Intro to Foreign Exchange Trading, Signals for 2018 | Damanick Dantes, CMT | Skillshare

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Intro to Foreign Exchange Trading, Signals for 2018

teacher avatar Damanick Dantes, CMT, Macro Trader at Dantes Outlook

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Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

    • 1.

      Intro to FX


    • 2.

      Global Macro


    • 3.

      FX Terminology


    • 4.

      Charting FX


    • 5.

      EURUSD Trade Example


    • 6.

      2018 Outlook


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About This Class

The $5 trillion foreign exchange market provides direct exposure to global events. In this course, students will explore the basics of currency trading, global macro and chart set-ups for 2018. Short video lessons are designed for FX beginners with a global mindset. Enjoy quality content at your own pace, with professional trading skills designed to power your investing.

  • Major currency pairs and benefits of trading FX
  • Understand Global Macro-Economics
  • FX Terminology: “Pips” “Lots”
  • Where and How to Trade FX - online tools
  • Technical Analysis for FX Trading
  • 2018 Macro & FX Signals

Meet Your Teacher

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Damanick Dantes, CMT

Macro Trader at Dantes Outlook


Hi, I'm Damanick Dantes, owner of Dantes Outlook. This channel offers classes on trading for beginners and also explores techniques to boost productivity and mindfulness. Over the past few years, I've learned that the hardest part of trading is the ability to properly execute a plan and manage risk. With all of the market noise, it's easy to develop anxiety as a trader, which contributes to a significant decrease in productivity.

So, traders must master the soft skills too. Making any bet, whether it's a decision to take a trade or start a business, requires the right mindset to develop, execute, and actively refine a process. And if you get that right, decision outcomes will hopefully be in your favor. Join me on this journey and stay tuned for fresh content and upd... See full profile

