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Order Types

Market Order/Execution

A market order is an order to open a buy or sell position at the best current available price.

Pending Order

A pending order is an order to buy or sell an instrument at a specified future price, only if the market reaches that specific price.

Limit Order

A limit order is triggered when the market moves past your specified entry level, providing the best available price once triggered. A limit order sits below the current market price for a buy limit, and above the current market price for a sell limit.

Stop-Loss

A stop loss is a conditional order set at a fixed price level which is aimed at closing a position after a certain price has been reached. A stop is triggered when the market moves in an unfavourable direction for the trader. It is designed to prevent further losses when a position is losing money.

Trailing Stop

A trailing stop is a type of stop-loss order that moves with the trade as the market price fluctuates. It does not remain at a fixed price and is therefore set in a distance of pips. The trailing stop only activates when the trailing stop level has been reached. It is designed to realize the profit made by the position.

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2. Intermediate Tutorial

Gold (XAU/USD) – Reasons Why Gold is Traded

As an investment, gold is the most popular of the precious metals

Investors generally buy gold as a hedge or safe haven harbor during economic, political, or social uncertainty (including investment market declines, burgeoning national debt, currency failure, inflation, war and social unrest).

The gold market is subject to speculation as are other markets

The history of the gold standard, the role of gold reserves in central banking, gold’s low correlation with other commodity prices, and its pricing in relation to flat currencies during the financial crisis of 2007–2010, suggest that gold behaves more like a currency than a commodity

There are several factors which drive gold up/down:

  • Global inflation
  • War in the Middle East and North Africa
  • Threats to oil supplies
  • Volatility in the forex markets
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2. Intermediate Tutorial

What is a Technical Indicator

Technical Indicators are a result of mathematical calculations/algorithms designed by professional traders and are based on indications of price or volume.

The values obtained are used to create various patterns that may be added to a chart and allow traders to forecast probable price changes and, therefore, probable times at which to open a buy or sell position in addition to when they should close current open positions.

There are many technical indicators; however, here are the most common types:

Support and Resistance

  • When the market moves in a specific direction and then pivots and changes direction, the highest point that was reached before the market changed direction is called the Resistance Level. In the same way, the lowest level the market reaches before the market pivots is called the Support Level.
  • It is important to note that if the market passes through a resistance level, then that resistance level can also become a new support level. The same applies in the opposite direction. Previous resistance and support levels are also used as an indicator for future pivots and therefore possible entry points into the market.

Moving Average

  • Moving Averages show the average price within a defined time period by considering the most recent closing prices over the given time period and the result is then divided by the number of prices used in the calculation:
    For example: In a 10-day moving average, the last 10 closing prices are added together and then divided by 10
  • There are four types of Moving Averages: Simple MA, Exponential MA, Smoothed MA, and Weighted MA. They differ from each other only in terms of the weight coefficients that are assigned to the latest data
  • Moving averages are used to define areas of support and resistance, entry points into the market, to emphasize the direction of a trend, and to smooth out price and volume fluctuations
  • The direction of the indicator shows whether a bullish or bearish trend is present in the market at the moment
  • With two or more moving averages applied to one chart, the further apart they are from one another the stronger the indication of the current trend
  • When the moving averages intersect, this confirms the change in a trend. It is only a confirmation because the change of this indicator is late in comparison with a price change

Oscillators

  • Oscillators are designed to indicate a possible change in the trend of a specific trading instrument by showing whether the instrument is either overbought or oversold, therefore allowing traders to determine when a change in the current overall trend will occur and in turn, an entry point into the market.
  • The RSI indicator is used to determine the state of the market – whether it is overbought, oversold, or stable. If the RSI tops out in the upper zone [overbought (sell signal), > 70] and then returns to the middle zone, the price would move in the same direction. If the RSI bottoms out in the lower zone [oversold (buy signal), < 30] and then returns to the middle zone, the price would move in the same direction. In other words, the price and the RSI movement correlate.
  • The Stochastic oscillator is used on the trending markets. If both lines top out in the upper zone [above 80% mark (sell signal)] and then the indicator returns to the middle zone, the rate would move in the same direction. If both lines bottom out in the lower zone [below 20% mark (buy signal)] and then the indicator returns to the middle zone, the rate would move in the same direction.

Retracements

  • Trading instruments usually retrace the previous day’s trades. The most popular retracement is the Fibonacci Retracement indicator which is a chart tool used to determine the support and resistance levels of an instrument
  • The Fibonacci Retracement levels are created by drawing a trend line between two extreme points and then splitting the vertical distance according to the specified percentages
  • The Fibonacci Retracement can include up to 13 lines. In order to find these retracement levels, you need to identify the recent Swing Highs and Swing Lows (extreme changes in the trend direction)
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Trend Lines

The term ‘trend’ describes the current direction of the financial instrument or an investor’s outlook towards the direction of a financial instrument. A trend line can be drawn on a chart between two or more price pivot/turning points. Trend lines are commonly used to judge entry and exit points when trading.

