What if there was a low-risk way to sell near the top or buy near the bottom of a trend? What if you were already in a long position and you could know ahead of time the perfect place to exit instead of watching your unrealized gains, a.k.a your potential Aston Martin down payment or future Christian Louboutin high heels, vanish before your eyes because your trade reverses direction? What if you believe a currency pair will continue to fall but would like to short at a better price or a less risky entry? Well, guess what? There is a way!

If price is making lower lows (LL), but the oscillator is making higher lows (HL), this is considered to be regular bullish divergence. This normally occurs at the end of a DOWNTREND. After establishing a second bottom, if the oscillator fails to make a new low, it is likely that the price will rise, as price and momentum are normally expected to move in line with each other.

We covered regular divergences in the previous lesson, now let’s discuss what hidden divergences are. What’s a hidden divergence? Divergences not only signal a potential trend reversal, but they can also be used as a possible sign for a trend continuation (price continues to move in its current direction).

If you had answered yes to that last question, then you would have found yourself in the middle of the Caribbean, soaking up margaritas, as you would have been knee-deep in your pip winnings! It turns out that the divergence between the Stochastic and price action was a good signal to buy. Price broke through the falling trend line and formed a new uptrend.

While using divergences is a great tool to have in your trading toolbox, there are times when you might enter too early because you didn’t wait for more confirmation. If you keep entering too early, you’ll keep getting stopped out (you do use stops right?!) and you’ll slowly rack up losses. And you know what happens when even small losses accumulate, you’ll end up broke.

Divergences are used by traders in an attempt to determine if a trend is getting weaker, which may lead to a trend reversal or continuation. Before you head out there and start looking for potential divergences, here are nine cool rules for trading divergences. Learn ’em, memorize ’em (or keep coming back here), apply ’em to help you make better trading decisions.

Each type of divergence will contain either a bullish bias or a bearish bias. Since you’ve all be studying hard and not been cutting class, we’ve decided to help y’all out (cause we’re nice like that) by giving you a Divergence Trading Cheat Sheet to help you spot regular and hidden divergences quickly.

Please keep in mind that we use divergence as an INDICATOR, not as a signal to enter a trade! It wouldn’t be smart to trade based SOLEY on divergences since too many false signals are given. It’s not 100% foolproof, but when used as a setup condition and combined with additional confirmation tools, your trades have a high probability of winning with relatively low risk.

When two people go to war, the foolish man always rushes blindly into battle without a plan, much like a starving man at his favorite buffet spot. The wise man, on the other hand, will always get a situation report first to know the surrounding conditions that could affect how the battle plays out.

What is a trending market? A trending market is one in which price is generally moving in one direction. Sure, the price may go against the trend every now and then, but looking at the longer time frames would show that those were just retracements.

What is a range-bound market? A range-bound market is one in which price bounces in between a specific high price and a low price. The high price acts as a major resistance level in which price can’t seem to break through. Likewise, the low price acts as a major support level in which price can’t seem to break as well. The market movement could be classified as horizontal, ranging, or sideways.

Imagine this scenario. Price starts to rise. Keeps rising. Then it starts falling. And falling some more. And then it starts going back up. Have you ever been in this situation before?

Another way to see if the price is staging a reversal is to use pivot points. In an UPTREND, traders will look at the lower support points (S1, S2, S3) and wait for it to break. In a DOWNTREND, forex traders will look at the higher resistance points (R1, R2, R3) and wait for it to break.

Whenever Happy Pip goes swimming at the beach or the pool, she always wears her hot pink rubber ducky floaters. Whenever she trades retracements, she uses stop loss points. Pink rubber ducky floaters are life savers. Stop loss points are capital savers.

Unlike the breakouts you might have had as a teenager, a breakout in the trading world is a little different! A breakout occurs when the price “breaks out” (get it?) of some kind of consolidation or trading range. A breakout can also occur when a specific price level is breached such as support and resistance levels, pivot points, Fibonacci levels, etc. With breakout trades, the goal is to enter the market right when the price makes a breakout and then continue to ride the trade until volatility dies down.

Volatility is something that we can use when looking for good breakout trade opportunities. Volatility measures the overall price fluctuations over a certain time and this information can be used to detect potential breakouts. There are a few indicators that can help you gauge a pair’s current volatility. Using these indicators can help you tremendously when looking for breakout opportunities.

