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In Forex trading, support and resistance refers to levels where price is likely to pause, bounce or even reverse. Support is a lower price point or zone where the currency pair is considered 'cheap', spurning buying interest. Resistance is an upper price point or zone where the pair is considered 'expensive' and is likely to encounter sellers:

In the above example, the Australian Dollar is finding buyers around 7150, but encountering strong selling interest above 7250 - note pair spikes above 7250 resistance five times, but is unable to close above there. It is also worth noting that when there's an hourly close below 7150 support, pair is then unable to close back above the level - former support is now acting as resistance:

This is a fairly common occurrence in Forex trading - levels that previously encouraged buying interest will nearly always encourage selling interest after they break down (and vice versa).

You've heard the old saying "Buy Low, Sell High"? Forex traders look to sell into resistance and buy into support, this leads to higher probability setups, allows the trader to set tight stops and leaves plenty of room for rewarding trades.

Now we've had a look a horizontal support and resistance, let's take a quick look at trend resistance and support:

This is the trend line that supported USDJPY from September 2012 - January 2016. Note pair finds buying interest whenever price nears trend support.

Here we have the recent down trend in GBPUSD, note pair is unable to close the week above trend line resistance and eventually turns lower.

Remember: If you want high probability, rewarding setups - Buy low, sell high - buy into support, sell into resistance.

Ascending Triangle - Bullish Continuation Pattern:

The Ascending Triangle is one of the most reliable bullish continuation or accumulation patterns. It is characterized by a series of higher lows failing at a flat top - this means it is a 'terminal' pattern - eventually price will have to stop carving higher lows, or more often than not, the top will have to break.

Just like the reversal patterns discussed in the previous section, the buy signal occurs when the top breaks and the pattern is confirmed.

Descending Triangle - Bearish Continuation Pattern:

The Descending Triangle on the other hand, is a very reliable bearish continuation pattern. The pattern is characterized by a series of lower highs meeting a flat bottom.

Traders will enter short when the flat bottom is taken out. As we discussed in the Trend Trading section, price can decline quite quickly in a bear market - these patterns often yield impressive moves lower.

Bull Flag - Bullish Continuation Pattern:

Bull Flags or Pennants are an extremely reliable bullish continuation pattern. They are deceptive to the novice trader as price is temporarily trending down, but at a relatively shallow pace. Bull flags are characterized by a series of parallel lower highs and lower lows within a dominant uptrend:

A buy signal is triggered when the upper parallel is breached.

Bear Flag - Bearish Continuation Pattern:

The last continuation pattern we will look at is the Bear Flag. The opposite of the Bull Flag, characterized by a series of parallel higher lows and higher highs within a dominant down trend:

Traders will look to enter short once the lower parallel breaks. Just like the Descending Triangle, these patterns can lead to some fierce bearish continuation - in this case, GBPUSD declines over 800 pips in less than a month.

The Take Away: Chart patterns are often high probability, high reward trades that offer the trade clear entry and stop loss levels. Patterns are confirmed when the relevant line breaks - not before - wait for the breakout.

In this section we will cover chart patterns, these are patterns that are comprised of many candles and take considerably more time to form. Once again, there are multitudes of chart patterns to draw up on your MT4 platform, so we will try to only cover the more common and reliable patterns.

Head and Shoulders - Bearish Reversal Pattern

This is by far one of the most common and easy to recognise chart patterns, it is also the most reliable. Forex traders love these patterns for both their reliability and the fact they offer clear entry and stop loss levels:

These patterns have four components:

1. Left Shoulder - small rounded top. Pattern is not yet visible
2. Head - Pair breaks above the left shoulder before retracing 100%, or the majority of the ascent - potential pattern visible to the keen eyed chart trader
3. Right Shoulder - pair forms a lower high to the right of the head, usually similar magnitude to left shoulder, but variance is not uncommon. Head and Shoulders top is now clearly visible.
4. Neckline - Though the chart pattern is now clearly visible, it is not a confirmed top until there is a break below the neckline. The Neckline connects the lows of the left and right shoulders. This is often a straight line, though in the above example it is ascending - patterns with ascending necklines are even more reliable than the standard, flat neckline Head and houlders.
   Once price breaches the neckline, the trader enters short. Stop can be placed above the right shoulder, or above the head (depending on your risk tolerance). Note that price often comes back to test the underside of the neckline - this can be very handy if you've missed the original break and reinforces bearish bias. In this example, once price breaches the neckline, there is a ecline of over 100 pips.

