Fundamentals Of Currency Trading: Mastering Technical Analysis, Fundamental Analysis, Trading Psychology & Risk Management [1 ed.]

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CONTENTS Disclaimer Testimonials Fundamentals of Currency Trading Preface My Trading Journey About The Author Section 1: THEORY Chapter 1: Introduction To Forex Trading Chapter 2: Forex Market Participants Chapter 3: Forex Market Drivers Chapter 4: Analysis & Execution Chapter 5: Basics Of Currency Pairs

Chapter 6: Understanding Currency Fundamentals Chapter 7: Introduction To Brokers Chapter 8: Introduction To Fundamental Analysis Section 2: Application Chapter 9: Economic Indicators Chapter 10: Risk Management Chapter 11: Risk Management Application Chapter 12: Introduction To Technical Analysis Chapter 13: Technical Indicators Chapter 14: Support & Resistance Chapter 15: Candlestick Trading Chapter 16: Trading Psychology Chapter 17: Trading Currency Sentiment Chapter 18: Sustaining Your Trading Business Conclusion Appendices Useful websites summary

Acknowledgement

DISCLAIMER

The content in this book is for informational purposes only and should NOT be taken as legal, business, tax, or investment advice. It does NOT constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security, currency or asset. In fact, the content is not directed to any investor or potential investor and may not be used to evaluate or make any investment. Investing and trading is a highrisk activity and should be approached with caution. I am not a certified financial advisor. Hence, it is important for you to seek a certified financial advisor to craft your

portfolio. The author or publisher is not liable for any losses incurred as a result of any person taking action based on the information presented in this publication.

TESTIMONIALS “If there’s one book you need to read about investment, please read "Fundamentals Of Currency Trading". This book is the result of years of research. The models and strategies in this book are tried and tested in the real world to get you results. Please buy a copy for yourself and give all your loved ones a copy too.” Dr. Patrick Liew, Entrepreneur of the Year for Social Contributions “Fundamentals Of Currency Trading by Karen Foo is a must have and must read for all aspiring to learn FOREX trading. Highly recommended and the

only book you need to get started. Hard hitting, Honest and Inspiring. Share her journey from Zero to Hero in this masterpiece. I met Karen and traded FOREX alongside her in my early days as a trader. I followed her on social media, where she shared her tears, pain and resilience to succeed, not just in trading but personal development. Today, she clearly has mastered her art and clearly evolved as a very confident and sharing person. I have met only a few traders dedicated to their art, and Karen is among them.”James Tan, Entrepreneur & Author of Your Cashmoves “While many new traders come into financial markets hoping to get rich quick, I believe firmly in the importance of laying a strong knowledge foundation before a new trader opens his first real money trade. Karen's "Fundamentals Of

Currency Trading" does just that in helping a new trader grasp the essential knowledge that all serious forex traders need to know while leaving no stones unturned. A truly holistic coverage of the world of forex trading, coupled with Karen's ability in explaining many highly technical concepts in an easy-to-understand narrative form is what makes this forex book for beginners stand out from the other forex books out there” - Philip Teo, Founder of Traderwave Academy

FUNDAMENTALS OF CURRENCY TRADING Mastering Technical Analysis, Fundamental Analysis, Trading Psychology & Risk Management

Karen Foo

Copyright ©2021 Karen Foo International All rights reserved. No part of this publication may be reproduced, stores in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Karen Foo International.

Author: Karen Foo Publisher: Karen Foo International Cover design and layout: SY Thoo ISBN: 9798515582371 Imprint: Independently published

PREFACE

If you picked up this book intending to find the best trading strategy for you to make millions, you can go ahead and put down this book and don’t waste your time. Please don’t waste my time too. The forex market presents opportunities for the ordinary individual to make an extra income or a full-time income but what many don’t tell you is that it will take patience and hard work to get there. Way too many retail traders don’t understand how professional traders think and act, which is why they lose money. Most of them are here to get rich quickly, and these

traders often don’t last long because they lack the patience to survive in the long term. They don’t bother to take time to learn the basics. I’ve talked to professional hedge fund traders, prop traders, and bank traders over the past few years, and I realized that they are a different breed compared to retail traders. What I hope to achieve in this book is to educate the typical retail trader of the right mindset and also, at the same time help them learn the basics that they need to know. If you’re an experienced trader, you might know a lot of what I’m talking about in this book since this book is meant for beginners and aspiring traders. However, I’m confident that you’ll gain some new insights and perspectives you can use for your trading. Take it as a refresher to what you already know. Good luck and happy trading!

MY TRADING JOURNEY

I was born into a family of investors. My parents were investing in stocks, mutual funds, and asset classes ever since I was born. The TV was almost always turned on at home. Sometimes it’s my mom’s favorite cooking channel, and sometimes CNBC or Bloomberg will be turned on. They would talk about stocks and investments. Back then, I wasn’t even interested in it. I was a game addict, and just wanted to play my PlayStation and Gameboy. Even if I wasn’t interested back then,

those TV channels were always playing in the background, and I would hear all these investment terms thrown around and I thought to myself. “Why would anybody listen to such boring stuff?” Trust me. When I was younger, I was all about my games and nothing else. Once in a while, I would come home from school, I would sit on my dad’s lap just as always and check out what he is doing on his computer. Dad was always on his computer from early morning until late afternoon, when the stock market closes. He always has multiple tabs opened with some screens showing ticker symbols flashing back and forth with red and green lights. In some tabs, he would have a company’s financial report, and in others, he would have the homepage of a financial website. He would also have stock charts opened. Now, I’m a visual person. The stock charts had colorful candlesticks. When I see colors, I like them. I mean, who doesn’t like

colorful things, right? At the age of 4, I asked him a question. “Dad, what are all these things?” Dad replied, “Oh these? These are companies which you can buy, and if you buy the right one, you might just make a lot of money.” “Really? Well, I like the ones that turn red,” I said. Mom was beside me at that time, and they both burst into laughter. I guess they were trying to see if I could turn into an investment prodigy. I guess that wasn’t a good start. Ironically, now I make more money in bear markets and short selling than buying bull markets. I just prefer to buy when the crowd is scared of the markets. At the young age of 4, I got my firsthand exposure to what a stock is, and I would go to kindergarten the next day and tell my friends about it. They gave me nothing else but a blank stare. I guess it worked out well with them. I was not too fond of school anyway. I was very quiet, and the teachers told my parents that there was something wrong with me

because I just don’t talk and mix around with my friends. I was the quiet kid in school, and everybody knew it. As a result, I was bullied a lot in school just because I was just so quiet. As a result, I grew up with social anxiety, which I still have now. I’ve always had low self-esteem. I think I was depressed too as a result of being bullied all the time. When I graduated from primary school, I started watching Bloomberg and CNBC in my free time. I didn’t understand most of the things being said, but I was curious to learn about it. The school was teaching me history and geography, which I don’t find interesting. I still studied hard in school anyway. I would come home from school to watch business and occasionally financial channels. My favorite back then was “The Apprentice.” I used to look up to Donald Trump. At the age of 13, I was watching Donald Trump because I also love the art of running a business and building a personal brand. The idea of being my own boss just

felt right. In fact, that was one of my favorite shows to watch aside from Spongebob Squarepants. Yes, I know that’s a big contrast. I mean, who doesn’t love Spongebob? Anyway, just like most teens out there, I didn’t know what I wanted to be when I grow up. Nowadays, kids want to become Youtubers instead of doctors and engineers. Back then, I had absolutely no idea. I’ve had thoughts of becoming an engineer or a veterinarian, but I wasn’t sure about what I liked aside from gaming. If I’m to look back right now, I realized that since my favorite pastime was watching business & financial channels, that was a clear sign that I had an entrepreneurial spirit in me. I didn’t know what other kids were watching at 13, but I just found Donald Trump back then being cooler than some famous celebrity singing in a music video. I was a big fan of Westlife and Backstreet Boys, but I wasn’t super crazy over them. Mind you, back then, when I was 13, there

was no such thing as “influencers” or Youtubers. When my dad wasn’t in his office, I’ll look through some of the annual reports he has on his table. Probably, until today he still doesn’t know I did that. My mom would talk to my dad about stocks all the time, and I would listen. Sometimes they would talk about unit trusts. Other times, my dad would call the broker to open a position. Yes, back then, you had call your broker to freakin’ execute an order. The receipt would sometimes be faxed to him. I don’t even want to mention the fax machine because I still don’t know how to use it without breaking it. To Gen Z’s, you probably don’t know what does it mean by “I’ll fax it to you.” To put it simply, it’s today’s equivalent of “I’ll Whatsapp it to you.”

ABOUT THE AUTHOR

Karen Foo is actively involved in speaking at various conferences, seminars, expos, workshops, and publicly-held events in Singapore, Malaysia, Thailand & Vietnam. Having overcome numerous setbacks

in her life, she has gone on to inspire hundreds and thousands of youths, working executives, and leaders of various companies with her journey. Being labeled as the “quietest student and underachiever” throughout her life, she went on to win numerous awards in public speaking contests & scholarships. She was also featured in TV, radio, magazines, and documentaries for her academic & career achievements. At 23, she was featured in Channel News Asia as a Young Investor. She was voted as the “Best Trading Guru in Singapore” by Traders Awards 2019 and accumulated over 100,000 subscribers on Youtube. This is where she shares trading & investing tips to her followers from over 30 countries. She was also given the “Top Popular Analyst in Asia” award by Wikiexpo. Karen has been ranked #1 in a Singapore nationwide Forex trading competition, competing with over 200 traders from NUS, NTU, SIM, SMU & the 5 polytechnics based in Singapore. She was also ranked 10th in a contest organized by FX

Street, competing with over 3000 traders from over 20 countries. She has shared the stage with top investment gurus and CEOs at the various conferences she has spoken at. She is also the contest judge for numerous public speaking contests held around Singapore, ranging from club level to the National level contests. Her wide range of experience has led her to co-author a book, “Turning Ideas into Profit” with 10 other Asia’s experts and professional speakers. Karen is also a contributing author of an investment book titled “Your Cash Moves”, where all the proceeds are donated to Singapore Children’s Cancer Foundation. Website: www.karen-foo.com Youtube (Gain access to free courses): Karen Foo Email: [email protected]

Karen speaking in HatYai, Thailand as a keynote speaker

Voted as Best Singapore Trading Guru in Traders Awards

Invited to give a TEDx speech

Giving a keynote speech in Vietnam

Conducting a seminar for CGS-CIMB Securities (Singapore) Clients

Giving a keynote speech in Chiang Mai, Thailand

Delivering a keynote speech in Suntec Convention Centre, Singapore

Keynote at Marina Bay Sands, Singapore

Giving a keynote in Kuala Lumpur, Malaysia

With mom at university graduation ceremony

Crisis Hits When I was about 18, I was in my final year in secondary school. At the same time, it was 2008 when the financial crisis hit. My dad was good at picking stocks, but he probably has to work a little bit on risk management. His side hobby was casual gambling at the casino. I guess that’s not a good hobby to have if you’re an investor. Not to get too much into details. My parents filed for a divorce, and my dad sold our home, cars, and everything. I got to keep my dogs, though. I was depressed for a couple of years before that happened because my mom told me about it when I was 16. I couldn’t believe how everything was just taken away from me overnight. I had a comfortable home with a stable family and all of that vanished overnight. At one point, it even affected my grades to the point that I almost dropped out of school.

I felt helpless and didn’t know what to do. Thankfully, I picked myself back up and decided to study hard after that temporary setback. I went from being ranked at the bottom of the class to the top 10 students in class. I was also featured in the newspapers for my good grades. I did all that within 6 months. The school principal announced during the school assembly that this has never been done before in history. That made me realize that if I set my mind to something, I can break other people’s boundaries and my limitations.

What’s Next? Fast forward a few years, I pursued a diploma in environmental and water technology at Ngee Ann Polytechnic. I still thought that I love engineering because that’s what my older brother was pursuing as well. How did I fund myself through school? My grades were good enough to be awarded a scholarship, thankfully. I wanted to become an environmental engineer only to realize that it’s not my cup of tea after I went through the 6 months internship. Some of my friends were super passionate about it. I didn’t see that same passion in me. I took a long break and thought about my true calling in life. There was one point in my primary school years; I was winning coloring and design competitions. I also spent a lot of my free time drawing and coloring. I thought to myself, “Maybe that’s your passion. It’s designing!” After graduation, I got accepted into

the National University of Singapore (NUS) to pursue a degree in architecture. I was so wrong about it. I realized that my love for drawing did not translate to the passion for architecture. I dropped out of NUS because I just felt that I wasn’t pursuing my life calling. I was frustrated with myself. NUS gave me an opportunity and it felt like I just took it for granted. I took a gap year to try out different jobs to find out what I liked. I remember feeling so lost back then in 2012 that my future looked so bleak, and I couldn’t see the light at the end of the tunnel. I fell into my second phase of deep depression. I remember cutting myself once and wanting to end it. I worked many different odd jobs like becoming a cashier, sales assistant, clerk, and even helping people fix their phones. I was earning $6-7/hour. When I wasn’t at work, I would go to the library and borrow books to read. I was also training myself to become a confident speaker by joining many toastmasters public speaking competitions. I trained for 5 years

behind the scenes before I even spoke to an audience as an official professional speaker. When I went to libraries in my free time, the first place I’ll head to is the shelf that has business and finance books. I would read books written by Donald Trump and Robert Kiyosaki. I was so fascinated by the world of business and finance just like when I was younger. I thought to myself; maybe this is my passion after all. Even when I was still in my architecture course, I would pick up financial books from NUS central library. I don’t know why I didn’t realize that earlier. I decided to apply for another round of university admissions and went through a couple of interviews. I messed up one of the interviews. So much for all that public speaking training. I still couldn’t speak confidently in an interview. I’ve just so much social anxiety sometimes that it doesn’t even make sense. As of the writing of this book, it still lives with me. #FML As a result, the university rejected me. That is fine. I did really badly anyway because I was just so nervous.

I learned from the bad experience and decided to prepare for another interview. Thankfully, I got accepted into Nanyang Technological University (NTU) to pursue a bachelor of business degree with a banking and finance specialization. NUS declined my application to pursue a business degree. I don’t blame them because I dropped out of architecture. They probably felt that this ungrateful brat is going to drop out again. While I was waiting for my freshman year, I was learning from a mentor how to trade gold, currencies, and stocks. I traded forex during my spare time while juggling full time studying. The way I learned from my mentors was interesting. There were no books to read, no workbooks for me to write on: just me and the charts. I worked hard to hone my craft as a trader. I was sacrificing weekends. No shopping. No movies. No random outing with friends (I don’t have a lot of friends anyway). No gaming. I just backtested all day and learned everything that I could.

In my final year, I represented my university in a nationwide trading competition where I competed with traders from other universities like NUS, SMU, SIM, and 5 polytechnics. After losing a couple of competitions, I was fortunate enough to rank #1. After that, I went on to rank 10th place (not that good of a ranking) in an international trading competition organized by FXStreet. People around me told me to start classes and courses to teach them my secrets. That was how I got into teaching. While studying full time, I also gave free seminars and speeches to share my experience. At one point, I was invited to speak at my university to my juniors. It was a weird feeling to teach and then go back to class the next day as a student.

Speaking at NTU to my juniors

I remember going to various trading floors, investment banks, and meeting bank traders during my university holidays. That was when I got exposed to the world of professional trading. I go to my university library to pick up extra trading books to read. That was when I realized that the world of professional trading is so much more different from retail trading. It’s like 2 completely different planets even though they are doing the same thing.

Why This Book? Over the years of speaking at seminars and conferences all around Asia, I found that there are some really common habits, mistakes and mindsets that all top traders and losing traders have. I have personally made countless mistakes that cost me a lot of time and money. I wish somebody told me about these mistakes back then but there weren’t. My lovely mentor probably told me about those mistakes, but I think it went in from the left ear and went out on the other. There weren’t YouTube videos that would shout at me back then and be like, “Start managing your risk and stop freakin’ thinking about profits like a losing trader!” I learned a lot of lessons the hard way and also by watching other traders that I come across after all these years of traveling to different countries speaking to different traders from different backgrounds. With the experience that I have, I want

to share what I know with retail traders so that they don’t make the costly mistakes that these traders make. This book is also catered to my followers, who told me to write this book. If it’s not for their requests, I won’t write it because I still prefer doing videos. After all, it is more interactive.

How To Read This Book? I’ve read over 100 trading books ever since I started trading. The books are either very theory-based like a textbook or way too practical that it doesn’t allow the typical beginner to understand the basics terms and principles. So I figured out that if I’m to write a book, I want to provide the best of both worlds to new traders. The first section will be a textbook style theory for you to understand what you need to know. You can highlight and write notes, just like any other textbook you use in school. The second section will be more of a practical style content where you can apply what you’ve learned. I will need you to open your charts and start applying them. Basically, get your hands dirty and learn the real practical world of trading. Happy reading, and if you can, let me know on social media once you’re done reading it!

