonline webinar at www.markettraders.com/forex-book/webinar/ 2019 MARKET TRADERS INSTITUTE7

RADINGKey 2: Trading Japanese Candlesticks"Charts may be deaf and mute, yet they communicate verywell. Candlestick formations are the sign language of themarket. They tell the trader a large majority of the timewhere U-turns or reversals are and where the market isgoing."Most traders prefer learning how to read charts using what is called aJapanese candlestick. A Japanese candlestick monitors price movementsagainst time. When a trader looks at a chart, they have three viewingoptions: a line chart, a bar chart, or a Japanese candlestick chart. Bar chartsdominated the financial industry until just recently. Now even the world’sbest traders are using Japanese candlestick charts due to the stories theycan tell.One of my most amazing discoveries that turned my trading world aroundwas learning that the market talks and communicates through candlestickformations. It is one of the most amazing things I constantly see in themarket on a daily basis. It is somewhat like talking to a deaf person whodoes not verbally talk, yet they communicate via sign language. Learning toread candlestick formations opens up the world of trading every bit as muchas sign language opens up the communication world for the deaf.Reading a Japanese CandlestickJapanese candlestick charts are very unique in the way that they monitorprice movements during a certain period of time. As the candlesticks form,they begin to tell a story of the activity in the market as well as reflect themood of the market during a specific time frame. Candlesticks then becomethe sign language of the market as they communicate, via certainformations, the future potential moves of the market. Financial profits aremade from predicting correctly where the market will go, not where it hasbeen.Successful traders visually take the time to study and understand this signlanguage of the Forex market. Candlestick formations give off buy and sellsignals. They are communicating to the trader that it is time to enter themarket or it is time to get out. Our decision-making processes will bedirectly influenced by how clearly we understand these formations. 2019 MARKET TRADERS INSTITUTE8

RADINGJapanese candlestick formations can become the markets first sign of achange in direction, making a U-turn, or signaling a market reversal. Theywill appear in the form of a single candlestick or a combination ofcandlesticks. There are hundreds of formations, yet only a handful offormations carry substantial weight when looking for good market entrypoints. A good entry point is described as a location where the market goesyour way from the beginning. Let’s look at what a Japanese candlestick lookslike and how it forms.Japanese candlesticks can also tell you about a certain period of time. Forexample, you can set your charts to provide you with 5-minute candlesticks,10-minute candlesticks, 15-minute candlesticks, 30-minute candlesticks;even hourly, daily, weekly, monthly, and yearly candlesticks. As seen in theimage above, candlesticks are monitoring price movements in relation to anamount of time passed. They provide the trader with four key levels ofinformation for that specific time period: the opening price, the closing price,the high selling price, and the low selling price. They are made up of fullbodies and wicks. As prices move up or down from the opening of thecandlestick, the body begins to form. If prices begin to rise from the originalopening price then close higher than the opening price, a bullish candlestickis formed. If prices begin to fall from the opening price and close lower thanthe opening price, a bearish candlestick is formed. The lines on the northand south sides of the candle bodies are called wicks. They are monitoringthe highest price and the lowest price of that time period.Trading is a financial game. It involves two sides: the bulls and bears. We allknow that there are not actual bulls and bears trading in the market, but 2019 MARKET TRADERS INSTITUTE9

RADINGrather investors and traders that have either invested in a bullish directionor a bearish direction. Both sides have clear objectives and want the marketto move in their direction. Bulls want the market to go up or rally and if itdoes, they are going to want the market to make higher highs. The bearswant the market to go down or have it dip to make lower lows.Before you even think about trading, make sure you educate yourself on the10 major bullish and bearish candlestick formations professional traders useto discover entry and exit points in the market.Learn About Japanese Candlestick FormationsYou can learn more about Japanese candlestick formations by attending a freeonline webinar at www.markettraders.com/forex-book/webinar/ 2019 MARKET TRADERS INSTITUTE10

RADINGKey 3: Advantages of the Forex MarketLiquidityIn the Forex market, there is a buyer and a seller. The Forex absorbs tradingvolumes and per trade sizes which dwarf the capacity of any other market.On the simplest level, liquidity is a powerful attraction to any investor. Itsuggests the freedom to open or close a position, whenever you would likeduring market hours.Once purchased, many other high-risk, high-return investments are difficultto sell at will. Forex traders don’t have to worry about being “stuck” in aposition due to a lack of market interest. In the nearly 4 trillion per daymarket, major international banks have bid (buying) and ask (selling) pricesfor currencies.AccessThe Forex market is open 24 hours a day from about 5:00 pm ET Sunday toabout 5:00 pm ET Friday. An individual trader can react to news when itbreaks rather than having to wait for the opening bell other markets havewhich creates a situation where everyone else has the same information.This timeliness allows traders to take positions before the news details arefully factored into the exchange rates. High liquidity and 24-hour tradingpermits market participants to enter or exit positions regardless of the hour.There are Forex dealers in every time zone and in every major marketcenter: Tokyo, Hong Kong, Sydney, Germany, London, the United States,and Canada willing to continually quote buy and sell prices.Since no money is left on the market table, this game is referred to as azero sum game or zero sum gain and, if the trader picks the right side,money can be made.Two-Way MarketCurrencies are traded in pairs. For example: euro/ U.S. dollar (EUR/USD),U.S. dollar/yen (USD/JPY), U.S. dollar/Swiss franc (USD/CHF), just to namea few. Every position involves the selling of one currency and the purchaseof another. If a trader believes the Swiss franc will appreciate against theU.S. dollar, the trader can sell U.S. dollars and buy francs. This position iscalled selling short.If one holds the opposite belief, that trader would buy U.S. dollars and sellSwiss francs, which is called buying long. The potential for profit exists 2019 MARKET TRADERS INSTITUTE11

