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 Exhibit (1.1.A: The price is in a clear upward
direction; hence, the market evolves in an uptrend.

1. Market Phases
Any financial market can be in two phases
only, in either a trending phase or a
ranging phase.
1.1. Trend Phase
A "trending phase" typically refers to a
period in which the price of a financial
Exhibit (1.1.B): The price is in a clear downward
asset, such as a stock, commodity, direction; hence, the market is in a downtrend.
currency, or market index, moves
consistently and in a particular direction
over a sustained period.
Trends can be upward (bullish), or
downward (bearish).

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A. Types of trends
Trends can be either strong or weak, the shallower are
the pullbacks in a trend the stronger it is, the deeper
are the pullbacks in a trend the weaker it is.

Exhibit (1.1.2.B): The price is in a strong downtrend the pullbacks

are shallow compared to the length and strength of the impulses.

Exhibit (1.1.2.A): The price is in a strong uptrend the pullbacks are

shallow compared to the length and strength of the impulses.

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 Exhibit (1.1.2.D): The price is in a weak downtrend the pullbacks
are deep compared to the length and strength of the impulses.

Exhibit (1.1.2.C): The price is in a weak uptrend the pullbacks are

deep compared to the length and strength of the impulses.

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1.2 Range Phase
A "range phase," also known as a sideways or consolidation phase, refers to a period in the financial
markets where the price of an asset moves within a relatively horizontal range. During this phase, the price
within this phase price oscillates between an upper boundary and a lower boundary without displaying a
clear and sustained upward or downward trend.

Exhibit (1.1.2.C): The price is in a weak uptrend the pullbacks are

deep compared to the length and strength of the impulses.

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 2. Market Cycle
Markets typically evolve from the trend phase to the range phase, trends starts with a strong breakout, this breakout
phase is usually brief, then they evolve into the channel phase in the form of small pullback channel or wide broad
channel, the shallower the pullbacks the stronger the trend (see exhibits 1.1.2.A and 1.1.2.B), and the deeper the
pullbacks the weaker the trend(see exhibits 1.1.2.C and 1.1.2.D), trends do not last forever they subsequently evolve
into trading ranges, this cycle repeats itself.

Exhibit (2.A): A typical market cycle where price evolves constantly

from the breakout phase to the channel phase then to the range phase.

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Exhibit (2.B): A real chart example illustrating a typical market cycle where price evolves
constantly from the breakout phase to the channel phase then to the range phase. 1
Markets have inertia, meaning that, if the
market is in a trend, it will likely remain
trending until there is evidence of a
development of an a opposite trend or trading
range, if it is in a trading range it will likely
stay in a trading range until there is evidence
of the breakout of the trading range.
Effective trading strategies take into account Exhibit (2.C): Price is making higher highs and higher lows with shallow
pullbacks, price is evolving in a strong uptrend, the most effective way
the condition and context of the market; in a to trade this market is by buying shallow pullbacks, every attempt to
trending market the most effective strategies sell in this market condition would result in losses.

are those that seek to follow the trend, in a

ranging market the most effective strategies
are those that seek to reverse the short-term
trends.
If the market is trending, simply adopt a trend
following trading style, in laymen terms, wait
for price to retrace and trade in the direction
of the established trend.
Exhibit (2.D): Price is making lower lows and lower highs with shallow
pullbacks, price is evolving in a strong downtrend, the most effective way to
trade this market is by selling shallow pullbacks, every attempt to buy in this
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market condition would result in losses.
If the Market is ranging simply adopt a contrarian trading style, in laymen terms, buy low sell high and avoid trading in
the middle of the range ,wait for price to reach the bottom or high third of the range and fade the breakouts .

Exhibit (2.E): Price is evolving in a horizontal range, difficult to be profitable by buying and selling in the middle of the
range, the most profitable trades are sells in the upper third of the range and buys at the lower third of the range.

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Although it is not advisable for beginners,
experienced traders can trade sometimes
against the trend, depending on the
strength of the current trend, if the trend
is weak exhibiting deep pullbacks, it is
possible to trade the pullback or
retracement phase, if the prevailing trend
is strong, experienced traders seek
evidence of the weakening of the trend
before deciding to bet on a trend shift into
a trading range or opposite trend.

Exhibit (2.F): Price is generally evolving in an uptrend, but the pullbacks are deep, though trading in the direction of the upward sloping channel is mostly advisable,
counter trend or contrarian traders can also profit from the pullback phases. Note here, because the trend is weak, selling and even buying at the middle of the channel is
not recommended, trend traders are better off waiting for deeper pullbacks before initiating long positions, however experienced traders, can fade the breakouts at the
top of the channel betting for deep pullbacks to at least the middle of the channel.
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3. Support and Resistance
Support and resistance are fundamental concepts in technical analysis used by traders and analysts to identify levels on a
price chart where an asset's price is likely to encounter obstacles, reverse direction, or experience significant buying or
selling pressure.
3.1. Support
Support refers to a price level where there is a potential buying interest to prevent the price from declining further. In other
words, support represents a "floor" for the price. When the price approaches a support level, some traders anticipate a
potential bounce or reversal of the current trend.

