I

BỘ GIÁO DỤC VÀ ĐÀO TẠO

TRƯỜNG ĐẠI HỌC KINH TẾ TP.HCM

CÔNG TRÌNH DỰ THI

GIẢI THƯỞNG
ĐỀ TÀI MÔN HỌC XUẤT SẮC UEH500 - NĂM 2018

TÊN CÔNG TRÌNH: FUNDAMENTAL AND TECHNICAL

ANALYSIS IN FOREX MARKET – META TRADER 4
THUỘC KHOA: VIỆN ĐÀO TẠO QUỐC TẾ ISB

MSĐT (Do BTC ghi):

TP. HỒ CHÍ MINH - 2018

 I

ABSTRACT

This research was conducted for the purpose of supporting International Financial
Management subject. We showed basic ideas about analysis method in trading, including
fundamental and technical analysis. Then, we apply them to conducting virtual trading
currency through the common trading software, MetaTrader. Currency trading is one of
the most important activities in the financial field now. We believe that our research will
be a useful document for anyone who starts to join in FOREX market.

We promise that this research was conducted by ourselves, using necessary

sources with attached quotations. The information and data used in this study are true and
accurate.

Researchers
 II

TABLE OF CONTENTS

LIST OF ACRONYMS ........................................................................................III

LIST OF EXHIBITS ............................................................................................ IV
LIST OF FIGURES .............................................................................................. IV
LIST OF TABLES ................................................................................................. V
I. INTRODUCTION .................................................................................................. 1
II. TECHNICAL AND FUNDAMENTAL ANALYSIS .......................................... 2
III. METATRADER ..................................................................................................... 4
IV. TECHNICAL ANALYSIS TOOLS AND BASIC TRADING ........................... 5
1. Market watch ................................................................................................. 6
2. Chart .............................................................................................................. 6
3. Navigator window ......................................................................................... 7
4. Terminal window .......................................................................................... 8
5. Basic trading .................................................................................................. 9
V. CHF/USD TRADING ANALYSIS ..................................................................... 13
1. Making a strategy ........................................................................................ 15
2. Using indicators ........................................................................................... 17
3. CHF/USD trading ........................................................................................ 18
VI. EUR/USD TRADING ANALYSIS ..................................................................... 20
1. Determination of exchange rate bases on Interest Rate Parity.................... 20
2. Determination of exchange rate bases on Purchasing Power Parity ........... 21
3. International Fisher Effect ........................................................................... 22
4. Determination of exchange rate bases on News.......................................... 24
5. MetaTrader4 practice .................................................................................. 24
VII. CONCLUSION ..................................................................................................... 28
REFERENCES ........................................................................................................I
 III

LIST OF ACRONYMS

EA Expert advisor

ECB European Central Bank

FOREX (FX) Foreign exchange

FA Fundamental analysis

IFE International Fisher Effect

IR Interest rate

IRP Interest rate parity

MACD Moving Average Convergence Divergence

MT4 MetaTrader4

MQL Meta Quote Language

PPP Purchasing power parity

QE Government and private bonds

TA Technical analysis
 IV

LIST OF EXHIBITS

Exhibit 1. Strategy tester ................................................................................................... 15

Exhibit 2. Daily chart of CHF/USD .................................................................................. 16

Exhibit 3. Daily visual chart .............................................................................................. 16

Exhibit 4. Hourly visual chart ........................................................................................... 17

Exhibit 5. Hourly chart with MACD ................................................................................. 18

Exhibit 6. Hourly chart 1 ................................................................................................... 18

Exhibit 7. Hourly chart 2 ................................................................................................... 19

Exhibit 8. Hourly chart 3 ................................................................................................... 19

Exhibit 9. Hourly chart with Terminal box ....................................................................... 20

Exhibit 10. EUR/USD exchange rate fluctuation 1 ........................................................... 24

Exhibit 11. EUR/USD exchange rate fluctuation 2 ........................................................... 25

LIST OF FIGURES

Figure 1. Bullish trend/Uptrend ........................................................................................... 9

Figure 2. Bearish trend/Downtrend ..................................................................................... 9

Figure 3. Breakout from a downtrend or Breakdown from an uptrend ............................. 10

Figure 4. Resistant level and Support level ....................................................................... 10

Figure 5. Resistance & Support level change in popularity .............................................. 11

Figure 6. Purchase price combination ............................................................................... 13

Figure 7. US interest rate fluctuation ................................................................................ 21

 V

Figure 8. EU interest rate fluctuation ................................................................................ 21

Figure 9. Largest economies by PPP GDP in 2018 according to International Monetary

Fund ................................................................................................................................... 22

Figure 10. US inflation rate ............................................................................................... 23

Figure 11. EU inflation rate ............................................................................................... 23

LIST OF TABLES

Table 1. Historical trading data CHF/USD ....................................................................... 13

Table 2. Historical trading data EUR/USD ....................................................................... 25

