Forex Trading Lecture Notes

Introduction to Forex Trading

• Forget everything learned about Forex from the internet.
• Definition of Trading: Exchanging one good for another. E.g., wood for food.
• In Forex, you're exchanging currencies digitally, not tangibly.

Understanding the Forex Market

• Trading involves:
  • Buying one asset and selling another for profit.
  • Selling an asset to buy another.
• Historical Context: Trading has been around for thousands of years.
• Modern Example: Trading one currency for another (e.g., Euro for USD).
• Market Scale: $6.3 trillion are exchanged in the Forex market daily.

Currency Pairs

• What is a Currency Pair?
  • Two currencies traded against each other (e.g., EUR/USD).
  • Base Currency: First currency (e.g., Euro in EUR/USD).
  • Quote Currency: Second currency (e.g., USD in EUR/USD).
• Trading Logic: Buy if you believe the base currency will strengthen against the quote currency, and sell if you believe it will weaken.

Types of Trading

1. Scalping:
   • Short-term trades (1-2 hours).
   • High frequency, lower risk/reward ratio.
2. Day Trading:
   • Trades last 1-3 days.
   • Fewer trades, more selective.
3. Swing Trading:
   • Holds trades for several days to weeks.
   • Maximizes profit potential with fewer trades.
4. Position Trading:
   • Long-term trades (1 month or more).
   • Focus on fundamental analysis rather than technicals.

Advantages of Forex Trading

• 24/5 Market Access: Trade any time from Monday to Friday.
• Low Entry Barrier: Start with $100 or less.
• Reliability of Currencies: Less risk of total loss compared to stocks or crypto.
• Demo Trading Options: Test strategies without financial risk.

Trading Platforms

1. TradingView:
   • Chart analysis and market viewing.
2. MyFXBook Position Size Calculator:
   • Helps determine risk and lot size for trades.
3. Forex Factory:
   • News and economic calendar but not essential for trading.
4. MetaTrader 4/5:
   • Platform for executing trades.
   • Choose between market execution and pending orders.

Technical Analysis Basics

• Trend Analysis:
  • Identify bullish (upward) or bearish (downward) markets.
• Support and Resistance:
  • Areas where price reverses, indicating potential trade opportunities.
• Market Structure:
  • Higher highs and higher lows for bullish trends.
  • Lower lows and lower highs for bearish trends.

Candlestick Patterns and Indicators

• Bullish and Bearish Engulfing Patterns:
  • Important for trade confirmations (buy/sell signals).
• Use of Indicators:
  • EMA (Exponential Moving Average), RSI (Relative Strength Index), and others can guide decisions but are not essential.

Risk Management

• Risk to Reward Ratio:
  • Aim for at least 1:2.
• Position Sizing:
  • Calculate based on account size and risk percentage (e.g., 1-2%).

Trading Psychology

• Overcoming Greed and Fear:
  • Avoid comparing yourself to others; focus on personal progress.
• Dealing with FOMO:
  • Recognize that opportunities will always exist.
• Money Management:
  • Treat trading like a business; allocate budget for trades.

Execution of a Trade

• Steps to enter a trade:
  • Analyze currency pair.
  • Use trading platforms to place trades.
  • Monitor performance and adjust as necessary.

Conclusion

• Continuous Learning:
  • The path to becoming a successful trader is ongoing.
  • Utilize provided resources for further development in trading strategies.