There are 5 types of trends:

Bullish

A bullish trend is the term given to an optimistic outlook whereby there is a belief that a particular instrument is about to rise (buy opportunity)

Bearish

A bearish trend is the term given to a pessimistic outlook whereby there is a belief that a particular instrument is about to drop (sell opportunity)

Hawkish

A hawkish trend is the term given to a favoured increase in interest rates (buy opportunity)

Dovish

A dovish trend is the term given to a favoured decrease in interest rates (sell opportunity)

Ranging/Flat

When the market is ranging or flat, this suggests that the price of the instrument is neither rising nor falling. This type of trend usually indicates a change in the overall direction of a trend

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2. Intermediate Tutorial

Technical Analysis

Technical analysis is the study of prices over time, with charts being the primary tool. This is done by comparing current price action with historical price action to identify patterns that can suggest probable future price movement.

Technical analysis helps traders to determine trends and acts as a signal or indicator to either buy or sell. Technical analysts believe that the historical performance of a financial instrument indicates the future performance on that instrument.

Trader Types

In order to understand which charts you should be using, it is important to determine the type of trader you are by understanding the difference between trader types.

Short Term

Short term traders are intraday traders who get in and get out of the market quickly by constantly opening and closing positions

Medium to Long Term

Medium to long term traders are traders who keep their open position on the market for a long period of time (weeks/months)

Chart Types

There are 3 types of charts:

Line Chart

  • A Line Chart simply shows a line from one closing price to the next closing price
  • The Line Chart is not specific to the period of the chart
  • A Line Chart shows us the general direction of the instrument over time

Bar Chart

  • A bar chart goes into more detail by showing the opening and closing prices in addition to the high and low of the specified period using a straight bar/line format

Candlestick Chart

  • A candlestick chart also shows the opening and closing prices in addition to the high and low of the specified period and resembles a candlestick. This type of chart is easier to interpret and identify pivot points or reversals in a trend
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2. Intermediate Tutorial

Fundamental Analysis

Fundamental analysis is the study of the overall economic, financial, political and other factors that represent and quantify the economy in question and can influence a financial instrument. These macroeconomic and economic health elements of a country help traders to determine future movements in a financial market.

Each day, many economic and political announcements are released that can have a direct impact on the markets, including the forex market. Therefore, it is important that traders understand how to interpret this information and convert it into an educated and successful trade.

Pointers

Economic Policies in Individual Countries

Economic policies refer to how a country governs trade, budget and currency distribution. This is why budget readings in parliaments across the world are important to individuals looking to invest in the country’s currency. If the budget is well balanced, promoting trade and improved economic status, then the currency’s value should increase. If for any reason the distribution of wealth and economic policies reflected in the budget is less than satisfactory, the currency suffers.

Deficits and Surpluses

Countries with the strongest currencies in the forex market are those with fewer deficits, meaning that they are in a good position to trade and even lend to other countries.

Trade Trends and Levels

If a country is very active in trade, then there should be a great demand for its currency, which therefore affects all the currency pairs associated with it. A high amount of trade also indicates the competitiveness of the market, not just for currency, but for commodities and stocks as well. Economic events affecting trade trends involve supply and demand in global trade.

Inflation

Inflation reduces the value of a currency and the rate of inflation should be reasonable since it occurs in every country.

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Basic Terminology

Before trading currencies, an investor has to understand the basic terminology of the forex market, including how to interpret forex quotes and calculations.

Straight Through Processing (STP) Broker

Pepperstone is an STP broker to provide clients with direct access to other participants in the currency market by consolidating price quotations from several banks. Pepperstone clients have instant access (Straight Through Processing) to some of the best prices with extremely tight spreads.

PIPS AND PIPETTES

PEPPERSTONE QUOTES CURRENCY PAIRS BY “5, 3 AND 2” DECIMAL PLACES – THESE ARE KNOWN AS FRACTIONAL PIPS OR PIPETTES.

  • On a 5 decimal place currency pair a pip is 0.00010
  • On a 3 decimal place currency pair a pip is 0.010
  • On a 2 decimal place currency pair a pip is 0.10

FOR EXAMPLE: IF GBP/USD MOVES FROM 1.51542 TO 1.51552, THAT .00010 USD MOVE HIGHER IS ONE PIP.

Spread

The spread is the difference between the BID and the ASK price in the market quotes. The ASK price is applicable to a BUY order and the BID price is applicable to a SELL order.

Pepperstone operates using variable spreads, which are spreads that don’t have the same constant value. A variable spread will condense and widen as market conditions and liquidity change.

Leverage

Leverage is the ability to control a large amount of money in the forex markets.

For example: Pepperstone offers a maximum leverage of 500:1 which means for every $1 that you have in your trading account; you can trade $500 on the forex market. The same principal applies to all base currencies and leverage amounts.

Leverage gives the trader the ability to make meaningful profits on the normally miniscule daily currency movements, and, at the same time, risk only minimal capital on a given position.

Leverage can exponentially increase your profits as well as your losses so it is crucial that traders take care when using leverage. The larger your position size, the larger your pip value will be and therefore, the greater the impact on your profit/loss (P/L).

