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A Bank of Canada rate hike wasn't even on the radar a month ago but on Wednesday the BOC joined the Fed and is the second major central bank to hike rates. What's more, as we anticipated, it was a hawkish hike and it sent the Canadian dollar much higher. We look at the major global shift ongoing in central banks.

The Bank of Canada hiked rates and didn't give any indication it was a one-and-done or two-and-done scenario. Poloz was more optimistic about the outlook for the economy and inflation than at any time in his tenure.

USD/CAD fell 40 pips on the decision, which was largely expected, and another 200 pips on the outlook. The pair hit the lowest in 13 months and the market is now pricing in a 35% chance of a second hike in September with another hike 71% priced in before year end.

There is an increasing believe in central banking circles that growth is picking up. At the start of the year, the US was supposed to lead the charge but Europe, Japan and others have outperformed while the US could give global growth a second wind of tax reform ever happens.

The market is skeptical to buy into what central banks are touting because they've been wrong before. This time though, the consensus is so broad and it's back by so many different central banks that it's tough to ignore.

Even with lone inflation, central banks are increasingly pointing to growth prospects, financial risks and forecasts for future inflation as reasons to hike. That newfound determination is likely to last, at least through year-end.

The lone holdout is the BOJ, which Nikkei reports is considering downgrading 2017 and 2018 CPI forecasts, likely on energy prices.

What that sets up is a divergence where the yen underperforms nearly everything. One chart worth a close look is CAD/JPY. It broke a major double top Wednesday and has traced out an inverted head and shoulders pattern.

If you want to be a successful forex trader, greed is probably the biggest obstacle you'll have to overcome. If you try to get rich on every trade, you'll more than likely end up blowing your account - slow and steady wins the race. It's the great paradox that all traders face - if you want to get rich quickly, you have to do it slowly.

Imagine you're risking your entire balance on a trade. Sure you might win the first two, or three trades and triple your balance a few times, but eventually you'll lose one (and lose everything!). Now what if you were still aiming to make double your risk when you trade, but only risking 1% per trade? Say you place 10 trades in a week and get half of them right - 5 winners/5 losers:

1. -1%
2. +2%
3. -1%
4. -1%
5. +2%
6. -1%
7. +2%
8. +2%
9. -1%
10. +2 %

Total = +5%

Okay, so with your modest $5000 balance that might not be life changing ($250 a week)… but what happens when you compound that return over a year?

5000 x 1.0552 = $63 214

That's a return of over 1260% without ever risking more than 1%. Now work out the return for the following year!

You can get rich relatively quickly through trading Forex, but it doesn't happen overnight. It happens over hundreds, if not thousands, of systematic, high probability and low risk trades. In order to 'get rich quick', you have to be patient - If you truly want to satisfy your greed, keep it in check.

Even the best forex traders in the world have losing trades - losing is a part of trading - but how do you react when you lose? How do you feel? If you're angry or sad; chances are you were risking too much, or taking a trade you knew you shouldn't - or both.

Whether looking at a successful breakout trader, trend follower or scalper; there is always a common theme: they all have a trading system and they stick to it. These traders don't get emotional when they take a loss; they were trading according to their rules and the trade didn't work out. They lost a pre-determined amount they were comfortable with and accept it as an unavoidable part of trading. They move on to the next trade, knowing their system is profitable over the long term.

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An inexperienced forex trader might open a long position in an uptrend thinking the market is continuing to move up. They didn't put a stop loss on the trade, as they were confident about the overall direction and worried about getting needlessly stopped out. They think "I'll exit if it moves against me" … Bearish news breaks and the market quickly move 100 pips against them. They are now looking at a 100 pip loss when it could have been limited to a fraction of that.

Now what? The market snaps back 50 pips. The inexperienced trader is relieved "maybe it's going back up?!". BAM! classic 50% retrace before continuation: the market falls another 100 pips. This is too much for our trader; he finally cuts the trade at the lows, losing 150 pips. Over the next few sessions the pair recovers to his original entry and beyond, in line with the trend. Did they do the right thing, cutting at -150? Maybe - it well could have continued to fall.

The fact is, our trader should have never been in this position in the first place and was forced to make a less than optimal decision. If they'd had a clear exit strategy in place, there would have been no question about what to do. Their stop loss would have been hit or they would have exited manually, (yet systematically) for a much smaller loss.