Level: Beginner

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1. Intro to FX: Welcome to the global currency market. Foreign exchange, also called Forex or FX, is the largest, most active market in the world. This course will provide a short introduction along with timely trading signals for 2018, we will explore major currency pairs that dominate the emerging advanced and commodity export markets. FX is as is actually known market that provides direct exposure to global events. The dollar, euro, pound, yen are some of the most actively traded currencies. The Adze, kiwi and Canadian dollar pairs provide important signals on global trade. The best part of the effects, it's a global market that operates around the clock. 2. Global Macro: Our first lesson is on Global Macro. It's important to understand how the world works from a monetary perspective before we venture into the FX market. The world economy operates in a cyclical fashion, which we call the business cycle. It's categorized by early, mid, late, and recession phases. This chart shows the relation between thrill GDP over time. Real GDP is basically growth minus inflation. We operate in a period where the economy goes through a peak expansion, which is above trend growth, and then we decline into this contractionary environment, in which central banks might call dovish. Dovish, this means negative growth commentary. That's negative for the country's currency. We ensure period of trough, which is where things start to stable out, which start to begin the recovery phase. This recovery phase is complemented by hawkish commentary, which was pro growth. A lot of the positive comments or it's coming out of the central bank, and this period usually does well for rising export economies. Things like Australia, New Zealand or China that are really triggering this demand growth retreat. Throughout this recovery, we enter this above trend growth of improving trade, rising inflation. That's positive for the underlying covering currency, and then we enter the boom period. This is really extreme above trend growth, where this excess risk in the economy and that triggers depletion response with a central banks to team the rate of growth and team the rate of price increases, and that ultimately would bring his back below trend. If things get really too tight and the economy becomes too excessive in terms of risks, that can trigger elite period or recession, which has really negative for all risk assets, all currencies, and it brings us back to the start of the cycle. The next most chart shows the monetary transmission of central banks policies. So the central banks in any country, their mandate is to team long-term inflation, growth and employment, and they do so via monetary policy. This has direct impact on short-term nominal interest rates. These are the interest rates that banks use to borrow and then lend at longer-term high rates to make their profit. If central banks are going to limit or lower interest rates in this boost demand for the economy, and lower interest rates would translate to spending on investments or durable goods of good people buying houses, purchasing with this leverage or lower interest rates. So the price of money is relatively low. When that happens, it triggers real GDP growth, and it gives you a better steady the economy. As we move through that cycle, when interest rates become too high or too low, the Central Bank works to stabilize that and continues on its policy trajectory. When we look at the dynamic of interest rates in the economy, lastly the relation between interest rates and investment is explained here. Rising interest rates decreases this client money or MS, and that means that it's more expensive to borrow while demand for money is relatively high. This dynamic will work to lower investment demand, which we see here, and when demand is lowered and the domestic price on the domestic level, that also teams price inflation and stabilizes real domestic growth towards trend level, which we saw in the earlier charts. The cycle continues to maintain balance between price stability, growth, and employment, which is a central banks mandate. As we see, FX is the main speculative instrument that directly follows the economic cycle. 3. FX Terminology: In this lesson, we'll go over FX Terminology and some of the major terms that are used in currency trading. If you hear about PIPs, LOTS, order types, and you're wondering what they mean and how do you use them, this is a good start. When we talk about pips, it basically means point in percentage. It's the smallest change, which is the last decimal point in an exchange rate. Exchange rates are quoted in about four decimal places, and the last of those four fluctuates over time, and it's an easy point of reference in terms of looking at how much the Euro went up against the dollar or any other exchange rate. It's one 100th of one percent, or one basis point or 0.0001. If you hear someone say, "Hey, I made about 20 pips on this trade", it's basically last of those more decimal places plus or minus as it fluctuates over time, and that's used to calculate your profit or loss in the position. If you're looking at the dollar amount in terms of how much you've gained or how much you've lost, you've got to convert things back, and it really depends on your pip value. Before we move forward, the base currency, which is what I use a lot, is terms of the first currency that's used in the sequence. If we look at dollar CAD or Euro dollar, your base currency is Euro or dollars. Let's say if we had about a $300,000 trade in dollar CAD, and we've closed that trade at an exchange rate of 1.0568, and we've made about 20 pips on this position. To calculate our wins or losses, we take that $300,000 trade, we multiply it by one pip, and that gives us about 30 CAD per pip. The 30 CAD per pip is then divided by the closing exchange rate, which