Exhibit (3.1): We need at least two data points to define support, once
price tests a swing (a low) for the first time and stops further declining
and rebounds from the swing, a support has been identified, support
areas are important price levels that can hold price from falling or even
reverse the current trend in which price is evolving.

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3.2. Resistance
Resistance refers to a price level where there is a potential selling interest to prevent the price from rising
further. In other words, resistance represents a "ceiling" for the price. When the price approaches a
resistance level, some traders anticipate a potential bounce or reversal of the current trend.

Exhibit (3.2): We need at least two data points to define resistance, once price tests a swing
(a high) for the first time and stops rising further and rebounds from the swing, a resistance
has been identified, resistance areas are important price levels that can hold price from rising
or even reverse the current trend in which price is evolving.

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 3.3. Diagonal lines
Not only horizontal lines that are support and resistance, but diagonal lines, called trend lines can act as support
and resistance. Although we tend to rely solely on horizontal support and resistance levels, as diagonal lines tend to
be less objective and precise, some traders prefer to incorporate them in their analysis and trading decisions.

Exhibit (3.3): Diagonal lines can act as support and resistance, but there is no
consensus as to how to draw them, as you can see above price sometimes
undershoots or overshoots the diagonal lines, I have been able to draw them only in
hindsight, connecting two subsequent highs and lows in live market and relying on
the diagonal line to hold as support and resistance is a difficult decision to make.

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 3.4. Role Reversal Phenomena
Although they can hold price, support and resistance do break, but when they break the previous broken support
may act in the future as potential resistance, conversely a broken resitance can turn into a support in the future,
this is called the role reversal phenomena, in laymen terms, previous support may act as future resistance and
previous resistance may act as future support.

Exhibit (3.4.A): When a support breaks, it may act as a potential resistance level in the future,
here many times the same broken support level acted as a resistance level when price revisits
the broken support area.
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 Exhibit (3.4.B): When a resistance breaks, it may act as a
potential support level in the future, here many times the same
broken resistance level acted as a support level when price
revisits the broken resistance area.

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4. Supply and Demand
In technical analysis, supply and demand refers to the areas that lead to price imbalances; if supply exceeds
demand, price goes up; on the contrary, when demand exceeds supply, price goes down. We basically trade them
when price revisits them for the first time.
4.1. Demand zones
The following diagram illustrates the process behind creating demand zones.

Exhibit (4.1.A): Demand zones are the

areas that contain remaining unfilled buy
orders that caused price imbalance, in
the future, those same areas can stop
price from declining or even reverse it.

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A. Types of Demand Zones
Demand zones can be in two forms:
DBR=Drop Base Rally
RBR=Rally Base Rally

Exhibit(4.1.2): Demand zones can be in two forms

as DBR=Drop Base Rally or RBR=Rally Base Rally.

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B. Demand Zones Examples

Exhibit (4.1.3.A): Price reacts to the DBR zones

whenever it visits them for the first time, traders
will win trades if they bought at the DBR zones
each time price visits them.

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Exhibit (4.1.3.B): Price reacts to the RBR zones
whenever it visits them for the first time, traders will
win trades if they bought at the RBR zones each time
price visits them.

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4.2. Supply zones
The following diagram illustrates the process behind creating supply zones.

Exhibit (4.2.A): Supply zones are the

areas that contain remaining unfilled sell
orders that caused price imbalance, in
the future those same areas can stop
price from rising or even reverse it.

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 A. Types of Supply Zones
Supply zones can be in two forms:
RBD=Rally Base Drop
DBD=Drop Base Drop

Exhibit(4.1.2): Demand zones can be in two forms

as DBR=Drop Base Rally or RBR=Rally Base Rally.

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B. Supply Zones Examples

Exhibit (4.2.3.B): Price reacts to the DBD zones whenever it

visits them for the first time, traders will win trades if they
sold at the DBD zones each time price visits them.

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5. Supply & Demand vs. Support & Resistance
Support and resistance zones are not the same
as supply and demand zones.
Supply and demand zones are where the
origin of the supply-demand imbalance
occurred; it is where the origin of orders
resides.
Support and resistance zones are significant
price pivot points where the market has
rejected price multiple times before, it is
generally made up of at least two commonly
three price rejection points in the past.
Every SR (support and resistance) zone is an SD
(supply and demand) zone, whereas not every
SD zone is and SR zone. Exhibit 5: Only after a supply or demand zone has been tested and rejected for the second
time, can we have a support or resistance zone, in the diagram above the supply zone has
The diagram below highlights the difference been created first, then it turned into a resistance zone after price has been rejected from
the supply, now we have a confirmed resistance and supply zone
between SD and SR zones.
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 6. Combining Support and Resistance Zones with Supply and Demand Zones
Since SR zones are proven areas where the market has rejected price in the past, tying them together with fresh
SD zones will enhance the probability of price to bounce or reverse from those Combined SD /SR levels zones.
The chart below illustrates how price reacts to SD zones tying with SR levels.

