The Best Beginners Course in Forex Day Trading

29 October 2017. This page is well out of date and next year I will try to fix it. Sorry for the delay.

As from 18 Aug 2016 I’m creating a beginners guide to forex day trading. It is only beginning construction and will take some time to complete and will separate the basics from my main course. At the moment I haven’t a clue how to separate this into separate pages so if you decide to work through it make a note each time you stop.

Success is up to you and nothing down to me. Please read my disclaimer on a separate page, as forex trading is high risk and you must take responsibility for your own failures, as you will take the credit for any successes.

Also trading can be highly stressful and there are parallels with gambling, so if you suffer from depression/anxiety problems or gambling addiction trading might not be suitable for you. If in doubt seek professional advice.

Any charts/drawings you will need to enlarge in your own browser to be able to see the detail.

Do the course in small chunks and spend most of your time working with your charts not reading everything all at once. With some skills like riding a bicycle, driving a car, learning a language or a musical instrument you won’t get very far unless the majority of your time is spent in practice where our naturally lazy mind has to start thinking at a rapid rate to form the necessary habits for success. Look at how fast children learn to speak without reading a book, just by listening and repeating and that is how you want to learn to trade. Listen to the charts speaking to you and speak to them back by trading. Discover why you keep losing and you will find the path to winning but a book or course  will never give you this.

Forex Trading Education Warning.

Beware of these sort of characters waiting to take your hard earned money away from you, enticing you with easy riches, massive compounded gains, ultra relaxing lifestyles, contented spouses giving you loving looks as you beat the markets, fast cars and flash suits, trading for a living from home, trading from a beach hammock whilst drinking cocktails and a way to leave your awful job or give you a decent retirement income.

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They won’t of course appear as obvious as those above and many might give you impeccable references, have a nice professional website, a list of happy clients, Wall Street pedigree and many other impressive reasons to buy into the dream. They will be offering you various discounted plans to part you with your money, often with a marketing deadline to take advantage of the fear of missing out and a special offer only to those who attended the webinar. Often it will all commence with a free webinar or live seminar to lure you in or even a book or free guide to trading downloaded from their website. Often they will get rather angry when being asked about their records or their high fees. They will tell you about after winning so much themselves, how they want to give something back to help others, for a high fee of course.

Of course some of the good’uns may also be offering you free advice to start, but then the follow on should be fairly inexpensive and always try out monthly never pay out the full wack for a year or more until you are utterly convinced. No fees should be high for if they are successful, they should be making the majority of their income in the way they are luring you in to do yourself. We are all suckers to this sort of thing every now and then, so do your due diligence carefully.

This is tough game to crack, highly stressful whist learning and success in unlikely to come overnight. Of course you may think you are different. We all think we are different and we are. It just takes most of us different individuals quite a while to even get moderately successful. Most people who attempt to trade will not make it good and this is true for most people who try to take up any challenge in life, like running a successful business or practicing a sport or a musical instrument to a professional level. Most people are lured in with the dream of the certainty of success and once they find that it’s not that easy, they don’t last very long at all. Don’t necessarily be fooled either by those who indicate it won’t be easy either, as they will be seriously understating the case, and maybe using it to create an allure of honesty. The same with those that make claims about the integrity of others, a bit like I’m doing here 😦 because knocking other educators or other ways of trading is one way to appear like we know what we are doing ourselves. There is a ton of info on trading on the internet, one only has to copy and paste it into a course and sell it making false claims about our own trading success to dupe a number of people out of their cash. If  you will be the one in a several hundred who does persist and finds an edge you will need to hang on to any capital reserves you have and not give them easily to the market or to an unscrupulous educator. Every penny counts so be tight fisted with your readies.

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Setting up a demo account with Oanda and setting up your charts to trade.

Before doing anything, if you are a complete novice,  learn a few basics by setting up a demo account with a broker like Oanda and getting used to it. It is free and you have unlimited time,  can use a virtual amount of money to trade and set up different accounts if you wish. www.oanda.com Do not set up a live account yet.

