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Binary Options
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T estimonials
Mara
Here are my results for today! $12,340! for European-US session.

The loss was because I placed the trade too late and didn’t review
rules. But I only hope to do 1-2 High trades per day. I have just
seen a friend of mind lose 20K in a couple of minutes. It was a
wake up call. One of the things I have learnt is that you have to be
very patient to seek for the trade.
Mara Sorm
Robert
Last night I made what I thought was a mistaken trade, I wanted

to place a trade for $37 but instead didn’t clear the $100 that was
in the entry box and ended up making a $1037 trade. I followed
the entry rules and signals sent yesterday and ended up making
a lot for the day. More than what I wanted to make. Slowly and
surely my confidetx:e is rising.
Robert Mashilo Kligoeng

Amanda
I just also wanted to let you know I really received major help
from the videos in the member area and thought it was great you
guys shared the one that Curtis did. I took myself back to my
college days... I sat myself down, focused, hand wrote the trade
entry rules, reviewed them, reviewed the videos, and I am on
track. Imagine that, studying works haha. It is like you said, it’s up
to us to take responsibility for where we want to be.
Amanda Harman
Lee
I have been a member for less than one month and I can already
see the benefits of being a member! The signals I have received
have been VERY beneficial! The win rate is ASTOUNDING
and I can hardly believe this is real.The signals are delivered
in a MORE THAN timely manner to your email inbox. The
signals are very accurate as well. They are very clear to read and
understand as well as easy to implement.
Lee Woodsum
Chris
Since starting 3 months ago my account has more than trebled,

on just placing trades on the indices. Imagine what my account
would look like if I was to trade the forex as well? Signals that
are sent out are clear & easy to understand even for someone like
myself who has very little trading knowledge. I can’t thank The
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Antwan
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Anita
Just wanted to say thank you for all your help. You should be
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real and proven results. Thanks again.
Anita K
Dan
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Jane
Just wanted to drop you a line and tell you that the profits from
our last 4 days trading has paid off my Binary Options Experts
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I had $100 to spare PROFIT! Awesome work guys, can’t thank
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Liz
On every occasion they have treated me with patience and

understanding, answering all my questions and concerns promptly
and concisely. I could not recommend their business strongly
enough and look forward to working with them in the future as
they help me build my growing pottfolio.
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Dominic
I have lost over $250,000 of my own funds attempting to trade

for myself ! The Binary Options Experts have given me the
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experienced trading previously. Trading with The Binary Options
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Dominic M
Risk Disclosure
Binary Options carries a risk to your capital and you may lose all, but not more
than, your initial stake. This may not be suitable for everyone. Ensure that you fully
understand the risks involved prior to trading and seek independent financial advice
if you have any doubt in the suitability of any type of speculation. Only ever speculate
with money you can afford to lose.
The Binary Options Experts (a division of Profit Pipeline Systems Corp.), its products
and representatives do not provide individual investment advice. Therefore any
information provided by the company’s products or representatives or publicity material
are not to be read or taken as any form of trading advice nor a solicitation to trade and
is designed for educational purposes only.
No guarantee or warranty of future profitability can or has been made. The use of this
product is purely at the member’s own risk. Past performance is not necessarily a guide to
future profitability.
All rights reserved. No part of this publication may be reproduced in any form or by
any means without the prior permission in writing of The Binary Options Experts.
Please note it is our intention to be as accurate in fact, detail and comment as

possible. However, the publishers and their representatives cannot be held responsible
for any error in detail, accuracy or judgement whatsoever. The book is sold on this
understanding.
C ontents
Chapter 1: Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Chapter 2: Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Chapter 3: Introduction to the Markets . . . . . . . . . . . . . . . . . . . . . 19
Chapter 4: Introduction to Bet On Markets . . . . . . . . . . . . . . . . . . 27
Chapter 5: Introducing MetaTrader . . . . . . . . . . . . . . . . . . . . . . . . 35
Chapter 6: Introduction to Charting . . . . . . . . . . . . . . . . . . . . . . . . 45
Chapter 7: Market Direction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Chapter 8a: Introducing Divergence . . . . . . . . . . . . . . . . . . . . . . . . . 55
Chapter 8b: Regular Divergence . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Chapter 8c: Hidden Divergence . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Chapter 8d: Confirming Divergences . . . . . . . . . . . . . . . . . . . . . . . . 85
Chapter 9: Introducing Support and Resistance . . . . . . . . . . . . . . . 95
Chapter 9a: Previous Market “Swing Zones” . . . . . . . . . . . . . . . . . 101
Chapter 9b: Trend Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Chapter 9c: Moving Averages . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Chapter 9d: Pivot Points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Chapter 9e: Fibonacci Retracements . . . . . . . . . . . . . . . . . . . . . . . 125
Chapter 9f: Fibonacci Extensions . . . . . . . . . . . . . . . . . . . . . . . . . 137
Chapter 10: Putting it all Together . . . . . . . . . . . . . . . . . . . . . . . . . 143
Chapter 11: Using the Flowcharts . . . . . . . . . . . . . . . . . . . . . . . . . 153
Chapter 12: Support/Resistance Confluences . . . . . . . . . . . . . . . . . 163
Chapter 13: Placing No-touch Barriers . . . . . . . . . . . . . . . . . . . . . 171
Chapter 14: Money Management . . . . . . . . . . . . . . . . . . . . . . . . . . 179
Chapter 15: When Not to Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
Chapter 16: Trading Psychology . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
Chapter 17: SharpReader . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197
Chapter 18: Keeping a Trade Log . . . . . . . . . . . . . . . . . . . . . . . . . . 199
Chapter 19: Final Thoughts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
C hapter 1
Introduction
W hat we are aiming to introduce to you in this book is a successful

methodology for making regular profits from the financial
markets, with as little as a few minutes per day of market analysis.
As you progress through the book, we will guide you through
everything you need to know in order to become a successful Binary
Options trader. Even if you have never traded before and you feel as
though you may not know the first thing about how to make money
from the financial markets, we are confident that by the end of this book
you will be ready to do just that!
You may never have heard of Binary Options before, or you may only
have heard of it in relation to vanilla options. It’s definitely one of the
newest investment and/or trading vehicles in existence.
When most people think of the financial markets, they view it in
terms of perhaps investing in the stock market, or possibly arbitrage,
which is also becoming a very popular method of getting involved in the
markets.
Both of those approaches require a great deal of time if you are to be
successful. Many people, who have regular jobs, simply can’t commit the
hours that are necessary in order to study and learn the correct methods
and trading styles, or to do the research that’s necessary for making good
investment decisions.
Binary Options, and the methods of approaching it that we will
teach you, are different. With the methods you will learn in this book,
you will be able to analyse the markets very quickly each day; in the
mornings before you go to work and even on your lunch break. We will
be teaching you a trading method which means you don’t have to be at
the screen every minute of the day waiting for an opportunity to come
along.
11
Introduction
Naturally, the more time you spend with the markets the better, but
one of the main reasons we created this trading book was to give people
an opportunity to enter the world of the financial markets without it
interfering in their everyday lives.
The other great advantage of binary options trading is the ability to
be in complete control of the risk element. With every binary options
trade, you will know before you even get into the trade exactly how much
you will make if you’re correct, and exactly how much you stand to lose if
you’re wrong. With that information you can plan your risk management
strategy accordingly. You’ll never be overexposed to the market and
there is absolutely no danger at all of your account being decimated by
a sudden sharp move. This means that anyone, with any level of capital,
can get started.
We trade professionally using the exact methods you will learn in
this book, and we are aiming to give you the knowledge you need to
one day enjoy a professional trading career of your own.
On that note, we’d like to tell you a bit about ourselves, why we do what
we do, and what we are now offering to you through this book.
We trade professionally, and have been actively trading for many
years. Trading professionally for yourself is, as far as we’re concerned,
absolutely the best job in the world. There are no bosses; there are no
clients; and there are very few overheads. As a professional trader you
have complete freedom and flexibility.
We come from a professional trading background. We learned some
of the most effective trading techniques in the world while working in
this environment, but after even just a few years the long hours and
stress began to take their toll on us and we decided to strike out on our
own.
We are fortunate to live in an era when this is even possible.
Throughout much of the history of financial trading, the only way
to make it a profession was to work for a bank or a major financial
institution, or failing that, at least have access to vast amounts of capital
beyond the reach of most ordinary people.
All this has changed over the last decade or so. With the rise of faster
internet connections and new technologies, it’s now possible for anyone
to trade the financial markets using just their home computer. When we
realised this was possible, it was, for us, the obvious next step.
12
Binary Options Profit Pipeline
It’s no secret that there are advantages to the city trader lifestyle that
you don’t get working for yourself—the main one of course being the
bonuses!
But, we thought, what good is a city trader’s income if you never
have the time or the freedom to enjoy it? We saw some of our friends in
the city reach “burnout” point in their early 30s, and decided that that
wasn’t what we wanted for ourselves.
As soon as we got ourselves set up at home and began applying some
of the methods we knew from our City experience, we never looked back.
We now have a job which we can do from a laptop; from our living room,
from the garden, even abroad. Anywhere in the world in fact!
We truly believe that the methods you will learn in this book have the
potential to give you the lifestyle we currently enjoy ourselves. Not right
away of course—as with virtually everything in life it’s best that you take
things slowly and become truly comfortable and confident in what you’re
doing before you even begin to think about making a career of it—but
that’s where the great advantage of this method is to be found. You can
learn everything in this book around your existing commitments.
Before you move on and begin learning, there are a few points to
be made…
First of all, we emphasise that you should take things slowly when
you’re learning. Don’t skip ahead or be in a rush, because that’s where
things will go wrong. This book is arranged in a very logical way—we
introduce you to the different “pieces of the puzzle” as we go through
the chapters, and then towards the end of the book we show you how
to put those pieces together into a complete approach to trading. If you
skip ahead you’ll find you may well struggle when you get to some of the
later chapters. Go through each chapter one by one and make sure you
understand completely before moving on.
In conclusion, we look fmward to helping you understand the
concepts that are contained in this book, and using those concepts to
start taking profits out of the fmancial markets!
13
C hapter 2
Risk
S peculating on the movement of the financial markets is something

that contains inherent risk.
There are plenty of opportunities to make money if you can make
correct judgements, but there are just as many opportunities to lose
money if you get it wrong. It’s important to understand that there are no
guarantees in any form of financial trading!
The first thing you need to be absolutely clear on is that you should
NEVER ever be trading with money that you cannot afford to lose!
Not only is it simple common sense not to risk money you need
for other purposes, but doing so can also adversely affect your trading
performance by impacting on your psychological approach to trading.
It creates fear of loss, which in turn causes you to make poor trading
decisions based on emotion rather than on information.
As long as you understand that risk of loss is part of the trading
game, and that as long as you manage your money accordingly and don’t
over-extend yourself, then you’re on your way to becoming a successful
trader.
The second aspect of risk that you need to understand is the idea of
risk/reward ratios. A risk/reward ratio, for those that are very new to
this, is simply the amount of money that you risk on an individual trade,
compared to the amount that you could potentially gain on it. One of
the key rules of “traditional” types of trading, such as through a broker
account or spread betting, is that you should never risk more on a trade
than you stand to gain, and this is very good advice.
In one of these “traditional” types of trade, the amount of money
you can win or lose depends entirely on the amount that the market
moves against you or in your favour, so in order to be successful you
have to always position yourself in the market at a point where the odds
15
Risk
are that the market will move further in your favour than it could move
against you. This is something that’s very difficult to achieve consistently.
With Binary Options trading however, we are not actually
particularly interested in how far the market moves in our favour or
against us. Naturally, we always prefer to see the market move in our
favour, but it’s not an essential part of successful binary options trading.
We’re going to be doing a type of trading where we can win even
when the market moves against us.
With binary options trading, we are purely interested in the
probability of a particular event occurring, or not occurring. Because we
are thinking purely about probabilities, this allows us to think about risk
in a different way.
In the type of trading we’ll be showing you as you go through this
book, you’ll find that in the vast majority of trades we’ll be taking, we
risk more than we stand to gain. This means that if a trade loses, we will
lose more money than we stood to gain had the trade been successful.
That might sound slightly strange to you at this stage, but read on
and things will become clearer!
Take a look at this semi-hypothetical example from the field of
sports:
FA Cup 4th Round

Liverpool vs. Havant & Waterlooville (H&W)
This match actually occurred in 2008. The fixture pitted the multiple
English and European Champions, a team made up of some of the top
players in the World, against a part-time team from five divisions below,
made up of plumbers, postmen, taxi drivers and more. Not only that, but
the game was to be played at Liverpool’s home ground, giving them even
more of an advantage. The chances of H&W winning this game were tiny.
But what if you could have gone into a bookmaker’s and placed a bet
that paid out a profit as long as H&W didn’t win?
If Liverpool won, you’d make money. Even if the match ended in a
draw, you’d make money. They only way you’d lose money would be if the
rank outsiders actually managed to win the match!
It’s unlikely you would have been able to find a bookmaker willing
to offer you this bet, because the odds would be so stacked in your
favour!
16
Now here’s the hypothetical aspect: Imagine if this fixture was played
100 Saturdays in a row, and every Saturday, before the match, you could
place a bet that says “H&W won’t win”.
It’s likely that even if you found a bookmaker willing to offer you
this bet, they would have offered you incredibly short odds, perhaps
around “1/15”, which means that for every $15 you staked on H&W
not winning, you’d earn a profit of $1 if they did indeed fail to win.
Conversely, if H&W did manage to win, you’d lose your $15 stake.
So imagine if the game was played 100 times in a row, and every
time, you staked $1,500 that H&W would not win the match at odds
of 1/15. This means that every time the match ended as either a draw or
a Liverpool win, you’d get your $1,500 stake back, plus a profit of $100.
But if H&W managed to win, you’d lose your $1,500 stake.
It’s entirely possible, highly likely even, that the match could be
played 100 times in a row and H&W wouldn’t win a single one, such
is the difference in ability between the two teams. But imagine the
following:
Ninety-eight times out of 100 the match ends as either a Liverpool
win or a draw. Two times out of 100 H&W manage to win.
With the bets you would have been making, this means that on 98
occasions, you’d make a profit of $100, while on two occasions you’d lose
your $1,500 stake.
Do the maths:
98 x $100 = $9,800
2 x$-1,500 = $-3,000
Net Profit after 100 matches = $6,800!!!
Even though you were risking more than you stood to gain on each
bet, they were still good bets because the odds were so strongly in your
favour.
Sadly, these opportunities simply don’t exist in sports. For one thing
matches with such a bias in the probable outcome don’t come around too
often, and when they do they’re never played 100 times in a row! Even
if they were, there’s no bookmaker on Earth who would let you bet this
way, because the odds would be too stacked in the favour of those placing
the bet.
17
Risk
But opportunities with this kind of bias not only exist in the financial
markets, they occur over and over again! We’re going to be teaching you
to find the financial equivalents of this kind of trade—opportunities
where the odds are so strongly in our favour that it’s acceptable to risk
more than our potential gain.
The reason why Binary Options brokers will let you place these
high-probability trades while sporting bookmakers won’t is actually quite
simple.
With the sporting example above, it would have been very easy for
anyone to figure out that H&W would have very little chance of beating
Liverpool.
Even if you didn’t know the first thing about football you could
have learned all you needed to know just by picking up a newspaper.
Therefore, to offer bets that any member of the general public can easily
profit from is quite simply bad business for sporting bookmakers.
On the financial markets though, you do need specific knowledge
in order to profit from the high-probability trades, and indeed to even
spot them in the first place. The vast majority of people don’t have this
knowledge, and never will, so the brokers are taking acceptable risks by
offering the high-probability trades, because only a small minority of
their clients will be able to spot them.
In this book our aim is to teach you to identify these high-
probability trades that aren’t necessarily obvious to others who don’t
have the correct training.
While on the surface this approach to trading may look risky, the
truth is that if you study all the materials in this book and apply them
correctly, you will be putting the odds massively in your favour on each
trade while taking negligible risks, just as you would have been had you
been able to place bets on 100 consecutive Liverpool v H&W games.
That’s the key to this style of trading.
18
C hapter 3
Introduction
to the Markets
A
item.
financial market is like any other marketplace. It is a place
where buyers and sellers convene to set the value of a particular
Within a financial market, prices fluctuate constantly, and these

fluctuations are caused by changes in the balance of supply and
demand—meaning of the weight of buying at any given moment versus
the weight of selling at any given moment.
When supply and demand are in equal measure, things are in
absolute equilibrium, and market prices stand still. This rarely lasts for
very long however, and sooner or later, one will start to outstrip the other.
Let’s take a look at an example of supply and demand.
Imagine that a new University study announces that oranges are the
“new super-fruit”. This results in a sudden buying frenzy of oranges, an
increase in demand, to the point where the supply can’t keep up.
With oranges getting more and more scarce, the demand is greater
than the supply. As a result of this, oranges become more valuable, and
the price of an orange rises. It continues to do so, as long as people still
believe they’re worth buying at the increased prices.
Eventually, the price of oranges gets so high that people think they’re
no longer good value. People who bought oranges as an investment and
hoarded hundreds of thousands of them might start to think that now is
the time to cash in, to sell their oranges for a massive profit at this price
because it seems they’re not going any higher.
The problem is that nobody wants to buy at the moment. There’s now
plenty of supply of oranges but no demand, because the price has gone too high.
19
Introduction to the Markets
This means that in order for demand to come back in to the market, the
prices have to come down again to the point where people once again
think they’re good value.
This means that the price of oranges starts to fall again, and it will
continue to do so as long as there is more supply than demand. Eventually it
will get to a point where people think oranges are once again good value,
and they start buying again, and the whole process repeats itself again.
The market is a constant battle between supply and demand—
sellers and buyers.
The key to being successful in the financial markets is to be able to
identify, either ahead of time, or right at the time, the point at which the
market changes from being a selling market to a buying market, or vice
versa.
As you go through this book, you will learn how to accurately
identify these points.
So, what kinds of things are traded in financial markets?
First of all, the ones you are probably most familiar with are
company shares. Company shares are traded on what is known as the
stock market and their prices tend to rise and fall depending on the
company’s performance. When a company is doing well, demand for its
shares increases, and so does their value, as the supply diminishes. When
a company is doing badly, its share price falls because the demand for the
shares is lessened, while supply increases.
Company shares are also grouped together in what are known as
stock indices—such as the FTSE 100 (London), or the Dow Jones
Index (New York).
Stock indices are effectively a combination of all share prices listed
within the index, and as a result they give an overall view of how a
country’s economy is faring.
Usable items such as gold, oil, copper, rubber, orange juice, coffee and
many more, are known as commodities. There is no single commodity
market however—rather, each item has its price set on its own market.
This means that there is a market to set the price of gold, another to set
the price of oil, and so on.
The next major group of markets is known as the Currency Market,
or Foreign Exchange Market, which can be shortened to either the
FOREX Market, or just the FX Market.
20
The term “currency market” is, like the term “commodity market”,
actually an umbrella term for a group of markets. The currency market
includes hundreds of separate markets, because each individual market
is used to define the value of one currency against one other currency.
This means that there’s a separate market for setting the value of pounds
against Dollars, another to set the value of pounds against euros, another
to set the value of euros against yen, and so on.
There are hundreds of currency markets in total, but as we go through
this book we’re going to be focusing on just a few of them. We’re going
to focus on most of the bigger, more active currency markets.
Why do we choose to trade the currency market?
Firstly, and this may come as a surprise to you, the currency market
is the world’s biggest financial market by a long, long way. It absolutely
dwarfs the stock market or the commodity market. The average DAILY
turnover in the currency markets is over four trillion dollars. This means
that four trillion dollars of money is traded every single day across the
many currency markets.
The sheer amount of activity in the currency market means that is a
very liquid market. The term ‘liquidity’ means that the market functions
smoothly. In any transaction in any financial market, you need someone
to take the “other side of your trade”.
This means that if I’m buying, then someone else is selling to me,
and if I’m selling, someone else is buying from me. There is so much
activity in the currency market that you can almost always find someone
else to take the “other side” of your trade, which results in a smooth and
well-functioning market.
When there’s very little liquidity in a financial market, you tend to
find that long periods of inactivity are punctuated by sudden, sharp price
movements, which can make good trading somewhat difficult. This is
not a problem in the currency market.
The next great advantage to trading the currency market is that it
runs for 24 hours, five days a week. From Sunday night through until
Friday night, the market is constantly open. The main advantage of this,
for us as traders, is that it means that you can, to a certain extent, pick
and choose your trading hours.
If you are studying this book around another job, you might find that
you want to get into the markets when you get home from work, and this
is possible with the currency market because it will still be open.
21
Some other markets have opening and closing hours during the
week. For example, the FTSE 100 Stock Index is open only between
8.30am and 4.30pm every day. This obviously creates a problem if you
are unable to trade until the evening as you can’t trade on a market
when it is closed. Again, this is not a problem with the currency
market.
Understanding currency quotes
When trading the currency market, the most basic piece of information
available is the current market rate—also known as the quote. You need
to be able to quickly and easily read currency quotes and interpret what
they mean.
In any currency quote, you’ll see six letters to start with. The first
three letters represent the first currency that makes up the quote, and the
second three letters represent the second currency involved.
Remember—each individual currency market defines the value of
one currency against one other currency. This means that they often get
referred to as “currency pairs” which is another term you’ll be hearing
regularly.
Each currency has its own specific three-letter “symbol”, so you can
always know which currencies are involved in the quote you are looking
at. The major currencies of the world—the ones we will be trading—
have their three-letter symbols listed in the table below.
Currency Symbol
Australian Dollar AUD
Canadian Dollar CAD
Swiss Franc CHF
Euro EUR
British Pound GBP
Japanese Yen JPY
New Zealand Dollar NZD
Swedish Kronor SEK
US Dollar USD
22
Look at these examples of currency pairs:
1) GBP/USD = British Pounds against US Dollars

2) EUR/JPY = Euros against Japanese Yen
3) USD/CHF= US Dollars against Swiss Francs
Now look at these examples of currency quotes:
1) GBP/USD = 1.8755
2) EUR/JPY = 161.25
3) USD/CHF= 1.0877
The next key concept in understanding currency quotes is to be able

to determine what these numbers mean.
The currency listed on the left of the quote is referred to as the “base
currency”, and in any currency quote the base currency is always equal
to 1. The currency on the right of the quote is the currency that’s being
compared to the base currency.
So, in those three examples shown above, what the numbers are
telling us is:
1) It takes 1.8755 US Dollars to equal 1 British Pound

2) It takes 161.25 Japanese Yen to equal 1 Euro
3) It takes 1.0877 Swiss Francs to equal 1 US Dollar
It may take a while to commit to memory both the symbol

abbreviations and the way in which the quotes are structured, but keep
practising and before long you’ll be able to read a whole list of currency
quotes at a glance and get a full picture of what the markets are doing!
The next thing to learn is how the movement of a currency is
represented in its quotes. Currency quotes change almost constantly, in
incremental values. During the busier European and US trading hours,
the quotes change almost every second!
The movement of a currency pair can be described in increments
called either “pips” or “points”—these two terms are interchangeable
and mean the same thing—which one you use comes down to personal
preference, and you’ll no doubt hear both as you learn more.
23
(Note—We will use the term “points” throughout the rest of this guide)
Let’s have a look at some basic examples of how movement in points
is shown within currency quotes:
If GBP/USD moves from 1.8750 to 1.8751, that is

a move of 1 point
a move of 10 points
a move of 100 points
a move of 1000 points
The simple rule to understanding what equates to a point’s worth of

movement is this: In nearly all currency pairs, the final digit of the quote
equates to one point.
Most currencies are quoted in four decimal places, but some, such as
EUR/JPY or USD/JPY are quoted in two decimal places; but regardless,
the final decimal place corresponds to one point. One increment of that
digit corresponds to one point of market movement.
Some key trading terms
As you proceed through the book, you are likely to hear a few terms that
have specific meanings within the context of financial trading. These
terms are:
Bull and Bear (or Bullish/Bearish)

+
Long or Short
What do these terms mean?