Exhibit 6: Supply and demand

zones around previous support
resistance are powerful areas
that can bounce price or
reverse it once visited for the
first time by price.

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1
 1. Definition
What is Liquidity? In the simplest way possible, liquidity is a measure of the ease of ability to enter and exit a market at the
desired price based on the number of buyers (bids) and sellers (asks/offers) in that market, without creating a major impact
on the same market.
High liquidity means there are enough buyers and sellers in the market, making it easier to trade assets quickly at stable
prices. On the other hand, low liquidity indicates that there are fewer participants in the market, and trading large amounts
of assets might lead to significant price swings.

2 Why (I.Ts) Institutional Traders need liquidity

Markets are moved by large orders generated from large
institutional traders (I. Ts), also the market is a zero-sum game,
in essence, for a trader to buy or sell an asset, there must be a
trader willing to take the opposite side of the market. This
implies that in order for the institutional traders (I. Ts), to
execute their orders, they need other traders to take the
opposite side of the transaction; hence, they need to induce
traders to sell to them when they need to execute large buy
orders, and to buy from them when they need to execute their
sell orders.
Exhibit II.2: Institutional traders need other traders to take the opposite side of their
transaction for them to be able to move price in their intended direction, if they want to be
selling, they need other traders to be willing to buy in the market, conversely if they want to
be buying, they need other traders1to sell in the market.
3. Liquidity Pools
In standard technical analysis,
most trading decisions are
taken around previous major
swing highs and lows or equal
lows and highs as shown in the
diagram below:

Around these areas typically most trading strategies fall into three major core disciplines namely:
▪ Aggressive Breakout trading
▪ Breakout Retracement trading
▪ Level trading
Being aware of how typical retail traders execute their strategies around those levels; ITs (Institutional traders) can
easily engineer Buy Side liquidly (retail buy orders to sell against them) and sell side Liquidity (retail sell orders to buy
against them). 1
4. Generating Buy side Liquidity
The diagram below illustrates how buy side liquidity is engineered by Institutional Traders.

Exhibit II.4: An old high in the past, once price approaches the old high level, the first type of traders will be willing to sell near the top of the old high, price may stall at the level for a
while enticing level traders to initiate sell orders at the level and put stop losses(buy orders) just above the old high level, now there are many buy orders resting above the level, price
typically then breaks out the level and grabs the stop losses(buy orders), after seeing the breakout , other group of traders called aggressive breakout traders initiate buy stop or market
orders betting on the success of the breakout , so more additional buy orders have been accumulated, sometimes price retraces and tests the top of the old high to induce another
group of traders who waits for the retracement to buy and bet on the continuation of the breakout.
This way ITs have engineered buy side liquidity from the three groups of traders if they are willing to turn price just above this old high they may have enough orders to do so.
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5. Generating Sell side Liquidity
The diagram below illustrates how sell side liquidity is engineered by Institutional Traders.

Exhibit II.5: An old low in the past, once price approaches the old low level, the first type of traders will be willing to buy near the bottom of the old low, price may stall at the level for a
while enticing level traders to initiate buy orders at the level and put stop losses(sell orders) just below the old low level, now there are many sell orders resting below the level, price
typically then breaks out the level and grabs the stop losses(sell orders), after seeing the breakout , other group of traders called aggressive breakout traders initiate sell stop or market
orders betting on the success of the breakout , so more additional sell orders have been accumulated, sometimes price retraces and tests the bottom of the old low to induce another
group of traders who waits for the retracement to sell and bet on the continuation of the breakout.
This way ITs have engineered sell side liquidity from the three groups of traders if they are willing
1 to turn price just below this old low they may have enough orders to do so.
6. The Process of Grabbing Liquidity
After liquidity have been engineered from the three group of traders, Institutional Trades (Institutional Trades) may decide
to grab this liquidity and initiate an opposing orders in the market to turn price in the opposite prevailing direction.
6.1. The Process of Grabbing Buy Side Liquidity
The diagram below illustrates one of the most common ways institutional traders trap multiple market participants falling
into the major core disciplines of trading mentioned earlier to generate buy side liquidity and fill their large orders.

