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Simply

Trading Forex A free guide on

How to trade

The Forex Market

Kevin Greenhall

SIMPLY TRADING FOREX

Developing the skills to successfully understand and trade the currency markets

Kevin Greenhall

Simply Trading Forex

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Copyright © 2012 by Kevin Greenhall

All rights reserved. No part of this book may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, photocopying, mechanical recording or otherwise without the prior permission of the copyright owner. Disclaimer The Simply Trading Forex book and subsequent updates should in no way be interpreted as

trading advice and is distributed to show the basics of ‘How to trade the Forex Market’. Any

decision to place trades with a spread betting company is at the sole discretion of the reader and

it should be clearly understood that in any decision to trade there is a risk of loss. Neither Simply

Trading Forex Ltd nor its employees shall be liable for any special, indirect, incidental, or

consequential damages, including without limitation losses, lost revenues, or lost profits that may

result from these materials. Opinions and estimates constitute our judgment and are subject to

change without notice. Past performance is not indicative of future results.


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Acknowledgements To my wife Janet for her constant drive and enthusiasm which collectively has made this book possible. To my son Mark, for his exceptional IT expertise, patience and constant support in bringing Simply Trading Forex Ltd into the 21

st

century. His company, www.arrowITsolutions.co.uk which I am proud to promote, has provided excellent and rapid support particularly when deadlines have needed to be met. To my son Matthew and daughter Melissa for their continual support and advice. And to their partners Wendy, Rachael and Glenn who have all contributed to ensuring that ‘dad’ keeps his feet on the ground and doesn’t sail away too often for too long!

http://www.arrowitsolutions.co.uk/


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Contents

Foreword 5 Introduction 8 How this Book is organised Simply Trading Forex is divided into two parts: Part One: The Forex Market Part Two: Trading the Forex Market

Part One: The Forex Market 10

1. An overview 10

1.1 What it is and how it operates 10

1.2 What makes the currencies move against

each other 12

1.3 Fundamental and Technical Analysis 13

1.4 The Bulls and the Bears 15

2. Trading Discipline 16

2.1 How to avoid getting it wrong 16

2.2 Having a Trading Plan 16

2.3 Mindset 17

3. The Charts 18

3.1 Price Bars: the anatomy of a price bar 18

3.2 Candlesticks 20

3.3 How the charts are structured 23

3.4 Timeframes 23


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4. Currency Pairings 24

5. Technical Indicators 24

5.1 Support and Resistance lines 24

5.2 Candlestick analysis and patterns 28

5.3 Moving Averages 32

5.4 Fibonacci (FIB) 35

Part Two: Trading the financial market 37

6. Having a defined Methodology 37

6.1 The Methodology 38

6.2 Support of the methodology 39

7. Stop Loss 40

7.1 Definition 40

7.2 Trading Bank 40

7.3 Understanding the use of the Stop Loss 41

7.4 Risk Reward Ratios 43

7.5 Trailing Stop Loss 44

7.6 Limit Order 45

8. The Trading System 46

8.1 Why a spread-trading platform is used 46

8.2 How to set up an account 47

9. Do’s and Don’ts 48

10. Summary 50


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Foreword

It gives me great pleasure to write the foreword to this book.

The author got in touch with me over a year ago and asked

me if I thought a book on Simply Trading Forex was a good

idea. I said yes because I knew that the market for this type

of information was rife with so-called 'manuals' that gave

very little substance and were mere sales letters for higher-

priced products. However I had no idea concerning how

extensive this book would be. For less than £30 I expected 20

pages in which each area was given a few pages of sizzle and

no steak.

I was both surprised and delighted to see the result, with

each topic as detailed as it could be in the space available. I

have in the past purchased, for many hundreds of pounds,

full home study courses that gave less hard-core information

than Simply Trading Forex.

And such a great topic! Kevin's way of making money while

sat on his yacht in the Mediterranean is cutting-edge 'New

Rich' thinking. (New Rich is a system coined by American


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author Tim Ferriss in which people create home businesses

that require minimum involvement - say an hour a day - and

still make more money than they ever did before whilst

doing all they things they wanted to do after they retired -

like sailing their yacht in the Med.)

Making great money at home was considered impossible in the

1950's, feasible in the 1970's and standard practice for new

entrepreneurs in the 1980's-1990's. Today, in the 21st century,

making money from home has never been easier for those

people who take the time to inform themselves of the

possibilities available and re-examine their own beliefs, beliefs

that hold them back from the future they both desire and

deserve. A new future is more than possible, and the first thing

you should think about is ditching the day job. I believe you

have taken the first step. It gives me great pleasure to

recommend this book.