“Bull/bear” or “bullish/bearish” effectively describes your view of the
market. If you are bullish on a market, that means you expect the market
to rise. If you’re bearish, you expect the market to move down. This
means that depending on your view of the market, you can be described
as either a bull or a bear.
24
Similarly, “long” and “short” describe your actual positions. These

terms actually apply more to traditional types of trading than they do to
Binary Options, but they are still worth knowing.
If a trader enters a long position that means he or she has “bought”
that market in the expectation of it moving up. But if a trader takes
a short position that means that they have “sold” the market in the
expectation that it will move down.
25
C hapter 4
Introduction to
Bet On Markets
T his chapter will be your introduction to the Bet On Markets

(BOM), and by extension of that, it’s also going to serve as an
introduction to Binary Options trading, and what it’s all about.
That’s where we’re going to start in fact—by explaining the concepts
behind Binary Options, how it works and how it differs from more
traditional types of trading. We’ll then move on to looking at the Bet
On Markets website itself, we’ll go through all the features of that and
explain some of the different types of trades that are available.
First of all, there’s one thing we need to make clear. We are not
actually trading directly on the markets ourselves, we’re simply trading
on the movements that are caused by the millions of banks, institutions
and individuals worldwide who are actually trading.
When you’re taking positions with BOM you’re not actually
physically buying and selling any currencies, or shares or commodities.
You’re not directly involved in the market—you’re just speculating on its
price movements.
If you want to think of it again in terms of a sports analogy—when
you bet on a horse race, you’re simply betting on the outcome of the
race, you’re not participating in it directly. You’re just wagering on what
might happen, against the odds of certain outcomes given to you by a
bookmaker. That’s what we’re doing.
But this is no bad thing! Binary Options trading, has a number of
advantages. The main one that you’ll be interested in is of course the fact
that under current legislation, it’s possible that the profits earned from
Binary Options trading are tax free! You may pay absolutely no tax on
the profits you earn from Bet On Markets, even if you get to the point
27
Introduction to Bet On Markets
where you’re doing it for a living. This could change in the future so
please consult a tax advisor in this regard.
The second great advantage of binary options trading is the flexibility
it gives you to take different types of views on the markets that are simply
not possible with more traditional trading methods.
In a more traditional type of trade, you can make money in just two
ways. You can buy a market, and if it goes up, you make money. Or you
can sell a market, and if it goes down, you make money. But that’s it—
they are the only ways you can profit in a traditional type of trade. But
as we covered in Chapter 2, the profits that you can make in either of
those situations depend entirely on how far the market moves, because in
a traditional type of trade, you make a certain amount of money for each
point that the market moves in your favour. This means that in order to
be really successful, you have to find the trades where the market is likely
to move a long way in your favour, and trades like that can be quite hard
to find.
With Binary Options trading, you can take all sorts of different views
on the market. You place a trade which states “I want to make money if
the market touches a certain level in the next week”; you can also place a
trade which states “I want to make money if the market doesn’t touch a
certain level in the next 2 weeks”. With Binary Options trading, there is
a lot more variety in the types of positions you can take on the markets.
It is a generally accepted statistic that financial markets spend
roughly 70% of the time trading in small, awkward ranges, and only 30%
of the time moving in strong directional trends. With traditional types
of trading it’s very difficult to make good profits in small range markets,
but with Binary Options trading, you can make money in any market
condition because there’s a type of trade to suit your viewpoint.
When you place a Binary Options trade, it costs a certain amount
to place. This, effectively, is your margin. If the trade loses—if your
prediction doesn’t come true—you lose your margin. But if the trade
wins, you get your margin back plus the agreed profits on top of that.
We use the term “agreed profits” because before you even commit to the
trade, the BetOnMarkets website will tell you what size your margin has
to be to achieve a certain level of profit, providing your prediction does
come true. These figures vary depending on how likely the trade is to be
successful.
An example binary options trade:
28
• “I wish to profit $1,000 if GBP/USD is higher than 1.9500 in

10 days time.”
• The trade costs $650.
• If the trade loses, you lose your $650 stake.
• If the trade wins, you win $1,000, which is your $650 stake
returned, plus $350 profit.
The ability to set all the parameters before committing to the trade
is a great advantage of Binary Options trading. If you wanted to risk less
than $650 on the above trade, you could have halved the potential profit,
therefore halving the margin that you would have had to put up.
You can adjust all the parameters to suit your risk level, and your
capital level. Before you even place the trade, you know exactly the
maximum you can stand to gain or lose. This helps in planning your
money management strategies and gives you the peace of mind of
knowing that even if a trade goes wrong, you cannot lose any more than
you’ve placed, which takes a lot of the fear element out of your trading.
The Bet On Markets Website
29
First of all, let’s take a look at some background information about Bet
On Markets, as it’s important to know about the company who will be
holding your account when you move on to trading live money.
Bet On Markets is owned by Regent Markets, a very large,
international financial group with offices in numerous locations around
the world and a turnover of over $100m per year. Regent Markets is
based on the Isle of Man, and is fully authorised and regulated by the
Isle of Man Gambling Supervision Commission. You can actually view
their gambling licence on the Bet On Markets website itself.
We have personally been trading with Bet On Markets for over four
years and we’ve never found them to be anything less than fair in their
dealings, helpful in their approach and very prompt when it comes to the
subject of withdrawing profits back into one’s bank account.
Bet On Markets are the leading financial bookmaker in the world at
the moment, and you can have as much confidence in betting through
them as you would with any of the more traditional brokers such as
FXCM or FOREX.COM.
The different types of trades
When you begin looking at the trades available at the Bet On Markets
website, you’ll see that there are a number of different types. There are
trades which are classed as “double” trades, trades which are classed as
“expiry” trades and a third category called “boundary” trades.
Rise/Fall trades
Rise/Fall trades are so-called because in every single one of these trades,
the payout is twice the amount of the investment. If the stake is $50,
the payout is $100*. That means that the final profit on a successful
trade is $50*. Remember—the final profit is the payout minus the initial
investment.
* Less broker commissions.
30
Higher/Lower trades
An higher/lower trade allows you to specify, depending on the type of

trade, certain levels or areas in the market where you would expect the
market to be in a given time period. It’s not important what the market
does while the trade is running—the only thing that counts is whether
or not the market is within the parameters you set at the time the trade
expires. The investment required for an expiry trade, and the potential
profit, vary depending on how likely the trade is to succeed—the higher
the probability of success on a trade, the costlier it is to place, and the
lower the return.
Touch/No Touch trades
A touch/no touch trade allows you to specify, depending on the type of

trade, certain levels that the market must either touch, or not touch at all
while the trade is running. With the expiry trade, it doesn’t matter what
the market does while the trade is running, as long as it expires within
the set parameters. With boundary trade however, we’re specifying what
the market must do, or not do while the trade is running.
The type of trade we will be focusing on throughout this course is
the “No-Touch” trade.
The No-Touch trade
This is the type of trade that we will be focusing on in this book, so

let’s take a more detailed look at it. It’s fairly self-explanatory, but with a
31
no-touch bet we are specifying a certain level in the market and a certain
time period. If the market doesn’t touch that level within the specified
time period, the bet will be a winner. If it does touch while the bet is
running, then the trade will be a loser.
This is our favourite type of trade at Bet On Markets. We have been
extremely successful with it, and we’re going to teach you to be successful with
it too!
Just as with the higher/lower trades, the investment required for a
no-touch trade, and the potential profit, vary depending on how likely
the trade is to succeed. The further from the current market level you
place your barrier, or the shorter the duration of the trade, the more likely
the trade is to succeed—therefore the investment required increases and
the payout decreases.
Placing a trade and using the portfolio page
Once you have entered the parameters for your trade, actually placing it
on your account is a very simple one-click process—just press the “buy
this bet” button over on the right-hand side of the screen:
Once you have placed a trade on your account, you can monitor it
using the “portfolio” page. This is the section of the website where you
can look at your current open trades, manage them, and keep up to date
with how your account is faring.
32
The portfolio allows you to see the details of each trade you
currently have running—the price at which you bought the trade (your
investment), and the current price at which Bet On Markets will let you
sell the trade back if you no longer wish to keep it.
This is quite an important concept. You can sell your trade back to Bet
On Markets at any point; there’s no need to be tied to a position you no longer
want and although we normally run our trades until the expiry date in order
to claim the maximum payout, it is possible to exit a trade whenever you like.
This is handy in rare cases where a sudden unforeseen event might make you
reassess the chances of the trade being successful.
The sale price of a trade fluctuates constantly. If the market on
which you’ve placed your trade starts to move in your favour, further and
further away from the no-touch barrier you specified, your sale price will
increase, and if the market moves against you, towards your no-touch
barrier, your sale price will drop.
At the bottom is the “portfolio information” section. These details
include your current account balance and your current level of exposure
to the market—how much capital you have tied up in currently active
trades. This information is useful when you come to determining how
much capital to use on an individual trade, which we will be covering in
detail in a later chapter.
33
C hapter 5
Introducing MetaTrader
M etaTrader is a software tool we can use to analyse financial markets.

This is because it allows us to create “charts” of the markets so we
can get a visual representation of how the market is moving now, and
how it moved in the past.
It is an absolutely fantastic and totally free program—there are no
installation fees, no subscription fees, and no hidden costs.
MetaTrader is a complete financial program, in that it provides us
with all the tools we need to both analyse and trade the markets if you
wish. We’re not going to be using it for actual trading, because we’ll be
doing our trading through Binary Options platforms such as Bet On
Markets, but what we will be using are the analysis tools that come with
the program.
MetaTrader gives us access to up-to-the-second live data feeds from
the world’s financial markets. Through MetaTrader we have access to
exactly the same live market data that all the major banks, institutions
and professionals do, so we can analyse the markets in real-time as
they’re moving.
How to install and set up MetaTrader
This trading platform offers one of the best opportunities for forex
forecasting that include: all standard indicators, custom indicators,
trading tools allowing you to create and add your own trading indicators.
Installation Instructions MT
First of all, download the trading platform. You can do that with any
broker.
35
Install trading platform with clicking the “Install button”.

Continue to step by step.
Choose installation language.
36
37
Please closely read the license agreement. Do you accept all the terms
of the following license agreement? Click “YES”
Then you should select the destination folder where you want to
install Metatrader. If you want to install to a different location, click
Browse and select another folder.
38
39
When installation is finished, click the “Launch Metatrader4”

button to start using Metatrader! The application window should appear
automatically.
Now, open an account for practice.
40
Look for “File” at the top and click “Open an account”. The “Personal
detail” window should appear.
Fill out all the following fields: Name, Country, State, City, Address,
Phone, email, select Account type, Currency, and you select sum of
deposit and leverage as well. And Click “I agree to subscribe to your
newsletters”
Now, select a more suitable trading server. Click Scan.
41
That’s all. Registration is complete. Now you have an account for

trading practice. Your user ID and password will automatically be saved
in the platform.
Any Problems?
If you ran into problems during install, click the ‘Download’ button
to start the install process again. In the Market Watch window, select
“Symbols”. In the following box, expand the list marked “FOREX” and
select the following markets:
AUDJPY
AUDUSD
EURCHF
EURGBP
EURJPY
EURSEK
EURUSD
GBPJPY
GBPUSD
NZDUSD
USDCAD
USDCHF
USDJPY
42
This will load the 13 currency markets that we will be trading into
the market watch window. You are now ready to start creating charts of
the markets!
Go to the “File” menu, and select “New Chart”. Open a chart of the
currency pair of your choice. Repeat the process twice more, then go to
the “Window” menu and select “Tile Vertically”.
Right-click on each chart and select “Template” followed by the
blank template in the colour of your choice.
MetaTrader basics
To load a different currency into an existing chart, simply click and drag
your chosen currency’s symbol from the “Market Watch” window on to
the chart.
You can zoom in and out of each chart using the magnifying glass
icons located on the toolbar at the top.
Auto scroll makes sure the chart always snaps to the current area
whenever a market makes a point of movement. If you wish to turn this
feature off, allowing you to review past data, you can turn Auto scroll off
by de-selecting the green arrow button on the toolbar at the top.
Chart shift creates some space on the chart to the right of the live
market. You can turn this feature on by selecting the red arrow button on
the toolbar at the top.
43
C hapter 6
Introduction to Charting
Fundamental analysis—to use it or not?
F inancial market analysis can be broken down into two broad “fields”.
The first is fundamental analysis, and the second is technical analysis.
Fundamental analysis is concerned with the study of economic
fundamentals in order to predict where market rates might be going.
For example, if you’re looking to invest in a certain company’s stock,
you might well look at the company’s underlying fundamentals. How are
their sales doing? Are they expanding into new markets? Do they have
new products? Are the directors buying or selling shares?
Similarly, with currencies, you might look to certain economic factors
to determine whether or not a currency is likely to rise or fall. You might
examine the interest rate outlook, look at how the retail sector is faring,
whether unemployment is going up or down, or if consumer confidence
is rising or falling. There are many different fundamental factors you can
study in order to figure out how a country’s economy is doing and how it
might fare in the future, and what resultant effect that would have on the
country’s currency.
There’s no doubt that fundamental analysis is a valid approach to
the markets. Major banks and financial institutions employ hundreds of
analysts on substantial salaries to figure out these economic factors, and
that’s why when you switch on a financial channel such as Bloomberg, it’s
often a continuous stream of “talking heads” discussing various economic
factors and what they might mean for certain markets.
The problem with fundamental analysis is that it’s such an enormous
field of study, and there are so many different economic factors to
consider, that it can be very confusing and difficult to accurately figure
things out. A certain piece of economic data might appear to mean one
45
thing on the surface but once you dig into the numbers, it can often
mean something completely different. This means that you might end
up taking a trade based on one view of the market, which can very
quickly go against you if the market changes its interpretation of the
fundamental data.
It’s our view that fundamental analysis is something that’s best left
to the banks and institutions of the world! That said, however, later on in
the book you will learn about a small computer program you can use in
order to have lots of fundamental analysis headlines and stories streamed
directly into your computer for free. That’s as far as we recommend you
go with the subject of fundamental analysis for now.
While it’s handy to keep up with market fundamentals, it’s not
actually necessary to too much of a degree because we can use the other
main school of thought on how to predict markets—and that’s what
we’re going to be focusing on for the most part in this book.
Technical analysis—our preferred method
Technical analysis is the study of market movement, and more specifically,

previous market movement. What so-called “technical analysts” are
searching for are certain repeating patterns of market behaviour, which
lead to predictable outcomes. For example, you might search back across
five years of historical market data looking for a pattern which leads to a
large bullish move more often than not. That’s technical analysis in one
of its most basic forms.
There are many different types of technical analysis. One method
is to simply look at a chart with your eyes and try to pick out certain
patterns in the market movement.
Another field of technical analysis involves the use of what we call
“technical indicators”, which are mathematical tools that perform certain
calculations on the market’s movement and then present that information
as a visual overlay on the chart. The basic premise of technical indicators
is that they may be able to spot patterns in the markets which aren’t
necessarily visible to the human eye.
For the most part, however, all forms of technical analysis are based
on the use of charts. A chart is simply a way of visualising the movement
of a financial market, rather than looking at dry statistics. With a chart
you can actually see what the market is doing now and what it was doing
46
at any point in history—you can see when it was rising and when it was
falling, you can see when it was moving strongly, and you can see when it
didn’t really have the strength to do much at all.
By having a visual overview of the market’s behaviour we can start
to look for certain patterns which might give us a clue as to the future
behaviour of the market.
Charts explained
Take a look at this example chart. As you can see, it has two axes. There
is a time axis along the bottom and a price axis running down the right-
hand side.
The current, live market is always over at the right-hand edge of the
chart. Everything to the left of that is what came before—past data. By
cross-referencing these two axes, you can tell what the market rate was at
any point in time.
47
Introducing “candlestick charts”
There are a number of different “styles” of charts we can use, but our
favourite, and what we believe to be the most effective in terms of clearly
presenting information, is what’s known as “candlestick” charting.
Candlestick charts have their origins in 18th century Japan, where
they are said to have been invented by a trader who was trading one of
the world’s earliest financial markets—the Japanese Rice futures market.
Since then they have come in and out of popularity, until becoming
widely-used in the computer-trading age that began in the 1980s.
A candlestick chart gives us several pieces of information about how
a financial market moved within a given time period. The “main body”
of the candle tells us the market rate at the beginning of the time period,
and at the end of the time period, while the two extremes (also known
as the “wicks”) tell us the highest and lowest levels the market reached
within that time period.
The colour of the candle also tells us whether the market rose or
fell between the open and the close of the time period. If the candle is
green, we know that the open price is represented by the bottom of the
main body, and the close is represented by the top of the main body. If
the candle is red, we know that the open price is represented by the top
of the main body and the close price is represented by the bottom of the
main body.
Take a look at these examples. Each of these candles represents one
day in the market.
48
The candle on the left is green. Therefore we know that the opening
level of the day was at the bottom of the main body, and the closing level
was at its top. In-between the open and the close, however, the market
reached extreme high and low levels as marked out by the “wicks”.
The candle on the right is red. Therefore we know that the opening
level of the day was at the top of the main body, and the closing level was
at its bottom. And again, in-between the open and the close, the market
reached extreme high and low levels as marked out by the “wicks”.
When looking at a chart within MetaTrader, you can hold the
mouse over any of the candles and MetaTrader will show the Open
level of that bar, and the High, the Low and the Close in a series of
information boxes at the bottom of the screen, as shown below:
On the chart in the picture above, each candle represents one

day’s action in the market. It’s what’s known as a “daily chart”. Within
MetaTrader however, you can change the time frame of the chart so that
each candle represents another time period, such as one hour, or even
one minute.
You can do this by clicking on any of the time frame buttons in
the toolbar at the top:
49
The available time frames are: 1 minute, 5 minutes, 15 minutes, 30

minutes, 1 hour, 4 hours, 1 day, 1 week and 1 month.
This is handy because as you go through this book, you will see that
we use a ‘’triple screen” method to simultaneously analyse each market
from three different time frames.
50
C hapter 7
Market Direction
T here are three main “cornerstones” to the trading method you will
learn in this book. The first of those cornerstones is the concept of
trends within a financial market.
There’s a very old saying in trading circles which states “the trend is
your friend”. The best opportunities in financial markets come when the
markets are trending, either trending upwards or trending downwards.
That’s not to say you can’t make money by trading against the
trend, there are opportunities to do so and occasionally we will be
taking counter-trend trades, but in general the majority of safer, higher-
probability trades always come when you trade in the direction of a
prevailing trend. That means taking bullish positions when the market
is trending upwards, and taking bearish positions when the market is
trending downwards.
Put simply, a trend within a financial market is a sustained directional
move, either a sustained upward move or a sustained downward move.
Trends occur because of an imbalance in the supply and demand (see
Chapter 3 for reference). As long as traders perceive value in a market,
they will buy, pushing the price ever higher, and as long as they feel that
a market is too “expensive”, they will sell, pushing the price ever lower.
There are a number of different ways to determine the trend within
a financial market. Some traders look at the sequence of highs and lows
to determine the trend, while others use technical indicators.
The Market Direction tool is a technical indicator based on our
own proprietary method of determining the trend within a financial
market.
For every candlestick bar on a chart, the Market Direction indicator
will display a corresponding dot. The colour of this dot tells us the trend
on that chart at that moment. The Market Direction indicator can show
51
Market Direction
four different colours of dots depending on what it calculates the trend

to be at that point.
A dark green dot represents a strong uptrend. A light green dot
represents a weak uptrend. A red dot represents a strong downtrend.
A pink dot represents a weak downtrend.
Take a look at this screenshot showing how the Market Direction
indicator appears on a chart.
Starting at the left-hand edge of the chart, we can see each candle
with a corresponding pink dot. This shows a weak downtrend. But the
market accelerates lower, and at the bar marked (1), the Market Direction
dots change to red, showing a strong downtrend. Several bars later, the
market begins to rally again, and by point (2) it has moved high enough
for Market Direction to calculate that the downtrend is weakening. By
the next bar, marked (3), the market is in a strong uptrend.
This uptrend continues for some time, occasionally weakening as
the market puts in occasional “retracements” against the trend, such as
at point (4). At point (5), a downward move in the market weakens the
52
uptrend again, and by the next bar (6), Market Direction has calculated
that the market’s trend has changed to a strong downtrend.
This downtrend doesn’t last, however. The market begins to rally
again, weakening the downtrend at point (7) and changing back into a
strong uptrend at point (8).
Using Market Direction
There is one very important rule that applies to the Market Direction
indicator and how to use it. That rule is, that the trend on any chart
determines the signals you look for on the time frame below. For
example, if the Market Direction dot on the daily chart is dark green,
therefore showing that that chart is currently in a strong uptrend, this
means that you would then drop down to the 4-hour chart to find any
trading signals in the direction of that trend.
We do understand that that might seem slightly difficulty to
understand at this point but all will become clear as you move on to the
later chapters and start to piece together all the different concepts you’re
going to be learning about, but for now, all you need to remember is that
rule.
The trend on any chart determines the signals you look for on the
time frame below.
We’ve provided you with a set of flow charts to guide you in the
decision-making process to help you figure out which trades to look for,
when you should be trading with trends and when you should be trading
against them. By looking over those you’ll begin to understand how it
all fits together. The next part of the process is looking for the specific
technical patterns which give you the trade signals themselves, and we’re
going to start looking at those in the next chapter.
And that’s how the Market Direction indicator works! It’s a very
simple tool for determining the trend of a market at a glance, with no
ambiguity and no confusion, which is a great advantage because it allows
you to analyse a market in a matter of seconds to determine whether or
not there might be a potential trading opportunity.
53
C hapter 8 a
Introducing Divergence
T here are three main “cornerstones” to our trading approach. The

first, as you saw in the previous chapter, is the concept of trends
within financial markets, and how to spot them using our Market
Direction tool.
The second main cornerstone is the concept of “divergence”. Before
moving on, let’s look at the dictionary definition of divergence:
“The act of moving away in different directions from a common point.”
In the context of the markets, what we are looking for are divergences
between the movement of the market, and the movement of certain
technical indicators. A technical indicator (indicator for short) is simply a
mathematical tool which performs certain calculations on the movement
of the markets, and then presents that information, usually as a visual
overlay on the chart.
A moving average is a simple example of an indicator: it’s a
mathematical tool which works out the average market level over a given
number of preceding bars on a chart, and then presents that in visual
form as a line, so you can see how the average market level changed over
time.
As we’ve already discussed in this book, the practice of technical
analysis is effectively all about spotting certain repeating patterns of market
movement that lead to predictable outcomes. Most technical indicators
are designed to help with this. The basic premise of technical indicators
is that by performing certain calculations on the market movement, they
can spot certain patterns, or give certain information, that may not be
visible to the human eye.
There are literally hundreds, if not thousands, of indicators which
can be applied to financial market charts, and they are nearly all designed
55
to interpret the market movement and then give trading signals—either