 1

I. INTRODUCTION

From past to present, our world has gone through a lot of revolutions. One of the
biggest movements is the change of Technology. Today Technology plays an important
role in life that cannot be refused. It affects many aspects, included Finance. Thanks to
the development of Technology, people have many ways to earn money. In the past,
before 1875 which is the point of time that the gold standard monetary system was
created, “countries would commonly use gold or silver as a method of international
payment” (History of the FOREX, Murphy, 2018). Applying the gold standard monetary
system with the basic idea was about “the conversion of a currency into a specific amount
of gold, and vice versa”, in late nineteenth century, all the strong economics countries
around the world “had pegged an amount of currency to an ounce of gold” (History of the
FOREX, Murphy, 2018). Day by day, the price of an ounce of gold between two
currencies was not the same as the beginning and it became the exchange rate of those
two currencies. After all, this is known as a representative of the first official means of
currency exchange or called by trading. However, nowadays when the Technology is
really developed, trading is not so complicated. In this writing, international trading
through a specific program – which called MetaTrader, is analyzed.
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II. TECHNICAL AND FUNDAMENTAL ANALYSIS

First of all, FA of a business involves analyzing its financial statements as well as

its status, its management and competition advantages, and its competitors and markets.
When applied to the future and foreign exchange, it focuses on the overall state of the
economy, interest rates, production, income, and management. This term is used to
distinguish such analyzes from types of investment analysis, such as quantitative analysis
and technical analysis.

FA is accomplished on historical and present data information, but with the

objective of making financial forecasts. There are a number of possible goals:

- To conduct a stock valuation of a company and anticipate its possible price

developments.

- To do a project on its business efficiency.

- To assess its management and make internal business decisions.

- To calculate its credit risk.

Investors use fundamental analysis with the aim of evaluate a security‟s intrinsic
value (the value that would be placed on it by investors if they had a complete
understanding of the asset‟s investment characteristics) to make a comparison to its
market price (at which an asset can currently be bought or sold), thus indicating whether
the asset is undervalued or overvalued. Then, they will make decision whether go long
(purchasing more on the stock with the expectation that will rise in value) or go short
(selling shares with high probability will decline in value and repurchasing when at a
lower price).

The advantage of fundamental analysis is that more appropriate for long-term

investment decisions (due to good company selection for investment). However, there are
still some limitations:
 3

- Take lots of time and effort (due to the need to access and process more financial
information).
- Limited analysis results (depending on the accuracy of the financial statements
report).
- Subjectivity of the analyst usually ignores the psychology of investors.

This report will focus more on technical analysis. It sounds complicated, but
"technical analysis" is just the name of a fundamental investment analysis. Technical
analysis is the study of prices through graphs for more efficient investment. Technical
analysis is the study of collective market sentiment, as expressed in buying and selling of
assets. It is based on the idea that prices are determined by the interaction of supply and
demand. According to technical analysis, price and volume reflect the collective behavior
of buyers and sellers.

The underlying logic of technical analysis is as follows:

- Supply and demand determine prices.

- Changes in supply and demand cause changes in price.

- Prices can be projected with charts and other technical tools.

There are some advantages of using technical analysis such as: Actual price and
volume used in TA are observable; TA can be applied to the prices of assets that do not
produce future cash flows, e.g. dividends or interests, such as commodities; TA is useful
when financial statement fraud occur. On the other hand, the limitation of using technical
analysis is that it would be inefficient in illiquid market or manipulated market (where
price and volume might not truly reflect supply and demand). Fortunately, we conduct
this research on the FOREX Market, which is consider the largest and most liquid market
in the world currently with more than $5 trillion daily currency trading volume, so we
might not worry the TA limitations at the moment.
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III. METATRADER

First of all, “What is it?” and “What is the purpose of using it?” are the two
questions should be primarily answered. MetaTrader is a computer software program,
created by MetaQuotes Software Corporation, which allows clients to place orders for
trading over a network with financial intermediary. Or MetaTrader is also known as “an
online trading platform”. In 2000, MetaQuotes Software Corporation released FX Chart
which brought fame to this Russian company. From the beginning of 2001 to 2002, the
programs added transaction and was renamed MetaQuotes. On July 1st, 2005
MetaTrader4 (MT4) was released. The significant thing that makes MetaTrader better
than the two precursors is that this version “enables client‟s transaction platform to
connect through an optional „Data Center‟, significantly increasing server side stability,
reducing server load and making it more resilient to security threats” (En.wikipedia.org,
2018). Later that year, a version of MetaTrader4 for mobile phone was also released and
it became more and more popular with a large number of traders as users. This new
version “expanded the number of products that could be traded from just FOREX to
include stocks and commodities (En.wikipedia.org, 2018). According to Wikipedia, there
are six components which are included in a complete MetaTrader4 package. They are:

- MetaTrader4 Client Terminal: is a software program for traders to use on

computers or laptops. It provides trade operations, charts and technical analysis in
real time.

- MetaTrader4 Mobile: controls a trading account via mobile devices

- MetaTrader4 Server: is the core of the system to handle the users‟ requests to
perform trade operations, display and execution of warrants, send price quotes and
new broadcasts, records and maintain archives.

- MetaTrader4 Administrator: remotely manages the server settings.

- MetaTrader4 Manager: handles trade inquiries and manage customer accounts.

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- MetaTrader4 Data Center: is intermediary between the server and client terminal
and reduces the price quote sending load to main server.

