Forex Strategy FAQ
A Doji is a candlestick with a very small body (or no body) of the candle, with an upper and/or lower wick, and often indicates a swing high or a swing low in price action.
A Hammer is a candlestick with a short body of the candle, a very short upper wick, and a long lower wick which typically occurs following a down-move. A reverse hammer is the opposite.
An inside bar pattern is a price action continuation pattern. It is characterized by two candles, in which the second candle is smaller and within the high and low of the first candle.
A head-and-shoulders pattern is a Price Action reversal pattern found on an uptrend. The pattern is characterized by having 3 peaks, with the middle (the head) being highest, and the two smaller peaks on either side (these are the left and right shoulders). A straight line is then drawn to connect the base of the 3 peaks, and that is called the neckline. A break of the neckline will signal a reversal to the downside. An inverted head-and-shoulders pattern is the same, but flipped horizontally and found when price is on a downtrend.
Support refers to significant levels below current market price and Resistance refers to significant levels above market price. These levels are notable areas that price has reacted in the past and might do so again in the future.
Fibonacci is a widely used technical trading tool used to measure two swing points in price (a high and low), dividing the vertical range into percentages. This includes the Fibonacci retracement and extension.
This refers to measuring retracements as percentages of a price range. Traders tend to look for confluence at the 50%, 61.8%, and 78.6% levels. In Smart Money traders, we like to look at the 70.5% retracement as a ‘sweet spot’ for entries.
This refers to the continuation of the Fibonacci retracement scale, beyond the 100% retracement level. The levels of interest are the 127.2%, 161.8%, 200%, etc. These levels are used to identify potential targets for price.
Fractals are a recurring geometric pattern that occurs in the markets among larger price movements, and is repeated on all time frames. You may have heard the phrase ‘price is fractal’… this means there are recurring patterns found in price.
Swing trading is for those who have the patience to wait for a trade. Swing traders have lots of patience and are willing to hold a trade for days or even weeks. Swing trading requires a larger stop loss than day trading in order to allow the trade to breathe. Swing traders are able to handle high drawdowns and keep a calm mind when the trade is floating in drawdowns.
This is a style of trading where trades are executed and completed on the same day, which is why it is sometimes referred to as ‘Day Trading’. These types of traders look for repeating patterns that occur on a daily basis. They would not take any longer term trades or swing positions, as they may be uncomfortable holding open trades overnight.
Scalping is a very fast style of trading. These types of traders are called scalpers, and they like to get in and out of the markets quickly. Scalping is best suited for traders who can make quick decisions and act without hesitation. These are often traders who don’t have the patience to hold trades for long periods. Instead, they expect their trades to become profitable immediately, and they will usually exit trades promptly if a trade goes against them.
Non-Farm payroll is a key economic indicator for the US economy, representing the number of jobs added or lost. NFP releases generally cause large movements in the market and are released on the 1st Friday of every month at 8:30 AM EST.
FOMC is the Federal Open Market Committee that meets 8 times per year to discuss mainly 2 things: review the present financial information, and make a decision on what type of intervention will be required. If the FOMC decides to increase interest rates, there is a possibility for increase in demand for the US dollar value, so traders can speculate on the price increase of USD.
Technical Analysis refers to the study of historical price action in order to identify patterns in the market to determine future price action. This can be done using technical indicators, and a combination of other analysis tools. Technical analysts will often look for support and resistance, and identify trends and trend changes.
Fundamental Analysis refers to research done on the political, economical and social factors and the impact they have on a country’s currency. Fundamentals look at the supply and demand forces of currencies, commodities, and equities that can be influenced by economic releases, geopolitical tensions, seasonalities, interest rate changes, news released by central banks, etc.
Trading Psychology refers to the study and training of a trader’s mindset, and how it behaves while actively trading. It reveals core human tendencies of traders, because trading requires a different type of mindset than what our primitive brain is programmed to do in order to be successful.
This refers to managing risks on your trading account. The general rule of thumb is never risk more than 2% per trade.
This refers to the management of open positions. This includes reducing risk while trade is in profit by moving the stop loss closer to market price, or cutting losses on losing trades.