bullish signals or bearish signals.
Unfortunately, the problem with almost all indicators is that they
suffer from lag; that is, they lag behind the market. You can see a good
example of a lagging indicator by looking at a moving average. If a
market is falling, and then starts rising, it will take a while before the
average starts to rise as well. By the time the moving average has started
to slope upwards, you’ve already missed a lot of the move in the market,
as you can see in the image:
All indicators have the same problem. They lag behind the market,
and they’ll only really tell you what’s happening after it has already
happened.
What this means is that most indicators are effectively useless when
they are used in the way they were originally intended. Indicators that
are designed to generate bullish or bearish signals simply do not work
because they lag too far behind the market. The signals come too late to
give effective trading signals.
The only way to overcome this problem is to use indicators in
a manner for which they were not originally intended, and that is by
using them to spot divergences. By using them in this way, you can turn
lagging indicators into what we call “leading” indicators. This means that
56
the indicators tell us what’s going on right now rather than telling you
what’s already happened.
When the movement of an indicator diverges from the movement
of the market, it effectively gives you an early warning that the market
may be about to change direction. It gives you the warning before the
move happens rather than after, and this is what makes divergence such
a powerful trading tool.
We are going to be teaching you about two types of divergence in
this book.
The first type of divergence we’re going to be introducing to you is
what’s known as regular divergence. Regular divergence is a signal that
tells you when a trend may be about to reverse.
The second type of divergence is called hidden divergence. Hidden
divergence is a signal that tells you when a trend might be about to
resume.
Take a look at the diagram below. The black line in this diagram
represents a market that is trending upwards. As you can see it’s making
higher highs and higher lows. Four turning points are highlighted in this
trend.
The two that are marked with red arrows are reversal points, where
the upward movement ended, and a period of downward movement
began. These turning points are the kind that could be signalled by a
regular divergence. Remember, regular divergence is a trend reversal
signal.
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The turning points that are marked with blue arrows are the points at
which the prevailing uptrend resumed. These are the turning points that
could be signalled by hidden divergence. Remember, hidden divergence
is a trend re-entry signal.
We use two popular technical indicators in conjunction with our
charts in order to spot divergences. These indicators are known as the
MACD and the OSMA.
We use two indicators to spot divergences to establish a “consensus”
about each set-up. It’s entirely possible to trade divergence signals using
just one indicator, but we feel it is much safer to use two.
We only trade divergence signals which set up on both indicators
simultaneously. If a divergence sets up on one indicator but not on the
other, then we ignore it. If you only use one indicator you’re likely to
get false signals from time to time, divergence signals that fail, but this
is much less likely if you confirm the divergence signal by checking
whether or not it is present on a second indicator as well.
A divergence set-up that is present on two indicators is a higher-
probability set-up than one that is only present on one indicator, and
since we’re striving to put the probabilities as much as possible in our
favour, we always use two indicators.
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C hapTer 8 b
Regular Divergence
R egular divergence is a signal which tells us when a trend might

potentially reverse. What this means is that it can be used to
generate counter-trend trading signals.
Let’s start off by taking a look at the definition of a bullish regular
divergence:
A bullish regular divergence occurs when the market makes
a LOWER LOW, but over the corresponding time period, our
indicators make a HIGHER LOW.
Now take a look at the diagram:
We’ve got a downward move in the market, as it makes an initial

low, rises slightly then falls again to a lower low. But at the same time,
we’ve got an upward move in our indicator. While the market is making
a lower low, our indicator is making a higher low! This is the definition
of a bullish regular divergence.
Now let’s take a look at the definition of a bearish regular divergence:
A bearish regular divergence occurs when the market makes
a HIGHER HIGH, but over the corresponding time period, our
indicators make a LOWER HIGH.
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Regular Divergence
This time, we’ve got an upward move in the market, as it makes

an initial high, falls slightly, then rises again to a higher high. But at
the same time, we’ve got a downward move in our indicator. While the
market is making a higher high, our indicator is making a lower high!
This is the definition of a bearish regular divergence.
Let’s now look at some examples ofthese regular divergence patterns
in the actual charts ofthe markets, using our MACD and OSMA
indicators.
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61
Regular Divergence
62
Different types of regular divergence
The concept of divergence can be broken down into two main types-
regular divergence and hidden divergence. From there however,
it’s possible to break down regular divergence further, as there are
several different types of regular divergence that appear on our
charts.
The first is what we call “same peak” regular divergence, or “same
trough” regular divergence, depending on whether it is a bearish signal or
bullish signal respectively.
The indicators we use—the MACD and OSMA—are known as
“oscillators”. This is because they “oscillate” between positive and negative
values around a central “zero line”.
A “same peak” regular divergence is a bearish signal which occurs
when the divergence on a particular indicator plays out entirely within
one peak above the zero line.
Similarly, a “same trough” regular divergence is a bullish signal
which occurs when the divergence on a particular indicator plays out
entirely within one trough below the zero line. You can see examples
below:
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Regular Divergence
The next type of regular divergence is known either as “separate

peak” regular divergence or “separate trough” regular divergence—
again, this depends on whether or not it is a bearish or a bullish signal
respectively.
A “separate peak” regular divergence is a bearish signal which occurs
when the divergence begins on one peak of the indicator above the zero
line and ends on another, with a move below the zero line in-between.
A “separate trough” regular divergence is a bullish signal which
occurs when the divergence begins on one trough of the indicator below
the zero line and ends on another, with a move above the zero line in-
between.
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You can see examples below:
65
Regular Divergence
The third different type of regular divergence is known as

“sequential regular divergence”. A sequential regular divergence
occurs when there are a number of peaks or troughs in-between the
start point of the divergence and the end point, which don’t quite fit
the pattern. There is nonetheless an overall pattern of divergence.
Sequential regular divergence is a little bit harder to spot than the
other types, the same peak/trough and separate peak/trough divergence,
but by knowing the difference between all three types you shouldn’t have
any trouble in being able to spot them and then start applying that when
you come to look for signals in the markets.
You can see examples below:
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Knowing the differences between these types of regular divergence

is important in this approach to trading. This is because there are some
divergence signals that we choose not to trade, even if there is divergence
on both of the indicators.
As you have already learned, we use two different indicators to spot
divergences and we are only interested in divergence signals which set up
on both indicators simultaneously. If the divergence is only present on
one indicator, we ignore it.
The combination of divergence types on the two indicators is not
hugely important. You might, for example, see a bearish signal with
separate peak divergence on both indicators—which is a perfectly trade-
able setup. As another example, you might see separate peak divergence
on one indicator and same peak on the other. That too is a tradeable
set-up.
There is, however, one exception, and that is when you find same
peak (or same trough) divergence on both indicators. That is not a strong
enough signal to trade.
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Regular Divergence
Some divergences are harder to spot than others
One general rule with regular divergence signals is that the steeper the
angle of the divergence, the stronger the potential move.
Sometimes, some divergences occur at such a steep angle, that the
second peak or trough on the indicator doesn’t even make it back through
the zero line! These types of signals do take a little extra practice to spot,
but it’s worth taking the time to get used to them because they can often
be very powerful signals.
A number of examples screenshots below.
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“Filtering” regular divergence signals with “Bollinger Bands”
The fact is that the vast majority of divergence setups actually fail to
produce a trend reversal. Regular divergence is still a great trend reversal
signal, but only when it’s used in the right way.
We are not going to be trading every single regular divergence setup
we see—far from it, in fact. We’re going to be extremely choosy in terms
of the divergence setups we will actually be trading.
As well as only trading divergence signals that are pointing us in the
right direction, as per the prevailing trend of the market, we will also
only be trading divergence signals that are “backed up” by a strong area of
support or resistance levels (which you’ll learn about in Chapter 9).
There is, however, one more step we take to filter out weaker
divergence signals, and that’s by using another indicator, overlaid
on the market action on our charts. The name of this indicator is
“Bollinger bands”, and this is how they appear on the charts:
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Regular Divergence
As you can see, Bollinger bands effectively create a “channel” in

the market. There’s an upper band and a lower band, and most of the
time, you will see that the market stays within the channel. What we are
interested in, however, are the points at which the market goes outside of
that channel.
When analysing a regular divergence signal, we are looking for at
least one of the peaks or troughs of the market to go outside the long-
term Bollinger band channel. Effectively, the market must go outside
the Bollinger band channel at either the start point of the divergence,
or the end point, or both.
If we do not see this occur, then the signal is not valid, and we would
not trade it.
The reason we use this rule is because when a market goes outside
the Bollinger band channel, it is considered to be “overstretched” and
therefore more likely to reverse. You can think of the market as being
almost like a rubber band, in that the more overstretched it gets, the
more likely it is to “snap” back. It therefore follows that if you see a
regular divergence signal at the same time the market is overstretched,
then the likelihood of that signal being successful is increased. When
divergence signals are combined with Bollinger bands, you effectively
have a confluence of factors that indicate a potential reversal in the
market. The regular divergence is a signal that indicates a potential
70
trend reversal based on the fact that strength of the trend is beginning to
weaken. Additionally, when the market goes outside the Bollinger bands,
it’s also an indication of a potential trend reversal, based on the fact that
the market is in an overstretched condition.
Below you can see several examples of regular divergences, and
whether they are considered valid or invalid as a result of their
interaction with the Bollinger bands.
71
Regular Divergence
Remember—we are only interested in trading regular divergence

signals that are accompanied by the market trading outside the Bollinger
band channels, and in turn becoming overstretched.
It’s all about putting the probabilities in our favour!
As you move forward through this book, you need to be clear on
what we mean by the phrase “regular divergence signal”, as it’s something
you will hear regularly.
When we use the phrase “regular divergence signal”, we mean a
complete signal. This means that regular divergence is present on both
our indicators, and that the market has gone outside the long-term
Bollinger band at either the start point, or end point of the divergence,
or both.
If any of those factors are missing, then it’s not a complete signal. If
the divergence is only present on one indicator, it’s not a signal. If the
market does not move outside the Bollinger bands, then it’s not a signal.
But if it all “checks out”, then that’s what we mean by a “regular
divergence signal”. Make sure you are comfortable with this concept
before moving on.
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Key points of this chapter
Before moving on, these are the key points you need to understand from
Chapter 8b—Regular Divergence:
• You must understand the definitions of both bullish and bearish

regular divergence and how to spot them.
• You must understand the three types of regular divergence
(separate peak/trough, same peak/trough and sequential).
• You must be aware that there are some divergences where the
second peak/trough doesn’t cross the zero line.
• You must remember that we are only interested in regular
divergence signals where the market trades outside the long-
term Bollinger band on at least one peak/trough—either at the
start point, the end point, or both.
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C hapTer 8 C
Hidden Divergence
I n the previous section we took an in-depth look at the concept of

regular divergence and how it can be used to signal trend reversals.
This is useful because even when trading in the direction of longer-term
trends, we will often be trading against shorter-term trends, and on some
rare occasions we will even be trading against long-term trends as well.
The vast majority of trades we will be taking, however, will be in the
direction of longer-term trends. Most of the time, when we get into a
trade, it will be a trend-following trade.
With that in mind, we need to not only be able to spot trend reversals,
we also need to find optimum entry points into existing trends. We need
to find the points at which trends resume, because that’s where the best
trend-following trades are to be found.
Hidden divergence is the method we can use to find the points at
which trends resume following counter-trend retracements. It is used to
spot the points at which trends might resume. We therefore class it as a
trend re-entry signal.
First of all, as we did in the previous section, let’s look at the
definitions of both bullish and bearish hidden divergence, and take a
look at some diagrams.
A bullish hidden divergence occurs when the market makes
a HIGHER LOW, but at the same time our indicators make a
LOWER LOW, as shown below:
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Hidden Divergence
We’ve got an upward move in the market, as it makes an initial high.

It then retraces slightly lower, but makes a higher low than its starting
point. At the same time, however, we’ve got a downward move in our
indicator. While the market is making a higher low, our indicator is
making a lower low! This is the definition of a bullish hidden divergence.
A bearish hidden divergence occurs when the market makes a
LOWER HIGH low, but at the same time our indicators make a
HIGHER HIGH, as shown below:
We’ve got a downward move in the market, as it makes an initial

low. It then retraces slightly higher, but makes a lower high than its
starting point. At the same time, however, we’ve got an upward move in
our indicator. While the market is making a lower high, our indicator
is making a higher high! This is the definition of a bearish hidden
divergence.
Now let’s look at some actual chart examples:
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77
Hidden Divergence
Some divergences are harder to spot than others (again!)
In the last section when we were looking at regular divergence, we saw

that some regular divergences are slightly harder to spot than others,
because the second peak or trough doesn’t cross back through the zero
line.
As you might expect, similar concepts apply to hidden divergence
signals as well. You will often find signals which have one peak or trough
which doesn’t cross through the zero line.
Unlike with regular divergence however, with hidden divergence it’s
usually the first peak or trough of the setup, ie: the start point of the
divergence rather than the end point, which you will see not crossing
through the zero line.
It’s also possible for a hidden divergence to form completely the
opposite side of the zero line to where you would expect.
Just as with regular divergence, this means that it does take some
practice in order to be able to spot these signals quickly and easily, but
it’s important to do so because the signals are just as valid as the more
“obvious” hidden divergences.
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You can see a number of clearly-explained examples shown below.
79
Hidden Divergence
80
Filtering hidden divergences with Bollinger B ands
In the last section we demonstrated the method we use to “filter out”

low-probability regular divergence signals. This was achieved with the
use of a separate indicator called “Bollinger bands”. We look for the
market to trade outside the “channel” created by the Bollinger bands in
order to be valid. If this does not occur, we consider the signal invalid
and do not trade it.
We use a similar filter with hidden divergence signals. The short-
term Bollinger band indicator is the one we use with hidden divergence
signals.
You may also notice that it creates a much narrower “channel”

than the longer-term indicator, but despite that, the market still stays
within the channel most of the time. Once again, however, what we’re
interested in is when the market trades outside the Bollinger band
channel.
The rule we have for filtering hidden divergence signals is this:
In order for a hidden divergence signal to be valid, the market
must trade outside the short-term Bollinger band channel at some
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Hidden Divergence
point during the retracement which produced the hidden divergence

setup.
This concept is clear. Some examples are provided for reference
below.
Defining some terms
You may remember that in the previous section we emphasised that it

was important to understand the term “regular divergence signal”. This
is the term we use for a trading setup containing regular divergence on
both our OSMA and MACD indicators at the same time, with the
market also trading outside the long-term Bollinger band.
There are two further terms you need to memorise and understand
that relate to the concept of hidden divergence. These two terms are:
Standard hidden divergence re-entry signal and hybrid hidden
divergence re-entry signal. Let’s take a look at them individually.
A standard hidden divergence re-entry signal is used when trading
in the direction of a strong trend (as per the Market Direction indicator)
and it has the following attributes:
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1) Hidden divergence on both the MACD and the OSMA

indicators
2) The market trades outside the short-term Bollinger band
channel during the retracement which produces the signal
You can see examples of standard hidden divergence re-entry signals

on the previous page.
A hybrid hidden divergence re-entry signal is used when trading in
the direction of a weak trend (as per the Market Direction indicator) and
it has the following attributes:
1) Hidden divergence on the MACD indicator

2) Regular divergence (of any kind) on the OSMA indicator
3) The market trades outside the long-term Bollinger band channel
during the retracement which produces the signal
The hybrid signal takes some elements of the standard hidden

divergence re-entry signal and some elements of the regular divergence
reversal signal. This gives us the extra confirmation we need when
trading in the direction of a weaker trend.
You can see some examples of a hybrid hidden divergence re-
entry signal below:
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Hidden Divergence
Chapter 8c—Hidden Divergence:
• You need to understand that hidden divergence is a signal that a

trend is about to resume following a retracement.
• You need to know the definitions of both a bullish hidden
divergence and a bearish hidden divergence.
• You need to understand that hidden divergence setups can occur
on both sides of the “zero line”.
• You need to understand how and why we use short-term
Bollinger bands to filter our divergence signals.
• You need to understand the difference between a standard re-
entry signal and a hybrid re-entry signal and the different
situations in which they are used.
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C hapter 8 d
Confirming Divergences
I n the previous two chapters you’ve seen both how regular divergence
works and how hidden divergence works, and how they can both be
used to generate very effective trading signals.
We have three specific trading signals based on divergence and
involving Bollinger bands: the regular divergence reversal setup, the
standard hidden divergence re-entry setup, and the hybrid re-entry setup.
They are the three actual signals we look for to get us into trades.
But finding the trade signals is only the first step. The next step is
understanding when to act on a trade signal. In this chapter you will
learn about the specific “trigger” we use to turn potential trading setups
into confirmed trades.
We have a specific trigger that we look for to actually get us in to
trades. When we see a valid trading setup, what we are looking for is a
trigger that is based on the movement of the market itself. Quite simply,
we wait for the market to begin moving in the direction suggested by our
trade signal. We don’t act on the signal the moment it sets up; we wait
for more confirmation, and the confirmation we look for is to see the
market beginning to move in the direction our trade signal is pointing.
We have a specific rule which dictates how far a market must move
in the right direction before it triggers our entry in to the trade, and it’s
called:
The 50% rule
The 50% rule governs how far we need to see a market move before
we actually commit to the trade. What we are looking for is to see the
market retrace a minimum of 50% of a specific previous move. The
85
specific previous move we are interested in differs depending on whether

you’re trading a reversal signal or a re-entry signal.
As in the previous sections, let’s firstly take a look at some diagrams
to introduce the concept of the 50% rule.
When a bullish re-entry signal (either a standard signal or a hybrid

signal) sets up, the confirmation we look for is for the market to move
50% of the way back towards its previous high.
In the diagram above, you can see that the market rises up to an
initial high, before retracing lower. This produces a bullish hidden
divergence, with the higher low in the market accompanied by a lower
low in the indicator. However, we would not act on the signal at this
point.
Following on from the appearance of the hidden divergence
signal, we need to see the market move 50% of the way back towards
the previous high. At that point, the signal is confirmed, and we can
act upon it.
When a bearish re-entry signal (either a standard signal or a hybrid

signal) sets up, the confirmation we look for is for the market to move
50% of the way back towards its previous low.
86
In the diagram above, you can see that the market falls to an initial
low, before retracing higher. This produces a bearish hidden divergence,
with the lower high in the market accompanied by a higher high in the
indicator. However, we would not act on the signal at this point.
Following on from the appearance of the hidden divergence signal,
we need to see the market move 50% of the way back towards the
previous low. At that point, the signal is confirmed, and we can act
upon it.
When a bullish regular divergence reversal signal sets up, the

confirmation we look for is for the market to move 50% of the way back
towards the highest point in-between the start of the divergence and
the end of the divergence.
In the diagram above, you can see that the market falls to an initial
low, before retracing higher. It then falls again and creates a lower low. At
this point we see a bullish regular divergence, with the lower low in the
market accompanied by a higher low in the indicator.
The regular divergence begins at the initial low, and ends at the
lower low. We need to find the highest point in-between. We then need
to see the market move 50% of the way back towards that level. At
that point, the signal is confirmed, and we can act upon it.
87
When a bearish regular divergence reversal signal sets up, the

confirmation we look for is for the market to move 50% of the way back
towards the lowest point in-between the start of the divergence and
the end of the divergence.
In the diagram above, you can see that the market rises to an initial
high, before retracing lower. It then rises again and creates a higher high.
At this point we see a bearish regular divergence, with the higher high in
the market accompanied by a lower high in the indicator.
The regular divergence begins at the initial high, and ends at the
higher high. We need to find the lowest point in-between. We then need
to see the market move 50% of the way back towards that level. At that
point, the signal is confirmed, and we can act upon it.
The Fibonacci tool
There is a very handy tool within the MetaTrader software which

allows us to see whether or not a particular divergence has hit its
50% confirmation level, without the need for any time-consuming
calculations. It’s called the Fibonacci tool and it’s something you’re going
to become very familiar with as you progress through the book!
We can use the Fibonacci tool to see how far a market has retraced
a specific previous move, with a simple click-and-drag operation. It is
located on the main toolbar.
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The Fibonacci tool is mainly used for measuring Fibonacci

retracements and Fibonacci extensions, which you will be learning much
more about in chapter 9. However, we can also use it to see whether or
not a market has hit its 50% confirmation level.
On this screenshot below is a chart of GBP/USD. As you can see,
the market hit a high at point X, and a low at point Y. From there, it
has moved back upwards again.
If we wanted to measure how much of the move from point X down

to point Y has been retraced, we would use the Fibonacci tool. After
selecting the tool from the toolbar, we would click at point X, and drag
the mouse down to point Y. After releasing the mouse button we
would see this:
89
As you can see, the Fibonacci retracement tool produces certain lines
across the chart that correspond to retracements of a certain percentage,
such as 23.6% and 38.2%. You’ll learn why we use these specific
percentages in chapter 9, but for now, let’s just focus on the 50% level. As
you can see in the image above, the market has not yet retraced 50% of
the move from point X to point Y.
The Fibonacci tool allows us to see at a glance whether or not a
market has retraced 50% of a certain move. In turn, this allows us to
quickly and easily see whether or not a signal has been confirmed. It’s a
great time-saver!
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Why we use this rule
You can see a number of clearly explained examples of why we use this
particular rule, and how it can keep us out of bad trades below:
91
92
Chapter 8d—Confirming Divergences:
• We use the 50% rule to confirm the divergence signals we see on

the charts. It keeps us away from divergence signals which fail.
• We use the “Fibonacci Retracement” tool in MetaTrader to
quickly and easily spot if the market has hit a key 50% level.
• Once a trade signal is confirmed by the 50% rule, we act on it,
but not before! Even if the market misses the 50% level by one
pip/point, the signal is not confirmed.
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C hapter 9
Introducing Support
and Resistance
I n this chapter we will be introducing you to the third and final main
“cornerstone” of our trading approach. In the preceding chapters we’ve
introduced you to the concept of trend, and how the Market Direction
indicator shows us the trend of the market, and therefore which direction
we should be looking to trade in.
We then looked at the concept of indicator divergence, and how it
can be used to figure out when a market is ready to change direction.
From there however, there’s one more piece of the puzzle that we need to
learn about before we have a complete trading approach.
It’s ‘all well and good’ knowing the direction the market wants to
trade in, and even having signals that the market’s ready to trade in that
direction, but what we also need to know is if the market is trading at a
level where it is likely to change direction, and to determine this we use
the concept of support and resistance.
The concept of support and resistance is closely related to the ideas of
supply and demand that we spoke about earlier in this book. Support and
resistance concepts are used so that we might determine certain levels
in the market where the demand will begin to outweigh the supply and
vice versa. Once we combine this with the other two cornerstones, we
have the ability to consistently find high-probability trades.
If the market is trading at a level where support/resistance concepts
tell us that the market may well change direction, and that view is
backed up by a divergence signal, and that divergence signal is pointing
the market in the direction of a prevailing trend (as determined by the
Market Direction tool), then all the factors are there to suggest that
95
Introducing Support and Resistance
the market will indeed move that way, and therefore give us a high-
probability trading opportunity.
First of all, let’s take a look at what the individual terms mean.
Support levels are areas where we expect demand to begin to outweigh
supply, meaning buyers will come into the market, the buying pressure
will begin to outweigh the selling pressure, and market prices will stop
falling and begin rising.
Resistance levels are areas where we expect supply to begin to outweigh
demand, meaning sellers will come into the market, the selling pressure
will begin to outweigh the buying pressure, and market prices stop rising
and begin falling.
You’ll remember that when we were discussing supply and demand
earlier on in this book, we talked about how markets move in one
direction until the market participants, (ie: the traders that are trading
that market), begin to change their perceptions of the market.
What this means is that markets will move higher until traders
think they’ve got too high, or too expensive, and that’s where they’ll start
selling, or that markets will move lower until traders begin to think that
they’ve got too low, that prices have got too cheap, which is when they’ll
start buying.
Traders don’t make these decisions about markets being too cheap
or too expensive at random levels. Instead, they look to certain key levels
in the market to help them decide, and these levels are determined using
support and resistance concepts.
There are many different methods of determining support and
resistance levels in the markets, and below is a list of the different
methods we will be using to determine these levels:
Previous market “swing zones”