1: forced buying from level traders by

grabbing their buy stops
2: willing buying from breakout traders from
their buy stops or market buy orders
3: willing buying from breakout retracement
traders from their buy limit orders or market
buy orders
4:using the generated buy orders to fill the
sell orders present at the above supply level
5 & 6:grabing the stops of breakout traders
(sell orders)
7:retracing back to fill extra sell orders
present at the high liquidity swap zone area
8:turning price down to at least to the next
demand zone

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6.2. The Process of Grabbing Sell Side Liquidity
The diagram below illustrates one of the most common ways institutional traders trap multiple market participants
falling into the major core disciplines of trading mentioned earlier to generate sell side liquidity and fill their large orders.

1: forced buying from level traders by

grabbing their buy stops
2: willing selling from breakout traders from
their sell stops or market sell orders
3: willing selling from breakout retracement
traders from their sell limit orders or market
sell orders
4: using the generated sell orders to fill the
buy orders present at the demand level
below
5 & 6: grabbing the stops of breakout traders
(buy orders)
7: retracing back to fill extra buy orders
present at the high liquidity swap zone area
8: turning price up to at least to the next
supply zone

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7. Real Chart Examples

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 1. Definition of Decision Point
Decision points are pocket areas (small
ranges) in the form of DBDs, RBRs, DBRs,
and RBDs that cause price imbalance;
they form in lower time frames or can be
part of larger higher time frame supply or
demand zones.
Every decision point is definitely a supply
demand zone, but every supply or
demand zone is not necessarily a decision
point.
The following chart shows a decision
point in a lower time frame, this decision
point is not part of a larger supply
demand zones in higher timeframes.
Exhibit III.1.A: Price reacted in its first time back to the 5-minute
decision point (RBR Rally Base Rally), this decision point is not part
of any larger demand zone identified in higher time frames.

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The following chart shows low time frame decision points that are part of a larger supply demand zones.

Exhibit III.1.C: Price in the future reacted to the

4 hour supply zone, precisely it did react to the 5
minute decision point DP2 (see Exhibit III.1.B),
DP2 is a decision point and a supply zone in the
5 minute chart but the 4 hour supply is not a
decision point. Hence, every decision point is a
supply or demand zone but not every supply or
demand zone is a decision point.

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2. Decision Point Mitigation
Since every decision point is either a supply or demand zone, when they are first created they contain remaining orders we
say they are fresh or unmitigated, when price visits the decision point the remaining orders gets filled by the opposing
orders, then price might react from the decision point or break it, after this event we say that the decision point is no longer
fresh and has been mitigated.
We trade only unmitigated decision points at the first time back; an already mitigated zone has lower probability of
bouncing price back compared to the unmitigated decision point.
The following graph shows typical mitigation of decision points

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3. Ignored Supply/Demand another Decision Point
For an important demand to be ignored, an opposite supply or new sell orders at the same demand location have to be
introduced to overwhelm the buy orders at that demand area, the more important the demand being ignored and the
stronger is its breakout, the more important becomes the new introduced supply, hence for order flow reasons that
ignored demand area can become an important supply area in the future.

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Similarly, for an important supply to be ignored, an opposite demand or new buy orders at the same supply
location have to be introduced to overwhelm the sell orders at that demand area, the more important the
supply being ignored and the stronger is its breakout, the more important becomes the new introduced demand
hence for order flow reasons that ignored supply area becomes an important demand area in the future.

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4. Decision Points Probability Enhancers
The more the conditions or criteria below line up the more probable the decision point will bounce price.
The more the conditions or criteria below line up the more probable the decision point will bounce price.
▪ 1 Location at or near SR levels.
Decision point tied in with support resistance zones has better probability of bouncing price.

▪ 2 Engulfing previous highs or lows with high momentum.

Decision point from where price has broken a high or low with momentum has better probability of bouncing
price.

▪ 3 Engulfing other opposite decision points with high momentum.

Decision point from where price has broken another decision point with momentum has better probability of
bouncing price.
▪ 4 Unmitigated Decision points
Decision point that has never been tested has more probability of bouncing price than an already mitigated one

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▪ 5 Presence of liquidity
Decision points (demand) with sell side liquidity above and decision points (supply) with buy side liquidity
below (supply) have more probability of bouncing price compared to decision points with no nearby
liquidity.
The following graph shows a decision point that fulfils criteria 1,2,3,5.

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The following graph shows a decision point that fulfils criteria 1,2,3,4.

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5. How to Trade with Decision Points
There are three ways to trade decision points, namely:
▪ Touch Trading
▪ Trading with approach confirmation
▪ Trading with reaction confirmation
5.1 Touch Trading
Touch trading refers to trading at the decision point regardless
of the price action on approach to the decision point, and
regardless of the price, action after price reacts from the
decision point.
▪ This trading style is suitable if:
▪ The directional bias of price is clearly established.
▪ Price retraces to the decision point in a relatively short Exhibit III.5.1.A: Price is in a clear strong uptrend with
time. recent shallow pullbacks, each time price retraces to
the decision points tied in with support resistance
The depth of price retracement has been identified to be most zones, so the directional bias is clearly upward and the
retracements are most probably to continue being
probably at the decision point. shallow towards the decision point that ties in with the
support resistance zone, hence we can confidently
If any one of these criteria is not met, touch trading would be a place buy orders at the decision point without requiring
riskier approach to trading decision points. any type of lower time price action confirmation.
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Exhibit III.5.1.B: The depth of retracement was exactly
at the decision point, from where price continued its
expected upward trend direction, so touch trading this
decision point would have resulted in a big profit.