And no I’m not affiliated to Oanda in any way other than they were the broker recommended to me when I first started trading and I’ve never had a problem with them.  I continue to use them, even if I wish they would hurry up and get their advanced charts sorted out, which are a new feature. Personally I can’t recommend the broker FXCM who you may be familiar with as I don’t like their spreads, their account size restrictions and they looked like they would go under when the Swiss took off their Euro peg not so long ago. There was a lot of worried clients with their money tied up with them at the time. Another company Alpari in the UK went under during the same incident and likely there were others. If you don’t want to use Oanda then be very careful when selecting, you may think about using forestparkfx an introducing broker to give you better advice than I can. Certainly go to them when you decide to go live as it is fee and you may receive rebates on all your trades and help with any disputes.

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You will join the branch in your own geographic location, as they may have different rules than mine based in London for Europe. .

When you open up your platform you will get what is called a primary window as shown below.

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In the primary window go to Account in the top menu/Account Details/Manage Funds/Primary and you will see the panel below where you can set your account balance and leverage. Set the balance for about 10000 of your chosen currency for now and set the account leverage to 10:1. You can change these values any time you want.

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Next I have my chart set to a classic white chart. See below. They make it better and easier when I print one off.

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Then you may like to separate out charts and add user preferences for example as below. Set your chart to candlesticks. Candlesticks are the bars you see on the chart in green and red and depict the past movement of price.

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Here are some of my activity window preferences.

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Here are my some of my own user preferences.

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Choose the currency pairs you wish to trade as below in the Tools/User Preferences menu. Those on the right are my selected pairs and are all low spread pairs. The choice is yours.

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Here are the typical spreads during the London session for my eight pairs in the current rates panel. More on spreads in a bit.

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Oanda appears to be automatically be saving my last chart set up but previously I would press F12 on your computer to do this or click ‘save current profile’ from the tools menu. Check this yourself own your own set up and don’t take my word as I might have done something else to do this that I can’t remember.

If you set up your preferences like I do for now then it will make things easier, although do set the time to your own clock time. Also some features may be slightly different as I’m in a live account and as time moves on and changes occur to the platform I may not update this page quickly enough. You should be able to get it sorted without me though, this is just a guide.

I have my units set to 2000 which represents around 0.3% risk with a 12 pip stop on a £500 account on many of the pairs traded. Set units to 2000 for now and I will go through pips, risk and units a little later. Assuming you have a practice account of much larger than £500 then 2000 units won’t present any problems. You will be training now, not trying to make money, there is a long way to go before you are ready for battle.

Currency Pairs

Spot forex is traded one currency against another.

Each currency is notated by 3 letters. The major currencies traded are shown below with their notation.

USD  United States Dollar (Currency of first reserve. The Greenback)

CAD  Canadian Dollar (The Loonie)

EUR  European Single Currency (The Euro),

CHF  Swiss Franc (The Swissie)

NZD  New Zealand Dollar (The Kiwi)

AUD Australian Dollar (The Aussie)

GBP  Great British Pound (Sterling)

JPY  Japanese Yen

Currency pairs are always notated in a particular order eg EURUSD never USDEUR. You will soon get used to the order of the pairs.

NB: If you hear the term EuroDollar, don’t get it mixed up with the spot forex EURUSD as it is referring to the amount of US Dollars held in overseas banks.

The major pairs are those traded against the reserve currency the USD. They are USDJPY   GBPUSD (Cable),  USDCAD,  AUDUSD,  NZDUSD,  USDCHF,  EURUSD

Currency pairs traded that do not contain the USD are called cross pairs or currency crosses, eg EURGBP,  AUDJPY,  NZDCAD, EURJPY etc.

Price and Pips

The first currency quoted on the left in a pair is called the base currency and on the chart it has a value of 1. The price quoted is the amount of the second currency on the right of the pair that 1 of the base is equivalent too.

eg. GBPUSD price at this moment in time is 1.3190. So 1 GB Pound is equivalent in monetary to 1.3190 US Dollars. It is called the spot foreign exchange rate or spot forex rate.

The price axis shown on the right hand side of the chart will consist of a number with either 4 numbers after the decimal point or 2 in the case of Japanese pairs. The very last number is called a pip. If price goes up from say 1.2782 to 1.2785, it has moved up 3 pips. If price goes from 102.05 to 101.97 it has gone down by 8 pips.

NB: Sometimes you will see a 5th number or 3rd if a JPY  pair. This is what is called a pipette and is 1/10th of a pip.

