Forex is short for “Foreign Exchange”. The Forex market is a $4.

98 trillion
dollar market, one of the largest and most liquid markets in the world. To put it
in comparison, the stock market is only in the billions.

The Forex market is traded 5 days a week, 24/5, closing at 5pm EST on
Fridays, closed all day Saturday, and opens again on Sunday at 5:00pm EST.

There are major trading centers through out the world, which open and closes
at different times each day. These centers are in London, New York, Zur-ich,
Frankfurt, Hong Kong, Singapore, Paris and Sydney.

There are 4 major sessions that most traders pay close attention to. You’ll
commonly hear the “London Session” opens at 2:00am EST, and closes at
12:00pm EST. The “New York Session” opens at 8:00am EST, and closes at
5:00pm EST. The Tokyo or “Asian Session” opens at 6:00pm Est, and closes at
the start of the London Session. The Sydney or “Australian Session” opens at
3:00pm EST, and closes at 1:00am EST.

Typically, the price of several pairs move more during the London, And New
York sessions. However, it completely depends on the pair, as some move
better at certain times than others.

It is a good idea for you to find what session works best for your schedule, and
learn the pairs that correspond with that sessions. You may also want to check
into correlating pairs that correlate with your preferred pairs for that specific
session.

Once you learn how a specific sessions moves, and how the pairs that correlate
to that session move, you should find trading a bit easier!

what is a “Pip”?

(Note: This information is in regards to accounts whose balance is in USD)

A PIP or “Price per interest point” is the smallest increment that a currency
pair can move. When a currency pairs “price” moves, it moves in “Pips”.

When you see the price of a currency pair, you’ll see something like “1.5730”.
In order to figure out an increase or decrease in “Pips”, you’ll look at the fifth
decimal in price. For example, if you have 1.5730, and price lowers to 1.5702,
this would be a decrease of 28 “Pips”.

Note, that a “Point” is 100 “Pips”. This is important terminology to know,

because you will here people use “ticks” (usually to do with price moving in
futures), “points” and “pips”.

The amount of “Pips” gained when a currency’s price moves in favor of your
trade (up if you’re buying, down if your selling), is what determines how much
money you make on a trade. Your profits per pip will also depend on lot sizing,
whether you have a standard, micro, or mini account, leverage, and so on.

Note: If you’re looking to learn the basics of Forex, please check out our FREE
educational options under “Training/Education”. If you’re looking to fast track
your learning process and become profitable, please consider the

Broker Account Types:

DEMO Account: Simple. Fake money, on the real market. Trade like a real
trader without actually losing a dime. This is where we recommend everybody
to start. Almost all brokers offer demo accounts. USE IT!!

Mini Account: This type of Forex account is great for beginners, and people
who are new to trading. One feature that makes this account popular is its low
minimum deposit amount. While the exact minimum amount varies among
brokers, you can open the account and start trading with as little as $200 in
deposit. However, this account has a higher ask/bid  spread than other
accounts.
Standard Account: This Forex account has a deposit limit higher than the
mini account. While here too the minimum deposit is dependent on brokers,
most of them have set it as $2,000. With a leverage ratio of 200 to 1 (1:200),
the minimum lot size is $100,000. The standard account too has the
“Guaranteed Limited Risk” built into the account. This account has lower
spread and better leverage than the mini account.

Some brokers also allow micro accounts, which are even smaller than Mini
Accounts. We recommend either a mirco, or mini account for beginners. Keep
in mind that using these accounts you will typically not make very much, but
also not lose very much either. The goal in trading isn’t always to make all the
money, that is a secondary goal. Your first goal should be to keep your account
alive for the next day, and grow it slowly over time. This concept is commonly
known as “compounding”.

Tip: Learn how not to lose money first, before learning how to make money
trading the markets.

ECN, STP, Market Maker/Dealing Desk

Market Maker (MM) accounts, also called a Dealing Desk (DD) accounts area
just an artificial type of broker. This type of account doesn’t reflect the market
directly, and simply quotes prices which are similar to what the market
displays. Orders entered through this type of account are processed internally
and may never go out to the market. The order are typically executed very
quickly, however every dollar you gain goes out of the broker’s pocket.  Also,
every dollar lost ends up in the brokers pocket. This can be a major conflict of
interest.