Phil Gosling, June 2011

A respected home-business expert and consultant for over 20

years, Phil Gosling is the best selling author of Success

Engineering, the first edition of which was published by Bob

Proctor's (The Secret movie) LifeSuccess organisation. He has


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conducted over 45 sell-out seminars on home publishing and

been guest key-note speaker at many overseas events. In 2006

he was voted Underground Internet Marketer of the year at

Yanik Silver's London event.


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Introduction

Let me help you find a simple solution, and develop the skills, to

successfully understand the currency markets, which when

traded successfully can provide you with a tax free source to

unlimited wealth by following the professional traders, and this

can be accomplished in just 25 minutes per day. Simply Trading

the Forex Market is not a ‘get-rich-quick’ scheme and my

objective is to introduce you to some of the tools which can

assist you in trading the Forex market successfully. You will

then be one step nearer to having the opportunity to create the

income you desire for the rest of your life.

My name is Kevin Greenhall and, like many others, probably

even you, I spent 30-plus years in a job where there was always

too much month at the end of the money. Pensions were a joke

that I couldn’t afford. Had things stayed the same I would now

be destined for a poor retirement, counting pennies to the end of

my days.

But today life is different and it can be for you too. During the

last ten years I have been testing many of the trading systems


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with very limited results. Despite the hype, the reality of most

trading systems is that they are complex, time consuming and

too risky.

Several years ago, based on my experience and extensive

research, I put together a simple trading system of my own. I use

it myself on a daily basis to make consistent profits. Forget

about bank or building society interest rates. Forget about

renovating a house, opening a restaurant or running a small

widget-making factory. I’ve tried most of these and they’re very

hard work.

This could well be the introduction to YOUR retirement, or a

means of How to Ditch the Day Job, and I would like to

introduce YOU to some of the ‘tools of the trade’.

This book shows you some of the steps required to Simply

Trade the Forex Market. So, if you are looking for a step by step

guide which is honest, simple and gives you an introduction to

an alternative or additional income stream, and does not require

you to invest huge sums of money before seeing any returns,

read on …


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Part One: The Forex market

1. An Overview

1.1 What it is and how it operates

The Foreign Exchange Market (Forex) is the largest financial

market in the world, which operates 24 hours per day during the

working week, giving you the weekend free. The amount traded

daily exceeds $3 TRILLION.

The Forex market is organised in currency pairings, e.g. £/$, and

trades are placed on the possibility of one currency becoming

stronger or weaker against the other. Simply Trading Forex

concentrates on the major currency combinations where the

majority of the trading activity is centred. Currently there are

twelve currency combinations that are actively monitored, and

these offer the best profit potential because they tend to be the

biggest movers in the market. These twelve will also be the ones

included in the ‘Over-my-Shoulder’ updates.

£/$ – EUR/$ – £/JPY – £/CHF – EUR/£ – EUR/CHF –

EUR/JPY – $/JPY – $/CHF –- $/CAD –- AUD/$ -- NZD/$


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Only with the advent of computers and the internet has this

market become more open to the general public and although

still in its infancy, it is expected to grow substantially in the

years ahead. Novice traders are now able to look at the same

screens, and the identical, ‘live’ up-to-date information, that the

professional traders in the city have had access to for decades. It

is, of course, a pre-requisite that a broadband internet connection

is available to enable the satisfactory download of real time

charts and to be able to access the trading platform to initiate

trades.

With 24-hour coverage of the world financial markets, it is

possible to place trades day or night and so accommodate those

who are unable to access their computers during normal working

hours. London is still considered to be the financial capital of

the world, as there is more volatility during UK trading hours,

which gives us a distinct advantage in capturing these moves.


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1.2 What makes the currencies move against

each other?

Trading interaction between governments, large central banks,

currency speculators, multinational corporations, large financial

institutions and professional traders is what makes the price of

one currency change relative to another. Globally there are

many thousands of buyers and sellers of currencies at any one

time, and it is this interaction between the opposing opinions

that makes the price of one currency fluctuate against another,

often dramatically.

Consequently, the impact that small individual traders have on

the movement of one currency against another is so small that it

is completely unnoticed by the market. The market cares not one

jot about anyone as an individual. It cannot recognise you and

has absolutely no feeling for you. You will not therefore be

treated any differently from any other of the thousands who

trade the markets daily. In trading, your success or otherwise is

only dependent on the trades you make, nothing else is relevant.