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 5.2 Trading with Price Reaction Confirmation
The second way of trading decision points is by
waiting for reaction price action, this way consists of
observing in lower time frames how price reacts to the
decision point before deciding on an entry, the trade is
confirmed if price shows signs of change in lower
timeframe trend direction, the entry is at the decision
point where the change of direction has originated
from.

Exhibit 5.2: Price was moving in an upward direction,

retraced back to the 15min decision point, traders
wanting for extra confirmation before buying into the
demand decision point can switch to lower time
frames 5min or 1min to look for signs of change of
lower timeframe trend direction here price broke the 1
minute recent high confirming a possible change of the
1 minute trend direction, traders can buy at the decision
point origin of the 1 minute leg that broke the high.

Sometimes price reacts violently to the decision point without any reaction price action in this case traders waiting for
lower time frame reaction confirmation will unfortunately miss the move.
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5.3 Trading with Price Approach
Confirmation
The third way of trading decision points is by
waiting for price action approach
confirmation, which can be either depicting
signs of Institutional liquidity engineering
and grabbing as explained in the second
module, or depicting patterns of the
exhaustion of the prevailing lower time
frame trend as price approaches the
decision point.
➢ Liquidity Engineering and Grabbing
The following charts show respectively how
with the help of identifying liquidity nearby
the decision point can be a confirming factor
to initiate trading at the decision points.

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➢ Price Action Reversal Patterns
The main price action reversal patterns on approach to the decision points are:
▪ Three Push Patterns
▪ Channels followed by climaxes
▪ Final Flags
▪ Expanding triangles

A.1) Three push pattern

The three push pattern is when price makes 3 or 4 consecutive higher highs towards the supply decision or
consecutive lower lows towards the demand decision points, the three push pattern sometimes referred as the
wedge or 3 drives in technical analysis is an important reversal pattern.
Identifying the three push pattern on lower timeframes on approach to our decision points can signal a potential
lower time frame reversal and good reaction from our decision points.
The following graph shows a reaction from a supply decision point with price action confirmation on approach, in
this case we have two approach confirmations namely the three push pattern, and buy side liquidity grab.

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A.2) Channels followed by climaxes
A buying climax is a sharp rise of price, when it occurs late in an uptrend, it may signal and exhaustion of buyers and
possible reversal or correction of the trend.
A selling climax is a sharp fall of price, when it occurs late in an uptrend, it may signal and exhaustion of sellers and
possible reversal or correction of the trend.
A climax representing a strong breakout from a channel late in a trend may signal a potential reversal of that trend.
So, in lower timeframes channels followed by climaxes are a good approach price action confirmation that price might
react to our decision points.

Price was approaching the 15-

minute decision point with a
channel and climax approach price
action in the 1minute timeframe
which is a good 1minute reversal
pattern, it was indeed a
confirmation that the price would
eventually react to the decision
point, so selling at the decision point
would have resulted in good profit.
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A.3) Final Flags
A flag pattern is usually a continuation pattern in the form of a trading range, but if it forms late in a trend, it can be
the final flag, hence it can signal that the trend reversal can occur shortly.
So, in lower timeframes final flags are good approach price action confirmations that may signal the reversal of the
prevailing lower time frame heading into our decision points.
The following graph shows a reaction from a supply decision point with price action confirmation on approach, in this
case we have two approach confirmations namely the final flag pattern and buy side liquidity grab.

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A.4) Expanding triangles
The Expanding triangle is a reversal pattern, when price makes a lower low in an uptrend and higher high in a
downtrend, it may signal the exhaustion of the prevailing trend.
When price breaks another time a higher high in the uptrend after making a lower low it forms an expanding triangle
pattern, and it is a reversal pattern.
The following graph shows an expanding triangle in the lower time frame on approach to the 4hour decision point,
price broke the high then it broke the lower low forming a 15minute expanding triangle reversal pattern.

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6. Powerful Setups
The criteria enhancing the probability of
Decision points to bounce price have been
introduced in section 4, specifically there
are two powerful decision points namely:
▪ The Quasimodo Decision Point
▪ The Ignored Quasimodo Decision Point
6.1 The Quasimodo Decision Point
The Quasimodo Decision Point is a specific
decision point where institutional traders
have completed their process of liquidity
grabbing. The QM decision point is created after the false breakout or the
institutional liquidity grab phase as explained before in section
The following Diagram shows the anatomy
II.6, it is a high liquidity swap decision point area where large
of a basic Quasimodo pattern.
number of orders have been engineered and grabbed from
large retail traders.