SECTION 1: THEORY ◆ ◆ ◆

CHAPTER 1: INTRODUCTION TO FOREX TRADING

What Is Forex? The forex market is a market in which you buy a currency and sell another currency simultaneously. To put it simply, you’re just trading money. Currencies are traded in financial centers all over the world, with the most amount of the currency volume being exchanged in the UK. This is because London is classified as the international financial center of the world. The United States ranks 2nd in the transaction volume and Japan being the 3rd. With that said, there is no physical place or exchange in which forex transactions will be exchanged because it is, after all, an over-the-counter market. It is decentralized, with banks processing currency orders for another party. This means that currency transactions are made between 2 different parties. The forex market is just one of the many asset classes and markets that you can

take part in in the financial markets. If you are already investing in stocks, bonds, or mutual funds, the forex markets can enhance your portfolio's overall returns if you trade it the right way. You can also trade currencies to hedge your portfolio. Once you have mastered forex trading, it is encouraged that you add another asset class to your portfolio gradually to increase your sources of income. After all, multimillionaires have multiple sources of income. The forex markets can be traded using forwards and futures. However, for the simplicity of this book, I will focus more on forex spot trading.

Fig1.1.1

Benefits Of Trading Forex One of the key benefits of trading forex is the 24/5 market, which provides flexibility for you despite working or studying full time. Stocks and bond markets are only available for trading when the exchanges are open. During a recession, when the stock market is down, you can look for opportunities in the forex markets to profit from the economic downturn. Hence, you can make money regardless of economic conditions. There is also a downside with a 24hour market. You would be tempted to overmonitor the markets, which can potentially lead to overtrading. It is also a highly liquid market, and unlike the stock market where you need to pick from many different types of stocks, you need to only focus on a few pairs as a forex trader. For most forex brokers, you only have to pay a spread to the broker without the

need to pay a commission. Aside from that, leverage can also be used to magnify your gains. Hence, you can start with small capital as a forex trader because of leverage. You need to implement proper risk management and money management to trade successfully with leverage. However, it can also magnify your losses, so you need to use the right amount of leverage, which I’ll cover more on this later on.

Downsides Of Trading Forex I hate to break it to you, but the truth is that 90% of forex traders fail! Does this mean that it will be hard for you to succeed? It depends on how you look at it. I find that the more challenging something is and the lower the entry barriers are, the more I want to succeed at it. Once you make it to the top 10%, it is satisfying! Another downside of forex trading is that a lot of people use it to gamble. As of the writing of this book, we are still in a pandemic. The covid19 lockdown has led to a lot of newbie traders jumping into the markets and getting burnt. Some even lost hundreds and thousands of dollars, and they got into deep debt and sadly even led to some suicide cases. If you want to gamble, kindly head to the casino because the markets are not the place for you to do that! Forex markets also have relatively higher volatility, which also provides more

opportunities. However, it can be stressful for those who don’t possess the risk appetite or experience to handle it. Another bad news, if you’re just lazy and not willing to put in the work. This field is not suitable for you, and you can stop reading from this point onwards. Who forced you to read this book?

What Tools Do You Need To Become A Forex Trader? You need a finance degree! Just kidding! There are many successful traders in this world who don’t even have a university or college degree. However, since I graduated with a finance degree, I would say that it helps you learn things faster because, let’s face it… Finance jargons can be confusing sometimes. Like what in the world is a Sharpe ratio and CAGR? Finance terms aren’t taught in school, so you’ll probably need to take some time to learn the basic terms before you start trading. On a serious note, let’s talk about what are the specific things that you need to become a trader: Good trading platform: For beginner traders, you can start by using Metatrader 4, which I find is pretty user friendly. Computer with a high-speed internet connection: Yes, this is common sense. You

can’t just buy any crappy computer that loads forever! At least have a decent laptop that can support gaming. Nowadays, with the kind of technology we have, most laptops are suitable for traders. Reliable broker: I’ll get to this a bit later in the book. Just make sure that your broker cares about you just as much as they care about what’s in your wallet! Office: If you want to go pro trader style, then get a trading office. Get dressed in a suit when you head to office, if you will. You will feel like a professional trader and also feel like one. Hopefully, you will also produce the results that you want. Trading desk: If an office is too farfetched, at least have a table at home dedicated to trading. Don’t shower your cat there, and also have your barbecue there at night. With that said, if you love your dining table so much that you want to stick around it all the time, then use that as your trading desk. It’s your life. Knowledge and experience: I would say this is one of the most important things you need, and yet this is what most beginner

traders skip or take shortcuts on. They think they can learn to trade on a 2-days course and then become a successful trader after that. It takes the average professional trader at least 3 years to become pro at it. I took 3 years to get a finance degree. So, if you’re not willing to take 3 years to learn to trade properly, then feel free to take 30 years working for your boss, making him or her rich. There are many ways to learn trading. Some will get you to your goals faster and some slower. If you want to become an Olympic swimmer today, you can figure it out everything by yourself, but chances are, you would want to have a coach around to guide you so that you can correct your blind spots. Same thing with trading. It is OK to learn everything online for free, but it will take you a long time to master it because you wouldn’t know which information is useful or useless crap. There are millions of websites out there. It’s good to find a mentor to shorten your learning curve, but the problem is this: There are also crappy mentors.

Based on my experience as a Youtube creator, you would literally have one random dude living in his mom’s basement, preaching get-rich-quick in his dumb YouTube videos, and on another side, you would also have a professional prop trader with a finance degree from an ivy league and experience working in an investment bank making videos on the same platform. Guess what, you would be surprised that the random self-proclaimed trading guru dude would get more clout and views than the professional trader talking about risk management and proper economic principles. People love hearing get rich quick promises! The more they flex their rented Lamborghini at gullible traders, the more people follow them! In fact, they flex more than they teach because they have nothing inside their brains to flex to begin with. This is called dumb money following dumb money! So, my point here is this: Make sure you learn from the right people. You might not wanna learn from me, and that’s fine. Those who promise fast returns and get rich

quick probably are more interested in you giving them money than you earning money from your trading.

Basic Terms I’m going to share some of the basic terms you must know before you start. Otherwise, you will be confused from this point onwards. ☐ Liquidity: Amount of interest in the markets ☐ Pip: Smallest unit of measurement of a currency pair (Percentage in point) ☐ Leverage: Ability to use a small sum of capital to control a larger sum of money ☐ Margin: Amount of money available in your account or used to open a trade ☐ Ask: The price in which you buy the base currency ☐ Bid: The price in which you sell the base currency

☐ Spread: Difference between bid and ask price ☐ Correlation: The extent to which one currency moves in the same or opposite direction to another currency

Trading Sessions In the forex markets, the main trading centers include the United Kingdom, United States, and Japan. However, you also need to take note of the other trading sessions, especially if you are trading the relevant currency pairs. Let’s talk about this one by one. Sydney: If you’re trading this session, which starts early morning in Singapore as shown in the picture below, you’ll have to take note if you’re trading the AUD. Tokyo: Currencies to take note of in this session include AUD and JPY. The Tokyo session would have relatively lower volatility as compared to the other trading sessions. London: During the London session, you’ll start to see an increase in volatility and hence trading opportunities. This individual session accounts for most of the global trading volume. You can trade most of the currencies during this session, but you need

to take note of EUR and GBP for opportunities. New York: Currencies to take note here is, of course, the USD, and it gives you just about the same level of trading volume as compared to the Asian session. Most of my trades are made during the New York and London sessions. There are just more trading opportunities for me. Europe-Asia Overlap: This overlapping session would have less volatility than the overlap that occurs later in the day, which leads to fewer trading opportunities. With that said, you may want to take note of pairs like EUR/JPY and GBP/JPY during this period. US-London Overlap: You will find a lot of trading volume and volatility in this session. Take note of EUR/USD for trading opportunities.

Fig1.1.2

Since I’m based in Singapore, I’ll write in terms of Singapore time. If you’re based in other countries, you have Google to help you. At 5 am Singapore Time, Sydney financial markets will open, followed by Tokyo at 7 am. This is then followed by Hong Kong and Singapore opening at the same time at 9 am. This is followed by the opening of the London financial markets at 3 pm and then New York financial markets will open at 8 pm. The New Zealand market will then open at around 2 am. This happens all around the weekdays until Saturday where the market closes at around 4-5 am. This means that markets will be opened from Sunday 2 am all the way to Saturday. Even though at different points in time, specific sessions will be closed, that doesn’t mean that a particular currency related to that session should not be traded. This means that you can still find trading opportunities in USD pairs even if the New York markets are closed.

Movements In Currency Markets In a bullish market, a trader would look for a buy. In a bearish market, a trader would look for a sell.

Source: MetaTrader 4, ©2000-2020 MetaQuotes Ltd.

What causes the currency to go up or down? The answer is the supply and demand from the traders and investors. When the demand for the currency exceeds the supply, the price will go up.

When the supply is more than the demand, the price will go down. In other words, if there are more buyers than sellers, the currency will go up and vice versa. For example, when a country’s economy is booming coupled with price stability, the country’s currency will be attractive to foreign investors, which increases the demand for that currency.

CHAPTER 2: FOREX MARKET PARTICIPANTS

Types Of Traders Traders use a variety of trading styles to profit from the markets. The key is to find a trading style that suits your risk appetite, lifestyle, and comfort zone. Long term traders would rely more on fundamental analysis, whereas short term traders rely more on technical analysis. To succeed in the markets nowadays, you need a combination of technical, sentiment, intermarket and fundamental analysis to increase your probability of success.

Fig1.1.4

Let’s classify short term traders as scalpers and day traders and long-term traders

as swing traders and position traders. Generally, long term traders would require more patience and discipline because they would hold their trades for a few days to a few months. They also need to wait for trading opportunities. They’ll open fewer trades as compared to short-term traders. However, this doesn’t mean that they are less profitable than short-term traders. If anything, long term traders are less stressed out and more profitable than most day traders. On the other hand, scalpers and day traders rely on speed to trade the markets because timing is crucial to make the right trades at the right time. They would need a higher risk appetite because they would open more trades than long-term traders. Most professional currency traders I know are long-term traders. Of course, you have hedge funds that focus on highfrequency trading, making over 100 trades a day. They are pros. They can do anything they want. Beginner retail traders shouldn’t start off day one scalping the markets because this path requires a lot of experience. Most retail

traders pursue day trading because brokers or certain educators told them to. Yet, most day traders still lose money. There is a conflict of interest within the industry. Day trading is encouraged because it earns the brokers more commissions. A lot of educators are also IBs for brokers. I think you know where I’m coming from. Studies have also shown that traders who hold their trades longer are more profitable. If you trade the higher time frames, you’ll experience less stress and potentially earn more profits. You’ll also free up more time to pursue other things rather than staring at the screen all day. Why not? In trading, less is more. I’ve tried all types of trading. I prefer long-term trading any day.

Who Is Involved In Forex? The participants in the forex market are involved in it for different reasons. However, the majority of them participate for speculation purposes, which contributes to most of the trading volume. A smaller minority are here just for currency conversion purposes. Professional traders and financial institutions dominate most of the trading volume, which also helps increase the liquidity of the forex markets because they are well-capitalized. Brokers and dealers: They execute orders for their customers, and some would act as a middle-man between traders and banks. Government & Central Banks: The government can intervene and influence their country’s currency by buying or selling large quantities at one go, and the central banks would act on behalf of them. The government would do this to weaken their currency to

remain competitive in their exporting activities. An example of an export-oriented economy is Japan. One of the downsides of regular intervention is that it might cause a currency war to ignite because, very often times, countries are weakening their currencies at the expense of other countries. Central banks generally don’t get involved in speculative activities. Instead, they would get involved in it for the sake of the country’s economic stability and implementing their monetary policies. For example, if the Yen strengthens too much, the BOJ will intervene to weaken the currency strength to prevent exports from getting affected. Countries like Japan, who are mainly export-driven would not want their currency to strengthen beyond acceptable levels. When the central banks do intervene, it could cause a significant temporary reaction in the forex markets. Banks: A well-established bank may trade millions or billions of dollars every day

via the interbank market. They would process orders for brokers, hedge funds, retail traders, and corporations. When you see a significant move in the prices that are not explained by fundamentals, the banks are very likely one of the main contributing factors of that move. Examples of such big banks include JP Morgan and Barclays. Retail traders: They gain access to the markets via retail brokers and would have the least influence on currency prices. It used to be that only the big boys can gain access to the forex markets. With the rise of the internet, trading forex is readily available to anybody with a stable internet connection and computer. In Japan, forex trading is common among Japanese housewives, with carry trading being very commonly done due to Japan’s low interest rates. In fact, their trading volume was once deemed to have helped stabilize the currency markets. Multi-National Companies: MNCs

Corporations/ are particularly

vulnerable to currency risks because their businesses operate in many different countries. Most companies don’t participate for speculative purposes. They have to participate to buy foreign goods and services overseas without having currency fluctuations affect their profit margin. They would typically use forex trading as a hedging instrument so that their business can expand to other countries without getting affected by currency fluctuations. If a U.S based company buys raw materials from a factory in Singapore, they would need to pay them in SGD. Examples of MNCs who engage in international business operations include Apple and Nike, where overseas sales revenue comprises more than half of the overall revenue. Companies like these would typically have to engage a forex expert to advise them on the future currency movements and the actions they need to take to prevent currency exchange rates from affecting their bottom line. The banks will help to assists in the

currency transactions made by these companies. Money Changers: This group comprises a small portion in the forex markets as a participant because they mainly serve a small group of people such as tourists and small businesses. As of the time of writing, the market value of 1USD is equivalent to 1.38SGD. Money changers in Singapore will buy and sell USD at approximately 1.35 SGD, depending on the retailer. The price difference will be the gross profit for the money changer. Hedge funds & Investment management firms: They manage large accounts for clients and other organizations. They have or might not have currencies as part of their portfolio of stocks and bonds, depending on their strategy and methodology. Hedge funds are also known as one of the world's largest speculators and perform a variety of services for clients such as asset management, hedging, or international investments.

A lot of hedge funds are macro driven when it comes to currency trading. This allows them to hold their trades open long term. Even though they are behind banks when it comes to trading volume, they also have the power to influence prices in the currency markets.

CHAPTER 3: FOREX MARKET DRIVERS

What Moves The Forex Markets? As a forex trader, you need to understand some of the main factors that move the markets in the long-term, medium-term, and short- term. This allows you to make profitable trades in the markets and understand what the analysts are telling you. Floating & fixed currency regimes: Most of the currencies are allowed to float freely via a floating regime, which should be your choice when it comes to picking currency pairs with sufficient volatility to trade. These are currencies in which market forces drive their prices. As a result, any trade deficit or trade surplus will automatically be adjusted back to equilibrium levels. This is in contrast with currencies that have a fixed regime, in which authorities control their movement. Fixed regimes provide certainty to importers and exporters since the currency

fluctuates within a narrow band. They won’t have to worry too much about currency movements, which will potentially affect their profit margin. It also provides more certainty to foreign investors who have to exchange their currencies into local currency to invest in the local market. However, fixed regimes are more expensive for central banks to maintain. Examples of currencies with fixed regimes include the Singapore dollar (SGD) and Hong Kong dollar (HKD). SGD is fixed to an undisclosed basket of currencies. This is to prevent speculation on the SGD. Another currency that is pegged to the USD is the Chinese Yuan, in which the range is set by the People’s Bank of China (PBOC). In the past, in went through periods whereby it was switched to a managed float regime until the 2008 financial crisis caused the Yuan to be re-pegged back to the U.S. dollar. By keeping the Chinese yuan rates low, helps Chinese exports remain competitive. However, it makes imports more expensive for Chinese citizens. Bear in mind that there is no such thing

as a currency that is entirely free-floating or fixed. Both types of currencies are subject to intervention, which makes them managed floats. Central banks need to intervene to maintain their competitive trade edge, control inflation, or ensure the stability of the economy. The only difference is that fixed regime currencies are subjected to more frequent intervention than currencies with a floating regime. There are many factors that drive the forex markets, but at the end of the day, it still comes down to supply and demand for the currency, especially for currencies with floating regimes. The following pointers are some of the key factors that move the forex markets: Economic data: Key economic events can be very market moving, especially when it deviates from expectations by a significant amount. The economic health of a country will determine the international capital flow, which in turn affects the supply and demand for the currency.

When traders have a positive economic outlook on a particular country, the demand for that currency will increase. This leads to the currency to appreciate. A negative outlook will be bad for the currency, ceteris paribus. Suppose the country you’re monitoring has several major trading partners. In that case, the economic conditions and changes of those major trading partners will also potentially affect the country you’re watching. Commodity prices: You’ll often see an inverse correlation between the USD with gold and oil prices over the long term. This is because these commodities are priced in USD. In other words, if there is an increase in the supply of USD, gold prices will appreciate as a result of this. The good news for currency traders is that XAU/USD can be traded the same way as some of the currency pairs. Investing in gold ETFs is also a popular choice among investors who want to take advantage of the price increase.

Silver has a close positive correlation with gold, but due to the lack of liquidity compared to gold, the price tends to be more volatile and hence less predictable than gold prices. Commodity prices also influence commodity currencies. I’ll cover more on this in the next few chapters. Political events: This can cause a significant movement in the currency markets. When you’ve chosen a currency pair to trade, make sure you understand the country's political situation. Elections are particularly a market-moving event. Hence, traders have to pick countries in which their political environment is relatively stable. Over the past few years, elections have had a significant impact on the value of the USD. If you look closely enough, there is a common trend in past elections, and you can use this as a clue to trade future elections. For instance, one week before an election, the stock market will often tank due to the incumbent party's uncertainty. This will

be followed by a rally after the election as the markets have digested the new president’s policies. In the 2020 U.S Presidential election rd on 3 November, you can see that the stock market plunged a week or more before the elections(Fig 1.1.5). This was followed by a rally with a Joe Biden win. Understand that every election is different. The 2020 election is different from that in the past, with the pandemic being the backstory.