So “Why do traders use this software program?” MetaTrader4 uses a special

scripting language, known as MQL4, which helps traders to develop Expert Advisor,
custom indicators and scripts. Hence, by using MetaTrader4, people can have the support
of algorithmic trading from the program and the transactions become easier. To
understand more about the way to trade through MetaTrader, let‟s come to the next part.

IV. TECHNICAL ANALYSIS TOOLS

Now, we can apply the knowledge to the FOREX market, in this report, we will
use Meta Trader 4 to help us because this software has the same characteristics as a real
trading platform, and the price movements of currency pairs in MT4 are updated to the
closest of real-time price.

The main screen of MetaTrader4 (MT4) is divided into six main parts, including
main menu, toolbar, market watch, navigator, chart and terminal window.

Firstly, to conduct currency transaction, users have to create a demo account for
trader. Users click on “File”, then “Open an account”, fill information to activate the
account. With a demo account, it does not require real information of user. Traders can
provide fake info and start to conduct transaction normally. Basically, demo account is a
virtual currency account that allows you to trade in real market with perfect conditions
(ordinary market or including inflation). This type of account is really useful for new
traders who begin to take part in FX to practice trading as well as test their strategies.
Traders will not lose a penny at all. The new traders may experience and learn how the
currency works instead of losing money or taking risk to learn that. For senior traders,
this kind of account is an option to test or re-test a trading method whenever they feel
hesitant. Thus, demo accounts will be a great option for them to step by step calculate the
risk and estimate opportunities before jumping into the real market.
 6

The next part will be introduction about utilities this software brings trader.

Like others, MT4 provide simple functions such as main menu and toolbars in
order to help users accessing setting and features easily.

1. Market watch

The "Market Watch" window is essentially user‟s quotes board. Its function is to
show prices of pairs of foreign currencies, precious metals ... in the market. The "Market
Watch" window allows users to view streaming real-time quotes. In detail, it shows us
remarkable statistic points. Depending on the quotes, the area of performing trade
operations and price has different color. It is blue if the current price is higher than the
previous one. It is red if the current price is lower than the previous one. It is grey if the
price hasn't changed for the last 15 seconds.

2. Chart

MT4 can display multiple real-time charts simultaneously on the same screen, for
any currency pair in any time period. The types of charts are available in MT4 are bar
chart, candlesticks, and line chart. The bar chart displays a series of bars. Every single bar
has a high (top), a low (bottom), an opening price and a closing price for a specified
period of time. As to line chart, the different time periods (minutes, hours, days, months,
etc.) are displayed on the x-axis and the prices are displayed on the y-axis. Each point on
the chart shows the close price for the period and all the points are joined by lines. Line
chart is best used only for short time periods of 5 minutes or less. Candlesticks are mostly
used for a daily period. Candlestick chart is run based on the correlation between closing
and opening prices within the same trading day, and the closing price of the session
before and the opening price of the session after. How to read a candlestick? The
rectangular part of the candlestick line is called the real body. The thin vertical lines
above and below the body, or shadows, show the lows and highs within a specified
period of time. The real body of candlesticks can be white or black depending on the
closing and opening prices (Metatrader4 user guide). If the opening price was lower than
 7

the closing price or the given currency pair gained value, then the body of the bar is
white. To contrast, if the opening price was higher than the closing price or the given
currency pair lost value, then the body of the bar is filled black (Metatrader4 user guide).
There is one function in this part users have to pay attention much, is “Time frame”.
Because every kind of chart is most effectively used in a specific time period, it is
necessary to choose a suitable timeframe. Some signs are used in this function like 1, 5,
15, 30 minutes (M1, M5, M15, M30 respectively); 1, 4 hours (H1, H4); daily (D1),
weekly (W1), monthly (MN).

3. Navigator window

This is the place that helps traders in making decision more smartly, more
cleverly. The navigator window gives the quick access to various features of the terminal,
from logging into different accounts to using all your indicators, scripts and Expert
Advisors. The navigator window contains two tabs: common and favorite.

What is EAs? MT4 is one of the most popular platforms in the industry, mostly
because of the ability to run Expert Advisors (EAs) on the platform. EAs are trading
robots that allow traders to automatically trade, without having to constantly monitor the
market. EAs can be used for analyzing market moves, creating trading signals, and
making trading decisions.

What is Indicator? The indicator is a program written in Meta Quotes Language 4

(the fourth generation programming language), which mathematically manipulates the
prices and draws lines on the chart (Metatrader4 user guide). Indicators have two
differences from the EAs in that: Indicators draw lines on the chart, while the EAs
cannot; the EAs can Auto-Trade, while the Indicators cannot. Indicators are separated
into two types: built-in indicator and custom indicator.

What is the Script? The Script is also written in Meta Quotes Language 4. It‟s very
much like the EAs in that it has the ability to open, close and modify trades. However,
there are two differences between the Script and the EAs. Firstly, the Script is executed
 8

only once when attached to a chart, while the EAs that are attached to a chart are
executed each time a new quotation arrives. Another one is that traders must enable the
Experts to review the previous article to learn how prior to using them, while the Scripts
don‟t require enabling.

4. Terminal window

This area allows users to view the account history, and trade information such as
open positions and placed orders, client terminal log-file and MT4 emails.