Unlike the breakouts you might have had as a teenager, a breakout in the trading world is a little different! A breakout occurs when the price “breaks out” (get it?) of some kind of consolidation or trading range.

Just like breakouts on your face, the nice thing about breakout trading in forex is that opportunities are pretty easy to spot with the naked eye! Unlike the former, you don’t even have to look in the mirror!

As you learned earlier, when a trend moves for an extended period of time and it starts to consolidate, one of two things could happen: 1. The price could continue in the same direction (continuation breakout) 2. The price could reverse in the opposite direction (reversal breakout) Wouldn’t it be nice if there was a way to know to confirm a breakout? If only there was a way to avoid fakeouts…Hmmm… Well… THERE IS A WAY!

Breakouts are popular among forex traders. It makes sense right? When price finally “breaks” out of that support or resistance level, one would expect price to keep moving in the same direction of the break. There must have been enough momentum building up in order for price to have broken out of the level, right? It’s time to hop aboard that train. It’s all smooth sailing now. All you have to do is just wait for it…

Fade the breakout you say? Was that just a typo? Did you mean to say, “trade the breakout”? Nope! Fading breakouts simply means trading in the opposite direction of the breakout. Fading breakouts = trading FALSE breakouts.

In order to fade breakouts, you need to know where potential fakeouts can occur. Potential fakeouts are usually found at support and resistance levels created through trend lines, chart patterns, or previous daily highs or lows.

With breakout trades, the goal is to enter the market right when the price makes a breakout and then continue to ride the trade until volatility dies down. Breakouts are significant because they indicate a change in the supply and demand of the currency pair you are trading. You’ll notice that, unlike trading stocks or futures, there is no way for you to see the volume of trades made in the forex. Because of this, we need to rely on volatility.

Along your travels, you’ve undoubtedly come across Gulliver, Frodo, and the topic of fundamental analysis. Wait a minute… We’ve already given you a teaser about fundamental analysis during Kindergarten! Now let’s get to the nitty-gritty! What is it exactly and will I need to use it? Well, fundamental analysis is the study of fundamentals! That was easy, wasn’t it? Ha! Gotcha!

Interest rates make the forex world go ’round! In other words, the forex market is ruled by global interest rates. A currency’s interest rate is probably the biggest factor in determining the perceived value of a currency. So knowing how a country’s central bank sets its monetary policy, such as interest rate decisions, is a crucial thing to wrap your head around. One of the biggest influences on a central bank’s interest rate decision is price stability or “inflation”.

As we mentioned earlier, national governments and their corresponding central banking authorities formulate monetary policy to achieve certain economic mandates or goals. Central banks and monetary policy go hand-in-hand, so you can’t talk about one without talking about the other. While some of these mandates and goals are very similar between the world’s central bank, each has its own unique set of goals brought on by their distinctive economies.

We just learned that currency prices are affected a great deal by changes in a country’s interest rates. We now know that interest rates are ultimately affected by a central bank’s view on the economy and price stability, which influence monetary policy. Central banks operate like most other businesses in that they have a leader, a president, or a chairman. It’s that individual’s role to be the voice of that central bank, conveying to the market which direction monetary policy is headed. And much like when Jeff Bezos or Warren Buffett steps to the microphone, everyone listens.

There are several fundamental factors that help shape the long-term strength or weakness of the major currencies and will affect you as a forex trader. We’ve included what we think are the most important for your reading pleasure

A quick Yahoogleing (that’s Yahoo, Google, plus Bing) search of “forex + news” or “forex + data” returns a measly 30 million results combined. 30 MILLION! That’s right! No wonder you’re here to get some education! There’s just way too much information to try to process and way too many things to confuse any newbie forex trader. That’s some insane information overload if we’ve ever seen it.

There’s no one “All in” or “Bet the Farm” formula for success when it comes to predicting how the market will react to data reports or market events or even why it reacts the way it does. You can draw on the fact that there’s usually an initial response, which is usually short-lived, but full of action. Later on, comes the second reaction, where forex traders have had some time to reflect on the implications of the news or report on the current market.