Fig1.1.5 Source: MetaTrader 4, ©2000-2020 MetaQuotes Ltd.

Similarly, the stock market tanked one week before the 2016 U.S election held on the 8th of November(Figure 1.1.6). During election years, the stock market tends to be more volatile as compared to non-election years.

Fig1.1.6 Source: © 2020 Tradingview

Many people believe that a Democrat win will harm the stock market, while a Republican victory will cause the stock market to rally. While this is true to some extent, history proves otherwise. Stock markets will rally regardless of a democrat or republican win. The only question is the % differences in which it will rally. In fact, for the past 16 elections, the S&P500 gained an average of 6.5% in the year following the election. It might be the easy thing to close your eyes and buy the market. If you want to benefit from specific sectors within the markets, you will have to study the policies of the incumbent president, especially plans

when it comes to working with trading partners. For instance, Biden plans to increase corporate taxes and focus on the clean energy sector, whereas Trump is pro corporate tax cuts and the increased spending on financial assets. This will have an effect in the respective sectors, commodity markets, and currency markets. For example, potential expansive fiscal policies under Biden will benefit gold prices in the long term. Be mindful if you want to trade around political events because you’ll be subjected to volatility risk. This would require prudent risk management on your end and knowing what you’re doing. Central banks: Rate decisions and statements from central banks can cause an immediate change in a currency's sentiment and cause a rapid movement in the short term. Also, take note of inflationary expectations because this can be a leading indicator of what the central banks would do next. It affects their interest rate decisions.

When inflation increases too much, central bankers are more likely to increase rates. However, when interest rates aren’t raised during a major inflationary period, the currency will likely go down. When there is too much money flowing in the economy, the value of the currency decreases as goods and services become more expensive. When there is too little money in the economy, this can lead to an increase in unemployment. Central bankers hence have to strike a balance when it comes to managing inflation. In other words, inflation and interest rate changes will move the markets. Technical Levels: This is a factor that is often not talked about when it comes to factors that move the currency markets. Market participants would often use the same patterns, indicators, or techniques to make a trade. Of course, even though different traders use them differently, most of them would use them the same way, especially for retail traders. This would lead to people

buying and selling at the same price levels, such as strong support and resistance levels. Societal and ad-hoc events: When traders decide whether to buy a currency or otherwise, they will also consider the country's social stability. Other than that, unscheduled events such as wars, pandemics, and natural disasters will also cause a massive temporary spike in the currency markets. It will also shift the market sentiment. During the start of the pandemic, the stock market and commodity currencies took a massive hit. If you’re one of the smart monies, you won’t panic because that was a good time to buy cheap stocks and undervalued currencies. As you can see from the chart (Fig 1.1.7), AUD/JPY took a big hit in March, only to rally along with the stock market in early April.

Fig1.1.7 Source: © 2020 Tradingview

Stock market: The movement of some currencies will be in tandem with that of the stock market, which we will discuss more in the section on types of currency pairs. If you compare the previous chart of AUD/JPY with the stock market (Fig 1.1.8), you can almost see a positive correlation associated with these two markets. When I discuss risk-on and risk-off environment in the next few chapters, you’ll understand why it moved the way it did.

Fig1.1.8 Source: © 2020 Tradingview

How To Profit From The Forex Market? Going Long (Buy) When you bought a currency at 1.12000 and got out of your position at 1.13000 (Fig 1.1.9), you’ve just harvested 100 pips, and if you’re trading with 1 standard lot at $10/pip, you would have earned $1000 (Without taking into account spread). You would look for a buy when the base currency is expected to become stronger than the counter currency. On the other hand, you will also buy when the counter currency is expected to weaken against the base currency. This is because when you’re buying EUR/USD, for example, you’re buying EUR and then at the same time selling USD.

Fig1.1.9

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Source: MetaTrader 4, ©2000-2020 MetaQuotes Ltd

Going Short (Sell) The good thing about the forex market is that you can sell even on a down market. When you sell a currency, you will be buying at a higher price in anticipation that the currency will go down. When you sold the currency at 1.12500 and took profit at 1.11700 (Fig 1.1.10), you would have made 80 pips. Your profit for trading on 1 standard lot will be about $800 (Exact value depends on the spread). You would look for a sell when the base currency is going to weaken against the counter currency or when the counter currency is going to strengthen against the base currency.

When you’re selling EUR/USD, what you’re doing is selling EUR and then buying USD simultaneously.

Fig1.1.10 Source: MetaTrader 4, ©2000-2020 MetaQuotes Ltd.

When you’re trading the spot market, you are opening a position using the current price that the currency pair provides you at this moment. This is different from the futures market in that the delivery date is on a future date. Other than trading the spot market, you can also trade forex futures, forwards, or options, which comprises a smaller percentage of the trading volume than the spot market. Some traders profit from the forex markets using carry trades or spread

betting.

CHAPTER 4: ANALYSIS & EXECUTION

Types Of Analysis

1) Technical Analysis When you’re using technical analysis, you’re using indicators or price action to determine the probability of future movements. You are also using price behavior from the past and present to determine the future movements of the currency. This is not a means to predict the markets but a way to increase your probability of winning. You use it to determine the exact entry, TP, and SL points. Technical analysis is also suitable for short term traders. With

that said, long term traders still rely on it for entry. The disadvantage is that it does not really tell you the long-term direction of the trend. 2) Fundamental Analysis Unlike technical analysis, where you’re basing your decision on past price behavior, right now, you’re speculating on the movement of the price based on the current and expected future state of the economy. Using data from economic, political, and societal factors, you can use these to determine the future price trends. With that said, be aware of reading news and using it as your main decision-making process because by the time you’ve received the news, very likely, those factors have already been priced in. Fundamental analysis helps you determine the long-term trend of the market because fundamentals drive the currency markets in the long term.

If you’re a fundamental trader, timing the markets is relatively less important as compared to if you’re a technical trader. This is why long-term traders only focus 10-20% of their attention on technical analysis. This is also how most hedge fund traders tend to operate. They use fundamental analysis to generate their ideas and conduct sentiment, intermarket analysis, and technical analysis to confirm their longterm bias. In other words, other types of analysis are used as a filter. If it is not in-line with their fundamental bias, the currency will have to be placed on a waiting list until all the factors are in line. As you can see, it is not as straightforward as compared to day traders who only use technical analysis as their primary decision-making tool. If we can all make money whenever a candlestick signal shows up or a technical indicator gives us a signal, everybody would become rich very quickly from trading. Anybody can read

charts and even teach technical analysis. However, it takes somebody who really knows what they are doing to combine all the analysis tools to generate a high probability trade. If you want to become a position trader like most professional traders, you will need to master fundamental analysis. To be specific, learn macroeconomics and international trade. Also, study each of the economic drivers and indicators. It will take a lot of hard work and time but hey, who said that trading is easy? Maybe if you listen to the get-rich-quick “gurus,” they will tell you that. You can continue to live in your fantasy land by listening to them. With that said, trading longer time frames require more patience for your trade to work out because you’re very likely holding your trade in the long term rather than taking profits after a few hours or days. Although fundamental analysis gives you an idea of the currency's big picture

direction, it doesn’t pinpoint the exact entry and exit points for you. This is why you still need technical analysis to help you spot better entry points. 3) Sentiment Analysis Basically, you’re trying to find out how the market feels about current and future market conditions. One way you can do this is by identifying the net positioning of the big players in the markets. Since they are the ones who control a large sum of capital, they have the ability to move markets, especially when the liquidity is lacking. The Commitment of Traders (COT) report provides valuable information on commercial and non-commercial traders' positions. Commercial traders refer to companies that are involved in the forex futures market to use it as a hedging mechanism. Non-commercial traders refer to the participants who speculate in the currency markets such as hedge funds and institutions. You can find the

report from the Commodities Futures Trading Commission (CFTC) website. What you need to focus on is the noncommercial positions. We won’t be focusing on the non-reportable positions as well because it involves the other types of market participants which include brokers and dealers. Often, when net positionings are at an extreme level, this is a potential sign of a reversal in the currency. Take note of the % rate of change in positionings. This matters more than the absolute number of positionings. Better yet, plot a graph on an excel sheet to visualize the trend of the positionings over the past few months. This will give you a better idea of the net positionings overtime.

Fig1.1.11 Source: https://www.cftc.gov/

One important thing to note is that you should never use sentiment analysis alone to make your trading decisions. If your fundamental analysis contradicts the hedge fund positionings, you have to wait until both factors are in line before entering into the trade. Use sentiment analysis as a confirmation for your fundamental analysis. Next, look at the charts to spot reversal patterns, and you’ll have a high probability trade. 4) Intermarket Analysis Also known as cross-market analysis, this is a skill that you need to learn, especially when you’re a long-term

trader. If you’re a scalper, it wouldn’t matter that much to you since correlations won’t play out that much in short term charts. The first thing you will need to learn is the correlation coefficient. I won’t go into detail about the formula. If some of you math geeks are curious about it, I’ve made a video about this on my Youtube channel. Feel free to satisfy your curiosity. When you have a correlation coefficient of more than one, it is an indication of a positive correlation. This means that the two asset classes or currency pairs you’re comparing move in the same direction most of the time. For example, the current correlation between AUD/JPY (Candlestick chart) and CAD/JPY (Line chart) is about 84.5% on a 1-day time frame; this means that the currencies will move in the same direction 84.5% of the time. They will have a random relationship with each other 15.5% of the time. As you can see

from the chart (Fig 1.1.12), the positive correlation played out pretty well.

Fig1.1.12 Source: © 2020 Tradingview

Another correlation we can look at is the relationship between the British Pound and the Euro (Fig 1.1.13). There is a strong positive correlation of 87.3% between GBP/USD (Candlestick chart) and EUR/USD (Line chart), as you can see from the chart. This is due to the close link between the European and British economies.

Fig1.1.13 Source: © 2020 Tradingview

If you have a negative correlation, the two markets will move in the opposite direction most of the time. Please realize that I mention most of the time and not all the time. This is because no two asset classes or markets will move in the same or opposite direction all the time.

Fig1.1.14 Source: © 2020 Tradingview

An example of 2 currencies with a negative correlation is EUR/USD (Candlestick chart) and USD/JPY (Line chart). Their correlation for a 1-day time frame is about -69.4% at the time of writing. This means that they will move in the opposite direction 69.4% of the time. They will have a random relationship 30.6% of the time. As you can see from the previous chart (Fig 1.1.14), the correlation is not that strong. There are only specific periods in which it will move in the opposite direction to each other.

As you may observe, some correlations are strong, and some are weak. I would say that a correlation coefficient of more than 0.8 or less than -0.8 is considered

strong and worth taking note of. To find out the correlation between 2 currencies, there are lots of online resources that you can refer to. You’ll realize those correlations tend to change over time. Market conditions change, so does currency and market correlations. Also, each market has unique and individual drivers, making it impossible for two markets to move in tandem all the time. When looking at correlations, understand that it also has to make sense. For example, sales of face masks and board games increased this year. Sometimes, indirect correlations can be formed due to an external or third factor. In this case, the 2020 pandemic caused many cities to go on lockdown mode. Many people had more time at home to play board games. Face masks are also needed to protect themselves from the virus when they go out to the public. When the pandemic is over, and there is a sudden surge in board game sales, does

this mean that mask sales will increase? Of course not! It doesn’t make sense. If the correlation doesn’t make sense, it won’t last long. Take note of this.

As you can see from the model above, you need to implement the top-down analysis approach. You start by looking at the big picture, which is the broad market view. What is the big story that is happening right now? E.g., war, pandemic, disaster, etc. This will affect the market sentiment, and you’ll need to confirm that sentiment by looking at other markets as well. This is where intermarket analysis comes in. Once you’re done looking at the big picture (i.e., what’s happening around the world now?), you’ll now look at the country

level. What is happening to the economy of the country now? What will happen in the future based on the relevant economic indicators? Once you’ve established your trading idea and the long-term direction of the trend, you’ll now implement technical analysis to spot good entry points. There are times where you’ll be bullish in the long term, but the charts are still on a downtrend. You’ll need to wait for the charts to turn bullish. Hence, you’ll have to place your currency pair on your waiting list until the opportunity presents itself. To put it in simple terms, you look at fundamentals, sentiment, and intermarket analysis to generate a trading idea. Technical analysis should be used to spot better entry points. This is how most professional hedge fund traders operate. The typical retail trader just ignores all of the fundamental and big picture drivers. They rely solely on technical analysis to enter a trade. I’ve seen way too many retail traders telling me to talk more about technical analysis on my Youtube channel, and talk less about boring fundamental analysis.

Think about this. Most retail traders focus on technical analysis and yet, most of them lose money. They ignore what the hedge fund traders are looking at because it’s harder to learn fundamental analysis. This is why most of them lose. If all these things are too hard for you, you can pursue some other career. Don’t even pursue trading. Don’t even buy any trading courses. You’ll lose money with that kind of lazy attitude.

Reading Currencies Stocks are displayed in the form of ticker symbols. For example, Apple would be represented as AAPL on the platform. For currencies, it is denoted by 3 letters. Let’s look at how you can decipher a currency.

The first 2 letters represent the country, whereas the last letter represents the name of the currency. Hence, you would state the above currency as “Japanese Yen”. Follow this rule, and you’ll be able to read currency pairs like a pro without memorizing it. If EUR/USD is priced at 1.1200, this means that the current exchange rate is 1.1200USD per EUR. (1 EUR= 1.12 USD).

In simple terms, this means that it will take 1.12 USD to buy 1 Euro.

Fig1.1.15

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Source: MetaTrader 4, ©2000-2020 MetaQuotes Ltd

Let’s say if you see the above (Fig 1.1.15) bid/ask price on your MT4 platform when you decide to short the EUR/USD today, you will sell at the bid price. When you make a buy trade, you will buy at the asking price. The difference between the bid and ask price gives you the spread. This means that for every EUR you buy, you’re selling $1.10315 of USD. When you sell 1 EUR today, you will be paid USD $1.10266. The reason why you’re buying at a high price and selling at a low price is so that your broker will be able to earn their spread for providing you the service of gaining access to the forex markets. A spread is just a cost of opening a trade. Every time you trade, your aim is to cover this cost so that you can end up with a profit.

Fig1.1.16

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Source: MetaTrader 4, ©2000-2020 MetaQuotes Ltd

When reading currency quotes, you’ll realize that they are quoted in different decimal places. Prices for currencies that include JPY will be quoted in 2 decimal places, whereas the rest will be quoted in 4 decimal places. Most brokers would quote an additional decimal place on their platforms to make it more specific for their clients.

Different Order Types Market order: This is when you decide to open a trade at the current price. Traders will enter into this order if they feel that this is a good price to enter. This is suitable especially for traders who can afford to spend time in front of their screen. It is also a type of order that is popular among traders. The downside of entering immediately at the current market price is that this will often prompt traders to enter a trade earlier than expected due to emotions such as greed and fear of missing out. Pending order: This can come in the form of buy limit, buy stop, sell limit, or sell stop. This means that your order will be executed later on when the price hits a certain level. The good thing about using pending orders is that it will reduce the likelihood of emotional trading. Traders often pull the

trigger too quickly without waiting for the market to give them a reasonable price, which is a mistake that can be overcome by using pending orders. This type of execution order is also suitable for those who don’t have time to monitor the charts. Limit orders are common among traders who trade a pullback or price retracement, whereas stop orders are commonly used among breakout traders.

Stationary Stop Loss Order: When your trade is wrong, this order will help you cut your losses short. You can apply stop losses regardless of whether you are entering with a market order or pending order.

You can set your stop loss by using various ways, but one of the most common ways to do it is to place it near a support or resistance level or the recent high or low. You should set it at a level where when the price breaches it; you will be proven wrong. It’s essential to have this set up even before you open a trade so that you wouldn’t make emotional decisions while you’re in a trade. Trailing Stop loss order: This type of dynamic stop loss order will move along with your price in the event that it moves in your favor. This allows you to maximize your gains while at the same time, remove your emotions of taking profits too early. Also, you don’t have to manually adjust your stop loss when the price moves in your favor. This is especially useful if you’re a trend follower or don’t have time to monitor your charts. If you set your trailing stop at 30 pips or example and the price moves in the direction you want, the stop loss will, in turn, move in increments of 30 pips.