"Trade" tab contains information about the current status of the trader, about open
positions and pending orders placed (metatrader4.com). There are some particular and
even strange points in Trade tab that users should intend, are “Stop Loss” and “Take
profit”. Stop loss is a limit point that traders set to their order. When reached, the order
will be closed. This is useful to minimize trader‟s loss when the market going against
them. Stop losses points are always set below the current asking price on a buy or above
the current bid price on a sell (metatrader4.com). Take profit is similar to stop loss in that
it‟s a limit point to the order (xpworx.com). When reached, the order will be closed.
However, there are two differences. Firstly, there is no “trailing” point. Trailing stop is a
type of stop loss order that is set at a percentage level either below that market price, for a
long position, or above the market price, for a short position (xpworx.com). Secondly,
exit point must be set above the current market price, instead of below. "Exposure" tab
contains the summary information about the state of assets by all open positions
(ifmtrade.com). History of transactions by user can be summarized in the "History" tab.
Three modes of viewing the history of operations are available: deals only, orders only,
deals and orders. “News” tab is intended for working with news messages that come to
the terminal. News messages are represented as a table with two columns: Time – time of
news receipt by the terminal and Subject – news subject. “Mail” tab is where all
incoming messages of the terminal are stored. “Calendar” tab is an innovation to the
platform, contains the economic calendar for the current week. Various economic
 9

indicators, their past, current and their predicted values are displayed in this tab. “Signal”
tab gives statistics about growth/week of currency, win rate/ trade,… “Expert” tab
contains all the information about the operation of an attached Expert Advisor, including
position opening/closing, order modification, EA's alerts and comments, etc. Last but not
least, the “journal” tab contains data on recorded actions of a trader and the client
terminal for the current session, information about the terminal start and events during its
operation.

5. Basic trading

“The trend is your friend”, the most important concept in TA is the trend in prices.

- Uptrend: Prices are consistently reaching higher highs and retracting to higher
low. An uptrend means demand is increasing relative supply.

- Downtrend: Prices are consistently declining to lower lows and retracting to lower
high. A downtrend suggests supply (selling pressure) is increasing relative to
demand.

Figure 1. Bullish trend/Uptrend Figure 2. Bearish trend/Downtrend

- Trend line: identity if a trend is continuing or reserving.

 10

- Breakout from a downtrend or breakdown from an uptrend: When price crosses

the trend line by what the analyst considers a significant amount. Either a breakout
or a breakdown may signal the end of the previous trend.

Figure 3. Breakout from a downtrend or Breakdown from an uptrend

- At a support level: Buying is expected to emerge that prevents further price

decreases.

- At a resistant level: Selling is expected to emerge that prevents further price

increases.

Figure 4. Resistant level and Support level

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- Change in popularity: Refers to a belief that breached resistance levels become

support levels and that breached support levels become resistance levels.

Figure 5. Resistance & Support level change in popularity

- Chart patterns: Chart patterns look at the big picture and help to identify trading
signals – or signs of future price movements. There are many well-known patterns
that investors usually use to recognize the price trends such as: Head and
shoulders; Inverse head and shoulders; Price target = Neckline – (Head –
neckline); Double tops and bottoms; Triple tops and bottoms; etc.

Now, we can apply the knowledge to the FOREX market, in this report, we will
use Meta Trader 4 to help us because this software has the same characteristics as a real
trading platform, and the price movements of currency pairs in MT4 are updated to the
closest of real-time price. The most important factor when becoming a trader is to always
capture the volume of transactions and how to calculate the profit earned after each
transaction. The volume is calculated as follow:

- 1 Lot = 100,000
- 0.1 Lot = 10,000
- 0.01 Lot = 1000
 12

On the foreign exchange or any other stock market, there are always Bid prices
(Selling price), Ask prices (Buying price) and the difference between them - Spread.
Spread is the profit of the brokers after the transaction; they are agents who fill orders for
their clients. They do not trade with their clients. Brokers help their clients trading by
reducing the costs of finding counterparties for their trades.

The profit or loss can be determined by the different between the opening price
and the closing price. For example, for the EUR/USD (buy EUR and sell USD):

- Opening price: EUR/USD = 1.1200  1 EUR = 1.1200 USD

- Closing price: EUR/USD = 1.1300  1 EUR = 1.1300 USD

We said that your assets increase: 1.1300 – 1.1200 = 0.0100 = 100 pips, which
means you have earned $1,000. To be more specific, any change in pip will direct affect
to your loss or profit:

- 0.0001 = 1 pip  Buy 100,000 x 0.0001 = 10$

- 0.0010 = 10 pips  Buy 100,000 x 0.0010 = 100$

- 0.0100 = 100 pips  Buy 100,000 x 0.0100 = 1,000$

- 0.1000 = 1000 pips  Buy 100,000 x 0.1000 = 10,000$

Moreover, traders can buy securities by borrowing some of the purchase price.
They are said to buy on margin, and the borrowed money is called the margin loan. The
interest rate that buyers pay for their margin loan is call money rate, which is above the
government bill rate. The initial margin requirement is the minimum fraction of the
purchase price that must be trader‟s equity. Next, buying securities on margin can greatly
increase the potential gains or losses for a given amount of equity in a position because
the trader can buy more securities on margin than he could otherwise. The relation
between risk and borrowing is called financial leverage. The leverage ratio is the ratio of
the value of the position to the value of the equity investment in it.
 13