Deformed Head & Shoulders - the above example was very clean, though some times, these patterns can exhibit 'deformities' such as dual or multiple right shoulders, descending neck lines or shoulders that exceed the top. Cleaner patters tend to be more reliable, though the key to a successful trade is always waiting til the pattern is confirmed ie the Neckline breaks. Here are some examples of the above deformities:

Head and Shoulders patterns are extremely reliable and offer the trader clear entry and exit points, but always remember - the setup is not confirmed until the neckline is breached.

Inverse Head and Shoulders - Bullish Reversal Pattern

As the name suggests, these patterns are identical to a standard Head and Shoulders, but appear upside down (on their heads) and signify a potential bottom. Not quite as reliable as the standard H&S, but still a very reliable pattern. These patterns are often more difficult to spot than their bearish counterparts, but recognition becomes easier as you gain charting experience.

Once again, the key here is waiting til the neckline is breached.

Double Top - Bearish Reversal Pattern

The Double Top or 'M', is another reliable chart pattern favoured by many traders. Like the H&S, it offers the trader clear entry and stop loss levels. With the Double Top, the entry trigger is known as the Confirmation Line:

The Double Top is characterized by two tops of similar magnitudes, originating from roughly the same point. The Confirmation Line connects the two origin points and tends to be flat or ascending at a slight gradient. Just like the H&S, the trader does not enter short until the Confirmation Line is breached and the top is confirmed. Note the two tops often take the shape of H&S or smaller double top patterns (this M features the two H&S examples from earlier).

Double Bottom - Bullish Reversal Pattern

The Double Bottom or 'W' is the inverse of the Double Top - it's shape is reminiscent of the letter 'W' and the pattern signals a potential bottom.

As with the other reversal patterns we've covered, the trader waits until the Confirmation Line is breached before entering a Buy position.

What is a Candle?

Candle Patterns

In this section we're going to take a look at trading off forex candles on your MT4 charts. There are many different forex candle patterns - we'll have a look at some of the more common and reliable ones here. Candle patterns often indicate a turning point or reversal in the forex market, so we'll break this section up into 'Bearish Reversal Candles' and 'Bullish Reversal Candles'.

Bearish Reversal Candles

Shooting Star:

The Shooting Star is a single candle bearish reversal pattern that occurs at the end of an uptrend. Price initially moves higher, before eventually closing near the open, leaving a long wick with a short body. Wick should be at least 1.5x the length of the body. Note in the above example, this forex candle leads to a decline of nearly 1000 pips in less than two weeks.

Bearish Engulfing:

The Bearish Engulfing is one of the more common bearish reversal and continuation patterns. The candle will close lower, with a body that completely engulfs the body of the relatively smaller previous candle. Note this candle continues to occur frequently throughout the down trend, signalling continuation (we have only circled two which occur at peaks).

Hanging Man:

The Hanging Man is another relatively common bearish reversal candle that occurs at peaks. Price will move signifcantly lower at the start of the perioid but will come back to finish near the open, leaving a long wick and small body (simmilar to the Shooting Star, but the wick is below the candle not above). If this forex candle occurs in the lows of a down trend it is a bullish candle known as a hammer.

Bullish Reversal Candles

Bullish Hammer:

The Bullish Hammer is a common reversal pattern that looks identical to the Hanging Man candle but occurs in the bottoms of down trends. Price will move signifcantly lower at the start of the perioid but will come back to finish near the open, leaving a long wick and small body. Note in this example, the following candle actually breaches the Hammer's low - forex traders should always set their stop a reasonable distance from any reversal candle.

Bullish Engulfing:

The Bullish Engulfing is identical to the Bearish Engulfing but it is an up candle occuring at the end of a down trend. The body of the new candle will completely engulf the previous candles body signalling a major shift in sentiment.

These are just a few of the more common forex candle patterns with high success rates. Remember some candles appear identical so you have to then determine whether the candle is appearing at a peak in an advance (Hanging Man) or at a trough in a decline (Bullish Hammer)?

Don't forget to set your stops a safe distance from the relevant candle's high/low - though many reversals are immediate, there is some times noise which you should adjust for.

Forex traders use charts to determine market direction and identify possible buying and selling opportunities. There are three types of charts commonly used in forex that you can flick between on MT4:

• Line chart;
• Bar chart;
• Candlestick chart.

Line Chart:

These charts are handy for quickly determining the trend - only the current/close price is graphed - as such these charts should not be used for placing stop loss or take profit orders.

