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_NNForex > Core Concepts > Flashcards

Core Concepts Flashcards

1
Q

Who decides the FX rates?

A 
The banks. Interbank Market
Deutsche Bank
Citi
JP Morgan Chase
HSBC
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2
Q

How do you know where the Money in the Market is?

A

Client Sentiment Reports (e.g., IG)

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3
Q

Which are some of the popular FX indicators used, but suggested to not use them

A 
Support and Resistance lines
RSI indicator
Bollinger Bands
Stochastic oscillator
Moving Average Crossovers
Fibonacci
CCI
Japanese Candlesticks
Chart Patterns
Price Levels
Fundamental Analysis
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4
Q

How do you become a great FX trader

A
  1. Remove everything that brings your FX trading account down. Learn, improve and tweak - always improve and learn from own mistakes.
    Eliminate losses
  2. Money Management - Risk Management / Volatility
  3. Trade Management - Stop capping wins - EXIT strategy.
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5
Q

Explain Trend vs Reversal Trading

A
  • Trend trading is trading with the market direction.
  • Reversal trading is attempting to pic tops and bottoms, possibly based on over bought/over sold or support and resistance lines.
  • Reversal trading - works in stocks/equities - but in forex, there is no such concept as over bought or over sold or support and reversals.
  • Difference between trading and investing
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6
Q

Is there a risk with Reversal Trading

A

Yes - the big banks can spot these reversal signs / lines and support and resistance. They spot and plan and move price on these levels, trip stop losses and just pick the money.

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7
Q

Describe 12 technical FX tools to not use

A
  1. ADX Indicator: Average Directional Index. Volume Indicator.
  2. Trend lines. Very subjective. Banks also look at these - manipulation.
  3. Stochastics. Over bought/sold
  4. Price levels. Psychological level
  5. CCI. Commodity Chanel Indicator
  6. Support / Resistance Lines. Bank Manipulation. Stocks not for FX
  7. Japanese Candle Sticks
  8. Chart Patterns - Stocks because they are based on trader’s sentiment. But not for FX
  9. Bollinger Bands - Over bought and Sold. Stocks yes - not fx.
  10. Fibonacci.
  11. RSI. Relative Strength Index. Over bought and sold.
  12. Moving Average Cross Overs - but there is a piece to use out of the MA cross over.
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8
Q

How should you approach trading EUR/USD

A
  1. The most manipulated FX pair.
  2. Limit your risk trading this pair.
  3. Always monitor FX Calendar with this pair.
  4. Never trade during elections.
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9
Q

What is the best Time Frame to trade using NNF system

A
  1. DAILY
  2. Roughly 20 minutes before daily candle close (Spread increase once closed)
  3. Majority of indicators once backtested also shown to perform better on daily time-frame
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10
Q

What is Fundamental Analysis and should be pay attention to it

A

Fundamental Analysis concerns itself with -
Economic Landscape,Politics,Economic Indicators/Events
Fundamental Analysis works for investing, not trading.
Trading the news is very risky.
***Focus on FX calendar events.

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11
Q

How long should you Demo Trade?

A

Until you have 6 consecutive months of trading with over 6% gain.

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12
Q

Name the FX Pairs to Fully Study/Test and Master?
Why these individual currencies?
WHY?
Where are the risks on these?

A

EUR/GBP - slow, steady, not too volatile, trending often. News Neutral.
GBP/CHF - News Neutral. Steady volatility, trending often.

Why EUR - Apart from USD, Not too affected by news events. Robust due to multiple country exposure.

Why GBP - Very little correlation with other currencies. Very seldom stagnate / only horizontal movement. Very specific news events to that will affect them.

Why CHF - Very News neutral.

Do not over expose on GBP if trading on both. Rather pick one and go with it.
Do not trade these during elections.

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13
Q

What are the components of the trading system?

A
  1. ATR
  2. Baseline
  3. Confirmation Indicator
  4. Volume Indicator
  5. 2nd Confirmation Indicator
  6. Exit Indicator
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14
Q

What Makes Trends?

And why is it important?

A

Volume. You need volume to drive trend.

Without volume you will make losses - volume eliminates losses.

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15
Q

How do we use Volume in our system?