Margin

Margin is the term given to the amount of money required in your account in order to open a trade.

Margin is calculated based on the current market quote of the base currency of the trader’s account vs base currency of the trader’s account, the volume requested, and the leverage level of the trader’s account.

Free or available margin is indicated in the MT4 trading terminal.

Margin may be calculated as follows: (Current Market Quote * Volume) / Leverage = $Margin Required

For example:

  • A trader wants to open 0.1 (10,000 base currency) lots of EUR/USD at the current market quote of 1.4177 and with a leverage level of 1:200.
  • The base currency of the account is USD.
  • (1.4177 * 10,000) / 200 = $70.89 required to open a 0.1 lot position

Margin Call

A margin call is a warning message that occurs when a trader’s account is running out of sufficient funds to sustain their current open positions on the market.

If the market moves against a trader’s position/s, additional funds will be requested through a “margin call”.

If there are insufficient available funds, the trader’s open positions will be closed out

If a trader’s Equity (Balance – Open Profit/Loss) falls below a specific margin level which is the amount required to support open positions, then the trader’s positions will automatically be closed.

This is calculated as follows for the MetaTrader 4 platform: Equity / Margin = < 20%

This is calculated as follows for the cTrader platform: Equity / Margin = < 50%

Hedging

Hedging refers to the opening of a new position in the opposite direction of an existing position on the same instrument.

For example: To hedge a 0.1 lot Buy position on AUD/USD, you would open a 0.1 lot Sell position on AUD/USD

No additional margin is required to hedge a position. It is important to note that one cannot open a new position on an account with insufficient usable margin.

Rollovers/Swaps

Forex trading may also generate interest income as well as capital gains. Since forex is traded in pairs, every trade involves not only two different currencies, but their two different interest rates.

If the interest rate of the currency a trader bought is higher than the interest rate of the currency a trader sold, then the trader will earn interest or “rollover” (positive roll).

If the interest rate on the currency the trader bought is lower than the interest rate on the currency you sold, then the trader will pay rollover (negative roll).

Rollovers/swaps can add a significant extra cost or profit to a trade. The rollover amount increases/decreases as the position size increases/decreases.

Rollovers take place at 5pm EST (New York Time)

Commissions

These are fees that Pepperstone charges on the Razor account only. The commission amount equates to:

Lot SizeCommission AmountNotes
0.010.11AU$0.07AU$0.70AU$7Round turn means that commission is only paid when positions are closed

** The commission amount increases/decreases as the position size increases/decreases

Expert Advisor (EA)

EA’s are algorithmic programs that have been developed to open trades on behalf of investors on the MetaTrader 4 platform. Expert Advisors are based on signals generated by various technical indicators and may be acquired online.

Virtual Private Server (VPS)

A VPS is used to keep the Meta-Trader 4 platform running even if the trader exits the program. This minimizes the chance of system downtime due to technology and connectivity failures.

MAM/PAMM Accounts

Multi Account Manager account types on the Meta-Trader 4 platform are designed for Money Managers who trade on behalf of other investors and manage multiple accounts from a single interface. Money Managers can also manage multiple accounts by utilising Expert Advisors (EAs).

Safe Haven Currencies

This is a term used to describe trading an alternative currency or instrument that is less volatile as a result of market turmoil and uncertainty. Safe haven currencies or instruments are considered low risk because their issuing governments are stable and their economies tend to be strong, however, this does not necessarily mean that they are ‘safe’.

One-Click-Trading

Allows you to open a new position with just one click

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2. Intermediate Tutorial

Day trading

Day trading a short-term trading strategy where you’ll hold your trades for minutes or even hours (it’s similar to swing trading but at a “faster” pace).

The timeframes you’ll trade on are usually the 5mins or 15mins.

As a day trader, your concern is to capture the intraday volatility.

This means you must trade the most volatile session of your instrument because that’s where the money is made.

So, you’ll likely:

  • Buy Support
  • Sell Resistance
  • Trade breakouts
  • Trade pullbacks
  • Trade the bounce of the moving average

Now…

If you’re a day trader, you won’t be concerned with the fundamentals of the economy or the long-term trend because it’s irrelevant.

Instead, you’ll identify your bias for the day (whether to be long or short) and trade that direction for the session.

An example:

Below is the chart of USDCAD (4-hour timeframe) at 1.2900 Resistance.

If the price can’t break above it, chances are, today will be a “down” day.

Next…

On the 15-minute timeframe, you noticed a Shooting Star has formed which signals selling pressure.

You can take a short trade with possible target profit at Support (blue box).

Here’s what I mean:

Now, let’s discuss the pros and cons of day trading…

The pros:

  • If you’re good, you can make money on most months
  • No overnight risk because you close your positions by the end of the day

The cons:

  • It’s stressful as you’re constantly watching the markets
  • Can lose a lot more than intended if you suffer massive slippage (from Black Swan events)
  • Huge opportunity cost as you could be earning a full-time salary elsewhere

Now if day trading is still too “slow” for you, then the next forex trading strategy might suit you…