Bar Chart:

The chart is created with the use of bars where each bar has a high (top) and a low (bottom) with a line on either side; right side being the opening price and the left side being the closing price for the selected time period

Different colours can be used to identify bars that close higher than the open (bull or up bars) or lower than the open (bear or down bars). The example above has green lines for up bars and red bars for down bars. These charts show all the information you need but most traders and analysts tend to favour the third option - Candlestick charts.

Candlestick Chart:

This chart is created much like bar charts, with the only difference being that candlesticks add dimension and colour to the Bar Chart by depicting the area of the bar between the open and close as a two dimensional real body.

Candlesticks are comprised of a body which represents the difference between the open and close prices. An up candlestick occurs when the close is higher than the open - and down candlesticks occurs when the close is lower than the high. In the chart example above, up candlesticks are green whilst down candlesticks are red. If the open is equal to the close there will not be a body, just a line - this type of candle is referred to as a "Doji".

The thinner lines extending beyond the body are called 'Wicks' - above the body is the high and below the body is the low for the selected time period. A large wick (relative to the body), indicates a potential turning point (support/resistance).

Technical Analysis is the use of charts, such as those found on the Vantage FX MetaTrader 4 (MT4) platform, to study historical price movement to determine the possible future direction of price. The idea behind technical analysis is that everything you need to know, has been reflected in price. That means that if everything you need to know is in price, then price action is the only thing you need to know or understand to trade.

Studying price off charts is very subjective but for the most part, trading off technical analysis is a self-fulfilling prophecy if you will. Humans look for patterns and past signals to try to predict the future. And because everyone starts to look at the same patterns and behaviour, price reacts!

Vantage FX allows traders to trade directly off the charts using the most popular online forex trading terminal in the world, MT4. Traders using the Vantage FX MT4 platform are gaining an edge on global forex markets with substantial improvements in execution speed and a transparent price feed across all asset classes.

After going through the highly organised data releases and central bank decisions, there is one last piece of fundamental analysis that you need to be aware of. Event risk is anything that will move markets, but that you can't see coming.

News Headlines:

• There are just so many different types of headlines that come from a whole range of different places. Some credible and some not. Funnily enough, it is often the least credible headlines that get the most attention from markets!
• Keep an eye on the News Terminal for streamed news headlines that have the potential to move forex markets. These could be central banker or politician comments, unexpected good or bad economic news or even something as wacky as a new life changing invention! If it's something confronting flashing up on trader's screens, so often they hit the buy/sell button first and ask questions later.

Natural disasters:

• Natural disasters are one headline that nobody wants to read, but unfortunately for all of us, they are a fact of life. I'm sure you all remember the devastating Japanese earthquakes that rocked the island and triggered multiple tsunamis? This saw USD/JPY instantly shoot up as traders exited their Japanese Yen exposure and sought the safety of US Dollars.
• Natural disasters aren't something that the people can plan for, but they are reported instantly on social media wherever they happen in the world. You have no excuses if you let yourself get caught out by a natural disaster headline.

Terrorist attacks:

• Terrorist attacks, declarations of war and political tensions all have an effect on forex markets. In our recent memory we of course have the devastating attacks in the French capital of Paris. This saw money leave the Euro, as fears over what sort of an impact this would happen on consumer confidence and spending in the Eurozone, as well as a flight to US Dollars in the risk-off market.
• It is almost a sad reflection on where human society is at right now, that a terrorist attack actually might not move markets at all due to the frequency that they occur and are now reported. If North Korea reporting the successful test of a hydrogen bomb can't move markets, then really what will?

The question of whether being able to profit from events that often see such widespread loss of property and even life comes up here and isn't something that we can ever answer. We do however say that these events are a fact of life in the world we live in today and first and foremost, you must manage your risk around them at the very least.

To achieve certain economic mandates or goals, a country's most potent weapon is monetary policy. Monetary policy is determined by a country's central bank acting independent from government (unless you're China of course!).

Monetary Policy is the process of setting the interest rate and controlling the supply of money.

There are three main goals that monetary policy helps a central bank achieve. Those being:

• Economic growth targets.
• Inflation in the target band.
• Low unemployment.

Now we have gone through what monetary policy is, let's go one step further. Have you ever heard monetary policy referred to as being Hawkish or Dovish? No, economists aren't watching birds or performing magic tricks, they're actually describing the types of monetary policy that central banks have at their disposal.

Hawkish monetary policy is indicative of rising interest rates. It is sometimes referred to as tightening because essentially the central bank is looking to tighten the economy and slow it down in the wake of higher inflation.

Under a hawkish scenario where interest rates are rising, the borrowing of money by both business and consumers becomes more expensive (due to higher interest repayments) so spending and investment decreases as a result.

