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Recipe for indices and forex trading(1)

Indices and Forex ..........................................3
Old and new way of doing things ...................8
Principles .......................................................14
Fundamentals ................................................20
Analysis for Forex ..........................................27
Analysis for Indices .......................................43
Market Sentiment ..........................................62
Let’s Trade .....................................................69
Frequently Asked Questions ..........................77
I believe all traders, new or old who apply the principles
of this book will save themselves a lot of money and time.
I have had the privilege to finally find something that
works after going up and down. I finally managed to crack
the code and turn from being a speculative trader to
being a trader who is at least 80% sure that his trades will
yield good profits. With the advancement of technology
and internet information that is all over the place, it makes
it really difficult to come back with one single strategy
that will sort you out for life. What I will be breaking down
in this book might not be entirely new to some of you but I
am going to combine everything and give you one single
system that works, saving you time and money at the
same time helping you to be profitable.
The system I present in this book came from careful
observations that I underwent with my brothers as we
were busy with a trial-and-error method of learning,
blowing account after account. Blowing accounts is part of
the journey but it doesn’t end there. To those that haven’t
been part of the 90% of traders who don’t make profit
good for you. On the other hand you might not be part
of the stats at all, given that you follow the principles of
this book and to those who are part of the stat it is time to
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Before making your first deposit into your forex account if
you are a new trader you need to spend some time learning about the real forex market, I won’t be covering the
basics of trading in this book but I recommend that you
go and learn the basics of forex from online sources, I
strongly recommend which is free. Youtube
also has a lot of information just do your best to avoid
learning about INDICATORS as you are not going to need
them if you really want to be profitable.
Here are some of the topics you should learn:
1. What is forex trading and how it works
2. How you can participate in the forex market
3. Choosing the right broker, check reviews about a
broker before going with them
4. Online trading platforms, apps, software and how to
use them
5. Trading fundamentals
Once you have gotten that off the way and believe that
you are ready to face the real world of trading, take
some time and open a practice account and just apply
yourself for at least two weeks then you can decide
from there if you are ready to face the real world.
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Indices and Forex
Trading is more of a patience and discipline thing, in
actual fact it is about 90% psychological. We can take
the same trade at the same time but only the person
who is psychologically strong or disciplined will get
the most out of the trade. With the right discipline we
don’t necessarily have to get all the trades right to
be successful but we surely need to apply the right
discipline and patience. Discipline involves taking
proper risks and being well behaved in your trading.
There is a strong relationship between forex trading
and indices trading, in fact the two are connected, if
you are going to be successful in one you will also be
successful in the other. But again you can choose to
focus on indices only and still be successful or focus
on forex only and still be succesful, there is a strong
relationship between the two but the volatility is
different. Indices will make you what forex can make
you in two weeks in a day or two but the opposite can
happen but we are not going to focus on the opposite
but I don’t want you to be ignorant of the fact that
as much as you can make a lot in a day the opposite
can happen in a day if you are not going to apply the
principles outlined in this book.
In forex we are looking at currency pairs and their
performances as a whole but in indices we are
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looking at companies performances. A currency’s
strenght is directly influenced by all the fundamentals
that surround it, people often neglect some
fundamentals but I have realised that when all the
fundamentals surrounding a currency are combined
they make up a driving force of the currency as a
The fact that a country’s currency is losing value does
not mean that the companies in that country also
lose value or rather also don’t perform. With some
companies it is actually an advantage for them when
the currency of the country loses value based on their
In indices we actually dealing with stocks/share
prices of many companies that have been combined
to make that index. One popular index is the Dax
also known as German 30, it has top 30 companies
in Germany such as BMW, Siemens, Adidas and
Deutsche Bank. The price of the Dax index fluctuates
every time depending on how its companies are
doing. Different companies weigh differently within
a particular index, they are capitalization weighted
which means that they are weighed based on their
market value. That tells us that the companies do not
weigh the same, the more a company weighs within
the index the more it will have an effect on the index’s
price movement.
Let me break that down. Let’s say we have XY 10
index, the 10 companies do not all weigh 10%, we
can have X company weighing 30% meaning that the
other 9 companies will have to share the remaining
70% in that index but still within that 70% they are not
going to weigh the same, so this means that company
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X has more influence on the overall performance of
XY 10 index. So are we going to sit down and look at
how each company in ABC 100 index is doing? No
we are not going to do that, we are going to tackle it
technically, in price action but we are not going to be
ignorant of the fact that fundamentals (news) play a
role in price action.
It is very wise to not neglect fundamentals and events
happening across the globe when trading indices, the
reason being indices are strictly companies’ share
prices and the share prices rise and fall on a daily
basis depending on the events and fundamentals
happening around the world. Companies have one
goal daily and that is to grow but there are events
which affect them which they don’t have full control
over and it is these events that lead to companies
having to watch their share prices crumble but for
us it an opportunity to make money for example we
simply can’t ignore the fact that oil prices are falling
or rising because this has a direct influence on
energy companies’ performance and shares daily.
Another driving force for indices is a country’s
economic performance, when we know how a country
is expected to perform based on news or economic
events that have occurred it becomes easier to
decide how long we are going to hold our trades for.
The reason being that we understand why stocks/
shares are behaving in this manner and we expect
them to continue for a certain period of time. One
example of this is what happened to the markets
when Donald Trump became the president of the USA,
stocks were just sky rocketing for months because
of the promises he had made and investors were
trusting him to boost the economy the markets were
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just performing extremely well. The U.S. dollar was
bullish for weeks and as a result stocks kept rising.
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Besides not having a solid winning system/strategy that
just works, there’s a lot that is common among the 90% of
people who don’t make it in the markets and again there’s
a lot that is among the 10% that make it in the markets. If
you are part of the 90%, you simply have to let go of the
old way of doing things and start doing it the new way. In
the markets there are principles that lead to success, and
only those that go by these priniples, they are the ones
that are successful. I have blown too many accounts in my
learning, so I have learnt how to do things right. You might
have not blown an account or accounts and you don’t
have to first blow accounts to make it, all you have to do is
follow what I am going to outline in this chapter.
In a world of social media many of us came to know about
trading from people who claim to be living a good life
from trading, and those people would often post a lot of
good profits on Facebook, Instagram or twitter. We might
have not given in immediately but because those good
profits were popping up infront of our faces every time
we log on to social networks, we finally gave in and that’s
why we are here today. But little did we know that what
we have been consistently seeing on social networks was
building up a path to failing in the markets in our minds.
