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Risk Disclaimer for Forex Trading: Trading foreign exchange on margin carries a high level of
risk, and may not be suitable for all investors. Past performance is not indicative of future results.
The high degree of leverage can work against you as well as for you. Before deciding to invest in
foreign exchange you should carefully consider your investment objectives, level of experience,
and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial
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be aware of all the risks associated with foreign exchange trading, and seek advice from an
independent financial advisor if you have any doubts
Cover Design: Lauria
Cover Images: Forex © depositphotos.com
Contents of Ebook
• Standard Of Procedure
• Support and Resistance
• Confluence
• Candlestick Patterns
• Risk Management
• Real Chart Examples
• Terminology
Standard Operating Procedures
What are the Standard Operating Procedures?
1. Look at the current market, identify and mark the nearest SNR and wait for the market to reach
the SNR area (D1 Timeframe)
2. Check for confluences (Dynamic SNR, Divergence, BRN) (D1 or H4)
3. Look for a candlestick pattern (H4 Timeframe)
4. Entry and manage your risk properly
Support and Resistance
1.1 What is Support and Resistance?
Support and Resistance also known as SNR, is a pre-determined price area in which the price is
more likely to bounce off this area rather than break through it. SNR is one of the most widely used
concepts in forex trading as it is the bread and butter of forex trading. Without SNR, we cannot
predict where the price will go next.
Resistance is a price area in which upward price movement is blocked by an overwhelming supply
indicating that sellers are looking for opportunity to SELL the market.
Support is the opposite of Resistance and it is a price area in which the downward price movement
is blocked by an overwhelming demand indicating that buyers are looking for opportunity to BUY
the market.
1.2 Reliable timeframe for Support and Resistance
For the rest of the course it is important to mark SNR only at DAILY timeframe as it is more
reliable in identifying trend direction.
1.3 Types of Support and Resistance
For this strategy there are three types of Support and Resistance (SNR):
1. Horizontal SNR
2. Role Reversal (SBR/RBS)
3. Dynamic SNR
1.3.1 Horizontal SNR
1. Look at the current price chart
2. Identify the nearest swing high and swing low
3. Draw a rectangular box of 60 to 90 pips from the swing high for resistance and swing low for
support
1.3.2 Role Reversal (SBR/RBS)
Role Reversal is a powerful concept of Support becomes Resistance in a downtrend and the
Resistance becomes Support in an uptrend.
Support becomes Resistance
For a support to become a resistance, there is only one condition that needs to be met, it is as
follows:
1. Market must violate Support Area
Once the support area is violated to the downside, it becomes a new resistance area and once
market retraces back to the new resistance area, traders will have to be alert as it offers
opportunity for short positions.
Resistance becomes Support
Same concept applies to Resistance becomes Support, condition needs to be met as follows:
1. Market must violate Resistance Area
Once the resistance area is violated to the upside, it becomes a new support area and once
market retraces back to the new support area, traders will have to be alert as it offers opportunity
for long positions
1.3.3 Dynamic SNR
For this strategy, there are two types of dynamic SNR (chart patterns):
1. Equidistant
2. Wedge
Equidistant
Equidistant is trend channel formed by the parallel levels of Support and Resistance.
There are two types of Equidistant:
1. Ascending Equidistant
2. Descending Equidistant
How to identify Equidistant?
1. Draw a trend line
2. look to see if a parallel trend line can be drawn
3. The upper line is the Dynamic Resistance and the line below is the Dynamic support, focus on
buying when the market approaches the lower line and vice versa if it approaches the upper line
Wedge Patterns
In technical analysis, wedge is a pattern that is formed by two trend lines that are drawn above and
below price chart converging into a shape similar to a triangle. The line above is the resistance line
and the line below the price chart is the support line
Two types of Wedge Patterns
1. Ascending Wedge
2. Descending Wedge
How to identify the Wedge Pattern?
1. Draw a trend line
2. Look to see if the opposite trend line can be drawn, the shape of the pattern must be
converging into a shape similar to an arrow or a triangle
3. The upper line is the Dynamic Resistance and the line below is the Dynamic support, focus on
buying when the market approaches the lower line and vice versa if it approaches the upper line
2. Confluence
2.1 What is Confluence?
Confluence is a term when two or more trading strategies share the same signal. This term is
used when doing technical analysis, by looking at charts and developing levels where different
indicators and ideas are combined to help identify possible opportunities.