If, on the other hand, the price moves in the opposite direction, the trailing stop will remain stationary. Trailing stops are suitable for trend followers who want to capture the long-term trend. It’s also something that I often use because I want to make the most out of the opportunity when the price moves in my direction. That way, I would have a flexible target price and a hard stop loss. I will never move my stop loss further away from my entry unless I realize that I’ve made a mistake. Once I’ve set my stop loss, I will leave it there. The only time I will move it is when the price moves in the direction I want. Sometimes, I’ll move my stop to breakeven levels so that I can have a risk-free trade. Target price (TP): Some would call it a take profit level. This order limits your gains just as how stop losses limit your losses. It is important for you to set a TP target so that you won’t act out of emotions when your trade is open. With that said, some trend followers

don’t set target prices at all because they would want to maximize their gains. The only time that they would get out of the trade is when they get stopped out. If they were using a trailing stop, they would get stopped out on a profit, especially if the price has been trending towards their desired direction for a long time. There are a variety of reasons for using this order. If you know that the price won’t exceed a certain level, for example, a strong support or resistance level, you will need to lock in your take profit level so that you will not lose your unrealized profits when the market reverses. Whenever you set your target price, always ensure that it is not tighter than your stop loss unless you have a trading system with a very high win rate. In my opinion, it just doesn’t make sense to open a trade with a less than desirable risk to reward ratio. Maybe it is just not me. I’ve seen traders who set super tight TP targets but have wide stop losses. While this strategy may give them a high win rate in the short term, all it takes is one bad trade to

wipe out the previous trade profits. I’ve tried this strategy before, and I didn’t like it. I don’t want to go into another trading day, hoping that the next trade won’t wipe out my past 3 months of hard work. Manual Exit: This is when you exit the trade manually, whether at a profit or loss. If you have an open trade, a sudden event or unpredictable factor may have caused a sudden change in sentiment. This is where you’ll need to consider exiting manually. Having a mental stop or target is also classified under this category. The danger of using mental stops or targets is that you will be prone to making decisions out of fear and greed, especially when you do not have a strong discipline. In other words, you need to be flexible to know when you should exit earlier than expected before your trade even closes by itself. This would require more experience in the financial markets in order for you to do so because you’re “breaking the rules” in a sense. With that said, getting out of a trade

manually out of fear or greed is not considered a good exit strategy. Only exit when you have a valid and solid reason to do so. To reduce stress in your trading, it is recommended that you stick with pre-set exit points. You also don’t have to monitor your charts constantly when it is pre-set.

CHAPTER 5: BASICS OF CURRENCY PAIRS

Types Of Currency Pairs

Major Pairs Major pairs are popular among forex traders, especially for those who are just starting out. It is also a popular choice among professional traders, banks, and brokerage houses. It includes the U.S dollar and currencies from developed economies. The good thing about

trading majors is that it provides you with a low spread due to its high liquidity. High liquidity means that the market would have many available buyers and sellers at that particular time. It means that a lot of people are trading or investing in that market. The higher liquidity also means that this set of pairs would be relatively more predictable and less volatile than other pairs. This would also mean less risk of slippages. If you’re a complete beginner, majors are good to start with regardless of whether you’re a short term or long-term trader. The most liquid pair as of the time of writing is the EUR/USD, followed by USD/JPY. Following behind USD/JPY is AUD/USD and then followed by USD/CAD. Minor Pairs Also known as crosses, minor pairs don’t have USD within the pair and are more suitable for experienced traders to trade due to their higher spread and higher volatility than the majors. They have less liquidity as compared to the majors. With that said, some beginners do well trading minor pairs. There

are no fixed rules in trading. You will find pairs like EUR/JPY and EUR/CHF to have low spreads once in a while because they are the more popular minor pairs. Looking at the crosses can give you a better insight into the strength of a particular currency. This is because, very often, the strength of the currency may be obscured by the USD. This is because the movement of USD has a large overbearing effect on the other currencies. Crosses are suitable for longer-term traders because their profit per trade will be high enough to cover the spread. GBP/CHF is the least liquid pair as of the time of writing. Very likely due to the decreasing interest in the CHF over the years. Exotic Pairs Exotic pairs comprise USD combined with a currency of a smaller country or emerging market. It’s not popular among traders due to its lack of liquidity and predictability. It’s also highly volatile due to the unstable political environment in some of the

developing countries.

Picking Currency Pairs When it comes to picking currency pairs, several factors are essential to take into consideration, such as liquidity, predictability, spread, and volatility. With that said, you also need to ask a couple of other questions before you pick a currency pair. ☐ How often does this currency pair trend and range? ☐ How liquid or volatile is this pair? ☐ What kind of news would be more significant for this currency pair? ☐ What is the best time to trade this currency pair? ☐ What is unique about this currency pair? ☐ How will the movement of this pair affect the other pairs that I trade? ☐ How would this pair behave in a risk-on or risk-off environment? ☐ Which central bank has the most

impact on this pair? ☐ Do I understand the monetary and economic policies of that country? ☐ How does this pair respond to different stages of the business cycle? ☐ Do these currencies have a fixed or floating regime? ☐ What is the correlation with the stock market and bond markets? ☐ Will the base currency have an effect on the counter currency and vice versa? ☐ How often does this currency produce surprises? ☐ Is this currency prone to intervention? ☐ Which economic indicator will have the most and least impact on this currency? ☐ How does it respond to political events and ad-hoc events? Way too many traders pick currency pairs just because of the low spread. They also don’t bother to study the underlying

fundamentals and central banks of the countries. They are only interested in the charts. That is almost like trading blindfolded. While major pairs are a good place to start with, they are not always the best for beginners because some currencies within the major pairs require more time and experience to understand. If you don’t know the answer to most of the questions above, it probably means that you have a lot of studying to do. Take the time to go through and revise this book. Firstly, let’s start by getting to know each of the currencies.

CHAPTER 6: UNDERSTANDING CURRENCY FUNDAMENTALS

Fundamentals Of U.S Dollar (USD) As a forex trader, if you’re to pick one currency to study, USD should be your number 1 priority. You have to understand the underlying fundamentals of this currency and its drivers. Also known as the Greenback, USD has been known as the world’s largest currency. It is used as a monetary reserve for central banks worldwide. Hence, it is also known as a reserve currency. In recent years, central banks worldwide have diversified beyond using USD when it comes to reserve currency holdings, adding the euro and Chinese yuan as part of the reserves. Central banks hold reserves to stabilize the country’s currency in the event of unforeseen circumstances. The economic and political state of the United States will affect the price of the USD. As of the writing of this book, the United States is running on a trade deficit.

Any movement in the USD can impact the other currencies as well since most of the foreign exchange transactions are done in USD. When it comes to international monetary transactions, the USD is a currency that is most commonly used. We’ve talked about fixed currency regimes previously. Many currencies are pegged against the USD, which means that the currency can only fluctuate within the upper and lower band based on the USD rate. Since S&P 500 is a popular index among international investors, there will be a rise in demand for USD when more foreign investors are putting their capital into the U.S stock market. When there is an increase in demand for U.S treasury bonds, this will also increase the demand for USD. Also, the U.S dollar’s safe-haven status has decreased in credibility since the onset of the 2008 financial crisis. When you’re trading USD, it is essential to understand that the currency can partly be affected by its trading partners' economic states. According to U.S Census

Bureau, the top trading partners of the U.S include: ☐ ☐ ☐ ☐ ☐

China Mexico Canada Japan Germany

As you can see from the chart (Fig 1.2.1), most of the time, you’ll see a positive correlation between CAD/JPY (Candlestick chart) and USDJPY (Line chart), especially in 2019, which implies a close relation in terms of its economic conditions.

Fig1.2.1 Source: © 2020 Tradingview

During the COVID-19 pandemic, oil prices were driven to an all-time low with

excessive supply and decreased air travel. The tourism industry took a big hit, and country lockdowns led to a decrease in travel. Oil prices took a big hit in March 2020 before it started to recover. The Canadian dollar also gradually recovered as a result of it. The U.S faced one of the highest numbers of COVID cases in the world, leading to high unemployment rates, and as a result, the U.S economy took a hit. Low interest rates also make the U.S markets less appealing to foreign investors, resulting in the outflow of capital from the U.S. These factors contributed to the USD's tumble in 2020. Based on this observation, you need to understand that correlations don’t work out all the time since no two asset classes have a perfect correlation. During exceptional circumstances, you need to think flexibly and apply common sense in your trading. Also, take note of the U.S dollar index (DXY), which can be traded on the Intercontinental Exchange (ICE) as a futures contract. It can also be traded via CFDs, futures, options, or ETFs. I’m not going to go into detail about the formula that

is used to calculate the index. Aside from the U.S dollar, it comprises the Euro, Japanese Yen, British Pound, Canadian dollar, Swedish Krona, and Swiss Franc. In other words, it is the U.S dollar measured against a basket of currencies. This means that a rally in the index would mean that the USD has strengthened. A drop in the index means that it has weakened.

Fig1.2.2 Source: © 2020 Tradingview

Fundamentals Of Euro Dollar (EUR) The European Union (EU) includes 28 member states at the time of writing. The EUR is used by the eurozone members, which includes 19 countries. The euro makes up a large percentage, about 57.6% of the U.S dollar index (DXY) which makes it a good gauge for the movement of the USD. There were even speculations that the euro will eventually replace the U.S dollar as the main reserve currency. Just like the U.S dollar, some countries peg their currencies to the euro. This is evident, especially for countries with relatively smaller economies. Pegging a currency to one of the major currencies provides a level of stability and assurance for investors. The EUR is actively traded via the EUR/USD pair, which is the most liquid currency pair. Hence, you can use this pair to gauge the economic strength of the U.S &

European economy. While it is a popular currency pair among retail traders, beginner traders might find the EUR hard to trade due to the complexity caused by the Eurozone crisis in the past as well as having to monitor the major countries among the eurozone members. It is also a currency that is very political and often unpredictable at times. It’s almost like trying hard to keep up with the Kardashians. You spend all day keeping up, but you still won’t know what they are going to do next because things are so dramatic and unpredictable in the household. If you’re starting out, I suggest that you go ahead with other currencies like AUD. It’s relatively more straightforward for beginners to understand as compared to the EUR. When you’re trading the Euro, you need to take note of the countries within the eurozone that will impact the currency most. This includes Germany, France, Italy, and Spain being the top few largest economies of the Eurozone. Even though Eurozone currently has 19 members, German data has the greatest influence on the EUR.

Euro’s major trading partners at the time of writing include the United States, China, UK, and Switzerland. If you’re trading EUR, make sure that you also take note of the economic states of these trading partners.

Fundamentals Of Japanese Yen (JPY) Japan has one of the highest trade surpluses in the world and is the 3rd largest economy in the world behind China and the United States, making it the 3rd most traded currency pair. This year, Japan ranks 2nd place in terms of countries with the highest foreign exchange reserves, with China ranking 1st place based on IMF statistics. The Yen is also held as a reserve currency aside from the U.S dollar and Euro. Since Japan is an export-oriented economy, the strengthening of the Yen would have a negative impact on Japan’s exports. The Yen exchange rate doesn’t only depend on the state of the Japanese economy; it also depends on the economy of its major trading partners such as the U.S, South Korea, Hong Kong, and China. Hence, a slowdown in the U.S, as well as other Asian countries, is going to impact the Yen. In fact, the Japanese economic data

would often have a negligible impact on the movement of the Yen. Due to Japan's low interest rates, it is a currency that is commonly used for carry trades. In fact, carry trading is a popular strategy used among traders in Japan. A term used to describe the typical Japanese housewife who trades currencies on the side, known as Mrs. Watanabe. Carry trading involves borrowing low-yield currencies like the Yen and buying higher yield currencies like the AUD to profit from the differences in interest rates. Being a safe haven currency, it is also a popular choice among investors during times of recession. I’ll discuss more in the next few chapters.

Fundamentals Of British Pound (GBP) Also known as the Sterling, the GBP is also a popular reserve currency aside from USD and EUR. It is also actively traded as a currency (4th most traded currency), with GBP/USD being one of the most liquid currency pairs being traded. Also, the United Kingdom is one of the largest economies in the world. What is happening within the Eurozone significantly impacts the GBP, but after BREXIT, conditions might change. The UK economic conditions remain the most influential factor affecting the supply and demand of the pound.

Fig1.2.3 Source: © 2020 Tradingview

You’ll see a positive correlation between GBP and energy prices since the UK has a growing and expanding energy industry. In fact, it makes up about 10% of UK’s GDP. As of the writing of this book, the top trading partners of the UK include the United States, Germany, France, Netherlands and China. Hence, it is worth taking note of the economic conditions of the trading partners as it may influence the pound as well. If you’re a beginner, you might want to be extra cautious when trading pairs like GBP/USD or GBP/JPY as they tend to be volatile. However, the high volatility comes with more opportunities for breakout traders.

Fundamentals Of Australian Dollar (AUD) As mentioned in the previous section, the AUD is a high yield currency with relatively high interest rates, making it a popular currency among carry traders to buy or borrow. It is also known as a commodity currency because the fluctuations in AUD correlates with commodity prices in the long term. Australia is also a trade-driven economy, with the majority of its exports being gold, iron, cotton, ore, wheat, oil, and other commodities. It imports products such as machinery and tech equipment from other countries. Hence, you’ll see a long-term positive correlation between AUD and commodities such as gold prices as well as oil (Fig 1.2.4).

Fig1.2.4 Source: © 2020 Tradingview

When you’re trading the Australian dollar, take note of China's economic conditions since it is one of the country's top trading partners. Other notable trading partners include Japan, South Korea, UK, and the U.S. Australia's proximity with Asian countries makes it a popular currency to trade, which also explains why its top trading partners are also Asian countries. In fact, there is a strong positive correlation between the Australian stock market (in USD) and AUD/USD. A lot of investors’ wealth is placed in the stock market. This is where intermarket analysis comes in and gives you additional clues of the long-term direction of the Australian dollar.

This is one of my favorite currencies to trade because if you know how it reacts to changing sentiment and know how it compares with other markets, it can be a profitable currency for you to trade. For instance, pairs like AUD/JPY are good to consider during risk-on and risk-off environments. The key is to pair it with a currency that has a relatively lower yield. AUD/USD is slightly tricky because USD’s safe haven status has deteriorated over the years and investors would rather buy the Yen or Gold as a hedge. Recently, investors and hedge funds are also buying bitcoin as a hedge for inflation.

Fundamentals Of Swiss Franc (CHF) As mentioned previously, CHF is a safe haven currency with low interest rates, which makes is a popular choice for carry traders as well. CHF price is determined mostly by external factors due to the fact that Switzerland is a relatively smaller country. CHF also has a strong positive correlation with gold prices. With gold being a safe haven as well, when gold prices increase, you’ll most probably see CHF increasing in the long term as well. Switzerland’s major trading partners include the United States, Germany, China and the United Kingdom.

Fundamentals Of Canadian Dollar (CAD) The CAD, also known as Loonie, is a high yield currency and also a commodity currency as Canada is a major exporter of oil. A rise in oil prices will be followed by a rise in Canadian dollar. Hence, if you are trading CAD related pairs, oil can serve as a leading indicator for the CAD. At the same time, Japan is a net importer of oil, and rising oil prices will harm the Japanese Yen. This is why you’ll see an overall positive correlation between oil prices (line chart) and CAD/JPY(candlestick chart). As you can see from the chart (Fig 1.2.5), oil prices tend to lead the CAD/JPY most of the time, especially in the long term.

Fig1.2.5 Source: © 2020 Tradingview

Some of the other major exports include precious metals like gold, agricultural products, and machinery. Just like the U.S, Canada is also running on a trade deficit. As of the writing of this book, the major trading partners of Canada include U.S, China, United Kingdom, Japan, and Germany. Since Canada’s top trading partner is the U.S, its economy will be strongly affected by the state of the U.S economy. Canada is also unique in that it releases its GDP data on a monthly basis compared to a quarterly basis.

Fundamentals Of New Zealand Dollar (NZD) New Zealand is a commodity currency due to the fact that it is a major exporter of agricultural products, and its economy is closely related to that of Australia and the United States. When Australia has strong economic growth, this will benefit New Zealand. Other major trading partners of New Zealand include China, U.S, Japan, and South Korea. Commodity prices will indirectly affect NZD. An increase in commodity prices will lead to the NZD to appreciate. Since it is also classified as a highyield currency, the NZD is also popular among carry traders due to its relatively high interest rates.

Fig1.2.6 Source: © 2020 Tradingview

CHAPTER 7: INTRODUCTION TO BROKERS Just a few decades ago, investors and traders had to call up the broker to place an order. Nowadays, an order can just be opened with a click of the mouse. When it comes to picking the right broker, you need to treat it like you’re choosing a business partner because that is exactly what you’re doing. You can have the best product or service for your business, but if your business partner’s interest is not in line with you, you will not make a profit at the end of the day. I’m going to go through a list of different types of brokers and then share with

you a set of criteria you need to look at before you pick your broker. The type of broker you choose will depend on your trading style. Understand that, just like anything in life; nothing is perfect. Same with brokers, no broker is perfect. Each type of broker has its advantages and disadvantages. But as long as the benefits outweigh the drawbacks, you can safely do business with them.

Market Makers Also known as a dealer, they make trades that go against your position. This means that if you make money, they will make less money. If you lose, they will make more. When it comes to market makers, there's a certain stereotype that they commonly engage in activities such as stop hunting, widening spreads, frequent requotes, and causing regular slippages. With that said, not all market makers are bad. You’ll once in a while come across some that are good. Some of them are just bad for your trading business. A good way to reduce your risk is to pick a market maker regulated by a good authority. One good aspect about market makers is that they can provide liquidity to their clients and usually don’t charge a commission, which reduces your trading cost.

STP Brokers Also known as Straight Through Processing brokers, this means that they pass your orders straight through to a liquidity provider like a bank. When you make a buy trade, they will pass this buy order to a liquidity provider that will give you the best price.