A

Exclude losses - indicator to NOT Trade / Keep us out of losing trades

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16
Q

Describe a Volume Indicator

A
  • Is there enough volume to support a trend? Yes or No?
  • You can Treat indicator as a Yes/No
  • Look for an indicator that is not lagging too much.
  • Eliminates most losses, but gets you into winning trades.
  • Your volume indicator should be treated as a “Do not trade” indicator once your CI indicator gave the green light.
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17
Q

Which are two volume indicators to ignore?

A

ROCI and ADX

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18
Q

What are the three parts to FX trading

A
  1. Technical Analysis
  2. Fundamental Analysis
  3. Sentiment
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19
Q

What should you do when SSI / Client sentiment is at extreme on a currency pair for which you are currently in the market?

A

Exit when sentiment is at extreme - too risky.

20
Q

Which types of News Events should you monitor?

A
  1. Scheduled News Events / Economic Indicators

2. Elections

21
Q

Which News Events should you monitor for USD pairs?

A
  • Interest Rates
  • Non Farm Payrolls
  • CPI
  • FOMC Federal Open Market Committee
22
Q

Which News Events should you monitor for EUR pairs?

A
  • Interest Rates

- President of the European Central Bank speech

23
Q

Which News Events should you monitor for GBP pairs?

A
  • Interest Rates ( Monetary Policy Committee votes as well)

- GDP

24
Q

Which News Events should you monitor for CAD pairs?

A
  • Interest Rates
  • Employment
  • CPI
  • Retail Sales
25
Q

Which News Events should you monitor for AUD pairs?

A
  • Interest Rates

- Employment

26
Q

Which News Events should you monitor for NZD pairs?

A
  • Interest Rate
  • GDP
  • GDT Global Dairy Trade Price Index
  • Employment
27
Q

Which News Events should you monitor for JPY pairs?

A

Interest Rates

28
Q

Which News Events should you monitor for CHF pairs?

A

Libor Rate

29
Q

How should you handle Entry/Exit when scheduled events / News are coming up?

A

2 Types of Events:

  1. Long Term Sustained, e.g., Brexit: DO NOT TRADE DURING THESE EVENTS
  2. Short Term: News Calendar. Each Day.
    - -Do not enter trades 24hours / 1 full daily candle prior to a big event coming up

If you are already in a trade and news coming up:

  1. If you are losing - exit immediately
  2. If profit < ATR - exit immediately
  3. If profit >= ATR - carry on as per normal, might tighten your stop / trailing stop if you feel (But you should have taken profit at ATR, moved your stop loss)
30
Q

AUD / NZD - Why should you trade it / How?

A

Why?

  1. Trending a lot / not too choppie
  2. Both Avoids the USD
  3. Both Risk-On currencies (Risk-on = Willing to be more riskier.)

How?

  1. News
  2. Watch Volume indicator for consolidations
  3. Do not over expose with other pairs
31
Q

What should you do during DEAD markets

A
  1. Euro VIX - Monitor
  2. Best Option - Do not Trade
  3. Test Volume indicator - did it keep you out
  4. If you are still trading say 6.5 vix - half your risk
  5. Avoid USD totally
  6. If you do trade - Take profit 100%, do not scale out.
32
Q

Trading USD/CAD

A

How

  1. News - NonFam Payroll & CAD Employment Report
  2. Do not enter trade 48 hours from big news if these two are involved (usually 24 hours)
  3. Do not try and correlate CAD with Oil

Continuation Trade USD/CAD - Weekly Chart
Example - MACD, Weekly, both lines crosses, upward direction, above zero (long)

33
Q

What is a Continuation Trade

A

It is entering a trade in a trend that is already happening.

How - MACD = both lines above 0 and the two lines cross upwards above the line (long)

34
Q

What is the structure/process of the trading day?