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1.3 Fundamental and technical analysis

When trading the financial market, traders will generally be

classified into two groups: those that decide to use fundamental

analysis and those that prefer technical analysis using indicators.

However, they are not mutually exclusive and many traders will

use combinations of the two in determining their trading

strategy.

Fundamentals are news items that have the impact to

move the market e.g. government interest rate decisions,

Bank of England interest rates, Federal Reserve

announcements and Euro Bank Rate decisions, US non-

farm payroll figures, CPI & RPI figures, speeches from

government leaders, etc. These occur at specific times

during the trading day, are listed on numerous websites

and are classified by the level that they are expected to

move the market i.e. high, medium and low impact. The

announcements are used by traders to help determine the

direction in which currencies are expected to move.

Although the announcements have these pre-determined

classifications, all too often, the market will react to a


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much larger or smaller degree dependent upon what is

expected compared to what is actually announced.

Technical analysis is a means of following the

movements of one currency against another graphically

on a chart e.g. support and resistance lines, moving

averages, candlestick patterns, etc. These are some of the

many technical indicators used in technical analysis. By

using these tools, traders develop a system which they

believe will have the highest probability of success in

determining the direction in which a particular market is

headed. This will enable them to make ‘informed

decisions.’ By using these indicators on a chart, the

technical analyst will be aware that much of the

fundamental news is already featured in the patterns and

indicators and should not be considered in isolation.


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1.4 The Bulls and the Bears

Prior to the inception of spread betting companies, it was only

possible to buy shares through a broker and it was always done

with the belief that the shares would increase in value and that

dividends would also contribute to the overall gain that could be

expected.

We now know that it is possible to place trades on the market in

either direction, which significantly increases the opportunity of

placing a trade and the probability of success, even when the

markets are in decline. Current UK tax legislation also allows all

gains from trading via a spread betting company to be exempt

from taxation.

The description Bulls and Bears is used to describe the direction

in which the market is moving—

The Bulls refers to an upward movement and the Bears to a

downward movement. Also a market that is moving upwards is

described as a Bullish market and, conversely, downwards as a

Bearish market.


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2. Trading discipline

2.1 How to avoid getting it wrong

Overcoming the emotion of trading is the most significant

obstacle to many would-be traders and is the most compelling

reason why a clear methodology, with clearly defined rules, and

a money management system should be followed. It is only with

these in place and rigidly followed that you can be sure that your

emotions do not rule your mind and lead to decisions based on

the outcome of the previous trade.

2.2 Having a trading plan

Trading is a skill and, as with any other skill, can be learnt by

education, training and perseverance, and also as a result of

making some mistakes and learning from the experience. It

should not be thought of as a ‘get-rich-quick scheme’ but as a

means of progressively, over time, becoming proficient, by

using the tools to determine the probability that a currency will

move in a certain direction versus another.


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There will obviously be times when the market moves in the

opposite direction expected but, if the rules are learnt and

followed, then we will be prepared to accept that this is what

trading is all about and take comfort in the certain knowledge

that even with losses, we will still be in profit. Consider a loss as

a loan to the market to be recouped at a future point with

significant interest.

It is, therefore, vitally important to have a trading plan with rules

that are strictly adhered to. The discipline in making sure that

the rules are followed will ensure that the times the trade is

successful will out-number the times the trade is not.

2.3 Mindset

Don’t trade if you are desperate for money. Desperate money is

lost money. Decide what you can afford to risk and stick to it. In

trading there will always be winning and losing trades. Trying to

predict the top or bottom of the market is impossible, but the

indicators significantly increase the probability of being

successful so that the gains are bigger than the losses.


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3. The charts To be able to place trades on the currency pairings and to take

advantage of the current legislation regarding tax-free income,

financial traders often make use of a spread-betting company.

As this vehicle has become extremely popular because of its tax-

free benefits, many spread-betting companies now offer very

comprehensive services which include real-time charting

packages. Consequently, it is now possible to monitor the

changes and at the same time gain experience of the trading

platforms before placing a real trade.

3.1 Price bars: The anatomy of a price bar

The currency pairings, and their relative price to each other, are

displayed on the charts by means of a price bar. These price bars

reflect the Open, High, Low and Close, often referred to as

OHLC, for the period the bar represents, whether it is daily,

weekly or one of the shorter time frames e.g. hourly, thirty

minutes or fifteen minutes.