Why am I saying this? When we finally got our hands on
trading platforms we already wanted to make as much
as what we had being seeing on social networks, and the
reason behind that is nothing more than the path that was
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being built over time. We also wanted to post those big
profits on social media, we also wanted to make as much
money as what others are making on social networks.
The lot sizes we were seeing on their posts gave us a
clue of how to make those huge profits but little did we
know that it was a road to blowing our accounts. We learnt
the wrong way of doing things by just scrolling past and
perhaps pausing for 3 seconds on that post with good
profits. 99% of the time we didn’t even get to see how
big that person’s account was or if it is a real account or
not and how many losses he encountered before finally
getting something to show us on social media. But all
we saw was that with 10 lots we can make $500 profits, it
is doable, we have seen it too many times from XYZ on
social networks.
We would often get to see some people’s analysis and
guess what, oh yes I see how they do it, its the indicators
I read about on Google or any other site. Yes I remember
that one, I watched a Youtube video explaining how
it works. We then went on to do it by ourselves and it
worked once, worked again and again oh wow it works
my account is double then the next moment the account
is blown. That’s just how it would often go with indicators,
they sometimes worked and the moment they didn’t work
it was a bad day, credit cards must come out because
we have to deposit funds again. And all this happened
because we trusted on indicators, and indicators simply
don’t work in the markets if they worked we would have at
least 60% success in the markets, the 40% would have to
fail because they perhaps don’t have the right indicators
or they are getting it wrong psychologically. There’s a
lot of other things we have encountered in the forex and
indices trading journey.
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The old and ways of doing things:
• Indicators don’t work, they are always lagging and
will always correct themselves and adjust to sudden
changes in the market. Indicators do not know real
life events and will always fall short, they are not
human beings and can’t make human decisions. So
do your best to avoid using indicators. If you have
been using them, by now you should’ve realised that
they simply don’t work. If you have never used them
don’t even start. If indicators worked big financial
institutions would work around restricting them from
being used by you and me.
• It is not about always having trades running or
having to wake up and trade every day. I like to say
I invest in the markets because when I open trades
I am not looking forward to closing my trades after
an hour or 2, but rather expecting a yield after a few
days if not weeks. Our introduction to forex was the
wrong one, we were used to seeing people posting
every 3 hours and then made to believe that it
ought to be like that. Treat trading as an investment.
When you invest in property or whatever it is
that you choose to invest in you do not expect
returns on the same day. You should have the same
mind set about trading, this will enable you to be
consistently profitable. When you want to make an
investment you don’t just go to the bank and make
transactions, but first you study and plan about what
you want to invest in. You take time to think about
your next investment, if you can apply the same in
your trading nothing will stop you. It’s even much
better because at the end of the day investing in the
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markets will yield results much faster than any other
• Don’t sit in front of the charts every day, you will
see what you are looking for but not everything you
see will be what you were really looking for, false
setups. This is what leads to people blowing an
account in a day because they had plenty of time to
open all false setups.
• Patience and discipline is what you will need, I like
to make this example to people: if you want to ride
a train you know that the safest way to do so is to
go to the train station and wait for the train to arrive
and even when it arrives you still wait for it to stop
before you can get on the train, to safely get on the
train you have to apply patience and discipline.
You have to patiently wait for it to arrive then apply
some discipline to wait for it to stop and for other
people to leave the train then enter. We have safe
entry points in trading, if you didn’t know, you
should not worry, you will know after finishing this
book. We don’t enter trades everywhere and exit
trades everywhere. Once in the trade we need to
patiently wait for the trade to get to where we had
planned to exit then we can exit. Yes if emergency
arises in between we have to exit but if not then we
don’t. Just like when you go to the bank and choose
to invest your money with them you patiently wait
for that term you guys agreed upon to end then
you can go and get your money with that tiny little
interest gained. If we can do it anywhere else then
we can and we’ll do it in trading too. Be patient
enough to wait for the price to get to your entry
and exit points, it will eventually get there it has
done it before and it will do it again, that’s just how
the market is. Be disciplined enough to only enter
trades at their entry points and to exit trades at their
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exit points.
• Never aim to double an account in a day or a week,
sometimes it can happen as you are doing things
right but that should never be your aim because the
opposite will happen. All other investments will give
you less than 40% in a month and yet you go for
them, but with trading you want a 100% return in 2
weeks. You need to have realistic goals to make it in
trading, yes what you heard when they said there’s
money in trading is true but it is not an overnight
thing. Maybe you want quick money for something
urgent, I will be honest with you this is not the right
place to get it, the opposite will happen. Having
realistic goals will benefit you in your decision
making before opening a trade.
• Use correct lot/contract sizes at all times. As much
as it will be exciting to double an account by
consistently using wrong lot sizes, you are building
a bad habit which is not sustainable, this will blow
your account with time, the very same account that
you have grown will be easily blown in a trade
or two simply because you risked more than you
were supposed to. Always remember that if you are
risking more because of a certain target you can
also lose as much. Always risk less even if you are
100% sure that it will yield to profit.
• Do not over trade. 70% of the 90% of people who
don’t make it in trading are simply doing it
wrong by over trading because today they made
good profit. Instead of stopping for the week or
for the day, they then decide to go and look for
other opportunities. From there all the profits
they had made are wiped away plus a certain %
of the account balance.
Don’t have a lot of trades running all at once.
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Take 2 or 3 trades a weeks and just apply
patience and see your profits increase. Also just
focus on a few pairs this will enable you to trade
• Always use a stop loss. Even when you are 100%
sure of your trade, anything can happen at any time
and you will read about the cause later after your
account is gone.
• You can use a take profit or trailing stop for taking
• Avoid trading to show off your results, if possible try
trading by yourself if you are easily influenced.
• Avoid following the crowd but stick to what has
been working for you.
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The principle is one and simple, price action mixed with
fundamentals, the two applied in the right way will leave
you with nothing besides being profitable. Fundamentals
are key driving forces to a country’s economic growth and
we cannot avoid this reality else we will find ourselves
wanting to invest in a country whose economy is about to
crumble and the output of that will be a loss. It is a good
thing to stay fundamentally fit in trading. Fundamentals
create a sentiment and this enables us to decide on
whether we are going to hold our positions for long or
not. If the fundamentals are in our favour and we can see
that our position is still going to yield much more profit
then we have no reason to close the trade. Patiently let the
trade run, again if it is against us then we will know that it
is time to leave the trade and not hope for the impossible.