Borrowed
money Margin loan

Purchase
price

Equity Initial margin

requirement

Figure 6. Purchase price combination

V. CHF/USD TRADING

Table 1. Historical trading data CHF/USD

Account: 568427 Name: Haole Currency: USD Leverage: 1:400 2018 June 15, 18:43
Closed Transactions:
Ticket Open Time Type Size Item Price S/L T/P Close Time Price Commission Taxes Swap Profit
282510 2018.05.25
balance Deposit 5 000.00
31 14:37:01
283277 2018.05.31 2018.05.31
buy 1.00 usdchf 0.98308 0.00000 0.00000 0.98415 0.00 0.00 0.00 108.72
12 17:00:59 17:14:03
283286 2018.05.31 2018.05.31
buy 5.00 eurusd 1.16566 1.16500 0.00000 1.16828 0.00 0.00 0.00 1 310.00
40 17:35:39 17:40:14
283288 2018.05.31 2018.05.31
sell 5.00 usdjpy 108.788 0.000 0.000 108.813 0.00 0.00 0.00 -114.88
61 17:41:47 17:41:58
283286 2018.05.31 2018.05.31
buy 5.00 usdjpy 108.701 0.000 0.000 108.796 0.00 0.00 0.00 436.60
69 17:37:15 17:42:24
283278 2018.05.31 2018.05.31
buy 3.00 gbpusd 1.32947 0.00000 0.00000 1.33002 0.00 0.00 0.00 165.00
30 17:06:07 17:45:10
283282 2018.05.31 2018.05.31
buy 3.00 audusd 0.75595 0.00000 0.00000 0.75696 0.00 0.00 0.00 303.00
31 17:21:01 17:45:17
283343 2018.06.01
balance IR x 1.00 0.90
55 00:10:11
283289 2018.05.31 2018.06.01
buy 8.00 usdchf 0.98416 0.00000 0.99000 0.99000 0.00 0.00 28.99 4 719.19
58 17:46:17 14:58:24
283290 2018.05.31 2018.06.04
buy 8.00 audusd 0.75720 0.00000 0.00000 0.76062 0.00 0.00 -40.21 2 736.00
66 17:51:48 05:06:55
283527 2018.06.04 2018.06.04
buy 3.00 audusd 0.76133 0.00000 0.00000 0.76098 0.00 0.00 0.00 -105.00
88 05:16:46 05:19:32
283528 2018.06.04 2018.06.04
buy 8.00 eurusd 1.16961 0.00000 1.17000 1.16939 0.00 0.00 0.00 -176.00
39 05:26:17 05:26:36
283528 2018.06.04 sell limit 8.00 eurusd 1.17100 0.00000 0.00000 2018.06.04 1.16928 Cancelled
 14

73 05:31:32 05:32:30
283290 2018.05.31 2018.06.04
buy 8.00 eurusd 1.16789 0.00000 1.17160 1.17160 0.00 0.00 -166.83 2 968.00
21 17:50:32 10:38:33
283571 2018.06.04 2018.06.04
buy 0.02 usdchf 0.98392 0.00000 0.00000 0.98389 0.00 0.00 0.00 -0.06
75 12:29:05 12:31:19
283575 2018.06.04 2018.06.04
sell 8.00 usdchf 0.98447 0.00000 0.00000 0.98468 0.00 0.00 0.00 -170.61
17 13:03:08 13:03:55
283575 2018.06.04 2018.06.04
sell 8.00 audusd 0.76542 0.00000 0.00000 0.76565 0.00 0.00 0.00 -184.00
27 13:04:12 13:04:35
283571 2018.06.04 2018.06.04
buy 8.00 usdchf 0.98401 0.98351 0.00000 0.98351 0.00 0.00 0.00 -406.71
76 12:29:32 13:58:09
283577 2018.06.04 2018.06.04
buy 8.00 usdchf 0.98398 0.98340 0.00000 0.98340 0.00 0.00 0.00 -471.83
59 13:30:28 13:58:25
283290 2018.05.31 2018.06.04
buy 3.00 eurgbp 0.87871 0.00000 0.00000 0.87619 0.00 0.00 -37.25 -1 011.52
68 17:52:29 14:33:59
283527 2018.06.04 2018.06.04
buy 3.00 usdjpy 109.634 0.000 0.000 109.535 0.00 0.00 0.00 -271.15
39 05:10:33 15:37:02
283584 2018.06.04 2018.06.04
buy limit 8.00 usdchf 0.98300 0.00000 0.00000 0.98857 expiration [2018.06.04 19:38]
55 14:38:33 19:38:00
283734 2018.06.05 2018.06.06
buy 8.00 eurusd 1.16600 0.00000 1.17320 1.17238 0.00 0.00 -82.41 5 104.00
33 16:01:30 03:08:04
283657 2018.06.05 2018.06.06
buy 8.00 eurusd 1.16900 0.00000 1.17320 1.17239 0.00 0.00 -82.41 2 712.00
57 03:17:20 03:11:01
283673 2018.06.05 2018.06.06
buy 8.00 eurusd 1.16800 0.00000 1.17320 1.17320 0.00 0.00 -82.41 4 160.00
57 12:58:21 03:42:06
283584 2018.06.04 2018.06.12
buy 8.00 usdchf 0.98432 0.00000 0.99050 0.98777 0.00 0.00 158.79 2 794.17
07 14:35:20 08:35:32
284621 2018.06.12 2018.06.12
sell limit 8.00 usdchf 0.98655 0.00000 0.00000 0.98321 Cancelled
33 11:30:15 11:31:02
284581 2018.06.12 2018.06.12
sell 1.00 usdchf 0.98709 0.00000 0.94319 0.98341 0.00 0.00 0.00 374.21
13 06:04:27 11:35:57
284621 2018.06.12 2018.06.13
buy 8.00 usdchf 0.98337 0.00000 0.00000 0.98746 0.00 0.00 -0.22 3 313.55
75 11:35:24 03:50:48
283584 2018.06.07 2018.06.13
buy 8.00 usdchf 0.98300 0.00000 0.98816 0.98816 0.00 0.00 30.62 4 177.46
68 09:24:14 08:55:23
283585 2018.06.07 2018.06.13
buy 8.00 usdchf 0.98300 0.00000 0.98816 0.98816 0.00 0.00 30.62 4 177.46
39 09:24:14 08:55:23
0.00 0.00 -242.72 36 647.60
Closed P/L: 36 404.88
Open Trades:
Ticket Open Time Type Size Item Price S/L T/P Price Commission Taxes Swap Profit
No transactions
0.00 0.00 0.00 0.00
Floating P/L: 0.00
Working Orders:
Ticket Open Time Type Size Item Price S/L T/P Market Price
285154 2018.06.15
sell limit 8.00 usdchf 1.00000 0.00000 0.00000 0.99810
81 13:29:39