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Anatomy of a price bar

The price bar is a summation of all the information available for

the period the bar represents. So for a daily bar it would include

all the fundamentals announced during the 24-hour period, as

well as the technical sentiment that has influenced traders to

trade as they have. Referring to the diagram above, in the event

that the Close is above the Open, then during the day the buyers

(Bulls) were more dominant than the sellers (Bears) and, if the

H

L

H

O C

C O

L

Key:

O : Open

H : High

L : Low

C : Close

(OHLC)


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Close is below the Open, then the sellers (Bears) were the

dominant force.


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3.2 Candlesticks

Within the charting package it will be possible to substitute

price bars for candlesticks. The candlestick is formed by the

addition of a rectangular body-shape between the Open and

Close, which can be accommodated by the trading software. In

order to instantly recognise whether it is a rising candle or a

falling candle, the body can be colour coded e.g. green for a

rising market and red for a falling market, in line with the

majority of traders. Vertical lines from the top and bottom of the

candle body, referred to as the upper and lower shadow or

sometimes wicks, give the full extent of the high and low of the

day.

The use of candlesticks was developed in Japan in the 1600’s to

analyse the price of rice contracts and they were only brought to

the attention of the Western World as recently as 1990.

However, they found instant support as candlesticks are much

simpler to read than price bars, as the colours used give instant

recognition to the direction of the market.


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A single candlestick, although useful, is far more meaningful

when considered against previous candles and in the formation

of a candlestick pattern. There are very many patterns that have

been identified over the years, but it is wise to place more

reliability on the more obvious ones which are easily recognised

by the majority of traders.

For a pattern to have a high probability of behaving in a pre-

emptive manner, it must be obvious to a high percentage of

traders who, having identified the pattern’s existence, trade in a

manner that makes the outcome self-fulfilling.

Although very useful indicators, candlesticks should never be

used in total isolation but considered as part of a ‘toolbox’ to be

used alongside other tools which are described in detail later in

this book.


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Diagram of Candlesticks

If the two candlesticks above were representing the £/$ pairings,

in the first example (green) where the Close is above the Open

at the end of the day, it would be interpreted as the £ increasing

in value against the $ which conversely means the $ is

decreasing against the £. Similarly, in the second example (red),

the Close is below the Open, which means that the £ is

decreasing whilst the $ is increasing in value.

H

H

L

L

C

O

C

Key:

O: Open

H: High

L: Low

C: Close

(OHLC)

O


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3.3 How the charts are structured

The charts used by Simply Trading Forex show the currency

combinations of the major Forex pairings detailed earlier and

can be changed to any of the time frames required. However,

Simply Trading Forex uses daily charts with occasional

reference to the weekly and monthly charts in order to establish

longer term trends. On occasions, the 15 minute chart is also

used for a quick reference to the immediate price action.

3.4 Timeframes

With the use of the tool bar there are a number of different time

frames that can be selected. Preferred options of Simply

Trading Forex are centred around the daily candle. This allows

traders flexibility of movement and prevents them having to be

tied to the computer all day. They need only spend the minimum

amount of time in the morning and evening, normally 25

minutes per day in total. Operating on much smaller timeframes

can be very profitable but also increases stress levels, and the

amount of time required to be spent in front of the computer, to

a point that is, in our opinion, unacceptable.


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4. Currency pairings

There are twelve currency pairings that Simply Trading Forex

regularly monitors, as mentioned in Section 1.1 above. They

represent those currency pairings that generally offer the biggest

movements and therefore the biggest potential gains. There are

correlations between the currency pairings and these fluctuate

from month to month and, where applicable, are featured in the

regular updates.

5. Technical indicators

Simply Trading Forex preferred technical indicators comprise:

Support and Resistance lines,

Candlestick Analysis and Patterns

Moving Averages

Historical Data

Fibonacci

Technical indicators are the tools which help determine the

likely direction the market will take in the future. The more

indicators which agree with the potential direction the greater

the probability of a successful trade.


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5.1 Support and resistance lines

Figure 5.1 Support and Resistance Lines

Support lines are straight lines that are manually set up on a

price chart by the trader, connecting those candles that protrude

lower than all the others.


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It is generally accepted that there needs to be three touches of

the line in order to confirm that it is indeed a true support line.

Some say that two is sufficient, but these lines tend to be less

reliable. The more recognition there is of the trend lines by other

traders, the more likely it is that, when the market reaches this

line, it will be supported and the subsequent candles will move

back upwards. Once the support line fails to hold and

subsequent candles move lower, they will often then move back

up towards the line which will then become a potential

resistance line (see top line of diagram 5.1 above).