Dovish monetary policy is the opposite, and indicative of falling interest rates. A central bank may decide to loosen monetary policy by cutting interest rates with the goal of stimulating a stagnating economy in mind.

Under a dovish scenario where interest rates are falling, money is being made cheaper and more accessible to business and consumers which encourages them to invest or spend. This spending then stimulates a stagnant economy.

By using the different types of monetary policy, a central bank can somewhat control, and in the end smooth the wild swings between the good and bad times experienced by an economy. Both economies and markets want stability and there is no point in experiencing huge booms if they are followed by equally as devastating busts in a regular business cycle.

The biggest and most obvious part of fundamental analysis is trading economic data releases, or more simply as traders call it: News trading.

So that everyone in the market has a level playing field when it comes to market sensitive news, each economic data release has a set time and date that it must be released. This means that at this particular time EVERYONE is watching and trading that particular forex market. All this attention leads to volatile market conditions as everyone tries to outwit each other in the race to best position themselves.

There are literally hundreds of economic data releases every single day. Think about it. Every single country in the world releasing data such as unemployment, retail sales, GDP, trade balance. The list goes on forever. But just because a piece of economic data is released, doesn't mean that it is relevant to you and your trade!

The Vantage FX economic calendar allows you to filter news releases by both country and expected market impact, making sure you're only focusing on the news that is most relevant to you and your particular forex trade.

If you are trading EUR/USD, then the GDP of South Africa contracting shouldn't really have too much of an effect on either the Euro or the US Dollar, should it? Of course not.

But on the other hand, a big and unexpected drop in the tier 1 US unemployment rate could have catastrophic effects on not only USD forex pairs, but across the entire forex market. This is because the US economy is still the biggest and weakness at the top of today's interconnected world so easily sends shockwaves through the entire world. Do you remember the GFC?

Did you know:

"The US Non-Farm Payroll report is one of the most significant pieces of economic news on the forex calendar. NFP, as traders refer to the release, is the monthly change in the number of employed people in the US economy with farming excluded. It is a major barometer for the health of the US economy and in term the globe."

So where can you stay up to date with the most important economic data releases?

The Vantage FX Forex Economic Calendar.

• Our forex economic calendar should be the first point of call for all traders starting their morning routine. As outlined above, the calendar can be fully customised and filtered to only show you the scheduled forex data releases most important to you and your trades.

Don't be caught out by increased volatility during economic data releases. Mark them on the calendar and manage your risk accordingly.

The News Terminal.

• A new addition to the Vantage FX suite of trading tools**link, the News Terminal allows traders to get instant, real time access to economic data releases. Think of the News Terminal as an evolution of the forex economic calendar and your bridge between the world of institutional trading and your own trading. No longer do retail traders have to be 1 step behind the professionals when it comes to economic releases and market moving headlines.

Twitter and social media.

• Twitter is an amazing source of real time news. We share all types of market moving news every single day on @VantageFX. The morning starts with the Daily Forex Market Update while you are warned of every upcoming tier 1 news release followed by an overview of the forex market's reaction. Don't forget to also follow Vantage FX Market Analyst,

As you have already read, Fundamental analysis is studying the economic fundamentals of a currency, country, or economy. Economic fundamentals really is a very broad term and gives you a huge amount of information to draw upon when conducting your analysis.

But why are economic news releases of this type so important to the value of a country's currency? Well, it all comes down to simple supply and demand.

• If a country's economic outlook is healthy, then this will mean that the investment that businesses will put into the economy should see demand for the currency rise.
• This is then exaggerated by the country's central bank being forced to raise interest rates to control inflation and stop the economy from overheating too quickly.
• When interest rates go up, foreign investors gain more value by investing in assets of that country, creating more demand for the currency and having it's value rise in the process.

As you can see, Fundamental analysis can be very powerful. If you can predict the future health of a country's economy, then you can actually go a long way in predicting the future health of a country's currency!

Don't worry too much if you weren't an economics major at school because funnily enough, the actual numbers or news releases aren't the most important part of fundamental analysis to forex traders. The most important part of any change in fundamentals is how the market EXPECTS it to react.

It's not uncommon for good news to send a country's currency falling like a stone. This may sound strange after reading our definition of fundamental analysis above, but because changes in an economy's fundamentals can take many months to flow through the entire economy, forex markets actually price in these moves before they actually happen.

Forex traders are always trying to stay one step ahead of their competition so market sentiment, or where the market thinks that the fundamentals are going to send price, is actually much more important than the release itself!

The main fundamentals that you as a trader should focus on are explained from here:

• Economic data releases
• Central Bank Decisions
• News Headlines