ECN Brokers Also known as Electronic Communication Networks, some of them would charge commissions in addition to a spread when you open a trade. As mentioned previously, every broker has its disadvantages. The downside of going with an ECN broker is that they might not be able to provide liquidity to their clients just as well as market makers. Due to the stereotype that market makers have nowadays, many brokers would disguise themselves as an ECN or STP just so that they can get more clients. However, if you want to engage a broker that doesn’t have a conflict of interest with you, it is better to pick a broker that is not a market maker.

Criteria For Picking Brokers

Take note that during a major news release, it is normal for spreads to increase. This is also the case right before or right after the news release. If you’re a short-term trader like a scalper or day trader, spread will be an important concern for you. However, if you’re a long-term trader, the spread shouldn’t be that much of a concern to you since you’re harvesting large enough profits to cover your spread. This means that if you’re a short-term trader, you would be better off choosing a reliable market maker, whereas if you hold your trades for more than a day, then selecting a reliable ECN would be better. For me, I’ll still go with non-dealing desks

regardless of my trading style because I don’t want my brokers to be trading against me. I’d rather pay a slightly higher spread in exchange for a more reliable broker. A spread of 3 pips or lower is considered reasonable and low, especially in the major pairs. Aside from making decisions for your trade entry and exit, also take note of the spread before opening the trade. Due to stiff competition between brokers nowadays, traders will enjoy low spreads even on the crosses and commodities. Swaps and rollover costs would depend on the interest rates between the two countries you’re trading, and it is charged or paid only if you hold your positions for more than a day. Some brokers even provide interest for depositing money with them. Some brokers offer fixed spreads, and some brokers would offer variable spreads. Fixed spreads would usually be wider because the broker has to risk offering a fixed rate during a high impact news event. For variable spreads, it depends on the liquidity of the markets. During the Asian trading session, the spread would be higher as

compared to the London session. Of course, news events will widen the spread. Hence, if you trade the news all the time, a fixed spread would be more suitable for you. If you’re not that concerned about the news, variable spreads are more suitable for you. 2. Regulated by a Good Authority It also helps that the company has a long history and financial standing aside from the fact that it is regulated by a good financial authority. The point of regulation is to ensure that the funds of trading clients are protected and that the trading conditions are desirable. Brokers have to comply with rules and regulations set by the authority for them to be regulated. The risk of choosing an unregulated broker or a broker regulated by an authority with no strict requirements is very high. In the event that the brokerage company undergoes liquidation, you might not be able to obtain your capital back. Scam brokers will disappear with your money. I’ve heard of so many cases of traders not being able to obtain

their capital back because they were too lazy to conduct their research when selecting brokers. In order to check whether your broker is regulated or not, you can do your research on the broker’s website. They often publish their regulation information there. The next thing you need to do is double check the official website of the authority. Some of the notable regulatory bodies include the Financial Conduct Authority (FCA), Monetary Authority of Singapore (MAS), Australian Securities and Investments Commission, and Commodities and Futures Trading Commission (CFTC).

3. Fast Trade Execution If it takes more than 3 seconds for your trade to be executed, it is too slow. It’s also not a good thing if your trades are constantly being requoted. 4. Suitable Account Type Ensure that your broker offers a reasonable

margin requirement (30-50%) or leverage. You also want to make sure that they offer the pair or asset you’re looking to trade. They should also allow you to trade micro and mini lots, especially if you start trading with a small account. 5. Stable Platform Give it a test drive by starting with a small account and trading on their demo account. If there are constant freezing and glitches, then it is not suitable for your trading business. Also, ensure that they offer a userfriendly platform. It should provide the indicators that you are used to using. If you’re an automated trader, then you also need to make sure that your broker offers you the option of automated trading. 6. Good Customer Experience To test out whether they care about their customers or otherwise, you should send them an email and observe the duration it takes for them to get back to you. Preferably, they should appoint a personal relationship manager so that you can

contact him or her anytime via phone call or live chat. Alternatively, pay a visit to their office and observe the way they treat you as a customer.

7. Easy & Fast Withdrawal It’s easy to deposit funds for most brokers, but some scam brokers will prevent clients from making a withdrawal. They would make the withdrawal process as complicated as possible. If a hefty fee is charged just for the withdrawal of funds, it is an indication that they are not in line with your interests. Your broker needs to return your funds within five working days. Anything longer than that, they are too slow. 8. Good Education When your broker provides free education to their clients every month, it also shows that they care about their clients. However, it’s common for brokers to provide free education

nowadays. Not all of it is useful because scam brokers will provide “education” just for the sake of it. They know that you will make more trades when you have the skills to trade, hence making them more commissions. Remember, there is a conflict of interest within the industry.

9. Segregated Funds Some brokers would deposit your money in a separate bank. Your trading funds will be separated from the broker’s money. Scam brokers who don’t provide this service will sometimes use client’s funds to pay for their business expenses and pay their staff. Who knows what other things would they use it for. The good thing about this is that when your broker collapses, your funds would still be safe. This minimizes liquidity risk. 10. Comprehensive

Research Ensure that the market analysis and research materials are of good quality because it shows that they care about their clients. However, providing research for the sake of it won’t help much if the research quality is crap. I’m not telling you to be paranoid. I’m just telling you not to trust everything that you see and hear. Action Plan Before you jump right into it and trade live with a broker that fulfills all these criteria, I need to warn you to take a step back first before you take action. You realize that I didn’t mention reviews or awards as part of the criteria. Those things help, but they aren’t that reliable. Some brokers can pay for awards and good reviews. On the other side of it, a brokers’ competitors can also pay others to write bad reviews about them. This doesn’t only happen in the brokerage industry; it happens to every business out there.

Because no business out there is perfect, you’ll generally come across some complaints about the broker, which is perfectly normal. I’ve people gossip about me online, but sadly or fortunately, they only contribute to less than 5% of my followers. As long as the majority of people are on my side, I’m OK with it. I can’t impress everyone no matter how well of a job I do. Some of them even made things up with their creative brains because they probably couldn’t think of anything to gossip about. Come to think of it, I probably have helped more people with my free trading courses on Youtube than all of them combined. I also probably donated more money to charities than all of them. So, they can keep talking while I keep hustling. It is the same thing with the brokerage industry. Even with good brokers, you will find bad reviews about them. When they grow bigger, there are people who just aren’t cool about it because their life sucks. So, they woke up one day and decided to take up the profession as a keyboard warrior just to fill their inner void that is empty. This is why

you should not wholly believe whatever you read online. Some of that stuff was written by idiots. If you can’t trust everything you read, what should you do? Follow these steps for you to test your broker: 1. You should first pick at least 5 brokers and then eventually narrow down to 3 that you want to work with. You should have your funds in more than 1 broker to prevent having all your eggs in one basket. However, with the regulations in place nowadays, you can be confident that your funds are safe if you follow the aforementioned criteria. 2. Compare these brokers' prices and see if the prices on their platforms vary too much from each other. It is usual for different brokers to quote you different prices for different pairs, but the differences shouldn’t

be too significant. 3. Start with a small live account with them and trade for a week. After which, withdraw funds from them to see how fast they return you the money back. 4. Once they have proven that they are reliable and efficient, then you can consider adding more funds. However, only do that when your trading is profitable enough for you to add more funds. The most important thing is, take your time to pick and test a broker just like you’re hiring staff for your business.

How To Open A Live Account Once you’ve traded on MetaTrader 4 with a demo account and you’ve proven to be consistent in your trading results, you can start with a small live account. Now that you’re ready to trade with a live account, you need to understand that your emotions will come into play when you start trading. Hence, you need to study the chapter on trading psychology before you even begin trading live. While different brokers will have different account opening procedures, you will generally have to go through these few stages: 1. Pick account type and leverage: As a beginner, it’s important to start with a leverage of less than 1:50. 2. Submission of personal information and documents: Most brokers will require documents of

proof with details of your address, name, bank account number, and personal identification. Don’t be too alarmed by this as this is a common practice among brokers. Some brokers might also ask you for your experience in the financial markets, whether you are a complete beginner or a seasoned trader. 3. Verification: Once you’ve submitted your document, you will need to wait for account verification. 4. Account Funding: Once everything is done, you can now fund your account either by NETs, wire transfer, Paypal, or cheque. Your broker may provide more funding options aside from these. 5. Receiving Details of Your Account: Nowadays, many brokers will send you your account details

via email. Do not confuse the login details for the broker’s website and the login details for your trading account. 6. Downloading of MT4: Assuming that you’ve already downloaded this to test out your demo account, the good news is that you don’t need to download it the second time in order to trade your live account. You need to log in with your live account details using the same platform from that broker, and you’re good to go. If you want a detailed tutorial on MT4 (for mobile and computer), it’s better for me to show it to you via video. You can check out the video on my Youtube channel. (Type in “Karen Foo MT4”)

CHAPTER 8: INTRODUCTION TO FUNDAMENTAL ANALYSIS Why should you care about fundamental analysis? If you’re a purely technical trader and you have an open position right now, but the Fed decides to cut rates all of a sudden, the price can move 50-100 pips against you within a few minutes. If you trade in a bubble, especially in today’s market environment, you will find that you will get stopped out very frequently even if you have a great trading system and

risk management strategy. Moreover, the underlying economic fundamentals drive the forex markets in the long term and determine the overall direction of the trend. This allows you to capture the long-term trend in the currency markets. This is what hedge fund traders focus more on. For most professional forex traders in institutions, 70-80% of their analysis involves fundamental analysis, and only 20-30% technical analysis. In fact, some of them don’t even use any indicators. Yet, a lot of retail traders only read about technical indicators and watch technical analysis videos. This is why most of them lose. If you want to think and trade like professional traders, the first step you need to take is to master fundamental analysis. Even if you’re not a long-term trader, understanding fundamental analysis is crucial for understanding what the analysts and other traders are talking about.

Introduction To Central Banks It is not enough to only learn about economic indicators when it comes to trading the currency markets. Before we get into the market moving indicators, it is important to understand the mandates of the different central banks that will impact the currency you’re trading because they will tremendously impact the sentiment just with a change of interest rate or monetary policy decisions. If you only study economic indicators without understanding central banks, that is like learning how to drive a car without learning about the driving rules in your country. You will lose money in the long term if you skip learning about any important currency market drivers. You don’t want to only focus on technical indicators while ignoring fundamental analysis. If anything, fundamental analysis is more important than technical indicators. This is just my opinion.

While different central banks have different mandates, they have a couple of functions in common. Central banks are known as the lenders of last resort. Aside from being responsible for regulating the country's money supply via monetary policy tools, they can lend money to commercial banks, especially during a financial crisis. During a financial crisis, people often lose confidence in the banking and financial system, which leads to a massive capital withdrawal from commercial banks. They also play the role of the issuing of currency and banker to the government. In the world of central banks, there’s certain lingo that is commonly used to describe the actions of central bankers and their outlook for interest rates. Hawkish: A bias towards increasing interest rates due to the concern that the economy is growing too fast. Dovish: A bias towards cutting interest rates due to the concern that the economy is slowing down too fast.

Intervention: Action by central banks to induce movements in currency rates. Other roles that central banks include maintaining stable inflation rates, managing the country’s foreign exchange reserve, managing interest rates, and maintaining the stability of the financial system. For exportdriven countries, their central banks will intervene more often to keep exports competitive.

Types Of Central Banks U.S Federal Reserve (Fed) The Federal Reserve, or in short, the Fed, is the central bank of the United States. The Federal Open Market Committee (FOMC) fed funds rate should be taken note of, especially for traders who are trading the USD. FOMC comprises 12 members and has the power to determine the interest rates. Unlike typical commercial banks, the Fed serves banks from the U.S and other countries. During the 2008 financial crisis, the Fed played an important role in acting as a lender to other central banks. One of the Fed's key mandates is to ensure maximum employment and to maintain inflation rates, or in other words, maintain price stability and maintain economic growth at a desirable rate. The Fed is also responsible for determining the reserve ratio required to be held by banks. The amount of money the banks can lend out to consumers will then be

determined by the Fed's reserve ratio. Banks with a low reserve ratio will have the ability to lend out more money than banks with higher reserve ratios. The Fed is closely monitored by traders since the U.S dollar is the main reserve currency. Any decisions made by the Fed will have a huge impact not only on the USD but also on other currencies. According to the IMF (International Monetary Fund), the U.S Fed currently has about $43,057 million in foreign currency reserves.

Bank of England (BOE) The Bank of England is responsible for managing UK interest rates and the currency, pound sterling. Their mandate is to maintain the stability of inflation rates and to achieve financial stability. Monetary policy decisions are made by the Monetary Policy Committee (MPC) of the bank. Benchmark interest rates are also determined by the committee. As of the time of writing, interest rates have been cut to an all-time low (0.1%) due to the economic impact of the pandemic (Fig 1.8.1). The UK is also currently imposing a lockdown with a new variant of the virus being detected in recent months. Not only has the pandemic taken away more than 1 million lives, but it has also taken a toll on the economies of countries all around the world. The number of mental health cases has also surged. It has just been a tough year for everyone.

Fig1.8.1 Source: ©2020 TRADING ECONOMICS, Bank of England

Bank of Japan (BOJ) Bank of Japan is responsible for ensuring the financial stability of the Japanese economy. The bank’s Policy Board is responsible for setting interest rates (discount rate). Since Japan is an export-driven economy, it is against the Bank of Japan's interest for the Yen to strengthen too much. Hence, intervention by BOJ is relatively more common compared to the other central banks to prevent the Yen from becoming too expensive. Due to the lack of natural resources in Japan, they rely heavily on imports as well.

The top imports of Japan include mineral fuels (e.g., oil), machinery, and pharmaceutical products. This means that BOJ would pay attention to oil prices since it will have an effect on the Japanese Yen. I’ve already discussed the correlation of JPY with oil prices in the previous chapters. You can go ahead and revise it if you’re still unclear. European Central Bank (ECB) The ECB is the central bank of the 19 members of the European Union countries. This central bank's mandate is to maintain stable inflation rates (less than or equal to 2% over the medium term) and ensure currency stability. Like other central banks, they are responsible for implementing monetary policies and managing their foreign currency reserves. Traders need to take note of the monetary policy decisions made by the bank’s Governing Council, which is responsible for setting refinancing operation rates, marginal lending facility rates and deposit facility rates.

Swiss National Bank (SNB) Switzerland's central bank is responsible for the CHF, and its mandate is to maintain economic growth and price stability (CPI lower than 2%). The 3-month LIBOR market is used to determine interest rates. A medium-term inflation forecast is published during the monetary policy assessments conducted in March, June, September, and December. The bank also oversees the financial market infrastructures as a strategy to promote financial stability. Bank of Canada (BOC) The mandate of this central bank is to keep inflation rates at a stable 2% level, with core inflation being the main focus. In other words, their mandate is to keep inflation at stable and low levels. Led by the Governing Council, their role is also to manage foreign currency reserves and manage the Government of Canada's public debt programs. If you’re trading the Canadian dollar, make sure that you observe the overnight rate (key policy rate) as it is one of the essential monetary

policy tools employed by the bank. Reserve bank of Australia (RBA) RBA is responsible for implementing Australia’s monetary policy. Like most other central banks, it’s mandate is to maintain stable inflation rates (about 2-3%) over the medium term. The bank also strives to maintain the stability of the currency and maximize employment. During normal times, intervention by RBA is not as common. When you’re trading the Australian dollar, take note of the interest rates on overnight loans (RBA cash rate), which affects the borrowing rates and inflation rates. Reserve Bank of New Zealand (RBNZ) The central bank of New Zealand implements monetary policies to maintain a stable inflation rate of between 1-3%. Promoting full employment is another mandate that the central bank has. The Official Cash Rate (OCR) is used as a tool to achieve these mandates. This is basically the interest rate that is set by the bank to maintain price

stability. Other monetary policy tools used include large-scale asset purchases and the funding for lending program (FLP). The monetary policy statement (MPS) of the bank is published quarterly and contains information regarding policy judgements and alternative monetary policy instruments.

Central Bank Intervention Even though the high liquidity of the forex markets would prevent any market participant from manipulating the markets, this is the exception when it comes to central banks. Major central bank interventions are just part and parcel of the forex markets and are generally accepted by forex traders because they are doing it for economic stability. With that said, central bank interventions aren’t as common as you think it would be (unless there is a crisis). In fact, central banks try to avoid intervening to prevent a sudden shock to the markets. If central banks do intervene, it would most likely be to weaken the currency rather than strengthen it.

Introduction To Monetary Policy

Monetary policies are needed to regulate the money supply in the economy. The monetary policy objectives include maintaining stable inflation rates, achieving high economic growth, and maintaining a healthy balance of payment. Some of the monetary policy tools used by central banks include conducting open market operations (OMO), varying discount rates, and setting reserve ratio requirements. Open market operations is a monetary policy tool that involves buying and selling government securities by FOMC to influence the level of money supply and interest rates. By buying back these securities, the money supply will increase within the economy, leading to the decrease in interest rates. This is known as an expansionary open market operation. On the other hand, when the securities are being sold, the money supply will decrease, leading to an increase in interest rates. This is a process known as deflationary open market operation. The Board of Governors has the responsibility of varying the discount rates,

which would have an effect on the interest rates. If interest rates are increased, it becomes more expensive for businesses to borrow, which leads to a decrease in money flowing into the economy. All things being equal, an increase in interest rate will cause the currency to appreciate, and vice versa. Money supply can also be influenced by setting the reserve ratio requirements (also known as cash reserve ratio). Banks have an obligation to keep a certain amount of deposits in the form of liquid cash, with the rest being lent out to borrowers. This is known as credit creation. For example, if the reserve ratio requirement is 20%, the bank can lend out 80%. Lower reserve requirements allow banks to lend out more funds, which leads to an increase in money supply and vice versa.