RADINGbecause there is always movement in the exchange rates or prices involvedin these transactions. Forex trading offers the opportunity to capture pipsfrom both rising and falling currency values. In every currency tradingtransaction, one side of the pair is always gaining value and the other side isalways losing value.LeverageAs a recap, trading on the Forex market is done in currency lots. There arethree types of lots: micro, mini, and standard. A micro lot is approximately 1,000 worth of a foreign currency. A mini lot is approximately 10,000worth of a foreign currency. A standard lot is approximately 100,000 worthof a foreign currency. To trade on the Forex market, you need a marginaccount, which can be established through a brokerage firm. This equates toan investment account into which profits will be deposited and from whichlosses will be deducted. These deposits and deductions are made instantlyupon exiting a position.Different brokers around the world have different margin accountrequirements and perhaps different regulations due to the country they areoperating within. Many require as little as a 100 deposit into the accountfor a micro account, 1,000 deposit for a mini account, and 3,000 for astandard account. In comparison to trading stocks and other markets (whichmay require approximately a 50% deposit into the margin account), a Forexspeculator trader gets excellent leverage of 1% to 4% of the margin value.For example, a 2,000 deposit in the margin account can control 100,000worth of currency, which means the trader can control each lot for one totwo cents on the dollar.Execution QualityBecause the Forex market is so liquid, most trades can be executed at thecurrent market price. In all fast-moving markets (such as stocks,commodities, etc.), slippage is an inevitable consequence of trading. In theForex slippage may be avoided with some currency brokers' software thatinforms you of your exact entering price just prior to executing the trade. Atthat point, you are given the option of avoiding or accepting the slippage.The Forex market's huge liquidity offers the ability for high-quality executionwith less opportunity for slippage to occur.Trade confirmations are immediate and the Internet trader can print a copyof their computer screen for a written record of all trading activity. Manyindividuals feel these features of Internet trading make it safer than placingtrades over the telephone where misinterpretation may thwart efforts. On 2019 MARKET TRADERS INSTITUTE12

RADINGthat same note, the Internet is not an infallible form of technology. In theevent of a temporary technical problem with the broker’s order system, thetrader can telephone the broker 24 hours a day to immediately get in or outof a trade. Account security is a broker’s highest concern. They take multiplesteps to decrease any risks associated with financial transactions on theInternet.A Forex Internet trader does not have to speak with a broker by telephone.The elimination of the middleman (broker/salesman) lowers expenses,makes the process of entering an order faster, and decreases the possibilityof miscommunication.Execution CostsUnlike other markets, the Forex generally does not charge commissions. Thecost of a trade is represented in a bid/ask spread established by the broker.This typically equates to approximately one to four pips per trade dependingon the currency pair being traded. Each broker has their own schedule forfees, spreads, and/or commissions.TrendsOne reason thousands of traders are gravitating to Forex trading is due tothe fact that it is a trending market. Historically, currencies havedemonstrated substantial patterns and identifiable trends. Each individualcurrency has its own “personality” and offers a unique, historical pattern oftrends that provide diversified trading opportunities within the spot Forexmarket.FocusInstead of attempting to choose from more than 50,000 products in thestock, bond, mutual fund, or commodity markets, Forex traders generallyfocus their efforts on one to six currencies. The most common and mostliquid currencies are the U.S. dollar, Japanese yen, British pound, Swissfranc, euro, and Canadian dollar. Highly successful traders tend to focus on alimited number of investment options. New Forex traders will usually focuson one currency pair and later incorporate one to three more currency pairsinto their trading activities.Margin AccountsTrading on the Forex requires a margin account. You are committing to tradeand take positions on the day you trade. As a speculator trader, you will not 2019 MARKET TRADERS INSTITUTE13