A resistance line, as seen in Figure 5.1, is a line that can be

drawn when a number of shadows (wicks) from a number of

candles finish at the same level creating a resistance area beyond

which the market does want to rise. This signifies that the

buyers (Bulls) lose interest at this point allowing the sellers

(Bears) to become more dominant. As with support lines, the

resistance is deemed to be a true test of resistance when three

touches of the line occurs, as seen in Figure 5.1.


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In summary, from Figure 5.1, commencing from the left-hand

side of the diagram, we see that the market moves down and

establishes a support level that is touched twice by the shadows

(wicks) of two candles. The candles then move through the line

down to a point where they again move upwards. On

approaching the previous support line, they find resistance and

again move lower. The fourth candle following then establishes

a support line with the previous low, stopping on this line twice

before again moving back up towards the resistance line. Five

candles then fail to penetrate this resistance line before moving

back down to touch the support line. Movements of this nature

are referred to, in a falling market, as moves to the downside,

and in a rising market as moves to the upside.

Both support and resistance lines do not necessarily have to be

horizontal but can slope to join the shadows (wicks) of highs or

lows that are ascending or descending.


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5.2 Candlestick analysis and patterns

Doji

A DoJi is a candle where the open and close occur in the

same place. This can give long shadows (on the top) or long

shadows (on the bottom) and no body. The relevance of the

DoJi in an upward or downward move is that it can signify

that the move is coming to an end.

Engulfing Candles

An engulfing candlestick is where the body of the

candlestick completely covers the body of the preceding

candle and is the opposite colour, so, where the market has

Figure 5.2a DoJi


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been moving upwards, e.g. green candles, and then a

completely engulfing red candlestick follows (Fig.5.2b

below), this signifies a potential change of direction,

i.e. to the downside in this particular example. Opposite

colours apply, e.g. a red candle followed by an engulfing

green candle signifies the down move has potentially come

to an end and the market is about to move to the upside.

Engulfing candles should not be relied on in isolation and

are unlikely to be valid unless in a reasonably long time

frame i.e. daily charts, where one candle represents one day.

Figure 5.2b

Engulfing Candle


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Flag patterns

A flag pattern is where the market has moved significantly

and quickly in an upward move (flag pole) or downward

move (inverted flag pole) and then remains range bound for

the next few sessions (flag body). Figure 5.2c shows a flag

pattern. Once the price action breaks out of this range, i.e.

above the resistance line that was created during the range

bound period, then one can expect a move in the same

direction as the flag pole roughly to the same number of

points that was created by the flag pole.

Figure 5.2c Flag

Pattern


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Channels

A channel is established when both a support and resistance

line can be drawn that contain the price action (see Figure

5.1 above). The number of times that the shadows (wicks)

touch these lines between the upper resistance and lower

support lines can sometimes be quite large, particularly on a

daily chart, and there are times when traders will trade the

movement and bounces between the channel lines,

particularly after it has been established for a reasonably

long period. Channel lines do not have to be horizontal; they

can slope downwards, a descending channel, or slope

upwards, an ascending channel. Channel lines do, however,

tend to be equally spaced.

Triangles

Triangles are formed when the support and resistance lines

tend to converge and are projected forward into a point. The

price action is then contained within these lines and tends to

get smaller and smaller in terms of the high and low of the

day. In an upward move, when a triangle starts to form and


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is at least two-thirds of the distance into the triangle, then

when a breakout to the upside occurs and closes outside of

the triangle, the distance it moves to the upside tends to be

the same distance as can be measured at the widest part of

the mouth of the triangle. The same analysis can be used for

a move to the downside. However, they tend to be less

reliable than when in an upward move.

5.3 Moving Averages

It is very unlikely that you won’t find a mention of Moving

Averages in any trading manual, home study course or seminar

and Simply Trading Forex will not spoil the analogy here.

Moving Averages are immensely popular and the vast majority

of new traders will use them, often exclusively in their first

years of trading. Many experienced, long serving exponents of

the trading world, who moved on to other, more exotic technical

analysis tools, will admit to returning to their old-established

Moving Average methods when times get tough.


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Prior to the widespread use of computers, Moving Average

levels were selected for their ease of calculation. The division by

ten became very popular, as it was very easy to calculate and it

also represented ten working days or two weeks and often it

would be accompanied by twenty as it represented four weeks

and came close to being a calendar month. Once software

packages enabled the automatic calculation of the DMAs,

traders experimented and have used many different number

combinations as well as tools to calculate the levels.