During periods of high economic growth coupled with rising inflation, central banks will implement tighter or more restrictive monetary policies. This is also known as a contractionary monetary policy or restrictive monetary policy. This will reduce the money supply to the economy. This type of policy is also used to correct the trade deficit of a country, which may be caused by excessive consumption of imports.

During periods of rising unemployment and low economic growth, such as a recession, central banks will increase the money supply by cutting interest rates. Implementing an accommodative or expansionary monetary policy is done at this time to stimulate economic growth. In 2008, the Fed cut interest rates to an all-time low to stimulate the U.S economy when the major recession hits the United States and eventually the whole world. This led to the EUR/USD ending its downtrend, as shown below (Fig1.8.2).

Fig1.8.2 Source: MetaTrader 4, ©2000-2020 MetaQuotes Ltd.

In March 2020, during the start of the Covid-19 outbreak, the Fed announced a round of quantitative easing (QE) in addition to fed funds rate cuts. This involves the buying of government securities like bonds, thus increasing prices and lowering yields. Previously being implemented in the 2008-2009 financial crisis, QE is often implemented during a recession to boost the economy by encouraging borrowing and spending. According to Bloomberg Economics, central banks around the world, namely the Fed, Bank of England, European Central Banks, and Bank of Japan, were using QE as a last resort to fight against the economic impacts caused by the COVID-19 pandemic, spending about $5.6 trillion on QE programs. Although QE programs are not common, it is definitely an exception when the global economy takes a hit, just like what’s happening in 2020. Although the intentions may be right, QE doesn’t work all the time because it

depends on several external factors such as consumer confidence. If many people are unemployed, they may not want to spend their money and hence will not be interested in borrowing funds. Even if consumers want to borrow funds, their credit scores might not even allow banks to grant them access to extra funds with such a high default risk on the consumer’s part. Of course, you have exceptions like the 2008 housing bubble where consumers who were not credit-worthy were granted funds. I hope we’ve learned our lesson. Ease of credit encourages speculations which leads to speculative bubbles that will eventually destroy the economy. Understand that quantitative easing is usually used as a last resort when conventional monetary tools like OMO didn’t work out. After the 2008 financial crisis, QE became more common because the conventional monetary policies failed to stimulate the economy. Another type of policy that can regulate economic growth is fiscal policies, as determined by the U.S Treasury. The increase in taxes can be a method implemented to

increase economic growth due to increased government spending.

Interest Rate Differentials It’s crucial for you as a trader to learn about interest rates because announcements related to interest rates are among the most marketmoving factors in the financial markets. It has the ability to change sentiment around and end a long-term trend. Before we dive deep into interest rates, let’s talk about an economic theory that is pretty common in the world of economics, the Interest Rate Parity. It states that if 2 countries have different interest rates, it will automatically be adjusted to equilibrium levels. With the same interest rates in both countries, there will be no arbitrage opportunities available for investors. If the interest rate in the United States is currently higher than that in Japan, the theory states that the interest rates of Japan will automatically appreciate, and U.S rates will depreciate until an equilibrium level is reached. This theory doesn’t really fit well in

the real world. As you know, a lot of textbook-based financial and economic theories don’t really play out in the real world all the time. The reality is that countries with higher interest rates tend to appreciate due to the inflow of capital from foreign investors. Investors seeking higher yields will naturally put their capital into the country’s financial markets, which in turn benefits the currency (Assumption: all things being equal). Aside from having an impact on capital and investment flows, interest rates also affect you and me. Even if you’re not a trader, it affects you. Think about the interest rates in your savings account and the mortgage you’re paying for your home as well as your credit card payments; interest rates can have a tremendous impact on your financial wellbeing. The fed controls these interest rates by adjusting the Federal funds rate, which is the interest rate in which U.S banks charge each other. It also affects business owners. High interest rates will produce an environment where it becomes expensive to borrow. When fewer business owners borrow, they will have

less capital to invest back into their businesses. When businesses are not growing due to a lack of capital, this harms the stock market. Higher mortgage payments and loans for consumers would mean that they would have fewer extra savings to spend. Less spending leads to less money flowing into the economy. However, high interest rates are not always bad for everyone. Rising rates are also an indication that the economy is growing, which leads to more jobs. This partly offsets the negative impacts of higher interest rates on loan payments. Banks are among the beneficiaries of high rates since they can earn a larger spread from the higher interest rate differential. Aside from that, you can also benefit from higher interest rates on your savings. On the other hand, low interest rates can benefit the stock market due to the low cost of borrowing. This is why sometimes you’ll observe that even though economic growth indicators are churning out bad numbers, the stock market still rallies.

Investors expect the Fed to cut rates. When it comes to monitoring interest rates, the absolute numbers matter less as compared to the % changes and interest rate differentials. High interest rate differentials between 2 currencies tend to attract carry traders to buy the currency pair. You should also take note of the yield curve because it can provide clues as to when a recession is going to come next.

At normal times, long term yields will be higher than short-term yields, which if you plot a curve, it will look like the normal yield curve as shown above. We will be bullish about the future outlook of the economy. If

you’re a bond investor, you will benefit more from investing in long term bonds due to the relatively higher yields. However, you’ll be subjected to inflation risk. What is the psychology behind the upward-sloping yield curves? When investors are buying long term bonds, they are subjected to risks such as inflation risk, political risk and other risks. Naturally, they will demand a higher yield as compared to short term bonds. If investors feel that the Fed will do a good job in controlling inflation, they are more likely to buy long term bonds because it provides higher yields. However, if investors feel that the Fed is inefficient when it comes to controlling inflation, they would buy short term bonds instead. When investors expect high inflation rates in the future, they are less likely to buy or hold long term bonds due to inflation risk. Hence, they are going to sell off their longterm bonds which pushes the yields higher. This leads to a steep yield curve. On the other hand, if you see an inverted yield curve where long term yields

are lower than short term yields, it can be a potential sign that a recession is looming. We will be bearish about the future outlook of the economy. In the past recessions, you will observe that inverted yield curves came before it. The purchasing of long-term bonds via QE can lead to a flattening of the yield curve. A flat yield curve is also a sign that the economic downturn is underway. You can see that interest rates can serve as an important tool for your overall analysis. It not only helps you with picking pairs to trade, it also provides you with clues about the business cycle as well as overall market sentiment.

SECTION 2: APPLICATION ◆ ◆ ◆

CHAPTER 9: ECONOMIC INDICATORS

Understanding Economic Indicators

There are many factors that move the markets. One of the most market-moving factors is a major economic data release. Economic indicators give you an idea of the state of the economy and give you a clue of the future interest rate decisions of the central banks. Why is it so important to learn about economic indicators? Firstly, it is the fundamentals that drive the markets in the long term. Secondly, central banks, hedge funds, and the government use these

indicators to make their policy or trading decisions. If the major market movers are using it, I don’t see why you should ignore it. Although different central banks have different mandates, they have a common goal of maintaining price stability and achieving stable economic growth. To make their policy decisions, they would need to look at economic indicators to use them as a gauge for the current state of the economy and decide their next move. Although there are different marketmoving indicators out there, it all comes down to one principle. When market participants have a good future economic outlook and are optimistic about the currency, the currency will proceed to rally. In other words, it all comes down to market sentiment. Market sentiment is an indication of whether market participants are either optimistic or pessimistic.

When it comes to evaluating economic numbers, it is not the released absolute number that matters. You need to compare the actual results with the consensus because markets react based on expectations. When the actual release is in line with expectations, the markets won’t respond that much to it. On the other hand, if the actual results are beyond expectations, it can lead to volatile moves. If the number is a big difference from the consensus, how far off is it from the typical range? Although forecasts are not always accurate due to conflict-ofinterest issues within the industry, the markets often won’t care about the accuracy of the data. They will often observe what they see in front of them and react to it. To put things into context, you also need to observe the overall trend for the past 12 months or more. If you’re observing 1 months’ worth of data, the sample size is not representative enough to provide a good idea of the big picture economic trend. Is the current month better or worse off than the previous months? This is what you’ll need to take note of. It’s best to turn those

numbers into a line chart using an excel sheet. You’ll get a better visual representation that way. Alternatively, there are websites like TradingView that provide such charts.

Types Of Indicators

Economic indicators can be classified into low impact, medium impact, and high impact indicators. Your focus most of the time should be on the high impact indicators. With that said, you shouldn’t ignore the other economic indicators because if the actual data that is released deviates too much from the expectations and consensus, it can potentially be market moving since it has not been priced into the market. Nowadays, you have economic calendars to show you a summary of the economic events that are happening for a particular period. You will need to study all of them because using a single indicator to provide a long-term view of the economy just doesn’t make sense. What drives the currency markets is the forces of the various economic

indicators working together to influence the economic conditions. As a start, pick one to three economic indicators and study them for a couple of months so that it is easier for you to progress. Study how these indicators impact the markets in the short term and long term. Sometimes, different indicators might even show you conflicting signals. This is why you need to have a scoring system to sum up all of the numbers to arrive at an overall fundamental bias. Nowadays, you can easily do that with an excel sheet. Better yet, plot the numbers into a graph so that you can visualize the overall trend of each of the economic indicators. Economic indicators can also be classified into leading, lagging, and coincident indicators. Leading indicators tell you what is going to happen in the future. Lagging indicators give you an idea of what happened in the past whereas coincident indicators provide a picture of the current state of the economy. There are economic indicators that move in tandem with the economy (e.g.,

GDP). In other words, they are positively correlated to the state of the economy. There are indicators that move in the opposite from the economy (e.g., unemployment rates), making them negatively correlated to the economy. There are indicators that won’t be affected by the economic conditions of a country, which is rare. To master economic indicators, you’ll need to practice deliberately and do a lot more thinking than the typical lazy retail trader. Before the economic data is even released, make your own “prediction” of the number. Even if you’re eventually wrong about it, at least you’ll learn something from it. This is better compared to just sitting back and waiting for the numbers to come out every month. You’ll learn nothing that way. A user-friendly economic calendar that you can start with as a beginner is the Forex Factory calendar. In my opinion, the interface is simple to use and easy for beginners to understand. If you’re already a professional trader, it is wise to invest in a Bloomberg terminal. However, it is not compulsory since a lot of

the information you need can be found online nowadays. You just need to know what to look at and how to interpret it. I’ll put a list of useful websites in the appendix at the end of this book.

Factors Affecting Strength Understand that the strength of economic indicators changes over time due to changes in the country’s economic environment and political conditions. What is the most marketmoving now may not be the same in the future. There are many factors that influence the strength of an economic indicator: Business cycle: In the business cycle, you have the expansion phase, peak, recession, and followed by a through. The process repeats itself again and again. During different stages of the economic cycle, the markets will pay attention to different economic indicators. For instance, the markets will pay attention to inflation numbers during the expansion phase where the economy is booming. During a recession, the markets will shift their focus onto employment and unemployment numbers.

Number of revisions: Economic indicators are subjected to revisions. For instance, for Gross Domestic Product (GDP) data, you have 3 figures that are being released: Advanced, preliminary, and final. The markets tend to react least to the revised data, which is the prelim and final data. The first GDP release, which is the advanced GDP, will be more market-moving even though it is less accurate than the revised prelim and final data. It seems like the markets care more about what’s being given to them first rather than the accuracy of the release itself. With that said, even revised numbers are not entirely accurate. This is because no economic indicators are perfect. There’s also an element of conflict of interest involved in

numbers forecasting. Also, GDP doesn’t take into account things like second-hand sales, underground transactions, and free service providers. This means that GDP tends to underestimate the real economic activity of a country. Economic power: The larger the economy of a country, the more marketmoving the release is going to be. This is why traders and investors pay more attention to the U.S economic data than other countries' economic indicators. Sample size and historical data: If you’ve studied statistics, you probably already understand this. If the survey sample size is too small, the data being released will not be representative and accurate. If the economic indicator is new and lacks historical data, it is generally not that market moving since traders are not paying attention to it. There are many economic indicators that you need to take note of. Each of them is responsible for tracking the various economic

drivers of the market. You have economic indicators that track the health of the economy, housing market, manufacturing industry, employment market, inflation rates, consumer behavior, interest rates, and trade activities between countries. Understand that different countries have their unique economic drivers. I’ll discuss the indicators that most of the countries consider important.

Employment Data One of the most popular employment data is the non-farm payroll (NFP) data, which is released on the first Friday of every month (8.30 am EST). It shows the number of people employed (Excluding agricultural jobs), and it’s one of the most market-moving economic data out there. There are a lot of factors that determine employment levels, such as demand and supply of jobs. If a lot of people are employed, it is an indication that the economy is doing well. When more people are employed, this will

lead to more consumer spending, and hence businesses will be able to hire more staff due to an increase in revenue. This benefits the stock market and the currency of the country, ceteris paribus. However, central banks will raise interest rates in the event that the economy is overheated. When fewer people have jobs, the spending power among consumers will be less, which leads to less revenue for businesses. This won’t be good for the stock market and currency. With that said, a high unemployment rate can lead to interest rate cuts, which can stimulate the economy. As a result, more money will flow back into the economy. However, this will also lead to lower yields, resulting in the outflow of capital from the government debt market. There are a couple of releases and reports you need to take note of, namely the employment situation report, unemployment insurance weekly claims report, and the ADP National Employment Report. Understand that employment indicators shouldn’t be used to predict future economic

conditions as it is not a leading indicator. However, it is still worth taking note of as it is an important indicator for the market participants to gauge the current state of the economy. Moreover, it is an indicator that is of great concern to politicians since employment levels are often used by the public as one of the gauges of their competence. One thing that a lot of beginners attempt to do is to scalp the NFP numbers. If you don’t know what you’re doing, I suggest that you leave this to the pros because it can lead to massive losses due to the high volatility. In fact, a lot of hedge funds macro traders use employment data as part of their overall analysis to form a long-term view of the currency rather than scalping it.

Gross Domestic Product (GDP) The GDP gives you an idea of the economic condition of the country as it measures the market value of all the final

goods and services produced within a country over a period of 1 year. In other words, GDP is the economy. The keyword here is production, not sales. A chair that has just arrived at the store can be placed in the inventory for months without being sold to consumers. It will still be counted into the GDP values. As a general rule, numbers that come out above market expectations will be good for the economy. Positive numbers generally lead to an increase in capital flow into the economy, which benefits the country’s currency. Numbers that come out below market expectations will be harmful for the economy. Negative numbers lead to the outflow of capital, which is bad for the country’s currency. GDP values are released on a quarterly basis (except for Canada) and expressed in % terms. When people say that the economy grew by 1% this year, what they are referring to is that the GDP grew by 1%. GDP can be measured by the income approach and expenditure approach. I will not go into

detail about the income approach. The expenditure approach follows this formula: GDP Formula: C + I + G + (E-I) C= Consumer consumption I=Investment G= Government spending E= Exports I= Imports There are many factors that contribute to the GDP. If you observe the formula above, consumer consumption is included in the GDP formula. For countries like the U.S, consumer consumption contributes to over 70% of the country’s GDP. Investment refers to the purchase of plant and equipment by businesses. It also includes the purchase of homes but does not include investments in financial assets like stocks and bonds. Government spending includes the amount of money invested and spent by the government. Net exports take into account foreign trade activities since this is also an important contributing factor to the economy. Imports

are deducted from the equation because GDP measures production activities within the country. While nominal GDP values can provide an overall picture of the economic health to a certain extent, it is not appropriate to monitor that since it is not adjusted for inflation. Real GDP values provide a better picture of the economic growth since it is calculated using the prices taken from a base year. However, looking at GDP will not give you a complete picture of the economic growth because higher GDP values can be contributed by the increase in prices of goods and services rather than an increase in overall production numbers. An increase in prices alone will not benefit the average consumer, especially if they have all their savings in their bank account. A good and healthy GDP growth is around 3-5%, which indicates that the economy is good. A lower than usual GDP indicates a potential recession, while a higher than expected number indicates potential inflation.

If there is better than expected growth in the economy, this will eventually lead to an increase in interest rates by the central banks, especially when the economy becomes overheated. A slower than expected growth will eventually lead to easier monetary policies being implemented, especially when the economy is contracting too fast. However, there are several exceptions to this. If the GDP growth is caused by an increase in exports by the country, this will cause the currency to appreciate. On the other hand, if the growth is caused by a buildup of inventory, this will negatively impact the currency. In terms of its ability to move the markets, it is relatively lower as compared to major events like NFP due to the fact that it is reported in annualized terms even though it is calculated on a quarterly basis. It is not a leading economic indicator. It is therefore not appropriate to use this indicator alone to predict future economic conditions. With that said, you should still take note of this economic indicator because it is closely monitored by the market, media,

central banks, institutions, and the government. If you would like to compare GDP between different countries, you can refer to GDP per capita.