gives us $28.39 per pip. Then that 20 pips that we've gained on the trade, is then multiplied by the dollar value per pip, to give us $567.80. This is usually calculated automatically over time in your exchange, in your broker that you are using. But what we use, it's good to know the calculations behind it, so that we can plan for our trade. The pips, in terms of values that change and fluctuate over time, is an easy point of reference, and we'll see that as we navigate some trades going through. When we look at lots, we use that to determine our trade size and also the risk amount, what we're willing to lose. Lots in the FX market are divided between Mini Lots and a Standard Lot. A Mini Lot is 10,000 units of a base currency, and a Standard Lot is 100,000 units of a base currency. Let's say if we've got a starting balance of $10,000 in our account, and we're willing to take a one percent risk on any given trade. We multiply that $10,000 by that one percent. That gives us a trade risk of a $100, which is the most we're willing to lose on any given trade. In terms of pips, it'll be about ten pips or $10 in cost that were willing to lose. So if we convert that over to lots, that gives us about a 100,000 standard lot that we're willing to trade for a $10 pip cost. So $10 moves up or down in terms of pips. That last four decimal places is our point of reference when we're looking at a chart and adjusting our trade size, in order to take an acceptable amount of risk for a starting balance of 10k. 4. Charting FX: When you're looking to use technical analysis to chart FX experience, it's always best to just keep it simple. Technical analysis, the way I use it is use it to determine trend or momentum, which is the speed of price change over time, and a trend can either be increasing or decreasing. When you got flat price movement, there's really no trend and I just call it noise or range bound movement. We basically just use supporter resistance when we're in that sort of neutral environment. To understand candlestick charts, which is what I use in terms of my charting skills, you either got a bullish candlestick, which is either highlighted in green, or a bearish candlestick, which is sometimes highlighted in red, and the candlestick has made up of a body and shadow. The body on a bearish candlestick means that the price opened higher than were closed at, which is negative and the wicks here are either represented by the height of that trading day, week or month and the bottom wick is the low trading price of that day, week or month, or whatever time period you're using. On the flip side of bullish candlestick is when the price closes above where it opened on a given time period and the wicks are the same. It's representing the high of that trading range or the low of that trading range. As you can see, it basically gives us a characteristic of that trading period, the battle between the bulls and the bears and the closing value we're closing determination of that price. When we look at trend of momentum, we use up trends or downtrend lines to give us a point of reference or where supply was or where demand is for that given exchange rate. As I said earlier, an uptrend is defined by rising price highs and price lows. Whereas the downtrend is defined as lower price highs and lower price lows. When we've got broken support, that means that the trend line of higher price highs or higher price lows was broken to the downside and that gives us confirmation to go short, a particular currency peer. When we're going short a particular currency pair, let's say we are going short euro or dollar, we're expressing a negative position on the euro versus the dollar. On the flip side, if we broken resistance the upside, and then we're reflecting a positive trait where we go wrong that currency. It's important to know that, that resistance line or support line is now our point of reference. Usually sometime we went short here, we sometimes get another test of that line which is then strengthening that resistance to the downside because it's more ammunition to go negative or short that currency and it's a flip. More ammunition go long the currency of that support line is retested. Now we're ready to run through some charts. 5. EURUSD Trade Example: Before we run through some chart ideas for 2018, I want to walk you through an actual chart setup and treat based on some of the lessons that we've learned in the past about ethics training in general, some chart patterns, technical trend and momentum. We can see that live here in the Euro Dollar up here. So when you look at Eurodollar on a four hour basis, this means that every candlestick here represents four hours of trading. When it's a bluish candlestick, it's not filled, that means that the price is closed above the open over that four hour duration, and then a black sheet at bar here means that the price has closed below the open of that four hour time period. Below here I have the mark D indicator, which is just an indicator of momentum, the speed of price change over time, and over here, compares momentum to volume. Then on the right-hand side we see fresh demand zones when it's peaking out significantly, and then you can see here when price is extended to the upside or sometimes downside, we tend to get the lighter shaded volume profile zones. The basic trend line shows higher price highs over price lows over the past month or so in Eurodollar. Then we've seen some weakness and we've broken that trend line. So we would look to show. Here, sellers or buyers have signified an area of strong prior support, which is now resistance and we're now testing that. So we would look to trigger a shot. On, you can place paper trades or you can link it to your brokerage account. For simple purposes now, we'll take us our orders on market. You can also limit to the amount of whatever price you want to trigger your order. You can also