Straight Through Processing (STP) is an type that typically routes some or all of
your orders directly to the market, where banks can accept your orders. The
speed of which the banks get your orders is not determined by a brokers
dealing desk with STP. Rather, the speed of which the bank gets your order will
depend on liquidity, and speed of the platform + internet connection being
used. STP generally has a smaller conflict of interest, more accurate prices
than MM/DD accounts.

When looking for a broker, you will run across the term “ECN” which stands for
Electronic Communications Network or Electronic Clearinghouse Network.
Typically, brokers are supposed to allow you to get access to the market not
actually be the market, which is what happens with dealing desk brokers. True
ECN brokers will usually allow you to see the actual bid/ask prices and display
the order in the market through means of STP (Straight through processing).
This would be a broker who uses the STP/ECN model. You want a broker who
utilizes this model. Keep in mind that you will trade with other retail traders
and financial institutions, when trading the markets. You will not be allowed to
trade against your broker.

Here is a good image that depicts the differences between an Dealing Desk
Broker, and STP/ECN broker.
You can see from this image, that you would want a “STP/ECN” broker,
sometimes referred to as a “True ECN Broker”, aka a broker without a Dealing
Desk. You want your order to be routed straight through to the interbank
market when you click submit, and not to a dealing desk.

How do you know if the broker you use is a “Market Maker” type? Generally if a
broker is a Dealing Desk broker, they should list this somewhere on their
website. It also might help to ask around, and find out who people like to use
as their broker.

In summary, a true ECN broker will not trade against you. They will profit off
the spreads/commissions of their clients trading in their brokerage, and your
order will be send directly to the interbank market.
For retail traders, I would recommend using the ECN account (sometimes
called MT4.ECN for brokers that use metatrader 4) unless you have a very
specific reason to use something else!!

Master Your Mindset & Emotions While Trading…

Many will say that human psychology also known as, your mindset, will play
one of the biggest parts in trading.

While many will also say that trading is 90% mindset, 10% skill, I like to follow
the Pareto Principle. The Pareto principle is named after the famous
economist Vilfredo Pareto, that specifies an unequal relationship between
inputs and outputs. This principle is used in many aspects of business, and
life. The principle states that, for many of life’s phenomena, 20% of
invested input is responsible for 80% of the results obtained.

Following Pareto Principle: 20% of effort put into studying, learning,

practicing, etc is responsible for 80% of your results when trading. I also
agree with the statement that trading is 20% skill, and 80% mindset. Why?
Having the right mindset when trading, can be the difference in winning and
losing. If your mindset is not right, chances are your trades won’t be either. If
your trades are right, then you can expect to lose money. 20% of your skill, can
make up 80% of your trading output, while the rest of the 80% is all in your
head.

Tip: You can be wrong 50% of the time (or even less), when trading, and still
profit most of the time. How? By learning how to control yourself when you are
wrong, and knowing what to do to come out on top.

You’re mindset while trading should not be to “get rich quick”. You should not
be chasing the money, although this is usually how it all starts. While it is
possible to “get rich quick” through luck, it isn’t likely that it will happen to
you. Besides, who wants to trade on luck? Most cases of people who start out
trading, will be of people losing money. Not necessarily because they aren’t
even right, or don’t know what they are doing, but because they have the
wrong mindset. This is such a valuable lesson to pause, and think about.

Successful traders are separated from those who are not successful by many
factors. A key factor to trading is your mindset, and it is important to realize
that a key factor to your your mindset, is your emotions. Those who cannot
learn to control their emotions during a trade, typically end up losing money,
blowing their accounts, exiting too early, and making other negative decisions.
It is no secret in life that bad decisions can come from not controlling your
emotions. Trading is no exception to this.

Below is a chart depicting a common cycle of emotions that most new traders
experience when they first begin trading.
As depicted above, common emotions you will experience when trading
are Euphoria, Excitement, Fear, Greed, Anger, Panic, Stubbornness,
Cockiness, and more. These are all things you must learn to control when
trading, otherwise the result will very likely be that you lose money.