Trend lines Moving averages Pivot points
Fibonacci “retracements”
Fibonacci “extensions”
The reason we use so many different methods of finding support/

resistance levels is because we want to find areas of what we call
“confluence”.
What we mean by confluence is that we want to find certain areas in
the market where several different types of support or resistance converge
96
in approximately the same place. Not every trader in the world uses all
these different methods to determine support or resistance. In fact, very
few do.
However, lots of people on the trading floors and private trading
offices of the world look at one of them, or two of them. Some will look
at just moving averages and pivot points, while some might look at just
Fibonacci retracements and trend lines.
If you can find an area of “confluence”—where you know people who
only look at pivot points will be trading, because there’s a pivot there, and
people who only look at moving averages will be trading, because there
is a moving average there, and people who only look at Fibonacci will be
trading, because there’s a Fibonacci level there—then that means that
when the market touches that level, there will be a much bigger shift in
the supply/demand ratio than there would be if there was only one type
of support or resistance there.
If, for example there’s a level in the market where there’s only a pivot
point, and only the pivot point traders trade there, then that may not be
enough to produce a significant enough shift in the supply/demand ratio
to produce a change of direction in the market.
But if, for example, the pivot point traders, the moving average
traders, the trend line traders and the Fibonacci traders are all perceiving
the same area in the market as holding support or resistance, then they’ll
all take the same action there, and that’s when the big moves and the
best trades occur, because of a sudden big rush which alters the ratio of
supply to demand or vice versa.
Just before we go further and take an in-depth look at all these
different types of support and resistance levels, there is one thing we
need to point out about support/resistance levels that you may find quite
funny at first, but once you “get your head around it”, it soon makes sense.
The fact of the matter is that with many of these support/resistance
methods, there’s actually no real logical reason why they should work.
There’s no real logical reason why a market should bounce from a pivot
level, or from a Fibonacci line. The only reason they work is because
everyone thinks they work!
These support/resistance methods have become what we call a “self-
fulfilling prophecy” As mentioned above, there’s no real physical or
logical reason why a market should be supported by, for example, a certain
pivot point. But, if 20 million traders around the world are viewing that
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Introducing Support and Resistance
pivot point as support, and they all buy when the market touches it, then
the sudden rush of demand will outweigh the supply, which means the
market will indeed bounce upwards from the pivot point.
There’s no real reason why it worked, other than the fact that
everyone thought it would work, and as a result they all took the same
action, everyone “bought the market”, or “went long”, or took a “bullish
position”, and the resultant effect was to actually make the pivot point
work as a support level.
The truth of the matter is that it doesn’t really matter why a support
or resistance level works—it’s just important that they do actually
work—and they do. Therefore, the best and highest-probability trades
occur when the market trades into a “confluence area” where multiple
different types of support or resistance converge in approximately the
same place.
As a final part of this introduction to the concept of support and
resistance, let’s just take a look at the different ways that markets can react
to these levels.
The best way a support or resistance level can work is if it bounces

straight off it, as you can see in the top two diagrams. In the top-left
diagram, we see how the market traded lower and lower, and then traded
all the way down to the support level and bounced up. In the top-right
diagram, we can see how the market rallied higher until it touched the
resistance level, and from there, the selling pressure was enough to push
the market lower again.
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Sometimes however, markets do trade past support/resistance levels

for a while before bouncing back. However, as long as a market never
closes below a support level, or above a resistance level, then we can still
consider it to have held. This is one of the reasons we use candlestick
charts, so that we can see how a bar closes in relation to the support/
resistance levels it trades to.
You can see in the bottom-left diagram that the market traded below
the support level on three consecutive bars, but never once managed to
close below it. Therefore, we can say that the support level held on a
closing basis.
And in the bottom-right diagram, we can see that although the
market traded above the resistance level, it again never closed above it, so
again we can say that the resistance held on a closing basis.
You have to stay aware of this concept, especially when it comes
to placing your no-touch levels. We will generally place our no-touch
barriers below important support areas or above important resistance
areas, but you do have to always include some extra margin for error
just in case the market does trade through the support or resistance
temporarily, before closing back the other side.
In the next section we’ll take a look at the first of the different types
of support and resistance levels we study: Previous market “swing zones”.
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C hapter 9 a
Previous Market
“Swing Zones”
T here are two basic ways in which these “swing zones” work.
The first is simply that an area which previously held support
might potentially do so again if the market returns to it (or that an area
which previously held resistance might potentially do so again if the
market returns to it).
The second is that an area which previously held support might
potentially act as resistance once broken (or that an area which previously
held resistance might potentially act as support once broken).
When you look back across any chart, you’ll see that markets move
in one direction for a while then they stop and move off in the other
direction for a while, then back again, and so on. Each one of the areas
where the market made a significant change of direction can be described
as a “swing point”. And at these swing points, we can identify what we
like to call specific “swing zones”.
When we see a swing point in a market, what we’re looking for is
the area between the most extreme point of any candle around that
swing point, and the most extreme part of any candle’s main body
around that swing point. That’s our “swing zone”.
Previous resistance as future resistance and

previous support as future support
What this means is that if we’re looking to identify a resistance swing

zone, we’d find a swing point where the market found resistance, and we
would mark on the highest high of any candle at that swing point, and
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Previous Market “Swing Zones”
the highest part of a candle’s main body at that swing point. You can see
an example below:
On this example, from a EUR/CHF weekly chart, we see a “swing

point”, which is marked by the pink shaded circle. Quite simply, at that
point, the market found resistance, stopped moving higher, and began
to fall lower. We don’t necessarily need to know why the market found
resistance in that area, but we do know that it was a swing point, where
enough sellers came into the market to prevent it from going any higher,
and to make it begin to move lower.
At this swing point, our resistance zone—our “swing zone”—is the
area between the most extreme point of any candle, and the most extreme
point of any candle’s main body. The most extreme part of any candle
at this swing point is marked by the upper of the two blue horizontal
lines—it corresponds to the highest high around the swing point. The
highest part of any candle’s main body around this swing zone is marked
out by the lower of the two blue horizontal lines.
The area between the two blue horizontal lines is our “swing
zone”—an area of potential resistance if the market ever gets back
there. And as you can see, the market did eventually trade back into the
“swing zone” before selling off again and moving lower.
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Let’s now take a look at how we would go about identifying a support

swing zone.
If we’re looking to identify a support swing zone, we’d find a
swing point where the market found support, and we would mark on
the lowest low of any candle at that swing point, and the lowest part
of a candle’s main body at that swing point. You can see an example
below:
This is a weekly chart of NZD/USD. The pink shaded area marks

out a “swing point”, where the market found support. We don’t need
to know why the market found support there—but it is clearly an area
where enough buyers came into the market to produce a change of
direction. The specific “swing zone” which accompanies this swing point
is again marked out by the two blue horizontal lines.
The lower line represents the lowest low (the most extreme point)
of any candle at that swing point, while the upper line represents the
lowest part of any candle’s main body at that swing point. The area in-
between the two lines is our “swing zone”. We would potentially expect
the market to find support within this zone if it ever trades back into it.
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And as you can see, the market does trade back into the swing
zone a number of weeks later, before bouncing back out and rallying
considerably higher. Once again, we’ve identified a swing zone which has
had the same effect as before once the market returns to it.
Previous support as future resistance and vice versa
You’ll remember that at the beginning of this section we said that there
are in fact two ways that these swing zones can work. We’ve seen the
concept of a previous resistance area again providing resistance, and of a
previous support area again providing support, but when these areas get
broken, they can in fact then act the opposite way if the market trades in
to them again.
An area which previously provided resistance may, if broken,
subsequently provide support, and similarly, an area of support, if
broken, may subsequently provide resistance.
Let’s take a look at a couple of examples of how this works:
On this daily chart of GBP/USD, the pink shaded area marks out a
“swing point” where the market has found support, stopped falling, and
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rallied higher. We don’t necessarily need to know why it found support

there—we just know that it did.
The two blue horizontal lines mark out our “swing zone”. The lower
line represents the lowest low (most extreme point) of any candle around
the swing zone while the upper line represents the lowest main body of
a candle around the swing zone. The area in-between is the swing zone.
In this case, when the market re-entered the swing zone, it failed to
provide support. The market broke straight through it. However, when
the market again re-entered the swing zone, from the opposite side, it
provided resistance. The previous support area became an area of
resistance once it was broken.
The concept of previous support becoming resistance (and vice
versa) is very common throughout all the different types of support
and resistance we study, and you will see it as a recurring theme as you
progress through the book.
Here’s another example:
On this daily chart of USD/CHF, the pink shaded area marks out
a “swing point” where the market has found resistance, stopped rising,
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and fallen lower. Again, we don’t necessarily need to know why it found
resistance there—we just know that it did.
The two blue horizontal lines mark out our “swing zone”. The upper
line represents the highest high (most extreme point) of any candle
around the swing zone while the lower line represents the highest main
body of a candle around the swing zone. The area in-between is the
swing zone.
In this case, when the market re-entered the swing zone, it failed
to provide resistance. The market broke straight through it. However,
when the market again re-entered the swing zone, from the opposite
side, it provided support. The previous resistance area became an area
of support once it was broken.
Chapter 9a—Previous market “swing zones”:
• “Swing zones” are found at the major turning points in the

market—you can identify these turning points simply by looking
for the changes of direction on a chart.
• At a turning point where the market stops moving higher and
begins moving lower, the “swing zone” is the area between the
highest high of any candle around the turning point and the
highest main body of any candle at around the turning point.
• At a turning point where the market stops moving lower and
begins moving higher, the “swing zone” is the area between the
lowest low of any candle around the turning point and the lowest
main body of any candle at around the turning point.
• Swing zones drawn on at an area where the market previously
found support have the potential to act as support again if the
market gets back there. If the market breaks through one of these
zones, however, it may then act as resistance if the market trades
back into it from below.
• Swing zones drawn on at an area where the market previously
found resistance have the potential to act as resistance again if
the market gets back there. If the market breaks through one of
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these zones, however, it may then act as support if the market

trades back into it from above.
• Swing zones are an effective method of plotting future support/
resistance areas because they are based on the most reliable
indicator available—the market movement itself !
• It makes sense that areas of previous support will provide support
again and that areas of previous resistance will provide resistance
again.
• Similarly, it makes sense that after breaking through a swing
zone, the market will “re-test” the zone to confirm the break.
• The area between the highest/lowest point and the highest/
lowest main body is the area where the market was considered
too expensive/too cheap.
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C hapter 9 b
Trend Lines
I n this section we’re going to be discussing how you can use the
concept of trend lines to establish potential future areas of support or
resistance.
The trend line tool in MetaTrader can be used to connect certain
points on the chart. If we can connect two or more points with a trend
line, that line will then extend into the future—out to the right-hand
side of the chart—and may act as support or resistance in the future.
In an upwardly trending market we would look to connect the rising
lows of the uptrend with a trend line, whilst in a downwardly trending
market we would look to connect the falling highs of the downtrend.
We do this using the “diagonal line” tool in MetaTrader, which is
found on the toolbar at the top:
It’s a very simple concept, and the best way to illustrate it is with
some examples. Let’s look at a bullish example first, where a trend line
can be used to identify potential support areas.
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Trend Lines
In the example on the previous page, on a USD/CAD weekly chart,

we have drawn a trend line connecting the rising lows of an uptrend.
We drew the start of the trend line at the start of the uptrend, which is
shown by the left-hand pink shaded area. We then connected this trend
line to a higher low, as shown by the next pink shaded area.
MetaTrader then automatically produced a trend line pointing out
towards the right of the chart. Many bars later, the market fell back
towards this trend line, but bounced strongly away from it again, as
shown in the area with blue shading.
By connecting the two pink shaded areas (the start of the trend
and a higher low) with a trend line, we were able to predict a potential
area of support many weeks before the market got there!
Let’s now take a look at a bearish example, where a trend line can
be used to identify potential resistance areas:
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In the example above, on a NZD/USD daily chart, we have drawn a

trend line connecting the falling highs of an uptrend. We drew the start
of the trend line at the start of the downtrend, which again is shown by
the left-hand pink shaded area. We then connected this trend line to a
lower high, as shown by the next pink shaded area.
MetaTrader then automatically produced a trend line pointing out
towards the right of the chart. Many bars later, the market rose back
towards this trend line, but bounced strongly away from it again, as
shown in the area with blue shading.
By connecting the two pink shaded areas (the start of the trend
and a lower high) with a trend line, we were able to predict a potential
area of resistance many weeks before the market got there!
Trend lines are one of the oldest and most popular forms of support/
resistance analysis, which means a lot of traders are looking at them, and
that you do usually get a good reaction whenever the market touches a
trend line.
Because a lot of traders are looking at them, they do become the
kind of “self-fulfilling prophecy” we spoke about earlier, and as you can
see in the above example, it’s obvious that many traders were watching
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Trend Lines
that falling trend line because as soon as the market touched it, a wave of
selling pressure came in and pushed the market lower.
Previous resistance becoming support (and vice versa!)
Just as with the previous market swing points that we discussed in the
previous section, you do also find that trend lines can act the “opposite”
way if broken, meaning that if a trend line has been acting as resistance,
it may then act as support once it’s been broken. If a trend line has been
providing support, it may well act as resistance once it’s been broken.
Once again let’s take a look at an example. We’ll start off by
expanding upon our previous NZD/USD example, which featured a
falling trend line acting as resistance.
We’ve already seen how we connected the two pink shaded areas
with a trend line, which then produced resistance when the market met
the trend line again at the blue shaded area.
After this however, the market reversed and broke through, above
the trend line. It then fell towards the trend line again, where it found
support, as you can see in the green shaded area.
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The previous resistance, once broken, became an area of support.

You’ll find that this is a common theme with support/resistance
concepts, that once a support level is broken, it becomes resistance, and
once a resistance level is broken, it becomes support.
Where to draw your trend lines
The best place to draw trend lines is by connecting the start point of a
trend with its first lower high or higher low, depending on the direction
of the trend. However what you can also do is connect the first lower
high (or higher low) of the trend with the second. This produces another
trend line, usually pointing off at a different angle to the one drawn from
the start point of the trend.
These trend lines can be just as valid, and we’ll take a look at a
couple of examples now:
In the example above, on a USD/CHF weekly chart, we drew a

trend line connecting the start of the trend with its first lower high. This
is shown by the two leftmost pink shaded areas and the grey line. The
problem here is that the resulting trend line was of such a shallow angle
that the market was unlikely to hit it for an extremely long time.
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Trend Lines
We then connected the first lower high of the trend with the second,
shown by the two rightmost pink shaded areas and the magenta line.
This produced a steeper trend line, one which followed the market more
closely and was more likely to become relevant to the market within a
reasonable space of time.
And as you can see, when the market did touch the trend line again,
shown by the blue shaded area, there was a good reaction. Many traders
“sold” at that point, pushing the market lower. That was the trend line
that the majority of traders were interested in.
Here’s another example:
In the example above, on a EUR/CHF 4-hour chart, we drew a

trend line connecting the start of the trend with its first higher low. This
is shown by the two leftmost pink shaded areas and the grey line. Again,
the problem here is that the resulting trend line was of such a shallow
angle that the market was unlikely to hit it for an extremely long time.
We then connected the first higher low of the trend with the second,
shown by the two rightmost pink shaded areas and the magenta line.
This again produced a steeper trend line. And as you can see, when the
market did touch the trend line again, at the blue shaded area, there was
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a good reaction, many traders “bought” at that point, pushing the market
higher.
In fact, you can draw multiple trend lines on each trend you’re
studying, connecting the first higher low to the second, the second to
the third, the third to the fourth and so on, but you tend to find that
the further you go into the trend to draw the start of your trend line, the
less effective that trend line will be, so generally we recommend that the
best places to draw trend lines are from either the start point of the trend
to the first higher low/lower high, or from the first higher low/lower
high to the second. Those are the trend lines which tend to be the most
effective.
Chapter 9b—Trend Lines:
• Trend lines are created using the “diagonal line” tool in

MetaTrader.
• The best place to draw them is by connecting the start point of a
trend with its first higher low (if in an uptrend) or its first lower
high (if in a downtrend).
• You can also connect the first higher low with the second higher
low (if in an uptrend) or the first lower high with the second
lower high (if in a downtrend).
• As with swing zones, trend lines can work the opposite way once
broken, meaning previous resistance becomes support or previous
support becomes resistance.
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C hapter 9 c
Moving Averages
I n this section of the chapter we will be looking at “moving averages”,

and how they can be used to identify support and resistance levels in
the markets.
Moving averages often act as support or resistance because of the
concept of “mean reversion”. The idea of mean reversion suggests that
markets will always have highs and lows, but from time to time, they will
always return to the mean—i.e. the average.
For example, a market will put in a high in an uptrend, return to the
average, and from there the market will decide if it wants to resume the
upward trend, or break the trend and move the other way.
Moving averages often provide a “tipping point” in the market, and
that’s why they are important as a method of plotting potential support
or resistance.
We will be using four moving averages, which you can load on to
your chart by double-clicking on “Moving Average” from within the
“Indicators” list, located in your “Navigator” window on the left-hand
side of the screen:
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Moving Averages
The first one we’ll look at is the 200-bar simple moving average
(200 SMA), which is shown as a purple colour on our main template:
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The 200 SMA is one of the most popular and widely-used moving
averages around. Therefore because many traders are looking at it, it
once again does become something of a self-fulfilling prophecy. It’s a
very useful line to have on the chart and when it does form part of a
“confluence” area, that confluence usually turns into a very strong support
or resistance. You can see in the example above that the market often
reacts strongly when it comes into contact with the 200 SMA.
The other three moving averages we’ll be using are built using
a slightly different calculation. They’re called “exponential” moving
averages. These differ from simple moving averages in that they place
more emphasis on more recent bars, and less emphasis on more distant
bars. This means that an exponential moving average tends to be more
reactive, and follow the market more closely than a simple moving
average, even if calculated on the same number of bars.
The three exponential moving averages (EMAs) we will be using
are 21-bar (yellow), 34-bar (red) and 55-bar (green). 21, 34 and 55 are
Fibonacci numbers, which may not mean much to you at this stage, but
as you go through the book you will learn why this is important!
What these moving averages do is create a thick “band” of support

or resistance. We can treat each of our three EMAs as potential support
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Moving Averages
or resistance in their own right, but we can also think of this as one big
support/resistance zone extending from whichever of the three EMAs
is at the top to whichever is at the bottom, and you can see, both in the
example above (look at the pink shaded areas) just how effective they
can be.
These moving averages tend to work best in strongly trending
markets and not as well in choppy markets, but since we’ll be trading
into trends most of the time anyway, that suits us just fine!
Moving averages should not be used on their own as a support/
resistance area, but when they form part of a strong confluence area they
can be very powerful.
Chapter 9c—Moving Averages:
• Moving averages are an effective method of finding support/

resistance in a market because of the concept of “mean reversion”,
which states that markets will always eventually return to their
average after moving away from it.
• Moving averages work best as support/resistance in a trending
market, but since most of the trades we will be entering will be
trend-following, that suits us.
• Moving averages can be thought of as support/resistance levels
on their own, but the 21, 34 and 55 EMAs can also be thought
of as one large “band” of support or resistance.
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C hapter 9 d
Pivot Points
I n this section of the chapter we will be introducing you to one of the

most widely-used methods of finding support and resistance in the
markets—perhaps the most widely used of all—they are “Pivot points”.
Pivot points are a set of horizontal lines drawn at certain levels across
a chart, which are based on a calculation made on the previous bar. More
specifically, the calculations are made using the previous bars open, high,
low and close levels.
For example, you can have “daily” pivots, which create a set of
support and resistance lines—pivots—which last for one day, based on
calculations made on the previous day’s open, high, low and close. At the
end of the day, these pivots are then recalculated for the next day. We
won’t actually be using daily pivots, however.
What we’ll be using are “weekly” pivots, which give us a new set of
pivot points every Monday, based on calculations made on the previous
week’s open, high low and close. These pivots last for one week, until we
get a new week. They are then are recalculated.
We will also be using “monthly” pivots, which are updated on the
first day of every month, using calculations based on the previous months
open, high, low and close.
The formulas behind pivot points are relatively simple but it’s not
really necessary to know them if you don’t feel you need to! If you are
interested you can find out about them from just a simple Google
search—they’re no secret—but really, all we’re interested in is where
the pivot points are on the chart, and the fact that they can potentially
provide support/resistance, especially as part of a “confluence”.
Once again, there really is no physical, technical or even logical
reason why a market should bounce from a pivot point, but the fact is
that they are extremely popular—millions and millions of traders around
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Pivot Points
the world use them—and therefore it’s important to keep an eye on

them, because markets do often react when they hit a pivot point.
Let’s take a look at how pivot points appear when loaded on to a
chart. You can access them from the “Custom Indicators” within the
“Navigator” window. There are two indicators—“Weekly Pivots” and
“Monthly Pivots”. Just drag them onto a chart to load them.
You can see that the pivot indicators create various lines across the
chart, in different colours and with different types of labels, such as
R1, S3, H4, M2 and so on. These are all different types of pivot lines
based on slightly different calculations. Again, however, it’s not really
important to know the differences between these lines. We treat all
pivots in the same way. In our experience, any pivot point is as strong as
any other. Remember—we don’t use pivot points on their own—we’re
only interested in them if they occur at a “confluence” area along with
other types of support or resistance.
You can see in the example above that markets do indeed often react
to pivot points. In the example above, we can see six clear reactions at
pivot levels during the course of approximately one day’s trading.
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Chapter 9d—Pivot Points:
• Pivot Points are calculated using the open, high, low and close
of the previous bar—calculations on the previous week gives us
a set of weekly pivots, while calculations on the previous month
give us monthly pivots.
• There are different types of pivots, given different designations
such as R1, S2, L3, M0, etc. These are all created using slightly
different calculations but all pivots are as strong as each other in
our experience.
• Pivots are probably the weakest form of support/resistance that
we use; but it is still useful to know where they are to see if they
form part of a confluence.
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C hapter 9 e
Fibonacci Retracements
I n this section of the chapter we’ll be introducing you to “Fibonacci”

levels and how they can be used to identify potential areas of support
or resistance.
You’ve already seen in the headings list for this chapter that there
are two types of Fibonacci levels—“retracements” and “extensions”,
and we’ll be looking at both of those in separate sections. You’ve
also already encountered Fibonacci numbers in the section of this
chapter where we discussed moving averages—we use the exponential
moving averages—21, 34 and 55-bar—which are based on Fibonacci
numbers.
Therefore, before we go on its best that we go in to a bit more
depth about Fibonacci numbers and what they’re all about!
Fibonacci numbers are an amazing marvel of mathematics. Put
simply, Fibonacci numbers arise from a simple sequence. The first
number in the sequence is 0, the second number is 1, and each subsequent
number is found by adding the two previous numbers together, and you
can see how that sequence works below:
0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377
Although this number sequence is believed to have been first

observed by Indian mathematicians as long ago as 450BC, it is generally
accepted that it didn’t appear in the western world until Leonardo of
Pisa, aka Fibonacci, introduced them in the 13th century.
It is said that he actually discovered the sequence by imagining an
idealised version of the breeding patterns of rabbits, but it’s not known
whether or not that is the truth.
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Fibonacci numbers and their related phenomena are simply

amazing and they occur everywhere. For example, the florets in the
centre of a sunflower are always arranged in Fibonacci numbers. The
flowering patterns of artichokes are arranged in Fibonacci numbers.
The arrangement of pine-cones occurs according to Fibonacci numbers.
Music can be arranged according to Fibonacci numbers, and there is
even a famous painting by Debussy which is partly arranged by Fibonacci
numbers. There is a building at the “Eden Project” in Cornwall, England,
which has its structure based on Fibonacci numbers.
These are only a few of many examples! You can find out all sorts of
fascinating Fibonacci information with a simple Google search.
In addition to Fibonacci numbers, the Fibonacci phenomenon also
includes what we call Fibonacci “ratios”, and these are what you get when
you divide certain numbers in the Fibonacci sequence with certain other
numbers from the sequence.
For example, if you divide each number in the sequence by the
number that follows it, you’ll get a number in the region of 62, and the
further you go into the sequence you’ll find that that number always
hovers around the 61.8 mark. Therefore 61.8% is approximately the ratio
of each Fibonacci number to the next.
Similarly, if you divide each Fibonacci number by the one after
the next number, you usually end up with a ratio of in the region of
38.2%!
There are other such calculations, involving dividing by the number
that comes two places after a certain number in the sequence, or three
places after.
By performing calculations like this you end up with certain
important ratios, which are listed below:
23.6%, 38.2%, 61.8% and 76.4%
These percentages, along with 50% (which is not a Fibonacci