Trading using price action is simply using Support
and Resistance lines or Support and Resistance zones
including trend lines. The trend is our friend at all times,
Support and Resistance help us determine the new trend
and once we are in it we simply stick to our friend the
trend. Support is like the floor and Resistance is like the
ceiling, if you throw a tennis ball to the ceiling when it hits
the ceiling the next direction that it will take is towards
floor and when it gets to the floor it will bounce and
head towards the ceiling. And that’s just how the forex
environment is like and it has always been like that, we
can easily trace it all the way back from the 70s & 80s
till today and we will find that there is simply this one
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behaviour of bouncing off the ceiling and the floor. A
tennis ball will not just break past the ceiling unless it has
a stronger force, in this case the stronger force will be
fundamentals. Fundamentals and sentiment are the only
driving forces that will cause our ceiling/resistance to be
broken else besides that we know that the next direction
is towards the floor. The same applies to floor/support,
only fundamentals and sentiment will cause the break out.
What I mean by sentiment is how the majority of traders
around the world view a certain currency, which can be
that they expect the currency to keep on gaining strength
or losing value. As long as the sentiment is biased in one
direction that currency will go in that direction simply
because the majority of traders are pulling or pushing it
to that side.
This means that our only entry points will have to be
at the resistance/ceiling or support/floor, we will be
looking to sell at the resistance and to buy at the support
and nowhere else. 80 to 90% of the time everything will
go right simply because even big financial institutions
simply wait for those points to make money, yes financial
institutions trade forex as well, that’s how they are able
to give you that 5% they promised you at the end of the
year in your savings account, by that time they would
have grown your money by a 1000%. Where did you think
all these insurance companies get the guts to cover you
knowing that you will come back and claim 100% more
than what you pay them? They take some of the funds into
trading. So when you see a support and resistance just
know that you are not the only one going in that trade.
Does this mean that every place where the price turns
is a support or resistance? The answer is most probably
yes, but we get major support and resistance and minor
support and resistance. In between the major ones, and
we are only going to work with major ones, you get the
minor support and resistance. Everything in between
the majors is a huge risk. You have to be disciplined and
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patient enough to wait for the price to reach our major
entry points before you can decide to enter.
When the resistance/ceiling is broken it turns into the
support/floor this is the same with the support/floor, if the
price goes past the support it will turn into the resistance.
Draw in your support/floor and resistance/ceiling
points or zones on H4 (4 HOURS) AND D1 (DAILY) time
frames, nothing less. Every time you open your charts
you will see how far the price is from the entry points.
Before entering a trade decide on how much you are
willing to lose and consider that money deducted from
your balance, this will help you with discipline. This
means you must only risk what you are willing to lose.
Then after you have decided on how much you are willing
to lose then you will know what lot size you must use.
Always risk less than 4-5% of your account size this will
allow you to come back and recover from the trades that
didn’t go your way.
Lot Size
Never use more than 0.015 lots per $100
This means if you have a:
$200 account use between 0.02 and 0.03
$400 account use between 0.04 and 0.06
$1000 account use between 0.10 and 0.15
$2000 account use between 0.20 and 0.30
$10000 account use between 1.00 and 1.50
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Remember not all trades will go right, 80-90% of the
trades will go right but that 10-20% that goes wrong will
not harm your account if you stick to the right lot size.
Never try to double your account quickly by risking more,
it will result in a bad habit and you will not make it.
The total number of trades running should never exceed
the lot sizes above. This means that if you want to have
more than 1 trade running on your $400, when you add
all the lot sizes running at risk, they should never exceed
0.06 else you will be risking more than you have to and
this is one of the downfalls of many traders.
Stop loss
Be very disciplined with stop losses. Always make sure
that where you put your stop loss you will not be risking
more than 4-5% of your account balance. And this can be
well done by patiently waiting for the trade to reach the
entry point, else you will be forced to place the stop loss
at a place where you will be risking twice as much as you
were supposed to or you will put your stop loss at a place
where it will surely be hit. But don’t worry I will show you
how to do it right.
Never have a single trade running without a stop loss no
matter how sure you think you are about your trade.
Take Profit
Set your take profits at major support or resistance zones
or rather just use a trailing stop loss. Always shift your
stop loss to your entry point once the price has moved
by a few points away from your entry point, this will leave
you with no trades running at a risk. in addition it allows
you to open a new position if there is any opportunity
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Before entering
Observe whether the price has completely reached the
entry point, if not give it time it will eventually get there,
just be patient enough.
Look at the trend on a daily time frame, a trend line
will assist you with this or the market sentiment. If the
market sentiment is very strong don’t go against it. How
to determine this? Look at it in this way, if a country gets
a new president whom the world believes is good for
the economy of that country, then selling that county’s
currency will be going against the market sentiment and
will lead to losses. Another good example is Brexit, we
saw the pound lose value over a period of more than two
weeks, trying to buy the pound in that period was just like
trying to jump into a lions’ den. You see sentiment holds
for more than a day and gives us a trend which we should
not ignore while deciding on our trades/investments.
Look at the economic calendar to see if there’s anything
on the economic calendar that can affect your trade. If
there is then don’t enter the trade, but if there is nothing
then you can enter the trade. Here you are looking for
major fundamentals that can come to a complete change
in the market sentiment.
When to enter
With price action there is no perfect formula for when to
enter but we enter at our support and resistance, there is
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no perfect signal that will tell us that indeed the change
in direction is about to occur. One thing we surely know
is that the price will eventually turn there, sometimes it
is immediate and sometimes we get a consolidation at
the entry point but with patience the change in direction
eventually occurs. Investing involves taking risks but
we take calculated risks when we enter at our major
supports and resistances because 90% of the time the
price will turn there as long as there is no solid sentiment
around that pair or currency. Yes not all trades will go
right but trading this way will leave you with an 80-90%
accuracy. Some may say candle sticks patterns, I am not
against them but I have come to realize that they are not
always there and you can miss out on your entry point
while waiting for them, so the best is to risk that 4-5% of
your balance knowing that you stand up to 90% chance
of coming back with a smile after a few days. Price may
consolidate at the support or resistance and your trade
just alternates between profit and loss, this is where you
put your feet down and patiently wait, it happens a lot, I
have seen it a lot but it yields good profit at the end of the
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Some of the fundamentals to keep our eyes on are
Interest Rate Decisions
Every country’s central bank releases their interest rate
decision every 2nd month throughout the year. 1 out of 3
things can happen, it is either they choose to keep their
interest rate unchanged, increase it or decrease it.