Just as learning to control your emotions is important, its equally as important

to know when to actually listen to your emotions, and when not to listen to
them. If you think about every emotion you have experienced, there is usually
a reason behind it. Human’s have relied on emotions throughout time for many
things. For example, fear can stop you from doing something that could get you
hurt, or warn you of danger. Compassion allows humans to help one another.
Excitement can be a strong motivator for both positive, and negative results.
Euphoria, and or happiness can leave us in fantastic moods to which makes it
possible to enjoy life. Emotions are a part of being human.

It’s very important not to let your emotions control your trading. While trading,
there is a fine line between knowing when to listen to your emotions, and when
not to listen to them, that every trader needs to learn. Many things will help
this, such as trading analysis, strategy, experience, etc.

If you don’t learn to control your emotions when trading, they will
certainly control you.

Not controlling your emotions can lead to many irrational decisions. For
example, exiting a good trade before the market has a chance to move your
way, or jumping into another trade after a failed trading attempt. This is a
HUGE problem with beginning traders. They get really anxious, or scared when
the trade doesn’t immediately go there way.  A lot of new traders will jump
back into a trade, simply to just try and make your money back that they just
lost. We call this “Revenge Trading”, and it tends to lose people even more
money than they have already lost. Don’t fall into these traps. Good traders
find a high probability setup, trust their judgement, and wait patiently for the
setup to go into profit. If it doesn’t, then remember that its okay to lose once in
a while if you are winning most of the time.

Tip: NEVER revenge trade. If necessary, take a break from trading after a loss.

You cannot let your emotions cloud your judgement when a trade does not go
your way, or if you have simply lost the trade.  Learning to take a step back,
while remaining calm and collected can help you decide the best course of
action to take next, after things go wrong. Allowing fear, anger, or panic to
dictate your next move usually results in more money lost. Learning to have
patience while trading will also help keep you from making irrational decisions.
If you do not have patience, I highly recommend that you learn it.
While there are many emotions that blind traders, as you have seen
above, Greed is another devil that tricks traders into entering trades, or
making decisions that they shouldn’t.

One of the most important lessons you can learn in trading, is to control your
Greed. This also means using proper lot sizing, even though you want to
make lots of money really fast, or taking your profits when you have hit 1-
10% of your account balance when you want to profit even more. Everybody
wants to make money. Without learning how to trade properly, you’re just
going to lose.

Tip: NEVER chase the money. Instead chase the trading setup, and the money
will follow.

If you are ever unsure if the trade will go in your favor, DO NOT take the
trade. Otherwise, when the market starts going too far in the opposite
direction, how will you be able to prevent yourself from “freaking out” and
possibly exiting the trade before it has a chance to move into your favor?
Chances are, that you won’t be able to control yourself, and will likely lose
money.

If you want to achieve success trading, then you have to learn to trade
“emotionless”, and execute your trading strategy accordingly.

Spreads

The spread is the difference between the buy (also called bid) price and the sell
(also called ask) price. Two prices are given for a currency pair. The spread
represents the difference between what the market maker gives to buy from a
trader, and what the market maker takes to sell to a trader.

Keep in mind that the bid/ask price will not usually match the current price
the market is at either. The difference always varies. You will need to keep the
difference between current market price, and the bid/ask price this in mind
when placing a trade. In order to profit, you must cover this difference, and the
broker’s commissions (which vary on lot size, and broker).

Fixed vs Variable Spreads

In a fixed spread, the broker always guarantees that the spread will not change
regardless of what is taking place in the market. The fixed spread will depend
entirely on the broker.

A variable spread will fluctuate depending on the market conditions. When the

liquidity in a market increases, such as the overlap between the London and
New York sessions, variable spread will usually increase. And, during low
market times, such as at 6 p.m. eastern time [ET], when New York is closed
and Asia is not yet fully opened, spread usually decreases.

Most brokers will have you use variable spreads, and this is fine. If you are
given a choice, you will need to decide which you prefer, as it is purely a
preference.

Swaps

In Forex, a “swap” or “swap exchange” is typically the “interest” or “premium”

earned on a daily basis for any trades that roll over (typically when the markets
close). You will see many brokers charge “swap fees” when trades are rolled
over from market close, to the next market open. This is a common thing you
will see if you hold trades over weekends.