Summary:
Deposit/Withdrawal: 5 000.90 Credit Facility: 0.00
Closed Trade P/L: 36 404.88 Floating P/L: 0.00 Margin: 0.00
Balance: 41 405.78 Equity: 41 405.78 Free Margin: 41 405.78

Details:
 15

Gross Profit: 39 353.89 Gross Loss: 2 949.01 Total Net Profit: 36 404.88
Profit Factor: 13.34 Expected Payoff: 1400.19
2 553.13
Absolute Drawdown: 0.00 Maximal Drawdown: Relative Drawdown: 14.87% (2 553.13)
(14.87%)

Total Trades: 26 Short Positions (won %): 4 (25.00%) Long Positions (won %): 22 (68.18%)
Profit Trades (% of total): 16 (61.54%) Loss trades (% of total): 10 (38.46%)
Largest profit trade: 5 021.59 loss trade: -1 048.77
Average profit trade: 2 459.62 loss trade: -294.90
Maximum consecutive wins ($): 8 (26 785.43) consecutive losses ($): 7 (-2 553.13)
Maximal consecutive profit (count): 26 785.43 (8) consecutive loss (count): -2 553.13 (7)
Average consecutive wins: 4 consecutive losses: 3

1. Making a strategy

Before trading, you should do a technical analysis with strategy tester – a tool in
MetaTrader4. The tool can be chosen by click at the menu bar or simply use the shortcut
“CTRL + R”. Choose Items as follow:

Exhibit 1. Strategy tester

 16

Then Start and you will get a visual chart below which shows the trend and changes of
recent years. This is for predicting a day-by-day a period but you can change “period”
item to minute or hour to predict changes in minutes or hours.

Exhibit 2. Daily chart of CHF/USD

From the chart, you can define where you should buy and where you should sell the
currency. The red zone is where you should make a sell decision, and you should take
profit when the exchange rate of CHF/USD goes down to the yellow zone. Otherwise, the
yellow zone is where you should make a buy decision, and when the exchange rate goes
up to the red zone, you take profit.

Exhibit 3. Daily visual chart

 17

This is for predicting a year of a period but you can change “period” item to minute or
hour to predict daily changes and trade from that.

In fact, it takes time to create a low bottom and a high peak or a shape like in the strategy
part. For that reason, traders use scalping strategy to make a small profit while waiting
for big waves.

“Scalping in the foreign exchange market is a method of trading certain currencies based
on a real-time technical analysis. The main goal of scalping is to make a profit through
purchasing or selling currencies by holding a position for a very short period of time and
closing it for a small profit.” [Kurjanov, D. (2017, September 28)]

Exhibit 4. Hourly visual chart

2. Using indicators

There are many indicators that help you predict the trend and changes of the
exchange rate but moving average and MACD are easy to use, so it should be introduced
 18

to you. Learning how to use it and how it works is really important because it will help
you a lot while trading.

The red line is moving average, it show changes in the period.

Exhibit 5. Hourly chart with MACD

At Traditional MACD, yellow dot line and blue line will show you the trend. Every time,
they cross each other the trend will change to be downturn or upturn.

3. CHF/USD trading

After running strategy tester, I find that it was a good time to buy the currency at
the 0.98300 rate.