number, but is simply a key common sense ratio) are then applied to the
markets.
This means that you might, for example, look for resistance when a
market re-traces 38.2% of a previous down-move, or perhaps you might
look for support when the market retraces 61.8% of its last up-move.
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Again, it’s not really known exactly why Fibonacci numbers should
work this way in relation to the financial markets. There’s no logical
reason why these numbers should apply to the markets in the way that
they do, but the fact is that quite simply, they do!
Fibonacci analysis of the markets is extremely popular and
therefore once again, you find that the Fibonacci levels work as a
self-fulfilling prophecy because so many traders around the world are
acting on them.
So let’s take a closer look at Fibonacci retracements and how they
work…
Before starting out, you need to add in the 76.4% retracement to
MetaTrader’s settings, as this is not included by default. To do this,
you must first click on the “Fibonacci” tool in MetaTrader, which you
already encountered back in Chapter 8d—Confirming Divergences:
Once the tool has been selected, simply click and drag across any
region of a chart, and let go of the mouse. This will produce a “Fibonacci
grid” like the one on the next page:
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Next, select the grid by double-clicking on the dotted diagonal

line which connects the “0.0” and “100.0” lines. Then right-click on
the same diagonal line and click on “Fibo Properties” to bring up the
“Fibo properties” dialog box. In the “Fibo Properties” dialog box, click
on the “Fibo Levels” tab, and you should see this:
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Click the “Add” button. This gives you the ability to add in a new
Fibonacci level. In the “Level” field, type 0.764. In the “Description”
field, type 76.4. Click “OK” and the 76.4% Fibonacci retracement will be
added to your grid. This will now become part of the default MetaTrader
setting so you won’t have to repeat this process again.
Using the Fibonacci grids
With Fibonacci retracements, what we are looking for is to see how far
a market has retraced a certain previous move. The first thing you need
to do therefore is find the move that you wish to study:
In the example above, on a GBP/JPY weekly chart, we are looking to

study the move from the high at point (1) down to the low at point (2).
As you can see, after point (2) the market has begun rising—it has begun
re-tracing the previous down-move. This is where we can use Fibonacci
retracements, to see how much of that previous move has been re-traced.
To do this, we select the Fibonacci tool, and click on the start
point of the move we wish to study, which in this case is point (1). We
drag the mouse to the end point of the move—point (2), and let go.
This produces a Fibonacci grid based on that move:
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With the chart scrolled forwards slightly, you can see in the pink
shaded area that the market retraced almost exactly 38.2% of the
previous down-move, before stopping and continuing lower!
And that’s how Fibonacci retracements work—simply find the move
you wish to study, draw the grid on from the start point to the end point,
and see how the market reacted to the different levels.
Let’s look at another example:
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In the above example, you can see in the pink shaded area that the
market retraced almost exactly 76.4% of the previous up-move (from
point (1) up to point (2)) before stopping and continuing higher!
Where to draw your Fibonacci grids
Quite simply, what we are looking for with Fibonacci retracements is to

see how far the market retraces specific moves. It does take a little practice
to figure out exactly where you need to be drawing your retracements.
We’ve found that once people learn to draw Fibonacci retracement grids
they start drawing them on everywhere and that usually leads to problems!
Our general rule is this: You should draw Fibonacci retracement
grids in two key places:
1) On entire trends
2) On the most recent move within a trend which has not yet been
fully retraced.
Let’s have a look at some examples of what that means:
In the example above, on a USD/JPY weekly chart, an upward trend

has been highlighted. It starts at point (1) and extends up to point (6).
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The points in between are the higher highs and higher lows of the
uptrend, which are also marked with the pink shaded zigzag lines.
Following on from point (6), the market has retraced lower. If we
wanted to find out where the Fibonacci support might lie, we need to
study the upward movement and draw on some Fibonacci grids.
The first place to draw a Fibonacci grid is on the entire trend—
which in this case is from point (1) to point (6). The second place to
draw a Fibonacci grid is on the most recent move within the trend
which has not yet been fully re-traced. In this case that is from point
(5) to point (6):
The blue lines are a Fibonacci grid drawn on the entire trend
(points (1) to (6)). The red lines are a Fibonacci grid drawn on the most
recent leg of the trend which has not yet been fully retraced (points (5)
to (6)).
As you can see in the pink shaded area, the market found support
on a double confluence of Fibonacci retracement levels—38.2% of
the entire trend, and 50% of the most recent leg of the trend. It then
bounced considerably higher!
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Let’s look at another example:
On this monthly chart of GBP/USD, an uptrend has been

highlighted from points (1) to (10). Following on from point (10)), the
market has re-traced lower. If we wanted to find out where the Fibonacci
support might lie, we again need to study the upward movement and
draw on some Fibonacci grids.
The first place to draw a Fibonacci grid is on the entire trend—
which in this case is from point (1) to point (10). The second place to
draw a Fibonacci grid is on the most recent move within the trend which
has not yet been fully re-traced. In this case that is from point (7) to point
(10)—because the market has already fully retraced the move from point
(9) to point (10). The move from point (7) to point (10) is therefore the
most recent leg of the trend which has not yet been fully retraced. When
we draw those Fibonacci grids we see this:
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The blue lines are a Fibonacci grid drawn on the entire trend (points
(1) to (10)). The red lines are a Fibonacci grid drawn on the most recent
leg of the trend which has not yet been fully retraced (points (7) to (10)).
As you can see in the pink shaded area, the market found support
on a double confluence of Fibonacci retracement levels—38.2% of
the entire trend, and 61.8% of the most recent leg of the trend. It then
bounced considerably higher!
There’s no need to draw Fibonacci grids connecting every single
high and low in a trend. Focus on the significant ones. Our experience
has taught us that these are the significant points where you need to be
drawing Fibonacci grids—on the entire trend, and also the most recent
move of the trend.
Chapter 9e—Fibonacci retracements:
• Fibonacci retracements are used to see how far a market has

retraced a previous move—the popular levels to look for are
23.6%, 38.2%, 50%, 61.7% and 76.4%.
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• When used correctly, Fibonacci retracements are a very powerful

method of finding support/resistance levels in the markets.
• The best way to use them is to draw a Fibonacci grid on an entire
trend from beginning to end, and also on the most recent leg of
the trend which has not yet been fully retraced.
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C hapter 9 f
Fibonacci Extensions
I n this section we’ll be taking a look at the final support/resistance

concept that we will be using: Fibonacci extensions. The main
difference between Fibonacci retracements and Fibonacci extensions is
this:
We use retracements to see how far a market retraces a previous
move, from 0-100%.
With extensions we are looking to judge support/resistance levels
that come into play once a market has retraced more than 100% of a
previous move.
Specifically, what we’ll be looking for is when a market retraces a
previous move entirely and continues, to the extents you can see below:
123.6%, 161.8%, 200%, 261.8%, 423.6%
Fibonacci extensions are handy when looking at trending markets, as

they allow us to plot potential support/resistance levels in places where
the trend hasn’t yet reached.
For example, in an upwardly trending market, we can use Fibonacci
extensions to find resistance levels that are above the current market
level, i.e. areas that the market has yet to reach in this trend, and in a
downwardly trending market we can plot support levels below the
market, where the trend has yet to reach.
There are two different situations in which Fibonacci extensions can
be used. The first is on the final leg of the preceding trend.
The second is on the most recent counter-trend retracement
within the current trend.
Before we take a look at what that means, we need to go through a
similar process as with the Fibonacci retracements chapter, in order to
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add certain lines on to our Fibonacci grid that aren’t already there by
default.
Just as before, draw a Fibonacci grid on a chart, select it, right click
and select “Fibo properties”. Select the “Fibo levels” tab, and then click
on “Add”. You need to add the two levels and their descriptions as
highlighted in the picture below:
Once you’ve done that, these levels will stay as part of the default
Fibonacci grid.
How to use Fibonacci extensions
In the example above, on a EUR/GBP weekly chart, we see a market

that is trending downwards—making a pattern of lower lows and lower
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highs—up until point (7). From there, the trend reverses, and we see an
upward trend of higher highs and higher lows.
Following a small downward retracement from point (10) to point
(11), the upward trend resumes. If we wanted to find out where this
upward move might potentially find resistance, we can use Fibonacci
extensions.
If we want to find out where this upward trend might find resistance
from Fibonacci extensions, the first place to draw on a Fibonacci grid is
on the final leg of the preceding trend. In this case, that is from point
(6) to point (7)—which is the final leg of the downtrend which preceded
the current uptrend.
The second place to draw on a Fibonacci grid is on the most recent
counter-trend retracement within the current trend—which in this
case is from point (10) to point (11)—the last downward retracement
within the upward trend.
Let’s look at what happens when we do that:
The red Fibonacci levels are from a grid drawn between points (6)
and (7)—the final leg of the preceding trend. The blue Fibonacci levels
are from a grid drawn between points (10) and (11)—the most recent
counter-trend retracement within the current uptrend.
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As you can see in the pink shaded area, the market found resistance
on a double confluence of Fibonacci extension levels—200% of the
final leg of the preceding trend, and 123.6% of the last counter-trend
retracement within the uptrend. It then dropped considerably lower!
Let’s look at some more examples:
On this weekly chart of USD/JPY, the market has found

resistance from a double confluence of Fibonacci extension levels.
The red Fibonacci lines relate to a grid drawn on the final leg of the
preceding downtrend. The blue Fibonacci levels relate to a grid drawn
on the most recent counter-trend retracement within the uptrend.
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On this daily chart of GBP/USD, the market has found support from
a double confluence of Fibonacci extension levels. The blue Fibonacci
lines relate to a grid drawn on the final leg of the preceding uptrend. The
red Fibonacci levels relate to a grid drawn on the most recent counter-
trend retracement within the downtrend.
Chapter 9e—Fibonacci extensions:
• Fibonacci extensions are used to judge support/resistance levels

once a market has retraced more than 100% of a previous move.
• We use Fibonacci extensions in two places.
• The first is the final leg of the preceding trend.
• The reason for this is because we need to judge the strength of
the current trend against the last time that traders trading in the
opposite direction were in full control of the market.
• The second is the most recent counter-trend retracement within
the current trend.
• This is because we need to judge the strength of the current
trend against the last time that traders trading in the opposite
direction were in partial control ofthe market.
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C hapter 10
Putting it all Together
N ow that you’ve learned the main cornerstones, or building blocks

of this approach to trading, we move on to what is really the third
section of the book. In the first section we introduced you to the basics:
we introduced you to the markets themselves, to the Bet On Markets
website, and to the MetaTrader charting software. In the second section
we moved on and showed you the actual concepts we use to analyse the
markets and to help us make trading decisions.
We introduced those concepts to you one by one as a separate
sections, and what we’re going to be doing now, in this third section, is
show you how all the different concepts we have showed you so far fit
together to create a complete approach to making money on the markets.
First of all, let’s recap on the three cornerstones of our trading
approach.
Trend, divergence, and support/resistance.
Trend is effectively the prevailing direction of the market. Most of
the time, we will be looking to trade in the direction of prevailing trends,
and we establish the trend by using the Market Direction indicator.
Divergence is a specific pattern which shows up on technical
indicators and indicates that a change of direction may be coming. There
are two types of divergences. First of all there’s “regular” divergence,
which is a type of divergence which shows us that a trend may be coming
to an end. Then there’s “hidden” divergence, which shows when a trend
may be about to resume following a retracement.
Finally, there’s support and resistance. The study of support and
resistance leads us to the identification of certain levels in the market
where a change of direction may occur. This change of direction occurs
because sellers come into the market at resistance levels, and buyers come
into the market at support levels. This causes a change in the weight of
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buying and selling, altering the ratio of supply to demand in the market
and, as a result, prices change direction.
What we are looking for is for all these factors to come together to
produce a high-probability trade. What we are effectively looking for is
this:
“Divergence signals which occur at strong confluences of support
or resistance, and which indicate that the prevailing trend may be
about to resume or reverse.”
In a situation like that, you have all the cornerstones of the system
working together. A divergence signal is a sign that the market may
change direction. If that signal occurs at a level where we can expect
a shift in the supply/demand ratio, that then adds to the probability
of the signal. And if that signal is pointing us in the right direction
as per the prevailing trend of the market, then the probability is even
higher.
What we can then do is go to Bet On Markets and place a trade that
will pay out a profit provided the market doesn’t do the exact opposite to
what the signal is telling us it will do. This is the fantastic edge afforded
to us by fixed-odds trading, and means the probability of success in our
trading is extremely high.
Let’s actually take a look at an example of how one of our trades
might come about:
• Monthly trend is strongly down according to Market Direction

indicator.
• Weekly trend is also strongly down according to Market
Direction indicator.
• Daily chart shows a bearish hidden divergence re-entry signal.
• The signal occurs at an area containing a swing zone, a trend
line, a Fibonacci retracement and two moving averages.
• All the indications are that the market will go LOWER, but…
• We can actually make money from a trade that the market
won’t touch a level much HIGHER!
In the example above, the monthly and weekly charts are both in a
strong downtrend, as per the Market Direction indicator. From that, we
therefore know that the longer-term trend is down.
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We then cross over to our shorter-term charts and look for signals
in the direction of that longer-term trend. We then see a bearish hidden
divergence signal on the daily chart, which is setting up in an area where
a swing zone, a trend line, a Fibonacci retracement, and two moving
averages are all converging on approximately the same place to form a
“confluence” of resistance.
That means the market is trading at a level where we can expect a
significant number of sellers to come in, and for the supply to outweigh
demand, which will push the market lower. This is accompanied by a
bearish divergence signal on the daily chart, which also indicates that
the market wants to move lower. We already know we are trading in a
longer-term downtrend, so we have the trend on our side too!
At this point, all three cornerstones of our approach indicate that a
downward move is coming in the market. If the signal then gives us the
extra confirmation by moving low enough to hit its 50% confirmation
line, we can then trade the signal with complete confidence, knowing
that the market has already started doing what the signal suggests it
will do.
This is therefore a high-probability trading opportunity. Even if you
were trading in a more traditional way, you would be looking to “sell”
here, meaning you would take a bearish position in the anticipation that
the market will fall.
The great thing is that we can actually go one step further than
that to put the odds even more in our favour.
We have all the indications that the market will move lower. But we
can then go to Bet On Markets and actually place a trade which will pay
out a profit provided the market doesn’t move considerably higher!
We can go to Bet On Markets and place what’s called a no-touch
trade, which you should already be familiar with from the Bet On
Markets chapter (Ch4). The no-touch trade is our speciality and that’s
what we will be using going forwards.
In this example, we have all the indications that the market will go
lower, but we can then place a trade that the market won’t touch a level
much higher than where it is now.
We’ll make a profit if the market moves a long way lower. We’ll
make a profit if the market only moves a little way lower. We’ll make a
profit if the market goes nowhere. We’ll even make a profit if the market
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moves a little higher! As long as the market doesn’t put in a very strong
upward move, when all the indications are that it will put in a strong
down-move, we will make a profit!
Now let’s just think about that for a moment…
All the indications are there that the market is ready to move lower.
The trend says so. The divergence signal says so. And the resistance
levels say so. The chances of this market going lower are therefore pretty
high. But the chances of this market making a strong move higher are
extremely slim. Tiny even!
But at Bet On Markets we can place a trade that following on from
this strong bearish signal, the market will not rise strongly. That’s what
the no-touch trade allows us to do. It’s an extremely high-probability
trade.
It’s just the same as walking into a sporting bookmaker and saying I want
to make money if Havant and Waterlooville don’t beat Liverpool!
Remember that from chapter 2? You may also remember that we
discussed how it was quite likely that the sporting bookmakers might
not have even let you place that trade because the odds are simply too
much in your favour. It would be “financial suicide” for a bookmaker,
because they’d have tens of thousands of people all over the country
coming in and wagering on a near-certainty. It would be obvious to
anyone that Havant & Waterlooville would have very little chance of
beating Liverpool.
The same kind of near-certainty trades exist in the financial
markets—we’ve been just been looking at an example. However, they’re
not obvious to everyone. You can only spot them with special training,
therefore Bet On Markets are happy to let us place them. They’ll let us
find high-probability situations such as the one in the example we’ve just
been looking at and profit from them.
In the example we’ve just been looking at, all the indications are that
the market wants to go down. And we can then make money provided it
doesn’t go up strongly.
Just because all the indications are there that the market wants to
go down, however, that doesn’t mean for sure that it will. You can never
predict with 100% accuracy what the market will do, and that’s what
makes more traditional trading methods difficult. In more traditional
trading methods you have to be right about the direction of the market
to make any money.
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The thing is, you can predict with an extremely high degree of
accuracy what the market will not do, which is the great advantage of
this style of fixed-odds trading. That’s what we’re going to be looking to
do as we go forwards.
Our trading approach
We have a very specific, very methodical way of finding our trades. There
is a systematic process to go through which involves starting off by
looking at the bigger time frames, to determine the longer-term trends,
and then scaling back through the shorter time frames.
What we’re trying to do is identify shorter-term signals in the
direction of longer-term trends. Sometimes we will trade against the
trend, but usually we will be following the prevailing trend.
In our experience, the more systematic and methodical you can be
about finding trades, the better. With more “discretionary” approaches
to trading, there is more of a “human element”, which inevitably brings
more of the psychological aspect of trading in to play, and that can
have a number of negative effects on your overall probability (which is
something we’ll be covering in greater depth in a later chapter).
We’ve provided you with a set of decision-making “flowcharts”.
Each time you come to analyse a market to see if there is a potential
trade, you simply go through the process on the flowcharts and they will
lead to a conclusion of either “no trade” or “you have a trade”.
Eventually, the processes on the flowcharts will become second
nature to you, but until then keep them nearby and refer to them as you
go through analysing each market one by one. With the processes on
these flowcharts, you can analyse all of the markets that we trade in a
matter of a few minutes. That’s why we only work an hour a day—we
spend a few minutes checking over the charts once every hour, or every
couple of hours, to see how the markets are developing and whether or
not there are any potential trades.
We have 10 specific types of trade that we look for: 10 different
combinations of trend and divergence, which present us with tradeable
opportunities. When you come to analyse a market, follow the process
on the flowcharts through and it may lead you to one of these 10 types
of trade.
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The 10 specific types of trade that we are looking for come under
two categories. There are seven trend-following trade types, and three
counter-trend trade types.
Let’s look at the trade types in more detail. First of all, let’s look
at the seven trend-following trade types, but before you read on, please
make sure you understand what we mean by the terms “reversal signal”
and re-entry signal”. If you don’t, please go back and review Chapter 8—
Divergence.
• 1A) A 4-hour re-entry signal in the direction of the daily,

weekly and monthly trend.
• 1B) A 1-hour reversal signal against the 4-hour trend,
confirming a 4-hour re-entry signal in the direction of the
daily, weekly and monthly trend.
• 2) A 4-hour reversal signal against the daily trend, confirming
a daily re-entry signal in direction of the weekly and monthly
trend
a daily reversal signal against the weekly trend, confirming a
weekly re-entry signal in the direction of the monthly trend.
• 4) A daily re-entry signal in the direction of the weekly and
monthly trend, with no signal on the 4-hour chart which
would allow us to refine the entry.
• 5) A daily reversal signal, confirming a weekly re-entry signal,
in the direction of the monthly trend, with no signal on the
4-hour chart which would allow us to refine the entry.
• 6) A weekly re-entry signal in the direction of the monthly
trend, with no signal on the Daily or 4-hour charts which
would allow us to refine the entry.
It may seem at first that there’s a lot to memorise here, but this is
where the flowcharts will help you out! When you come to analyse a
market, all you need to do is follow the process on the flowcharts and it
will either lead you to a conclusion of “no trade”, or it will lead you to one
of the 10 trade types we look for. After a week or two it will all become
second nature to you.
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Moving on, there are three more trade types that we look for and
those are the counter-trend trades, so let’s take a look at them:

a daily reversal signal against the weekly trend, confirming a
weekly reversal signal against the monthly trend.
• 8) A Daily reversal signal against the weekly trend, confirming
a weekly reversal signal against the monthly trend.
• 9) A Weekly reversal signal against the Monthly trend.
The seven trend-following trade types, and the three counter-trend

trade types, are the 10 specific trade types we look for. These are the
10 combinations of trend and divergence signals which present us with
tradeable opportunities.
The flowcharts will guide you through the process of finding these
trades. Every time you come to analyse a market, just go through the
process on the flowcharts and if one of these trade signals is present, you
will find it, and if not, the flowcharts will tell you that there’s no trade, so
you can move on to analysing the next market.
In the coming chapters you’re going to be learning all about how we
put all the different elements we’ve covered so far together, to create a
complete trading approach.
You’re going to learn how the flowcharts work and how they find the
trade signals we are looking for. You’re also going to learn how to find the
“confluences” of support and resistance that occur in the markets, where
exactly you should place your no-touch barriers, and also how to manage
your trading capital effectively.
By the end of this section of the book you’re going to be a highly-
skilled trader, capable of profiting regularly from the markets!
Before we go on to all that, however, there’s one thing you need to
do, and that’s to set up your charts with the main trading template, so
you can begin looking for the trades.
To do this, first of all open up your copy of the MetaTrader software,
which should still be looking something like this:
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If not, you need to open three charts: a 4-hour chart, a daily chart,
and a weekly chart. Apply the “blank” template to each one. Then, click
the “Window” menu at the top, followed by “Tile Vertically”.
Next, right-click on each individual chart. In the menu that
appears, select “Template”, then apply the “Main” template (in the
colour of your choice). Your MetaTrader window should now look
like this:
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This is our main template. As you can see in the main panel of each
chart, we have the candlestick chart of the market we are looking at,
and we also have our four moving averages and our two Bollinger band
indicators.
Hopefully, it won’t look too cluttered to you, even though we’ve gone
from a blank chart to a chart containing a number of indicators. Going
forwards through the book, you will learn to focus on what you need to
be looking at—you’ll learn to look at the Bollinger bands when you need
to and ignore the moving averages, and vice versa. It’s a skill that you will
pick up in the same way that even when you’re in a noisy room, you can
pick one particular voice or sound to focus on.
From here there’s one final step. In addition to our three main charts,
we also need to be able to see the Market Direction indicator on a
monthly chart.
Open up a new chart (click File > New Chart), and set the time
frame to monthly. Apply the main template to the chart. Using your
mouse, re-size the chart and re-position it so that it completely covers
the weekly chart—taking up the exact same area of the screen.
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At the bottom, where the individual “tabs” for each chart are shown,
click on the tab for the weekly chart. This brings the weekly chart back
to the front, and hides the monthly chart.
Finally, drag the bottom of the weekly chart up, just far enough
so that you can see the Market Direction indicator on the monthly
chart. Your MetaTrader window should now look like this (note the
pink shaded area):
This is now our complete trading profile. We have a 4-hour chart,

a daily chart, a weekly chart, and just in the bottom right-hand corner,
we have the Market Direction indicator which shows us the current
monthly trend. The current monthly trend is the starting point of the
flowchart process.
You are now completely set up to begin analysing the markets
using our flowcharts!
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C hapter 11
Using the Flowcharts
I n this chapter we’re going to be introducing you to the Flowcharts

that we have provided you with as part of the book. These unique
decision-making aids guide you through the process of finding trade
setups in the markets.
As we discussed in the previous chapter, we have a very systematic
and methodical way of finding our trades. There is a certain checklist—
all the cornerstones of our trading system must be present in order for
us to take a trade, and the Flowcharts guide you through the process of
figuring out if all the cornerstones of our trading system are present on
the particular market that you’re looking at.
Eventually, the aim is that you won’t need the flowcharts. Ultimately,
we want the process of looking for and finding trades to be completely
second nature to you.
The process of finding these trades does take some learning at first
however, and that’s why we’ve created these flowcharts, so that even right
at the beginning of your fixed-odds trading career—while you’re still
learning—you can analyse the markets in exactly the same way that we
do, and find the same trades.
What we’re going to do in this chapter is discuss the flowcharts,
describe how to use them and define some of the terms that you will see
on the flowcharts. We’re not actually going to look at practical examples
of using the flowcharts, because that’s going to come later—we’ve
provided you with some live trading examples later on in the book that
you can follow along with, using the flowcharts to see how we arrived
at the conclusions we did and found the trades that we did. For now
however, this chapter will serve as an introduction to, and explanation of
the flowcharts themselves.
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You’ll notice that we’ve provided you with three flowcharts. Two
of them look similar, and then there’s a third one, which looks slightly
different.
Flowcharts #1 and #2—finding the trade signals
First of all, let’s look at the two similar-looking flowcharts, which you’ll
notice are called decision-making flowchart #1 and decision-making
flowchart #’2. You can see one pictured above, but ideally you’ll have
the flowcharts to hand and will be looking at them in front of you on
paper.
These two flowcharts guide you through the process of actually
spotting the trade signals themselves. The third flowchart—the one that
looks different to the other two—is the flowchart that “filters” the trade
signals. Just finding a trade signal on these charts is not enough. From
there, there are a number of other criteria that must be fulfilled before we
consider it to be safe enough to actually commit the trade to our account,
and that’s what the third flowchart does. For now, however, let’s focus on
the other two.
Why are there two of these flowcharts? Quite simply, one of them is
used for finding trades in a bullish market, and one of them is used for
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finding trades in a bearish market. FlowChart #1 is for bullish markets,