Keep in mind that a swap contract can be different than a swap. In a swap

contract two parties agree to exchange a cash flow in one currency, against a
cash flow in another currency. This is almost always carried out according to
terms that are determined before the swap contract is executed.
To Buy, or To Sell… That is the Question!

The two major market order types are “Buy” and “Sell”. Also known as a “long”,
or a “short”. When you place a market order, you are “Opening a Position” or
“Placing a trade”.

To put buying and selling in the most simple terms possible: If you buy, and
the market goes up, you make money. If you buy and the market goes down,
you lose money. If you sell, and the market goes down, then you make money.
If you sell and the market goes up, you lose money.

However, buying and selling are not the only types of market orders that you
can make. You may also place a Buy Stop, Buy Limit, Sell Stop and Sell Limit.
Lets go over how to do this now.

NOTE: Before setting a Buy, Sell, Buy/Sell Stop or Limit make sure you have
done your technical analysis. You do not want to just open a position at a spot
where price might just touch and then reverse. You need to be sure price will
BREAK the point you are betting on, aka candle closes past that point.

Buy Stop vs Buy Limit

If you place a buy pending order above the market price, that order is know as
“Buy Stop”. For example, if EUR/USD price is 1.0495 and you want to buy — if
the price goes higher and reaches 1.0615, then what you do, is set a buy stop
order at 1.0615.

If you place a buy pending order below the market price, that order is know as
“Buy Limit”. For example, if EUR/USD current price is 1.0595 and you want to
buy — if the price goes lower and reaches 1.0380, then what you do is set a
buy limit order at 1.0380.

How to Set a Buy Stop and Buy Limit Order

To Start: You can press F9 and the order window will be opened. Or You can
click the “New Order” button at the top.

Next:
In the “Type” field, change “Instant Execution” to “Pending Order”.

In the second “Type” field which is placed below the first one, choose the type
of pending order.

If you want to buy when the price goes higher and reaches a higher level than
the level it currently is, then you have to choose “Buy Stop”. If you want to buy
when the price goes lower and reaches a lower level than the level it currently
is, then you have to choose “Buy Limit”.
You can choose the other parameters like volume (number of the lot size you
want to take), stop loss and target orders. If you don’t set the stop loss and
target levels, you can set them later after placing the pending order, but you
will not be able to modify the volume, and if you want to do it, you will have to
delete the pending order and set a new one with the volume you want.

Enter the pending order price in the “at price” field.

You can click on the “Place” button when you are done, and so, the pending
order will be placed.

NOTE: If you choose to place a “Buy Stop” order, but in the “at price” field you
enter a price which is lower than the current price, you will get a “Invalid S/L
or T/P” error when you click on the “Place” order button. This error that is
received because of choosing the wrong order type, has nothing to do with stop
loss and target and you will receive it even when you set no stop loss and
target. When you see this error, you should know that you have made a
mistake either in choosing the order type, or in entering the correct order price.

Difference of Sell Stop and Sell Limit

If you place a sell pending order above the market price, that order is know as
“Sell Limit”. For example, if EUR/USD current price is 1.0395 and you want to
sell — if the price goes higher and reaches 1.0615, then what you do is set a
sell limit order at 1.0615.

If you place a sell pending order below the market price, that order is know as
“Sell Stop”. For example, EUR/USD current price is 1.0495 and you want to
sell — if the price goes lower and reaches 1.0480, then what you do is set a sell
stop order at 1.0480.

How to Set a Sell Stop and Sell Limit Order

It is the same as setting buy stop and buy limit. You press F9, or the “New
Order” button, and then follow the steps above.

The only difference is that you have to choose a Sell Limit order type if you
want to sell when the price reaches a higher level, and a Sell Stop order type if
you want to sell when the price reaches a lower level.

You’re Trading Rivals

First, you should know that trading the markets is really just a big competition
to see who can take the money from other people/entities who do not know
what they are doing, and transfer it to those who do. Normally, in a
competition, you want to know who you are competing against. So lets go who
you are up against in the markets!

Companies/Businesses:

Corporations, and or business entities are constantly looking to exchange

currency in order to fulfill their business transactions. They also need to be
able to pay for goods/services in other countries, which requires a currency
exchange.