Exhibit 6. Hourly chart 1

 19

Several days later, this investment gave us a big profit when the rate went up to 0.98790,
and it would not go further than the previous peak so we placed an take profit pending
order at the rate 0.98816. This gave us a profit of 10000 USD.

Exhibit 7. Hourly chart 2

Unfortunately, we agree that we could have earned much more if we waited for a while
more.

Exhibit 8. Hourly chart 3

 20

Besides, scalping was also used. Due to aiming for a small profit, stop loss and take profit
orders are extremely important.

For example, after using MACD indicator, we saw that the trend of the CHF/USD
exchange rate is downward. We placed a sell order at the price of 0.99653, stop loss at
0.99700 and take profit at the price of 0.95800.

Exhibit 9. Hourly chart with Terminal box

In conclusion, before trading FX, you should make a strategy, make yourself calm
to see the big picture and utilize “stop loss” and “ take profit” if you are scalping.

VI. EUR/USD ANALYSIS

1. Determination of exchange rate bases on Interest Rate Parity

Interest rate parity (IRP) holds that the forward premium or discount should be
equal to the interest rate differential between two countries. IRP represents an arbitrage
equilibrium condition that should hold in the absence of barriers to international capital
flows (Eun, 2018).

If IRP theory is violated, trader tend to borrow currency in country which has a
relative low interest rate then lend those amounts in country which has higher interest
 21

rate, by doing so theoretically trader will gain from the disparity of interest rate among
countries. Hence, in short term the demand for lending currency in higher interest state
would increase which may lead to an appreciation toward those in lower interest rate. In
short, a currency with higher interest rates will trade at a forward premium in relation to a
currency with a higher interest rate.

Take a look at US and EU interest rate respectively, which have been announced
recently.

Figure 7. US interest rate fluctuation Figure 8. EU interest rate fluctuation

Clearly, we can see that US interest rate is higher in comparison with EU, based
on that a predeterminated short-run forward premium for USD toward EUR can be
withdrawn.

2. Determination of exchange rate bases on Purchasing Power Parity

The theory of purchasing power parity states that the exchange rate between
currencies of two countries should be equal to the ratio of the countries‟ price levels
 22

(Eun, 2018). Basically, this statement indicates that countries with high standard
commodity basket certainly will own appreciated currencies toward the others.

Take the EUR/USD case into consideration. Below is bar chart shows the largest
economies by PPP GDP in 2018 according to International Monetary Fund estimates. As
we can see from the graph US rank third behind EU and China which theoretically
indicates that value of EUR may trade as premium forward rate in relation to USD.
However, in practice, it is proven that there is a distant from theory to reality.

Figure 9. Largest economies by PPP GDP in 2018 according to International Monetary Fund

3. International Fisher Effect

IFE suggests that the nominal interest rate differential reflects the expected change
in exchange rate. For instance, if the interest rate is 5 percent per year in the United States
and 7 percent in the U.K., the dollar is expected to appreciate against the British pound
by about 2 percent per year (Eun, 2018). Below are charts showing inflation rate in EU
and US:
 23

Figure 10. US inflation rate

Figure 11. EU inflation rate

 24

From information observed from those bar charts and theory statements we can anticipate
that EUR will depreciate against USD by 0.8%.

4. Determination of exchange rate bases on News

The euro was hit hard by the ECB's June 14 meeting on monetary policy, saying
that if the European economy continues to evolve as expected, it will end its bond-buying
program. Government and private bonds (QE) in December 2018. In addition, the ECB
also warned that it will continue to maintain record low interest rates until next summer.
The euro fell sharply against other major currencies after the European Central Bank
(ECB) said it would continue to maintain record low interest rates until the summer of
2019 (Anh, 2018).

As can be seen from this news we can expected there would be a drastically
dropping of EUR since cash will flow from EU to US as this country still remains a
higher level of basic interest rate about 2% plus this level of IR may cause the
appreciation of USD to EUR.

5. MetaTrader4 practice

From the information analyzed above base on three theories Interest Rate Parity,
Purchasing Power Parity and International Fisher Effect, we can anticipate there will be a
massive loss in value of EUR. And realistically this statement is proven by the data
extracted from Metatrader4, as showing below:

Exhibit 10. EUR/USD exchange rate fluctuation 1

 25

From the screen shot, clearly, we can see there is a falling of EUR exactly correct
to what we have expected. In detail, EUR/USD fell sharply from 1.1850 to 1.1618.
Fortunately, in the next day FX market witnessed a slightly increase from 1.15844 to
1.15903. Although the return is not as great as expected, it appeased some investors'
insecurity.

Exhibit 11. EUR/USD exchange rate fluctuation 2

However, after an inconsistent comeback, EUR/USD continue to shock trader by a

considerable reduce from 1.1874 to 1.15573. Even then, there is a slightly growth up, it is
not enough for trader to fully restored.

The below report shows the history of trading from June 14th to June 19th . As
expected above, the investor suffered a tremendous loss of about EUR 50 million, but
that was only a virtual account and the losses were not real, but through that Investor is
taught many useful lessons about FX market.