and flowchart #2 is for bearish markets.
The next thing you’re probably wondering is “how do you figure out
whether we’re in a bullish market or a bearish market?” For that, take a
look at the very start point of each flowchart. Notice that each flowchart
starts off from the monthly Market Direction indicator. That’s the very
first thing you look at when you come to analyse a market.
In the previous chapter you set up your charts so you have a 4-hour
chart on the left, a daily chart in the middle, a weekly chart on the right
and then just in the bottom right-hand corner of the screen you’ve got
the monthly Market Direction indicator. That’s your starting point, and
that’s how you determine whether we’re in a bullish market or a bearish
market.
Quite simply, if the monthly Market Direction indicator is
showing a green dot (either light green or dark green), then you’re in
a bullish market. You would therefore use flowchart #1 (you’ll see that
the start point of flowchart #1 is “monthly Market Direction indicates
uptrend”.
If the monthly Market Direction indicator is the opposite, and
showing either a red dot or a pink dot, then we’re in a bearish market,
which means you would use flowchart #2.
Remember, the key to the trading approach we’re teaching you is
to determine the longer-term trend, and then find trade signals on the
shorter-term term charts that are either in the direction of that trend,
or in some rare cases against that trend. We achieve this by starting out
looking at the monthly trend, and then scaling back through the shorter
time frames to find our actual trade signals.
From the start point, move on to the first question. This question
determines whether or not you are looking for a trend-following trade
or a counter-trend trade. In the previous chapter we saw that there are
seven trend-following trade types and three counter-trend trade types.
Most of the time, your answer to this question will be “no”. If the answer
to the first question is no, then you’re looking for trend-following trades.
If the answer is “yes”, then you’re looking for counter-trend trades.
Now, cast your mind back to Chapter 7—Market Direction…
In that chapter we introduced our rule, which dictates how to use the
Market Direction indicator: That the trend on any chart determines
the trade signals you look for on the time frame below.
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This means that the trend on the monthly chart determines the
signals we look for on the weekly chart. With the example flowchart
above (which is flowchart #1) you’ll see that the first question is: “Is
there a bearish regular divergence signal on the weekly chart?”
We know in this example that the monthly chart is in an uptrend
because the monthly MarketDirection dot is green. But if there is a
bearish reversal signal on the weekly chart, then that means that the
monthly uptrend may be coming to an end. Therefore, we want to look
for counter-trend trades.
If the answer to this question is “no”, meaning that there is no
indication on the weekly chart that the monthly uptrend is about to end,
then that obviously means that the monthly trend is likely to continue,
and therefore we want to be looking for trend-following trades.
Remember—please make sure you understand the terms “regular
divergence signal” and “re-entry signal” before continuing!
Rather than go through each and every question on the flowcharts,
what we will do in this chapter is point out some relevant details, explain
the meaning of some of the questions and define some of the terms
you will see on the FlowCharts. This will allow you to understand the
flowcharts clearly before moving on.
Firstly, take a look at this question:
Is there a bullish re-entry signal

appropriate to the weekly trend
on the daily chart?
You may be wondering what this means. Referring again back

to Chapter 7, when we introduced you to the Market Direction
indicator, you’ll remember that a trend can be either “strong” or
“weak”. A strong uptrend is represented by a dark green dot,
while a strong downtrend is represented by a red dot. The weaker
up and downtrends are represented by light green and pink dots
respectively.
Now, cast your mind back to Chapter 8c—Hidden Divergence.
You’ll remember that we defined two types of signals. First of all, there
was the standard hidden divergence re-entry signal. Secondly, there was the
hybrid hidden divergence re-entry signal.
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The standard signal is used when trading in the direction of a strong

trend, while the hybrid signal is used when trading in the direction of a
weak trend.
So looking again at the question above—if the weekly trend
was strong, the appropriate signal on the daily would be a standard
hidden divergence re-entry signal. If the weekly trend was weak, the
appropriate signal would be a hybrid hidden divergence re-entry signal.
That’s what we mean by “appropriate to the trend”.
“Refining” the entry to a trade
We’ve already emphasised (many times!) that the key with this trading
system, and with these flowcharts, is to find longer-term trends and then
find shorter-term entries either into or against those trends.
With each trade signal, we aim to scale down to the shortest time
frame—the 4-hour chart—to find our signals. You will notice that all the
way through this flowchart, we are constantly trying to “refine” the entry
to our trade. If there’s a re-entry signal on the daily chart, for example,
we would look to see if we can refine the entry further by looking across
at the 4-hour chart to see if there is a reversal signal. The reason we
do this is because a reversal signal on the 4-hour chart will hit its 50%
confirmation line long before the daily re-entry signal will.
Take a look at this example:
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This is an actual trade setup which occurred in GBP/USD in

September 2008.
On the right-hand side of the screen we have a daily chart, while on
the left-hand side of the screen we have a 4-hour chart.
The daily chart is showing a bearish standard hidden divergence re-
entry signal, while the 4-hour chart is showing a bearish regular divergence
reversal signal.
The high of the market occurred on 25th September. In order to
see the bearish hidden divergence signal on the daily chart become
confirmed, we would need to see the market fall 50% of the way back
towards its previous low. This did not occur until 29th September.
However, we can refine the entry by using the 4-hour signal as our
trigger. In order to see that signal confirmed, we need to see the market
trade down 50% of the way towards the lowest point in-between the
start of the divergence and the end. This occurred on 25th September—
the same day as the high, and four days before the daily signal was
confirmed!
Not only were we able to get in to the trade sooner, we were also able
to get a much safer no-touch level, because the market had not fallen too
far yet, allowing us to position our no-touch barrier much higher than
we would have been able to if we were trading just the daily chart setup.
In that example, the 4-hour chart is our short-term time frame.
That’s the chart that we ideally want to use as our trigger for the trades.
Generally, it’s not a good idea to refine the entry any more than that,
because once you get into the even shorter time frames, the signals exert
less influence over the longer-term direction of the market. For example,
you wouldn’t use a 5 minute chart to predict what’s going to happen over
the next week—so generally, we stick to the 4-hour chart as our shortest-
term time frame, our trigger chart.
The eagle-eyed amongst you will have noticed there is one exception
to that rule. With Trade Type #1B we do drop down to the 1-hour chart
to look for our trigger. Trade Type #1B is an extension of trade type #1A.
What separates these two trade types from the others is the strength
of the trend that we are trading into. These are the only two trades that
occur when the market is in an extremely strong trend—when the same
trend is present on the daily chart, the weekly chart and the monthly
chart.
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Most of the time, a 1-hour chart is not strong enough to predict what
the market will or won’t do over the next seven days—the probability is
not high enough. It might be perfectly OK for predicting over 2-3 days,
but when it comes to predicting a whole week, which is what we’ll be
doing with this type of trading, it’s not enough. It’s too short a time
frame.
The one exception is when you have an extremely strong trend
behind you. Trade Type #1A occurs when you find a re-entry signal on
the 4-hour chart in the direction of a very strong trend that is present on
the daily, weekly and monthly chart.
In this case, when you’ve got those factors in your favour, it is
acceptable to look for a trigger on the 1-hour chart. That’s the only
situation where the probability of a trade with a trigger based on the
1-hour chart being successful is high enough.
Of course, you don’t actually have to remember any of this if you
don’t want to! When you come to analyse a market, just follow the
process through and you will be led to the correct trade type, if there is
a trade present on the market you’re looking at. Naturally though, it is
just helpful to understand the background to why we do what we do, and
why we take the certain trade types that we do, and when.
Flowchart #3—“Filtering” the trade signals
Once you’ve found a trade signal, that doesn’t necessarily mean that that
signal is actually going to become a trade. There’s another flowchart,
another set of steps to go through, in order to determine if that trade
signal is safe enough to take as an actual trade.
These flowcharts actually do everything they can to stop you from trading!
There are a number of steps to go through before you have a trade
safe enough to commit to your account. Over-trading is one of the
greatest pitfalls you can suffer as a trader, whether you overtrade out
of boredom, or anger, or anything else, the fact is that to be successful
you need to only take the safest trades—the ones that conform to your
system—and that’s what these flowcharts are trying to get you to do; to
filter out the unsafe trades, the not-so-good trades, the trades that have
factors working against them.
To do this we use flowchart #3, also known as the “trade flowchart”.
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Just as before, the Flowchart above is simply there for completion.

Ideally, you’ll be looking at the paper flowchart in front of you to follow
along with this section.
The first thing you’ll see is that there are two columns. The column
on the left covers trade types lA, 4 and 6, which are trades where a hidden
divergence re-entry signal is the trigger. Over on the right, you’ll see a
column that deals with trade types lB, 2, 3, 5, 7, 8 and 9. These are the
trade types where a regular divergence reversal signal is the trigger.
Let’s start with the right-hand column:
The very first question is there to determine whether or not there
is a confluence of support or resistance present in the area where the
trade is setting up. Remember—support/resistance is one of the
three “cornerstones” of our trading approach. We’ve used the previous
flowchart to determine the trend and the divergence signals, which are
the other two cornerstones, but this question deals with determining
whether or not the third cornerstone is present. All three cornerstones
must be present otherwise we don’t have a trade. A divergence signal that
occurs without support/resistance to back it up is nothing more than a
pretty pattern!
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You’ve already learned about the different types of support/resistance

that we look for back in Chapter 9, and you should be familiar with those
by now. If you’re not, please go back and review Chapter 9 again.
The key is to find “confluences” of these support/resistance levels—
areas where several different types of support/resistance converge on
approximately the same area. In the next chapter, we’ll teach you how
to find these confluences—so don’t worry if you’re a bit uncertain about
that at the moment.
Quite simply, if the answer to this question is “no”—if you can’t
determine a clear support/resistance confluence at the point at which
your trade signal sets up—then that trade is not safe enough to take; so
therefore, no trade. Obviously, if the answer is yes, then you move on to
the next question.
The next question deals with the 50% confirmation rule. Has the
trade been confirmed under this rule?
At this stage in your study, you should know what this means. If you
don’t know what this means—that is, if you don’t know how to find this 50%
confirmation level—then you shouldn’t be studying this chapter. Please return
to Chapter 8d—confirming divergences, and make sure you’re familiar with
all the material in that section.
If you do know what that means then great! Remember—you must
wait for that 50% confirmation. Until the market touches that 50% level
there is a much greater chance that the setup could fail. It doesn’t matter
if it’s the most perfect-looking setup you’ve ever seen, you still have to
wait for a touch of that 50% line. If the answer to this question is “no”,
then the conclusion is “no trade”. But if the answer is yes, then we move
on to the next question.
The next question is: “Can you get a no-touch level that you are
happy with?”
The subject of where exactly to position your no-touch levels is
something that we’re going to come on to in a later chapter, so don’t
worry if you feel unsure about the answer to that, because once you’ve
gone through the later sections you’ll be able to answer with confidence.
Once again, if you find that the answer is “no”, if you can’t get a no-
touch level that happy with, then there is no trade. But if the answer is
“yes” then you’ve made it! You’ve made it to the end of the flowchart
process and you have a trade.
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You’ve gone through the whole process; you’ve established that all the
cornerstones are there, the trend, the divergence and the support/resistance.
You’re happy with the no-touch level and the trade meets all the criteria—
checks all the boxes—and you can now place that trade on your account.
That’s the flowchart process with these types of trade signals, in
which the “trigger” signal is from a regular divergence reversal signal.
In the left-hand column, which as you’ll remember, deals with trades
in which the “trigger” signal is a hidden divergence-based, re-entry setup,
the process is exactly the same, apart from the fact that there is one extra
step, which is the very first step on that side of the flowchart.
With the trade types in this left-hand column, what you’re doing is
re-entering existing trends. The trigger is a re-entry signal of some kind
(either a standard re-entry signal or a hybrid re-entry signal). The point of
this first step is to stop you from entering a trend that may be about to
finish. The old saying amongst traders is that “the trend is your friend”,
and that’s still very much true, but there is an extension to that which
says “the trend is your friend until the end when it bends”!
What that means is that if you take a trend-following trade right
at the end of a trend, then there is a good chance that that trade will
fail. This first step will hopefully prevent you from doing that. The
question is:
“Is the hidden divergence re-entry setup occurring against a CON-
FIRMED regular divergence reversal setup on the time frame above?”
For example: If the monthly chart is in an uptrend, and the weekly
chart is in an uptrend, you would probably be looking for a bullish
re-entry setup on the daily chart. But—if there is a bearish regular
divergence reversal signal on the weekly chart, that has confirmed under
the 50% rule, then the indication is that that the uptrend is about to
finish. That means you don’t want to be re-entering that uptrend at that
point!
If the answer this question is “no”, which means that there is no
indication from the time to frame above that the trend is over, then the
trade is still a possibility and you can move on to the next question. If the
answer is “yes”, then once again, you have no trade.
The rest of the process in the left-hand column is the same as in the
right-hand column. Check for support/resistance first, then look for 50%
confirmation, then make sure you can get a no-touch level you are happy
with, and if you can, then you have a trade!
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C hapter 12
Support/Resistance
Confluences
I n this chapter we’ll discuss the process of finding the support/

resistance confluence areas that make up the third cornerstone of our
trading approach after trend and divergence.
Just to recap a little, in this trading approach we are looking for
divergence signals that either indicate a resumption of the prevailing
trend or a reversal of it, but in order for us to actually trade those signals
we need them to be backed up by a good confluence of support/resistance
levels.
Divergence signals tell us that a change of direction is potentially
about to happen, but unless they are “backed up” by strong support/
resistance, divergence signals can often fail. They may indicate a potential
change of direction, but without support/resistance you’ll often find
that that change eventually doesn’t happen. Divergence signals really
only become a truly effective trading signal when they are confirmed by
analysis of support/resistance levels.
Markets ultimately change direction because the ratio of supply to
demand changes. When there’s more demand than supply, meaning more
buyers than sellers, markets move higher, and when there’s more supply
than demand, meaning more sellers than buyers, markets move lower.
With support/resistance analysis, what we’re effectively looking for are the
“tipping points”; the exact areas in the market where the supply/demand
ratio will change enough to produce a change of direction in the market.
Sometimes we’ll be looking for areas where lots of buyers will come
in to the market and overpower the sellers, and sometimes we’ll be
looking for the opposite—areas where enough sellers will come into the
market to overpower the buyers.
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Support/Resistance Confluences
To find the areas where enough of these buyers or sellers come in

to produce these changes of direction, we need to find the support/
resistance confluence areas. Not every trader in the world uses the same
approach to finding support/resistance. Some traders only use pivot
points, some traders only use trend lines, some traders only use Fibonacci
retracements and so on, but all these individual groups of traders are not
enough to move the market on their own.
What we need to find are areas in the market where several different
types of traders will be buying or selling at the same time. If you can
find a level in the market where pivot traders, moving average traders,
Fibonacci traders and trend line traders are all going to be buying at
approximately the same time, then that is naturally going to produce a
much bigger change in the supply/demand ratio than a level where, for
example, just the pivot traders are buying. If you can combine an area
of strong support/resistance with a solid divergence signal, and you’re
trading in the right direction as dictated by the current trend of the
market, then the chances are that you have yourself a very good trade!
Obviously, the more different types of support/resistance you can
identify in a particular area, the stronger that area becomes, and therefore
the greater the likelihood that any trade signal which forms there will be
successful.
The main point of this process is to determine whether or not the
trade signal we’re looking at is occurring at a confluence of support/
resistance levels. What that means is that we will have already found
an area where the market changed direction, as a result of our 50%
confirmation rule. Remember—with every trade signal we always wait to
see the market move a certain distance in the direction suggested by the
trade signal before we consider it confirmed.
What we then do is check to see if there were any support or
resistance levels in the market which prompted that change of direction.
If we see a trade signal but we can’t really determine any clear support or
resistance levels that went along with it, then that’s potentially a “false”
signal; a move in the market which has occurred without any solid reason
for it, and that means the change of direction may not last, and that any
trade placed there would then be at increased risk of losing.
If, however, we see a trade signal and we can identify a clear
confluence of support or resistance levels at the point at which the trade
signal occurred, then that means the trade signal is much more likely
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to succeed because there are concrete reasons why that move happened,
and those reasons are related to the concept of supply and demand. That
means the move is more likely to be sustained.
You must have this confluence along with a trade signal. We don’t
have any interest in trade signals that occur without a clearly identifiable
confluence of support or resistance levels to back them up.
Defining “confluence”
The first thing we need to do is clearly define what we mean by a

“confluence” of support or resistance levels. As we’ve already covered,
confluence is a gathering of different types of support or resistance levels
in approximately the same place; however to be more specific, when we’re
looking for these confluence areas we like to see:
• At least three different types of support or resistance in the

same approximate area.
This is fairly self-explanatory but to be clear, this means that there

must be three different groups of traders all perceiving the same area
as holding support or resistance. If you can find an area like that, then
generally that will produce a strong enough change in the supply/demand
ratio to produce a change of direction in the market. For example, you
might find an area containing a swing zone, a trend line and a moving
average; or you might find an area containing a swing zone, a Fibonacci
level and a pivot. If you can identify three distinct types of support or
resistance in the same area, that’s enough to consider it a confluence.
• “Approximate area” generally means around 150 points or less.
It’s quite rare that you’ll find a confluence of support/resistance levels

that all converge very closely together. It does happen sometimes but
generally, rather than exact, pinpoint levels, we look to find a confluence
of three or more support/resistance levels in an area with a range of
around 150 points or less.
When we come to analyse the various support/resistance levels that
are in play in the market we’re looking at, there is a secondary part to
the process. The main part of the process is to identify the confluence of
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support or resistance levels that confirms the trade signal you’re looking
at. The second part of the process involves looking to see if there are
nearby confluences of support or resistance as well, because these will
come in to play when you think about where you’re going to be placing
your no-touch barrier.
We’ll go into this in more detail in a later chapter, but the fact is we
don’t just place our no-touch barrier arbitrarily. For example, if we have a
bullish trade signal, we would look to place our no-touch barrier below
the current market level. Alternatively, if we have a bearish trade signal, we
would look to place our no-touch barrier above the current market level.
We don’t place our barriers somewhere that sounds like a nice “round
figure”, such as 200 points away or 300 points away. Nor do we place it at
a level determined purely by the percentage return we wish to take from
the trade, or by how much money we’re prepared to risk on it.
We determine where to place our no-touch levels based on where
additional areas of support or resistance lie in the market.
Take a look at this example:
• We have a bearish trade signal on GBP/USD, occurring at a

strong “confluence” of resistance levels around 1.6500.
• We identify additional “confluence” areas of resistance around
1.6650 and 1.6800.
• We then look to place our “no touch” level above those additional
confluences for a high-probability trade.
We’ve analysed the market, using our flowcharts and we’ve

determined that the GBP/USD market is in a downtrend. We’ve then
followed through the flowchart process and established that there is a
bearish trade signal. We’ve found one of our particular trade types that
is signalling that the prevailing downtrend in this market is about to
resume.
We then establish that the signal is occurring at a level which
contains a strong confluence of resistance areas, perhaps a swing zone, a
trend line, a moving average and a Fibonacci level.
Our next step would be to go to BetOnMarkets and place a no-touch
trade. Remember—this is a bearish signal, so we would place a no-touch
trade above the current market level. All the indications we’re getting
from the charts are that the prevailing downtrend is about to resume and
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that the market will move lower. Therefore we will place a trade that the
market will not touch a level significantly higher than where it is now.
We determine exactly where to place this no-touch barrier by looking at
the additional resistance levels in the market.
So looking at the example above, we have a bearish signal that is
occurring at a strong confluence of resistance, centred around the 1.6500
area. Through analysis of the resistance levels nearby, we determine that
there are additional confluences of resistance around the 1.6650 and
1.6800 areas.
If we can then place our no-touch barrier above one, or both, of these
additional confluences, and still get a return that we’re happy with, then
that’s great! It means that in order for us to take a loss on the trade; an
extremely unlikely set of circumstances has to occur. Not only would our
confirmed bearish signal have to fail, but the market would have to break
through one major confluence of resistance levels around 1.6500, and
then break through another, or possibly even two more major confluences
of resistance levels before it threatens our no-touch barrier.
Remember—plenty of “sellers” will come in to the market at these
confluences of resistance levels, so even in the unlikely event that our
original, confirmed bearish signal fails, and the market begins to move
higher, the selling pressure around these confluence areas should be
enough to keep the market away from our no-touch barrier long enough
for the trade to expire successfully.
That’s what makes this such a high-probability approach to trading,
and means that by studying the nearby support/resistance levels and
positioning our no-touch barriers carefully based on those levels, we
can actually make money even on the rare occasions when the market
moves against us!
Therefore, when we go over the process of plotting these support/
resistance levels on our charts, our primary focus is on the actual area
where our trade signal is setting up, but as well as that, we also need to
make sure that we plot nearby support/resistance levels as well, because
we’ll use these later on, when it comes to actually placing the no-touch
level that makes up our trade.
This process isn’t as complicated as it may sound, because when you
come to analyse the actual area where the trade signal itself occurs, that
actually takes care of some of the work of spotting the additional support
or resistance areas for you.
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For example, when you draw a Fibonacci grid on the chart, it displays
multiple Fibonacci levels, not just the one that may be relevant to the
area where your trade signal is setting up. Similarly, when you load on
a pivot point indicator, it displays all the pivot levels that are currently
active in the market, and some of those will be above the current market
rate and some will be below, so even if they’re not relevant to the area
where the trade signal itself occurs, they may come into play when you
think about where you’re going to place your no-touch level.
How to find support/resistance confluences
• First things first—make sure you have a trade signal!
There’s no need to do the extra work of finding all the support/

resistance levels in a market if you don’t have a trade signal to combine
it with! First of all, we’re looking for a trade signal, and only after
we’ve found one do we then analyse whether or not that trade signal is
occurring at a confluence of support or resistance levels.
• Check your moving averages—is the market being supported

or resisted by any moving averages on the 4 hour, daily, weekly
or monthly charts?
The moving averages are actually located on our main template, and
the reason for this is simply because moving averages change depending
on the timeframe of the chart you’re looking at. If you have a 200-bar
moving average on a 4-hour chart, and then you change the timeframe
of that chart to daily, the moving average is going to recalculate because
the average of the last 200 4-hour bars will be completely different to
the average of the last 200 daily bars. In this sense, moving averages can
kind of be thought of as a “dynamic” indicator, in as much that they give
you a different value depending on the time frame of the chart you’re
looking at.
• Open up a blank chart of the currency pair you are analysing,

and begin adding any relevant “static” support/resistance
levels on the monthly/weekly/daily time frames.
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The other types of support/resistance—pivots, swing zones, trend