If you buy a currency pair you will be in profit if price goes up and be at a loss if price goes down. If you sell a currency pair you will be at a loss if price goes up and in profit if it goes down. Just consider buying/ longing  as betting that a pair will go up and selling /shorting as betting that a pair will go down.

NB: If you bet when you have no idea what you are doing then you are gambling and you will lose.

The amount of money you win or lose per pip will depend on two things:

1.The number of units traded.

2. The currency pair traded.

What the Hell are these Candlesticks?

Here’s some pretty pictures to break down what they are. Bull means price has gone up and if you are bullish you think it will continue to go up. Bear means price has gone down and bearish means it looks like it is likely to go down. Bull candles I colour green and bear candles I colour red. Other people use different colours like blue and red or white and black it’s what ever suits you.

NB: The terms Bullish and Bearish are only perceptions of the market by groups or individuals. If everyone else is bearish you might actually have a bullish perspective especially if viewed on a different time or tick level. The masses do not have a monopoly on being right in fact as most traders lose…. mmhh yes? Practice holding to your own unique view of the market and don’t just follow the crowd as they maybe charging towards the edge of a cliff.

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So a Bull candle opens at the bottom of the green bar and closes at the top after the set time period and the wicks show the extremes outside these levels. Bear candles open at the top of a red bar and close at the bottom and for candles known as doji‘s where there is no coloured body, the open and close is at the same price level.

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You will come across many fancy Japanese names for candles stick shapes and sizes and also for clusters of 2 or three. On their own candlestick shapes mean very little, they just depict what price has done. What price will do next is what we are concerned with.

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Finally a real example of 8x 1 Hour candles making up an 8 hour candle.

The best way to quickly understand them, is to watch say  1 minute or 5 minute candles actually open, develop and close on a live chart then you’ll have it in no time.

With Oanda, the close of one candle is nearly always the open of the next. However this is not always the case, especially with other brokers or charting platforms. Sometimes there is a difference between the close of one candle and the open of the next and this is called a gap. I will deal with gaps later when I deal with liquidity and volume.

The Bid/Ask Spread.

The spread is what you pay the broker to enter and exit trades. The spread will depend on the currency pair traded due to it’s market liquidity/volume and will change during the day as liquidity does. These changes in spread will be greater at times of financial news releases, geopolitical events and rollover times as protection for the broker to meet it’s liabilities. We enter buy trades on the ask price (sometimes called the offer which is slightly above true price/ average) and sell trades on the bid price (which is slightly below true/average price.) We therefore are always entering our trade slightly worse off than break even . The difference between the ask and bid price is called the spread. Therefore when you enter a trade you are immediately the spread behind in the negative. You need to make the spread before you go positive. You have to pay the spread so accept it as the cost of doing business. See the chart below.

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NB. I mentioned earlier that you are the spread behind when you enter a trade, when in fact you are only around half that behind as you enter on the bid or the ask. You pay the other part when you close the trade and if the spread widens you will pay more than the original spread when entering. If you are in a trade during an ecomomic announcement with a very tight stop you are likely to get stopped out as the spread widens in some cases from about 2 pips to 25 or 30 in some currency pairs on big announcements. So don’t enter just before such and immediately after with a tight stop. Also the volatility may dramatically increase and as price whipsaws you can also get taken out.

Units traded

Currency pairs are traded in numbers of units of the base currency of the pair. With Oanda we can trade any number of units up to our margin limits.

With other brokers you will hear the terms Lots, Mini Lots and Micro Lots. Simply put 1 Lot = 100000 units, 1 Mini Lot = 10000 units and I Micro Lot = 1000 units. We do not need the term Lot as we can choose with Oanda to trade any number of units we so wish, up to the margin limits imposed by our net account balance remaining and the leverage selected in our account details.

If we open a sell trade with a pair for 10000 units we need to buy back 10000 units of the same pair to close the trade and vice versa. We can also close off a portion of the trade if we so wish, say buying back 5000 units and leave the rest to run. We can then fully close all or another portion at a later time/date.

Units at first are a little confusing, however you don’t need to dwell on this as it is background information.

So how much is a unit worth? Which is another way of asking, ”How much per pip do we risk of our capital when we enter say a 10000 unit trade?”