If they decrease the interest rate, it is negative for their
currency and you should look into selling that currency.
If they increase their interest rate, is positive for their
currency and you should look into buying that currency.
Often times when they don’t change anything, it is seen
as negative for the currency but does not hold a strong
sentiment like when they change.
Interest rate decision today is one of the biggest market
movers, do your best to make sure that you trade interest
rate decision. There’s always hints all over the media
concerning what the next decision will be, the media gets
the hints given by the chair or central banks members.
Economic calendars often get this forecast right. If you
didn’t get the time to go through your fundamentals you
can rely on economic calendars 90% of the time, but it is
always wise to do your home work and make informed
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You will always know before hand if the interest rate is
going to be increased, decreased or remain unchanged
if you follow fundamentals. Always look for hints from the
media after speeches by the chair. There are many market
analyst who do the job for us and all we have to do is read
a few sources and we will know where we are headed
Interest rate decisions create a strong market sentiment
in one direction or another. If you didn’t trade it before
the decision was released you can always trade it after
the release in the direction in which the market is going
following the release. The market continues in that one
direction for a good 3 days, don’t rush to close your
positions but rather hold and trail with a stop loss.
GDP (Gross Domestic Product)
Every country releases its GDP every 3 months, and if
the GDP increases it is positive for that currency and you
should consider buying that currency but if it decreases
then it has a negative effect on that currency and you
should consider selling that currency. GDP indicates
a country’s economic health/performance and can
contribute towards market sentiment, so this is one thing
to consider when looking into the sentiment.
CPI (Consumer Price Index)
The CPI gives a good indication of inflation and
purchasing trends by consumers and is released every
month based on the previous month’s performance. An
increase in the CPI is positive for the country’s currency
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and a decrease is negative for the country’s currency. Buy
when positive and sell when negative. It does play a role
towards market sentiment.
Employment Changes
Change in employment rate gives a good indication
of whether more money is going to be available in the
hands of consumers. If more people are unemployed
it means that less money is available for spending in
businesses and this becomes negative for the economy.
Announcements concerning employment change comes
in many forms on the economic calendar but they are
all about employment. This data is always rated highly
important. For e.g. it can be represented in the form of
number of jobs created, non-farm payroll (NFP)
If unemployment increases, it is negative for the currency
and you should sell. If unemployment decreases it
is positive for the currency and you should buy that
Employment change has a high impact on market
Crude Oil Inventory
Oil prices have an impact on the Canadian Dollar (CAD)
and on indices too.
Crude Oil Inventory tells us how much oil was stored in
the US from the previous week and it is released every
Wednesday sometimes Thursdays. If more oil was stored
it means there’s too much oil to sell and it decreases the
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price of oil but if less oil was stored then it is positive for
the oil and the price will increase.
This affects the Canadian dollar because Canada’s
greatest export is oil, so if they are exporting a lot of oil at
a cheaper price it weighs on their economy and therefore
becomes negative for the CAD.
Some Indices have several energy companies in them,
S&P 500, NASDAQ and FTSE are some of those indices.
When oil prices are seriously under pressure it weighs
on those companies stock prices and in turn on the index.
And the same happens when the oil prices are doing very
well, their stock prices perform well.
Political Events
There is no country whose economy is not linked to its
politics. Political events help investors decide on whether
they should invest or pull of a country. Decisions and
policies put in place by a government have a direct
influence on the economy. When a new president wins
in elections in most cases it is positive for that country’s
currency and we should look into buying. You should
not neglect political events in your decision making
because they contribute to the sentiment of that country’s
Speeches by central bank’s chair/members
Often times when a certain country’s central bank’s
chair is going to speak you will find it on the economic
calendar with very high impact. They often give hints
on what their plans are concerning interest rates and
the economy and the market often reacts to the speech.
It often creates a very strong market sentiment in one
direction and we often find the market moving in one
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direction for a week or more.
Other Events
Indices react to world events such as natural disasters,
wars, political unrest and economic news. It is important
to follow economic data such as unemployment rates,
interest rates and GDP figures.
US indices including NIKKEI often rise with the strength
in the U.S. dollar this is because most of the companies
there report their profits in U.S. dollar. NIKKEI often has
the same moves as USDJPY. So positive market sentiment
for the U.S. dollar gives us a positive market sentiment for
the US indices and because of this we should be buying
and not selling those indices. Those indices are S&P500,
Dow Jones and NASDAQ. The AUS200 moves just like
US indices, positive sentiment in the Australian dollar
brings a positive sentiment to the AU200, at such times
the economy is healthy and businesses are doing well.
The opposite does not always mean that the indices will
perform bad too, businesses can still operate and make
profit in a country which is under a bit of shaking. Always
perform careful analysis of the relevant factors before
With the Dax/Germany 30 we often find that the index
does the opposite of the EUR and this is because many
companies in the Dax trade outside of Germany. A weak
economy can often be good for them since they can
remain untouched from the outside countries in which
they operate. This index also responds to economic
data released in Germany. You often find that on a quiet
day for the EUR, the Dax had great moves and this
being a result of economic data released in Germany.
In addition when the data was positive it is also positive
for the index and when the data was negative it is also
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negative for the index. Thus we are noting the DAX may
act independently of the EUR. Most of the companies in
the Dax trade in the US, when the U.S. dollar is strong the
index also performs well. So in cases where the EUR is
weak and the U.S. dollar is strong you will often find the
Dax to be strong, those are good times to buy the Dax.
With FTSE/UK100, even though the 100 companies here
are UK based, the index is affected by news from Europe
and the US too. Many of the companies here have much
of their revenue coming from outside the UK with many of
the companies reporting their profits in U.S. dollars. As a
result, the index often does the opposite of the GBP. When
the pound loses value, companies in this index have more
money when it has to be converted back into pounds and
again due to the weakness of the GBP. Goods and services
from companies in the UK become more attractive to
outside countries because those counties pay less. All
this becomes positive for the FTSE. It has about 13 mining
companies and will therefore be influenced by news
surrounding commodities. It also has 5 oil companies
and because of this it is also affected by strong market
sentiment on oil prices.