lines and Fibonacci levels—don’t change if you change the time frame of
the chart. For example, if you draw a trend line from point “X” to point
“Y” on a 4-hour chart, that trend line will stay in the same place, because
point “X” and point “Y don’t change if you change the time frame.
This is handy because it means we can mark on support/resistance
levels from several different time frames on the same chart. This makes it
much easier to see where the confluence areas exist, because you can see
monthly levels, weekly levels and daily levels all on the chart at the same
time.
In our experience, we’ve found that the easiest way to spot these
confluences is by drawing as many types of support/resistance levels
as possible on the same chart. Ideally, we’d like to be able to draw all
our different types of support/resistance on the same single chart, but
unfortunately that’s not possible given the nature of the moving average
indicator. They are the only ones which have to remain separate, so we
simply check our moving averages first, and then cross reference that
with all the other types of support/resistance on a separate chart.
We recommend that when you open up this new chart, the first
thing to do is change the time frame to monthly. On this monthly
chart, draw on any swing zones which might be in play in the area the
trade signal is setting up, or which are near enough to that area that
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they might become important when considering where to place your

no-touch barrier. Do the same with any trend lines—drawing on any
that are either relevant to the trade signal itself or near enough to come
into play when considering where to place your no-touch level, and then
finally draw on any Fibonacci grids that are relevant.
From there, drop down to the weekly chart and repeat the process,
drawing on any relevant swing zones, trend lines and Fibonacci levels,
and then to the daily chart and repeat the process again. The final step is
then to load on your pivot indicators, both weekly and monthly.
What you’re left with once you’ve gone through that process is a chart
containing all the static support/resistance levels which are currently
active in the market you are analysing. From there, you should be able
to see where the confluences are. All you need to do is look for certain
areas on the chart where several types of support/resistance are clustered
together in approximately the same area, and if there are any, they should
be fairly obvious to the eye.
The truth is that you can’t always find every type of support/resistance
on every time frame. Sometimes there simply won’t be any swing zones
or trend lines close enough to be relevant to the trade on a particular time
frame, but that’s why we use multiple different types of support/resistance
and multiple time frames so that we can still find these confluence areas.
Remember—a confluence needs to contain at least three different types
of support/resistance. We have six different methods of finding support
or resistance areas—swing zones, pivots, trend lines, moving averages,
Fibonacci retracements, Fibonacci extensions—so even if they’re not all
present, we can still find good confluence areas.
The rectangle tool
One handy tool in MetaTrader is the rectangle tool, which we can use to
actually highlight the confluence areas we find on the charts. First of all
the tool needs to be loaded on to our toolbar at the top of the MetaTrader
window. To do this, right-click on the “Line Studies” toolbar (which contains
crosshair, Fibonacci grid etc). Select “Customize”. Highlight “Rectangle” in
the left-hand box and press the “Insert ->” button. Press “Close”.
To change the colour of a rectangle, double-click on any of the
four corners on the rectangle, right-click and then select “Rectangle
Properties”. The options to change colour are in the “Common” tab.
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C hapter 13
Placing No-touch
Barriers
I n this chapter we’re going to be looking at exactly where we should

be looking to place the no-touch barriers on each trade that we take.
That therefore makes this one of the most important chapters in the
entire course!
To recap and re-emphasise, what we’re looking for, with the
flowcharts, and the technical setups that occur based on trend, divergence
and support/resistance, are signals that a market is about to move in one
direction, either up or down. When we find one of those signals, we place
a no-touch trade which effectively amounts to a trade that the market
won’t move in the exact opposite direction to that which is suggested by
the signal.
For example, if we have a bullish trade signal, a signal that the
market is about to move higher, we would place a trade that the market
won’t touch a level much lower than where it is now. Similarly, if we have
a bearish signal, a signal that the market is about the move lower, we
would place a trade that the market won’t touch a level higher than where
it is now.
This allows us to have a phenomenally high success rate in our
trading, because when you’re trading through more traditional methods,
you can only make money if the market moves in your favour, and
even then, in order to make good money on the trade, it has to move a
considerable distance in the direction you predicted.
With this style of trading however, we too will make money if the
market moves a long way in our favour, but we’ll also make money if the
market only moves a short distance in our favour. We’ll make money
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Placing No-touch Barriers
if the market goes nowhere, and we’ll even make money if the market
moves some way against us.
The fact is that markets are not 100% predictable; even if you have
all the indications that a market is about to move in one direction, that
doesn’t necessarily mean that it will—if markets were as easy to predict
as that then we’d all be rich!
When you see a signal that the market is about to move in one
direction, it may move in that direction, or it may just consolidate for
a while, as buyers and sellers battle it out for control of the market. The
key is that if you have all the indications that a market is about to move
in one direction, the chances of it moving in the exact opposite direction
are extremely slim.
It’s much, much easier to predict what markets won’t do than it is to
predict what markets will do, and that’s what makes up the core of this
approach to trading, and what gives it such a high success rate. When
trend, divergence and support/resistance all combine to suggest that a
market is about to move in one direction, it’s extremely unlikely that the
market will just ignore all that and move off the other way.
In the previous chapter we explained that when we come to analyse
the support/resistance levels in a market, not only do we need to look at
the levels which are present in the area at which the trade signal itself set
up, we also need to mark out nearby areas of support/resistance so that
we can then judge where to place our no-touch barriers.
The more layers of support/resistance that exist between the current
market rate and the level at which we place our no-touch barrier, the
safer that trade will be. Naturally, the safer the trade, the more likely it is
to succeed, and that means that the return will be lower, and the capital
required (the purchase price of the trade) will be higher.
This is the “trade-off ” with trading. You can go for higher-risk,
higher-returning trades, or you can go for lower-risk, lower returning
trades. In fact, that in itself is another great advantage of this style of
trading, in as much that you can adapt it to suit your own preferred
personal style of trading, and your level of risk tolerance.
Differing levels of risk
We have three different “classifications” of trade, based on how many

layers of support/resistance exist between the current market level
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and our no-touch barrier. The three classifications are “higher-risk”,

“medium-risk” and “lower-risk”.
• For a higher-risk trade, the no-touch barrier is placed just past

the confluence of support/resistance levels where the trade
itself set up.
• For a medium-risk trade, the no-touch barrier is placed just
past the first additional confluence of support/resistance
levels you can identify.
• For a lower-risk trade, the no-touch barrier is placed just past
the second additional confluence of support/resistance levels
you can identify.
The names “higher-risk” and “medium-risk” are slight misnomers in

the sense that these are all low-risk trades—regardless of the classification
these are all trades that the market won’t move one way, when all the
indications are that it will move the other.
While they are all low risk trades, the difference between them
is simply how low the level of risk is—how many layers of support or
resistance exist between the current market and your no-touch barrier.
The best way to illustrate this concept is with a simple diagram:
This diagram is a simplified representation of what you could do

when a bearish trade signal sets up. While this example covers a bearish
trade signal you would simply do the opposite if it were a bullish trade
signal.
173
The black line represents the market itself, and the pink shaded areas
represent “confluences” of resistance that we have previously identified by
going through the process outlined in the previous chapter.
We have three options when it comes to deciding where to place our
no touch barrier.
The first option would be to go for a higher-risk trade, and to do
that we would place our no-touch barrier just past the confluence of
resistance levels where the trade itself set up. The advantages of placing
a higher-risk trade are fairly obvious, in that because the level of risk is
higher, the potential returns are higher. This allows you to make more
money from each trade, or to make the same amount of money as you
can on the other types of trade while risking less, which is handy if
you’re starting out from a fairly low capital base. The disadvantage of
higher-risk trades is that the success rate is lower than the other two,
because you effectively have no “insurance” against the market moving
strongly against you. If the market does move away from the resistance
area, the trade will be a winner, and it will also be a winner if the market
consolidates around that area. But if the market does move higher, and
break through the resistance level, then your trade is at risk of losing.
The second option is the medium-risk trade which is, as you might
expect, the best of both worlds. You can make more money on each trade
than with the lower-risk option, or similar money but with less capital
at risk, but you do also effectively have insurance against an unexpected
move against you. Even if the market moves higher and breaks through
the first confluence of resistance levels, it will then have to contend with
the second.
The third and final option is the lower-risk trade, which obviously
is at the other end of the scale to the higher-risk trade. In order for a
lower-risk trade to lose, the market would not only have to move against
you in the first place, which is unlikely if you have a clear, confirmed
trade signal that checks out on the flowcharts, but it would also have to
break through three major confluences of resistance over the course of
just five trading days—when all the indications are that it will do the
opposite to that. This means that lower-risk trades have a success rate
well in excess of 95%—closer to 98% historically, in fact.
This means that you can go on long runs of winning trades for
months and months at a time, which is obviously great, both for your
account balance and for your psychology. Obviously, the disadvantage of
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the lower risk trades compared to the other two types is the lower return,
meaning that you have to employ more capital to get the same returns
as with the other two, but that ties in with what we discussed all the way
back in chapter 2 with the example of trading on a non-league football
team to not beat Liverpool, in that it’s acceptable to take on that extra
risk when the odds are so stacked in your favour.
You will find that not every trade signal is as straightforward as
this example. Sometimes, for example, you will find that you can’t do
the lower risk trades, and in some rare cases you’ll find that you can’t
do the medium-risk trades either. This happens when the additional
confluences of support or resistance that you identify are too far away
from the area where the trade signal itself is setting up. If we were unable
to place a lower-risk trade on a particular trade setup, we’d look to place
a medium-risk trade instead. On the rare occasions that we’re unable to
place a medium-risk trade either, we’d look to place a higher-risk trade.
It is, however, acceptable to take these different levels of risk when
you’re trading because we’ll be employing a sensible system of money
management, which means that the higher the level of risk you take with
a trade, the less capital you employ, while still being able to generate good
returns, and you’ll be learning all about that in the next chapter.
This means that we can be very flexible in our approach and it’s very
rare that we have to pass on a trading opportunity because we’re unable
to get a no-touch level that we’re happy with (which, if you remember, is
one of the questions on the trade flowchart). It’s very rare that we have to
answer “no” to that question because by being able to take varying levels
of risk depending on how the support/resistance levels are set up, we can
easily adapt to the individual conditions of each trade.
Each confluence of support/resistance levels between the current
market rate and our no-touch barrier adds in more “insurance” against an
unexpected move against you in the market, and means a greater chance
of success—with the trade-off being that the more chance of success
you have with a trade, the lower the potential return, and the greater the
amount of capital required.
This flexibility means not only can you act on virtually every trade
signal you see, regardless of how the support/resistance levels are shaping
up, it also means you can tailor your trading to your own personal level of
preferred risk, or your own personal capital level, the amount you have in
your trading account.
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Getting the right return
There’s one final consideration when it comes to placing no-touch

barriers, and that’s the need to make sure that the potential return on the
trade is suitable in relation to the level of risk you’re taking.
The way that binary options trading works, particularly with these
no-touch trades, allows us to think about risk in a different way to more
traditional traders, in that we can take trades where we’re risking more
than we stand to gain, but only because the odds of us being successful
on the trade are extremely high.
Nonetheless, it’s still important that you maintain a good balance of
risk to reward, so we do have certain levels of return that we look for
with each particular classification of trade. What this means is that the
level of return achieved if the trade is successful must be reasonable in
relation to the level of risk you are taking.
These aren’t “hard and fast” rules, but more like general guidelines
that we have for each classification of trade, and you can see them below:
If we’re taking a higher risk trade, we would expect the return on
capital invested to be 50% or more.
If we’re taking a medium risk trade, we would expect the return to
be between 20%-50%.
If we’re taking a lower-risk trade, we would expect the return to be
between 10%-20%.
This relates to the question on the flow charts which asks “can you
get a level of return you are happy with?”
If, for example, you had a bullish trade signal, and you identified
three confluences of support—one where the signal itself set up, and two
more below—then the lower-risk trade would be to place your no touch
barrier below the lowest of the three confluence areas.
If you went to Bet On Markets and “priced up” a no-touch trade
accordingly, and the return was only, say, 5%-6%, then you probably
wouldn’t look to actually place that trade because the return is simply too
low. If it was between 10-20% however, that would be acceptable.
Similarly, if you went to price up a medium risk trade, where the no-
touch barrier is below two of the three confluences, and Bet On Markets
were offering you a return of between 20%-50% that would be fine, but
if it was less than 20% then the level of return is not worth the level of
risk.
176
And finally, if you went to place a higher-risk trade, where your

no-touch barrier is placed just below the confluence of support levels
where the trade set up, you would ideally expect a return a 50% or more,
otherwise the trade is again not worth the risk.
As mentioned above, these aren’t hard and fast rules, but more like
general guidelines in the sense that there may be a margin of a few per
cent either side, but if the return being offered by BOM is markedly
different from what we’d expect under these guidelines then we would
avoid taking that particular trade.
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C hapter 14
Money Management
I n this chapter we’re going to be taking a look at the concept of “money

management”, which can also be termed “risk management”, and
how we can use it with this style of trading to ensure that we don’t get
overexposed to the market, and that we don’t end up taking unnecessary
risks with our capital.
Having a good money management system, as well as having the
discipline to stick to it, are two of the factors which most often separate
the successful traders from the unsuccessful traders. Unsuccessful traders
often have no concept of money management; it’s a recurring “rookie
mistake” to go into trades focused only on the potential upside, without
correctly managing the potential downside—although the recent turmoil
in the financial markets and institutions of the world have shown that
even the so-called “professionals” could do with greater understanding
of risk management! That in itself just shows how important risk
management is—some of the biggest names in financial circles have
gone under because they failed to correctly control the risk element in
their dealings.
With that in mind, it is obviously very important that you understand
the concepts in this chapter, because if you fail to control your risk
correctly, you won’t last very long in the markets no matter how well
you’ve learned the other lessons in this course.
The simple fact is that when you are trading or trading on the
financial markets, what you’re essentially doing is wagering on uncertain
outcomes. The very nature of financial markets precludes certainty, as we
discussed back in chapter 2, if there was such a thing as a sure thing in
the markets then they would actually stop functioning properly.
What we’re doing with this approach is stacking the odds massively
in our favour, by waiting until we have all the indications that a market
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Money Management
is going to do one thing, and then trading that it won’t do the complete
opposite, and this allows us to have an extremely high success rate.
However, it doesn’t matter how good a trader you are; it doesn’t
matter how good your approach to the market is; it doesn’t matter how
high your success rate is; none of that will matter if you don’t have good
money management. As well as potential rewards, we are dealing with
potential risks, and our first job, the first job of any trader, even ahead of
making money, is to keep the risks under control.
A trader is nothing without capital. You could be the best trader the
world has ever seen, but if you’ve got no capital to back up your ideas,
you won’t be able to make any money. Therefore, the first thing we have
to do, before we even think of making profits, is make sure that we have
the risks under control, so that even the most out-of-the-blue, crazy,
unforeseen market conditions won’t worry us.
The way that we do this is by making sure that we never have too
much of our capital at stake on any one trade, and to do that we devised
a system of risk control which ties in with the different types of trade
classification we discussed in the previous chapter.
The capital we risk on any one trade is kept to a strict maximum
level, and the maximum level is determined by the classification of trade
we’re taking:
• If we’re taking a higher-risk trade, we risk an absolute

maximum of 5% of our account balance.
• If we’re taking a medium-risk trade, we risk an absolute
maximum of 10% of our account balance.
• If we’re taking a lower-risk trade, we risk an absolute maximum
of 15% of our account balance.
The lower the risk on a trade, the lower the return, so more capital
must be employed to achieve a similar result. The advantage of going
with lower-risk trades is the success rate, which we can expect to be over
95%, which is why it’s acceptable to risk a little more, up to 15% of your
capital.
You may wish to set your own risk levels as you gain more experience
and learn what suits your trading personality best, but we do have to
stress that you should never risk more than these recommended amounts.
Adjust the risk levels down if you wish, but never up. These are the
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maximum levels you should risk—these are the levels of risk we use—
and in our experience they are suited perfectly to the probabilities and
success rates of the different types of trade.
The next step is to demonstrate firstly what is meant by the term
“account balance” and then to show how to determine what equates to
5% of that figure, or 10%, or 15%. For that, we use the “portfolio” page on
the Bet On Markets website.
Using the Bet On Markets portfolio page
To determine our current available capital we always look at the

figure highlighted in the pink shaded area—the “total value of your
account”.
The total value of your account is a calculation which takes into
account your unused account balance, plus any capital you may have tied
up in open positions, then adds or subtracts any profit or loss which may
be currently showing on those open positions. What’s left is the current
total account balance, and it’s this figure that we use when determining
how much money to risk on an individual trade.
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Money Management
Once you have this figure it’s a case of simple mathematics to then
determine how much of that account balance equates to either 5%, 10%
or 15%. Simply divide your total account balance by 100, then multiply
the result by either 5, 10 or 15.
Keeping your discipline
One thing that must be stressed is that the concept of money and risk
management is closely tied in with personal discipline. We’re going to be
covering the subject of discipline in greater depth when we go in to the
“trading psychology” chapter, but for now we must stress that it’s very
important that you stick to this system of money management.
It’s simply amazing how many people fall into the trap of greed when
trading, particularly with this approach, where it’s entirely possible to go
months and months at a time without losing a single trade.
In that situation it’s very easy to fall into the trap of believing that
nothing will ever go wrong. We have personally seen some people start
out risking 5, 10%, or 15% of their account per trade but after nine or 10
winning trades in a row, they suddenly think they’ve “cracked it”, after
which they start increasing their level of risk in pursuit of greater and
greater rewards.
Keeping control of greed is a very important way of controlling.
Referring back to the crisis in the financial sector in recent times, a large
number of banks were undone because those in charge saw good profits,
got greedy for more and decided to effectively “turn a blind eye” to the
ever-increasing risks they were taking until, it all finally came crashing
down around them!
A similar thing can happen with fixed-odds trading—we have personally
seen this with some people we’ve known in the past. One trader we were in
contact with had a run of 24 consecutive winning trades, but he got greedy, got
overconfident and got to the point where he was risking up to three quarters
of his capital on each trade! When the losing trade did eventually come for
this trader it wiped out months and months of profits. He was a good trader,
he was calling the market correctly, but even the best traders lose from time
to time, and eventually when that losing trade did sneak up on him, he got
well and truly floored. He’d focused solely on the upside potential of his trading
while failing to control the potential downside and that’s the lesson of this
chapter.
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You must control the risk side of your trading otherwise you’re
never going to get anywhere. We’ve given you a tried and tested money
management plan in this chapter and we can’t recommend strongly
enough that you stick to it. Good money management is the basis
of every single successful trading career that has ever been, and it’s
something you have to incorporate as you begin to go into the markets
for yourself.
Quite simply, every time you come to put a trade on, you need to
perform the calculation we’ve shown you in this chapter in order to
figure out how much you have to spend on each trade, and to ensure that
you are never risking more than you should on any single trade. That’s
good money management, and that will be one ofthe building blocks of
your future success.
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C hapter 15
When Not to Trade
I n this chapter we’re going to be looking at the way in which you need
to stay aware of forthcoming market events and how they might affect
your trading decisions.
What this means is that sometimes we make a decision to stay out
of a trade even if the signal checks out completely on the flowcharts.
We’ll get all the way to the end of the flowchart process, but there is
still one additional factor which could stop us from taking that particular
trade. This happens when one or both of the currencies that make up the
currency pair you are trading might potentially be affected by the release
of major “economic data”.
Economic data releases happen all the time. Almost every day, one or
more countries will be releasing economic figures, which are essentially
statistics about that nation’s economy. Every country does it, and these
economic data releases can include employment figures, inflation figures,
retail sales, manufacturing output, consumer confidence and many others.
Every country releases broadly similar sets of statistics, at regularly-
timed intervals. For example, US employment figures are usually released
out on the first Friday of every month, while UK interest rates tend to be
announced on the first Thursday of every month.
These data releases can have a strong impact on the movement and
direction of currencies. Remember, a lot of traders out there use these
pieces of economic data to make trading decisions. Not all traders rely on
charts like we do—this is the difference, as discussed earlier in the book,
between technical analysis and fundamental analysis. Technical traders
use charts to make trading decisions, while fundamental traders use real-
world economic information to make trading decisions.
When a new piece of economic information is released, that can
potentially cause the fundamental traders to reassess how bullish or
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When Not to Trade
bearish they are on a particular market, in light of what that new

information is telling them.
For example, if employment figures are released in the UK which
show that unemployment is increasing at a faster rate than previously
thought, that’s bad economic news, and that might make some
fundamental traders decide to be bearish on the pound and begin selling.
Similarly, traders who are bullish on the pound might change their minds
and either close out their bullish positions, or go further and initiate new
bearish positions themselves. If enough traders make the same decision,
that will affect the balance of supply and demand, and the pound will
begin to move lower as a result.
Therefore, it’s very important that you stay informed about when
these key pieces of economic data are being released, so that you can
avoid the pitfall of entering a trade which goes against you as a result of
some surprise economic data.
Fortunately for us, taking care of this aspect of our trading and
keeping abreast of these economic events is not nearly as complicated
as it may sound. The main reason for this is because there are really only
a few data releases that we’re actually interested in. The vast majority of
these economic data releases are minor; they don’t have enough impact
on the markets to move them significantly enough so that it might affect
one of our trades. Most of the time we will enter a trade and not worry
about the economic figures. We only need to stay aware of a handful of
major data releases. Another advantage we have is that we can access
a very handy online calendar tool, which helps us keep track of these
events.
The only economic data releases that might affect our decision-
making processes are:
• US employment figures (also called Non-Farm Payrolls)