The answer to this, is that depends on the answer to four questions:

1: What is your own account currency?

This is the simplest thing as units work with the USD as the standard so whatever answer in USD we get, we just convert it into out own currency equivalent via the exchange rate. Simple.

2: Is the USD the secondary currency of the pair?

If the USD is the secondary currency of the pair as in EURUSD then 10000 units is equal to $1 USD per pip of risk. If the price moves 10 pips against us then we lose $10 USD. Simple.

3: Is the USD the base currency of the pair?

eg USDCAD. We now have to deal with the exchange rate/ price of the pair in the equation so the USD per pip value of a 10000 unit trade changes because of this exchange rate.

The USDCAD exchange rate at the time of writing is 1.2988, so $1 divided by 1.2988 gives us $0.77 USD pip value for 10000 units traded.

Not quite as simple but ok.

4: If the USD not one of the currencies of the pair?

Then we pretend the base pair is the USD  and work out the same exchange rate calculation as in question 3:

S0 in effect all pairs with CAD as the secondary currency of the pair will have the same USD per pip value as USDCAD. All pairs with JPY secondary currency in the pair will have the same pip value as USDJPY

It looks to get a little more difficult with pairs like EURGBP  because neither of the currencies is traded as a pair with the USD as the base in forex but in this case we only need to know the GBPUSD exchange rate price as there is no point doing the reciprocal of the reciprocal. So the per pip value is the GBPUSD exchange rate in USD. ie a price of 1.3290 For GBPUSD gives me a per pip value 0f $1.329 for EURGBP and any other pair where GBP is the secondary currency for that matter. Q.E.D.

All a bit confusing, yes. But don’t worry as the value per pip risked for whatever number of units we want to trade is calculated for us in the market order panel. See below with the examples of the GBPUSD and EURJPY market order panels. So we don’t need to get confused with all the exchange rate conversions above to get our pip value.

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Also you will note in the panel we can select our stop loss and take profit pip values if required and that below the per pip values it gives us the total of our risk and reward values for those amounts of pips lost or won.

Units available, trade value and margin used will be dealt with later.

Entering a Trade

There are several ways to open up a market order panel to enter a sell trade but the diagram below shows you the simplest. You can expand or contract the panel to see the order details as shown in the second panel and you can change it to an entry order panel to sell when price reaches a certain level on the chart at some time in the future shown in the third panel.

Other ways to open a market order would be to click on the chart itself and select from a menu or to click on the currency buy or sell side in the current rates panel.

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With a market sell order when your click submit you will be immediately entered into a short position (sell) at whatever price was when you clicked and a small yellow triangle will appear on the chart at the price taken. If you have a Trades window open you will see the details of the trade in it.

NB: If you set a price on an entry order and submit, you will not enter short until the price is reached unless it doesn’t reach it in the expiry time you selected on the order panel.

See chart below for an market order sell entry taken on NZDJPY.

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See what happened when I sold then later closed ( bought back) on USDJPY.

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When you are comfortable try and enter say 50 separate trades to try and make a profit with equal stop loss and take profit, just by looking at the candlesticks and with no training whatsoever. Don’t be disheartened if you don’t get many winners and please don’t get excited if you make a profit. In fact a profit is far worse for you than a loss at this stage, because the losers will come and you need to learn to lose and how to deal with losing runs and accept them. Try buying as well as selling.

If you are anything like me, you will always be entering trades right at the wrong moment, your stop will get hit then it will turn and go to your target many times. Many others I hear start off like naturals, then something goes wrong, maybe they cheat and move their stop hoping the trade will come back and it doesn’t and they have to learn about losing the hard way. You are only cheating yourself if you move your stop, it is a bad habit that will eventually doom your trading. Get into a habit of trading with a fixed stop say 12 to 15 pips that is only allowed to be adjusted by moving closer to the profit target and never away from it other than in the first minute of the trade to shift it a few pips behind some cover. This is probably one of the best bits of advice anywhere. Learn to lose small and often, never big and disasterous. It will feel like a death by a thousand cuts whilst losing small and often, but at some stage your trading will start to improve and you have developed a very, very good habit.

You need to learn to trade in stages.