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Analysis for forex
Let’s look at the charts. I will be showing you how most of
the people that make-up the 10% of successful traders
trade. One thing you must know is that there is no
indicators being used but simple support and resistance
combined with patience and discipline. The market
simply behaves in this one way: the market repeats what it
did last when it was at that certain price.
Let’s start by looking Gold/XAUUSD
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The first thing I want to bring to your attention is that the
distance between two vertical dotted lines on a DAILY
time frame represent a month. It is useful in looking at
how long a trend took before it changed. As much as the
candlesticks may look small, it is due to the time frame
being used, however , on a smaller time frame you would
see a huge move. Now from the DAILY chart above look at
number 1, look at how the price turned at that point and
the 3 days later the price came back to the same point
and turned again. The 2nd turning was simply because it
had already occurred 3 days before at that point which is
our resistance.
9 days later the price managed to break past the
resistance, but because a broken resistance becomes
a support, we see the price at number 2 coming back
and bouncing off the new support. Look at the same
point at number 3, the price came back and spent 3 days
on that support before turning back to the resistance.
This turning is as a result of what has already occurred
previously. If we go 10 years back and look at the same
point we will find it to be a major support or major
resistance still.
Now look at number 5, why did the price turn there? The
answer is simple, it is simply because it also turned at
number 4 and if you look it spent 2-3 days at number 4
before fully dropping.
When drawing your support and resistance you simply
look at where the price turned previously and if it
occurred more than once.
Look at number 6, price played there for a good 7 days
and if you don’t treat forex like an investment you will
close your trade in a day or 2 but then when you come
back days later you will find regret waiting for you. Here
one simply had to apply patience.
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From the H4 chart above, look at number 5. This was
number 4 on the previous chart we looked at, look at
that 3 days of consolidation at resistance before fully
dropping. Many times in forex at our entry points,
consolidation will test our patience a lot and once we
pass the test we will have nothing but profits. Now look at
how long it take to drop to the next major support, we still
need to patiently wait for the price to finish its movement
before we can exit. It always eventually get there, all we
do is wait and watch our investments grow while we busy
with our lives.
Now look at 2,3 and 4, we can see that price broke the
resistance and became the support and had you missed
the entry at number 3 you could have gotten it at number
4. You would enter because you would have seen a lot
of evidence on your left of that point being a solid entry
point for buying gold.
From number 1 we see a double bottom on the support.
That’s where we would have entered. When the price
came down to form the double bottom. By then we
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already have proof that it will turn there since it had just
Remember we start by drawing our support and
resistance lines, so when the price is approaching these
lines we already know that our train is arriving. So when
we see that double bottom occurring we know that it is
occurring because we are at support and we should buy
the gold for a good week at least.
The same things are occurring on the H4 chart above.
That’s just the behaviour of the markets. The distance
between the vertical lines here represent a week because
we are on an H4 time frame.
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From the EURUSD on the DAILY chart above we see a
very long consolidation at number 1, the train literally
gave enough time for everyone to get in before taking
off, 6 months later we are seeing the price at number 6.
Only those who invest in forex can get the most out of this
Look at number 3 and 5, we are not shocked to see the
price turning there, why? Simply because we would have
drawn in our resistance already based on what the price
did previously when it was at that point. You can go to
your charting software today, it doesn’t matter how long it
took you to get your hands on this book, look at that point
going backwards and see that it is indeed a resistance
and you would have drawn it in too.
Looking at number 2, we get a good example of the fact
that we are working on a resistance or support zone and
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not just a single point. We see the price consolidating at
the support for a few days before picking up. And again
only those who treat this as an investment will get the best
out of it.
The H4 chart above is another good example of how
the price respects the resistance and support, we also
see that we have to be ready to see the trades switching
between profit and loss for some time before fully
yielding good profit.
Look at the next two charts and see how price action is
simply the way to go.
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Above is good looking chart of GBPJPY on a DAILY time
frame, number 1 and 3 are at our major resistance and
number 2 and 4 are at our major support. Number 4 is
a great example of a support zone, the price seemingly
went past the support at number 2 but it was still withing
the zone. See the market just has its own nature which
makes it respect support and resistance zones. The reason
behind this nature has all to do with us traders. Many
successful traders who have seen the light are simply
going to wait for the price to get to these zones then open
their trades and hold until the exit points. The more the
volume that is pushing the market in one direction the
market has no other option but to go in that direction.
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Number 1, 2 and 3 are nothing but a great example of
a major support. Look at how the price struggled at
number 3 before if finally broke the support. And again
for the breaking to occur on such major points we need
some strong pushing force and in this case it was the
speculation around Brexit that happened earlier in 2017. If
there is no major fundamental around the pair then there
is 90% chance that the price will turn. Here the price
was pushed down because traders were simply trading
ACTION. From number 4 we see a very good bullish
sentiment which went and stopped at the major resistance
at number 5, if you check on the far left you will see that
indeed this point is indeed a major key point.
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Here on the far left we are able to see the far left we spoke
about previously. The price had turned from the support
and was headed up until some major fundamentals hit
the market and in this case it was the Brexit in 2016, look
at how it just broke past that major support. This is proof
that fundamentals over ride price action. The price had
consolidated at the major support when it failed to break
it for a good 20 hours but fundamentals did it in a minute.
Number 2 is showing us that you might enter the trade
as soon as it get to the support but that doesn’t mean that
the price will reverse immediately but eventually it as to,
this is where people who are in it to invest stand back and
patiently wait for the expected outcome.
Number 3 has a consolidation and this can simply be
explained by looking at number 1, the price consolidated
there before and is now repeating what it did last.
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Number 1 has an “M“ formation or double top, by just
seeing the 2nd top coming up one has to be ready to sell
simply because we are at a resistance and the price was
rejected at the same zone the previous month. Look at
how great of an entry that was.
We have a triple bottom at the major support, if one had
missed the first entry point on the 3 days of consolidation,
another opportunity came at number 3, and again at
number 4. From there the market went all the way to
the top. Let’s look at one more chart on DAILY before
breaking it down.
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Number 1 and 2 might not look as clear as what we’ve
been seeing, yes we do get things like that at a support
level where the price left long wigs and didn’t just turn.
Remember we work with zones, so the price does go
deeper into the zone before turning back. We will use
those wigs to determine where to place our stop losses.
Number 3 was a good entry for a selling trade, and look at
how it spent days there before dropping.