have a stop order, but for simple purposes, we'll just do market which means that it triggers at whatever the current rate is. We can set a stop loss, which signifies our amount of risk and we talked about pips earlier. In the earlier example. I think we had ten pips of our stop. Here. Let's just do 25 pips of account size about 10K. Think on the paper trading, where we want to take profit, I tend to just use a 75 Pip zone, which means that our stop here, 25 Pips is around 1.186, and that's right around here. So if we break above this zone, it gives us some protection, to get out of the position and maybe reassess. We can always get back in. But you generally want to take your losses small on interval training portfolio and let your winners run. If you've got some losses, that's fine. It's just near to confirmation. As long as you use limited and you already calculated ahead of time, it protects you from a greater downfall. The quantity in terms of what we want to risk on this trade, let's just say, on a percent basis we can put maybe 20. So 20 percent or so on this trade, maybe 25 is probably better. It's not allowed me to do that. So 25 in terms that will be about a $100,000. So here you'd vary, calculates your risk reward, which is awesome. So three to one risk scored is great, and there you have it. So 75 Pip profits alone down here and we were already limited our risks towards, if it goes above this line and this hand, If you will retouch this trend line, we might have to just reassess, but overall the trend profile is negative, so that should be good support for us and we just trigger that cell and the order is placed. So to signify here, you're going short and signifies the trading is awesome visualization. Keep track of your paper trade. I think you can also click on this panel and you can actually see your trade down here. So you see already have it little positioning, keep your dollar just playing around. But your dollar is actually shows a position here, so you're already up $5 and you can track it going forward. I'll keep this slide as I go through the chart it is 2018, maybe we can revisit this because it's all live. By the time you see this recording it already be past this time zone, which is why I picked for our chart. So I hope that makes sense. 6. 2018 Outlook: Here we are at the end of the video, and this is the 2018 outlook. Here I'll provide a walk through some of the macro and FX signals that I'm seeing across different markets and their implications for FX pairs. By now you should have the basic understanding of what FX is, what are some of the terminology that's used, basic macro understanding and some of the technical implications and how to please treat. In general, what I've seen as I've been browsing through some of the charts, is some weakness in terms of the quantity complex mainly seen in copper. Now we're seeing it in gold, where we're also seeing it in EM, currencies in emerging markets, stock markets. That's also probably giving us a positive signal and the US dollar next year. Right now it's around a little basing on a support. There's more to be seen, but the immediate signal is some of the weakness on the commodity front, which is interesting for this time of the season. Let's go through some of the charts. Again, we go back to treating, which gives us a good visual of some of our charts that I used. Here, we started with the x, y, and this is the US dollar index. It basically looks at the US dollar versus mainly the Euro, but also basket of other currencies. It gives us a good proxy overall how the dollar is doing on a daily basis to Staley chart number every bar here or every candlestick represents a day trading range. We declined here below this trend channel, right, which is pretty negative and sellers pretty much put this line in the sand and they didn't want to go any more than 9472. Since November, we saw some weakness in the US dollar. Now that weakness has receded and buyers have shown some interest around this support area above 90-80. That's giving us sort of a Mac D by signal on horizon. It's not confirmed yet, but once we get there, we're really going to have to trigger an upside through 9472 to give us some green shots into 2018. For now, the petrous, mostly neutral, but as we look through different other markets, we can see that the pitcher has strengthened on the underlying support. Another area that I look for in terms of the US dollar strength is the US 10-year treasury yield, which as we saw before in the macro lesson, is a good response of central banks increasing rates or decreasing asset purchases, which tightens rates. Which tightens the amounts of money supply in the system. That leads to an increase of interest rates to balance out the significant economic growth, economic momentum that we've been seeing the US. As interest rates rise, and this gives us an end, the signal rising inflation, better economy, which should also be supportive of the dollar. But we haven't seen that yet. The US 10-year treasury yield on a weekly basis has broken out of this both lag support zone. We're getting this really good, strong demand around 232 percent in the US 10-year treasury yield. We've really got to get above 242 and then 260 to really show some significant upside. Right now, momentum is pretty positive, but flat. Look on a monthly basis. Ten-year treasury yield has been in this steep decline trend like Venice area, low yields. Now everyone's figuring out, maybe we could get inflation or positive economic signals. Maybe this is the time for yields to work out to the upside. As we are seeing now, we have this consolidation range. On a daily and weekly things aren't pretty looking looking too bad, but you've really going to hold some support above 230, at least to get a good positive signal to 2018. We also probably you should look at dollar. This is the US dollar versus the Japanese Yen. Again here