A Simple Daily Moving Average (DMA), e.g. ten is calculated

by taking the closing price for the last ten days, adding them

together and dividing the outcome by ten; the next day the

closing price is added to the previous total, the first day’s

closing price is removed, and the outcome again divided by ten.

The net outcome is that you always have a rolling ten-day

closing price average. Moving Averages are dynamic lines that

are set up on the price charts and their aim is to smooth out the

peaks and troughs so that trends can be recognised and exploited

when trading.


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There has probably been more written and discussed about how

to arrive at the optimum numbers to select, as there is on how to

use the moving average lines to establish a profitable trade.

Figure 5.3 Moving Average lines

When featured on the chart, the Moving Average line is

regarded as a lagging indicator and the larger the numbers used

in the calculation, the longer the lagging affect can be evident

and often can be seen to be moving upwards after the price has

decided to decline.


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When setting up the charting package, as shown in Figure 5.3

above, Simply Trading Forex has included the addition of two

daily Moving Average lines (DMAs), both simple DMAs

e.g. 15 - coloured red and 25 - coloured blue.

It is a matter of experimentation to see which numbers give the

best results for the markets being traded, but in the early days it

is better to maintain the same levels e.g. 15 and 25, until such

time as you become proficient at trading.

Exponential Moving Averages are where a bias is added towards

the more recent day’s prices in calculating the Moving

Averages. However, Simply Trading Forex recommends the use

of Simple Moving Averages during the first few months of

trading.


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5.4 Fibonacci (FIB)

Fibonacci (FIB), named after Leonardo Fibonacci an Italian

mathematician, is a tool which brings up potential support and

resistance lines that are established from the FIB levels. The

significance of using the FIB tool is that when a retracement

occurs, either to the upside or downside, traders can get an

indication as to when the market may run into support and

resistance levels. These levels are somewhat self-fulfilling

because the vast majority of technical traders have them set up

on their screens and, consequently, in many instances, these

levels will be hit exactly because the professionals are expecting

and, therefore, they make this happen.

It should be noted that the FIB levels are more significant if they

are very close to the price action when you are considering

entering a trade, whereas once you are in the trade, the Moving

Average methodology should take precedence and the FIB

levels merely used to give an indication of additional areas of

support and resistance.


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Part Two: Trading the financial market

6 Having a defined methodology

Using technical indicators, we can determine with reasonable

accuracy which way the market is probably headed and it is by

using particular indicating tools that we formulate the basis of a

defined trading methodology. The key word in the last sentence

is probably, nothing is certain, so we trade on the basis that we

believe we have the highest probability of success.

Popular indicators that can be used in a defined trading

methodology can include the use of Moving Average lines.

Determining the level for these lines can be dependent on the

methodology used. These Moving Average lines can be added

to the daily charts and used in connection with other technical

indicators to identify trading opportunities.

The daily charts are the charts used to identify trading

opportunities because the longer time frame enables less time to

be spent in front of a computer. The daily monitoring should be

accomplished, once proficient, in twenty five minutes. This


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equates, on average, to fifteen minutes in the morning and ten

minutes early evening.

Having a defined methodology is as useful for determining

moves to the downside as it is for determining moves to the

upside, enabling us to trade both situations.

6.1 The Methodology

www.simplytradingforex.com

offers seminars where focussed attention is given to two distinct

methodologies which will enable you to be successful in trading

the Forex market. These methodologies are designed to cover

both short term trading and to take advantage of the longer term

trending market which can give significant profits. Both of the

methodologies are explained in full detail using a ‘live’ trading

platform and can easily be assimilated by both new traders and

those with more experience. Before the end of the day an

interactive session with delegates is carried out on all current

and new potential trades giving participants the opportunity to

take part in the decision making process for the week ahead.

http://www.simplytradingforex.com/


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6.2 Support of the methodology

Support of the methodology by the use of other technical

indicators is akin to due diligence in the property market and is

vitally important.

Once the methodology to be used has been identified on a

currency pairing chart, and before the trade is taken,

consideration of the other technical indicators to establish

whether the trade is supported or not by these indicators, should

always be carried out. Any that might be in conflict should be

considered very carefully and, if necessary, the trade passed

over until all the right criteria are in place.

Loss of opportunity is preferable to loss of capital


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7 Stop Loss

7.1 Definition

A Stop Loss is the maximum amount of money that a trader is

prepared to risk on any one trade if the market moves in the

opposite direction from where the trader thought it was headed.

The Stop Loss should never be moved to increase the potential

loss in the vain hope that the market will eventually turn, as this

would probably break the rule that follows in section 7.2.