Example: A Chinese company, Company A, imports Company B’s goods (a

German company), so that company A can sell their final product in the U.S.
Now picture this… every time somebody purchases company A’s product, the
American dollar must be converted back to the Chinese Yuan. Then, Company
A must exchange Yuan to Euros in order to purchase the German goods to
include in their final product.

Real world commerce happens like this daily, and has an affect on corporate
profit margins  of businesses in every single country around the world.

Banks:

Banking institutions across the word make up over 50% of all Foreign

Exchange market transactions. They have their own separate market called the
“Inter-bank Market” where banks can trade vast amounts of currency, directly
with each other.

Central Banks:
If you’ve ever heard the term “They don’t want you to win”, it might be these
guys who are mostly responsible, because they are believed to be the “Market
Fixers”, though they are not the only “Market Makers” out there. Anytime a
Central Bank takes action, make policies, etc, its most commonly to stabilize a
nations economy. They play a HUGE role in increasing or decreasing a nations
currency rates, by manipulating an economies interest rates, inflation (which
we will go next), and more.

Investors:

Hedge Funds, portfolio managers, investing firms, and other non bank,
financial entities with large amounts of capital are the other big players who
trade the Foreign Exchange markets.

Retail Traders:

Typically these are traders who are none of the above. These are individuals in
common households, small businesses, etc. They access the markets through a
brokerage who acts as the “gateway” or “portal” to the markets. You’ll be
surprised to hear that the number of retail traders in comparison to the traders
listed above, is relatively low.

In order to access the market, a retail trader must open an account with a
broker, and trade through softwares like Metatrader 4, or one of the many
other software platforms that exist for trading. It’s important to note that
because retail traders do not place trades like businesses, banks, investors, etc
— trading for retail trading is more speculative. Meaning you’ll trading using
fundamental analysis, sentiment analysis, and technical analysis.

It’s important to note that Retail traders DO make up a large portion of traders
trading the market, but NOT all of it. Retail trading is one of the quickest ways
to get access to the markets, and there are plenty of ways to do so.
Market Makers:

Market Makers can manipulate spreads, requote, hunt your stop losses, utilize
psychological tricks, and more in order to make you lose money. Because of all
the things they are able to do, they are able to psychologically manipulate
people into acting in preferred ways that will make them money. They make
these manipulations behind news, political/economic events, and more.  You
can use this to your advantage, if you learn to utilize fundamental, technical
and sentiment analysis together!

Tip: Learning market psychology is very important, and you need to be aware of
this, so that you can realize that many of the price movements in the markets are
not just economies naturally moving, but actual manipulations of the market.
Over time, you’ll learn to spot these.

Now that you know who you are up against, you should know more about what
you are seeing when you are performing your analysis on the markets. When
you look at Forex chart, you are seeing the actual movements of a countries
economy, based on many different factors.

Depending on which timeframe you look at, you can literally watch economies
move by the minute, in 15 minutes, hours, days, and so on. The goal of any
trader, is to predict where a market/currency pair will move next. But to make
any sort of predictions, you need to understand what you are seeing, and why
you are seeing it. This is where trading analysis comes into play…

The Market Manipulators…

The term “Market Maker” sometimes gets misused, and many are misinformed
about the topic of “Market Makers”.
While there are some brokers who can be considered “Market Makers”, there
are also “Market Makers” not within a brokerage. The other type of “Market
Maker” is an institutional Market Maker.

There are some brokers who actively trade against their clients. These brokers
are sometimes called “Retail Market Makers”, “Market Makers” or “Dealing
Desk” brokerages. These types of brokers profit off of your losses, and also
make money through spreads/commissions which they can set themselves.

Institutional Market Makers are banks, large corporations, or other institutions

that offer a bid/ask price quotes which they can set themselves, to other
banks, institutions, ECN’s or even other retail market makers. They  have huge
pools of liquidity to literally move the market in directions that usually benefit
them.

No matter if its a retail market maker, or institutional market maker, their goal
is to make money. That usually happens in ways that are against your
interests of making money. Market Makers can take the other side of your
trades and then decide what they want to do. It is typical for them to match
your trade with another account, send the trade to the liquidity provider, or
even hold on to it themselves. This is obviously a huge conflict of interest for
retail traders who trade the market. Often, their goal is nothing more than to
hunt your stop losses, requote your positions, raise the spreads at profitable
entry times, and overall just take your money.