we're seeing if we look on a longer-term chart, maybe on the Monthly, this really tight consolidation range, really from 2016 and we hadn't seen any signals to go long or short. We've seen some weakness here, but the weakness has been, or the trading range has been declining. That gives us a signal that we're in this long squeeze period and we really don't know where price is gonna go. Right now we're seeing a fresh demand zone, which could be positive signal, but we've really got to get about 114 to confirm anything. On the daily chart. We are coming back down from 112, but we've also got some nearby support around here. Pretty much neutral right now and that's okay. That means that you steady and you wait for your signal to confirm any direction. If you look at dollar CAD, number, Canadian dollar, a commodity currency and we're not seeing anything on a weekly or monthly, so just concern ourselves neat with daily. We see here that the trends in September has been up but broken down now. We're getting some little bit of support around 1257. Let's see if we can hold that and we're in this demand zone. But right now the trend is negative. If we go back to the Eurodollar, let's actually do that last because I'm pretty good on the prior video. See the Aussie dollar and other commodity currency. Just like the QV on a monthly basis, is showing strong support from year 2000 all the way up. Ever since his test to this line, we've got a strong bounces and it's probably cyclical. It's probably you have to do with the commodity upswing or something like that. But it's really good demand sign right down around here. It's not good in terms of timing currently. We know that Ozzie has supported above 70 sides versus a dollar. But that's giving us ample space to probably go short over the intermediate term, maybe give it another 3-6 months or so. That's just another three bars. Right now there's still some room to get to that support line. Negative, momentum is not yet negative, but it's shifting negatively. We can also see that on a weekly momentum is negative, we're probably in this advanced zone. So any uplift that we get, might be temporary, especially with weakness that I'm about to show you in the commodity complex key, we were seeing the same thing currently, which might mean that we might see some weakness in the immediate term for the dollar. But overall the trend has been pretty positive. For key, we took a little bit of playing around with the system so we might delay or charts of it on for our, I think. But we have seen that the kiwi is actually a near support. More so than the Yahtzee little monthly basis right at that support. But we're also getting a fresh negative momentum self signal, which means that this might be taken out. That might give us an early sign from the Azi is stiff resistance from the 72 or three level, which is an area of concern. If we can hold this off better, if we break it, that's a really strong signal that something's gone wrong. If we go to [inaudible] , dollar and then we'll do the euro, and then we'll go through the commodities, British pound futures. So no, nothing. Just do pound dollar. There we go. The pound dollar, instruments like the euro, has declining high. Since 2008, financial crisis, we haven't really gotten this really strong recovery in the palate versus the dollar. Now we've seeing some bottoming out, right. So here at right at the start of 2016/2017, sensing it was so negative, mostly because of Brexit and all these things that were going on with the UK economy has seen some stabilization and that has been reflected in its currency on a weekly basis. Here we can see a trend line that has given the recent bout of support for the pound dollar, which can see some upside to around 140. That's positive for the pound, negative for the dollar. In the immediate term, you might see some weakness here, but it's holding on to support right around one, three four, these things can get out of the way. Some times, the system is kind of slow, but you get the picture. There we go. You might see some negative downturn, but support has been really strong. So things have been pretty looking all right, for the power. Euro dollar. On the flip side, as we saw in our live trade videos, has seen some weakness. Hey, our trade is up $14 so far. We've broken this trend line, however, we've broken out of this series of lower lows and lower highs, which gives us a positive reading. We're also in this fresh demand zone on the daily chart. So that gives me some concern of things are looking all right, but we've still got some downside room. We're getting a fresh MACD sell signal, which supports our short position that we've taken in the entry day position of this four-hour range. We're hoping for prices to go back down or the exchange rate to go back down here to see some fresh demand and it's still not back into the zone, so very, very short-term pullbacks. But overall, things have started, we can ever get in a sell signal daily that might fluctuate up towards a weekly or monthly, but not intra-prediction. We wait for the signal and then we take the position on the trade. Moving into the commodity space, here's where I'm seeing a worry and it's probably best just to look at EEM. So EEM is an iShares MSCI emerging market index fund, which takes into a basket of emerging market stocks, and it gives us a good proxy of how that region of the world is doing tied to commodities, tied to trade. For seeing any slowing here, that gives us a signal that risk might be taken off into the new year. Let's see how that's doing. EEM is holding on to the trendline support. However, momentum is negative, so that might give us some signal if we break this. That's not looking good. We want the daily chart? Yeah, things are not looking too good. There we might break this. Momentum has been declining ever since this summer, whereas price has been increasing. This