Whether your entries are discretionary or systematic, you should always have a clear exit plan for each and every trade. Don't be left saying "What do I do?"

Plan your exit and react accordingly.

Highlights:

• The Bank of Canada raised their trend-setting overnight rate to 0.75% from 0.50%. Rates were previously lowered by 50 basis points in 2015 in response to the oil price shock.
• The bank's 2017 GDP growth forecast was revised up to 2.8% thanks to a larger increase in consumer spending. Growth is seen slowing to 2.0% next year as a more moderate add from consumers is only partially offset by stronger business investment and another solid increase in exports.
• Excess capacity in the economy is expected to be fully absorbed around the end of this year. That is earlier than April's assumption that the economy would reach potential in the first half of 2018.
• Slower inflation was mostly attributed to temporary factors including food price competition and electricity rebates in Ontario. The bank also noted a lag between monetary policy actions and future inflation.

Our Take:

The Bank of Canada announced their first rate hike in nearly seven years, a move that seemed a long shot just a few months ago given the central bank's dovish rhetoric. But the potential for an increase was clearly telegraphed by members of the Governing Council over the last month in what is surely their most concerted effort at forward guidance under Governor Poloz's tenure. Today's rate statement and Monetary Policy Report reflect many of the themes policymakers have touched on in their recent, more hawkish comments. The bank sees growth broadening across industries and regions and thinks the energy sector's adjustment to lower oil prices is largely complete. With above-trend growth looking more sustainable and excess capacity being absorbed, the economy needs less help from ultra-low interest rates.

The statement provided little guidance on when we might expect another rate hike, but it is worth noting that today's move was not necessarily framed as simply walking back some of the stimulus provided in 2015. Rather, we think the bank's projection that economic slack will be fully absorbed by the end of 2017 raises the risk that policymakers do more than withdraw those 50 basis points of 'insurance cuts' over the next year. But to do so, we think the Governing Council will want to see at least some evidence of tighter economic conditions putting upward pressure on inflation. Our expectation is the bank will raise rates again in October before hitting pause on their tightening cycle until they have greater confidence that inflation is heading to their 2% target on a sustained basis. Also arguing for such a pause is Governor Poloz's comment that the economy may be more sensitive to higher interest rates than in the past and thus policymakers will have to carefully gauge the effect of rate hikes on the economy.

In the previous forex education section, we introduced the Relative Strength Index (RSI) and buying and selling when the indicator crosses back from oversold and overbought. In this section we will move past the basics and introduce a more advanced concept: Divergence.

Divergence occurs when a forex currency pair makes a new high or low and the indicator (in this case RSI) does not confirm:

This is a 4 hour chart of USD/CHF which shows both bullish and bearish RSI divergence. Bullish divergence occurs when price move to new lows, while RSI carves a higher low.

Conversely, bearish divergence occurs when price moves to new highs, but RSI stops short of the previous peak. We've highlighted bullish (buy) signals in green and bearish (sell) signals in red:

The buy signal (green), yields over 200 pips before a basic overbought cross tells the forex trader to exit. Note that there is a slight pause between this exit signal and the bearish divergence signal. This move is yet to play out, but the forex pair has already declined 90 pips. Let's take a closer look:

Note that before the bullish divergence signal, RSI issues 3 basic buy signals as it crosses back above 30 (red crosses). The first two are pretty shocking; USD/CHF declines over 250 pips before eventually turning higher. The third signal is comparably better - the pair only declines around 115 pips before the bullish reversal. Conversely, the bullish divergence signal coincides perfectly with the actual bottom.

There is only one basic sell signal before the bearish divergence - USD/CHF appreciates another 50 pips before the top - this is not as bad as the false buy signals, but there's always room for improvement. This time, the divergence signal does not coincide with the top perfectly - but the difference is negligible - approximately 5 pips.

A forex trader taking basic RSI signals on their MT4 platform would have had at least 1 losing trade with this example (possibly 3 depending on their stop loss). On the other hand, a divergence forex trader would have netted two winners and not lost a single trade.

The take away: A forex trader who waits for divergence, will likely avoid some losing trades and enter the market at a better price than your basic RSI trader. This allows for tighter stops and easier targets and should yield an improved win rate. RSI often precedes moves in price. Meaning that RSI will often begin to trend up/down before price does - this can give the divergence forex trader a profitable head start over your average price action forex trader.