Table 2. Historical trading data EUR/USD

 26
Market
Time Position Symbol Type Volume Price S/L T/P Swap Profit
Price

2018.06.14
267019174 EURUSD buy 5.00 #### 1.00000 ### - 10.50 -4 760.00
17:37:56.529

2018.06.14
267019391 EURUSD buy 100.00 #### ### - 210.00 ######
17:38:25.339

2018.06.14
267019660 EURUSD buy 100.00 #### ### - 210.00 ######
17:38:49.828

2018.06.14
267020315 EURUSD buy 100.00 #### 1.00000 ### - 210.00 ######
17:40:13.829

2018.06.14
267020716 EURUSD buy 100.01 #### 1.10000 ### - 210.03 ######
17:41:05.558

2018.06.14
267024948 EURUSD buy 50.00 #### 1.00000 ### - 105.00 ######
17:47:48.002

2018.06.14
267025706 EURUSD sell 100.00 #### ### - 300.00 ######
17:49:20.036

2018.06.14
267025912 EURUSD sell 100.01 #### ### - 300.03 ######
17:49:46.036

2018.06.14
267026002 EURUSD sell 100.00 #### ### - 300.00 ######
17:49:56.780

2018.06.14
267026142 EURUSD sell 100.00 #### ### - 300.00 ######
17:50:11.150

2018.06.14
267026237 EURUSD buy 200.00 #### ### - 420.00 ######
17:50:25.337

2018.06.14
267026502 EURUSD buy 100.00 #### 2.00000 ### - 210.00 ######
17:51:05.287

2018.06.14
267026660 EURUSD sell 100.00 #### ### - 300.00 ######
17:51:26.823

2018.06.14
267027107 EURUSD sell 200.00 #### ### - 600.00 ######
17:52:10.703

2018.06.14
267027566 EURUSD sell 100.00 #### ### - 300.00 ######
17:53:13.956

2018.06.14
267027941 EURUSD buy 100.00 #### 1.00000 2.00000 ### - 210.00 ######
17:53:53.896

267044811 EURUSD buy 1.00 #### ### - 2.10 - 994.00

2018.06.14
 27

18:18:46.540

2018.06.14
267067660 EURUSD buy 10.00 #### ### - 21.00 -8 930.00
18:52:17.110

2018.06.19
268321108 EURUSD sell 0.10 #### ### 0.00 77.50
08:38:48.387

2018.06.19
268395757 EURUSD sell 1.00 #### ### 0.00 285.00
10:20:18.079

2018.06.19
268395901 EURUSD sell 1.00 #### ### 0.00 283.00
10:20:36.792

2018.06.19
268395982 EURUSD sell 1.00 #### ### 0.00 275.00
10:20:46.850

2018.06.19
268396044 EURUSD sell 1.00 #### ### 0.00 275.00
10:20:55.470

2018.06.19
268396077 EURUSD sell 1.00 #### ### 0.00 286.00
10:21:00.544

2018.06.19
268396115 EURUSD sell 1.00 #### ### 0.00 295.00
10:21:04.460

2018.06.19
268396160 EURUSD sell 1.00 #### ### 0.00 299.00
10:21:08.237

2018.06.19
268396214 EURUSD sell 1.00 #### ### 0.00 282.00
10:21:14.227

2018.06.19
268398328 EURUSD sell 1.00 #### ### 0.00 396.00
10:24:27.622

2018.06.19
268410954 EURUSD sell 1.00 #### ### 0.00 368.00
10:51:06.416

-4 218.66 #####

Balance: 1000 000.00 Free Margin: -58 189.95

Credit Facility: 0.00 Margin: 1008 109.05

Floating P/L: -45 862.24 Margin Level: 94.23%

Equity: 949 919.10

 28

VII. CONCLUSION

In conclusion, the currency trading will be so complicated unless the program

MetaTrader4 is used. However, with the birth of MetaTrader5, traders may have a
question that: Between MetaTrader4 and MetaTrader5, which one is more beneficial than
the other? Before answering this question, an overview of the differences between two
these software program is needed. MetaTrader5 is released on June 1st, 2010, which is
exactly 5 year later after the release of MetaTrader4. Within those 5 years, MetaQuotes
Corporation changed their vision. They have tried not to just focus on trading in only
FOREX because it is “completely decentralized market, with the number of major
players providing liquidity into this huge market at slightly different prices, in an
uncoordinated fashion” (Team, 2017). In contrast, stocks and commodities which are
seemed to be traded in the future contract “must usually be traded through a centralized
process before ownership can change hands with full legal effect” (Team, 2017). That‟s
why “MetaTrader5 was designed to be able to trade markets other than FOREX”. This is
the first difference. The second one is related to “no hedging rule of USA”. Hedging is
not allowed by MetaTrader5, which is “a significant omission for those looking to
temporarily hedge when the opportunity arises” (FX street, 2014). While an older
version, MetaTrader4, supports hedging for traders. Those are significant points that
make traders confusing when using. Back to the question, whether which program should
be used, actually, the answer is based on which purpose that the traders want to use it for?
If traders are new and they want to try gold standard platform of the industry,
MetaTrader4 is a best choice because this version is not only “easy to use and manage”
but also “has generally less glitches than its browser-based competitor platforms” (Team,
2017). In another situation, traders want to use the platform offline for back testing or
want to exchange stocks and commodities, those people cannot ignore MT5.
 I

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 II

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