For Beginners

Getting started

Terms you should know

  • A currency pair is the exchange rate between two currencies.
  • A currency pair shows the price at which one currency is exchanged into another. So if the price of the EUR/USD is 1.30, then this means that 1 euro is exchanged for 1.30 US dollars.
  • A price chart shows how the exchange rate between two currencies develop over time.
  • The chart type we use is called a “Japanese candlestick chart”. It is made up of shapes that look like candlesticks.
  • Japanese candlesticks show you the price in a specific time frame.
  • Each candlestick shows how the price developed over a period of time — we refer to this as a time frame. A 5 minute time frame means that each candlestick shows the price development over 5 minutes. In the beginner strategy, we use the 5 minute and 30 minute time frames — later we will tell you how to change between time frames in the MT5 software.
  • During the period that the candle forms, you will observe that it changes shape. After the period, the candle is closed and a new candle starts to form, or opens.

Interpreting a candlestick is easy

  • The thick part represents the prices at the beginning and at the end of the period.
  • The thin parts show you the maximum and minimum price during the period.
  • If the candle is green, the price moved up during the period.
  • If the candle is red, the price moved down during the period.
  • A pip is used to measure how far the price has moved.
  • If you think of the exchange rate between the euro and the dollar (EUR/USD), you might think of it as: 1.31, where only two digits follow the decimal point.
  • However, in the forex markets, this is broken down even further and we observe the price as 1.3100. The last digit – the last 0 — is the pip. If the value of that currency pair moves from 1.3100 to 1.3101, it has moved by a single ‘pip’.
  • Pips are how traders generally measure their profit. If a trader buys a currency pair, again the EUR/USD at 1.3100, and the price moves up to 1.3130, it is said to have moved up by 30 pips or the trade has gained a 30 pip profit.
  • Some trading software makes use of 5 decimal places, in which case the fifth digit is called a fractional pip or pippet.

Making a trade

Making a trade is the act of exchanging one thing for another. In the context of forex, it means that we exchange a certain amount of one currency into a certain amount of another currency, based on the current price of the currency pair. For example, if the price of the EUR/USD currency pair is at 1.30, for that we can get 1 euro for every 1.30 US dollars.

Entering a pending order

Instead of waiting for a specific price level to be reached to place your trade, you can tell the trading platform to automatically open your trade if that price level is hit. This is called entering the pending order. You tell the software where your entry, stop loss, and profit target will be and the position size or volume you want to trade with and the software does the rest. When using MT4 to enter a pending order, it is important to know that when you wish to buy, you select the type buy stop and when you want to sell, you select the type sell stop.

1. Position size/volume is how much you will buy or sell.

When we refer to position size, we mean that this is the amount that you will buy or sell. We show you the correct amount to buy and sell in the following lessons.

2. A stop loss prevents you from losing all your money.

If a trade goes against you, i.e. you buy and the price of the currency pair starts to go down, a stop loss order will automatically close your trade so that you do not lose too much money. When the time comes to enter your pending order, we will show you how and where to place your stop loss before you enter your pending order.

3. A profit target is the amount of money you intend to make.

  • A profit target is a pre-determined price at which you will close your trade for a profit.
  • Fractals are indicators that help you trade
  • A fractal is an indicator that is displayed as small triangles that are either plotted above or below a Japanese candlestick. When a fractal is plotted above a Japanese candlestick it is an up fractal and when it is plotted below a Japanese candlestick it is a down fractal.
  • Fractals help determine a potential price reversal. However, if the price moves beyond a fractal, it indicates that price may be continuing in the same direction.
  • Note that a freshly formed fractal can disappear again unless two full candles have formed after it. Thus, before using a fractal in the context of the beginner strategy, you should always wait for two candles to close on the right side of the fractal to 'confirm' that the fractal is valid.

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