An example of confluence for AUDCAD is as follows:
1.AUDCAD is at Resistance area D1 - SELL
2. AUDCAD is at Ascending Wedge Resistance line (Dynamic Resistance line D1) - SELL
Two trading strategies share the same signal and therefore it is a confluence
2.2 Divergence
There are four types of Divergence:
Uptrend Divergence is a concept in which the price makes a higher high but the Stochastic
indicator does not make a higher high indicating that there is a possibility of a price retracement or
a reversal
Downtrend Divergence is a concept in which the price makes a lower low but the Stochastic
indicator does not make a lower low indicating that there is a possibility of a price retracement or a
reversal
(Figure X below shows an example of a Downtrend Divergence)
Uptrend Continuation Divergence is a concept in which the price makes a lower high but the
Stochastic indicator does not make lower high indicating that there is a possibility that the trend will
continue upwards
Downtrend Continuation Divergence is a concept in which the price makes a higher low but the
Stochastic indicator does not make a higher low indicating that there is a possibility that the trend
will continue downwards
2.3 Big Round Number
Big Round Number or BRN for short is an even number which acts as a psychological Support and
Resistance
Examples of BRN:
JPY Pairs Other Pairs
XXX.000 X.XX000
XXX.500 X.XX500
BRN is powerful because most smart traders usually place their orders at these levels. If BRN is
somewhere near the SNR area it is a strong indicator that the area will be difficult for the market to
violate making it a strong SNR area. Figure X below shows how to use BRN to support our
technical analysis
3. Candlestick Patterns
3.1 Introduction to Candlestick Patterns
Candlestick patterns can determine the direction of the market based on the volume of buyers and
sellers. If there are more buyers than sellers, the market will go up and vice versa and the idea
here is to look at the candlestick pattern that can give an opportunity for our entry point.
3.1.1 Bearish Candlestick Patterns
Bearish candlestick patterns excel at predicting downward movements provided they are formed at
resistance
3.1.2 Bullish Candlestick Patterns
Bullish candlestick patterns excel at predicting upward movements provided they are formed at the
support
4. Risk Management
Risk management is one of the most key concepts to be successful in forex trading. It is an easy
concept to understand but very difficult to apply. Most traders have the mindset to take large risk to
aim for higher profits and it is not a very sustainable approach in the long term
As a forex trader, you should not risk more than 3% of your trading capital per trade. To have a
profitable strategy is one thing and to have a systematic risk management approach is another.
Our aim here is to trade indefinitely with capital preservation and a proper risk management to
achieve financial independence.
Manage your loses
One form of risk management is knowing when you should cut your losses. Figure out how many
pips you should set to be your stop loss, once your stop loss is set, stick with it and do not move
your stop loss farther.
Lastly the recommended stop loss is 60 pips from the entry point and the minimum rewards is 120
pips adopting the 1:2 risk reward ratio. By understanding your risk, you ensure that you will be able
to continue to trade when things do not go as planned and practicing a good risk management with
a profitable strategy can be rewarding in the long term
Calculating Lot Size
Lot size is very important and knowing what your lot size is crucial to maintaining the 3% risk.
Below shows an example of how to calculate your lot size:
Risk: 3 %
Equity (Trading Capital): $1000
Stop Loss: 60 Pips
1. Equity x Risk = Money you are willing to risk
$1000 x 3% = $30
2. Money you are willing to risk = $ Per Pip
Stop Loss in Pips
$30 = $0.50 Per Pip
60
3. Hence your risk is $0.50 per pip which is equivalent to 0.50/10 = 0.05
standard lot
REAL CHART EXAMPLES
EURJPY (25th October 2017)
1. Mark the nearest Support and Resistance, EURJPY’s current price is at Resistance area D1,
we look to find an opportunity to short
2. Check for confluences, in this case the price is currently testing the 133.000 area which is a big
round number
3. Next step is to look for a bearish candlestick pattern in H4 and we found one in the form of Doji
4. Sell EURJPY and manage your risk properly (60 Pips SL, 120 Pips Target)
USDCAD (30th October 2017)
1. Mark the nearest Support and Resistance, USDCAD’s current price is at Support area D1, we
look to find an opportunity to long
2. Check for confluences, in this case we can clearly see the price is testing the 1.20500 area
which is a big round number and we can see the pattern formed an equidistant in which the price is
at dynamic support
3. Next step is to look for a bullish candlestick pattern in H4 and we found one in the form of a
pinbar
4. Buy USDCAD and manage your risk properly
CHFJPY (2nd February 2018)
1. Price is at Resistance Daily with a confluence of BRN area 118.500, we look for a selling
opportunity
2. Bearish Candlestick formed at H4, Enter and manage your risk properly
EURNZD (11th January 2018)
1. Price is at Dynamic Support, we look for a buying opportunity
2. Uptrend Divergence occurred along with the price is at 1.66500 BRN area (Confluence)
3. Next step is to look for a candlestick pattern at H4 Timeframe, we can clearly see a Bullish
Engulfing formed, Enter the trade and manage risk properly
NZDJPY (30th January 2018)
1. Price is at RBS area, look for an opportunity to place a long trade
2. We can see a downtrend divergence and a candlestick pattern formed at H4, enter a buy
position and manage your risk properly
Terminology and Settings
Term Definition
Long Buy
Short Sell
SNR Support and Resistance
BRN Big Round Number
Stochastic Settings
%K Period - 8
%D Period - 3
Slowing: 3
MA Method: Linear Weighted
END