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The Quasimodo decision point can take many shapes, all are based on the concept of liquidity engineering and grabbing.

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6.2 The Ignored Quasimodo Decision Point (IQM)
The last setup is the ignored QM setup, it is a setup where the QM level gets ignored and swapped from demand to
supply in a sell scenario and supply to demand in a buy scenario, as we have explained in section III.3 when an
important decision point is ignored it becomes important and can reverse its role from demand to supply and vice
versa.
The following graph show the anatomy of the IQM pattern:

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6.3 QM and IQM trade Examples

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 1. what is Money Management?
Money Management consists of the steps a trader needs to implement in order to protect and consistently grow his or her
personal trading account.
No trading strategy can be effective without implementing a proper money management process.
2. Implementing Money Management
Money management is implemented through the following steps:
▪ Risk Planning
▪ Trading Risk-Reward Ratio
▪ Position Sizing

A) Risk Planning
Planning deals with the percentage a trader is willing to lose if a trade goes against him or her. We recommend not to risk
more than 0.5% of the account for a beginner trader, for a more experienced trader 1% and 2% is acceptable.
Risk planning will help you control the mental part of trading because you already know in advance how much you are
going to make if the trade goes in your favor or how much you are going to lose if the trade goes against you.
Example
Say your account balance is $1000,00, and you decided to risk 1% in a trade, then the maximum amount you are willing to
lose if the trade doesn’t work in your Favor is 1% x $1000,00=10$.
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A) Trading Risk Reward Ratio
Risk-reward Ratio simply determines the potential loss versus potential profit on any given trade. Risk is simply defined
as the distance between your entry price and stop loss price.
Reward is defined as the distance between your entry price and your take profit price.
We recommend taking trades with the potential reward is at least 3 times the risk of trade (R.R>=3)
Continuing with our example above, a 3 to 1 risk reward means that the trader is risking 1% of his account (10$) and
expecting to gain 3% (3x1%) on his account which is 30$ is this particular trade.

c) Position Sizing
Position sizing determines the number of units that should be invested that meets the risk plan and tolerance of the
trader.
The basic formula for calculating your position size is:
Position Size = (Account Size*%Risk per Trade)/Stop Loss.
We use an MT4 software called Easy Order, that automate all the risk management procedure, a trader only need to
determine his risk tolerance, stop loss level and profit targets.
The following graph shows the steps taken to implement money management into a hypothetical trading scenario.
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Account Balance=1000, 00$ Let’s Assume the trader decided to set 50% partial profit at target
1 and the other 50% at target 2, then one of the following
Step 1: Risk Planning scenario will happen:
Determine risk tolerance =1% of account Scenario 1: Stop loss is hit before price hits Target1
balance Maximum Amount to lose in the trade is
1%*1000=10$ The trader loses only 1%=10$ of his account balance.

Step 2: Risk Reward Ratio Scenario 2: Stop loss is hit after price reaching target 1 and failing
to reach target 2
Risk is the distance between the entry point and
the stop loss point, in the diagram above it is The trader takes first partial profit 50% at target 1
the height of the demand decision point. (0.5x10$=5$) and now he has a free trade.

Determine profit targets Target1, and target2 Price hits stop loss, the trader loses 0.5x10$=-5$.
The trader broke even in the trade (+5$-5$=0$)
Target1=1xRisk, Scenario 3: Price reaches target1 and target 2 before hitting the
Target2=3.25XRisk stop loss
Step 3: Position Sizing The trader takes first partial profit 50% at target 1
Determine the number of units to be traded (0.5x10$=5$) and now he has a free trade. Price reaches
such that if the stop loss is hit the maximum the target 2 before hitting the stop loss so he takes the second
trader can lose is 1%*1000=10$ partial profit, 50% at target 2 (0.5*10*3.25=16.25$).
Position Size = (Account Balance*%Risk The total gain on this trade in this scenario is 21.25$
Tolerance per Trade)/Risk 1 (2.125x10=2.125xRisk).
3. Win Loss Ratio vs. Risk Reward Ratio
At an early stage of their trading careers, many
traders emphasize on win loss ratio , typically, they
believe that a the more the percentage of winning
trades increases the more the trader will be
profitable and successful .
Let’s take an example of two hypothetical traders,
namely, trader A, and Trader B.
Both traders decided to take 1% risk per trade.
Trader A takes 20 trades, all are winners, but he
always takes profits at 0.7x Risk. Trader B takes 20
trades, only half are winners, but he always takes
profits at 3xRisk.
Now let’s see analyze the trading results of both
traders.