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More examples:
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Analysis for Indices
Let’s now look at indices. There are certain behaviours
associated with indices. I used to have an app called
Netdania and the app would often tell me when there
was a huge move that occurred in a certain pair, index
or oil. I would often get a notification saying that crude
oil has fallen or risen by 2.01% and within 20 minutes I
would get another notification saying the same crude oil
has fallen or risen by 3.01% sometimes by 4%. The app
would often tell me that Dax, FTSE, S&P 500 or any other
index has fallen or risen by 1.03%, I would always wait for
another notification that says it has further fallen or risen
to 2/3% but I would never get that second notification
with respect to indices. Then I decided to start visiting
the charts everytime I got such a notification, and then I
discovered that there was no second notification because
the index has retraced. Then I decided to always wait for
the notification everyday and only trade the retracement
and only to find that indeed that was their behaviour, 90%
of those trades always yielded good profits. From that
day I knew that I’d only trade retracements on indices.
In addition I also realized that the app was often times
late so I had to find the best way to wait for my 1.03%. I
then came across INVESTING.COM. They always wrote
the percentage of the daily move for everything in the
market, from of all that I had made a discovery, INDICES
OFTEN RETRACE, that’s when I fell in love with indices.
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As I started trading them, I discovered that they always
closed at certain times and trading them was not allowed
since they were closed and were not moving. Then I
realized that everytime when they opened for trading,
there was always a gap. Sometimes the gap would be up
and sometimes it would be down. Now I had to try and
see how the market reacts to the gap. And I discovered
that fundamental gaps didn’t close but the market would
just continue in that direction. But again I realized that
if it is just normal price action the gap often closed but
there would often be an initial move in the direction of the
gap. These gaps are often more visible on H1 time frame.
Now I had to try and see where the price often turns, and
knowing that indices often retrace, I just had to see where
the retracement occurred and I found it.
By now I was introduced to price action and to how
the market often repeats what it did previously and I
realized that those retracements were occurring where
they occurred previously. But that was not all as we were
increasing in our understanding of indices a brother
of mine made a very huge discovery, there are distinct
points which are respected by the price. Yes there are
distinct entry points, and these are the points that will also
indicate to you where the price will potentially turn if it is
at a record high. There won’t be any need to worry about
if your support or resistance is at the right place.
I also realized that at times some indices have the same
movements with currency pairs and others have an
inverse relationship with currency pairs at times. A good
example of such would be NIKKEI/JP225, it often has
the same movement as USDJPY. FTSE sometimes has an
opposite relationship to the pound and the reason for
this is because many companies in the index have their
money in foreign currency, so when the pound loses value
it is good for them. Also because some companies export
their goods, so when the pound is weak, their products
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become attractive for outside countries and hence their
business performs well.
Let’s start with FTSE/UK100
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Let’s start on weekly so that we can clearly see where
long term trends turn, remember we are in this to invest
and not to scalp. Look at the support and resistance lines,
there is something common 7600.1, 7400.8, 7101.9, 6900.4,
6601.5, 6299.3, 5899.6 and 5502.6. The numbers are not
as exact as they should be because of the software used
to draw the lines. But if you check the relationship is that
they run in 100s. It was supposed to be 7600, 7400, 7100,
6900. So in short our lines should be at 7600, 7500, 7400,
7300, 7200 etc.
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Let’s look at the 2 previous charts of UK100 on a Daily
timeframe, look at those same points we had on the
Weekly timeframe. The price does one of two things when
it gets there, it either turns immediately or first spend
time there before turning. Also look at the all time high,
we see it turning at around 7600 also look at how the
price was bouncing off at 7400 for many days.
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By now you must be getting the picture, look at how the
price turns at around those supports and resistances. This
is the best time frame to use for entering into your trades,
The H4 timeframe is the best timeframe to use for our
trading style, it eliminates scalping.
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From the H1 timeframe we can now discuss the
retracement that I mentioned earlier. Look at where
the rectangle has been drawn again look at the price
level. The price got to that level then spent around 2
hours playing around there before fully retracing. I am
saying around 2 hours because there is a small bearish
candlestick between the two bigger candlesticks
and remember each candlestick represents an hour.
Sometimes the price spends more time at the turning
point before fully turning.
Let’s look at one more H1 timeframe, and just look further
into the retracements that I said often occur.
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On an H1 timeframe, from one vertical dotted line to the
next is 1 day. Look at all the v-shapes that I have drawn
in on almost all the days, those just show us that there is
a constant behaviour that occurs and that is retracement.
Also look at our all time high, it also occurred in a form
of the v-shape/retracement. It can be tempting to try and
catch those daily retracements but remember we are
in it to invest and not to keep our eyes fixed on charts
everyday catching wrong retracements.
Now let’s move on to DAX/Germany 30
Look at where the trend changes, look at where the all
time high turned. Let’s break it down.
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Support to resistance? Yes it does apply on indices too,,
we also have support and resistance zones, we are more
advantaged because we know which points are much
more respected and because we know the behaviour of
indices and what moves them. We do get consolidations
too and those are best for indicating a retracement or
change in direction especially when they are occurring at
our trusted zones. Although some consolidations are not
visible on bigger time frames we can best see them on
smaller time frames.
At number 2 the all time high is clearly visible, we can
also see that the price played there before dropping, if it
didn’t play there we would only see a wig and the other
candlestick would have opened below and never crossed
the resistance line again.
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From the DAILY chart above, let’s focus on the changing of
the trend. We have 5 places where the trend was changing
at, look at the price level where these changes were
occurring. They all agree with our magical numbers.
Another thing I want you to note is what the price mostly
does before it fully changes direction. Is there anything
that tells us that the price is about to turn here? Yes there
is, we see a consolidation at most points where price
turned. Price normally bounced off at that zone before
fully turning. Sometimes it took 2-4 days of bouncing off
at one point before fully turning. Now knowing what to
expect at those zones we can gladly open our positions
knowing that we stand 80-90% chance to succeed.
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Number 1 represents nothing else but a pure retracement,
look at where the retracement happened, that’s just how
indices work. They will not fall by more than 2% on a
single day unless the fall is based on fundamentals, so
what will occur after a fall or rise is a retracement.
Now look at number 2, the market opened with a gap
up and continued in that direction until it reached our
magical zone then turned. This happens a lot with indices
but not always. The market will open with a gap and then
move in that direction but a retracement will occur 80% of
the time when the price hits our magical numbers unless
there are fundamentals behind the move.