In the last section we looked at Moving Average crosses and using Moving Averages to determine the trend. In this section we will move on to a new type of indicator - the Oscillator. Unlike the MA, Oscillators tend to appear below your MT4 chart in a separate window. We're going to take a look at one of the most common oscillators, the Relative Strength Index or RSI:

RSI looks at an instrument's ability to close higher/lower over a given period. When RSI is above 70, a forex currency pair is considered 'overbought' and when it's below 30, it's considered 'oversold'. It's important to note that just because a security is overbought/oversold, does not mean it's going to reverse - Indicators can read overbought/oversold for extended periods of time. A sell signal does not occur until RSI crosses back from overbought/oversold into the 70-30 range:

Let's look at the first buy signal - when RSI crosses back above 30 on the 20th of Jan. Note that the forex pair actually sets a new low (and issues a second signal) before moving higher. The first signal occurs at 1.4182, the new low is over 100 pips lower at 1.4079 - chances are most traders would have been stopped out on this signal.

The second buy signal is better, but there is still significant whip saw before the trader eventually nets 380 pips. This sell signal tells the trader to exit their long and go short - the forex trader then proceeds to make another 422 pips before the next buy/exit signal!

So let's have a look, our hypothetical RSI trader's first trade was a loss of 100 pips, before making 380 and 422 pips on his second and third trades. That's 2 wins out of 3 trades, with a net profit of 702 pips!

But what now? RSI is telling the forex trader to buy even though the currency pair has just broken below the late February lows. The trader could well lose 110 pips on this signal. That would bring their win rate down to a more realistic 50% and net profit to 590 Pips.

What if our trader had ignored buy signals? GBP/USD is in a major down trend after all. Well, we would have had 1 trade, 1 win and net profit of 422 pips. Over such a small sample size it is hard to compare the two, but long term testing shows better performance when trading RSI with the trend.

In the last section we introduced Moving Averages or Mas. We used a single MA in isolation and let it guide us into possible buying and selling opportunities. We used the 100SMA (100 Period Simple Moving Average) on a 4 hour GBP/USD chart - this is a relatively 'slow' MA. In this section, we will take our look at MA's a little further and look at Moving Average Crosses using both a 'fast' and 'slow' MA:

We have kept the 'slow' 100SMA from the previous section (green line) and added in a 'fast' MA: the 20SMA (red line). In the previous section, we looked at price's relation to the 100SMA and used that to determine our buying/selling bias. Here we will go a little further and look at the relationship between the fast and slow MAs. Note that when the fast MA (red) crosses above the slow MA (green) on the 2nd of February, GBP/USD appreciates over 300 pips.

However, when the fast MA crosses back below the slow on the 17th of February, GBP/USD eventually declines around 240 pips (this move is probably still active):

"But it went up first!" you say?

True, but note after the Fast MA crossed below the slow MA, price never again breached the slow MA ie a trader with his stop above the 100SMA survived the noise and caught the move lower.

Note that this approach is a lot more systematic than the subjective selling highs/buying lows strategy in the previous section. Trading systematically takes the guess work out of forex trading and tends to be less taxing mentally than pure discretionary trading.

Wondering where to exit the trade? A lot of forex traders simply take a multiple of their stop loss for their profit target, but this might not be for you.

In the next section we will discuss another type of indicator; the Oscillator. Oscillators can be very handy when determining whether or not an instrument is oversold/overbought and hence, when to exit.

Moving Averages are by far the most widely used and easy to understand forex indicator. They display right on top of your chart and mechanics are very easy to understand - a moving average or MA - is quite simply the average price over a given period.

This is one of the more common Moving Averages - SMA100 - the Simple Moving Average of the close price for the last 100 bars. We have placed the SMA100 over the GBP/USD forex pair on a 4 hour chart.

The simplest form of MA analysis is checking where price is in relation to the MA - is price above the 100SMA? Look to buy. Is price below? Look to sell.

That is, when GBP/USD is above the 100SMA, we will look to buy lows, when it below the 100SMA, we will look to sell highs:

As you can see, this is quite a reliable strategy at first glance - all the marked highs below the SMA lead to substantial declines and all the marked lows above the SMA lead to substantial bounces. Realistically though, this image was created with the benefit of hindsight - a live forex trader may well have bought the final touch of the 100 SMA:

Even so, GBP/USD did appreciate 75 pips before eventually breaking lower - Our hypothetical trader could have taken profit, moved his stop loss to break-even or, lost a small amount when pair breached the SMA. Let's say the trader lost on this one, but 7 wins out of 8 trades is still extremely impressive!