Trade Balance The trade balance is also known as the balance of payment. It is the difference between the nation’s exports and imports over a period of time. It’s an important economic factor that contributes to the GDP, as shown in the GDP formula.

A trade surplus occurs when a country exports more than it imports whereas

a trade deficit occurs when a country imports more than it exports. A trade surplus is generally good for the economy since the increase in exporting activities creates more jobs. However, this doesn’t mean that a trade surplus will always be good for the currency because it all comes down to expectations of the numbers. Similarly, a trade deficit does not necessarily mean that it’s always bad for the currency. Generally, a widening trade surplus and contracting trade deficit will benefit the currency. On the other hand, a contracting trade surplus and a widening trade deficit will cause the currency to depreciate. Countries with a trade surplus will have a relatively stronger currency as compared to other countries because of the increase in demand for that country’s currency. Buyers would have to exchange their own local currency for that country’s currency. In general, investors are more likely to invest in countries with consistent levels of trade surpluses. This makes emerging markets like China, an attractive country to invest in since the country has recorded a

consistent trade surplus over the past few years. Countries have the ability to impose tariffs and trade barriers on imports in an attempt to boost the local manufacturing industry, support local businesses, and reduce trade deficits. This leads to a trade war between countries. While the intentions may be right, a lot of times, trade wars do the exact opposite of causing more harm than good to the local economy as consumers will have to spend more on products and services that are manufactured locally. As of the writing of this book, China’s exports have seen a massive surge despite the U.S-China trade war. The western countries are imposing lockdowns due to the pandemic, and stay-at-home orders led to an increase in online shopping, which partly contributed to the increase in exports from China. The U.S has experienced a trade deficit (Fig 2.9.1) year after year. It is now experiencing a 14-year high at the time of writing. Americans buying products from overseas is not the sole contributing factor to the trade deficit. It can also be attributed to

the factor whereby people are not spending as much money on U.S goods and services compared to those produced by other countries. To compare the current account balance between different countries, you can refer to the current account to GDP ratio.

Fig2.9.1 Source: ©2020 TRADING ECONOMICS, Bureau of Economic Analysis (BEA)

Retail Sales As you may have seen from the GDP formula previously, consumer consumptions contribute a significant portion (70-80%) to the GDP growth. An increase in retail sales will be generally good for the currency and vice versa. Consumer spending has a direct impact on the state of the economy. If consumers are not spending money, the

economy will take a hit as a result. The number of people who are employed has a direct impact on consumer confidence, which in turn affects retail sales. A more representative number is the core retail sales number since it excludes automobile sales, which represent a big-ticket item that can distort the numbers. Since this economic indicator reflects consumer spending, it will have an impact on GDP releases as well. The impact of retail sales on the stock market, capital flow and currency movements as a result will be pretty much similar to GDP releases. A reminder to you that you should take note of the overall trend of the figures and its expectations rather than the absolute numbers. Retail sales are one of those figures that are susceptible to seasonal factors. Holiday spending will increase retail sales, and it will not be representative if you’re only observing data released for a single month. With that said, if retail sales increase too much, it may be bad for the U.S dollar since a lot of the goods in the United States are imported. Overly high retail sales

numbers can also lead to inflation getting out of control, which prompts the Fed to increase rates potentially. Another measure of consumer spending is the Personal Consumption Expenditures (PCE), which includes elements like the sale of durable goods, nondurable goods, and services.

Consumer Price Index (CPI) The CPI is an indicator of inflation levels since it is a measure of the price of a fixed basket of goods and services sold in the market. In the United States, the goal is to maintain inflation rates at a range of 0-3%. As a general rule, inflation will erode the value of the currency and lead to a decrease in spending power. Decreasing inflation allows consumers to buy more goods and services with less money, which benefits the currency. When inflation rises beyond acceptable levels, the Fed will reduce the money supply in the economy by increasing reserve ratios

or selling securities to cut down the amount of money flowing into the system. Rates will be increased, and hence we will have a long bias if the central banks take action. This means that when there’s too little money flowing within the system, the Fed will do the opposite and start buying securities in the open market, decrease reserve requirements, or cut rates. This leads to an increase in the money supply flowing into the economy. The core inflation rate should be of the main focus since it excludes the goods with volatile components, which would skew the rates such as food and energy prices. This means that the core CPI (CPI excluding food & energy) is a more accurate measure of inflation. Food and energy prices tend to be volatile at times and susceptible to seasonal factors. This is why it has to be excluded from the calculation. High inflation will increase the probability of interest rates being raised, which will in turn, cause the currency to appreciate. This is why you should take note of this economic indicator since the central

banks and governments monitor it on a regular basis as a gauge for their monetary and fiscal policy decisions. It can provide you clues as to what the central banks are going to do next with interest rates. With that said, it is still considered a lagging indicator in the big picture. At the time of writing, the core CPI increased over the past few months (with the exception of October) in terms of % changes, with most months beating consensus estimates. Due to the pandemic, core CPI experienced the largest decline in the month of April 2020 since 1957 (Fig 2.9.2). Most developed economies around the world went on a major lockdown, and air travel in many countries was banned. Despite the gradual increase in % core CPI as the vaccine is being rolled out, inflation rates are still low as compared to pre-pandemic levels. In the event that the vaccines work out in producing herd immunity, we may see more inflationary numbers in the following years.

Fig2.9.2 Source: ©2020 TRADING ECONOMICS, U.S Bureau Labor Statistics

Another measure of inflation is the GDP deflator (Nominal GDP/Real GDP), and it can be used to convert nominal GDP into real GDP.

Producer Price Index (PPI) Also known as the wholesale price index, the PPI is a measure of the prices charged by manufacturers to retailers, and the main focus is also on the core PPI rates due to the fact that food and energy prices are seasonal and tend to be volatile. The increase in prices on the manufacturers’ end is going to be passed down to the retail sector. Retailers would want to increase, or at bare minimum,

maintain their profit margins. As a result, higher prices in retail stores are going to be passed down to the average consumer.

Consumer Confidence And Sentiment As the name suggests, this measures the level of confidence among the consumers and the level of optimism that they have for the current and future economy. A measure of consumer confidence includes the Consumer Confidence Index (published by The Conference Board) and the University of Michigan Consumer Sentiment Index. The University of Michigan Consumer Sentiment Index can be a leading indicator for future consumer spending habits. The more confident consumers are about the prospects of their jobs and income levels, the more they are willing to spend now. Take note that the University of Michigan Consumer Sentiment Index is released in the form of reports. You have the

preliminary report, which is released first, and a final report, which is revised. The earlier release tends to exhibit more impact as compared to the final release. The consumer confidence index (CCI), as the name suggests, is a measure of consumer confidence. It measures inflation expectations and confidence in business conditions. Why is consumer confidence so important? Firstly, consumer spending contributes to more than half of the United States’ economy. Secondly, the big boys (hedge funds, policymakers, economists) pay attention to this number for their decision-making processes. Higher consumer confidence will potentially lead to an increase in U.S interest rates and capital flowing into the stock market. When foreign investors flock to the stock market, the demand for USD will increase. On the other hand, if consumers are pessimistic about the future prospects of their jobs and businesses, this will eventually lead

to a deteriorating economy, thus weakening the U.S dollar as capital flows out of the country’s stock market in search of higher yields. To measure net foreign investment flows into the U.S, you can refer to the Treasury International Capital (TIC) data, which can also be a useful economic indicator that can be used to determine the direction of the USD. Consumer sentiment indicators tend to be affected by a lot of factors. It can be volatile, especially in times of crisis. As expected, the 2020 pandemic led to a massive drop in consumer sentiment (Fig 2.9.3). In general, recessions will lead to a drop in consumer sentiment. However, the overall trend has been slowly recovering since the onset of the pandemic.

Fig2.9.3 Source: ©2020 TRADING ECONOMICS, University of Michigan

The beauty of learning how to evaluate consumer sentiment indicators is that you can also apply this as a confirmation for picking good companies to invest. If you’re confident that consumer sentiment will improve in the long-term, you can look into good and undervalued consumer discretionary stocks or cyclical stocks. If consumer sentiment trends indicate that it will go lower, you can look into consumer staple stocks. I invest in stocks long term. I won’t talk too much about stocks-picking in this book. After all, you’re here for currency trading.

Housing Indicators The housing sector can have a significant impact on the economy since it provides jobs for people and revenues to businesses. It also gives you an idea of the health of the housing sector and the future prospects of construction activities. An increase in construction activity is a good sign for the economy since it increases the demand for construction materials like wood, cement, steel, etc. Construction activities also require brick layers, electricians, and painters, which provides more jobs for people. Since most people take up housing loans when they purchase homes, housing indicators can also give you a picture of the state of the credit and banking sector. It is also an indication of consumer sentiment and hence affects consumer spending. There are lots of housing indicators that economists publish, but the one leading indicator of future % real GDP growth is the building permits data. To put it in simple terms, before houses are even sold, and before the foundation of a home is even laid,

you’ll need to apply for a building permit. An increase in the application for building permits indicates an increase in consumer confidence in the economy and vice versa. Other indicators like housing starts, existing home sales and new home sales lag behind building permits. It’s just like how manufacturing activities are at the start of the sales process. Manufacturing numbers give you a clue on retail sales numbers. Building permits gives you an idea of the amount of house being “manufactured,” which gives you a hint on home sales numbers.

Manufacturing PMI The Purchasing Managers Index (PMI), released by Institute for Supply Management (ISM), is another leading economic indicator that you need to focus on. A survey is conducted to interview purchasing managers regarding business conditions within the manufacturing sector. This is a survey conducted to find out manufacturers’ opinion on future business

prospects. The objective is to gauge business confidence. The more confident the managers are about the future prospects of their businesses, the more they are willing to hire more staff and invest more into their businesses. When companies grow, this will benefit the stock market and the economy. It can be a useful predictor of future economic growth as well as the potential actions of central banks. The components of the headline manufacturing PMI include new orders, production or output, employment, supplier deliveries, and inventory levels. What we should pay attention to is the overall figure rather than the components. Unless you’re looking to gauge employment data releases, you should be looking at the employment component as part of your analysis. Hedge fund managers also take note of this data as part of their decision-making process. As you might already know by now, if the big boys are paying attention to it, you as a retail trader should too. Retailers will place orders from

manufacturers in the event that their business is doing well, and sales are increasing. If orders for products are reduced due to a bad economy, the number of orders will decrease. This is a sign of deteriorating economic conditions. Another reason why this indicator is worth taking note of is because it is released on the first working day of the month. This sets the tone for traders and investors for the rest of the month. If this data deviates from consensus by a significant percentage, it can potentially cause a major move in the markets. Also, if you’re a stocks investor, you’ll be able to use this indicator as a gauge for the future performance of manufacturing companies.

Services PMI Also known as the nonmanufacturing PMI, this is generally an economic indicator that is relatively less market-moving as compared to the other indicators I’ve previously discussed. It is also

released by the Institute for Supply Management (ISM). It is a survey conducted to gauge the business conditions of the services sector, which tends to be less cyclical as compared to the manufacturing industry. However, if the actual release is far off from the consensus, it might produce a significant market reaction. Even though services contribute a larger portion to the U.S GDP as compared to the manufacturing sector, it is viewed equally by the market participants. It is a useful leading indicator for future % GDP growth, with values over 50 indicating economic growth and values below 50 indicating economic contraction. For the past few years, the services sector's overall trend reflects consistent periods of growth and periods of minor contraction until the pandemic, causing the economy to slow down (Fig 2.9.4).

Fig2.9.4 Source: ©2020 TRADING ECONOMICS

Money Supply If you’ve studied finance in school, you’ll come across terms such as M1, M2, and M3 supply. I’m not going to bore you with the formulas too much but what you need to focus on for now is the M2 money supply. The components of M2 money supply include M1, savings deposits, time deposits (10 years) What Do I Want to Spend My Trading Income?

How Much Capital Should You Start With? People like to ask shortcut questions like these and expect a direct fixed answer to be given to them. I don’t have an answer for you because it depends on your circumstances. It depends on a lot of factors. Take these into consideration: ☐ Your trading goals ☐ Do you want to trade part-time or full-time? ☐ Resources you have ☐ Broker requirements ☐ Trading experience If your aim is to trade part time to generate some side income for yourself, you can afford to start with lower capital. If you want an extra $500 a month for your kid’s tuition, a $20,000 account is a good start. You don’t even have to over-leverage and frequently trade with that account size since I assume that you’re also working full time

while having to take care of your children. I would say that the 2 most important requirements are the resources you have and your trading experience. One dangerous act that a lot of new traders commit is using money that they can’t afford to lose to trade the markets. This is money that they need to pay rent and pay for food next month. If you trade with money that you don’t have, or worse still, borrowed money from your grandma, you will become a very emotional trader, and you will lose everything really fast. To make good trades, you need to be rational and calm. Trading with money that you don’t have will cause you to become stressed out, and you’ll make a lot of irrational trading decisions that you’ll regret later. The money that should be deposited in your account should be extra savings that you have. If you lose it, it will not significantly impact your life. You will not lose your home, you can still feed your family next month, and your spouse will still be with you.

Also, the more trading experience you have, the larger the capital you can afford to start with. Of course, different brokers have different minimum deposit requirements. That is not as much of an issue since most brokers nowadays allow you to deposit with as low as $1. Another thing you need to take note of is that starting with a small account is actually very dangerous for your trading. Studies have shown that traders who start with small accounts are more likely to blow it all away as compared to traders who start with $10,000 or more than that. When you’re trading with a small account, you can only earn small profits. A lot of traders would have the tendency to take massive risk just to see a larger profit showing up in their accounts. They can’t handle earning $3 a trade with that $500 account. Most people also don’t take small accounts seriously. What’s losing $100 gonna do to you? Not much impact, I guess. If you don’t care about it, you’ll know what’s going to happen.

Who Should You Trust? (Gurus, signal providers, analysts) When you’re dealing with the finance industry, you’ll undoubtedly come across conflict of interests. In the retail trading industry, you have trading gurus, signal providers, retail brokers, and account management sellers all wanting a piece of the pie. To make life simple, do your research and don’t trust anybody. If you don’t wanna trust me, that is fine too. I can’t impress everyone. Let’s take the brokerage industry, for example. A lot of brokers push the idea of day trading. Is it because it is more profitable

for you? NO! The more you day trade, the more commissions brokers can make. Some retail trading educators who work as an IB for brokers will also talk about day trading all the time so that they can also have fatter pockets. If you’re a market maker, will you like it when a retail trader comes into your office, wants to open an account with you but then he is a position trader who only trades once a week? NO! You probably wouldn’t be too happy about that. Even though position trading is shown to be a good path to take (which is why a lot of hedge fund traders are position traders), you would probably want to convince him to switch to day trading even though you know that most day traders lose. This is what we call conflict of interest. It exists in all industries. The problem is that the typical retail trader won’t be able to see this and think that everyone is here to help them make money. Please don’t be so naïve and innocent. You already know that the finance industry is a place where there are full of sharks looking

to eat the small fish who don’t know what they are doing. You can go ahead and watch “The Wolf of Wall Street” and “The Big Short”. Who are the people recommending others crappy stocks with their confident sales pitches? Who are the people who gave shitty mortgage securities good credit ratings just because they don’t wanna lose business to their competitors? Don’t get me wrong. Not all brokers are bad. In any career, there are good people and bad people. You just need to be able to smell the BS when it comes to you. I’ve seen some brokers who just leave with their client’s money, and I’ve seen brokers who would process withdrawals just within a few minutes. What a world of a difference. Let’s talk about signal providers. There are tons of people who told me that they would pay me money to start a signal service, and to date, I still did not start it. I mean, even though it is easy money for me and I’ll earn good money from it since there is already a demand, I don’t want to

pursue this path because of several reasons. Firstly, I don’t believe in spoon-feeding. If all I do is give you signals every day, you can just sit back and be lazy. So the only person that is going to benefit from selling the signals is probably just me. Secondly, there are so many BS educators selling signals who also at the same time flex their mansion or sports car telling people shit like “If you buy my signals, you can also make thousands every day and live this lifestyle.” Whether the house and cars are theirs or not is another thing. Most important reason: I refused to sell signals because I don’t want to be in the same arena as these f**kin jokers. NEVER EVER! In fact, the profitable traders that I see who are also educators often give out their trading signals for free. Again, not all signal providers are bad. In the retail education industry, a lot of people talk about technical analysis. Do you know why? Based on experience, the videos and articles that talk about this topic will get more

clicks and views. Also, the courses that talk about this? Well, they will get more sales. Imagine if the whole trading course is just talking about risk management, trading psychology, and fundamental analysis. Do you think retail traders will buy it? Not as much. The irony is that most professional traders focus more on risk management, trading psychology and fundamental analysis rather than technical analysis. Now can you see why most retail traders lose? Retail traders focus their attention on technical analysis. Content creators see the demand for that and hence they’ll keep producing more of those content. Retail traders see the popularity of technical analysis and think it is probably really important since it is so popular. They consume more of it. They apply technical analysis only and lose more money. They go on to demand educators to provide a better trading strategy or indicator. Can you see the cycle? This is a vicious cycle that will forever continue unless somebody does something

about it and educates the retail traders on the proper things they should focus on. In other words, retail traders like the easy and sexy stuff that will not generate them profits but avoid the boring but necessary stuff that will make them money. This is probably because most of them don’t even have a passion for the financial markets. Their passion is just the money that comes with it. Being passionate about money will not get you far.