Number 4 is one of those moments where we have to be
disciplined and not be moved by the price testing the
support, we already know that we are at support and we
also know how the market behaves at support.
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From the H1 chart above we can see that we do
experience retracements everyday, the beauty of indices
is that as much as those moves might be pretty small, the
profits associated with those moves are enough to put a
smile on ones face.
It is also evident that the best place to entertain those
retracements is at our entry points. We can see that it took
more than a week but eventually the price did get to the
entry point and turned. That’s just the beauty of patience
in trading, it yields profits 80-90% of the time.
We also see that the price went back to the entry point
again to form an “M“ or double top, this is not the time to
exit the trade if you were already in the trade, you hold
onto the trade and patiently wait. Do not temper with the
trade unless there is something fundamental involved.
Pure price action will always repeat what it did last so
price will turn to complete the “M” formation.
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Let’s look at NIKKEI/JP225. This index has the same
movement as USDJPY, we know that USD and JPY are rivals
so NIKKEI gains with the USD.
There is nothing new here, the entry points are still at our
magical numbers. The beautiful entry point at number 1
just proves to us that after we are in the trade we should
patiently wait and only from that will we reap from our
investment. The price played at that entry point for a
good two weeks, waiting on that trade for two weeks is
way better than opening 50 more trades in two weeks
but with the account only coming back to where it was or
below. Number 2 is a case of a resistance that has turned
into a support, this had presented a buying opportunity.
And there was also a great consolidation that occurred
before the price rose up to the new resistance. By now
you should understand the importance of patience
and treating this like an investment. Look at all the
consolidations that happen at the entry points.
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Look at more examples below
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From the H1 chart above we see those daily retracements
that leave a v-shape occurring here too.
Here I want to discuss the gap and what follows. This is
a behaviour of indices, the market will open with a gap
and the price will continue in the direction of the gap
but remember we know that indices retrace and the
retracement occurs at our magical numbers and that is
what we are seeing above.
Again we see that the market is just repeating what it
did previously. 80-90% of the time when we have a
consolidation at our magical numbers which seem like
they are ending the trend we should go with them, there
is often a consolidation before the change of direction. We
have seen this happening many times. Go to your charts
and see if it is not so.
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Let’s look at one more example. S&P 500
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From the H1 time frame above we see the same behaviour
that occurs with all other indices. V-shapes indicating
retracements, retracement occurring at our entry points
and lastly we are seeing a consolidation happening at our
entry point.
The H4 and D1 charts are just proof of what we have
been looking at with other indices, there’s just a certain
behaviour which indices follow, it is simply their nature.
Understanding their nature puts us in an advantageous
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Market Sentiment
Simply put market sentiment is how the market is feeling.
There is no market without traders, so it is basically the
view that majority of traders have. It is the pulling or
pushing force that is pushing or pulling the market in
one direction. I find market sentiment to be very useful
simply because what the market is feeling is what the
market will do. If the market feels like pulling in one
direction, that’s exactly what will happen. If you come with
your pushing force it won’t be enough to stop the pulling
force and because of that you will be consumed. You only
make money when you side in with the market, anything
opposite that is a loss.
A trend is a result of market sentiment. If the market feels
like pushing in one direction, that’s what will happen,
only those who are pushing or are looking for pushing
opportunities will profit from their effort. Some traders
like to put it this way “the trend is your friend”, I fully
agree with them and that’s what this chapter is about. If
the price is at a major support but the market sentiment
is bearish and strong then expect the major support to be
Major support and resistance zones are the number 1
drivers of the market sentiment. The reason why price
respects major support and resistance zones is simply
because the market sentiment at those zones is always
biased in the opposite direction. There are many traders
and financial institutions who patiently wait for the price
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to get there and then they jump in. A lot of traders have
awaken to support and resistance trading and this puts
much more force in one direction, this changes the trend.
The second driver of the market sentiment is
fundamentals. Fundamentals also set the market
sentiment,you can see this by observing the market’s
reaction after fundamentals were released. When a
country’s fundamentals are conservatively coming out
negatively you will often see that its currency is bearish
for a number of days if not weeks. There’s just no reason
for investors to invest in a currency whose country is
under performing.
Concerning market sentiment you have to keep in mind
that investors always want to have their money where it
will mature and will pull out if they see a risk of losing
their money. As a result of this, no investor will put money
into a country whose businesses or economy is under
performing and again not everyone will pull out at the
same time so in a series of days you should expect that
currency to be losing value because a lot of people are
pulling out from it. The sentiment here is bearish and we
shouldn’t look into buying but selling. The trend line in
this case will be a bearish one. Supports will be broken
and new resistances will be formed. You should look for
selling opportunities in such cases.
Again we get times where a currency’s market sentiment
is bullish, this could be because of new policies passed,
new president or even interest rate being increased. This
will surely create a bullish market sentiment that will
continue for days or weeks. Keep in mind that there will
be retracements but the overall trend will be bullish, here
we should look into buying opportunities. This is why we
have to hold our trades for long.
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From the CADJPY chart above you can see the bullish
trend running within the trend line. The market sentiment
here was made to continue because the Bank of Canada
had signaled that they are going to raise the interest rate,
by just this we saw the CAD being bullish for days until
they actually raised the interest rate. After raising the
interest rate, the bullish market sentiment was just made
stronger and we saw CADJPY going all the way to the
major resistance. If you look above you will see that price
is currently consolidating within that resistance. The point
I want you to take here is that fundamentals make market
sentiment and if you don’t follow the sentiment you stand
a higher chance of not making it.
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The same effect was seen on USDCAD above. There are
many other examples that I can show you, in fact if we
go to 70% of the trends and see the reason behind them,
we will find that there was something behind the market
sentiment. The examples for this are infinity. Do not
ignore this fact while trading.
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From the Dax Daily chart we can see a bearish market
sentiment. Open any EUR pairs and compare the charts
on the same dates, you will see that the reason for the
bearish trend was because the EUR was gaining strength.
The reason behind the EUR gaining strength at that time
was because of the comments made by the Central bank
of the EU. The chair at the time was Draghi. His comments
saw the EUR sky rocketing for a good 2 weeks if not 3.
From the US3O chart above you can see that indeed the
overall trend of indices is bullish because companies aim
to improve daily. Although let’s focus on the last month,
you can see that the market sentiment here was extremely
bullish. Everyday the index was closing at a new high. The
reason behind this was the hype behind technological
stocks, everyone was going for technological stocks. It
was all over the news and the internet. You see again the
hype created a bullish market sentiment, all you do in this
case is hold your trades and just trail with a stop loss.