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 Despite Trader A lost half of his
trades (10 trades out of 20 were
1230 losers), he outperformed trader A
1210 who won all his trades.
1190 While win loss ratio is an important
1170 measure of the performance of a
1150 trading system, it has not to be
taken in isolation, indeed, Risk
1130
Trade Num Reward is another extremely
1110
Trader A Equity important criterion to assess the
Trader B Equity
1090
performance of any trading system
1070 or strategy, unfortunately this fact is
1050 overlooked by beginner traders as
1030
their only concern is not to lose
trades, neglecting the importance
1010
of risk reward in trading.
990
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

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1. Definition
Trading psychology refers to the emotional component of a trader’s decision-making process; it is associated with
specific emotions and behaviors, such as fear and greed among traders.
2. How important is the psychological aspect in trading?
Success in trading doesn’t depend solely on one’s system or strategy but rather it depends heavily on the ones mindset
and the way of approaching and reacting to the markets. Possessing a trading edge over the market is undeniably
fundamental for success; however, profitability in trading strongly hinges on both trade and emotion management,
without them a trader will never make money in the markets over the long-term no matter how good and effective his
or her trading strategy or system.
3. what emotions affect trading performance?
The most common emotional trading states a trader will experience during his career especially at his or her early
stages namely are, fear of losing ,greed, fear of missing out (FOMO), overconfidence, and last but not least revenge
trading. Let’s illustrate the traits of the trader under each of these emotional states.

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Fear
Fear is what we feel when we face a threat, traders usually experience fear when they are new to trading and
have not yet mastered an effective trading strategy like our institutional and order flow strategy, or after suffering
from a losing streak or a loss larger to what they are emotionally capable of accepting as a result they fail to
execute their buy and sell signals when the setup clearly aligns with the criteria dictated in their trading plan and
strategy.
Greed
Greed tends to mostly arise when a trader thinks that the trade will stay forever in his or her favor and feels
reluctant to take any partial profit as the trade develops; another trait of greedy traders is they tend to risk too
much on a given trade setup or add to a winning position without relying on any technical or logical reason.
Fear of Missing Out (FOMO)
FOMO tends to arise when the trader is impatient and overexcited about a perceived trading opportunity that
doesn’t fall under his or her trading plan and strategy but rather his trading decision is based on social media like
twitter, news and rumors, or simply because the trader feels the need not to miss a perceived volatile and big
move.

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Overconfidence
Self-confidence is undoubtedly a required trait for a successful trader, however, overconfidence is detrimental to
trading success, it usually stems from the feeling that a trader is in full control of the market especially after a winning
streak of trades, this feeling causes the trader to overtrade, increase his risk size and deviate from his trading plan,
usually traders experiencing this feeling will incur quick losses that exceed the gains from the streak of winning trades.
Revenge trading
Revenge trading is a feeling of the urgent need to make up any loss on a trade, this feeling occurs especially when the
trader felt the trade must have worked out. Unfortunately, traders operating under this emotion will take subsequent
bad decisions and maybe with increased risk and trade size which results in bigger losses.

4. How to achieve and keep an effective trading mindset?

We are humans, the emotions mentioned above will arise at some point during trading, and while it is difficult to
avoid them, we can take control over them if we take the following measures and steps.
Traders first need to understand thoroughly their strategy
Traders first need to understand their strategy (trading edge) inside and out. this can be achieved through back testing
your strategy with defined risk, trade size, entry rules ,and stop loss and take profit rules, backtesing your strategy
such the one elaborated by Elite Traders Academy will reveal to the trader the performance metrics of his or her
strategy and what to expect in terms of win/loss ratio, draw dawns, average wins, average loss and profit factor,
obtaining these statistical metrics will help the trader face1the emotional challenges when trading their live accounts.
Traders need to always manage their risk properly.
Traders must risk only an amount of money per trade they are 100% comfortable of losing, doing the opposite the
trader will become an extremely emotional trader and this will have a big negative impact on his or her trade
decisions and account balance.
Traders need to be patient.
Most beginning traders tend to over trade, traders need to wait for the setups that only fall under the plan of their
trading strategy or edge, once a trader takes trading decisions that are outside their strategy, they unfortunately
become an emotional trader.
Traders need to become extremely disciplined.
Discipline is key to the success of any trader, the trader need to stick to his plan and journal his trading activity , he
or she should analyze the winning trades and especially the loosing trades, the good trades are not necessarily the
winning ones, but the ones that exactly follow the trading rules and plan of the strategy, similarly the bad trades are
not necessarily the loosing trades but those trades that were taken outside the rules of the trading strategy, in other
words a losing trade that follows a strategy is a good one, losses are part of the game, a winning trade that doesn’t
follow the strategy and plan is actually a bad trade and should be avoided in the future even it has worked out for
the moment. Trust and stick to the process, follow your plan and you will be rewarded in the long term.