Back in the ancient days, if someone wanted to change currencies, they would first have to convert their currencies into U.S. dollars, and only then could they convert their dollars into the currency they desired. For example, if a person wanted to change their U.K. sterling into Japanese yen, they would first have to convert their sterling into U.S. dollars, and then convert these dollars into yen.

Over 80% of the transactions in the forex market involve the U.S. dollar. This is because the U.S. dollar is the reserve currency in the world. You may be asking yourself, “Why the U.S. dollar and not the sterling, or euro?”

Since a majority of the forex market will deal with the U.S. dollar, you can imagine that many of the news reports will cause U.S. dollar-based currency pairs to spike. The US has the largest economy in the world, and as a result, speculators react strongly to U.S. news reports, even if it doesn’t cause a huge fundamental shift in the long run. What this means for your charts is that you will see several “spikes” even if there is a trend emerging. This can make it harder to spot trend or range indications.

By selling currencies whose country has a lower interest rate against currencies whose country has a higher interest rate, you can profit from the interest rate differential (known as a carry trade) as well as price appreciation. That’s like being able to get a frosted cupcake with sprinkles on top! That talks to you! Imagine how delicious that would taste!

While the euro and yen crosses are the most liquid crosses, more currency crosses exist that don’t even include the U.S. dollar, euro, or the yen! We’ll call these the “Obscure Currency Crosses”! If we were in school – come to think of it, we actually are in school! – the major pairs would be the jocks while the obscure currency crosses would be the eccentric emo kids or hipsters.

If strong economic data comes out of Australia, you might want to look at buying the AUD. Your first reaction might be to buy AUD/USD. But what if at the same time, recent data also show the United States experiencing strong economic growth? The price action of AUD/USD may be flat. One option that you have is to match the AUD against the currency of an economy that isn’t doing so well…

Let’s say that an institutional forex trader wants to buy GBP/JPY but can’t because there isn’t enough liquidity. To execute this trade, they would have to buy both GBP/USD and USD/JPY (earlier in this lesson, we learned that these pairs are called its legs). They are able to do this because there is plenty of liquidity in GBP/USD and USD/JPY which means they can make large orders.

After the U.S. dollar, the euro and yen are the most traded currencies. And like the U.S. dollar, the euro and yen are also held as reserve currencies by different countries. So this makes the euro and yen crosses the most liquid outside of the U.S. dollar-based “majors.”

Even if you don’t ever want to trade the currency crosses and simply stick to trading the majors, you can use crosses to help you make better forex trading decisions. Here’s an example… Currency crosses can provide clues about the relative strength of each major currency pair. Let’s say you see a buy signal for EUR/USD and GBP/USD but you can only take one trade.

Let’s pretend the Fed announces they will raise interest rates. The market quickly starts buying the U.S. dollar across all major currencies…EUR/USD and GBP/USD fall while USD/CHF and USD/JPY rise. You were short EUR/USD and were pleased to see price move in your favor making you some pips, but right before you were about to break out the cigar, you notice your friend who was long USD/JPY made a lot more pips than you.

Let’s pretend the Fed announces they will raise interest rates. The market quickly starts buying the U.S. dollar across all major currencies…EUR/USD and GBP/USD fall while USD/CHF and USD/JPY rise. You were short EUR/USD and were pleased to see price move in your favor making you some pips, but right before you were about to break out the cigar, you notice your friend who was long USD/JPY made a lot more pips than you.

Multiple. Time. Frame. Analysis. Multi-time frame ana… WHAT?! Chill out young padawan, it ain’t as complicated as it sounds! You’re almost done with high school! Now’s not the time to get senioritis, although you probably got that way back in Grade 12. Ha!

One of the reasons newbie forex traders don’t do as well as they should is because they’re usually trading the wrong time frame for their personality. New forex traders will want to get rich quick so they’ll start trading small time frames like the 1-minute or 5-minute charts. Then they end up getting frustrated when they trade because the time frame doesn’t fit their personality

What time frame is best for trading? Well, just like everything in life, it all depends on YOU. Do you like to take things slowly, take your time on each trade? Maybe you’re suited for trading longer time frames. Or perhaps you like the excitement, quick, fast-paced action? Perhaps you should take a look at the 5-min charts

Before we explain how to do multiple time frame analysis for your forex trading, we feel that it’s necessary to point out why you should actually flip through the different time frames. After all, isn’t it hard enough to analyze just one chart as a forex trader? You’ve got a billion indicators on, you’ve gotta read up on economic news, you’ve got basketball practice, a Call of Duty session, a Fornite session, a Dota 2 session, a hot date at McDonald’s, then an hour of viewing Instagram stories, and another two hours watching TikToks, etc.