• Interest rate decisions (from either country involved in the
currency pair that we are looking to trade)
These are the major economic data releases which might make us
think twice about entering a particular trade. When these particular
pieces of economic data are released, we prefer not to have a trade
running that involves a currency which could be affected. For example,
when US employment figures are released, we prefer not to have any
186
trades running that involve the US dollar as part of the currency pair,
such as EUR/USD or USD/JPY.
Similarly, when an interest rate decision is due from a particular
country, we avoid having a trade running which involves the currency of
that particular country. For example, if Canadian interest rates are due on
Wednesday, we would not enter a USD/CAD trade on Monday, because
that trade has to run through to the following Monday. But two days
into the trade, the market might suddenly move against us as a result of a
surprise interest rate decision.
The US employment figures and the interest rate decisions from
individual countries are the only pieces of economic data which have
the potential to affect a market significantly enough to make us avoid
trading.
The DailyFX.com calendar
As mentioned above, it’s very easy to keep up with which economic

events are happening and when, and thanks to a very handy tool: the
calendar tool at DailyFX.com:
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When Not to Trade
The calendar page at DailyFX.com shows you the economic data

release calendar for the whole of the current week. It shows you the
release time of the data, the country it relates to and the name of the data
release.
In addition to this, DailyFX.com provide, for each data release, an
estimate of the importance of the data, as well as information on the
consensus forecast and previous reading. The “commentary” feature
provides you with a background to what each piece of data actually
means, which is a great learning tool.
There are a couple of handy additional features on the DailyFX.com
calendar. As well as viewing the current week, you also have the ability
to look at both the previous week’s calendar and the following week’s
calendar by clicking these buttons at the top of the screen. The ability to
look at the following week’s calendar is particularly handy because, as our
no-touch trades run over seven days, they always run into the following
week regardless of when we enter them—so we always need to see the
following week’s economic data calendar to make sure that we aren’t
trading over any of the major events listed earlier in this chapter.
The other main feature of the calendar is the “filter”, which is in
the top right-hand corner of the calendar. When you move your mouse
over this, it opens up an additional menu whereby you can filter out all
the economic data releases except for those which directly affect the
currency pair you’re looking to trade. You can also filter the data releases
by importance. For example, if you were looking to put a trade USD/
JPY, you could choose to see only the high-importance and medium-
importance economic data releases from the USA and Japan.
The high number of economic data releases every week mean that
the calendar can sometimes look a little cluttered, so the filter feature
is a great way of “zeroing in” on the information that’s relevant to your
potential trade, and to get rid of all the extra information which isn’t
important to you at the time.
Every time you’re looking at a potential trade you must, before you
actually commit that trade to your account, use the calendar at dailyfx.
com to check whether or not either of the currencies involved in the
currency pair you wish to trade could be affected by a major piece of
economic data over the next week.
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C hapter 16
Trading Psychology
I n this chapter we will be focusing on trader psychology—the

psychological factors that can have an effect on your success or failure
in the markets.
Psychology is hugely important in trading, but new traders totally
underestimate it. It’s just as important, if not more so, than the actual
technical method you use to find your trades. That may sound surprising
to you at first but it is absolutely true.
You can take a group of a hundred people and give them a proven,
profitable trading system to follow, but it’s absolutely certain that the
majority of those people will lose money—and that’s because of their
psychology.
Financial markets are ruled by emotions. It sounds strange but it’s
true. There are two main emotions which control financial markets, and
they are fear and greed. You get “bubbles” in markets where prices surge
ever higher, usually without any real justification, and that’s down to
greed. Look at the “dotcom” boom, or the recent run up to nearly $150
for the price of a barrel of oil. The moves shouldn’t really have happened,
but there was a speculative boom, driven by greed, and that’s why they
happened.
Similarly, when markets crash, it’s usually down to fear. Look at any
stock market collapse in recent times; if the market participants had kept
their heads and looked at the situation rationally, then those crashes
would probably not have been so dramatic. But people panic, and they
make trading decisions based on fear.
Greed and fear are two emotions that are always present in the
markets.
In order to become a successful trader you have to master your
emotions. It’s a simple fact. You’ll never be a successful, professional trader
189
Trading Psychology
if you trade on emotion. The best traders are those who can effectively
switch their emotions off, and not allow their trading decisions to be
affected by them.
The first main emotion that you have to contend with as a trader is
fear. There’s fear of losing a trade, fear of losing money and fear of being
wrong. With greed, you’ll often find that inexperienced or unsuccessful
traders make poor decisions based on greed for money and greed for
success. It’s so easy to jump in to a bad trade because you were greedy
for money. You have to learn to control these emotions if you are to be
successful.
This book would simply not be complete without teaching you about
these psychological aspects of trading and how to deal with them. They
really are just as important as the technical factors in determining your
success or failure.
The truth of the matter is that you’ll never understand psychology
and how it affects you until you actually have a live position in the
markets, and your money is at stake. When you’re trading on a “virtual
money” demo account, you can’t really gain an understanding of how
these factors affect you, but you can prepare yourself for it as much as
possible and that’s what this book, and this chapter, are all about.
There are various factors which make this book, and this type of
trading, different from others you might have seen, and should help you
to overcome these psychological hurdles more easily.
Fear
When it comes to making a live trading decision, there are a number of

things that can cause you to feel fear. Fear of being wrong is one. Fear of
losing money is another.
The best way to overcome the fear of being wrong is to be sure about
the trade that you are putting on. Obviously, if you’re uncertain about the
trade, then you’re going to hesitate, and you’re going to be fearful about
taking the trade, and fearful about the potential outcome. That’s one of
the reasons why we provided you with the flowcharts. Quite simply, if
you get to the end of the flowchart process, where it says “you have a
trade”, then you can put that trade on without fear. That’s not to say that
that trade is absolutely guaranteed to be a winner—there are no cast-iron
guarantees of success in trading—but if you get to that point then you
190
at least know that the trade checks out, and that it meets the criteria of a
proven, successful trading system. You can then put the trade on without
fear, knowing that you’ve done your job correctly in identifying the trade.
Another aspect of fear comes from the fear of losing money.
Unfortunately, losing trades do happen from time to time, even if you
follow the rules exactly. The simple fact is that financial markets are
not 100% predictable. The only way you can keep the fear of losing
money under control is by having good money management. We’ve
already outlined a proven, successful money management plan for you,
and quite simply, you should stick to it. The biggest mistake that bad
traders, novice traders—losing traders—make is to use a poor approach
to money management.
If you’re risking 5% of your account on a trade, you’re going be a
lot less fearful than someone who is risking 50% of his or her account.
First of all, you’re going to have less hesitation about entering the trade
because there’s less money at risk even if the trade goes wrong. Secondly,
your psychology while the trade is actually running is less likely to be
negatively affected.
Let’s say, for example, the trade begins to move against you. In that
situation, a trader with too much of his/her account at risk might make
a decision to exit the trade there and then, based purely on the fear of the
potential loss, even though there was no logical or technical reason for exiting
the trade. Of course you know what will happen then—the market will move
back the right way and produce what would have been a winning trade!
If you only have a smaller amount of your account at risk, you’re
much less likely to make these sudden, irrational decisions that are based
on fear.
When it comes to dealing with the emotion of fear, there are a
couple of great advantages that are built in to binary options trading. As
we’ve previously discussed, when you’re trading in a more traditional way,
you are putting yourself in a situation where the amount of money you
can make or lose depends entirely on how far the market moves, either
in your favour or against you. But with binary options, you’re effectively
trading on a “binary” outcome—1 or 0—win or loss. The size, and even
the direction of the market movement, is not important.
Let’s say, for example, a trader who is trading in a more traditional way
has a trade on, which starts to move into profit. Every time the market moves
another point in his favour, he/she makes more money. But let’s say that trade
191
Trading Psychology
doesn’t quite hit its target, and then starts moving off in the other direction,
and back towards the trade entry point. The trader might think, “I don’t really
want to end up taking a loss on a trade that was nicely in profit, so I’ll take
break-even if I get it”. Again, you know what will happen! The trader will
take break-even purely because of the fear of taking a loss, and inevitably as
soon as he/she does that the market will start trading the right way again and
go on to hit the target.
With this style of binary options trading however, it’s not important
if the market moves in our favour, or against us, or goes nowhere at all.
All we’re interested in is whether or not the market hits our no-touch
barrier. We are unconcerned with what the market actually does over the
running period of the bet, provided of course that it doesn’t touch our
barrier. And since we’re not concerned by the market’s movement, we are
far less likely to make irrational, fearful decisions because of it.
Also—with binary options trading, you know the maximum risk you
stand to take before you ever place the trade, so you can risk an amount
that you’re comfortable with. And being comfortable with the monetary
risk involved in trading is what takes away the fear.
Greed
What do we trade for? The simple answer is that we trade to make

money. In the end, we’re here to make money. Although there are many
other benefits to the trader lifestyle, no-one would trade if there was
no money to be made. And because money is involved, greed is also
inevitably involved.
There is a lot of money to be made from trading the financial
markets. If you can trade the markets successfully, then they effectively
become your ATM! That creates greed. You want more winning trades,
more success and more money. It’s human nature, but you have to keep it
under control.
The main mistake that unsuccessful traders make when they’re being
influenced by greed is to take too many trades. They always want to be
involved in the market, they always want to be making money, and they
think, therefore, that they always have to be trading. But that is a recipe
for failure. If you overtrade, you’ll end up taking bad trades as well as
good trades, and over time, you won’t make any money, in fact you’ll
most probably lose money.
192
Again, this is where our flowcharts come in handy, and should keep
you away from the overtrading trap that a lot of people fall into. If you
can get to the end of the flowcharts process, then you’ve got a trade, if
you can’t, you haven’t. That should be enough on its own to keep you
from overtrading. It’s tempting to always be in the market, and it can be
frustrating to not be in the market, but patience, discipline and following
your system will prevent you from over-trading, which is the main
symptom of greed.
Once again, Binary Options trading has an advantage in this area
over other types of trading.
Let’s say a trader puts on a trade at $10 per point, aiming for a profit of
100 points. The market hits the target, but the trader thinks the market might
go further, and that he/she might make more money—so even though their
system tells them to take the 100 point profit, he/she doesn’t close the trade. The
trade then moves against them, back to only 50 points of profit. At this point
the trader might think, “I had 100 points, I should have taken it when I had
the chance, but I’m not going to just settle for 50 points. Inevitably, the market
will continue lower and lower, eventually forcing the trader to take break-
even on the trade—he/she could have had a healthy profit, but got greedy and
ended up making nothing!
We won’t suffer from this problem, because with binary options
trading we are not concerned about the market’s movement. We’ll make
the same amount of money whether the market moves 10 points in
our favour, as we will if it moves 100 points in our favour. When your
potential profit/loss is not directly tied to the market’s movement, neither
will your emotions be. That is a great advantage.
Anger and revenge
There are two more emotions which can come into play when you’re
trading which can also be very dangerous and destructive, and they are
anger and revenge.
When you’ve lost a trade, it’s extremely easy to just jump straight
back in to the market in an attempt to recoup the losses, and usually that
just ends up creating more losses. Inexperienced and unsuccessful traders
will be angry about the loss, and simply jump on the first possible hint of
a trade signal they see after—almost as if to attempt to “show the market
who’s the boss”.
193
Trading Psychology
That just creates more problems. Even though it’s part of the
successful trader’s mindset to accept that losses do happen sometimes
even if you’ve done everything right, the fact is that losing a trade can be
a difficult thing to deal with, and obviously the best remedy is to follow
that up with a winning trade, which is why people often look to trade
again straight away—to put the losing trade out of their minds.
But that’s another big pitfall of trading psychology. Once you have
a plan, once you have a system, you should not deviate from it. Even if
you’ve just lost a trade, in fact especially if you’ve just lost a trade; wait
until the next clear trade signal that meets your criteria. Even if you have
to wait a few days or a week for it, in the long run that will do you good,
because if you trade half-formed signals in the meantime—trying to “get
your own back” on the market—you’ll just end up losing more money.
Once again, this is where the flowcharts come in to play. Follow the
flowchart process every time, and you won’t end up taking these revenge
trades.
The fact of the matter is that you simply can’t get revenge on the
market. The market doesn’t care about you. It doesn’t care if you’re happy,
sad or angry. It will do what it wants to do regardless of you and how
you feel, so ultimately to project these emotions into your trading and
to try and get your own back on the market is nothing more than a self-
defeating exercise, and it will make you feel worse and worse.
Patience and discipline
Successful trading boils down to having patience and discipline. Having

the patience and discipline to wait for the quality trade signals, the ones
that get you to the end of the flowchart, and not succumbing to revenge
trading, or boredom trading, which can be just as bad.
That’s the difference between profitable traders and losing traders.
The profitable traders have the right mindset.
A successful trader’s mindset will be to be patient and disciplined.
The successful trader will wait as long as it takes for the right trading
setup, without succumbing to boredom or revenge trading. And when
that setup comes along, the successful trader will trade it without fear or
hesitation.
They won’t worry about the monetary risk, because the money
management plan has that under control, and they won’t worry about
194
being wrong either. If you follow your trading system and follow your
plan, there’s no such thing as a bad trade. There will be winning trades and
losing trades, but if you follow the system, there are no bad trades. The
bad trades come when you do things incorrectly, and don’t follow your
system. The most successful traders are those who wait for the market to
come to them, rather than chasing trades.
What we are presenting you with in this book is a proven approach
to trading that makes money. Follow the system and over time you will
make money.
It’s tempting in trading to try to make as much money as possible,
in as short a space of time as possible, but ultimately that’s not going to
get you anywhere. Patience and discipline are the keys to solid, consistent
profits in the markets. It may not sound as glamorous as you’d like, but
“slow and steady wins the race” when it comes to trading.
There’s an old saying that says you haven’t truly made it as a
successful trader until trading is boring. If trading is getting your heart
racing and pushing you to highs and lows of emotion then you’re not
doing it properly!
If you can effectively behave like a computer, acting on inputs from
the market without getting swayed by emotion, that’s when you’re going
to be a success. That’s what separates the winners from the losers in this
game.
195
C hapter 17
SharpReader
I n this chapter we’ll be introducing you to a small program you can

use to have regular updates and analysis of the currency markets
downloaded automatically on to your computer.
The program is called Sharp Reader. Using it is optional, although
we’ve tended to find that it is handy in terms of keeping up with the
fundamental factors that are affecting the markets—it’s useful for staying
in the picture.
Sharp Reader is what is known as an RSS aggregator. With many
modern websites, the content is published to a separate feed, called an
“RSS feed”, and from there it can be taken and published elsewhere.
RSS stands for “Real Simple Syndication” and that’s basically what it
is—taking the content from a website and using it, and publishing it, in
other forms and programs.
With Sharp Reader you can connect to the RSS feeds of major
financial news and analysis sites, and every time they publish a new
article on their site the headline will pop up in the corner of your screen
and you can then read the article from within the Sharp Reader program,
without actually having to navigate to the website itself.
You can get SharpReader from the website at www.sharpreader.net
It’s a fairly standard installation process, so just follow through
the steps as they’re presented to you. It’s a small program so it installs
very quickly, and when it’s done you can just click “finish” to launch the
program.
197
SharpReader
Using Sharp Reader
Once in the Sharp Reader program, you need to access the specific news
feeds we use by typing their addresses into the address bar at the top,
which is highlighted in the screenshot below:
The addresses of the four news feeds we use are:

http://www.actionforex.com/option,com_rd_rss/id,2/
http://www.dailyfx.com/feeds/rss_all.xml
To subscribe to each news feed, simply type the address of the feed
in the address bar and press enter. This loads the articles from the news
feed. Next, click the “Subscribe” button next to the address bar, and
that will save your “subscription” to the news feed. You may also wish to
“unsubscribe” from the news feeds that are included with Sharp Reader
by default, as they are not related to trading.
You can also change the settings within Sharp Reader to determine
how regularly it will check your subscribed feeds for new articles. You
can do this by clicking Tools > Options > Feed Properties, and changing
the “Refresh Rate” setting:
Using the program is very simple. If there’s a headline that catches
your interest in the upper panel, you can click on it once to get a brief
preview of the article in the lower panel. If you want to read the full
story, just double-click on the headline and the relevant article loads up.
198
C hapter 18
Keeping a Trade Log
T his is going to be a very brief chapter—what we’re going to talk

about is recording your trades in a log.
Keeping a record of your trades is extremely important. Most people
don’t realise it but it can be a great help in terms of improving your
trading, especially if, in the rare cases where you do get a trade wrong,
you can look back, check your trade log and possibly find out why that
trade went wrong when others didn’t.
Trading is a money-making exercise, and as such it should be treated
as a business. Whether you’re doing it full-time, or whether it’s just a
part-time thing where you’re trying to make a little extra money, it’s
important to be as professional as possible about it and without doubt,
one part of that is keeping a record of your trades.
Every time you place a trade you should be making a new entry in
your trading log. Sometimes, in fact, it’s good to fill out the entry in your
trading log before you actually commit the trade to your account, just so
you can get a slightly more objective view of the trade setup before you
actually get into the market.
For example, particularly early on in your trading career, it’s very
easy to spot a pattern on the charts that looks great in terms of Market
Direction trends, and the divergence setups. You might see that setup,
rush to Bet On Markets, place the trade and then think “oh yeah, I forgot
to check the support/resistance that was involved!”
By filling out your trading log before you place the trade it’s a way of
making sure you’ve made the right decision, and that all the “tick boxes”
are ticked. It’s a way of minimizing your trading mistakes by making sure
the trade meets all the criteria before you place it.
199
Keeping a Trade Log
The trade log
Above is a trade log spread-sheet file.

The first two fields are fairly self-explanatory—the date you entered
the trade and the market it was on, just for ease of reference if you ever
need to go back over the charts and look at your previous trades. By
keeping a record of the date and market you’ll be able to find them
quickly and easily.
The next field is trade type, and it is useful to keep a record of this
because as you build up a more extensive trading history, you can start to
generate statistics on your trading career, particularly if you are using a
spread-sheet program like Excel. By keeping a record of which particular
type each trade was, you can, over time, find out which trade type you
took the most, which you took the least, and of course which trade types
you had the most or least success with, so you can possibly then refine
your trading approach in the future.
Similarly, the next field is there for you to fill in the risk level you
took on the trade—whether it was a lower-risk, medium-risk or higher-
risk trade. Again, over time, you can generate statistics on the levels of
success you have with each type.
The next field is simply there for you to list all the support or
resistance levels that went along with the trade. The most common
reason for a trade to fail is if the support/resistance confluence backing it
up was either unclear, or not there at all. If you’ve learned the lessons of
this book properly then you shouldn’t ever end up taking a trade without
a clear support/resistance confluence to back it up, but just in case you
do, keeping a record in this field will allow you to identify if that was the
reason a particular trade failed.
200
In the “notes” field, you can include any extra information you feel
may be relevant at the time you get into the trade.
The final three columns are there to record the monetary aspect of
the trade: Firstly, the percentage of your account risked, which as you
know by now varies depending on the level of risk taken on the trade.
Next is a section to keep a record of the return produced on each trade,
and the final field, which again is fairly self-explanatory, is there for you
to record the actual profit or loss the trade achieved.
What these fields produce is a clear, concise record of all the
information that is relevant to a particular trade; there’s no need to go
into any more detail than this. This is all the information you will ever
need to look back and analyse your trading performance over a given
amount of trades.
201
C hapter 19
Final Thoughts
T his is the very last chapter of the book, and it exists just to go over
some final thoughts relating to the book, and also relating to where
we go from here; how we proceed now that you’ve completed the book
and learned all about the methods we use to spot binary options trades
on the financial markets.
Firstly, we must stress in this chapter is that learning the materials
in the book is really only the first stage—the first part of the process.
You can think of it in similar terms to learning to drive—when you’re
taking driving lessons, that’s when you’re learning the skills you need to
pass your driving test, but it’s not really until you get out on the roads on
your own and begin applying what you’ve learned that you truly “learn to
drive”.
It’s similar with trading, although obviously there’s no “trading test”
that you have to pass before you’re allowed to trade for yourself ! What we
mean is that up to now you’ve been learning the skills you need in order
to be able to trade or bet on the financial markets successfully, but it’s
not until you get out there for yourself and begin looking at the markets,
and finding trades for yourself that you’ll truly start to absorb the things
you’ve learned. At this stage it’s still all theory, and it’s not until you put
the concepts of this book into practice that they really become second
nature to you.
The great advantage that you have is that you’re not on your own.
While it’s good to be as independent as possible, both in your study
and in then applying what you’ve learned, the difference is that you can
always call on us for help. Don’t be afraid to get in touch with us if you
have any questions or queries about any of the material, or any of the
concepts in this book, and we will do our best to respond as quickly as
possible.
203
Final Thoughts
We didn’t create this book as a simple information product that you

buy and then are left to figure out on your own. As well as providing the
book materials to you, we are here to provide ongoing support to you
and to develop a two-way relationship as you learn the ropes and learn to
become a successful financial trader.
Ultimately, what we’ve provided you with in this book is both a
trading model and a proven approach to using that trading model. The
trading model itself covers all the things like trend, support/resistance,
divergence and so on, and the particular approach to using it that we’ve
detailed in this book is essentially going to Bet On Markets and placing
no-touch trades whenever the system produces a valid signal.
We like to use the Bet On Markets approach for a number of
reasons, and just to reiterate those, the main one is simply time. Once
you learn the flowchart processes off by heart you can analyse all 13 of
the currency pairs we trade in a matter of minutes, and you only need to
do that a few times a day to be able to spot potential trades, so it does
give us a lot of free time which is one of the reasons many people look to
get into trading in the first place.
The second reason we like this style of trading is the flexibility, in as
much that you don’t have to get into a trade the moment it sets up. You
can be a few hours or even sometimes a day late getting into trades, and
they can still be just as good, so again, when it comes to your time and
your freedom, trading need not interfere at all with any of your existing
commitments or anything you want to do. You can, to a certain extent,
trade as and when you want.
The third reason we like this style of trading is, of course, the tax
aspect. Remember—what we’re doing is technically classed as “gambling”,
even though in reality it’s much more along the lines of “informed
decision-making”, but nonetheless in the eyes of the government this
is technically gambling, and therefore no tax is payable on any profits
earned, which is a fantastic advantage.
Once you’ve learned it inside out, this trading model can, if you wish,
be applied to other styles of trading as well. You can use it to day trade,
or you can use it to swing trade. It works on the futures markets and
on stock indices as well as it does on Forex. You can also explore other
alternatives for trading through Bet On Markets with it. It’s very flexible
in terms of how you apply it, and we actively encourage all the users
of this trading system to explore different avenues with it once they’ve
204
learned it. If you are interested in learning how to apply this trading
model to different styles of trading we’d be more than happy to advise
you on that as well, just drop us an email!
Just by way of a final conclusion, we’ll say again that we really do
thank you for purchasing this book and for taking the time to listen
to what we have to say and what we have to offer in terms of trading
education. We really do appreciate it, and we very much look forward to
working with you in the weeks and months ahead to spot these profitable
opportunities in the markets!
Without wanting to sound like we’re bigheaded, we really do believe
in the methods we’ve outlined in this book. In our many years of trading
we’re yet to come across a more accurate and effective trading model
than this one, and we’re very confident that you’ll feel the same way once
you start looking around the markets and seeing this approach in action.
We appreciate that some of the concepts in this book are a little bit
technical, particularly if you’re coming into this as a newcomer to the
markets, and that’s why we have the support structure in place, but we
genuinely believe that it’s worth putting in the time and effort to really
understand this approach to trading.
Once you’ve learned the methods within this book inside out you
will be able to look at any market on any timeframe and instantly be able
to spot profitable opportunities and make predictions about what that
market is going to do. It’s a great feeling to be able to do that and we
look forward to getting you to that point.
So once again, thank you for your interest in our trading approach,
and all we can say is enjoy your study, enjoy your trading, and hopefully
we’ll be speaking to each other on a one-on-one basis very soon.
We look forward to that and we look forward to trading the markets
successfully together!
205
Monthly Market Direction Indicates Down Trend.
Monthly Market Direction Indicates Up Trend.
For more information
Contact The Binary Options Experts
www.binaryoptionsexperts.com
New York: Ph+1 888 994 5550

Hong Kong: Ph+852 8191 2024
Australia: Ph+61 1300 852 024
info@binaryoptionsexperts.com

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Binary Options

Here are my results for today! $12,340! for European-US session.

Last night I made what I thought was a mistaken trade, I wanted

Robert Mashilo Kligoeng

Since starting 3 months ago my account has more than trebled,

My name is Antwan and I’ve been with The Binary Options

On every occasion they have treated me with patience and

I have lost over $250,000 of my own funds attempting to trade

Please note it is our intention to be as accurate in fact, detail and comment as

W hat we are aiming to introduce to you in this book is a successful

S peculating on the movement of the financial markets is something

FA Cup 4th Round

Net Profit after 100 matches = $6,800!!!

Within a financial market, prices fluctuate constantly, and these

Understanding currency quotes

Look at these examples of currency pairs:

1) GBP/USD = British Pounds against US Dollars

Now look at these examples of currency quotes:

The next key concept in understanding currency quotes is to be able

1) It takes 1.8755 US Dollars to equal 1 British Pound

It may take a while to commit to memory both the symbol

If GBP/USD moves from 1.8750 to 1.8751, that is

The simple rule to understanding what equates to a point’s worth of

Some key trading terms

Bull and Bear (or Bullish/Bearish)

What do these terms mean?

Similarly, “long” and “short” describe your actual positions. These

T his chapter will be your introduction to the Bet On Markets

• “I wish to profit $1,000 if GBP/USD is higher than 1.9500 in

The Bet On Markets Website

The different types of trades

* Less broker commissions.

An higher/lower trade allows you to specify, depending on the type of

Touch/No Touch trades

A touch/no touch trade allows you to specify, depending on the type of

The No-Touch trade

This is the type of trade that we will be focusing on in this book, so

Placing a trade and using the portfolio page

M etaTrader is a software tool we can use to analyse financial markets.

How to install and set up MetaTrader

Install trading platform with clicking the “Install button”.

When installation is finished, click the “Launch Metatrader4”

Now, open an account for practice.

Now, select a more suitable trading server. Click Scan.

That’s all. Registration is complete. Now you have an account for

Fundamental analysis—to use it or not?

Technical analysis—our preferred method

Technical analysis is the study of market movement, and more specifically,

Introducing “candlestick charts”

On the chart in the picture above, each candle represents one

The available time frames are: 1 minute, 5 minutes, 15 minutes, 30

four different colours of dots depending on what it calculates the trend

Using Market Direction

T here are three main “cornerstones” to our trading approach. The

to interpret the market movement and then give trading signals—either

R egular divergence is a signal which tells us when a trend might

We’ve got a downward move in the market, as it makes an initial

This time, we’ve got an upward move in the market, as it makes

Different types of regular divergence

The next type of regular divergence is known either as “separate

You can see examples below:

The third different type of regular divergence is known as

Knowing the differences between these types of regular divergence