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1. The Importance of Money Management and Trading Psychology
While a trading strategy defines a statistical edge over the market, that statistical edge will not play out without
proper money management and psychology.
Proper money management with the right trading mindset can turn a strategy with an average statistical edge into a
profitable one, conversely poor money management or poor trading mindset can turn an excellent trading strategy
with high statistical edge into a losing one.
Please refer to the Money management and trading psychology units.
2. How to Trade?
Traders should strive to make reasonable trading decisions, not all trades will be winners, some will be small losers,
some will be breakeven or small profitable trades, and some will be big winners, normally the small losers and small
profitable trades will cancel each other, and the trading performance will be driven by the big profitable trades.
To make reasonable trading decisions the following steps has to be implemented in the following order:
Market Phase Analysis
No trading decision should be made without analyzing the conditions of the market in the higher timeframe, for
intraday or very short-term traders who execute their trading decisions in the 15 minutes time frame or lower they
need to analyze charts and assess market conditions in the 1 hour and 4-hour timeframe, for those who execute their
trades in the hourly timeframe they need to analyze charts and assess market conditions in the daily and weekly
timeframe.
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As explained in the market structure unit, the first fact about markets is that they are constantly evolving from the
trend phase to the range phase, the second fact is that markets have inertia, if they are trending, they are likely to
continue trading, if they are ranging, they will likely continue to be ranging.
Taking into account these facts about markets, let’s lay down the steps that need to be followed by a day or a short-
term trader.
First start with analyzing the market conditions in the 4-hour or 1 hour chart then decide is the market in the trend
phase or is it in the range phase.
Case 1: Market is ranging
Buy low sell high and avoid trading in the middle of the range, wait for price to reach the bottom or high third of the
range and fade the breakouts (buy side liquidity at the top of the range and sell side liquidity at the bottom of the
range), look for decision points at the top and bottom of the range, take profit levels should be at the middle or even
at the other opposite extreme of the trading range.
In a trading range price often reverses after testing the top or bottom of the range, most breakout will be false
breakouts, so attempting to follow the trend or price after the false breakouts will result in losses.

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The following graph illustrates the fact that
when price is ranging, the best strategy is
to buy at the low of the range and sell at
the top of the range, if price breaks the top
of the range, those breaks tend to be false
breaks, traders need to sell at the decision
points targeting the middle or even the
other extreme bottom of the range and
should avoid buying pullbacks or trading
any breakouts, similarly when price breaks
the bottom of the range, those breaks tend
to be false breaks, traders need to buy at
the decision points targeting the middle or
even the other extreme top of the range
and should avoid selling pullbacks or
trading any breakouts.
Eventually trading ranges break and evolve
into trends.

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Case 2: Market is trending.
When market is clearly trending up or down, the
strength of the trend need to be assessed, the
shallower the pullbacks the stronger the trend, the
deeper the pullback the weaker the trend, if the
pullbacks are shallow, then we can bet on shallow
retracement to the decision point and trade in the
direction of the prevailing trend, if the pullbacks are
deep, then we should bet on deep pullbacks to the
decision points, and avoid decision points above the
50% retracement in an uptrend and below the 50%
retracement in a downtrend.
The following graph illustrates the fact when the
market is trending, especially when the trend is
strong, reversal attempts tend to fail, even if they
marginally succeed the profit potential tend to be
small as the retracements most of the time are not
deep to give enough profits for the counter trend
trader.
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The following chart shows an hourly
uptrend but weaker than the
previous chart, the pullbacks were
deeper compared to the previous
chart (pullbacks>50% of the impulse
move), still the best trades were
continuation trends in line with the
prevailing trend.
Note in this case the successful
decision points were the ones after
price deeply pulls back to continue
its upward move.

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Decision points
Only after analyzing the market conditions or phase in the higher time frame, that we should identify support
resistance zones, liquidity pools, optimal decision points to bounce or reverse price.
Please refer to, support and resistance in the market structure unit, and the liquidity pools section in the liquidity unit,
and the decision points probability enhancers section of the decision points unit.
In lower time frames decision points can be refined in the 15min or 5-minute time frame for further precision,
afterwards they can be touch traded, or confirmed by approach price action or reaction price action or both.
Please refer to the section how to trade decision points in the decision points.
A common mistake among beginner traders is that they tend to focus on the decision points, the lower time frame
price reversal or reaction price action, the powerful patterns (Quasimodo and Ignored Quasimodo patterns) without
identifying the higher time frame market context first.
The following graph is a gold chart in the 1hour time frame.
Note the successful QM patterns were all in line with the context of the market (Market in clear downtrend), two QM
patterns failed, because the market is in a clear downtrend phase, it is unlikely to reverse at those QM buy patterns
even with good lower timeframe approach or reaction price action.

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