7.2 Trading bank

A major factor in deciding where to place a Stop Loss is the size

of the bank that has been allocated to the trading account and is

strictly controlled by the following rule which is—

Never ever risk more than 3% of the trading bank

on any one single trade.


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This rule is designed to keep the trader trading and to prevent

the situation occurring where a trade cannot be made because of

insufficient capital.

7.3 Understanding the use of the Stop Loss

Having identified a trading opportunity, the next decision to be

made will be based on where the Stop Loss needs to be set. A

major factor that influences this decision is obviously the

Trading Bank, e.g. if 3% of the trading bank does not allow for

the Stop Loss to be placed in the desired position, then this trade

should be passed over in favour of one where the Stop Loss can

be set at the required level.

The Stop Loss needs to be positioned below suitable indicators

when entering a trade to the upside, i.e. going Long or Buying

the market. Conversely, if you were entering a trade to the

downside, i.e. going Short or Selling the market, then the Stop

Loss will be positioned above suitable indicators.

How close to the indicators the Stop Loss should be positioned

is dependent on your bank and the amount of risk that you are

prepared to take, but it should be noted that often the market will


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quickly test the area close to where the indicators are situated

before moving back in the direction anticipated and, if you don’t

allow the market room to breathe, you can sometimes be caught

out. Also see Section 7.4 Risk Reward Ratios.

Many novice traders lose money trying not to lose money.

From the twelve currency pairings that are set up and monitored,

it should be possible to select trades that fit the above trading

bank criteria and, in the early days of acquiring the skill of

trading, it is preferable to limit the number of trades open at any

one time, to one or two. As proficiency and confidence grows,

this can be gradually increased to a number that remains

comfortable.

Unfortunately, it is not unusual for good trading opportunities to

be like buses; when one comes along, they all turn up together.

However, there are more than enough indicators included in the

seminar that can be used to filter and aid the decision process.

Just be patient and dismiss the notion that a trade has to be taken

quickly because the markets are moving.


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7.4 Risk Reward ratios

On the firm basis that traders never take a trade without the very

clear understanding that they expect the trade to be successful, it

should also follow that they know what is the minimum gain

that they expect to achieve. Consequently, a Risk Reward ratio

is simply the amount a trader is expecting to win on any one

trade versus the amount the trader is prepared to lose should the

trade go the opposite way i.e. the stop loss points multiplied by

the stake level. This is expressed as 3:1, 4:1 etc. The reward is

always represented by the first figure, although the terminology

suggests the risk is first.

So if a trader, having clearly followed the methodology, deems a

trade to be a possibility, then before finally committing to the

trade, the risk reward ratio should be calculated.

This is achieved by having first established where the stop loss

is going to be placed, having due regard for the size of their

bank and the amount of risk they are prepared to take. This

establishes the amount in monetary terms that is at risk. The

trader will then look carefully at the chart to see where the first


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potential support or resistance level is likely to be encountered

and calculate how many points this is from the likely entry

point.

For the purpose of illustration, assume that this is 150 points

away from the entry level and the stop loss calculation is 50

points, then the risk reward ratio can be shown as 3:1. To take

trades that have less than a 2:1 risk reward ratio is not advisable

when day trading unless, when the trade is placed, a limit order

is also put in place. An explanation of Limit Orders follows in

section 7.6.

7.5 Trailing Stop Loss

A trailing Stop Loss is where the Stop Loss is moved in the

direction of a winning trade to lock in the profits gained before

the market eventually turns. It is, of course, desirable to get the

trade to a break-even situation as soon as possible but, if this is

achieved too soon, the trade is at risk from any small corrections

that might occur. It should be remembered that markets seldom

move in straight lines. It is, therefore, acceptable to move the


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Page - 46 -

Stop Loss nearer the price action in a winning trade but never

further away from the price action in a losing trade.

If this is done daily then the exit point is actioned automatically,

locking in the profit, even though you are nowhere near a

computer.

7.6 Limit orders

A Limit Order is a trade that is placed with a pre-determined

exit point. This is done because the trader suspects that the gain

is limited because of a potential obstacle that might well bring

the move to an end. This could be a strong support or resistance

area, a major psychological price area, a previous major high or

low, double top or bottom or any of the other technical

indicators mentioned earlier.

The limit price can be fixed on the trading platform and is

placed in a box at the same time as the Stop Loss position is

entered, it can also be amended during the course of the trade

exactly the same as with the Stop Loss. It is only necessary to


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set a Limit Order in this way if the calculated move has a high

probability of being reached at some point during the following

trading day and the likelihood is that, as day traders, the high or

low could be missed and the market retraced by the time the

market is checked again.