RADINGbe taking delivery on the product that you are trading. As a stock daytrader, you would only hold a trading position for a few minutes up to a fewhours and then you would need to close out your position by the end of thetrading session.All orders must be placed through a broker. To trade stocks, you would needa stockbroker. To trade currencies, you will need a Forex currency broker.Most brokerage firms have different margin requirements. You need to askthe brokerage firm of your choice about their particular marginrequirements.A margin account is nothing more than a performance bond. All accounts aresettled daily. When you gain profits, the brokerage firm places your profitsinto your margin account that same day. When you lose money, your lossesare removed from you margin account on that same day.A very important part of trading is taking out some of your winnings orprofits. When the time comes to take out your personal gains from yourmargin account, all you need to do is contact your broker and ask them tosend you your requested amount. They typically will send you a check, credityour payment card, or wire transfer your money.Learn About the Advantages of Forex TradingYou can learn more about the advantages of Forex trading during a freeonline webinar at www.markettraders.com/forex-book/webinar/ 2019 MARKET TRADERS INSTITUTE14

RADINGKey 4: The Trend is Your FriendUntil it BendsA Trend is Your FriendTrends appear on all time frames. They appear on monthly, weekly, anddaily charts for long-term trading. They appear on eight-hour charts all theway down to one-hour charts for day trading and on one-hour charts downto three to five-minute charts for scalping.One of the greatest financial benefits of learning how to trade currencies islearning the skill of spotting a trend that can last several hours for scalping,several days for day trading, and several months for long-term trading thatmay create enormous financial returns for the skilled and educated trader.As you learn to trade the Forex, you need to possess three very simple yetcritical trading keys:1. Learning how to determine market direction on any time frame2. Utilizing a simple entry strategy that works3. Using a tested exit strategy that consistently works (this is how youget paid)The Forex market is open 24 hours a day, 5 ½ days a week. At any timeduring market hours, you can turn on your Internet-connected computer andsit down to trade. While setting aside the time to trade is important, themost important step of successful currency trading is turning on yourcharting analysis software and determining market direction on any timeframe. The fact of the matter is, if you want to make money throughtrading, you will have to take a bullish or bearish position. You must chooseone or the other. You cannot hold both opposing positions simultaneously inone trade. You simply cannot make money taking a bullish and bearishposition at the same time. You would be in a net zero position, making andlosing the same amount of money with every pip movement. For thisreason, you must choose a side and luckily, due to visible patterns in themarket, you can make an educated decision about which side you would liketo be on at that trading moment.People trade according to their personality. Aggressive people love to scalp,while passive people love long-term trading. Figuring out your trading styleis very important to do before you begin to trade. However, whether you area passive trader or an aggressive trader, you need to be able to determine 2019 MARKET TRADERS INSTITUTE15

RADINGmarket direction before you trade. You need to learn how to find the currenttrend before you enter the market because you need to trade in thedirection of the trend at all times. Do not fight the trend. Fighting a trend islike trying to swim upstream in violent, forceful rapids. It doesn’t work!“Traders can make many mistakes. The biggest mistake is tradingin the wrong direction! ”One of the best ways to determine market direction is to use chartingsoftware like MTI 4.0 Charting software. This charting software includes anautomated trend indicator that keeps up with the trend direction on any timeframe for you. This means that you do not need to be sitting right in front ofyour computer at all times analyzing charts at all hours because the softwarewill do this for you as you continue to care for your other responsibilities.Look at the image below. As the market moves, the trendlines move with it.You can see how the market is constantly bouncing off of the inner trendline.It is when the outer trendline is broken that the market incurs a majorreversal as you see illustrated in the image below.If you are an active trader and are using charting software that does nothave a moving trendline indicator, you will need to learn the skill of drawing 2019 MARKET TRADERS INSTITUTE16

RADINGcorrect trendlines. I use the term correct because many traders think theyare drawing their trendlines correctly only to find out later that thetrendlines they used to place their trades were detrimentally incorrect. Anincorrectly drawn trendline could mean the difference between makingmoney on a trade and losing money on a trade. Drawing trendlines is a skillthat can be taught and most successful traders turn this skill into an art.Regardless of how good you are at correctly locating and drawing trendlines,I think it is always best to have an automated trendline from an esteemedcharting software that is constantly keeping up with the trends you want tomonitor.Successful traders are constantly aware of market movements and theymonitor all uptrend lines on all time frames. Why? Because this movementon smaller time frames will always respond to the trendlines on larger timeframes. This means, if the market is retracing back down toward an upwardtrendline on a daily chart, that retracement on the daily chart may be a 200pip move. A 200-pip retracement from a daily chart will be a downtrendmovement on a 60-minute chart. If you only look at the 60-minute chart todo your analysis, you will be in a strong downtrend and your bias will bebearish. You will probably enter the market bearish. However, the wayMurphy’s Law works, you will be entering at the end of that 60-minute trendbecause as soon as the market from the daily chart hits its trendline, the 60minute chart will reverse and begin to rally and you will be sitting therescratching your head while you lose money wondering what happened.Learn More About Market TrendsYou can learn more about market trends by attending a free online webinarat www.markettraders.com/forex-book/webinar/ 2019 MARKET TRADERS INSTITUTE17

RADINGKey 5: Trading Consolidation andFundamentalsConsolidating, Bracketing, Accumulation or SidewaysMovementThe market only moves upward, downward, and sideways. If it is nottrending up or down, it is moving sideway