How To Start Forex Trading The Right Way 1. Get Your Shit Together If you’re quarreling with your spouse every day, your boss is abusing you, and your house caught fire last week, do you think that you can just hop into trading, hoping that it will solve all your life problems? If you’re stressed out with things in your personal life, the last thing you should do is to get into trading. There were people who email me once in a while, telling me that they are going through financial struggles and are broke. The next thing they request from me is to give them a good trading strategy, help them make millions, or donate them money for their forex accounts. First things first, if you’re an entitled person, don’t become a trader. Secondly, if your life is a mess, your trading will be a mess just like your life. Successful trading requires you to be calm

and collected. If you use trading to solve your life problems, it will make your life worse because you’ll be trading with an irrational mindset. Don’t believe me? Try it. Try trading when your life is a complete chaos, and tell me whether your account is still there 6 months later.

2. Write down your vision I’ve already talked about this just now. Make sure you have a strong purpose before you start trading. This is going to be a long and hard journey, so you’ll definitely need your vision to remind you why you started this journey to begin with. 3. Learn the basics If you’ve read all the way to this point, you probably have already gotten a brief idea of the basics that you need to know. Reading may not be the mode of

learning for some people. If it helps, you can go to my Youtube Channel (Karen Foo) and learn from all the free courses I’ve published there. See if that mode of learning works for you. With that said, when you become a successful trader, you still need to keep adapting and learning. Just these 2 months alone, I’ve invested over $1000 on buying books and learning resources. That makes my total investment to learn about the financial markets to be $50,000. To those people who judge me and make up false assumptions about me online, they probably have not invested $50 on themselves, what more $500 or $5000. Probably they have used that money to buy a keyboard. That’s all. 4. Determine your trading type Are you more of a scalper, day trader, swing trader, or position trader? The right trading style for me might not be the best for you. Similarly, the strategy

that works for me might not work for you because we have different trading personalities and risk appetite. Don’t copy what other people are doing. You’re unique as a person and also as a trader. If you’re still not clear about these differences, you can go back to the first few chapters and revise. 5. Craft your trading plan I’ve already crafted the template for you (found in Appendices at the end of this book). Feel free to add more or edit it if you want. I would say the trading plan is something that I must have because it keeps me disciplined. It prevents me from taking trades that are sub-par and low probability. There are many days where you will have the itchy finger syndrome and be tempted to open a trade. Your trading plan’s job is to prevent you from doing that. If you have a high standard for buying furniture, like you just want the highest quality ones made in Italy, you also should have high standards when it comes to picking trades.

It’s better to open 1 high quality trade taking 100 pips than opening 100 trades with each trade taking 1-2 pips. The former is more efficient and makes you instead of your broker rich. The latter is just you busy being busy just because you’re bored. If you’re bored, go occupy yourself with other things that will help you improve as a trader. Attend trading club networking events, read books, watch tutorial videos or movies about traders. You don’t have to trade all the time. In fact, I find that the more you trade, the more you’ll lose money. 6. Open a trading account with a reliable broker If you open a business today and want to pick a business partner, are you going to just go through their details for about 5 minutes and then work with them? NO! You’re going to spend weeks and months understanding them as a person and even go to the extent of testing their character with questions after question. You’re going to drill him or her like you’re a private

investigator searching for the murderer. Ok. Maybe you don’t have to be that paranoid. My point here is that you need to spend time researching a broker properly. Too many traders just look at 1 or 2 factors when they pick a broker. They’ll just go ahead with the broker that offers the lowest spread and highest leverage. That is why most of them lose money. They are lazy. I’ve already talked about the criteria you need to look at in the earlier chapters. Go and revise it if you need to. 7. Test your trading skills in a demo account If you’re not profitable with virtual money, don’t expect to make consistent profits in a live account. Some people might say that demo accounts are useless. I'm afraid I’ll have to disagree with that. It’s not entirely useless. You need to get used to the platform and the act of opening a trade at the right time until it becomes second nature to you. You don’t want to open a live account only to see a trade you want to enter and then

having to think about where to click. If it is natural to you, your subconscious mind will automatically know where to click. You wouldn’t have to waste precious time dabbling with the trading platform. 8. Start a small live account If a demo account doesn’t work for you at all, then you can start with a small live account. I know this somehow contradicts what I said just now about the need to trade large accounts. My point here is that you need to start small and then gradually add more capital when you have gotten the hang of live trading. You don’t want to let your $100 account stay there forever. You want to gradually add capital as you become more comfortable with trading live. 9. Add more capital Start with a $100 first. After a few months, if your account is growing, add more capital. Why is it so important to start small? You can’t expect to make money with a $10,000 account if you can’t even make money with a

$100 account. Only add capital when you’ve proven to yourself that you can make money and that your account is growing. Don’t add capital when you don’t even deserve it. If your account is losing money, don’t expect that adding capital is going to make you more profitable. It just doesn’t make sense. It’s like giving yourself an ice-cream as a reward even though you’ve skipped the gym multiple times and broken your promise to yourself. It will only encourage you to do more stupid things. Once you’ve started trading live, you will still need to trade demo accounts on the side for you to test out new strategies and ways of trading. A lot of experienced traders that I know trade with both live and demo accounts at the same time. The former to make money and the latter to test out new trading systems. Regardless of whether it’s a demo or live trade, make sure that you record all your trades in your journal.

10. Continue adapt and change

to

learn,

Markets change, and your trading strategy might stop working one day. To ensure that your trading career lasts in the long term, you’ve got to be flexible. Even economic indicators’ impact on the markets changes as time passes. In the past, retail sales used to be one of the most market-moving indicators. Not so much today. In the past, being a floor trader is a common thing. Now, most of the trades are made electronically. In the past, people need to call their brokers via the phone to make a trade. Now you can just open trades with a click of the mouse. In the past, most retail traders lose money. Now, most retail traders still lose money. I guess this is the only thing that remains constant.

Journey To Becoming A FullTime Trader 1. Have at least 6 months’ worth of savings Let’s say you’re a beginner. You only have $300 in your bank account and want to quit your job to attempt to make it as a full-time trader, that will not happen. In your first year as a trader, you’re probably going to blow your account and make tons of trading mistakes. You’re going to be super stressed out trying to trade with limited financial resources. However, if you have a proper trading mentor to help you, your journey can be made easier. 2. Ensure that you can earn more than your salary If your side income from trading or other side hustles hasn’t exceeded your salary yet, don’t go and quit your job hoping to try to make it

as a full-time trader. If you think that you can just quit your job and try to make it in trading without proving to yourself that you can make good money from it yet, you are committing career suicide. A lot of retail traders make the mistake of quitting their jobs in an attempt to make it as a full-time trader. It’s almost like going to a race track trying to challenge the professional race car drivers when you haven’t even gotten a basic driver’s license yet. It just doesn’t make sense. 3. Have multiple sources of income Multi-millionaires have multiple sources of income. Your trading business is not going to generate profits every month. Some months you’re going to have some losses, and that’s fine. As long as you can grow your account in the long term, temporary losses are just part and parcel of this business. Suppose you’re relying on trading alone to generate income. In that case, it’s going to be more stressful as compared to if

you have other additional income sources like stocks dividends, rental income, and side gigs that you take up once in a while. There are naysayers in my life. When you become successful, there are bound to be jealous people who can’t handle your success. They’ll say useless shit like this to me, “If you can earn money from trading, why do you need to teach?” They probably don’t understand the importance of multiple sources of income. Here is a wealth mindset that you need to learn. You won’t become the people that you hate. So if you hate rich and successful people, you’ll become the opposite of them, which is being broke. If you want to become rich, you’ll need to be inspired by them. The wealthy people I know get inspired by other successful people. As a result, they will hang around successful people. You become who you hang around with, and then the whole cycle repeats itself. Trading can be boring sometimes, and having an arena to share my experience makes life more meaningful. In fact, majority of my courses are free of charge, which can

be a good or bad thing. I find that if I don’t charge for it. I will sometimes attract entitled people who would message me to ask me for donations for their forex trading accounts, help them with their school fees, or even buy them a laptop. Some of them even cursed at me for not replying them. And all these people paid me zero cents! So if people still wanna ask shit like, “If you can trade, why can’t you offer your courses for free? Why do you need to charge for it?”. Well, I’ve tried that, and it didn’t work out! It only attracted a group of entitled people who act like they’ve paid me millions. I’ve run free live seminars in the past where I didn’t upsell anything. I worked hard with my business collaborators to organize it. We provided free food. Also, we gave the participants free books and learning resources. In other words, we were just focusing on providing value. All the participants didn’t have to pay for anything. Guess what? There were people complaining about the food! If I sell you an LV bag for only $10,

will you value it? You would probably think it’s fake and won’t even take good care of it. If I sell you the same bag for $1000, you’ll probably value it more. It’s the same concept. Finally, there are tons of traders that I know who are making millions but also teach others on the side. There are also traders who teach but don’t make money trading. As I said, there are good and bad people in every arena. One final thought, I only started teaching after receiving tons of requests from people to create a course after I’ve won the national trading competition and gotten top 10 in other international competitions. People can judge my actions whichever way they please. Again, I can’t impress everyone.

Secrets To Successful Trading 1. Do what other traders are not willing to do The typical retail trader is too lazy to do these things: ☐ Keep a trading journal ☐ Consistently backtest their strategy ☐ Keep learning from mentors ☐ Evaluate their mistakes ☐ Avoid trading when there are no trades ☐ Do their research ☐ Test their strategy on a demo account ☐ Save up their trading capital ☐ Learn proper risk management, fundamental analysis, sentiment analysis, intermarket analysis, and trading psychology ☐ Write a trading plan & follow it These are the exact things that you should be doing. Yes, it might be boring to a lot of people but whoever said that trading should

be easy and exciting? If excitement is what you want, you have the casino there for you. If you’re willing to do what the 90% of traders are not willing to do, you’ll live the life that the 90% won’t ever have. There is pain and sacrifice either way. It’s either the pain of discipline or the pain of regret. Choose your pain. 2. Stop finding the secret formula The irony is that the secret to successful trading is that there is really no secret. You don’t need a 90% win rate strategy. You’ll still lose money if you have a 99% win rate strategy if you don’t take care of your risk management and trading psychology. As of this book's writing, my win rate for this year is about 45%, yet my account equity curve is still going up. I don’t win every single trade. In fact, there are times I will have 6 consecutive losses, which is enough to cause most traders to give up on their strategy or trading altogether. There are some months I’ll lose money and have a negative ROI, but I’ll still end off the year with a net positive ROI. My positive

months will cover up the losses for the negative months. When I was an amateur in my first year of trading, I had a win rate of about 90%, yet my account equity curve is going down and down. Why is that? I completely ignored risk management and trading psychology. I was also going around Singapore to attend different trading seminars in order to find the holy grail indicator. Everything changed when I focused my attention on risk management, taking high probability trades, and having a good risk to reward ratio. I also stopped going around finding the perfect trading strategy. I decided to focus on the underlying problem and try to solve it. The legendary Paul Tudor Jones only has a win rate of around 40-50%. Yet, he is one of the top hedge fund managers of our time. How is this possible? Whenever I get losing trades, I will cut my losses fast, and I’ll lose small, but when I win, my one winning trade will cover up my previous losses, and I’ll have a net profit. In

other words, I cut my losses fast and let my winners run. You need to have a firm stop loss and a loose target price. Remember, when I told you that you need to treat trading like a business? Because it’s really like running a business! You will have expenses. You will also have sales revenue. If you treat your losses like a business expense and winning trades as sales revenue, your mindset and outlook will change. As a business owner, you can’t avoid expenses. That’s just impossible. You have overheads, labor costs, and raw material costs you need to pay for. You’ll still operate your business. You are not gonna be like, “I’m sick and tired of all these expenses!” This is the same thing with trading. Why is that? This is because you have absolute confidence that as long as your sales revenue exceeds your expenses, you will end off the year with a net profit. It is the same with trading. 3. Learn from the masters

The top chess players in the world would spend hours after hours studying how the masters make their moves. Studying other successful people allows you to learn from their experiences and mistakes. It is definitely better to learn from other people’s mistakes rather than your own mistakes. You might not wanna learn from me, and that is fine. But I hope that this book gave you some insights into what is important and what isn’t. If you want to continue learning from me, you can check out my Youtube channel and learn from the free courses I’ve made. As of the writing of this book, we are in the midst of a global pandemic, and a lot of people lost their jobs. I also spent more time at home this year because of the travel restrictions. Hence, I had more time producing these courses. A lot of people got retrenched and couldn’t even afford books. So, my hope is that these courses can help them. And I’m glad it did. I’ve received messages from people

telling me how much these videos have helped them become consistently profitable. It is free. But don’t have the perception that it is useless. I could easily charge thousands for it if I wanted to, especially when I’ve spent a whole week just to produce one course. Time is money, my friend.

CONCLUSION

ongratulations on making it all the way to the end of this book. Most people don’t even finish a book that they’ve bought. If you’ve borrowed this from the library, I hope you’ve written down the important points. Otherwise, you’ll forget it after a few weeks. For the purpose of this book, I couldn’t cover everything that I want to. Some topics are just easier to teach in video form. It’s also useful if you need more examples of what I’ve covered in this book. If reading books is too hard for you, maybe try learning by watching videos. Different people have their effective ways of learning.

C

Remember that trading is not a getrich-quick scheme. It requires a lot of hard work, patience, and discipline to make it as a full time and consistently profitable trader. To date, I’ve read over 500 books, put in more than 8000 hours of practice, and invested over $50,000 to learn about the financial markets as I’m writing this. By the time you’re holding this book in your hand, these numbers have probably increased because I never stop learning and investing in myself. With that said, you don’t have to copy what I do. It’s your life. If you’re willing to put in the work that other people are not willing to, you can eventually live life on your terms without having to answer to anybody. You’ve got to come to a point where you’re just sick and tired of being sick and tired running in the rat race. You have no reason to live your life living paycheck to paycheck in a job that you hate and having zero control over the time you wake up, eat lunch, and even go to the toilet. If you want to give your loved ones a

better life, then work for it. Don’t just dream and talk about it every 1st of January only to put it off later because things are just too hard. You want it bad enough? Then work for it. Show me that you really want to achieve financial independence. If you don’t do it for me, at least do it for you. I wish you all the best.

With love,

Karen Foo Website: www.karen-foo.com Youtube channel (Gain access to free courses): Karen Foo Email: [email protected]

APPENDICES

Trading Journal Template

Source: MetaTrader 4, ©2000-2020 MetaQuotes Ltd.

Date: Time of entry: a) Reason for entry __________________________________________ __________________________________________ b) Reason it hit TP __________________________________________ __________________________________________

c) Reason it hit stop loss __________________________________________ __________________________________________

d) Good points for this trade __________________________________________ __________________________________________ e) Bad points for this trade __________________________________________ __________________________________________ f) Area of improvement __________________________________________ __________________________________________ g) What was I feeling when entering this particular trade? __________________________________________ __________________________________________ h) What was I feeling during the market fluctuations? __________________________________________ __________________________________________

i)

What was I feeling once I have closed the trade?

__________________________________________ __________________________________________

Forex Trading Business Plan

My mission statement and yearly goals -

My trading philosophy -

Risk reward ratio-

Risk per trade (%)-

How will I measure my performance?

How long is my break from trading?

When should I review my trades?

Check list for Trade Entry 1. 2. 3. 4. 5. Rules for Non-trading 1. 2.

etc. NFP Charts Yield curve

https://data.bls.gov/pdq/SurveyOutputS request_action=wh&graph_name=CE_ www.tradingview.com https://www.wsj.com/market-data/bonds

Additional Websites

Forex big www.forexlive.com stories exdealers & professional traders (For forex outlooks) Find ETFs that www.etfdb.com track various assets & sectors/industries (For intermarket analysis) Big stories www.cnbc.com, www.reuters.com (General www.bloomberg.com, www.marketw macro-outlook) Euro stats https://ec.europa.eu/eurostat/home https://www.ecb.europa.eu/home/htm China stats http://www.stats.gov.cn/english/ Japan stats http://www.stat.go.jp/english/ UK stats https://www.bankofengland.co.uk/

Singapore stats Canada stats New Zealand stats Australia stats Overview of countries & economic indicators Karen Foo’s recommended books

https://www.singstat.gov.sg/ https://www.statcan.gc.ca/eng/start https://www.treasury.govt.nz/ https://rba.gov.au/ https://tradingeconomics.com/

https://www.amazon.com/shop/karen

ACKNOWLEDGEMENT

To my family members who were there for me from the start and stood by me when I was just starting out and facing numerous setbacks. To my team and manager, who has been working behind the scenes, helping us grow our business together so that we can impact more lives. To my mentors and university professors who taught me everything that I needed to know about the financial markets. Also, to my public speaking mentors who taught me the art of public speaking and supported me in my journey as a professional

speaker. To my business collaborators and friends who have supported me in my dreams and giving me unconditional love. To the event organizers that have invited me to share my expertise with others via live events. Also, to my social media followers who provided me with the encouragement to write this book and also for constantly supporting my online content and tutorials.