You will rarely see a moving average in isolation like this, most traders will use a combination of a 'fast' and 'slow' moving average. We go into more detail on moving average trading in the next section.

We have previously discussed Price Action or Naked trading - not for you? In this chapter we are going to discuss the alternative, trading while wearing your pants… Just kidding! Of course we're talking about using indicators.

Indicators analyse price action for you and give clear entry and exit signals. We will cover some of the more popular indicators and discuss how you can apply them to your trading.

Just be aware that no indicator is perfect. Many traders will filter "bad" signals by only taking signals in the direction of the trend ie only taking sell signals in a down trend and vice versa. More on this later – first we will discuss the most popular and widely used indicator: The Moving Average.

Fibonacci retracements are a quick and easy way of predicting support and resistance levels in Forex. The Fibonacci tool works on the principle that markets tend to 'retrace' a portion of a move prior to continuing the dominant trend. Traders use the Fibonacci tool on MT4 to connect the lows and highs of a recent trend, swing or range and the tool displays likely support and resistance levels derived from the Fibonacci Sequence (Golden Ratio). Fibonacci levels appear again and again in Forex - this tool is surprisingly reliable when it comes to predicting support and resistance:

This is the recent down move in USDCAD. If we use the Fibonacci tool to connect the previous peak to the range low, we are shown three potential resistance levels. The standard Fibonacci retracement levels are 23.6, 38.2 & 61.8, but many traders also use the 78.6 and 50 levels. 50 is not actually derived from the Fibonacci sequence, but the importance of the level cannot be denied - 50% retracements are very common place:

Let's take another look at USDCAD:

Despite a false break above in late February, pair is essentially capped by the 23.6 Fib. Above the 23.6 we have the 38.2, a break above the 23.6 would likely encounter resistance here. These levels are very common; a trend can retrace these percentages and still be considered healthy. Next we have the 50% mark, note this level is important as it coincides with former support. Above 50% and traders are beginning to question the recent move - is this a retracement or a reversal? Having said that; 61.8 retracements, prior to continuation are also fairly common. The 78.6 is considered the be all and end all - if a pair retraces more than 78.6% of the prior move, chances are it's heading straight back to the origin (100%). It may have completely reversed direction or is range bound.

A trader with a bearish bias on USDCAD would wait for a break above the 23.6 and look for a reaction at one of the higher fib levels, before entering short. On the other hand, a trader with a bullish bias might trade a break above the 23.6 with a stop below the recent lows, or wait for a break above one of the higher fibs.

The previous examples were all assessing down moves; let's take a look at an up move:

The process is the same, but instead of dragging the Fibonacci tool from the high to the low; we drag it from the low to the high. A trader looks at this chart and see's USDCHF is trending up and decides they want to buy. They know not to buy into resistance, so they use the Fibonacci tool to identify probable support levels. They notice that price seems to be respecting the 50% level and decide they will attempt to enter long there. They have two options:

1. Watch and wait for a correction to, reaction at the 50% level
2. Place a Buy Limit order just above the 50% level

The first option is probably 'safer', as the trader is not blindly buying into a potential support level. On the other hand, the second option means the trader does not have to sit and watch the market. Either way, our trader has four options for placing their stop, depending on their risk tolerance:

1. A tight stop just below the 50% level
2. A more reasonable stop below the 61.8
3. A considerably looser stop below the 78.6
4. A stop below 100 - if price moves below here the trader's bullish bias is unquestionably invalidated as pair has set a new low

The first option is likely a little too risky, most traders would probably opt for the balanced choice under the 61.8. With the latter two, the trader risks holding on to a losing position for longer than necessary and is sacrificing reward.

Fibonacci Retracements are a great way of identifying potential support and resistance levels. When analysing a down move, the trader uses the tool from the high to the low. When looking at a rally, the trader drags from the low to the high. The standard 23.6, 38.2 and 61.8 Fib levels are great, but many Fibonacci traders add in the 78.6 and 50 levels too. Trade breaks of key Fibs or reactions, depending on your strategy and bias.