Forex signals, or alerts are planned trade ideas and setups with specific Entry Price, Take Profit (TP) and Stop Loss (SL) provided to offer traders levels of consideration. These are based on the analysis and opinion on what our traders see in the market. For example, we send out a notification when they are taking a trade. It is important to remember that Trade Ideas are strictly for educational purposes only, and should never be misconstrued as financial advice.
TP means ‘take profit’, and SL means ‘stop loss.’ Take profit is the target price you set for your trade to exit once it reaches the set price. Stop loss is the safety net you set for your trade to exit if it reaches a point of invalidation to limit your loss.
Absolutely not. Our Trade Ideas are just our traders’ analysis and opinion of the market. It must NOT be interpreted as financial advice. Our Trade Ideas are meant for educational purposes only, to help demonstrate the key points of a coherent trade plan. Each Trade idea reflects just one trade scenario, the success of which is impossible to predict on an individual basis due to many factors. You should always use your own judgement and analysis to tailor a plan according to your personal goals and risk-tolerance.
This is completely up to you to decide, and will depend on the trading strategy you develop. While each trader has their own preferences, many successful traders find it beneficial to focus on only 1-2 pairs. This is highly recommended for beginner traders.
Trade Ideas are not sent out at a pre-set time. Instead, they are sent out when a trade opportunity presents itself in the markets and meets their criterias of the individual trader.
Yes, you can use any Forex broker you choose as long as you are able to trade the instruments you wish to trade, with the leverage you wish to trade with. We focus mainly on the major and minor currency pairs, which all brokers should offer.
You must do your own research to find a trusted broker that is available in your country of residence and also meets your trading needs. We have a video that helps explain this in detail – you can find it in the training library.
We always recommend that traders only trade with what they can afford to lose. However, if you are a beginner, we strongly recommend starting with a demo trading account until you are comfortable trading live funds.
This is not a question we can answer for you. You must figure out for yourself what is an appropriate amount based on your risk appetite and your trading goals. You should never risk more than you can afford to lose, and we always recommend trading in a demo account when you are a beginner.
This is another one of those things you must decide on your own, as it really depends on your comfort level. Take into consideration your experience, trading style and overall risk tolerance. If you’re a beginner, we’d recommend choosing the lowest possible leverage.
Trading a live account without any experience is like betting on a new game you’ve never played before at a casino. You are essentially gambling your money against the house. A demo account allows you to get comfortable with the environment before you risk real money.
Our stop loss will vary depending on the trade setup. However, this is not relevant because a 20 pip stop loss or 100 pip stop loss should both be 1-2% of your account balance. We recommend that you always calculate the position size using a Risk/Position Size Calculator.
There will always be some drawdowns in trading. Not even the best traders in the world are able to call the exact top or bottom of a trend. Drawdowns are absolutely necessary in trading, and is not something you should worry about if you are using 1-2% risk management.
The best way to calculate your Risk to Reward in Forex is by using pips as a measure from entry point to stop loss and take profit target. If the risk to reward ratio is 1:3, this means that for every 1 dollar you are willing to risk, you will gain 3 dollars in reward.
Risk-reward ratio = Absolute value (Price entry value – stop loss value) divided by Absolute value (Price entry value – Target price value)
The general rule is 1-2% per trade. If you’re a beginner, we recommend sticking to just 1%. This will build discipline and train yourself to not be greedy. If you develop a bad habit, you will need to eventually break those habits… and we all know how hard it is to break bad habits.
We suggest using a Risk/Position size calculator to help you determine the appropriate lot size for your account based on the risk you want to take and the currency pair you want to trade.
To manually calculate your risk, you can take your risk %, multiplied by your account balance, then set a Stop Loss equal to that amount. For example, let’s say you want to use 1% risk on your $5,000 account. You take 0.01*5000 = $50. Then you find out how many pips from your entry price to Stop Loss price, and enter that amount into the Risk/Position size calculator.
Risk-reward ratio = Absolute value (Price entry value – stop loss value) divided by Absolute value (Price entry value – Target price value)
Trading a live account without any experience is like betting on a new game you’ve never played before at a casino. You are essentially gambling your money against the house. A demo account allows you to get comfortable with the environment before you risk real money.
This information has been prepared by Forex41. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Forex41 accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our members.