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Yes it is not all the time where we have a strong market
sentiment, sometimes the price will just be playing within
our magic numbers and bouncing back but that’s nothing
to worry about. There’s still a lot of money to be made
in such cases especially in indices and simply because
the payout in indices is very good. One thing to avoid is
scalping, we still hold trades but trail with a stop loss.
Let’s look at 2 more charts of this case:
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Let’s Trade
It’s been a journey, maybe you got lost somewhere in
the journey. No problem, time to put everything into one
basket. How do we actually trade? When do we trade?
Only trade indices when you have a good account
balance. If you don’t have a good balance, it will be wise
to grow the account in forex then you can start trading
indices. If you attempt to trade indices with a very small
account you will be stuck in between not wanting to blow
your account and trying to trade properly and therefore
not do the right thing.
With indices our supports and resistance lines run in
100s, these are our magical points/numbers. For example
1100, 1200, 1300, 1400, 1500...65100, 65200, 65300, 65400,
65600 etc. We know that not everything will go our way,
but these points will always give us the edge. With the
right discipline and patience we are going to achieve
what we are in the markets for.
From 1100 to 1200, with a lot size of 0.01, your profit
will be around $110 depending on what currency your
account is in. I have realized that with many brokers the
minimum lot size for trading indices is 1.00, but that is
actually equivalent to the 0.01 that is allowed in other
brokers. The profits will always be more or less the same
for the same movement.
I always enter indices trades as a form of retracements
from the magical numbers. If I’m trading them
fundamentally, only then will I enter from where the price
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was at the time. Although, I first check if there’s nothing
fundamental that is causing the current moves on the
indices. I am then 80% guaranteed that I am in the right
The price will not always bounce exactly at intervals of
100s. If the price went past the level by about 1-30 (not
exact) points, I still take the trade simply because I expect
it to retrace as it usually does. One thing that will help you
is to look back at what the price did at around that level, if
it had previously turned then you can expect the same to
happen. I will then put my stop loss at about 40 (not exact)
points away from my entry point. From there I sit back,
relax and just trail with a stop loss.
Above is the first way of how/when to enter the trade,
notice how I made it a zone and the level where the zone
is around 7500 “500”. You can also see that it was actually
a retracement.
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Copy rights © 2017 r.b. Nthulane
The 2 charts above show the first way of entering a trade.
when you see that the price is coming to the magical
point and you know that it should retrace from there,
when it gets there you enter the trade and place you stop
loss, the beauty of this is that you will be smiling within 5
minutes throughout your holding.
Let’s look at the 2nd way of entering a trade.
The 1st and 2nd way of entering a trade has nothing to do
with the time frame. When you look at the entry point you
can see that the price consolidated at that point for some
time before fully turning. The 2nd involves entering after
seeing that the price is struggling to break past that level,
many times when this happens the price will turn. It is like
the price was trying to breakthrough but failed to break
past that point.
Look at 2 more examples below.
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This way of entering applies to forex too.
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Now let’s look at the stop loss, where to place it and how
to trail using a stop loss manually.
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Always place your stop loss beyond the greatest point
that the price managed to reach at that zone. Remember
the market repeats what it did previously. If your stop loss
is below the greatest point then it has more of a chance
of being hit because the market managed to surpass that
point before. If your lot size is correct and you entered
at the right time you will find it easier to place the stop
loss at the right place but if your lot size or entry point
is wrong then you are going to be psychologically
challenged to place it at the right place.
Above is an example of how to use trailing stop manually.
I use this instead of take profit simply because I don’t
want to exit a trade which can still give me much more
profit. And this is how it works:
When the price has moved to New Current Price 1 move
your stop loss to break even which is at New Stop Loss 1,
just around the entry point but in profit. Once you have
done this your trade will never go negative again so your
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account is safe, let the trade run for some days. Once the
price has moved to New Current Price 2, move your stop
loss to New Stop Loss 2. When the price moves to New
Current Price 3, you must move your stop loss to New
Stop Loss 3. In addition, when you see that you are happy
with the current profit and want to close the trade, don’t
do it yet rather move the stop loss to Final Stop Loss, if the
market continues going in your direction you will simply
continue trailing else the market will hit your final stop
loss. It is that simple.
Remember to treat this as an investment and nothing else,
that’s the only sustainable way that I know. A wise investor
always studies the market he wants to invest in before
he makes his investment. Don’t neglect fundamentals
because they are the driving force of the market, they set
the market sentiment. Remember the trend is your friend.
Always use your stop loss.
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Frequently Asked Questions
As a teacher and mentor in forex trading, I have realized
that students often asked me the same questions. I will
put some of the questions here with their answers.
How do I know the difference between major and minor
support or resistance?
They are found on bigger time frames, H4 upwards. You
should be able to trace them all the way back. They are
far from each other, you often have to patiently wait for
the price to get there.
Show me your supports and resistance lines, I think mine
are wrong:
Students often asked me this because they thought
all our points have to be the exact same numbers
but no we treat it as a zone and not just a single line,
sometimes the price will go below the line but yet still
be in the zone.
How long should I hold my winning trades?
Until the price gets to the next major support or
resistance, until the trade hits your stop loss.
I entered a trade, it is not moving should I close?
I always received this question and it was mostly
because the students were not patient enough, they
wanted to enter trades and see big profits within an
hour. Don’t close the trade if you got in at the right
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It’s Friday should I close my trades or hold over the
If there are no fundamentals you are aware of that will
be released during the weekend then do not close the
trades, always make sure you have your stop loss in
Do you use candlestick patterns?
Personally I don’t use them, they don’t always occur
and when they do they always give an entry point
which is far from the stop loss. There is simply no best
indicator than the knowledge of what the market does
at support or resistance.
Do indices follow fundamentals?
Yes they do but mostly the high impact ones. Go back
to chapter 5.
The trade is currently going against me, should I move
my stop loss?
Never adjust your stop loss for any reason. This is very
important with indices, the market will get to your stop
loss if your direction was wrong.
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From all that I have gone through, I have seen that this
way of trading works. You have to be strict with how you
do things and stick to that alone. Have good discipline
then apply patience on top of that, from that you will
be headed for success. I trust that your trading journey
will be filled with profits and success, I wish you all the