Stage 1: Learn to lose small and often

Stage 2: Learn to lose small and less often

Stage 3: Learn to tread water breaking even only ever taking small losses. (I’m probably at this level myself pushing at level 4.)

Stage 4: Start making consistent profits only ever taking small losses.

Stage 5: I haven’t got there yet myself so it would be unwise to pontificate about this but it will end in ”only ever taking small losses.

You can recover easily from several small losses but big ones have been the ruin of many a good trader who never learnt the habit of cutting off the losers short. Big losses can destroy you mentally and financially so protect your capital and only take small risks. You will note here I don’t mention targets. Many times you will hear about how you have to let your trades run when in profit, but I think that is only useful once you have got into stage 4. Before that small wins will have a big effect on your pschi to develop a winning mindset. Don’t worry if you’re down after a series of trades because you first need to develop and gain experience and serve your time losing lots.

Remember these wise words.

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You might think you can skip a stage or have moved up a stage only to find yourself crash back down. Welcome to trading friend. Did I tell you it would be easy.

Risk Management

Successful long term trading requires us to protect and nurture our capital so it grows. The rewards of capital growth does not however come without risk to the capital.Too much risk might mean we get completely wiped out or lose all our previous years gains which will have a devastating affect on us or it might mean we have lost 20% of our account and have to spend several months clawing it back whilst we still have to live and draw money to get by.

We need to keep what we risk per trade, per set of live trades, per session, per day, per week to manageable levels and we need to aim to always be in control of this risk. This is when we need rules, to protect ourselves from our irrational urges to trade at times of despair and frustration when losing or euphoria and elation when winning. These rules are nothing to do with actual trading they are needed so we don’t do something crazy, go off tilt, panic trade, overtrade, and gamble with our capital that we swore to protect.

Risk taking when under pressure to make money can be stressful and losing runs only go to exacerbate the stress factor. We will do best when can reduce this stress by trading with a well defined small amount of risk, especially when we are learning and need to concentrate on our process and not on amounts won and lost.

Risk depends on two factors.

1: The percentage of our capital we put in the market to lose.

For this we need our max stop loss which could be 10 pips or could be 200 pips. If we are prepared to lose say 0.5% of our capital per trade then whatever 0.5% of our capital is, we need to find our per pip risk amount by dividing the 0.5% by the number of pips of stop loss. If we have a $5000 account and wish to risk 0.5% on a single trade then that amount is $25. If we require a stop loss of 25 pips for this trade then we require a risk of $1 per pip at the outset. This risk is set by selecting the amount of units in the market order box………. to be continued…

2: The likelihood of success of the trade.

Now this is not so easy to define because no trade is exactly the same. Factors affecting the likelihood of success are:

1: Take profit target / stop loss ratio

2: The trading environment, trending / ranging / countering / correcting / choppy / volatility etc.

3: Obstacles in the way of the trade, ie. near term support and resistance levels and zones where there will be a likely change in the supply or demand equilibrium and a reaction in price. (More on these terms later.)

4: Are we trading with the trend or against it or at levels at extremes of a range.

5: Time of day/ week/ month/ quarter  when markets are likely to change direction.

6: Tactics for trade management during a trade. Do we move our stop loss to reduce losses? Do we take profits or losses early? Do we trail a stop and leave move our take profit off the table.

There’s probably plenty more and from now on you will be working on understanding these elements as part of your trading style.

Support, Resistance, Supply and Demand

Considered to be technical trading’s 101. Support levels are where likely buyers will come in to the market demanding the pair. Resistance levels are where likely sellers will come into the market with supply. When we are buying a currency pair like USDJPY we are in fact buying the USD and selling the JPY at the same time. We want the price of the pair to increase so we want the USD to strengthen and JPY to weaken relative to each other to make a profit. When we have bought the USD and price has gone up, we now have more Yens for our Buck so we can sell it back and receive more Yens than we started with to turn a profit. Of course if price drops we make a loss.

This can seem a little confusing but all we need to remember is when buying a pair we want price to increase and when selling to reduce.

Now where are these likely buyers or sellers going to come into the market. If we know the areas or levels maybe it would be a good idea to see if price reacts off them and join in for the ride and then jumping off at an opposing level. Or maybe we want to see if price can work it’s way through a level to show it’s directional intent and join the breakout of the level.

to be continued…..

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