It is important for you to be aware that these entities exist, so that you can be
an informed trader, and ideally learn to spot which moves of the market are
real market movements, or movements made by Market Makers.

One of the most common types of trading analysis, is technical analysis.

Technical Analysis is a method of predicting price movements and future
market trends by studying charts of past market action.
Technical analysis

comes from what has actually happened in the market, rather than what you
or others think should happen. It also takes into account many different things
such as movement of price or “price action”, volume of trading, and much
more. Everything movement the market makes is printed into a chart by
various software both online, and offline. When somebody utilizes technical
analysis, they will analyze these charts using various strategies, methods,
indicators, and so on.

Technical analysis is built on three essential principles:

1. Price is a reflection of everything that is known to the market, that

could affect it and or has affected it, for example, supply and demand,
economics, politics,market sentiment, and much more.
2. Historically, price tends to move in trends. Technical analysis is used
to identify patterns of market behavior that have long been recognized as
significant. Some believe these trends are made up of the psychology of
traders who have moved the market over time.
3. History repeats itself. Historically speaking, chart patterns tend to
repeat themselves many times over, which leads to the conclusion that
human psychology changes little over time.

I mentioned earlier that Technical Analysis is very common. Its also very
powerful, and understanding some key points can take you a long way in
trading.

A fundamental approach to trading can be very important, despite the people

who tell you that only technical analysis is important. For fundamental
analysis, you would mainly focus on how news and economics will effect the
markets. News has a habit of causing HUGE sudden movements in a market. If
you are on the wrong side of these moves, it will cost your dearly. If you are on
the right side, you stand to make hefty profits.

Some specific things you would want to pay attention to in Fundamental

analysis are news, state of a country’s economy, interest rates, inflation,
different key businesses financial state and their financial moves, etc. If a
public figure is shot, a big import/export deal is made, new laws, war, and
even the smaller economic events, you’re going to want to see if you need to
factor this into your trades. All of these things play a role in how the market
moves.

A great place to get your news from is ForexFactory.com, but getting it from
other news sources can be important as well. Just make sure they are credible
news sources.

However even when trading news, you need to know how to analyze a currency
pair in regards to economics. So how do we do this?

When analyzing a currency pair, start by analyzing the country itself. What is
the political state? The condition of its economy? Does it have high debt?
Inflation?

When a country has a lower inflation rate, typically you’ll see a rise in currency
value. Its purchasing power may also increase relative to other countries. The
inverse is also true. Countries with higher inflation will experience depreciation
of their currency relative to its currency pairs. Depreciation in currency is
usually paired with higher interest rates. During long deflationary periods, it is
common for a nation’s central bank to weaken its own country’s currency rate
by injecting more currency into the economy. This is usually followed by
purchasing a foreign currency.

Higher interest rates in a country, will offer lenders higher returns in relation
to other countries who do not offer higher returns. This can attract foreign
capital to a country, and directly or indirectly cause the exchange rate of the
currency to rise. If the inflation of the country is much higher than other
countries, the impact of higher interest rates may have no affect on the
exchange rate. If interest rates are lowered, it is typical to see exchange rates
go down.

Tying back in news, and reports: When a report or piece of news comes out
speculating or commenting on what might happen with interest rates, you can
usually see quick changes in the exchange rate of a countries currency.

Its also important to pay attention to a the public debt of a country. Countries
often use what is called “deficit financing” to fund their governments, and
various public projects. This is usually done to stimulate the economy of a
country, however foreign investors typically find countries with high deficits
and debts less attractive. This is because high public deficits and debts are
followed by high inflation. When inflation is high, not only will you see a
depreciation in exchange rate, but the debt will be paid off with cheaper real
dollars in the future. A government may even print money to pay all or part of
large debts, which will further increase inflation, and lower the exchange rate.
However keep in mind that earlier we learned that high inflation can also be
followed by an increase in interest rates, which can attract foreign capital, and
raise exchange rates.