A
  1. 30 minute prior to Daily Close
  2. EUR FX Vix / $EVZ
  3. News Calendar (2 calendars - look both). Note down the currencies to not trade or to exit/manage
  4. Sentiments - Note the extremes down
  5. Open Charts
  6. All Active Trades [Trade Management] - Maintenance: SL / TP / Trailing Stop. Ensure everything triggered which should have triggered. Add / Move configure stops / scaling out etc. Exit Indicator.
  7. Go through and note New Trade Entries. (Baseline -> Confirmation if not, move on.)
  8. From the Entries that are good-to-go and all indicators are good to go, decide which will be entered / consider risk / exposure
  9. Scan on Weekly Continuation Trades
  10. Between 7 and 8 - Choose and Enter (Risk / SL / TP)
  11. Metals & Oil - Repeat Trade Management and Entry
  12. ETFs - Repeat Trade Management and Entry
35
Q

What to look for in a Broker

A
  1. Safety - Size / Regulated / Insurance
  2. Ease of Use - MT4 / Money in and out
  3. Customer Service
  4. Demo
    (Blue Berry Markets / IG / OANDA / Markets.com)
36
Q

GBP / USD - How to approach and why very risky pair to trade?

A
  1. Very Risky - Bank Manipulation
  2. Very News Driven / Volatile

How to Approach:

  1. Limit Risk
  2. News
  3. Favor other GBP pairs over GBP/USD
37
Q

What is FIAT Money?

A
  • Fiat money is a government-issued currency that isn’t backed by a commodity such as gold.
  • Fiat money gives central banks greater control over the economy because they can control how much money is printed.
  • Most modern paper currencies, such as the U.S. dollar, are fiat currencies.
  • One danger of fiat money is that governments will print too much of it, resulting in hyperinflation.
38
Q

How does FIAT Money Work?

A

-Fiat money only has value because the government maintains that value, or because two parties in a transaction agree on its value.
-Historically, governments would mint coins out of a valuable physical commodity, such as gold or silver, or print paper money that could be redeemed for a set amount of a physical commodity.
Fiat money is inconvertible and cannot be redeemed. The word “fiat” comes from the Latin and is often translated as the decree “it shall be” or “let it be done.”

  • Because fiat money is not linked to physical reserves, such as a national stockpile of gold or silver, it risks losing value due to inflation or even becoming worthless in the event of hyperinflation.
  • If people lose faith in a nation’s currency, the money will no longer hold value. That differs from currency backed by gold, for example; it has intrinsic value because of the demand for gold in jewelry and decoration as well as the manufacture of electronic devices, computers, and aerospace vehicles.
39
Q

What is Drawdown? What is the max that should be allowed?

A

Classic Drawdown:On average how much do you lose before making money.
Hidden Drawdown:Percentage-wise, what is the most you’ve ever lost before resuming your winning ways again?
10%

40
Q

Risk - Explain the 2% Rule

A
  1. Never risk more than 2% of trading account on any trade.
  2. You should only be exposed - at max - of 2% Long & 2% Short on the same currency at the same time.
    Example
    Long: EUR/USD 2% Risk of account
    Short: EUR/GBP 2% Risk of account
    Thus your risk is 2% long and short - thus, you are not allowed any other trade involving the EUR. Once you’ve filled the 2% in both ways then that is the max.

Example
Long: EUR/USD 1%
Long: EUR/CHF 1%
Should only have 1% in each, if you go with both - then 1% of each, thus 2% risk long in the EUR.
Now, if you close one of them, and a Continuation Trade comes along on EUR Long - Then only can you take that trade at 1%

41
Q

Elections: What is the trading strategy during or approaching elections for Non-USD Pairs (None US election)

A
  1. Shut down all trades involving that currency 4 days prior to the election, 4 trading days(eliminate weekends).
  2. Re-assess and resume trading 4 days post elections, 4 trading days after election.
42
Q

Elections: If there is a major move (open to close price - not the wick, actual open and close / candle body) - remember much larger candle bodies to the ATR will throw off all indicators using averages. ATR 14 days…

A

Wait the amount of days until averages are back in range.

43
Q

Elections: What is the trading strategy during or approaching elections for USD Pairs (US election)

A
  1. Shut down ALL trades involving ALL currencies 4 days prior to the election, 4 trading days(eliminate weekends).
  2. Re-assess and resume trading 4 days post
44
Q

Elections: What is the trading strategy on Metals, Oil, Crypto(Crypto Options) and Indices

A

Shut down all 4 days pre US election if measured in USD

These exclude buy and hold assets

45
Q

Elections: What is the trading strategy on buy and hold assets

A

Hold - ride it out.
Averaging down on buy and hold assets is a good opportunity to watch out for, e.g. - gold/bitcoin drops dramatically down, buy some additional and average your cost price down.

_NNForex (6 decks)

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