No, we aren’t about to break out into song like the Glee cast. Here at forexcec.com, we’ve got our version of a mash-up, which we like to call the “Time Frame Mash-up”. This is where multiple time frame analysis comes into play. This is where we’ll teach you how to not only lock in on your preferred trading time frame but zoom in and out of charts so that you can knock a winner out of the park. You ready? You sure you can hack this? You’ve basically got a semester left of forexcec.com’s School of Pipsology? You don’t wanna quit now, do you? Didn’t think so! First of all, take a broad look at what’s happening. Don’t try to get your face closer to the market, but push yourself further away. You have to remember, a trend on a longer time frame has had more time to develop, which means that it will take a bigger market move for the pair to change course. Also, support and resistance levels are more significant on longer time frames. Start off by selecting your preferred time frame and then go up to the next higher time frame. There you can make a strategic decision to go long or short based on whether the market is ranging or trending. You would then return to your preferred time frame (or even lower!) to make tactical decisions about where to enter and exit (place stop and profit target). Just so you know, this is probably one of the best uses of multiple time frame analysis…you can zoom in to help you find better entry and exit points. By adding the dimension of time to your analysis, you can obtain an edge over the other tunnel vision traders who trade off on only one time frame. Did you get all of that? Well, if you didn’t, no worries! We’re gonna go through an example now to help make things a little clearer. How to Perform Multiple Time Frame Analysis Let’s say that Cinderella, who gets bored all day cleaning up after her evil stepsisters, decides that she wants to trade forex. After some demo trading, she realizes that she likes trading the EUR/USD pair the most, and feels most comfortable looking at the 1-hour chart. She thinks that the 15-minute charts are too fast while the 4-hour take too long – after all, she needs her beauty sleep. The first thing that Cinderella does is move up to check out the 4-hour chart of EUR/USD. This will help her determine the overall trend. She sees that the pair is clearly in an uptrend. This signals to Cinderella that she should ONLY be looking for BUY signals. After all, the trend is her friend, right? She doesn’t want to get caught in the wrong direction and lose her slipper. Now, she zooms back to her preferred time frame, the 1-hour chart, to help her spot an entry point. She also decides to pop on the Stochastic indicator. Once she goes back down to the 1-hour chart, Cinderella sees that a doji candlestick has formed and the Stochastic has just crossed over out of oversold conditions! But Cinderella still isn’t quite sure…. she wants to make sure she has a really good entry point, so she scales down to the 15-minute chart to help her find an even better entry and to give her more confirmation. So now Cinderella is locking her eyes in on the 15-minute chart, and she sees that the trend line seems to be holding pretty strongly. Not only that, but Stochastic is showing oversold conditions on the 15-minute time frame as well! She figures that this could be a good time to enter and buy. Let’s see what happens next. As it turns out, the uptrend continues, and EUR/USD continues to rise up the charts. Cinderella would have entered just above 1.2800 and if she had kept the trade open for a couple of weeks, she would have made 400 pips! She could have bought another pair of glass slippers! There is obviously a limit to how many time frames you can study. You don’t want a screen full of charts telling you different things. Use at least TWO, but not more than THREE time frames. Adding more will just confuse the geewillikers out of you and you’ll suffer from analysis paralysis, then proceed to go crazy. Is there a wrong way to do multiple time frame analysis, you ask? Some of our forex friends have been nice enough to give their two pips on this matter through this forum thread on multiple time frame analysis. At the end of the day, it really is all about finding what works best for you.

Here at the forexcec.com School of Pipsology, we like using three time frames. We feel that this gives us the most flexibility, as we can decipher the long, medium and short-term trends. Determine Main Trend The largest time frame we consider our main trend – this shows us the big picture of the pair we wanna trade. For example, on the daily chart, EUR/USD is trading above the 200 SMA which tells you that the main trend is UP.

Here are a few tips you should remember: You have to decide what the correct time frame is for YOU. This comes from trying different time frames out through different market environments, recording your results, and analyzing those results to find what works for you.