If the deficit and debts of a country are too high, foreign investors may get
worried that a country might default on its financial obligations. If this
happens, foreign investors will be less likely to purchase and or own securities
denominated by that country. This isn’t good, because when a country is
having trouble paying its deficit through its own domestic means (exporting
goods, selling bonds, increasing the money supply, etc), often that country will
increase the supply of securities for sale to foreign investors in order to lower
their prices.
Another way for a country to raise the value of their currency is to raise exports
by a greater rate than imports. This is called “Increasing its terms of trade”. A
country will enjoy higher revenue from exports, and a greater demand for its
currency, which in return increases the value of a the currency of the country.
If the rate of imports is higher than exports, a the value of currency will
decrease.

Political turmoil in a country can also cause a loss of confidence in a country,

and therefore cause foreign investors to pull their money out of the economy of
a country. Foreign investors will then seek out more stable countries, and may
even seek out competing countries to invest their money. Remember, that
earlier we learned that when foreign investors pull their money out of a
country, it can cause the exchange rate to decrease.

In other words, foreign investors will seek out stable countries with strong and
predictable economic performance. Look for news or reports for clues as to
what is happening in a country, and its economy. Those clues will help you
understand whether a currency pair is going to go up, or down. Which is the
goal of every foreign exchange investor!

To conclude this section, when you learn about Sentiment and Fundamental
analysis, you come to the understanding that Technical analysis (depending on
how you look at it) can be an analysis of trader psychology, economic
news/events, and more over time. Looking at how the markets have moved
through history can help predict where they might go next.

Utilizing Sentiment Analysis to understand how to read the psychology of retail

traders can be very beneficial to your trading strategy. This consists of learning
how retail traders respond to various big and small market movements, which
can help you to predict how the markets might move over both larger and
smaller periods of time.
There are market manipulators (see Market Makers) who influence the market
to move in ways that are intended to “psych you out”, scare you, and make you
lose focus. When you see sudden movements in  the market which may not
fully make sense according to your technical analysis, this can often be due to
either news, or the psychology and emotions of the retail traders reacting, or
actual manipulations of the market.

Why should you care about this?

The answer is simple. Psychology plays such an important role in the markets,
and is heavily undervalued by many technical traders. In fact, many aspects of
technical analysis work because of Market Psychology. Fibonacci retracements
for example are real, and they work — but they are based off of the psychology
of the masses. Fibonacci is just one example. If you study technical analysis
more heavily, you will begin to see how economics, psychology, and technical
analysis all tie together. They are intertwined.

Not every move you see happen in the market is a “real move”. Remember also,
that other traders are constantly reacting to each others’s trades, and also to
big money moving the market as well. Some moves are made by various large
financial institutions trying to set traps. Big money movers have learned how
retail traders react to various moves of the markets, and will try and trap
anybody with less money than they in fake movements.

For inexperienced traders who see sudden market movements, they typically
fall into this psychological trap and try opening positions to follow these huge
spikes down, or up. Controlling your panic, greed, fear, and other emotions can
help you in these situations.

Direct manipulation of the market can be tricky to spot, but well worth it!

You may also hear the term “fakeout”, “stop hunt”, etc. This is literally when
your broker, or other Market Maker entities are literally hunting your stop
losses. Your analysis can be spot on, but they will catch your stop, and then
the market will move in the exact direction you thought it would. Do not get
fooled by fake movements that are designed to make you fall into these traps
and lose money.

Learn to stop these real, and fake moves in the market. Learn to predict the
reactions of how traders all around the world might react to news, or various
spikes of market movements. Once you can see the real movements, your
trading skills will grow exponentially.

Tip: Never ignore the psychology of the masses when planning your trades.

How Do I know When I Should Enter/Exit a Trade?

Entries are an important part of your trading strategy, and play a key role in
confidence which affects your mindset when trading. Having confidence in your
trade, makes it easier to control your emotions in a trade. Controlling your
emotions leads to clearer thinking, which leads to being able to determine
when you should enter/exit, hedge, etc.

So how do you find a good entry? Some traders base their entries on pure
fundamental analysis like news, economic events, and so on. Other trades use
a combination of Sentiment, Fundamental, and Technical Analysis (like
myself). Some traders only use Technical Analysis. You can use any
combination of these three to find entries for trades. The point is that you need
to nail down what style or styles that you want to use, and practice it.