shows us that there is less participation on the upside for emerging market stocks, and that's a negative signal. If we look at Copper HG1, Copper Futures. Copper has actually held onto this longer-term daily support around 2.96. But right around here, we've had this back lapse from 3.24 which show that prices were extended and now demand range is still fairly low and momentum has been negative in a lower highs and the MACD, even though we had higher highs on copper price. Things pretty are much negative there. If we go into weekly, you can see here that copper has had a nice long streak, fresh negative MACD signal. So that's where I'm getting a little bit concerned if we break this in $2.75, gives us a next zone of support, which is negative for the Aussie because Australia exports a lot of copper, that's a big component of its GDP. So if copper lends some downside follow through, that also might be negative for Aussie dollar and were at that critical support level for the Aussie, but we've still got some room to get there so that might support a sell signal once we get that sell from copper. We're all waiting for things to confirm any type of trade that we're going to make. If we look at oil, we're seeing the same thing. We just go through that quickly for the sake of time. But oil is in this weird period where it's gotten really, really strong up lift that's holding this trend line, and we're not getting any signal on the weekly so far, momentum is still pretty positive. But see the daily chart. Yeah, momentum is negative on the daily and there's much better support around 56. We still got some earned buffer down to about $60 per barrel for Brent crude oil. If we break that, that's a pretty significant break and that lends to lower support around sub 58 levels. That's negative for the commodity complex and will be positive for the US dollar, but we'll see when we get there, if we do capture that trend line and we had backup, then "Hey, you've got to go where the market goes." But let's also look at gold lastly. Gold has been interesting. It's been in this choppy, consolidation, squeeze environment. We haven't really gotten anything out of it until we broke this line. This trend line is connecting this low to around these series of lows, so you can tell here since October it's been a frustrating treating period for gold and I even got caught in it and I thought that this was going to be a really good demand zone from 1280. But it's just proved to be an interesting zone where buyers and sellers are debating against each other and it finally broke this line. 1263-1268 is an area where, I wouldn't be involved. This is just a really neutral period, but we've gotten this negative demand signal and in this price squeeze that tells me that the stronger areas of support below and then there is upside potential above 1300. This area has always been rejected, rejected, rejected. Well, not rejected here, but failed to follow through, but it's been a really tough area of supply. If we go into the weekly, you can see here they're critical support zone for gold, which gave us a really strong buyer signal in 2016 and the start of 2017. The start of 2018 might be a little rocky for gold because there's better demand below than there is currently. See even on the monthly, yeah, not really get anything. It looks just like the Aussie in a way. There's much more room to the downside to hold onto that support which is all right, but in general, the gold price is neutral to negative. If we go back to dollar yen, given that we're somehow bullish on the dollar without any positive signals yet. I also tend to look at FXY which is an ETF that follows the Japanese Yen. If you can see that the Japanese Yen is strengthening, and that might give us a negative signal on dollar versus Japanese yen, whereby if the Japanese Yen is weakening, then that gives us a positive signal on dollar yen. Here you can see that this channel has been increasing of higher lows over time for FXY. This is Japanese Yen. This is a zone of interest and we're getting this fresh momentum by a signal. Momentum versus volume is still pretty weak and our zone of interests is fairly wide. I'm not sure what to make of this, but once we get to 84.03, I would say that gives us a better signal of how the Japanese Yen is doing in general. Typically the Japanese Yen is a risk off instrument. So people use that as a safe haven, if you will. That's also tied to maybe gold and some other things. But when you're in this tricky period and neutral environment, you tend to just want to see where price is going and make position on that. So overall we've seen some weakness in copper, we seen some weakness in gold, but the dollar has gained some support. Let's see how things go in the next weeks and that'll give us a much stronger signal for 2018. I'll follow up at some of the projects or commentary below this video to keep the community active as we go along. Let's go back to our Eurodollar rate. Euro USD. Here we go. We're up a $1. Sometimes things work, sometimes things don't. But let's see a monthly chart here. So it looks just like the pound dollar. We've got this declining highs from 2008. We're still given the green shoots so Eurodollar, we'll see where it goes. Right now demand zones have pretty much a little bit lower than where it is currently, so we might see some medium-term weakness, and the same goes in a weekly chart. Demand zones are lower than where it is currently and we're getting a fresh MACD sell signal weekly, which is not too good. On the daily, fresh MACD signal their. On our four-hour is was where we had our live trade. Now, we're up $6, but we're negative on the short-term, medium-term, negative as well for your dollar. That's pretty much the way things are going now. A follow-up, things change all the time, but that gives you a gentle run through how the FX market looks with chart perspective.