8 The trading system

8.1 Why a spread-trading platform is used

As was stated earlier, the trading world is a very different place

since the launch of the internet and the vast improvement that

has occurred in the performance of personal computers. Anyone

can now log on to the financial world and trade the Forex

market alongside the professionals.

With this ease of access, a large number of spread betting

companies have emerged offering a comprehensive service to

anyone who, rather than buying and owning securities and

currencies with all the associated fees, wishes to trade them on a

daily or even shorter time frame. Of course, the scope of the


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services the spread betting companies offer is not limited to

financial instruments. It is possible to place a trade on the result

of just about any situation, from the number of runs England

may or may not score against another nation to the result of a

general election in terms of the number or seats a particular

party may receive. As long as there is a clearly defined

numerical result, a trade should be possible.

Apart from the ease with which the trade can be accomplished,

another major benefit is that currently there is no UK tax

payable on the profits that can be made. It therefore follows that

there can be no deductions that can be offset against losses but,

of course, the UK tax situation could change for either or both of

these circumstances in the future.

8.2 How to set up an account

There are, as mentioned, many spread betting companies where

an account can be opened and it is not necessary, in a lot of

cases, to deposit funds until a decision is made as to which

account is best for a particular style of trading.


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There are no restrictions, so it is possible to open more than one

account to compare. Some offer a demonstration account where

an imaginary £10K is deposited in your trading bank, so that

trades can be placed and the trader can assess his skills as they

develop with experience gained. To reiterate, an online

broadband service will be required to enable trades to be placed

on a trading platform with real time charts and up-to-the-minute

pricing information.

9 Dos and don’ts

Do …

be patient in all trading decisions;

limit each trade to a maximum of 3% of bank;

consider all reasons not to trade;

conserve your trading bank at all costs;

Loss of opportunity is preferable to loss of capital


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Do …

stick to your trading plan;

always consider the long term trend and wherever

possible trade with it;

keep records of all trades: winners and losers.

Common pitfalls to avoid as a trader—

Don’t…

worry about missing a trade – there will be many more

along soon;

enter a trade just because it’s moving;

get angry with the market;

risk more than you can afford to lose;

ever trade without a stop loss;

move a stop loss to try and keep in a trade;

enter a trade without having an exit strategy/target;


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Page - 51 -

Don’t…

place trades at the end of the day and particularly Friday

evening;

trade if you are not in the frame of mind to be successful

… bad moods make for bad decisions;

over-trade;

try to get even by over-trading or increasing your stake

above 3%;

trade on emotion or gut feeling.

Summary

You now have a basic grounding in how the Forex market

operates and how it is possible to achieve an additional income

by trading the financial markets. This book has introduced you

to the tools that are needed to be successful as a technical trader,

but they will be worthless unless you take the necessary action

to put them into practice. This doesn’t mean that you have to


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Page - 52 -

risk boat-loads of cash from the outset. Start with a modest

bank, build up your winnings and trade with your profits.

Above all invest in your future trading education by attending

one of my seminars which is a good hands-on trading course

that offers a money back guarantee if you don’t like what you

hear during the morning session, and gives an extended period

of support well past the end of the course (3 months).

This really can be the opportunity to ‘ditch the day job’ but, like

any skill, needs to be learnt and experience gained over time. It

is not a ‘Get-Rich-Quick’ scheme.

It is very enjoyable, can be mildly addictive and can certainly

change your life, but should always remain fun. I hope you

enjoyed this Simply Trading Forex book and perhaps one day

we will meet at one of my seminars, and later on some exotic

island where all successful traders enjoy the finer things in life.

I wish you all that I wish myself.

Kevin Greenhall


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Kevin Greenhall has been trading the financial markets for

many years, concentrating on the Forex Market in particular.

Based on these years of research he has created a Forex trading

system of his own that he uses daily, some details of which are

covered in this book. Kevin has run many successful seminars

on Forex trading and his course manual has been purchased by

traders as far afield as New Zealand, Canada, South Africa and

Europe. Kevin’s Simply Trading Forex course includes three

fully detailed course manuals covering both methodologies. On-

going three weekly update reports, as well as email support, are

also included in the seminar fee for a 3 month period dependent

on the service taken. Thereafter this service can be continued if

required on a small subscription basis. For those who require

personal tuition, arrangements can be made for smaller groups

or one-on-one tuition.

Details of forthcoming seminars can be found at

www.simplytradingforex.com

http://www.simplytradingforex.com/

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