In regards to using Technical Analysis to assist you with find a good entry,  you
can utilize Candlestick patterns, Fibonacci, Indicators, Trendlines, Channels,
Support/Resistance, Supply/Demand, Harmonic Patterns, Divergence,
Volume, Timezones, Mid-week reversals, Levels, and more. These are all things
that can help you find a good entry.
To start, Support and Resistance levels are probably some of the most basic,
and common ways to start finding a good entry. There are traders out there
that almost solely use Support and Resistance to trade, so do not
underestimate them. Typically, traders wait for price to bounce off of or break a
support or resistance level to enter a trade. They may even wait for price to
“tap” or touch these levels 2 to three times before entering into a buy or sell.
Other traders wait for specific candlestick patterns before they enter,
supply/demand zones, and many other things.

It’s important for you to know that many traders use a combination of
technicals to form their “Strategies” on when they should enter a trade, or not.
Its important to keep in mind that a good strategy can also tell you when NOT
to enter a trade, and also when to exit.

In order to know when to exit a trade, you’ll need to set a limit for how much
you are willing to “risk”. When the draw down of a trade hits this point, that
would be your queue to close the position, and wait for a better one. You’re goal
really shouldn’t be to learn when to exit, so much as perfecting your entries
enough to where you aren’t worried if you should exit.

Generally, if your risk management is good, there is no reason to exit even if

your stop loss is hit. Why? Using proper risk management makes it so that you
don’t “risk” that much of your account, and therefore you don’t lose very much
if the trade goes south. If you find yourself in a position where you are asking
yourself if you should exit a trade, then it is very likely you should analyzed
more before entering the position in the first place.

Remember, if you cannot find a good reason to stay in a trade that you are
uncomfortable staying in, then exit and look for a better entry! The goal in
trading is not to never lose, its to win most of the time. Therefore if you have to
take a loss, in order to get a better position (to win), then do it! Traders who are
confident in their entries know the market will eventually move to their target
or take profit, and therefore do not worry about exiting the position. Make sure
you understand why you are entering a trade before you enter!

While no trading strategy is bullet proof (though there are some good ones out
there), each traders strategy, decisions for entries, and so on are likely to be
different.  Why? Because each trader is at a different level of knowledge for one,
and two, things that work for some traders won’t work for others. That’s why
its important for you to learn about everything you possibly can, and practice
on demo before going live. You need to find which pieces of information, which
indicators, etc form the strategy that works for you. You may even find that
somebody else’s strategy works for you. That’s great!

Many great traders usually use the H1, and above to utilize their strategies,
and technical analysis. However, a trick is that sometimes you can use the
smaller time frames (30min, and sometimes the 15min) to see where the
market might be headed. Using methods like fibonacci (which we will not cover
here), on smaller time frames can be helpful at times. Sometimes you can see
Support, and Resistance levels more clearly on smaller time frames as well —
which can make your markups more refined when marking up your charts.

While patterns can be useful on bigger time frames, keep in mind that patterns
on the 15 and 30 minute are not always accurate, though can give you clues to
where the market is headed next. Even the 1 min can give you clues, though if
you are new I would not recommend paying attention to the 1, 5, or 10 min
charts. 15min and higher can be stressful enough for new traders because
price moves more quickly on the smaller time frames, and can be very
unpredictable sometimes.

If you are new, you shouldn’t follow every candle moving on smaller time
frames either, which includes 15, and 30 min. You will drive yourself insane,
especially when price moves against you for a short time. New traders
constantly get caught up in the movements of smaller time frames and big
institutions or “market makers” know this. It is important to remember that if
you have a good strategy, do not let the smaller time frames psych you out of
it. The market is designed to fool you, and take your money. Study so that you
can beat that.

Overall, its important to remember that you aren’t going to see the full picture
of what is happening in the market when your stuck staring at the tiny details.
Just be aware of the smaller time frames, and focus on the bigger ones. This
will not only help you as a trader, but also help you with your entries.

Tip: Bigger time frames give you a better perspective of where the overall market
is headed, smaller time frames can give very good clues.